By Samantha Wang, IV Form
What Led to America’s Economic Prosperity After World War II?
Editor’s Note: Samantha utilized funds from the Kean Fellowship in the spring of 2018 to finance videos, programs, and books for her independent research project.
Background Information
By the early 20th century, America had quietly become the world’s strongest industrialized country. But not for long. A huge crisis was brewing behind the exploding expansion of the U.S. economy: on October 24, 1929, a sudden storm swept across Wall Street, and an economic depression followed.[1]The United States, as the birthplace of the Great Depression, became a major disaster area. American industrial production shrank by a third from 1929 to 1932, the unemployment rate was horrendous, pessimism pervaded the whole society, and many people came to doubt the capitalist system.[2]In 1932, the Democratic Party candidate, Franklin Roosevelt, was elected President of the United States. Faced with a severe situation, President Roosevelt advocated for the repression of the domestic forces of Nazism and Communism and the execution of complete control over the national bourgeoisie through his New Deal policies. The American economy slowly got back on track afterward.
Meanwhile, the economic crisis swept across the world and led to the rise of extremist regimes. In some countries, living standards declined while the cost of living skyrocketed, and residents struggled to sustain themselves.[3]As a result, social unrest became prominent. Waging foreign wars became a strategy for diverting people’s attention away from these domestic conflicts and for stabilizing the ruling class. Adolf Hitler, the notorious leader of the German Socialist Workers’ Party, rose to power, making extremism rampant in the global capitalist world[4]; meanwhile, Japan proposed the so-called “Co-prosperity” policy or Greater East Asia Co-prosperity Sphere to find a proper excuse to invade other countries in Asia.[5]The rise of these extremist forces was considered by some as “solving the problems of the capitalist system.” In this way, the Great Depression partly led to the start of large-scale wars throughout the world.
Isolationism and neutralism permeated the entire United States because it would bring no benefit for America to get involved in international conflicts considering its economic situation at the time.[6]In March 1941, when fighting was tense in Western Europe, Congress passed the Lend-Lease Act, which authorized the President to provide arms and war supplies to countries that he considered vital to defend: by then, the United States had gone from neutral to the de-facto ally. In August of that year, President Roosevelt and British Prime Minister Winston Churchill held a talk on a warship and signed the Atlantic Charter, which aimed to destroy the Nazi regime. The United States didn’t formally enter the war until Japan attacked Pearl Harbor in December of 1941.[7]
The Growth of the US Domestic Economy
On September 2, 1945, the Japanese government signed unconditional surrender certificates to the United States, China, Britain, and the Soviet Union on the deck of the USS Missouri. The Second World War was declared officially over, but its effects on the United States and the world would continue.
A Changing Industrial Structure
As World War II spread through Europe and Asia, the U.S. government knew it had to be ready for war. In addition to beefing up the military, the government turned many automobile production lines into production lines for fighter jet parts, fishing terminals into parking lots for warships, and abandoned factories into major production hubs.
After the German air force bombed London in 1941, Congress passed the Lend-Lease Act to provide military aid to America’s allies, increasing the demand for and production of military supplies.[8]Over the next four years, the United States provided $32.5 billion in supplies to countries such as the United Kingdom, the Soviet Union, and China through the Lend-Lease Act.[9]After the Pacific War broke out in December 1941, the United States formally declared war on the Axis powers, further promoting the development of the industry.[10]In 1944, the U.S. GDP reached $17.84 billion, a 28.14 percent increase from $13.644 billion in 1943.
With more funding for the military also came discoveries of new materials and technology, which, in turn, became the core of the rapid rise in new industries, and the U.S. was quick to establish themselves as the world’s high-tech hub and lead the world in technological innovations. Coming off of their success after the war, the government decided to invest their money in many of these emerging industries. The U.S. government’s investment in the atomic energy industry, for example, amounted to $17.5 billion from 1945 to 1970, and investment in the aerospace industry has exceeded $5 billion a year since the late 1960s. Such investments allowed America to dominate innovation in these fields, and eventually, the top two exports from America became machinery (including computers, which are currently at 13% of total exports) and electrical equipment.
