**2. Creating the global economy after the World War II**

**1. Preface**

4 Globalization

1


makes the world weaker!

Globalization means that world has been functioning as a single system, where any countryspecific fluctuations spread over the other countries and being substantial in scope and scale urge them to adjust, even through revision of the domestic policy. The increasing circulation of resources – labor, financial and physical among regions, countries and continents makes the "resource scarcity" senseless, thus impeding the overall technological development and on that way – the global economic growth. In terms of technological and local diversities, the world became more standardized and less unique, which, in turn, engenders its fragility. Undoubtedly, diversity makes the world stronger and, on the contrary, squeezing diversity

Scientists, monitoring the economic development, could be, probably, divided on those, who are formally or informally followers of the "steady-state growth" theory and denies the most evidently approaching destruction of the existing global economic system, and those, who recognizes the realities of the Schumpeterian "creative destruction" epoch, similar or even more profound that of the Great Depression in 1930. The different standpoints are reflected in the different insights into economic development and its prospects: "followers" preserve the existing order of things (through reallocation of financial and labor resources, application of the austerity measures, confronting the national identification processes) and "Schumpeterians", who recognize the cyclical mode of economic development, with its essential downturn stage and depression (leading further to the new highs in growth and prosperity, enforced by the application of technological innovations); the emergence of new innovative companies, replacing the "old champions"; and the new individuals-innovators coming to the scene and taking a lead over societies with their exceptional ability of taking a

Among the multifaceted contradictions of our epoch, the profound transformation of global economic and technological system spurs any other political, ecological, social challenges confronting the global society. Probably the new and more sustainable global politicoeconomic system will originate from the technologically transformed local societies intersected in between and on that way establishing a new model of interregional and subsequently

The market economy foundation is explicitly explained by A. Smith in his famous investigation "An Inquiry into the Nature and Causes of the Wealth of Nations". He starts his insights into the market economy with the analyses of the division of labor, which enforces gradual technological improvements, leading to the labor productivity growth and hereupon increasing the volume of tradable goods as contribution into the wealth of nations. In his first chapter, entitled "Of the Division of Labor" he writes: "This great increase of the quantity of work, which, in consequence of the division

and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do work of many". (A. [19]). Actually, A.Smith treats the division of labour and technological change as the market founda-

of labour, the same number of people are capable of performing, is owing to three different circumstances;


tion in controversy with the "laissez faire, laissez passer" principle, which is usually refers to his name.

. This is our main

international division of labor as the core of the renovated market economy1

standpoint underpinning our further insights into globalization.


risk of novelty rather than exploiting the way things go on.

The twentieth century historically is unprecedented in terms of economic growth, elevated by the growth in production output, trade, emergence of new business in services, tourism and information, spreading over the countries, involving their population into economic activities, therefore increasing personal incomes and consuming capabilities almost in all over the world.

Peaking point in the global economic development after the World War II was reached in 2008, before the first sign of the incoming economic downturn has appeared. During the period 1950–2007 the Gross World Product has increased from \$5.3 trillion to \$65.6 trillion. – more than 12 times. During the same period the World export has increased from \$295 billion. to \$12 trillion. – more than 40 times. About the growing welfare has been witnessing the following fact: in 2007, at the eve of the world economic crisis the world car sales have reached its highest level of \$1183 billion (or 8.7% of the whole world export) or over 2 times higher than the trade in textile and clothes. The other spectacular fact – the pace of growth of the average income in China, one of the poorest countries in the twentieth century: in 1952 with only 445 CNY per year while in 2016 it amounted 67,569 CNY per year, increasing almost in 152 times!

The explanation of that fabulous global economic growth would be inappropriate without mentioning the critically low level from which it originates. After the World War II, the manufacturing capacities, transportation systems, houses in many countries in Europe and Asia were almost totally destroyed. Margaret MacMillan writes: "In Germany, it has been estimated, 70% of housing had gone and, in the Soviet Union, 1700 towns and 70,000 villages. Factories and workshops were in ruins, fields, forests and vineyards ripped to pieces. Millions of acres in north China were flooded after the Japanese destroyed the dykes. Many Europeans were surviving on less than 1000 calories per day; in the Netherlands they were eating tulip bulbs. Apart from the United States and allies such as Canada and Australia, who were largely unscathed by the war's destruction, the European powers such as Britain and France had precious little to spare. Britain had largely bankrupted itself fighting the war and France had been stripped bare by the Germans" [1]. The twentieth century economic story is, the most probably, about the post war recovery, steady growth in production output, successive extension of trade and markets, appearance of new profitable business in services with the involvement of new countries and companies into the global trade.

**Figure 1** shows the linkage between the World GDP and growth in manufacturing output, revealing the key role of industrial production in driving the economic growth, creation of new jobs and extension of markets, supplying producers with raw resources and materials and providing sales of final and semi-final goods. **Figure 2** displays the increasing role of trade in the development of global economy beginning from 1990. Elimination of trade barriers, pursued by the World Trade Organization (successor of the General Agreement on Tariffs and Trade, established in 1947 with the inclusion of 164 member states up to 2017 among 196 total number of states in the world2 ), has played significant role in developing the world trade and global economy in general.

