The Second World War was different than earlier wars. There were more civilian casualties in this war and many important cities were devastated beyond recognition.
The recovery after the Second World War was influenced by two important factors:
- The emergence of the US as the dominant economic, political and military power in the west.
- Transformation of the Soviet Union from an agrarian economy into a world power.
The world leaders met and discussed to work for post war recovery. They focused on two main objectives; which can be summarized as follows:
- Preservation of economic stability and full employment in the industrial world.
- Controlling the influence of the outer world on flow of capital, goods and labour.
Bretton Woods Institutions
United Nations Monetary and Financial Conference was held in July 1944 at Bretton Woods in New Hampshire, USA. The Bretton Woods Conference established the International Monetary Fund (IMF). This organization was established to deal with external surpluses and deficits of its members.
IMF and World Bank
The International Bank for Reconstruction and Development (IBRD) was set up to finance post-war reconstruction. This is popularly known as the World Bank. The IMF and World Bank are often referred to as Bretton Woods Institutions. The post-war economic system is also referred to as the Bretton Woods System.
The IMF and World Bank began their operations in 1947. Western industrial powers controlled the decision-making in these institutions. The US had an effective veto right over key decisions made by these institutions.
The Bretton Woods System was based on fixed exchange rate for currencies. The dollar was anchored to gold at a fixed price of $ 35 per ounce of gold. Other currencies were linked to dollar at fixed rates.
The Early Post-war Years
The Bretton Woods System started an era of unprecedented economic growth in the Western industrial nations and in Japan. Between 1950 and 1970, the world trade grew annually at 8% and incomes grew at nearly 5%. The unemployment rate averaged less than 5% in most of the industrialized countries during this period; which speaks about the stable nature of economic growth during this period.