Hwa Chong Institution International History: 1945 2000

Objectives: 1. To be clear and understand the reasons for the dominance of USA as a global economic and political power.

1. Introduction The USA began in 1775 as a weak confederation of 13 sovereign states. As that minimal state failed to deal with worsening socioeconomic problems, a political consensus arose to create a more powerful state. In 1787, the USA adopted its current constitution, which created a federal system. The power and duties es of America's government have steadily risen since then to deal with new problems and public demands. Today, the national government consumes nearly a quarter of GNP and regulates directly or indirectly virtually all economic sectors. 2. Reasons for US dominance inance in the global economy

Rise of Keynesian Economics

Major market for the world economy

Commitment to international trade

Role of American MNCs

Military might

Political will and economic ability

Political influence

Commitment to a liberal and multilateral international economic order

Dominance in the Bretton Woods system

Dollarisation

Foreign Aid and Investment

2.1. Rise of Keynesian Economics The early 1930s saw the US stock market crash and the subsequent Great Depression discredited classical economic theory that asserted that markets should be self self-regulated regulated rather than government regulated. Unbridled speculation had created and then popped a huge speculative stock bubble. The rising depression was deepened by President Hoover's classical classic liberal economic hands-off hands response. While the economy sunk further into depression, Hoover actually called for federal spending cuts to balance the budget. 2.1.1. The US economy during Roosevelt's time After Roosevelt became President in 1933, the government increasingly assumed more responsibility for managing the economy. In his first 100 days in office, Roosevelt pushed 15 bills through Congress that by a variety of means stimulated the economy with greater government spending and programmes. The represented the first time that the US had systematically attempted to smooth out economic boom and bust cycles. During WWII, the government shifted its policy from stimulating specific economic sectors to direct management of the economy for the war and targeted strategic industries for development.

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2.1.2. Growing government support for US industries From WWII through today, the government has continued to target specific economic sectors for development with industrial policies. But instead of far-sighted policies of the war years, USA now picks industrial winners and losers largely through a political process in which the most established industries pour money into the re-election funds of enough politicians until they are rewarded with a range of government subsidies, protection and other advantages. The power of the agribusiness and textile lobbies has enabled them to receive vast government largesse and import protection. Other industries have been favoured by being part of the military-industrial complex. US semiconductor, computer, aerospace and microelectronics industries to name some of the more prominent, were all shaped by Washington's military-industrial and technological policies. 2.2. Major market for the world economy: Surplus resources WWII had engaged the resources of the industrialized belligerents in Europe and Japan and their traditional role of supplying manufactured goods to the rest of the world diminished greatly. The USA still had much surplus and filled in the gaps especially in Latin America but other countries had to look to their own resources to meet demand from manufacturers. The countries not directly occupied or damaged tended to be relative gainers from the changes produced by the war. Thus in 1945, USA became the leading economy, owing its favourable position not only to the damage and destruction suffered by its leading rivals but American technical and commercial superiority had been well established before 1939 as well as its immense resources. Even by 1971, when others had made progress, USA still accounted for a third of world industrial production. In terms of output production in 1967, if USA was taken at 100, Germany stood at 50, Japan and France at 45 and Britain at 35. At the same time, agricultural productivity was many times higher than other advance countries not merely due to superior technology but the number of acres per person exceeded those available in Europe and Japan by an enormous margin. USA produced almost half the world's total in 1946, compared with only 32 % in 1936-8. Its mercantile marine rose from 17% of the world's tonnage in 1939 to 53% in 1947. It was the largest economy in the world with large resources of minerals, large farming industry. U.S oil production is the third highest in the world and it is the world's second largest producer of natural gas. It has the largest GDP and the third largest population in the world. The United States has a capitalist mixed economy. Although private organizations constitute the bulk of the economy, government activity accounts for 12.4 percent of the GDP. The United States GDP of more than $13 trillion constitutes 22 percent of the gross world product. The nation ranks as the third or eighth highest GDP per capita, according to the International Monetary Fund. The economy is fuelled by abundance in natural resources, well-developed infrastructure, and high productivity. The United States is the largest importer of goods and second largest exporter. Canada, China, Mexico, Japan, and Germany are its top five trading partners. 2.3. US commitment to international trade With its abundance of resources, favourable position after WWII, the demand for its exports (after WWII) and commitment of its leaders to push for international free trade, it led to the globalisation of the American economy. The industrial policies initiated by the Roosevelt administration have continued today and has forged a consensus on the importance of international trade and prosperity for American prosperity and the president's role in regulating it. The American Constitution grants the power of regulating trade to Congress. Since 1934, however, Congress has periodically allocated powers to the president to negotiate trade agreements. The greatest increase in presidential trade power occurred with the passage of the 1988 Omnibus Trade Act, which made it much easier for the president to retaliate against foreign dumping and other unfair practices that can harm America's economy. All American presidents from Roosevelt to Clinton have recommitted the US to the ideal if not practice of free trade.
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Special Thanks to Mrs. Renee Low.

