More notes at http://tanguay.info/learntracker
C O U R S E 
The Modern World: Global History since 1760
Prof. Philip Zelikow, University of Virginia
C O U R S E   L E C T U R E 
1980s: Global Capitalism Transformed
Notes taken on February 18, 2015 by Edward Tanguay
how the world's economic system became what it is today
the history of the 70s and 80s were like a global election
choosing among different sets of ideas
how to solve problems of systemic crisis that seemed evident in the 70s
which parts of the world would be the "swing states" in this global election?
1. Europe
2. China
the fate of China
1976 Mao Zedong died
big question: what to do with the body?
the precedent in the Soviet Union was to turn these iconic figures of communist hero worship literally into embalmed mummies on public display, objects of veneration in almost a way of quasi secular worship
the bodies of both Lenin and Stalin had been mummified and were on display on Red Square, Stalin's until 1961 when it was removed during the period of de-stalinization, but Lenin's remained
the question in China in 1976 was: what role should Mao Zedong play in Chinese culture in the years to come
decision was to turn Mao into an embalmed mummy as well, also suitable for public display
four visions for China
1. revolutionary socialist vision
renewed hard-line of communism
Mao's widow and closest people around her were for this
2. Soviet-style communism
building up heavy industry
stronger state planning
3. national conservatives with Chinese characteristics
national conservatives
top-down modernizers
often autocratic
strong central management
partnerships with entrepreneurs
4. social democracy
more liberal
something like in Western Europe
group #1 was first loser
Mao's widow was tried as enemies to the people and pushed out of the Chinese public life
group #2 was second loser
if you look around the world in late 1970s
capitalist economies were doing much better than communist economies
those close to China were doing well
South Korea
in mid 1970s were tempting, since they had economy growth but were all states with a high degree of top-down control
two groups left:
3. national conservatives
4. social democrats
it was clear China was taking a new direction
formally normalizing relations with the United States
Deng Xiaoping
leader from 1978 to 1992
Time magazine: "banishing Mao's ghost"
"I don't care if the cat is black or white, as long as it catches mice"
pragmatism: confirms the firm authority of the central government
loosening and tightening
constant experimentation
stepping back
this cycle continues all through the 1980s
what was clear was that China was changing
global capitalism in 1970s and 1980s
impossibility theory
from Robert Mundell
you can only achieve two of these three goals:
1. capital mobility
ability to easily move large sums of money across borders
2. stable exchange rates
3. monetary independence
goal standard
1. high
2. high
3. low
countries had to attract gold by changing interest rates
highly interdependent to what other countries were doing
Bretton Woods solution (40s)
1. low
controlled by governments
2. high
3. high
1970s collapsed
1970s went back to something like the gold exchange system
to go back to this kind of global economic system is a politcal choices
they had to do this with paper money instead of gold
the capitalist revolution
1970s two establishments for economic thinking
national Keynesianism
the nation-state should be able to use fiscal policy to change its macro-economic situation, i.e. change unemployment or inflation rate
ISI (Import, Substitution, Industrialization)
created a constant capital election, i.e. governments which compete for investors that loan the governments money in the form of buying their bonds
money should be free to move
middle of 1970s
these ideas popular in Germany and France
end of 70s
these ideas come back from Europe to America
lets coordinate in managing our money supplies
the question: how do you have a gold-standard-like system with paper money that governments print
how to make paper money hard?
manage the amount of paper money you issue
coordinate that between a few key government that supply the reserve currencies for global exchange
tight monetary controls coordinated by U.S., European and Japanese central bankers
create a world in the 1980s in which
1. capital mobility gets higher and higher
2. exchange rates go from being erratic to stable
not fixed like a true gold system
2. national independence gets very low
countries are interlocked with each others' monetary planning
central banks are coordinating more trying to make their money more like a hard gold standand that will attract investment
but to tight the money supply, you have to raise interest rates
Paul Volker
federal reserve chairman
Time magazine: the Squeeze of 1979
by mid 1980s, benefits of new system are becoming evident
new system is freeing up investment capital
Goldman Sachs is becoming truly multinational investment banks
billions of dollars are moving across borders
has all kinds of effects that touches many businesses in the U.S., Europe, Japan
rooted in basic political choices
who will be in charge of driving the economic choices in key countries
for worlds borrowers
interest rates are going up
lots of debt crises in the third world
turns out to be a big problem for the socialist countries in the late 1980s
what if you don't want to be controlled by international bankers
if you want national independence to drive your economy the way you want
even to have state ownership of the key banks
France faced with the beginning of the 1980s
Jacques Delors
visionary for European economic integration
supports the kind of vision of this interdependence
Mitterrand had to go with him instead of pursuing the more independent path that many of the socialist and communists who supported him wanted
supported the ECU or European Currency Unit