The Making of a Global World: Class 10 History · Chapter 3

1 The Pre-modern World

Check the label on your phone, your school bag or your cricket bat. Quite likely the raw material came from one country, the parts were put together in another and the brand belongs to a third. This close web of links between distant places is called globalisation (वैश्वीकरण). It is tempting to think that jet planes and the internet invented it. Historians disagree. For thousands of years, trade, migration, money and even germs have been tying the world's societies together, and this chapter follows that long story in four stages.

Who did the connecting? Merchants chasing profit, pilgrims and priests on journeys of faith, students in search of knowledge, refugees running from persecution. Each traveller's baggage held more than goods and coins: skills, beliefs, inventions and stories crossed the world with them, and so, unseen, did germs.

Some of these links are astonishingly old. Around 3000 BCE, boats were already trading along the coast between the cities of the Indus valley and the lands we now call West Asia. Cowrie shells (कौड़ी), gathered on Maldive beaches and used as money, reached markets in China and East Africa over more than a thousand years. Disease used the same paths. Historians can follow germs travelling long distances from the seventh century, and by the 1200s they were crossing regularly between continents.

1.1 Silk Routes Link the World

Imagine a bolt of Chinese silk on its way to Rome. It might cross the deserts of Central Asia by camel caravan, changing hands in market towns such as Kashgar and Samarkand. Or it might go by ship around Southeast Asia and India to the Red Sea. Historians call these many paths, overland and by sea, the silk routes, after the cargo that made them famous. They tied the regions of Asia to one another and to Europe and North Africa, from before the Common Era until about the fifteenth century (Fig. 3.1).

Silk shared the caravans and ships with Chinese porcelain, Indian cotton cloth and the pepper and other spices of India and Southeast Asia. Europe made few goods that Asia wanted, so it paid largely in gold and silver.

Traders were never the only travellers. Buddhism, which began in eastern India, spread outwards from the crossroads of these routes: north into Central Asia and China, and east into Southeast Asia. Christian missionaries almost certainly used the routes to reach Asia, and Muslim preachers followed a few centuries later. Wherever goods went, beliefs and customs went with them.

1.2 Food Travels: Spaghetti and Potato

Food is one of the best records of contact between distant peoples, because travellers carried seeds and recipes along with their goods. Take noodles and spaghetti. One theory says noodles were invented in China and the idea travelled west to become Italian pasta. Another credits Arab traders with bringing dried pasta to Sicily, the island at the toe of Italy.11Your textbook places this in fifth-century Sicily. The earliest clear written record of dried pasta made in Sicily is by the Arab geographer al-Idrisi, in 1154. Yet people in India and Japan were also making long strands of dough, so the honest answer is that nobody knows who was first. The puzzle itself shows how freely food ideas moved in the pre-modern world.

Now picture an Indian kitchen five hundred years ago. There would be no potatoes, tomatoes, green chillies, maize, groundnuts or sweet potatoes. All of these were first grown in the Americas by its original inhabitants. They reached Europe, Africa and Asia only after Christopher Columbus sailed west across the Atlantic in 1492, hoping to reach Asia, and landed in the Caribbean instead. (In this chapter, 'America' means North America, South America and the Caribbean together.)22Your textbook's list of American foods also names soya. Soya beans were in fact first grown in China, so they reached India from the east, not from the Americas.

Consider what one crop did for Europe's poor. A field of potatoes feeds far more people than the same field of wheat, so poor families ate better and lived longer once the potato spread. But depending on one crop is risky. Ireland's poorest peasants came to live almost entirely on potatoes. When a plant disease, potato blight, ruined the crop year after year from 1845, famine followed. About a million people died by 1849, and even more left Ireland to look for work abroad.

1.3 Conquest, Disease and Trade

In 1498 Vasco da Gama's ships anchored near Calicut (Kozhikode), having sailed around Africa from Portugal; six years earlier, Columbus had crossed the Atlantic. Within decades Europeans were sailing regularly to both Asia and America, and the world seemed to shrink. But the Portuguese did not sail into an empty sea. Ships from East Africa, Arabia, India and Southeast Asia had criss-crossed the Indian Ocean for centuries, carrying goods, people, ideas and customs. India lay at the centre of this web. Ports such as Surat, Calicut, Masulipatnam and Hugli linked it with Mocha and Basra to the west and Malacca and Canton to the east. The Europeans joined this trade, enlarged some of its flows and redirected others towards Europe.

