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HIST 1043 module 7 topic summary part 2
HIST 1043 module 7 topic summary part 2
5. Germany, Berlin, and “the Wall”
After the close of WWII in Europe, Germany was divided into four zones of military occupation. British, French, and American zones were created in the west, and a Soviet zone was created in the east. This was intended to be a temporary and short-lived division. The assumption was that Germany would soon be re-united under a new government. However, the British, French, and Americans on one hand and the Soviets on the other hand could never agree on how to reconstitute a government for all Germany. The result was that Germany remained divided for the entire Cold War period. The three western zones became the Federal Republic of Germany—“West Germany”—which was a democratic government allied with the U.S. in the Cold War. The Soviet zone became the German Democratic Republic—“East Germany”—which had a Soviet style dictatorship and was allied with the Soviet Union in the Cold War.
The German capital of Berlin was entirely within the old Soviet zone, but because it had been the German capital, it was divided into four zones of occupation as well. And strange as it may seem, when the Federal Republic was created in the west, the British, French, and American zones—“West Berlin”—became part of it. The result was an island of democratic freedom—“West Berlin”—in the middle of communist East Germany. Soviet leaders saw this situation as a problem for many reasons but mostly because of the many refugees who sought to escape communism by fleeing into West Berlin. The Berlin Crisis of the late 1940s (1948-49) resulted when Stalin blocked access to West Berlin, hoping West Berlin would cut its ties to the west and be absorbed into East Germany. This did not happen because of President Truman’s “Berlin Airlift” of all needed supplies to West Berlin. However, Berlin continued to be a major Cold War issue.
Finally, in 1961 the Soviets built a wall across Berlin to prevent additional refugees from escaping communism. “The Wall” became the symbol of the Cold War and a divided Germany. Fast forward to 1989—the Soviet style dictatorship in East Germany, like the communist dictatorships which had ruled eastern Europe for the previous 40 years and eventually the Soviet dictatorship itself, collapsed. As that occurred, the citizens of the city of Berlin converged on “the Wall” and tore it down. Just as the Berlin Wall had been the symbol of the Cold War, the fall of the Berlin Wall became the symbolic moment in the collapse of communism and the end of the Cold War. And soon after the fall of the Berlin Wall, Germany was re-united, and Berlin is again the capital of all Germany.
6. Dimensions of the Cold War
The Cold War lasted from the late 1940s to the early 1990s. Below are some of the major developments during that period.
Arms Race—the US and the USSR, as well as many of the allied countries on both sides, were locked into an arms race during most of the Cold War. Both the US and the USSR maintained large military forces and built more and more costly weapons. When the USSR developed its own nuclear weapons, the arms race included a nuclear component, and by the early 1960s, both nations probably had enough nuclear weapons to destroy human civilization on this planet. The only serious attempt to stop or slow down the nuclear arms race was “SALT” (Strategic Arms Limitation Talks), which were arms reduction negotiations between the US and the USSR started in the early 1970s during Richard Nixon’s presidency. Although some agreement was reached and the talks continued for the rest of the Cold War, SALT slowed but never ended the nuclear arms race.
Cold War Crises—–There were several Cold War crisis points—moments when the Cold War almost became a real—and probably nuclear—WWIII. The Berlin Crisis of the late 1940s (mentioned earlier) was one, but the most dangerous was the Cuban Missile Crisis of October 1962. The crisis began when the Kennedy administration discovered that the Soviets were preparing to base missiles capable of carrying nuclear warheads in Cuba, which is only a few miles from the US southern coast. Kennedy demanded that the Soviets remove the missile launchers, and the world teetered on the brink of nuclear war for several days before the Soviets agreed to comply.
Secrecy in Government—Secrecy became a much more prominent part of American government because of the Cold War. The best example of this tendency is the creation of the CIA (Central Intelligence Agency) in the late 1940s to serve as America’s Cold War spy agency. During the Cold War the CIA spied on the USSR, but just as important, Cold War American presidents used the CIA to conduct secret foreign policies such as helping to overthrow certain foreign governments deemed too friendly with the USSR (Iran is an example) or attempting to assassinate certain foreign leaders (such as the communist dictator of Cuba Fidel Castro).
