The changes linked to the globalising international economy have had considerable impact on the functions and disposition national states. This changes however, did not begin with globalisation but after World War II when during the golden age of capitalism when an economic hegemony – the US – was created and the world experienced political and economic progression up to the 60s (Dorrien 2013). This however, changed during the 70s when the western world consisting the US and western Europe experienced stagflation – that is economic inflation and high unemployment incidents that generated recession (Clarke 1987).
This turmoil later led towards neo-liberalism witnessed in the 80s. Some authors argue that neo-liberalism is the primary driver of globalisation, and that present globalisation can be understood as an effect and influence towards global neo-liberalism (Targ 2006; Tuncer 2011; & Hart-Landsberg 2013). Globalisation, which saw minimal war and maximised integration of countries arising from exchange of ideas, products and services as other components of culture has created the “paradox of state power” where the state is concurrently strengthened and weakened.
Perhaps of most interest is the manner in which individual states are affected by decision-making authority at the global and regional level as well as the changing policy linked to financial globalisation making the options available to states to decline drastically. This paper discusses post World War II crisis that led to the shift to neo-liberalism and later globalisation. The main objective is to highlight the impact of globalisation on state power and functions. 2. 0 Post World War II Crisis and the Shift towards Neo-liberalism in the 80s 2. 1 Post World War II Crisis
Besides the eruption of Cold War between the western and eastern blocs, the period following World War II was relatively calm and economically favorable until the 70s when the world experienced a liquidity crisis. The end of World War II led to the ‘golden age’, a period that saw capital accumulation from the mid 40s all the way to the early 70s (Cahill 2014, p. 88). Cahill further notes that this was the period that saw the emergence of ‘welfare states’ in developed economies within the capitalist bloc, and states that came to be identified as first world (2014).
In order to understand the events of the golden age it is crucial to look at the rate of production and proceeds. The international economy established a situation of high output and investment rate, low inflation and decreased unemployment rate (Offe 1984). The economic conditions developed positive conditions for surplus rates to multiply. According to Friedman, the pattern of technical change witnessed since the 30s is what allowed the revenue to continue increasing annually where labour output increased and capital yield surged (2007).
Friedman further argues that technical change led to the creation of more employment opportunities than it shattered as generally thought (2007). Moreover, the threat of communism and the increasing involvement of the US in global matters after it emerged victorious in World War II created the term ‘Pax Americana’, which meant a situation of relative global peace believed to be presided over by the US (Dorrien 2013). Pax Americana meant an increasing role of the US in global matters.
It is worth noting that the US was the main beneficiary in World War I economically as most of the countries turned to it for trade, but this time round was more concerned with the political and economic control of the Soviet Union and military domination throughout the world (Friedman 2007). The US was interested in containing the authority of the Soviet Union in Europe, which at the time was perceived as the most strategic territory in the world according to Frei (1984).
It is generally agreed that the Soviet Union was developing at a parallel rate to the US and hence, was a seen as a threat to US rising hegemony globally. In order to do this, the US had to form an alliance with likeminded countries such as the UK and France a situation that eventually led to the rise of Cold War which continued for the other half a century. The US was also interested in establishing military domination after World War II, a strategy that required an international US military presence, for example, in Korea (50-53) and Vietnam (57-75) (Kim 2016).
But while this was happening, this was also the era synonymous with a wave of revolutions in South America, the Cuban revolution being notable, McCarthyism, decolonization of Asia and Africa as well as heightened class struggle and political turmoil around the world. As a result of being a hegemony, the US played a key role in the structuring of the Bretton Wood Agreement that established new global institutions in the mid 40s (Clarke 1987). States like the UK, France and Italy, which had been dominant prior to both wars began to loose their political and economic monopoly.
Some of the agreement arising from the meeting include stability of the exchange rate, restoration of the gold standard, establishment of the Imperial Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT), which later became the World Trade Organisation (WTO) and the Free Trade, which were meant to fund trade deficits. While setting the terms of agreement, the US reiterated on trade liberalisation, which was included in the GATTT.
The agreement also saw the establishment of the World Bank to fund post war reconstruction as well the development of emerging states that were gaining independence from their colonizers. Problems, however, began in the 70s because of liquidity crisis. States refused the idea of a dominant currency, which was the US dollar, at the rates that were previously agreed upon. The issue began in the late 60s when a liquidity problem began affecting the US reserves, one that mirrors liquidity in banks that happen during a financial problem leading to receivership (Farrell & Newman 2010).
Consequently, the dollar price of gold became progressively artificial as the dollar lost its value while still exchanging for fold at the same fixed rate (Clarke 1987). The US president at the time – President Nixon – was forced to expose the declining US dollar price of gold in1971 and after mounting dissatisfaction, was forced to remove the dollar off the gold standard (Lucarelli 2013). This discovery led to the clash of stability formed by the Bretton Woods agreement.
According to Lucarelli, fixed-exchange system set up by Bretton Wood agreement was instantly replaced by free-floating currencies and inflation in the international economy surged with escalating prices – particularly in oil (2013). Geoffrey Pilling, a Marxist economist, notes that the ensuring distress to the capitalist system was induced by its changes from the reality of the 50s when the US gold reserves were six times higher than the dollar assets of foreign states, to the reality of the 70s when that figure rate plummeted to approximately one fifth of the original figure (Pilling 2014).
In addition, the 70s was faced with rising inflation, which was characterised with rising prices of raw materials from emerging economies that led to slow productivity, increase unemployment, high political discontent that led to neo-liberalism years of the 80s. It is worth noting that high inflation and political discontent was experienced in the US and the UK and majority of the first world states.