America was different. For thousands of years its peoples had had no regular contact with Asia, Africa or Europe. Once contact began, its huge lands, rich harvests and mineral wealth reshaped trade and lives across the globe. Silver mattered most. Huge mines in the Andes (such as Potosí, then in Spanish Peru and now in Bolivia) and in Mexico made Europe richer. Europeans used that silver to pay for their trade with Asia. Tales of a fabulous city of gold, El Dorado, sent expedition after expedition into South America in the seventeenth century. None found it.

Spain and Portugal were conquering and settling large parts of America by the mid-1500s. How could a few thousand soldiers overcome whole empires? Firepower is only part of the answer. The Spanish also brought smallpox. Europeans had lived with it for centuries, and many adults had survived it and could not catch it again. The peoples of America, isolated for so long, had never met it, so their bodies had no defence. The disease spread from village to village faster than any army, often killing a community before a single soldier arrived. Unlike guns, which defenders could seize and use, smallpox only ever helped one side (Fig. 3.2).

Why would Europeans cross an ocean to an unknown land? Many were escaping. Until the 1800s, ordinary Europeans lived with hunger, poverty, overcrowded towns and frequent epidemics, and people who worshipped differently from the official church, religious dissenters, risked persecution. Thousands sailed for America. There, by the eighteenth century, another migration was under way, a forced one. Africans were captured, shipped across the Atlantic and made to work as slaves on plantations growing sugar and cotton for European buyers.

As late as the 1700s, India and China ranked among the world's wealthiest lands and dominated trade within Asia. China, though, is said to have begun withdrawing from overseas contact as early as the fifteenth century. Its retreat, together with the rising weight of the Americas, slowly pulled the centre of world trade westwards, until Europe sat at its heart.

2 The Nineteenth Century (1815–1914)

Fly over the world in 1815 and again in 1914, and you would hardly recognise it. Railways, steamships, factories, empires and new ideas had changed how societies lived and how countries dealt with one another. Economists make sense of this century by tracking three kinds of movement between countries, which they call flows (Fig. 3.3):

• Trade: the flow of goods, such as wheat, cotton or cloth. In this period it meant mostly goods, not services.
• Labour: the flow of people who migrate in search of work.
• Capital: the flow of money invested in distant places, for a short or a long time, for example in railways, mines or plantations.

Notice how the examples connect: British capital built the railways that carried American wheat, which migrant workers had grown. The flows touched ordinary lives as never before, but they were not equally free. Goods and money usually crossed borders more easily than people, whom governments restricted more.

2.1 A World Economy Takes Shape

Begin with something every family needs: bread. For centuries, countries tried to feed themselves from their own fields. Britain in the 1800s discovered what that could cost.

Britain's population had been growing fast since the late 1700s, and its towns and factories were swelling, so the demand for grain, and its price, kept rising. Landowners in Parliament were happy with high prices, and the Corn Laws protected them by restricting imports of foreign grain (which the British called 'corn'). Two groups paid the price: town dwellers, who bought the bread, and factory owners, whose workers needed higher wages to afford it. Their campaign won in 1846, when the Corn Laws were scrapped.

What followed was a chain reaction (Fig. 3.4). Foreign grain now undercut British grain on price, and three things happened.

1. British farming shrank. Many farms could no longer make a profit, fields were abandoned, and thousands of farm labourers lost their work. Some drifted to the cities; others sailed abroad.
2. Britons ate more. Cheaper bread left families money for other food, and as industry grew faster after about 1850, rising wages pushed food imports higher still.
3. Food had to come from abroad. To meet the new demand, farmers on other continents began growing grain for Britain.

Turning prairie or forest into a wheat farm for the British market took four things. Land was cleared in Eastern Europe, Russia, America and Australia. Transport meant railways to the coast and new or bigger harbours. Money came largely from financial centres such as London. And people were needed to settle and farm the land, though they were scarce in America and Australia. The last need set off one of the largest migrations in history. In the nineteenth century nearly 50 million Europeans went to America and Australia. Worldwide, around 150 million people are thought to have left home in search of a better life across oceans and continents.