A Changing Population of Workers
With many young, strong men going off to war and many abandoned factories reopening to meet the demands of the growing market for military supplies, the U.S. was in urgent need of labor. As a solution, they turned to a new demographic of workers, women, and blacks.
In 1890, only 5 percent of women worked, but during World War II, “Rosie the Riveter” became one of the most iconic characters, encouraging women to join the workforce. [11]As women moved from their homes to the factories, they became an integral part of the labor force, and even after the war ended in 1945, many female workers chose to remain in the job market.[12]
Meanwhile, despite the need for more workers, many people still hesitated in hiring people of color. In 1941, President Roosevelt established the Fair Employment Practice Committee (FEPC) to combat racism in war-related industries, and by 1943, the Committee had set up offices in 16 cities to arrange black employment and deal with the unfair treatment of black people.[13]And while 90 percent of black troops were still forced to serve in labor and supply units, rather than the more prestigious combat units, the black labor force ended up providing much-needed support in war-time services and supplies.[14]After a series of policies came out, the percentage of blacks in the job market overall rose from 16.2% to 23.9% between 1940 and 1950, and employment rose from 500,000 in 1940 to 1.25 million in 1944 in the manufacturing and processing industries.[15]
With women and black people becoming regular fixtures in the work world and with the development of new industries, even when the soldiers returned from the war, job opportunities were aplenty. The unemployment rate after WWII remained around 3 to 5 percent.[16]With more jobs and money, it became easier for people to start families once the war was over, and subsequently, 1946 was the start of the Baby Boom in the United States. From 1951 to 1970, the population increased by 35.21% to 205.09 million, with an average annual growth rate of nearly 1.52%.[17]The increase in consumer demand brought about by the increasing population became another one of the reasons for the rapid development of the American economy after World War II.
The Role of Liberal Trade Policies
Heralded as somewhat of a savior for helping to bring an end to the war, America found itself at the forefront of a globalizing world, as the economically debilitated European nations looked to America for stability.[18]With productivity growing rapidly at home, the United States realized it was time to shift away from their trade protectionist policies and open themselves up to the international market. Hence, they decided to strongly advocate for the establishment of a global multilateral trading system, giving rise to the General Agreement on Tariffs and Trade (GATT)—which later was renamed the World Trade Organization (WTO)—the World Bank, and the International Monetary Fund (IMF).[19]The three international organizations have since led multilateral trade negotiations around the world, making the liberalization of world trade increase significantly.[20]By shifting from trade protectionist policies to liberal trade policies, America was able to protect and develop its domestic industries while also positioning themselves as a strong competitor in the international market, further evolving into an economic superpower.
The liberal trade policy of the United States after the war consisted of two parts: (1) promoting the establishment and development of the GATT system and (2) adjusting domestic policies and regulations.
After the Second World War, the United States actively participated in the establishment and promotion of the GATT, a free trade agreement between 23 countries that eliminated tariffs and increased international trade by organizing multilateral tariff concession negotiations and promoting trade and investment liberalization.[21]For a long time after WWII, the United States opened its domestic market to its major allies without requesting them to take reciprocal obligations. This not only helped the rapid economic recovery of America’s major allies but also allowed the United States to dump its products all over the world with fewer barriers.[22]As a result, world trade grew at an average annual rate of 5.8%, which was much faster than in the 19th century, while world output grew at an unprecedented average annual rate of 3.9%.[23]
Free trade allowed America’s growing economy to play to its strengths. In 1948, America accounted for 45% and 18% of the world’s industrial production and international trade, respectively. In terms of capital export, from 1945 to 1960, the major capitalist countries added $12 billion in outbound investment, of which about 70% came from the U.S.[24]The United States was the only country with a large trade surplus, and the U.S. dollar was the most popular international reserve and settlement currency. In addition, the U.S. had two-thirds of the world’s gold reserves, which was an indication of how prosperous its economy was at the time.[25]All of this could only be achieved by vigorously promoting free trade throughout the world.