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Hwa Chong Institution International History: 1945 2000

Like any country, the US has industrial and trade policies designed to give its industries advantages over their foreign rivals. The difference is that most officials and politicians deny it and continue to champion liberal economic theory as the basis for America's economy. In 1992, Clinton won the elections as during his campaign, he had indicated that he rejected the dichotomy between free trade and protectionism and that his policies were on a different way to restore US competitiveness. When he became president, his policies succeeded in reviving American power, although trade and payment deficits persist. The globalisation of the American economy is reiterated and interlinked to US as a major market, the role of the American MNCs, foreign aid and investment, political will and influence. 2.4. Role of American MNCs Corporations set up shop overseas for many reasons, including gaining access to restricted markets, raw materials and technology, lower operating costs including cheap labour and weaker environmental standards, access to government investment incentives. Red tape, poor infrastructure, political instability, corruption and unskilled workers can inhibit foreign investments. Immediately after WWII, it was the American MNCs that expanded the fastest and by 1966, there were nearly 9000 American MNCs in Western Europe alone. American MNCs can have a powerful influence in international relations and local economies. Multinational corporations play an important role in globalization; some argue that a new form of MNC is evolving in response to globalization e.g. the 'globally integrated enterprise'. Large multinational corporations can have a powerful influence in international relations, given their large economic influence in politicians' representative districts, as well as their extensive financial resources available for public relations and political lobbying. Case Study 1: MacDonalds With the successful expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. McDonald's restaurants are found in 120 countries and territories around the world and serve nearly 54 million customers each day. McDonald's has become emblematic of globalization, sometimes referred as the "McDonaldization" of society. The Economist magazine uses the "Big Mac index": the comparison of a Big Mac's cost in various world currencies can be used to informally judge these currencies' purchasing power parity. Because McDonald's is closely identified with United States culture and lifestyle, its international business expansion has been termed part of Americanization and American cultural imperialism. McDonald's remains a target of anti-globalization protesters worldwide. Some observers have suggested that the company should be given credit for increasing the standard of service in markets it enters. In a study entitled Golden Arches East (Stanford University Press, 1998, edited by James L. Watson), it looked at the impact McDonald's had on East Asia, and Hong Kong in particular. When it opened in Hong Kong in 1975, McDonald's was the first restaurant to consistently offer clean restrooms, driving customers to demand the same of other restaurants and institutions. In East Asia in particular, McDonald's have become a symbol for the desire to embrace Western cultural norms. McDonald's have recently taken to partnering up with Sinopec, China's second largest oil company, in the People's Republic of China, as it begins to take advantage of China's growing use of personal vehicles by opening numerous drive-thru restaurants. McDonald's multi-national, multi-billion dollar business and standardized products and procedures have come to symbolize globalization and the American way of life, and the company has often found itself a target of activism and a focal point of public debate.

Case Study 2: Ford Motor Company

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Hwa Chong Institution International History: 1945 2000

Ford Motor Company is an American multinational corporation and the world's third largest automaker after Toyota and General Motors, based on worldwide vehicle sales. In 2006, Ford was the secondranked automaker in the US with a 17.5% market share, behind General Motors (24.6%) but ahead of Toyota (15.4%) and DaimlerChrysler (14.4%). Ford was also the seventh-ranked American-based company in the 2007 Fortune 500 list, based on global revenues of $160.1 billion. In 2006, Ford produced about 6.6 million automobiles, and employed about 280,000 employees at about 100 plants and facilities worldwide.

Case Study 3: Nike Nike is the largest sportswear supplier in the world, with 500 factories around the world and offices located in 45 countries outside the United States. Most of the factories are located in Asia, including China, Taiwan, India, Turkey, Thailand, Vietnam, Pakistan, Philippines, Malaysia, and Korea.