Within one lifetime, farming had become a worldwide business: by 1890 food, workers, money, land use and technology were all bound up in a single global system. A smaller version of the same story played out in India. Across west Punjab the colonial government dug irrigation canals that turned semi-desert into fields of wheat and cotton for export. Peasants from other parts of Punjab were settled on these canal colonies, and new market towns such as Lyallpur (now Faisalabad, in Pakistan) grew up among the fields.

Food was only one example. Cotton growing spread around the world to feed British textile mills, and rubber plantations spread to supply new industries. Regions specialised in one or two commodities so fast that world trade is estimated to have grown 25 to 40 times between 1820 and 1914. Nearly 60 per cent of it was in primary products, unprocessed goods like grain, raw cotton and coal.

2.2 Role of Technology

Railways, steamships and the telegraph shrank distances in the nineteenth century. It is easy to think that inventions simply drove change, but the influence ran both ways: technologies were developed and spread because of social, political and economic needs. Empire is an example. Colonial expansion created demand for transport, which brought investment in faster railways, lighter wagons and bigger ships. These in turn moved food more cheaply from distant farms to the cities.

Meat shows how the pieces fitted together (Fig. 3.5). Imagine shipping a live bullock across the Atlantic, as traders did until the 1870s. It needs space, fodder and water for weeks, and it may sicken, lose weight or die before it reaches Europe. With losses like these, meat stayed food for the rich, and because few could buy it, there was little reason to produce more.

Refrigerated ships changed the sums. Animals were now slaughtered where they were raised, in America, Australia or New Zealand, and the meat crossed the ocean frozen. A hold full of frozen carcasses carried far more food than one full of live cattle, and little was lost, so meat became cheaper in Europe. Many poorer families (not all) began to eat meat, butter and eggs as well as bread and potatoes. There was a political side-effect too: better-fed workers were less likely to protest at home and more likely to cheer for empire abroad.

2.3 Late nineteenth-century Colonialism

Booming trade had a price, and colonised peoples paid it. Across Asia and Africa, joining the world economy usually happened through conquest, and conquest cost people their freedom, their land and their way of earning a living. Painful economic, social and ecological changes were the route by which these societies were pulled into the world market.

Africa shows how fast this could happen. On a political map of Africa today, many borders run in dead-straight lines across deserts and forests. Many were ruled onto maps by European officials who paid little attention to the people living there. In 1884–85 the major European powers met in Berlin and agreed how to finish dividing Africa among themselves. Britain and France added vast territories to their empires, while Belgium and Germany became colonial powers for the first time. The United States joined them in 1898, when it took the Philippines, Puerto Rico and Guam from Spain after a short war.

Rinderpest, or the Cattle Plague

One disaster in Africa shows how, in an age of conquest, even a disease of cattle could reshape the lives of thousands of people.33Your textbook numbers this part 2.4, the same number it gives the next section on indentured labour, so we keep it inside 2.3. In the 1890s a fast-moving cattle plague called rinderpest swept across the continent. To see why it mattered so much, start with how Africans lived before it arrived.

Put yourself in the place of an African herder in 1880. Your family has land, and there is plenty more nearby; your cattle give you milk, meat and wealth; the nearest trading post sells little you need. Why would you leave home to work for wages? For centuries, land and livestock had supported most Africans, and wage work was rare on a continent with plenty of land and relatively few people.

That was exactly what the Europeans wanted. They came for Africa's land and minerals, meaning to run plantations and mines whose crops and metals would be shipped to Europe. Gold was found on the Witwatersrand in South Africa in 1886, and by the 1890s South Africa produced more than a fifth of the world's gold. The trouble, from the Europeans' point of view, was finding workers, so employers and colonial governments set out to create a workforce.

Then came rinderpest (Fig. 3.6). Its route can be traced. Italy was invading Eritrea in East Africa, and to feed its soldiers it imported cattle from British-ruled Asia, some of them infected. In the late 1880s the disease crossed into Africa's herds and raced west. By 1892 it had reached the Atlantic coast, and by 1897 the Cape, the continent's southern tip. By the time it burned out, roughly nine cattle in every ten were dead.

For people whose food and wealth were counted in cattle, this was ruin, and the colonisers turned it to their advantage. Whoever held the few surviving herds held power, and colonial governments, planters and mine owners made sure that they were the ones who held them. Africans without cattle now had to work for wages, and the plague became a tool for conquering Africa. Many other colonised societies saw their old ways of earning a living wrecked in similar ways.

