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| b. Globalization of Material Life |
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| During the second half of the century, many important aspects of individual and societal life developed patterns of global interaction. This was visible in a number of important areas: in the evolution of state and private economic structures; in developments in science and technology; and in response to the changing physical environment. | 1 |
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| 1. Evolution of International Economic Structures |
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| Major changes took place in the international structures of economic life. These were visible in the institutions regulating international finance and international trade and in the further development of nongovernmental multinational economic institutions. | 2 |
| International finance: The Bretton Woods system (1945–71). A conference of the Allied powers was held near the end of World War II in Bretton Woods, New Hampshire. At that meeting, the major institutions for the management of the international monetary and financial order were agreed on, and the result was the creation of the International Monetary Fund (IMF) in 1945 and the International Bank for Reconstruction and Development (the World Bank), which began operation in 1946. The Bretton Woods system involved the easy convertibility of the major currencies, with the foundation being the U.S. DOLLAR and the guarantee by the U.S. government that dollars could be exchanged for gold at a rate of $35 per ounce. The U.S. dollar became the major medium of international financial exchange. A large U.S. balance-of-payments deficit resulting from transfers of funds to support reconstruction and development in programs like the Marshall Plan (1947) and direct U.S. investment overseas provided the liquidity necessary for rapid global economic development and growth. However, by the 1960s this system began to have difficulties: dollar holdings outside of the United States began to exceed the total value of U.S. gold reserves, creating a destabilizing dollar overhang; in 1971, for the first time in the century, the value of U.S. imports exceeded that of its nonmonetary exports; while the U.S. economy was still clearly the world's largest, other major economies had developed as powerful rivals or partners. In an effort to supplement the role of the dollar, a new reserve asset called special drawing rights (SDR) was developed in 1969, but a major change in the international system was required. | 3 |
| International finance: Post–Bretton Woods. A series of measures significantly changed the international monetary system. The United States ended its commitment to exchange gold for dollars in 1971, and the Smithsonian Agreement (1971) began the process of international monetary reform. In 1973, the United States ended fixed exchange rates between the dollar and other major currencies; the most important feature of the post–Bretton Woods system was flexible exchange rates among all major currencies. Instability of currency values was lessened by the efforts of major governments to coordinate their economic policies. This was aided by the meetings of financial policy leaders from the GROUP OF SEVEN (G-7), the seven largest Western economies (the United States, Japan, Germany, France, Britain, Italy, and Canada). These meetings began in 1976 and became annual events that ranged over a host of international issues, including currency. In this new system gold had a less important role, and SDRs, defined as a weighted mixture of major currency values, became by the 1980s an important unit of accounting; the system as a whole was more volatile and more openly related to politics as well as economics. By the 1990s, JAPAN emerged as a major international financial center, with nine of the world's ten largest banks in terms of assets; in 1987 it had surpassed the United States as the world's major creditor. The post–Bretton Woods system was not as centralized as the earlier system, but global interactions were of increasing importance to all levels of economic life throughout the world. | 4 |
| Both the IMF and the World Bank also played recurrent roles in providing investment aid to developing (not yet fully industrial) nations. In return for investment capital, both organizations typically tried to require more stringent national fiscal policies, including less government expenditure, which posed potential political problems for the nations involved—as in parts of Latin America and Africa in the 1980s and 1990s (See 1970s–The Present). | 5 |
| International trade regulation, 1945–93. At the end of World War II, the Allied powers were anxious to avoid the trade wars and protectionism that had been an important part of the Great Depression of the 1930s. Following the war, the UN Economic and Social Council convened a committee to draft a charter for a proposed International Trade Organization. That organization was not created, however; instead, the preliminary GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) was adopted by 23 states and became the basic instrument for regulating international trade in the second half of the 20th century. With a secretariat in Geneva, the GATT supervised eight “rounds” of multilateral trade negotiations to reduce tariffs and encourage international trade. The first were held in Geneva (1947); Annency, France (1949), Torquay, England (1951–52); and Geneva (1955–56). The Dillon Round (1961–62) was named for U.S. secretary of the treasury Douglas Dillon, and the Kennedy Round (1963–67) for President John F. Kennedy. The Kennedy Round involved across-the-board industrial tariff reductions, and in 1965 the signatories added a new section to the agreement addressing positive encouragements for the international trade of less-developed countries. The TOKYO ROUND (1973–79) dealt with a major restructuring of trade in response to the transformation of the international monetary system with the end of the Bretton Woods arrangements in 1971, and a comprehensive set of agreements was approved. The eighth round, the URUGUAY ROUND, began in 1986 and dealt with many new areas. Negotiations were suspended in 1990 as a result of disagreements relating to agricultural subsidies in the European Community. Discussions were resumed in 1991, and a major new pact was completed in 1993 that was signed by officials from 125 states at a meeting in Morocco in 1994. The agreement represented a significant further liberalization of global trade regulations. It also established the WORLD TRADE ORGANIZATION as the successor to GATT, with increased powers to mediate trade disputes and enforce adherence to existing agreements. | 6 |