Nike has been criticized for contracting with factories that allegedly use sweatshop labour in countries such as China, Vietnam, Indonesia and Mexico. Vietnam Labour Watch, an activist group, has documented that Nike has violated minimum wage and overtime laws in Vietnam as late as 1996, although Nike claims that this practice has been halted. In the 90's, Nike faced criticism for its use of child labour in Cambodia and Pakistan in its production of soccer balls. Although Nike took action to curb or at least reduce the practice of child labour, they continue to contract their production to companies that operate in areas where inadequate regulation and monitoring make it hard to ensure that child labour is not being used. Despite these criticisms, Nike's annual revenues have increased from $6.4 billion in 1996 to $15 billion in 2006. Nike sells its products in international markets through independent distributors, licensees and subsidiaries.
Case Study 4: Hewlett Packard The Hewlett-Packard Company, commonly known as HP, is currently the world's largest information technology corporation (by revenue) and is known worldwide for its printers, personal computers and related services. Headquartered in Palo Alto, California, United States, it has a global presence in the fields of computing, printing, and digital imaging, and also provides software and services. HP is now the No. 1 ranking company in worldwide personal computer shipments, surpassing rival Dell.

2.5. Military might 2.5.1. Size and budget As the majority of World War II was fought far from its national boundaries, the United States did not suffer the industrial destruction or massive civilian casualties that marked the wartime situation of the countries in Europe or Asia. During the war, the United States had built up a strong industrial and technological infrastructure that had greatly advanced its military strength into a primary position on the global stage.

The United States and Soviet Union jockeyed for power after World War II during a new Cold War, dominating the military affairs of Europe through the North Atlantic Treaty Organization (NATO) and the Warsaw Pact. The United States promoted liberal democracy and capitalism, while the Soviet Union promoted communism and a centrally planned economy, but both sides supported dictatorships when politically convenient and engaged in proxy wars, including the Korean War and the Soviet war in Afghanistan. The military budget of the United States in 2005, over $470 million, was estimated to be greater than the next fourteen largest national military budgets combined. However, the military budget was only about 4
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percent of GDP, a lower percentage than that of twenty-six other nations. The Department of Defense employs 2,338,213 troops and over 800,000 civilian employees, disregarding contractors. In the short term, military spending can boost an economy. The U.S. military is deployed to more than 700 bases and facilities, on every continent except Antarctica. Due to the sheer size of its global military presence, scholars accuse the United States of maintaining an "empire of bases".
2.5.2. Advanced technology, vast number of bases globally and nuclear arsenal The USA has bases all over the world, particularly in an incomplete "ring" bordering the Soviet Union to the West, South and East. It also has the largest nuclear arsenal in the world during the first half of the Cold War stationed on its own soil and also in Europe. It also has a strong and technologically advanced army, world's largest navy, and the largest and most technologically advanced air force in the world. Military assets such as a Nimitz class aircraft carrier are a means of power projection on a global scale one hallmark of a superpower. 2.5.3. US power projection and international influence The ability of a nation to apply all or some of its elements of national power - political, economic, informational, or military to rapidly and effectively deploy and sustain forces in and from multiple dispersed locations to respond to crises, to contribute to deterrence, and to enhance regional stability and enhances its influence greatly.

Military Might can be used as a leverage to influence the actions of another country and to boost one's own position, elevate its status as in the case of USA. This ability is a crucial element of a state's power in international relations. The ability of a state to project its forces into an area may serve as an effective diplomatic lever, influencing the decision-making process and acting as a potential deterrent on other states' behaviour. While a few long-range weapons such as the intercontinental ballistic missiles (ICBMs) and certain types of cruise missilesare capable of projecting deadly force in their own right, most discussion of power projection revolve around issues of military logistics. The ability to integrate naval and air forces with land armies as part of joint warfare is generally viewed as a key aspect of effective power projection; airlift and sealift capabilities allow a country to deploy units of soldiers or weapons to distant destinations not easily accessible by land forces. The aircraft carrier battle group, strategic bomber, Ballistic missile submarine, and C-5B Galaxy strategic airlifter are all examples of power projection platforms, as are military units designed to be light and mobile, such as airborne forces (paratroopers and air assault forces). Forward basing is another method of power projection, which by pre-positioning military units or stockpiles of arms at strategically located military bases outside a country's territory, reduces the time and distance needed to mobilize them for combat in a distant theatre of war.
2.5.4. US defense budget: the largest budget and most influential military power in the world The U.S defence budget is the largest in the world, and is almost equal to the combined military spending of all other nations. The U.S.A has the second largest stockpile of nuclear weapons and intercontinental ballistic missiles in the world. It also has more aircraft carriers and ballistic missile submarines than any other country, and is the only country apart from Russia that operates strategic bomber aircraft. The U.S.A is the most influential member in NATO. The military budget of the United States in 2005, over $470 billion was estimated to be greater than the next fourteen largest national military budgets combined. However, the military budget was only about 4 percent of GDP, a lower percentage than that of twenty-six other nations. 2.6. Political will and economic ability to promote international trade and economic development 2.6.1. Wealth of resources
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Hwa Chong Institution International History: 1945 2000