2.4 Indentured Labour Migration from India

Who gained from the nineteenth-century boom, and who paid for it? The story of indentured workers from India answers both questions: their labour produced great wealth for plantation owners, while they themselves lived with poverty and harsh discipline.

Over the 1800s, labourers from India and China left by the hundreds of thousands for plantations, mines and road- and railway-building sites across the world. Indians usually went as indentured labourers (गिरमिटिया, from the English word 'agreement'). A worker signed a contract to work on one employer's plantation for a fixed term, usually five years. The contract promised a passage back to India at the end.

The recruits came mainly from four areas: the eastern districts of Uttar Pradesh, Bihar, the central Indian plateau and the drought-prone parts of Tamil Nadu. Why these areas? By the mid-1800s, village weavers and other craftspeople there were losing their trade and landlords were demanding higher rents. Forests and fields were also being taken over for mines and plantations. A family that fell behind with the rent borrowed to survive, and once the debts piled up, leaving to find work could seem the only way out (Fig. 3.7).

Ships carried them to sugar colonies on the far side of the world. They went to Trinidad, Guyana and Surinam in the Caribbean, Mauritius in the Indian Ocean and Fiji in the Pacific. Others travelled shorter distances, Tamils to Ceylon (Sri Lanka) and Malaya, and many more were recruited for the tea gardens of Assam.

Employers relied on recruiting agents, who earned a small fee for every person they signed up. Some villagers needed little persuading: life at home was hard, and a contract looked like a way out of poverty or ill-treatment. Others were tricked. Agents painted a false picture of the place, the journey, the work and the living conditions. Some recruits discovered only at the docks that they were about to cross an ocean. Unwilling people were sometimes simply seized and carried off.

No wonder historians have described nineteenth-century indenture as 'a new system of slavery'. The workers were not owned outright, but on the plantations they met harsh living and working conditions and had very few legal rights. Many were photographed and registered by number for identification: to their employers, a worker's number mattered more than his or her name.

The workers were not simply victims. Some ran away into the bush, risking harsh punishment if they were caught. Many more fought back through culture, mixing what they had brought from India with what they found in their new homes:

• Hosay in Trinidad: the Muharram procession, named after Imam Hussain, became a lively street carnival that workers of every race and religion joined.
• Rastafarianism: some scholars link this protest religion of Jamaica, made famous by the reggae star Bob Marley, to contact with Indian migrants in the Caribbean.
• Chutney music: a lively blend of Bhojpuri folk songs and Caribbean rhythms that grew out of life after indenture; Trinidad and Guyana love it today.

Each of these is a small example of globalisation itself: ingredients from distant places combined into something that had never existed before.

When their contracts ran out, most workers chose to stay, and many who sailed back to India soon returned to the islands that had become home. Their descendants form large communities in these countries today. The writer V.S. Naipaul, born in Trinidad, won the Nobel Prize for Literature in 2001. Two famous West Indies batsmen from Guyana, Shivnarine Chanderpaul and Ramnaresh Sarwan, are also descendants of indentured migrants. In the early twentieth century Indian nationalists campaigned against indenture as cruel and degrading, and it was abolished in 1921.44Recruitment for indenture overseas was halted in March 1917; 1921 is the date your textbook gives for abolition. For decades afterwards the descendants of indentured workers, often insultingly called 'coolies', were treated as outsiders in the Caribbean. Cut off from India yet not fully accepted where they lived, they felt a loneliness that Naipaul explored in his early novels.

2.5 Indian Entrepreneurs Abroad

A peasant in Burma clearing new rice land needed money long before his first harvest, for seed, tools, food and hired help. Banks lent to big plantations, not to him. Very often, the lender was Indian.

The Shikaripuri shroffs and the Nattukottai Chettiars were two of many Indian banking and trading groups that funded farmers growing export crops in Central and Southeast Asia. Some of the money was their own; some they borrowed from European banks. They sent funds over long distances using credit notes called hundis (हुंडी), and they ran their firms through well-organised business structures of their own. In Africa, Indian merchants and moneylenders set up business in the wake of European conquest. Traders from Hyderabad in Sindh looked further, far beyond the colonies. From the 1860s their shops in busy ports across the world sold curios, local and imported, to a swelling stream of tourists who could now travel on safe, comfortable passenger ships.