In a sense, the United States’ decision to transform its relatively closed national economy into an open one was the result of America’s reflection on past protectionist policies. The Smoot-Hawley Tariff Act of 1930, which tried to protect the domestic industry by imposing high tariffs, didn’t work in the end. Instead, it started a tariff war, which sharply reduced the number of partner countries willing to trade with America.[26]As a result, the worldwide economic crisis was further deepened. After learning this lesson, free trade policies, such as the Trade Expansion Act of 1962, became more or less the status quo.[27]
Furthermore, liberal trade was the strategic choice for the United States to curb international competition. At the time, the former Soviet Union was directly challenging the United States on national security and ideology in hopes of overpowering them to become the world’s premier superpower.[28]But by leading this new free trade trend in the international market, the United States rearranged the flow of goods, capital, and currency to strategically help the economic recovery of its important allies during the Cold War. With an open market that allowed for the establishment and development of relationships with more and more countries, America gained huge support from the rest of the world, giving it an advantage over the Soviet Union who had less powerful allies at the time.[29]
With the increasing market, diverse labor force, the nation’s investment in technology and the rapid rise of new industry, America’s economy was booming after World War II. Furthermore, the implementation of liberal trade policies sped up America’s economic development in the post-war period. These reciprocal policies not only helped America seize the opportunity and become a world superpower, but they also helped the rest of the world recover from the post-war damage and develop their own economies. Although America did begin to return to trade protectionism in the 1970s, the value of these liberal trade policies cannot be ignored.[30]As the world becomes more globalized and countries become more connected with one another, we should learn from the spirit of liberal trade policies to push for a better economic development that can benefit us all.
Samantha Wang is a IV Form boarding student from Nanchang, China. She likes eating and cooking, enjoys reading and traveling, and loves to spend time with her family.
BIBLIOGRAPHY
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[1]History.com, A&E Television Networks, http://www.history.com/topics/great-depression/great-depression-history.
[2]Amadeo, Kimberly. “What Happened During the Great Depression?” The Balance Small Business, The Balance, http://www.thebalance.com/the-great-depression-of-1929-3306033.
[3]Romer, Christina D., and Richard H. Pells. “Great Depression.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 3 Oct. 2018, http://www.britannica.com/event/Great-Depression.
[4]“Nazi Germany.” Wikipedia, Wikimedia Foundation, 10 Sept. 2018, en.wikipedia.org/wiki/Nazi_Germany.
[5]“Greater East Asia Co-Prosperity Sphere.” WWII German Weapons: Guns, Mortars, Anti-Tank, Rockets, Missiles, Artillery…, worldwar2headquarters.com/HTML/PearlHarbor/co-prosperity.html.
[6] “Americans Aren’t Interested in the World’s Problems.” RealClearWorld, http://www.realclearworld.com/articles/2014/02/18/the_american_publics_indifference_to_foreign_affairs.html.
[7]“World War II (1939-1945).” House Un-American Activities Committee, www2.gwu.edu/~erpapers/teachinger/glossary/world-war-2.cfm.
[8] U.S. Department of State, U.S. Department of State, history.state.gov/milestones/1937-1945/lend-lease.
[9]U.S. Department of State, U.S. Department of State, history.state.gov/milestones/1937-1945/lend-lease.
[10] “From Neutrality to War: The United States and Europe, 1921–1941 | EDSITEment.” EDSITEment! The Best of the Humanities on the Web, edsitement.neh.gov/curriculum-unit/neutrality-war-united-states-and-europe-1921-1941.
[11]“Striking Women.” World War II: 1939-1945 | Striking Women, http://www.striking-women.org/module/women-and-work/post-world-war-ii-1946-1970.
