Boom 1945-1968

Question 1

How did the US economy grow after WW2?

Answer 1

• -More than doubled in size between 1945 and 1960
• -Unemployment remained low
• -Inflation averaged 2.5% a year
• -“The greatest prosperity the world has ever known”
• -World’s dominant economic power
• -Late 1940s: 7% world population, 50% of world manufacturing output, 40% of world income
• -Most Americans by 1960s: homeowners, high consumers and well-educated

Question 2

What was the influence of WW2 on US economy?

Answer 2

• -Expansion of war industries eliminated unemployment
• -Brought women into the workforce
• -Family earnings increased
• -Savings: nowhere to spend money
• -1945: $140 billion in private savings
• -Used savings to boost consumer spending after war
• -Increased government revenue: more people brought into tax net
• -1940: $7 billion in tax, 1945: $51 billion
• -Company profits increased
• -Rise of corporations: 100 companies responsible for 3/4 of war manufacturing
• -US mainland was undamaged: no money spent on reconstruction
• -Exports: Marshall Aid created ready-made markets where consumers bough American goods

Question 3

What was the influence of public investment on US economy?

Answer 3

• -Govt spending increased from $10 billion in 1940 to $580 billion in 1980
• -Gave a huge boost to the economy: mild recessions in 1953-4 and 1957-8 were caused by cutbacks in govt spending
• -Keynesian Economics: government spending had a large influence on economic growth and employment
• -Employment Act: govt should try to achieve maximum employment, production and purchasing power
• -1945-70: 60% of all spending went on defense (Cold War)
• -Korea, Vietnam
• -Weapons R&D: military aircraft, missiles, ships, submarines, space exploration
• -Exported weapons to other countries
• -GI Bill of Rights: aid to veterans for houses, starting businesses, educating themselves
• -1956: 8 million vets benefited from further education
• -Provision of increased skills, boost to construction industry
• -Highway Act 1956: $43 billion in roads crossing the continent
• -Boost to construction and employment
• -Indirect boost to car industry and interstate trade and commerce
• -New Deal, Great Society: reduced poverty

Question 4

What other factors influenced the US economy?

Answer 4

• -Cheap energy (oil)
• -Advances in R&D increased productivity and real per capita income: output per worker rose 35% each decade
• -Technological expansion in electronic and electrical companies, tobacco, soft drinks, chemicals, plastics an pharmaceutical industries
• -Transistors invented at the end of 1940s

Question 5

How did the US industrial structure develop?

Answer 5

• -1945: 300 recorded mergers
• -1955: 30% of manufacturing sales was controlled by 50 of 300,000 manufacturing companies
• -Exxon, Standard Oil, Ford, General Motors
• -Bought new materials from a variety of companies and sold products worldwide
• -US became world’s largest foreign investor
• -1950: foreign investment was $19 billion, $160 billion
• -Economic imperialism
• -By 1980s US main industry was more service-oriented

Question 6

What were the causes of multinational expansion?

Answer 6

• -Many businesses were successful in the home market and tended to invest abroad
• -Greater tech, higher productivity, better management skills compared to competitors
• -Growth of world markets: easier to control widespread operations because of tech improvements
• -Huge investment in R&D, making new products
• -High cost of exporting meant factories in or near the foreign market were cheaper
• -Federal tax laws encourage foreign investment: liable for tax in the host country but not in the US unless earnings were brought back there
• -Lower corporation tax in other countries
• -Govt insured companies against losses in politically unstable areas e.g South America
• -US dollar became world’s main currency
• -Growth of European economy in 50s and 60s, especially EEC, provided another prosperous market

Question 7

What factors influenced the pattern of US foreign investment?

Answer 7

• -Foreign investment in Western European and Canada
• -Europe: manufacturing
• -Less developed countries: raw materials
• -Spread of Communism in Eastern Europe and Russia excluded those areas
• -Growing independence movements in Africa and Asia created unstable political climates which put off investors
• -Often decolonisation was followed by nationalisation
• -Japan deliberately kept out foreign investment

Question 8

What were the concerns about multinationals?

Answer 8

• -Concern over ability of US and foreign govts to control their operations
• -Corporations could take advantage of host country economic policies designed to build up their own economies
• -Transfer pricing: avoided making profits in high-tax countries
• -US government was concerned about corporations because they wanted to maintain competition
• -Bribes to politicians

Question 9

What was globalisation?

Answer 9

• -Closer integration of world economies and growing interdependence between different places
• -Fortunes of US economy affected other parts of the world
• -US MNCs spread new ideas and cultural values
• -World based on American consumer goods e.g Coca-Cola and Levi’s
• -Americanisation: pop music, films
• –Critics: undermined local cultures
• -Anti-American feeling in some countries

Question 10

What was the global trade system?

Answer 10

• -International agreements creating conditions for free trade
• -IMF, 1946: promote international co-operation in finance, encourage stability in exchange rates ==> $ became cornerstone of currency market
• -World Bank provided loads for development programmes
• -GATT (General Agreement on Trade and Tariffs), 1947: reduced tariffs on goods, agreed in rounds e.g Kennedy Round in 1960s

Question 11

What were arguments in favour of globalisation?

Answer 11

• -Increased world trade reduced world poverty
• -Boosted economic growth and so helped poorer countries catch up to richer countries
• -Less developed countries increased their share of world trade
• -Industry set up foreign countries: increased the skills of the local workforce

Question 12

What were arguments against globalisation?

Answer 12

• -Larger US corporations invested in poorer countries because they made greater profits from lower wages
• -Freer trade only opened markets for the benefits of MNCs
• -Argued against Americanisation
• -Regarded as form of imperialism

Question 13

What were the effects of globalisation?

Answer 13

• -Increased the wealth of better-off states at the expense of the less developed world
• Added to the growing rift between the richer and poorer countries