2.6 Indian Trade, Colonialism and the Global System

Indian cloth had been prized in Europe for centuries. Then Britain's own cotton mills grew, and their owners wanted Indian competition out of the way. The government obliged with tariffs on imported cloth, and fine Indian cotton stopped flowing into Britain. That was only the first blow. British mills, now producing more than Britain could use, sought buyers abroad from the early 1800s. So Indian weavers, already shut out of Britain, met cheap British cloth in markets across the world.

India's export figures tell the story (Fig. 3.8). Around 1800, cotton cloth made up roughly 30 per cent of India's exports. By 1815 the share was 15 per cent, and by the 1870s it had dropped below 3 per cent. Raw materials moved the other way: the share of raw cotton in India's exports rose from 5 per cent in 1812 to 35 per cent in 1871. India was being turned from a seller of manufactured goods into a supplier of raw materials. Indigo, the blue dye for cloth, was another major export for many decades.

Opium is a darker part of the story. Britain wanted Chinese tea but had few goods that China wished to buy. Opium grown in India became the answer. Shipments to China rose fast from the 1820s, and for a while opium was India's biggest single export. The silver it earned in China paid for Britain's tea and other Chinese goods.

Picture Britain's accounts as a set of ledgers, one for each trading partner. In the India ledger Britain earned more than it spent: its factory goods poured into India, worth far more than the grain and raw materials it bought there. That is a trade surplus. In the ledgers for the USA and industrial Europe the opposite was true: Britain bought more than it sold, a trade deficit. India's earnings from its own exports to those countries, passed on to Britain, helped fill the gap (Fig. 3.9). Economists call this a multilateral settlement system, and by playing its part in it, India became a crucial support of the world economy in the late nineteenth century.

The same surplus covered the so-called home charges, payments that left India for Britain year after year. They included pensions for British officials who had retired from Indian service, interest on loans the Government of India had raised abroad, and money that British officials and traders sent home privately.

3 The Inter-war Economy

The First World War (1914–18) was fought mainly in Europe, but its shock waves reached every continent. For the world economy, it opened three decades of crisis: violent ups and downs, political instability and, in the end, a second and even more terrible world war.

3.1 Wartime Transformations

In August 1914 many leaders confidently predicted that the soldiers would be home by Christmas. Instead the fighting dragged on for over four years. Why was it so deadly? The warring countries were the world's leading industrial powers. Their factories now poured out machine guns, tanks, aircraft and poison gas in enormous quantities: this was the first modern industrial war. Trains and steamships carried millions of soldiers, recruited from every continent and including over a million from India, to the front.

The war changed Europe's economies in three ways:

• Fewer workers. About 9 million people were killed and some 20 million wounded, a slaughter impossible before industrial weapons. Most were men of working age, so families lost earners and household incomes fell after the war.
• War economies. Factories switched from everyday goods to guns, shells and uniforms.
• Women at work. As men left for the front, women took over jobs once thought to be for men only, in munitions factories, offices and transport.

Wars are expensive, and trade between the enemy countries had stopped. Britain paid for much of its fighting with money borrowed in the USA, from American banks and from ordinary Americans who bought British bonds. Before 1914, foreigners had owned more assets in the USA than Americans owned abroad. By 1918 the position was reversed, and the USA had turned from an international debtor into an international creditor (Fig. 3.10).

3.2 Post-war Recovery

Peace did not bring easy recovery. Britain, the world's leading economy before 1914, shows why: after the war it faced three problems at once.

1. Lost markets. While British factories were busy with war work, industries had grown up in India and Japan. Once peace came, Britain could not regain its old hold on the Indian market, and it struggled to match Japan in world trade.
2. Heavy debts. It owed the USA huge sums borrowed to fight the war.
3. Lost jobs. The war had created a boom: demand, output and jobs all rose. When war orders stopped and the government slashed its spending to fit its peacetime income, boom turned to bust. By 1921 a fifth of British workers were unemployed, and fear of losing work hung over the post-war years.

Farmers had a post-war crisis of their own, and wheat shows it best. Before 1914: eastern Europe was one of the world's main wheat exporters. 1914–18: the war cut off that grain, so farmers in Canada, the USA and Australia ploughed up vast new fields to fill the gap. After 1918: eastern Europe's farms recovered, but the new fields overseas kept producing. Too much wheat chased too few buyers; prices fell, farm incomes dropped and debts mounted.