[12] “Examples for ‘Labor Force Participation Rate’ and How to Use It – Nyanglish.” Examples for “Lysogeny Broth” and How to Use It – Nyanglish, nyanglish.com/labor-force-participation-rate.
[13]Höhn, Maria. “African-American GIs of WWII: Fighting for Democracy Abroad and at Home.” The Conversation, The Conversation, 20 Sept. 2018, theconversation.com/african-american-gis-of-wwii-fighting-for-democracy-abroad-and-at-home-71780.
[14]“Employment Segregation in the Early Twentieth Century.” Slave Prices and The Economy of the Lower South, 1722-1809 | Cliometrics Society, http://www.cliometrics.org/conferences/ASSA/Dec_90/Margo.shtml.
[15] “Employment Segregation in the Early Twentieth Century.” Slave Prices and The Economy of the Lower South, 1722-1809 | Cliometrics Society, http://www.cliometrics.org/conferences/ASSA/Dec_90/Margo.shtml.
[16]Amadeo, Kimberly. “Compare Today’s Unemployment with the Past.” The Balance Small Business, The Balance, http://www.thebalance.com/unemployment-rate-by-year-3305506.
[17]“Baby Boom Generation.” Douglas MacArthur, http://www.u-s-history.com/pages/h2061.html.
[18]VOA. “American History: The Rise of US Influence After World War Two.” VOA, VOA, 3 Aug. 2011, learningenglish.voanews.com/a/american-history-the-rise-of-us-influence-after-world-war-two-126735008/116180.html.
[19]Scott, James. “Multilateralism.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 13 Oct. 2015, http://www.britannica.com/topic/multilateralism.
[20]Bellmann, et al. “The Challenges Facing the Multilateral Trading System in Addressing…” S.A.P.I.EN.S. Surveys and Perspectives Integrating Environment and Society, Institut Veolia Environnement, 1 Apr. 2012, journals.openedition.org/poldev/1012#tocto1n3.
[21]Administrator. “International Trade Agreements.” How the Bush Administration’s, http://www.globalpolicy.org/economic-expansion/international-trade-agreements-8-22.html.
[22]“Global Trade Liberalization and the Developing Countries — An IMF Issues Brief.” IMF, http://www.imf.org/external/np/exr/ib/2001/110801.htm.
[23]“WORLD TRADE ORGANIZATION.” WTO | Trade Statistics – World Trade Statistical Review 2017,www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm.
[24] “World Trade Organization.” Wikipedia, Wikimedia Foundation, 13 Sept. 2018, en.wikipedia.org/wiki/World_Trade_Organization.
[25] “Top 10 Countries with Largest Gold Reserves.”U.S. Global Investors, http://www.usfunds.com/investor-library/frank-talk/top-10-countries-with-largest-gold-reserves/#.W5XJt5NKg_U.
[26]“Protectionism in the United States.” Wikipedia, Wikimedia Foundation, 17 Sept. 2018, en.wikipedia.org/wiki/Protectionism_in_the_United_States#Trade_liberalization.
[27]“News: Breaking Stories & Updates.” DIRNews, dir.md/wiki/Trade_Expansion_Act?host=en.wikipedia.org.
[28]History.com, A&E Television Networks, http://www.history.com/topics/cold-war/cold-war-history.
[29]“Effects of the Cold War.” Wikipedia, Wikimedia Foundation, 6 Aug. 2018, en.wikipedia.org/wiki/Effects_of_the_Cold_War.
[30]Perry, Mark J. “In 1970, Milton Friedman Called for Unilateral Free Trade Rather Than Retaliation. We Still Haven’t Learned That Simple Lesson. | Mark J. Perry.” FEE, Foundation for Economic Education, 16 July 2018, fee.org/articles/in-1970-milton-friedman-called-for-unilateral-free-trade-rather-than-retaliation-we-still-haven-t-learned-that-simple-lesson/.
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