The Crisis Decades(TM) of capitalism in the early 1970s and early 1980s were the direct result of its Golden Age(TM) of 1945-73. Discuss.

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“The ‘Crisis Decades’ of capitalism in the early 1970s and early 1980s were the direct result of its ‘Golden Age’ of 1945-73.” Discuss.

The ‘Crisis Decades’ is a term used to describe the period in which economic growth plunged and the global capitalist system threatened to collapse. This was caused by the 2 oil shocks of 1973-74 and 1979-80 respectively, as well as the Third World Debt Crisis that occurred in the 1970s to the 1980s. Admittedly, several developments, events or happenings in the Golden Age years of 1945-73 helped contribute to the instability and chaos suffered, but my essay will show that labeling the Crisis Decades as a ‘direct result’ of its Golden Age is not exactly accurate. This is because the term ‘direct result’ would imply that the crisis decades resulted solely from developments or happenings in the Golden Age.

 

Numerous developments in the Golden Age of Capitalism such as the rise in technological innovation, the growth of popular affluence and the increase in industrialising countries such as Spain point to something positive in economic growth. These factors resulted in widespread demand and hence production of quality consumer goods such as cars, television sets etc. However, it was precisely due to such progress that made the capitalist system increasingly and overly dependent on oil as a critical source of fuel that would power all these technological advances and the economy. This was further exacerbated by the artificially cheap prices of oil at $2 per barrel which prevented the capitalist countries from seeking alternative sources of fuel and engaging in energy conservation.  Thus, when the first oil shock occurred with OPEC’s quadrupling of oil prices, the capitalist nations were badly hit with recession, unemployment, balance of payments deficits and even an uncommon phenomenon of ‘stagflation’ in which negative growth was accompanied with inflation.

 

However, the above merely explains why capitalist countries were in such an economic crisis when the first oil shock occurred, and does not explain why the oil shock occurred in the first instance. There are two critical factors that led to OPEC’s decision in quadrupling oil prices, namely the devaluation of oil prices that resulted after the breakdown of the Bretton Woods system of fixed exchange rates and the 1973 Yom Kippur War. The fixed exchange rate system that greatly facilitated economic progress in the Golden Age broke down in 1971 and led to the devaluation in oil prices since oil prices were fixed to the US dollar, which led to a corresponding loss in oil revenue for the oil exporters. Thus it could be seen that the Bretton Woods system, an integral establishment of the Golden Age in promoting world trade, encouraged oil producers to raise oil prices to offset their loss of revenue when it broke down.

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Nonetheless, the fact that the price increase was so steep suggests that it was not a simple matter of offsetting the marginal losses due to the devaluation of oil. OPEC countries viewed oil as a weapon to gain greater leverage with the US in the 1973 Yom Kippur War. They were reacting against US clientelism of Israel and wanted to put pressure on the US to force Israel to end its aggression. Furthermore, the oil exporters were aware that capitalist nations were hugely reliant on oil, and consciously exploited this vulnerability. Thus, the price hike of oil and therefore ...

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