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Commanding heights

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As the world progresses and moves forward into a global economy, countries needed to adept to the requirements of this modern era and develop their economic systems in order to survive in this new age . This all dated back to, two very influential figures with rival views and their schools of taught which had a huge impact on western economic theory in the 20th century. I will touch on the impact of these certain economic systems and the effect it had on major countries and how the rest of the world was about to change.

Battle of ideas
Friedrich Hayek and John Maynard Keynes were economist with rival views and their schools of taught had a massive impact on western economic theory in the 20th century Hayek believed in a free market economy. This is a type of economy that is known as capitalism in which individuals own all property and organisations and they compete with each other for market share. In this type of economic system the government’s involvement is not restrictive. Lenin opposed global trade and he was more in favour of communism. This is where individuals are not permitted to own any property as everything is owned by the government. Keynes believed in a more socialistic economy. This is the system where individuals own some of the property but your major industries are owned by the government.

This system relies on government interference such as monetary and fiscal policies which help the government regulate the economy. In Germany, after the world war 1, hyperinflation hit the Germans which ensured the collapse of many bank account holders and this caused working class citizens to lose out on their personal savings and many blamed it on communism. USA had a similar catastrophe as many people invested their returns in stock markets which eventually crashed and this resulted in banks closing down and people pulling out their savings. All these events gradually led to the great depression whereby consumers were too poor and too afraid to use what was let of their remaining funds to buy goods and services. As a result, businesses were forced to shut down and millions lost their jobs.

This disastrous cycle continued and deteriorated to such a point that no consumer or organisation had the means to break out of this situation. Keynes believed that if the government got involved in the economy, they could have overcome the great depression. Although many countries implemented it only took effect after world war 2. At this point in time Hayek was less influential but was still confident in his theories. He believed that government regulation of the economy would backfire in the long run as freedom and democracy would be compromised. However, the great depression vanished in world war 2 as employment was created for many in preparation for the war. Many countries were adopting these new systems as governments controlled major industries in certain countries such as coal, steel production and rail-road transit.

As we drew closer to the 1970’s, Stagflation began. This was caused because Keynes economic model caused high inflation, increased unemployment and a rather slow economic growth which occurred all at one time. Countries who experienced stagflation used more policies of Keynes but this only made the situation worse. At this point in time, many people moved to the beliefs of Hayek as many of his predictions materialised. (Oosthuizen F.J;2014 Business Management a contemporary compilation ; page 5; economic systems ;published by FVBC; ROODEPOORT) (Stanislaw, J. & Yergin, D. (2002). Commanding Heights: The Battle OF ideas. Virginia: PBS.)

The downfall of communism
After the Bolshevik revolution, Russia became the world’s first communist country and was known as the USSR. The country continued to prosper and this was an indication that capitalism was destined to fail while communism was on the verge of going global. However, communism did have its fair share of problems and the USSR hid it by deceiving the media and by leading people to only witness its success. Another deception of communism that the Russians used was prison labour. This exploitation of prisoners helped boost the economy. The USSR initially intended for communist countries to only trade with fellow communists but this became impossible and they eventually had to begin trading with capitalistic countries.

As the cold war dragged on , the communist fell behind and all the secrets of the communists were shown to the people. The effects of communism was devastating as these countries experienced food shortages and this had a negative impact on the daily lives of people. These problems became too big to hide from the outside world and people realised the detrimental effects of communism. The people in these communist countries started expressing their frustrations at the shortcomings of their economic system. People formed groups against communism and protested against their own government. All of this led to the split of the USSR with Russia becoming the biggest country of the USSR. This ensured the end of communism and the start of the era of globalisation. The cold war ended with communism being discredited as a viable, social, political and economic system. (Stanislaw, J. & Yergin, D. (2002). Commanding Heights:. Virginia: Agony of reform PBS.)

Now that communism was exposed, very few countries continued this type of system. India adopted central planning which was similar to the USSR style economy and although the country experience tremendous growth initially it soon collapsed after. Chilli tried to combine the military and the government but this type of power was more of a dictatorship and would eventually fail. Bolivia also had a major problem as they experienced hyperinflation as bad as Germany. The root of the problem in Bolivia was the government had big debts and so they printed money to pay these debts. The new leaders of all these countries tried to fix the problems of the past with shock therapy ,a rapid conversion to free-market capitalism. (Stanislaw, J. & Yergin, D. (2002). Commanding Heights:. Virginia: Agony of reform PBS.)

Many of the countries believed that more government control meant better economic outcome and that is why many countries became communist. This might also be one of the reasons countries had many dictators which led to the second world war. Globalization consumed the world and countries need to conform to the modern day society .

(Oosthuizen F.J;2014 Business Management a contemporary compilation ; page 5;
economic systems ;published by FVBC; ROODEPOORT) (Stanislaw, J. & Yergin, D. (2002). Commanding Heights: The Battle OF ideas. Virginia: PBS.) (Stanislaw, J. & Yergin, D. (2002). Commanding Heights:. Virginia: Agony of reform PBS.) Cameron, R. (1993). Europe’s Second Logistic. Chapter 5 in A Concise Economic History of the World from Paleolithic Times to the Present. New York: Oxford University Press.

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