Fifty Years in the Making

Today’s crisis began as nations rebuilt from the rubble of World War II.

Since the conclusion of the Second World War, and more particularly since the decolonization of this century’s empires, we have tended to divide the world into first, second and third world categories, generally according to David Landes’ portrayal of the economic division of nations. To gain an idea of the distance between the two extremities, the difference in income between a leading first world country such as Switzerland and the poorest non-industrial nation, Mozambique, is about 400 to 1, and this gap is not decreasing.

Following the Allied victory in World War II, Western nations concentrated on rebuilding their domestic economies together with the restoration and repair of facilities and infrastructure damaged and destroyed in war. The world became split between the capitalist nations, largely of the West, and the socialist and communist societies. The magnanimity of the American nation, which emerged as the leading economy following World War II, came to the fore as the U.S. plowed multiple billions of dollars into reviving their defeated German and Japanese former enemies. The German currency was worthless in 1945. By 1948 the reviving Germany issued their new currency, the Deutschemark (DM), exchanging 1 DM for 10 of the old reichsmarks. The German economy took off like a VII rocket! By 1965 the Deutschemark, together with the Swiss franc, became the strongest currency in Europe. The German Wunderschaft (economic miracle) was born.

At the same time, a similar economic miracle was occurring in Japan. The Japan that went to war to seize territory and raw materials by force, now, utilizing the same tactics as the German industrialists, started to gain both capital assets and foreign land by the strategy of international investment, particularly inside the nations which had allied to defeat her in war. Japanese industry thrived on the process of reverse engineering—buying Western manufactures, disassembling them, then copying them with substantial improvements. Within 50 years, Japanese goods progressed from a pre-war shoddiness to match and, in many instances, surpass the best of quality goods produced in the West. By the early 1990s, according to some economic measures, the Japanese had become the richest people in the world. Meanwhile, their old Axis partner, Germany, had without question become the powerhouse of Europe, to the point that she was flexing her political muscle on the world scene. This became most apparent when Germany arrogantly engineered the destabilizing of the whole complex of Balkan nations by her recognition of Croatia and Slovenia as separate nations, forcing the break-up of the former Yugoslavia in 1991.

Even as the economies of the former vanquished leaders of the Axis powers were rebounding under massive injections of Western funds, the Western market economies of the so-called “free world,” putting their Great Depression and wartime losses behind them, began a period of unprecedented growth. This was nowhere more apparent on the continent of Europe than in France.

In the three decades following World War II, in “what became known as the trente glorieuses (the 30 wonderful years from 1945-1975), France moved in with alacrity. New construction, new industrial installations, a new road network—new, new, new…” (David S. Landes, The Wealth and Poverty of Nations). With a weather eye on her old arch-enemy, Germany, France developed her “force de Frappe” (nuclear force), building her economy and defense infrastructures to the point where she believed she could become equal partners with Germany in the drive to European Union. Only the most naïve of political commentators failed to grasp that this cozying up to Germany was but an obvious strategy to keep her old enemy bound in a political, military and economic union which they thought would constrain Germany from acting unilaterally, and particularly militarily, against the interests of France.

Then came 1989 and the fall of the Berlin Wall, which heralded the ultimate collapse of the Soviet Union. As we entered the final decade of the millennium, the cold war between Western capitalism and Soviet communism ceased. Much publicity was given to the prospect of a “new world order.” The rhetoric spoke of a period of unprecedented peace, the harmonizing of international relations, especially between America, Russia and Europe, and the raising of second and third world standards more in line with the wealth of the West.

Nowhere was the drive to equalize world economic standards more apparent than in Eastern Asia; Singapore, Hong Kong, Taiwan, Korea, Malaysia, Thailand and Indonesia. The World Bank reported that no group has grown “more rapidly and more consistently” since the 1960s than the nations of East Asia (World Bank, East Asian Miracle, p. 28).

America, Britain, Japan and Europe all threw capital at East Asia. Investment flowed on from country to country in the East Asian region with concomitant escalation of wages. In a reversal of the process of colonization, where Britain built a huge international economy upon cheap, often Asian, labor, the United Kingdom found herself the domicile of more than 30 Korean companies. Wales patted herself on the back as Asian investors found a ready pool of cheap labor in that long-depressed country. The establishment of foreign manufacturers on British soil seemed quite at odds with the concept of the mother country having spawned the Industrial Revolution.

But, suddenly, it all went wrong. Over the past two years the bubble burst in East Asia. Slow to react to events seemingly so far away, the Western stock markets ignored the massive East Asian slump—until it started to bite at home. Ten significant Japanese banks failed between 1995 and 1997. Now, as 1998 draws to a close, the Japanese economy, second largest in the world, following 50 years of boom performance, stands on the edge of depression.

After loudly declaring that their economy could weather such a storm, boasting the “best economic performance on record” in mid-1998, the U.S. ends the year a more worried nation. Sensible Americans face 1999 asking how long the dollar will remain a fashionable haven for the flight of capital from the depressed Asian, Russian and Latin American economies. It seems the global economic bubble has burst.