3.3 Rise of Mass Production and Consumption

The USA bounced back faster. As we have seen, the war had strengthened its economy, and after a short slump just after the war it was growing strongly again by the early 1920s. A key feature of that growth was mass production: making huge numbers of identical goods quickly and cheaply. Its roots go back to the late 1800s, yet only in the 1920s did it become the standard American way of making things.

Its best-known pioneer was the car maker Henry Ford. Picture his line from a worker's place. A car arrives, you fit your part, the same part in the same way, and the car moves on as the next one arrives. The belt, not you, sets the speed, and a pause of even a few seconds holds up everyone further along. Ford took the idea from Chicago's meat-packing plants, where carcasses hung from a moving chain and each butcher made one cut, and applied it to car-making in Detroit. Output per worker shot up: cars now rolled off the assembly line about every three minutes, far faster than before. No car before the T-Model Ford had ever been mass-produced.

Many workers could not stand the strain, and so many quit that Ford was forever hiring and training replacements. His answer, in January 1914, made headlines: he doubled the daily wage to $5. Two conditions came with it. Unions were not allowed in his plants. And the line kept getting faster, so that each worker produced more for every dollar paid and the higher wage paid for itself. Ford later boasted about the decision:

Other American firms soon adopted Ford's methods, which came to be called Fordism, and European factories copied them through the 1920s. Because each item now cost less to make, cars and other engineered goods became cheaper, and better-paid workers could afford them. Between 1919 and 1929 the number of cars made in the USA each year more than doubled, from about 2 million to over 5 million. Families also bought refrigerators, washing machines, radios and gramophones, usually on hire purchase: taking the goods home at once and paying in weekly or monthly instalments. A boom in house-building and home ownership, also paid for with loans, added to the demand.

Cheap goods, easy credit and new houses made the 1920s feel like an endless boom (Fig. 3.11). Investment created jobs and incomes, incomes raised spending, and spending encouraged yet more investment. America's wealth spilled abroad too. From 1923 it was again sending capital overseas, now as the world's biggest lender, and its loans and purchases helped Europe recover and world trade grow for six years. The good times would not last. By 1929 the world was sliding into the worst depression it had ever known.

3.4 The Great Depression

The Great Depression lasted from about 1929 to the middle of the 1930s. It did not strike every country at the same moment or with the same force, but almost everywhere output, jobs, incomes and trade collapsed. Who suffered most? Generally, farmers and farming regions: crop prices fell further than the prices of factory goods, and stayed low for longer.

No single cause explains the depression. Several weaknesses of the fragile post-war economy combined.

First, too much farm produce. Farm prices were already falling. Each farmer reacted in a way that made sense for one family: to keep his income up, he grew more and sent more to market. But when millions of farmers did the same, the extra supply flooded the market and pushed prices down even further. Crops rotted unsold. Try this trap for yourself in the model below.

Second, borrowed money that vanished. In the mid-1920s many countries paid for their investments with loans from the USA. Borrowing in America was easy in good times, but the lenders were nervous, and when trouble appeared they pulled out fast. US lending abroad topped $1 billion in the first six months of 1928; twelve months later it had shrunk to about a quarter of that (Fig. 3.13). In October 1929 share prices on the New York stock exchange crashed, deepening the panic. Countries that depended on American credit were suddenly in deep crisis.

The figure traces the shock wave. European banks that had relied on American money failed, and currencies such as the British pound sterling collapsed. Producers of food and raw materials in Latin America and elsewhere saw their prices sink further. And when the USA put up much higher import duties to protect its own producers (the Smoot–Hawley Tariff of 1930, which your textbook describes as doubling them), world trade shrank again.

Inside the USA the crisis fed on itself, and no industrial country was hit harder. Worried banks stopped lending at home and demanded their loans back. Farmers were left with unsold crops, families lost their savings and firms went under. Families who fell behind on their repayments lost their houses, their cars and the other goods they had bought on credit. The prosperity of the 1920s vanished almost overnight. As unemployment soared, jobless men and women walked from town to town hoping for any work at all.

