Lecture 16

The Tripartite World

Years 1820-70 1870-1914 1914-45 1945-89 1989-Present

Dominant pattern of global economy

Beginning of modern economic growth in Europe and the challenge to the rest of world

Globalization Mark I: Networks under European hegemony 

Civil war among the economic leaders; financial turmoil and Depression

The Tripartite World

Globalization Mark II: Networks under Sovereignty, with U.S. predominance

Global Politics European Political change; European challenges to traditional empires

European dominance; Colonial rule or quasi-colonial rule. Independence in Americas

Crisis and war in Europe; imperial rule in other regions; new statism (bolshevism, fascism)

First, second and third worlds

Cold War

Adoption of market economies; collapse of second world; Third-wave of democratization

Technological advance

First industrial revolution

Second industrial revolution (electrification, chemistry, transport)

Continuation of second industrial revolution

Third industrial revolution (biology, information and communications, transport)

Intensification and acceleration of technological change

International economic management

Treaties among European powers

Unequal treaties between Europe and rest of world

First attempt at global cooperation (League of Nations)

Global cooperation in Bretton Woods institutions, GATT

Stronger harmonization of policies, especially birth of WTO

Global Monetary arrangements

multiple arrangements, not harmonized

Predominance of the gold standard, beginning of international cooperation

collapse of gold standard; failure to reconstruct the gold standard

Bretton-Woods system of currencies (1946-1971); mixed floating and fixed afterwards

Floating exchange rates, new currency areas, especially Euro

The Tripartite World, 1945-1989

1. First-World reconstruction After WWII

2. Second-World increase in scope (China, Eastern Europe)

3. Third-World search for a political and economic “ThirdWay”

Some Milestones on the Reconstruction of the “First World” Economies

• Bretton-Woods Institutions, 1946• GATT (General Agreement on Tariffs and Trade), 1947• NATO alliance, 1949• Marshall Plan, 1947-1952• Aid to Japan, 1946-early 1950s• Treaty of Rome 1957• Convertibility of European Currencies 1958• Convertibility of Yen 1964• Multilateral trade rounds under the GATT• Establishment of WTO, 1994

Some Milestones in the rise and decline of the “Second World” Economic system

1917 Bolshevik Revolution1928 First Five-year Plan in the Soviet Union1945 Soviet occupation of Central and Eastern Europe1949 Chinese Communist Party victorious in Civil War1950s Wars of revolution in post-colonial countries1960s Early experiments on market-type reforms in socialist

economies; crushed by end of decade1970s Bankruptcy of some socialist economies (e.g. Poland)1978 Beginning of Chinese economic reforms1986 Perestroika reforms under Soviet system1989 Fall of Berlin Wall, collapse of Socialism in Central

and Eastern Europe1991 Fall of Soviet Union

Some Milestones in the Rise and Decline of the “Third-World” Economic systems

• State-led industrialization under Ataturk, 1920s-30s• Heterodox economic policies in Latin America during Great• Depression• Post-colonial independence (e.g. India, 1947; Indonesia, 1950; • Egyptian Revolution, 1952)• Indian National Planning, 1950 onward• Non-Aligned Movement, Bandung Conference 1955• Dependency and structuralist theories, beginning 1950s• Demands for “New International Economic Order” 1970s• Developing Country Debt Crisis, late 1970s and generalized in 1982• Structural adjustment era, 1982-2000, involving widespread• Liberalization of trade and financial arrangements

The Tests of “Convergence”

1) Do poorer countries grow more rapidly than richer countries (absolute convergence)?

2) Do poorer countries grow more rapidly than richer countriescontrolling for other factors, such as economic policies andinstitutions, geography, etc. (conditional convergence)?

Three main reasons to expect convergence:

• Higher rates of return on investment in capital-scarce economies• Inflows of investment into poorer economies• Adoption of technologies and narrowing of technological gaps by

the poorer economies

Main reasons for divergence:• pace of technological innovation; and • “disconnectedness” (through autarkic economic policies)

The Gains from Trade:

Specialization (and comparative advantage)

Transmission of Technologyimports of capital goodsintegration into global production

Increased competition

Increased incentive to innovate

Possible Downsides of Trade:

“Infant Industries” don’t mature

(temporary protection could, conceivably, give themtime to learn)

Increased inequality

Geographical advantages; skill advantages

The Problems with Infant Industry Protection

1. The domestic market is too small to promote innovationor learning

Consider the following cases:

Ecuador $16.2 billion (1999)Ghana $7.4 billionBolivia $8.2 billionThailand $121 billion Vietnam $28.2 billion

NYC $338 billionRochester $30.4 billion Springfield $16 billionAnn Arbor $18.8 billion

2. The Protected Industry lacks the incentive to innovate anddevelop

3. The “infant” never grows up

4. The needed technology, at least for critical inputs, canonly be obtained from the rest of the world

  Growth, 1975-99 Exports/GNP, 1999

Equitorial Guinea 8.4  

China 8.1 22

South Korea 6.5 42

Thailand 5.7 57

Singapore 5.3 200

Hong Kong 4.8 >100

Vietnam 4.8 44

Indonesia 4.6 54

Malaysia 4.2 124

Chile 4.1 27

Fastest Growing Countries in the World (per capita GNP, 1975-99)