For our world in flux: Some hard lessons in history from the 1930s

Source– The post is based on the article “For our world in flux: Some hard lessons in history from the 1930s” published in the “mint” on 14th April 2023.

Syllabus: GS3- Global economy. GS2- Global politics

News– The article explains the prevailing uncertainty in global politics and economy and compare with situation in 1920s

How is the world in a state of flux today?

Global politics– The geopolitical divides are sharper than they have been for decades. International relations are strained, and there are several potential flashpoints.

Economy– The coronavirus pandemic prompted repeated lockdowns across the world, it led to sharp contraction in output and employment everywhere. The economic recovery has been slow.

In many countries, national income in 2022 just about returned to its 2019 levels. The recovery has been K-shaped, so economic inequalities have continued to rise. The pandemic also disrupted integrated global production networks. It stifled international trade and investment flows.

The situation might have improved in early 2022. But the Russia-Ukraine war disrupted global supply-chains in food, fuels and fertilisers. The sharp rise in food and fuel prices pushed inflation to double-digit levels in most countries.

The response of central banks has been raising interest rates. It will stifle investment and dampen consumption, instead of curbing inflation.

In fact, the prospect of recession in the world economy looms large. The continuing war

Ukraine has enhanced uncertainty and risk. It has made markets nervous. Large international firms are relocating and re-shoring their production. Globalisation is at risk.

Regional politics– There are resurgent nationalisms due to populist or chauvinist sentiments. In rich countries, nationalist-populist political parties, or far-right xenophobicleaders, exploit fears about immigration and trade.

In poor countries, nationalist-populist political parties exploit religious beliefs or ethnic divides to create identity politics. Such populist-authoritarian regimes are now present across countries and continents.

What are many strong parallels with the world that existed a century earlier?

The preceding era of globalisation during 1870-1914, was brought to an abrupt end by World War I. In 1918, Spanish Flu caused a worldwide pandemic that cost 50 million lives.

In the 1920s, Europe struggled with problems of reconstruction, slow growth and hyperinflation.Economic inequalities between and within countries rose. This was conducive to the rise of nationalism and militarism. Mussolini captured power in Italy.

Unequal terms in the Treaty of Versailles had economic and political consequences. In October 1929, the Great Crash in stock markets of the US led into the Great Depression.

Economic troubles led to political instability in many parts of the world. The political uncertainty led to the rise of nationalism and militarism in some countries.

By 1930, the Nazis were the second largest political party in Germany. In 1933, Adolf Hitler was appointed chancellor. The Great Depression also led to the rise of militarism in Japan during the 1930s.

Economic nationalism surged almost everywhere as countries adopted ‘beggar-thy-neighbour’ policies. They restricted imports to protect domestic output and employment.

Both Germany and Japan aspired to a larger role in a world dominated by the

US and Great Britain. In this quest, during the late 1930s, Germany pushed Europe closer to World War II. Japan did so in December 1941.

What are striking similarities between this past and our present?

The financial crisis of 2008 spread worldwide. The Great Recession followed in its aftermath disrupted globalisation. The covid pandemic was perhaps the last shock for globalisation.

Inequalities in income and wealth between and within countries are unprecedented. Slow growth, persistent inflation, and a possible recession can increase discontent among people. The Ukraine war could have global implications. Russia wants to regain its position. There is a pronounced shift in the balance of economic power, from the West to Asia, and from the US to China.