“Red Scare”—-In the late 1940s and 1950s American society experienced a wave of fear and panic about possible Soviet spies and influence within the US. The House of Representatives (one of the two houses of Congress) Un-American Activities Committee investigated various areas of American society and questioned many witnesses without finding much communist influence, but some vote hungry politicians tried to exploit the popular fears by making—usually without evidence—wild charges about communist influence within American government. Senator Joseph McCarthy was the most outspoken, and the practice of exploiting popular fears for political gain by making wild charges without evidence has came to be known as “McCarthyism.”
Limited War—At certain times and places the Cold War involved actual fighting. The Korean Conflict of 1950-53 is a good example. Like Germany, Korea became a divided country after the Cold War with a communist dictatorship in North Korea (which is still there) and a non-communist government in South Korea. In 1950 communist North Korea invaded South Korea. The US, with the support of the United Nations, came to the aid of South Korea and repelled the attack. It is important to note that the Truman administration was determined to fight a limited war in Korea—that is, a war with fighting only in Korea—even though the communist North Koreans were receiving significant aid from communist China and the USSR. When American General Douglas MacArthur demanded that the US expand the war, Truman fired him as US commander. Truman was determined not to let the fighting in Korea start WWIII with the USSR.
Endogenous growth model
Endogenous growth model:
Robert E. Lucas, Paul Romer, and Robert J. Barro have done a lot of research on the new endogenous theory. The model is based on key basic assumptions namely positive return rates on human capital and constant return rate to capital.
Returns to human capital have guaranteed increase but the growth rate is dependent on the specific kind of capital in which a country invests.
Thus theory argues that heavy investment in research and development is the key to technological advancement and hence even if an economy has abundant labour and capital with stead rates of return, it will not develop for lack of technological progress. Romer (1990) argues that the development of qualitative labour force brings about new ideas and products which bring forth technological progress. He further argues that economies with large labor forces tend to grow faster as they experience a higher rate of introduction of new goods and services. In another argument, Rebelo and Barro (1990) have noted that per capita growth and investment ratio move simultaneously. Further, it is indicated that is a country has to grow adequately, human capital is very important and that the two are achieved in the dimensions of health and education. Barro notes that higher levels of human capital development are achieved when a country grows faster. This is because physical capital undergoes rapid expansion to match high human capital endowment. Also, a country is better positioned to acquire and introduce the superior technologies which have been developed in other countries.
Further, Warner and Sach (1997) have postulated that rapid increases in levels of human capital development may lead to fast transitional growth. This perhaps explains why majority of the developing countries have excessive labor supply but lack physical capital required to achieve growth. In developing countries, foreign direct investment (FDI) seems to be the main way of utilizing and developing advanced technologies. Many of developing countries have an excess supply of labour, but on the other hand lack of physical capital to achieve growth. FDI is one of the sources to exploit and develop advanced technologies in developing economies.
The implication of this theory is that good economic policies that embrace competition, openness, innovation and change have the potential to promote rapid economic growth.
This is also called the new growth model that was developed as a result of the rising criticism to neo classical model. The context of the model is that the policy measures are influential to the economy growth rate on the long run. A good example are the subsidies on the extent of research as well as development or even education have the potentials to improve on the rate of growth considering some of the models of endogenous growth therefore leading to the increase in incentives for innovation.
Determinants of economic growth:
Majority of the theoretical approaches on this subject have looked at other macro non-economic factors which have an influence on the economic performance of a country. Such factors are political systems, socio-cultural issues and geographical factors. Investigation of these factors has revealed a lot of interesting results. First, the choice of an investment is by far considered the most essential determinant of economic growth. Both the exogenous and endogenous models of growth have identified it as propeller of growth. In contrast the neo-classical growth model argues that investment only affects the output level in the short run. Another important aspect of economic growth is the human capital. Its accumulation is a major factor in the development process and it is realized through education and training. Education and training stimulates economic development by raising the output per worker and hence heavy investment in human capital is essential in stimulating economic growth.
The human capital is influenced by public school and health programmes. The higher the quality of education, the higher the educated work force and this has the effect of attracting potential foreign direct investments from other countries which are well developed.