<sup>2</sup> Some controversy might happen here. The United Nations, for example, recognizes more than 240 countries and territories. The United States, however, officially recognizes fewer than 200 nations. Ultimately, the best answer is that there are 196 countries in the world. The number of the countries in the world. https://www.thoughtco.com/ number-of-countries-in-the-world-1433445

world trade flows<sup>3</sup>

amounted \$7280.6 billion.5

. According to the International Labour Organization, in 2015 the migrant

The other case of the increasing dependence of national state from

.

7

Technological Reconstruction of the Global Economy http://dx.doi.org/10.5772/intechopen.75096

workers accounted for 150.3 million of the world's approximately 232 million international migrants. The vast majority of migrant workers are in the services sectors, with 106.8 million workers accounting for 71.1% of the total, followed by industry, including manufacturing and

The interdependence among the countries became critical. The United States, for instance, being the dominated country for the rest of the world, depends substantially on the inflows of foreign capital. According to Kames K. Jackson, the US direct investment at the current cost in 2015, included into the "net international investment position of the United States"

its international disposition demonstrates Russia with its crucial dependence on trade in oil and gas. And almost every country in the world has been falling under the Chinese economic dependence in terms of trade, investment and world economic growth in general. The fragility of the global economy became so high that a minor fluctuation somewhere in the world

Economists often treat the monetary policy, embracing manipulation of interest rates, exchange rates, taxes as the main regulation intervention of state to the market economy and the means for spurring the economic growth. Charles I. Jones writes on that matter: "…it is helpful to think of the economist as a laboratory scientist. The economist sets up a model and has a control over the parameters and exogenous variables. The 'experiments' is the model itself. Once the model is setup, the economist starts the experiment and watches to see how

On the contrary, our perception about economic growth is based on the assumption that it is driven by the technological nucleus, endogenously created within the economic system. Technological systems overlapping with economic systems could either facilitate the economic growth or impede it. After the World War II and until 2008, the technological input into economic development has produced an output – explosive economic growth, gradually

The technologies, invented during the so-called "golden age of technologies" (the period embracing the second half of the nineteenth century and the first decades of twentieth century), have composed the technological backbone for the post war recovery and forthcoming economic growth. In his book, entitled "Creating the Twentieth Century" Vaclav Smil

International capital flows: Structural reforms and experience with the OECD Code of Liberalization of Capital Movements Report from the OECD to the G20 Sub-Group on Capital Flow Management June 2011 https://www.oecd.

http://www.vitainternational.media/en/article/2015/12/17/150-million-migrants-in-the-global-workforce/139/ 5"T James, K. Jackson. The United States as a Net Debtor Nation: Overview of the International Investment Position"

construction, with 26.7 million (17.8%) and agriculture with 16.7 million (11.1%)<sup>4</sup>

might be a trigger for dismantling the whole post war economic architecture.

**3. Technological system: the backbone of the post war economy**

the endogenous variables evolve over time" ([2]).

spreading over the increasing number of countries.

October 7, 2016. https://fas.org/sgp/crs/misc/RL32964.pdf

3

4

org/economy/48972216.pdf

**Figure 1.** World manufacturing output and GDP (rebased, 1800 = 100). Source: HIS global insight, Paul Bairoch, World Trade Organization. https://pt.slideshare.net/geoffriley/tutor2u-global-economy-peter-marsh-on-a-new-industrial-revo lution?ref=&smtNoRedir=1.

**Figure 2.** The development of world trade. Source: WTO.

At the same time the circulation of the production factors – capital and labor – among the countries has intensified substantially. Gross cross-border capital flows rose from about 5% of world GDP in the mid-1990s to about 20% in 2007, or about three times faster than world trade flows<sup>3</sup> . According to the International Labour Organization, in 2015 the migrant workers accounted for 150.3 million of the world's approximately 232 million international migrants. The vast majority of migrant workers are in the services sectors, with 106.8 million workers accounting for 71.1% of the total, followed by industry, including manufacturing and construction, with 26.7 million (17.8%) and agriculture with 16.7 million (11.1%)<sup>4</sup> .

The interdependence among the countries became critical. The United States, for instance, being the dominated country for the rest of the world, depends substantially on the inflows of foreign capital. According to Kames K. Jackson, the US direct investment at the current cost in 2015, included into the "net international investment position of the United States" amounted \$7280.6 billion.5 The other case of the increasing dependence of national state from its international disposition demonstrates Russia with its crucial dependence on trade in oil and gas. And almost every country in the world has been falling under the Chinese economic dependence in terms of trade, investment and world economic growth in general. The fragility of the global economy became so high that a minor fluctuation somewhere in the world might be a trigger for dismantling the whole post war economic architecture.