During WWII, the USA asserted leadership over both the military effort against the Axis countries and attempted to create a liberal global political economy. American wealth and power grew enormously during WWII; even in 1938 the US had 54% of the world's gold and financial reserves, compared with 11% each for France and Great Britain. From 1939 to 1945, American GNP increased from $88.6 billion to %135 billion and its gold reserves of $20 billion were 2/3 and its industrial output was half of the world total. America's leaders mustered the will to match their nation's capacity to lead the world's economic revival. Its most important initiative occurred in 1944 at Bretton Woods. USA was a country not directly occupied or damaged by the war and gained from the war. In 1946, USA manufacturers produced half the world's total output The Europeans suffering from unparalleled shortages of food, fuel, raw materials and capital equipment in the immediate post-war years saw the only source of supply to lie in the surplus stocks of North Americaif they could afford it. As a result during the post war years the economic outlook of the industrialized world came to be dominated by the 'dollar shortage'. It saw the shift in the distribution of the world's economic weight away from Europe to North America. The USA had the richer natural resources also being richer, could invest in more capital yearly and thus keep ahead technologically.
2.6.2. Political changes: capitalism v socialism Unlike after WWI where USA had withdrawn into isolationism, this time the US was determined to take its place as the leading political power. Backed by overwhelming economic and military might, the US became one of the two superpowers and so the economic history of the world's economy cannot be separated from political developments. In 1945, the U.S. emerged from World War II as one of two nuclear superpowers and a permanent member of the United Nations Security Council. The sole remaining superpower, it is the dominant economic, political, military, and cultural force in the world.

Following WWII, the world was divided into two hostile camps, the western 'capitalist' and largelydemocratic countries led by the USA and the eastern 'socialist' countries dominated by the Soviet Union. From being allies, the two superpowers and their satellites or supporters saw each other with increasing suspicion from 1947 onwards. The Soviet Union expanded westward absorbing 3 Baltic States and parts of Poland, Germany and Romania; the Red Army was used to help install communist governments in a number of Eastern European states. The USA used its economic power to prevent countries in the rest of the world from following the same path and surrounded the Soviet Union with a ring of threatening military bases. Each of them tied their allies to themselves through tight military alliances, NATO and the Warsaw Pact. This period of the Cold War would see these two powers armed to the teeth with lethal weapons but not confronting each other directly but through a series of proxy armed conflicts, the Korean War (1950-53), the Vietnam Conflict (1965-75) and the Afghanistan war (1979-88). These political developments dominated world politics and would have an effect on economic developments as well. Due to the Cold War conflict, USA exercised their political will to promote international trade and economic activities in capitalist countries so as to prevent communism from infiltrating into these countries and gaining world dominance.
2.7. Political influence Having taken on the mantle of political leadership in the western world after 1945, USA saw itself as the leading military power, not merely in the struggle against communism in major wars such as Korea and Vietnam but also other conflicts like Africa and the western hemisphere the political presence of USA was immense and global. In addition, the US had an enormous armament programme as well as the Cold War had led to large expenditure on espionage or propping of weak governments to keep them within the western orbit.

USA also supported its allies in Europe through economic aid, e,g. Marshall Plan and was the leading contributor, directly and through international organizations, to the provision of aid and loans to the Third World. All these saw to USA asserting its political power and influence worldwide.
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Hwa Chong Institution International History: 1945 2000

USA also had a strong and stable liberal democracy, a Permanent seat on the UN Security Council, strong ties with Western Europe, Latin America, British Commonwealth, end several East Asian countries. After the dissolution of the Soviet Union in 1991 that ended the Cold War, the post-Cold War world is widely considered as a unipolar world, with the United States as the worlds sole remaining superpower.
USA's political influence after the Cold war A great power is a nation or state that, through its great economic, political, military and diplomatic strength, is able to exert power in the world. Its opinions are strongly taken into account by other nations before taking diplomatic or military action. Characteristically, they have the ability to intervene militarily almost anywhere, and they also have soft cultural power to indirectly influence the behaviour or interests of other political bodies through cultural or ideological means.