The neo-classic growth model has it that quantity and quality of both human and physical capital employed affect the total output of an economy. When human capital reaches the full employment level, economic growth can be guaranteed by way of improvement in the quality of labour force or the capital stock.
Most studies have identified technological advancement to be the key driver of economic growth more especially in introducing new factors like knowledge, public infrastructure and innovations all of which are the stimulants of economic growth.
Lucas and Romer, in their study concluded that economic growth is in the long run stimulated by implications of both monetary and fiscal policies and according to the endogenous growth models suggest, an economy will not converge because of the increasing returns to scale.
Foreign Direct Investment has also been widely credited for the rapid rate of technology transfer and fast economic growth. This has been stressed in several models of the endogenous growth theory.
Effects on location of Foreign Direct Investment
The host market economy can be competitive if it is broad enough. Stiff competition reduces the possibility of monopoly proceeds and hence inhibits the possibility of foreign direct investors benefiting from abnormal returns.
However, foreign direct investments can benefit from monopoly in those economies which are narrowly specialized and less competitive in relation to foreign investments. Domar postulates that large numbers of small industries in an economy, whose research capability is too small, cannot maximize economic growth.
The location of foreign direct investment can be influenced by a number of factors. First and foremost is the size of the market in the potential host economy. Billington (1999) argues that expanding into a foreign market results into more sales revenue and a higher market share. Gross domestic product is usually used as the measure of the market size. Researches on several countries have shown that the size of the market share has a direct positive impact on foreign direct investments.
Another determinant of location of FDI is the availability of labour. Labor availability is normally measured by productivity and cost. Haaland has held that the flexibility of the labor market determines the decision for location of foreign firms and according to Wheeler (1992), the cost of labor as measured the hourly wage rate have adverse effects on foreign direct investments. To offset high labor costs high production levels have to be reached.
Macro-economic factors normally affect foreign direct investments mainly through exchange rate and corporate tax. In almost all cases high corporate tax has a negative effect on the choice of location for FDI since profits are reduced. In addition fluctuation of exchange rates in the host country makes investments more risky. Depreciation in the host country’s currency makes it easier for the foreign firms to set up their businesses but on the other hand reduces the value of the profits repatriated to mother countries.
A government can influence the location of an FDI firm by way of financial or non-financial policies. It can provide an enticement so as to attract foreign direct investments.
Another determinant for allocation of foreign direct investment is the level of infrastructural development. High level of infrastructural development creates an impression of urbanization a key factor envied by foreign investors. The underlying logic is that the foreign investors presume a large number of consumers in an urbanized economy.
HIST 1043 module 7 topic summary part 1
HIST 1043 module 7 topic summary part 1
——COLD WAR AMERICA——
“Cold War” Defined
—–The term “Cold War” was coined in the late 1940s to describe a new and seemingly unique international situation after WWII. This was an international situation of intense, ongoing conflict and competition that never led to an all-out war (which would have been WWIII). The conflict and competition was between the US (and its allies, mostly democratic) and the Soviet Union (and its communist allies}. When did the Cold War begin and end? You can use different events as beginning and end points, but it is most common to say that the Cold War begins with the Truman Doctrine (1947) and ends with the collapse of the Soviet Union (1991).
Marxist-Leninist Communism and the USSR
—–Marxist-Leninist communism is a political ideology created primarily by two men, Karl Marx (a German) and Vladimir Lenin (a Russian). Marx was a 19th century thinker and writer who advocated class revolution. Lenin was a bit younger than Marx and lived into the early 20th century. He too was a thinker and writer, but he also helped lead a revolution in Russia in 1917. Marxist-Leninism suggests that economic forces, especially class conflict, drive historical change. Marx and Lenin argued that the working class—in the industrial age that meant especially factory workers—are exploited by those who own the means of production—in the industrial age that meant the capitalists who owned the factories. This exploitation would ultimately, they believed, bring conflict and finally a class revolution by the workers. What next? Marx and Lenin believed that there would be a dictatorship created in the name of the workers that would eliminate capitalism and create socialism (common or public ownership of the major aspects of the economy—production, transportation and communication). Once this transformation was achieved, they argued, the dictatorship would dissolve and society would enter a state of communism— a utopian society based on the principle of sharing with no need for a government at all. (Note—a truly communist society as envisioned by Marx and Lenin has never actually been created). Understand that Marx and Lenin imagined worker’s revolution and eventual communism as inevitable sooner or later in all countries.
