12 - The Economy in the 1970s

Summary

The economies in the 1970s were characterized by high inflation and low growth. Labor acquired great power that was used to increase wages and to reduce effort and labor efficiency. This was the beginning of a trend toward opening global markets and globalization. There was an assumption that opening of markets would increase global efficiency and standards of living. Enterprises with “global reach” become important. China joined the global economy at this time. There was significant change in favor of market-based policies and against high taxes and public spending, and the role of the market came to be seen more favorably and that of governments less favorably. There was a view that a free market can do almost anything. Pro-market theories become popular. Political elections were affected in several countries. Globalization left some industrial workers without work and without income and conservative governments were reluctant to assist them. In dealing with this problem, domestic markets work less well than expected from theory, while global financial markets grow significantly. There was the collapse of the Bretton Woods Agreements and the growing use of flexible exchange rates.