In the end the banking system itself broke down. Banks could not get back what they had invested or lent, so they could not pay their depositors, and thousands failed. The toll was staggering: over 4,000 banks had shut by 1933, and some 110,000 firms failed in the four years from 1929 to 1932. By 1935 most industrial countries had begun a modest recovery. The scars ran deeper and lasted longer: the depression changed politics, relations between countries and the way a whole generation thought about money and work.

3.5 India and the Great Depression

The depression's impact on India shows how tightly the world economy had been knitted together by the early twentieth century. Shocks now travelled fast from one region to another, so a crash in New York could be felt within months in a village in Bengal.

Because colonial India sold farm produce to the world and bought manufactured goods (Section 2.6), the slump reached it at once (Fig. 3.14). Indian trade shrank by nearly half between 1928 and 1934, in both directions. World prices dragged Indian prices down with them: over the same six years, wheat lost half its price.

The countryside suffered most. A peasant's crop now fetched far less, yet the colonial government still demanded the same land revenue. The tax therefore ate up a much bigger share of a shrinking income. Families growing cash crops for export were the worst hit.

Bengal's jute growers show how this worked. Their raw jute went to mills that made gunny bags, mostly for export. Once overseas buyers stopped ordering gunny bags, raw jute lost over 60 per cent of its price. Many growers had borrowed to expand their crop, expecting good prices; now each harvest earned less than the last, and their debts only grew.

Rural debt climbed all over India. To pay their dues, peasants spent whatever they had saved, pledged their land to moneylenders and sold off jewellery, gold and silver. So, in the depression years, gold flowed out of India in large amounts. John Maynard Keynes, the best-known economist of the age, argued that this Indian gold helped the world economy recover. It certainly helped Britain bounce back faster, but the peasant who sold his wife's bangles gained nothing from it. This rural anger was the backdrop to the Civil Disobedience Movement, which Mahatma Gandhi began with the Dandi March in 1930 as the depression deepened.55Your textbook says 1931. The Dandi March began on 12 March 1930; the movement was paused in 1931 after the Gandhi–Irwin Pact and resumed in 1932.

4 Rebuilding a World Economy: The Post-war Era

Barely twenty years after the First World War ended, the Second World War broke out (1939–45). Nazi Germany, Italy and Japan led the Axis; the Allied side included Britain, France, the Soviet Union and the USA. For six years it was fought on many fronts, on land, at sea and in the air. Germany's invasion of the Soviet Union in June 1941 proved a turning point.

Its cost in lives was the highest in history. At least 60 million people died, directly or indirectly, about 3 per cent of everyone alive in 1939, with millions more wounded. Most victims were not soldiers. Civilians died in far greater numbers, in bombed cities, sieges, famines and massacres. Air raids and artillery left cities across Europe and Asia in ruins, among them the Soviet city of Stalingrad, and whole economies were wrecked. Rebuilding would take years.

Who would lead the rebuilding? In the West the answer was the USA, now the strongest economic, political and military power. In the East stood the Soviet Union. Its people had paid a terrible price to defeat Nazi Germany. Yet in the 1930s, while capitalist economies were sunk in depression, it had turned itself from a poor farming country into an industrial world power. These two giants shaped the post-war world.

4.1 Post-war Settlement and the Bretton Woods Institutions

The planners of the post-war world had learned two lessons from the years between the wars:

1. Mass production needs mass consumption. Factories can keep producing only if people keep buying, and people buy steadily only if their incomes are high and secure. Secure incomes need steady work for everyone, or full employment. Markets alone cannot guarantee that, so governments must step in to smooth out swings in prices, output and jobs.
2. Full employment needs control at the border. A government can protect jobs only if it has the power to control the flows of goods, capital and labour into and out of its country.

Everything else followed from one goal: steady growth and jobs for all in the industrial countries. The plan for achieving it was agreed in July 1944 at the United Nations Monetary and Financial Conference. Delegates from 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire, USA. The conference created two institutions:

• the International Monetary Fund (IMF), to help member countries manage their external surpluses and deficits;
• the International Bank for Reconstruction and Development (IBRD), better known as the World Bank, to pay for rebuilding after the war.

People call the pair the Bretton Woods institutions or the 'Bretton Woods twins', and the whole post-war set-up the Bretton Woods system. They started lending in 1947. Who runs them? From the beginning the Western industrial powers have controlled decisions, and the USA can in effect veto key ones in both. In the IMF, for example, votes depend on how much money each member puts in. The most important decisions need 85 per cent of the votes, and the USA holds more than 15 per cent.