—-The USSR (Union of Soviet Socialist Republics, which was commonly called simply “the Soviet Union”) was created in 1917 when Lenin and a group of communists he led came to power during the Russian Revolution. They transformed what had been the Russian Empire into the first nation in history based on the principles of Marxist-Leninism—the USSR. What happened? Well, a dictatorship was created (and Lenin served as the first dictator) and capitalism was replaced by socialism—-BUT the dictatorship never dissolved. As long as the USSR existed it was a dictatorship. There was, in fact a long series of Soviet dictators and some were very brutal, most notably Josef Stalin—who ruled from the 1920s until the early 1950s and probably murdered more people in his concentration camps than even Hitler. Needless to say, the ideal society Marx and Lenin had hoped for—communism—never appeared.
Yalta and the Issue of Eastern Europe
—–In February of 1945 the leaders of the most important countries fighting fascism—Stalin of the Soviet Union, Churchill of Great Britain, and FDR—met in conference at Yalta, which was a city in the Soviet Union on the Black Sea. They discussed issues relating to the prosecution of the war—such as when the Soviet Union might start helping in the fight against Japan—but they also discussed issues relating to the world after the war. For example, FDR successfully urged Stalin to commit the Soviet Union to joining the “United Nations” organization to be created at the end of fighting (the UN is FDR’s version of collective security, an idea he learned from Woodrow Wilson’s League of Nations proposal). More importantly, they discussed the future of eastern Europe. These countries— Poland, Hungary, etc.—were now being overrun by the Soviet army as they chased the German army back to Germany. The question for FDR and Churchill was—Would the Soviet army leave eastern Europe after the war or would it stay and impose communist dictatorships on those countries? FDR persuaded Stalin to agree in a public commitment to “free elections” in eastern Europe after the war, which implied that the Soviet army would leave and the nations of eastern Europe could chose their own future. But the term “free elections” by itself was vague and left open the possibility of an imposed Soviet style “election” which was just a sham. Why did FDR not insist that Stalin commit to more? The Soviet army was already in eastern Europe and in control. What could FDR do? Nevertheless, he was criticized later.
—–What happened? The Soviet army stayed for more than 40 years after the end of WWII, and although developments after the war varied from one eastern European country to another, the end result was always the same—-Soviet style dictatorships were created, really imposed, across eastern Europe. Churchill said that an “iron curtain” had fallen across Europe.
—–How should the US respond to Soviet behavior in eastern Europe? Answering that question falls to President Harry Truman.
Truman’s Containment Policy
—–Although some American leaders disagreed with Truman at the time and some historians have disagreed since, Truman decided that Soviet behavior in eastern Europe was evidence that the USSR was inherently dangerous and out to conquer the world in the name of communism. His policy in response to this perceived threat was “Containment”—-which was exactly what the name implied, an attempt to contain, or stop, the further spread of communism (it is important to note that Containment is defensive in spirit and not a policy of starting WWIII with an attack). Truman’s Containment policy becomes America’s Cold War policy. All American presidents during the Cold War basically follow this policy. What specifically did this policy entail?
The Truman Doctrine. In a speech to Congress in 1947, Truman stated what came to be known as the ‘Truman Doctrine”—basically that the US would help nations seeking to resist communism (although Truman is careful not to mention the word communism in the speech, everyone understood his meaning). In effect, Truman appointed the US world policeman against communism. This represented total disavowal of the old isolationist tradition and would have major consequences in the years to come.
The Marshall Plan. Named for George Marshall who had been army chief of staff during WWII and was currently Truman’s Secretary of State, the Marshall Plan is a program of massive American economic aid to western Europe—countries like Britain, France, Belgium, etc.— to help rebuild after the devastating war. This is not charity. American leadership knows that a rebuilt western Europe will be able to resist communism and will be important allies in the Cold War against the USSR.
The creation of NATO (North Atlantic Treaty Organization). NATO was created as a military alliance between the US and the democracies of western Europe. Truman has just raised what he calls “the iron fist” in the Soviet face.