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| 3. Multinational Economic Institutions |
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| The worldwide experiences of the two world wars and the Great Depression provided the framework for the development of interstate and private economic institutions whose operations were increasingly global in nature. | 1 |
| International financial institutions became increasingly important for economic life. In the 19th century, a truly global market had developed for goods and services and was based on an increasingly integrated financial and monetary system. The common acceptance of the gold standard meant that the major currencies were convertible. By 1914, Europeans had substantial investments throughout the world. World War I forced major changes in economic organization. Governments became increasingly involved in the operation of economies through control of production, trade, and labor. Following the war, international economic issues like German reparations payments and repayment by European powers of war loans made by the U.S. had important effects on world economic activities. In this context, financial operations became more globally integrated. Major stock markets became more closely interconnected, with the result that the crash on the New York Stock Exchange in October 1929 had an impact throughout the world. Similarly, in banking, the failure of the Austrian Credit-Anstalt in 1931 began a series of major bank failures throughout the world. | 2 |
| The Great Depression of the 1930s caused many governments to institute policies of economic nationalism and protectionism. The impacts of these policies moved in waves across the globe, emphasizing the integrated nature of the global economy even in contexts of conflict. Great Britain went off the gold standard in 1931 and was followed by more than 20 other countries. The United States did so in 1933, and by 1937, no country in the world was on the full gold standard. Economic nationalism resulted in the imposition of high tariffs on internationally traded goods. The U.S. enacted the very high Hawley-Smoot tariff in 1930, and rapidly countries throughout the world, even traditionally free-trade-oriented Great Britain, enacted similar protective tariffs. The London International Economic Conference of 1933 attempted to develop arrangements for stabilization of currencies and regulation of international debts but failed. | 3 |
| World War II arrangements. The outbreak of World War II brought an end to the conditions of the 1930s, and during the war, Allied negotiators worked on establishing less anarchic international economic conditions as a part of the postwar reorganization. Major international economic institutions were established in the chief problem areas of international finance, monetary issues, and trade. At the BRETTON WOODS CONFERENCE in 1944, representatives from 44 Allied states met to establish rules for trade and international economic relations in the postwar period. As a result of conference recommendations, the International Monetary Fund was created in 1945 and the International Bank for Reconstruction and Development (the “World Bank”) began operations in 1946 as institutions to stabilize currency and international financial relations. | 4 |
| Nongovernmental economic associations. Private international associations and organizations developed in the 19th century as an important part of global economic activities. However, it was in the first half of the 20th century that such structures grew rapidly in number and became more institutionalized. In 1907, the first comprehensive listing by the Union of International Associations named 185, and by the middle of the 20th century, more than a thousand international organizations were in operation. Their activities were especially important in the economic and scientific areas. The International Chamber of Commerce had roots in 19th-century structures but was created as a permanent organization in 1920 as a confederation of national commercial associations and other business groups. It played an important consultative role in economic conferences in the interwar period and, after World War II, received consultative status with the UN. INTERNATIONAL EXPOSITIONS, or World's Fairs, were important events in the 19th century, beginning with the Crystal Palace Exhibition of 1851 in London. They provided major international opportunities to exhibit new trade goods and the most advanced technologies of the time. Throughout the 19th century, they were organized by individual countries. In 1928, a convention signed by 35 countries created the Bureau of International Expositions to regulate the holding of world's fairs. The New York World's Fair (1939–40) was the last major fair before World War II, and the next did not take place until the Brussels Exposition of 1958. Individual industries coordinated standards and activities through organizations like the International Hotel Alliance (1921), the International Wool Textile Organization (1929), the International Broadcasting Union (1925), and the International Shipping Conference (1921). A large number of other associations reflected the increasing globalization of all significant areas of human activity. | 5 |
| Multinational corporations. The interwar period was an important time in the development of global business structures. International companies have existed since ancient times, but truly multinational corporations are recent creations. In the 19th century the major international companies were generally involved in import-export trade or exploitation of raw materials. Possibly the first truly multinational corporation was Singer, an American company that manufactured and mass-marketed a product (sewing machines) internationally. By 1914, the idea of a multinational corporation was established through the development of a number of major companies, but their share in the economic activity of industrialized societies was still limited. In the first half of the 20th century, this situation was transformed. In those industries involving production of mass consumer goods or new advanced technologies, there was a significant internationalization of enterprise. Ford and General Motors led in internationalizing the automobile industry, and other important examples of emerging multinational corporations were Philips Electrical (originally Dutch), Courtaulds in synthetic fibers, and the German I. G. Farben chemical trust. In some major industries, CARTELS, groups of large companies that coordinated their efforts, emerged as an important form of multinational economic enterprise. Major cartels emerged in the chemical, steel, and synthetic fibers industries. The most successful was the oil cartel, in which the seven largest oil companies in the world, led by Standard Oil (New Jersey), Royal Dutch–Shell, and Anglo-Persian (now British Petroleum), set conditions of pricing and production for most of the world's oil industry. Cartels flourished in the first half of the 20th century but became less important as a result of the transformations of the global economic context created by World War II and postwar developments. However, by mid-century, the large multinational corporation had emerged as a very important part of the global economy. | 6 |
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