How did money work in this system? An exchange rate is the price of one currency in terms of another, and under Bretton Woods these rates were fixed. The US dollar could be converted into gold at $35 an ounce, and every other member's currency, the Indian rupee included, was given a fixed value in dollars. So gold anchored the dollar, and the dollar anchored the rest (Fig. 3.15).

4.2 The Early Post-war Years

For the Western industrial countries and Japan, the next twenty years were a golden age. Look at three numbers for 1950–70. World trade grew by over 8 per cent a year and incomes by almost 5 per cent a year. In most industrial countries unemployment usually stayed below 5 per cent. Just as important, growth was smooth, without the violent booms and busts of the inter-war years.

These decades also spread technology and enterprise around the world. Poorer countries wanted to close the gap with the rich ones quickly, so they spent heavily on imported factories and machines built with up-to-date technology. India's Five-Year Plans, which built steel plants, dams and heavy industries from the 1950s, were part of this drive.

4.3 Decolonisation and Independence

In 1945 European empires still covered much of Asia and Africa. Twenty years later most of those colonies were independent nations. India became free in 1947 and Ghana in 1957, and in 1960 alone seventeen new countries, sixteen of them African, joined the United Nations (Table 3.2). Freedom did not bring wealth. The new states inherited poverty and few resources, and long colonial rule had shaped their economies and societies to suit their former rulers.

The Bretton Woods twins had been built to serve rich industrial economies; fighting poverty in former colonies was not what they were designed for. Their focus shifted for a simple reason. Europe and Japan recovered so quickly that by the late 1950s they hardly needed the twins' help. So the IMF and the World Bank began to look more towards developing countries.

Think about what this meant. A country that had just won freedom from Britain or France now sought loans and advice from institutions in which Britain, France and the USA had the loudest voices. Independence on paper did not always mean control in practice. In many former colonies the old rulers still owned or controlled mines and plantations. Big companies from powerful countries such as the USA often bought the right to extract oil, minerals or timber very cheaply.

The boom of the 1950s and 1960s also passed most developing countries by, so they chose to bargain as a bloc. In 1964, at the first United Nations Conference on Trade and Development in Geneva, 77 developing countries, India among them, formed the Group of 77, or G-77. It has 134 members today but keeps its original name. The G-77 demanded a New International Economic Order (NIEO), which the UN General Assembly called for in a declaration of 1974. Their NIEO had four main demands:

• genuine control of their own natural resources;
• more aid for development;
• fair prices for the raw materials they sold;
• easier entry for their manufactured goods into the markets of rich countries.

4.4 End of Bretton Woods and the Beginning of 'Globalisation'

The system's anchor was the dollar, and in the 1960s the anchor began to slip. America was spending heavily abroad, on wars and military bases among other things, and its finances and competitiveness weakened. Dollars piled up around the world, far more than the USA could ever exchange for gold. People began to doubt that an ounce of gold could really still be had for $35. In August 1971 the US government stopped exchanging dollars for gold, and by 1973 fixed rates had been abandoned and currencies had begun to float.

A second change followed in the mid-1970s. Poorer countries could no longer count on international institutions for loans and aid; instead they had to raise money from Western commercial banks and other private lenders. The result was a series of debt crises across the developing world, such as the one that began in 1982 when Mexico could not pay its debts. Incomes fell and poverty rose, worst of all in Africa and Latin America.

Rich industrial countries were struggling too. Joblessness there climbed after about 1975 and did not come down until the early 1990s. Looking for cheaper labour, MNCs started in the late 1970s to move their factories to low-wage countries in Asia.

After its revolution in 1949, China stood outside the post-war world economy. That changed from 1978, when new economic policies opened it to foreign trade and investment. Between 1989 and 1991 communist rule collapsed in Eastern Europe and the Soviet Union, and many more countries rejoined the world economy. Foreign MNCs racing for world markets were drawn to places like China, where wages were low. Look at the labels on the TVs, phones and toys in a shop near you: 'Made in China' appears again and again. Making things there has been cheap, above all because of low wages.

Moving industry to low-wage countries boosted world trade and the flow of capital. India opened up its own economy with major reforms in 1991. In recent decades India, China, Brazil and other countries have changed rapidly, redrawing the world's economic map. The globalised world you live in today grew out of this long history.