| GATT began in 1947 with 23 members, and by 1994 its membership had grown to 117. At that time, reflecting the end of the cold war, Russia was seeking formal membership along with China, whose membership had been suspended in 1950. GATT negotiations had transformed the conditions of international trade. They had succeeded, for example, in reducing average tariffs on industrial goods from about 40 percent in the years following World War II to about 5 percent of their market value in the 1990s. The globalization of trade regulation helped the world economies to avoid a repeat of the economic crises of the era between the two world wars. This was accomplished in the context of a profound expansion of international trade and of its importance in the life of every society. | 7 |
| Multinational corporations. In the second half of the 20th century, private corporations became an increasingly important part of global economic life. Following the lead of older commercial trading companies and the relatively small number of large internationally active companies in the first part of the century, companies of all sizes began to participate in international investments and enterprises after World War II. | 8 |
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| 1945–71 |
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| Era of American predominance. Following the war, multinational corporations based in the United States tended to dominate global international business. This reflected the importance of the U.S. dollar and the strength of the U.S. economy in the era of the Bretton Woods system in international finance. American corporations were a major mechanism for the circulation of dollars in the global economy, and they made significant investments in many different countries, especially in Europe. The book value of direct foreign investments by U.S. companies rose from $7.2 billion in 1946 to almost $71 billion in 1969. Much of the U.S. international investment in this period was made by large, already internationally established corporations like Ford, General Motors, and Standard Oil (New Jersey), and in such industries as the auto industry, oil, and chemicals, where a few large companies dominated the market. The international nature of much of the corporate activity was in finance and management rather than in actual production. Multinational corporations would buy or establish subsidiaries or establish production facilities in other countries, and these organizations would then operate as they might have in the “home country” of the corporation. | 9 |
| By the late 1960s, this situation was changing. Growing numbers of smaller U.S. companies were establishing overseas facilities, and investment by European companies in the United States increased. In 1969, the merger of British Petroleum (BP) with Standard Oil (Ohio) and the takeover of Wyandotte Chemicals by the German chemical giant BASF signaled the beginning of an era of major foreign corporate involvement in the U.S. economy. As the Bretton Woods system came to an end in the early 1970s, the world of multinational corporations was also changing significantly, with many new participants becoming involved in the global economy. | 10 |
| Transformation of the petroleum industry. The evolution of the petroleum industry in the second half of the 20th century illustrates the changing nature of the global world of business. In the first half of the century, the industry was dominated by a cartel of seven large oil companies that set global prices and production levels while competing actively among themselves. These companies were among the largest multinational corporations, and direct foreign investment in petroleum industries was a major part of global business. Following World War II, this domination continued. When one member of the cartel, the Anglo-Iranian Oil Company (AIOC), half owned by the British government, was nationalized by the Iranian government in 1951, the cartel was able to respond successfully through sanctions and a boycott. It reestablished control over Iranian oil through a consortium arrangement in 1953, and AIOC was reorganized as British Petroleum. The real challenge came with the creation of the ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC) in 1960, whose initial goal was to limit the ability of the major companies to reduce oil prices. By 1970, OPEC members began to work together to coordinate production and thus control supply and, ultimately, prices. For a short period (1971–73), prices were set by consultation between OPEC and the oil companies. The Arab-Israeli War of 1973 and changing market conditions were the occasion for an Arab oil embargo on sales to allies of Israel and a significant increase in oil prices. By the end of the crisis, basic prices were no longer set by the companies. In terms of investment, in 1960 more than 40 percent of U.S. direct foreign investment was in petroleum industries, but this was reduced to 14 percent by 1990. These changes coincided with a significant restructuring of the international oil industry. In the first half of the century, oil companies had been granted concessions by governments to explore for and produce petroleum. Governments were paid royalties on a per-barrel basis. After World War II, there was a change to profit-sharing arrangements in the 1950s and then to the gradual assumption of ownership of production facilities by the governments of the producing countries. In SAUDI ARABIA, the original exploration and production concession was granted to Standard Oil of California (SOCAL) in 1933. SOCAL's concession became the basis for Arabian American Oil Company (ARAMCO), a consortium of four major American oil companies, which developed the Saudi oil industry. In 1950, ARAMCO agreed to the shift from per-barrel royalties to profit sharing. In the early 1970s, participation was accepted by ARAMCO; the Saudi government acquired 25 percent of ARAMCO in 1973, 60 percent in 1974, and became the full owner in the early 1980s. The major oil companies maintained close relations with the Saudi-owned company and became global distributors for its products. This evolution of control occurred in most other oil-exporting countries as well. It reflected the broader trends of the final decades of the century, with a clear globalization of activity but a decentralization of control. The old cartel of oil companies was replaced by an organization of governments that had less control over the dynamics of the world markets but was operating in a more globalized economic situation. | 11 |
