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TK minority, current
economic problems
Current Economic Problems
Between 1945 and 1973, the economies
of the industrialized nations of Western Europe, Japan, and the U.S. grew
fast enough to vastly improve living standards for their residents. A similarly
favorable growth was registered by some, but far from all, of the developing
or industrializing nations, in particular such thriving Southeast Asian
states as Taiwan, Hong Kong, Singapore, and South Korea. Clearly several
circumstances contributed to this almost unique historical performance.
After the devastation of World War II, a substantial rebuilding boom, combined
with lavish flows of aid from the U.S., generated rapid growth in Western
Europe and Japan. American multinational corporations invested heavily
in the rest of the world. Perhaps most important of all, energy was plentiful
and cheap.
Energy Problems.
By 1973, increasing international
demand made oil a scarce and valuable commodity. At that time the Organization
of Petroleum Exporting Countries (OPEC), which controls the bulk of the
world's oil reserves, seized the opportunity to sharply raise prices. OPEC's
policies dramatically reduced the possibilities of rapid economic growth
both in the industrialized countries and in those developing nations without
oil of their own. Oil, which in the autumn of 1973 cost $2 per barrel,
sold in mid-1981 at nearly 20 times that figure. For rich countries, their
oil import bill was the equivalent of a tremendous annual transfer of claims
on their output and wealth to OPEC suppliers. Third World importers borrowed
enormous sums, mostly from major banks in Western Europe and the U.S. Staggering
under the interest payments, poor nations have been compelled to slow the
pace of their development plans. Although the sharp oil price decline in
the mid- and late 1980s greatly benefited consumers in oil-importing nations,
it added immensely to the burdens of oil exporters such as Mexico, Nigeria,
Venezuela, and Indonesia, as well as the U.S. sunbelt.
Inflation and Recession.
Some advanced economies, notably Japan
and West Germany, fared better than others during the 1970s and '80s. All
of them, however, confronted persistent combinations of high inflation,
severe unemployment, and sluggish economic growth. OPEC's transformation
of the world energy market increased inflation by raising not only gasoline
and home-heating fuel charges but also the prices of all the important
manufactures into which petroleum enters, among them chemical fertilizers,
plastics, synthetic fibers, and pharmaceutical products. These higher prices
reduce purchasing power in much the same manner as would a severe new tax.
Reduced purchasing power in turn depresses sales of consumer items, resulting
in layoffs of factory and sales personnel. The entire procedure has a spiraling
effect in all sectors of the economy.
For Americans, the lower oil prices
of the mid- and late 1980s tended to restrain inflation and, like a cut
in taxes, left more income available for other purchases. Experts believed,
however, that the crisis was likely to reappear in the late 1990s, particularly
if conservation efforts and development of energy alternatives continued
to lag. See INFLATION AND DEFLATION.
The Role of Government.
The various economic problems of recent
years have stimulated serious debate about the proper role of public policy.
Parties on the political left in Europe have advocated more controls and
more planning. In the 1980s a different solution was offered by the Conservative
party government of Prime Minister Margaret Thatcher in Great Britain and
by the Republican administrations of Presidents Ronald Reagan and George
Bush in the U.S. In both countries, attempts were made to diminish taxation
and government regulation on private enterprise and thus, by enlarging
the potential profits of corporations, encourage additional investment,
higher productivity, and renewed economic growth. These were the central
elements of supply-side economics, the guiding doctrine of these leaders.
Implicit in this government decision
to provide businesses with increased incentives to invest, take risks,
and work harder were the hopes that technology would reduce the costs of
alternatives to oil as an energy source and that the nonenergy sectors
of the economy, such as data processing and scientific agriculture, would
experience rapid growth as a result of encouragements to invention and
innovation.
By 1990 the Bush administration policies
were blamed by many for a faltering U.S. economy. With the 1992 election
of President Bill Clinton, a Democrat, active government participation
in setting economic policy was expected to increase.
Underdeveloped Economies.
Poor nations desperately need aid
from the rich nations in the form of capital and of technological and organizational
expertise. They also need easy access to the markets of the industrialized
nations for their manufactures and raw materials. However, the political
capacity of rich nations to respond to these needs depends greatly on their
own success in coping with inflation, unemployment, and lagging growth
rates. In democratic communities, it is exceedingly difficult to generate
public support for assistance to foreign countries when average wage earners
are themselves under serious financial pressure. It is no easier politically
to permit cheap foreign merchandise and materials to freely enter American
and European markets when they are viewed as the cause of unemployment
among domestic workers.
Outlook for the Future.
By the early 1990s, the dissolution
of the Soviet Union, coupled with the fall of Communist governments in
most of Eastern Europe, underlined the trend away from centrally planned
economies and toward a freer market system. Seeking to overcome a legacy
of inefficiency and mismanagement, the post-Communist nations found themselves
competing with Third World countries for investment capital and technological
assistance.
Opinions differ as to how long sustained
economic growth can continue. Optimists pin their hopes on the ability
to improve crop yields and enhance industrial productivity through technological
innovation. Pessimists point to diminishing resources, unchecked population
growth, excessive military spending, and the reluctance of rich countries
to share their wealth and expertise with less fortunate nations. Government
instability, endemic corruption, and wide swings in economic policy make
Third World economic prospects seem even less auspicious in the 1990s.
R.L.
For information concerning specific
economic concepts and problems, see CAPITAL; CAPITALISM; COMPETITION; CONSUMPTION;
CURRENCY; DEBT, NATIONAL; FINANCE; FOREIGN TRADE; LABOR, DIVISION OF; MONOPOLY.
For further information on individuals mentioned, see biographies of those
whose names are not followed by dates.
For further information on this topic,
see the Bibliography, sections Economics, Wealth, Capitalism, Finance,
Personal finance, Trusts, Credit, Capital, Banking, Federal Reserve System,
Foreign exchange, Inflation and deflation, Money, Stock exchange, Business
cycle, Taxation, Income tax, European Union (European Community), Department
stores, Business, Monopoly, World trade, Free trade, Industrial Revolution.
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