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| 1971–93 |
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| New world of multinational corporations. In the final decades of the century, the nature of multinational business operations changed in significant ways. INTERNATIONAL INTEGRATION OF PRODUCTION reflected the globalization of economic enterprise. Increasingly, multinational corporations developed diversified production facilities in which parts were made in many different places and then assembled, rather than setting up comprehensive production facilities in different countries. In the multinational automobile industry, for example, by 1980 cars like General Motors' J-car were built of parts produced in many different countries, and by the 1990s virtually no automobile could be said to have been completely produced within one country. This integration was seen in many different types of multinational operations; as major fast-food companies like McDonald's became global in operation by the 1980s, French-fried potatoes were prepared and frozen in one country and shipped to another for consumption. The GLOBAL SPREAD OF MULTINATIONAL OWNERSHIP was another important feature of the changing nature of multination business operations. The business world went from being dominated by a few large companies in the United States and Western Europe involved in a small number of industries to a global distribution of companies large and small in virtually every industry. By the 1980s there were more than 10,000 significantly multinational corporations, including important firms from developing countries, such as India, South Korea, Taiwan, Singapore, and Brazil, as well as the older industrial states. This is reflected in the automobile industry, where U.S. companies produced more than two-thirds of the world's motor vehicles in 1950 but barely one-fifth in 1980. In the 1950s, Britain was the second largest producer; it was displaced by West Germany in the 1960s; and Japan became the second largest producer in the 1970s and passed the United States in production in the 1980s. Other countries—such as South Korea, Brazil, and Mexico—became important producers in the 1980s. By the 1990s, ownership of production was also more diversified, as was seen in many different countries. More than 10 percent of the production capacity in North America was owned by non-U.S. corporations, and an important factor in the revitalization of the British auto industry was the establishment of production facilities in Britain by Japanese companies like Toyota, Nissan, and Honda. In Iran, an auto industry was developing around Iran Khodro, a joint venture with the French company Peugeot, and a second joint venture was established with Daewoo, the third largest automaker in South Korea. | 12 |
| The NORMALIZATION OF GLOBALIZED ECONOMIC ENTERPRISE was firmly established by the 1990s. Significant foreign participation in or ownership of local enterprises around the world became an accepted fact. Complex interconnections on both very large and very small scales created global economic networks that became a normal part of local and multinational business enterprise. In a typical situation, Kirin Brewery, a Japanese corporation, became the parent company of a Coca-Cola Bottling Group in a small northeastern state in the United States. Multinational corporations had a growing impact on daily life, as can be seen in the expansion of consumer food companies. Soft drink firms became highly visible participants in the expansion of multinational business enterprise in the second half of the century. COCA-COLA was an early multinational corporation, and its soft drink products could be found in many countries even before World War II. By 1994, with the establishment of a bottling plant in Albania, Coca-Cola was made in 197 countries. By the 1990s, the rivalry between Pepsi-Cola and Coca-Cola was strong in Russia and Vietnam as well as in most of the rest of the world. Fast-food chains had a significant impact on world eating habits by standardizing products and expectations and providing new concepts of service. McDonald's became an economic power, encouraging some countries to reorganize agricultural production to provide potatoes and meat for the chain. By 1994, McDonald's had more than 4,700 overseas stores in 71 countries (having doubled its total in about five years). The Kellogg Company, a U.S. producer of breakfast cereals, opened a plant in Latvia in 1994 and began an effort to transform the concept of breakfast in the former communist world. | 13 |
| The diversity of multinational economic affairs was reflected in the changing topics of debate in the GATT rounds. Important debates in the final Uruguay Round involved not only the usual discussions of tariffs on industrial and agricultural products, but also talks on opening domestic markets to foreign legal services, accounting, and computer software concerns. U.S. officials were disappointed that there was no agreement on opening audiovisual markets, especially in television programming and videocassettes, since entertainment had become the second largest U.S. export industry in terms of dollar value. The world of multinational business was global in nature and had become an important factor in the daily life of every society, reflecting the complex, interconnected nature of human life at the end of the 20th century. | 14 |
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