The election of Ronald Reagan as president in 1980 marked a significant rightward shift in American politics. In the late 1980s and 1990s, the Soviet Union's power diminished, leading to its collapse. The leadership role taken by the United States and its allies in the United Nations sanctioned Gulf War and the Yugoslav wars helped to preserve its position as the world's last remaining superpower and to expand NATO. The United States has vast economic, political, and military influence on a global scale, which makes its foreign policy a subject of great interest around the world. Isolationism became a thing of the past, however, when the United States took a lead role in founding the United Nations, becoming a permanent member of the Security Council, and host to the United Nations headquarters. The U.S. enjoys a special relationship with Britain, and close ties to Australia, Japan, Israel, and fellow NATO members. Additionally, they enjoy close ties to its neighbours through the Organization of American States and free trade agreements such as the trilateral North American Free Trade Agreement with Canada and Mexico.
2.8. Commitment to a liberal and multilateral international economic order 2.8.1. NAFTA The USA has attempted to increase its economic growth and bargaining power with other countries by forging a free trade association with its neighbours. In 1988, the USA, and Canada signed a free trade agreement whereby they would eliminate tariffs and non-tariff barriers towards most of each other's exports. In 1991, the USA, Mexico and Canada began negotiations to create a North American Free Trade Association (NAFTA), which that year unified 363 million consumers and $6.5 trillion in economic activities.

In his first year as President, Clinton negotiated his promised agreements with Mexico and after a major push managed to ratify NAFTA in 1993. The USA gained far more from NAFTA than Mexico, as US had already gained from the closer ties. In 1987, a trade agreement with Mexico nearly doubled bilateral trade and tripled American exports from $15 billion until the US enjoyed a trade surplus of $5.4 billion and $41 billion in exports in 1992. America's trade surplus has translated into 350,000 new jobs for the country. In 1992, 8.5% of total American exports went to Mexico, making that US' third largest trade partner after Canada and Japan. NAFTA is predicted will create for USA 325,000 new jobs over the next decade and overall, the US will enjoy not only more but better paying jobs because export-related jobs pay 17% more than non-export jobs. In this sense, US has not only strengthened itself internally economically but established itself to be a major economic influence and power regionally.
2.9. Dominance in the Bretton Woods system US invitation to representatives of 44 different countries was to create a new global order and economy. Diplomats signed agreements designed to end trade barriers and competitive currency devaluations that
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had devastated the global political economy throughout the 1930s which had contributed to the rise of fascism and imperialism in Italy, Germany and Japan. Hence there would be a fixed currency in which each currency would be tied to the dollar and in turn tied to gold at a value of $35 an ounce. At that time, USA owned 70% of the world's official gold reserves. Currency rates were allowed to fluctuate not more than 1% of the fixed rate. Countries that earned dollars from trade could redeem them with gold. This fixed gold system would eliminate the problem of competitive currency devaluations. For many of the industrialized nations between the period of the Korean War and the first oil shock of 1973 was one of steady progress because of the stability provided by the American dominated Bretton Woods financial and trading system. The success of the measures initiated at Bretton Woods depended on the willingness of the USA whose economy in 1944 accounted for more than half of the world domestic product. USA was needed to fund these institutions and maintain the monetary policies conducive to world economic growth. Soon after the Bretton Woods institutions came into being, USA pegged the dollar to gold at US$35 an ounce, enacted large foreign aid programmes to pump liquidity into the international economic system and made the largest subscription of funds of any PARD member to the assets of the World Bank. The USA not only initiated the Bretton Woods conference, but took the lead in offering loans through the lMF, World Bank and led in the multilateral approach to trade liberalisation through its support of GATT. Its dominance in the World Bank, GATT and IIIF also saw to the push for implementation of market oriented, laissez-faire type economic policies, thereby the thrust towards capitalism.
2.10. Dollarisation

2.10.1. Dominance of the US dollar In the post-war years the US dollar had been the leading reserve currency; the currency in which central banks of other countries held their reserves to meet international obligations. It was also the key currency used within the IMF and the world's oil is traded in dollars. The dollar kept that status even after the relative economic power of the USA had been weakened as the central banks as well as citizens of other countries continued to be willing to hold and trade dollars. The U.S. dollar is the currency most used in international transactions.

Several countries use the U.S. dollar as their official currency, and many others allow it to be used in a de facto capacity. In 1995, over US $380 billion were in circulation, two-thirds of which was outside the United States. By 2005, that figure had doubled to nearly $760 billion, with an estimated half to twothirds being held overseas, representing an annual growth rate of about 7.6%. The dollar is also used as the standard unit of currency in international markets for commodities such as gold and petroleum. Even foreign companies with little direct presence in the United States, such as the European company Airbus, list and sell their products in dollars, although some argue this is attributed to the aerospace market being dominated by American companies. At the present time, the U.S. dollar remains the world's foremost reserve currency, primarily held in $100 denominations. The majority of U.S. notes are actually held outside the United States. The dollar is the most important international reserve currency.
2.10.2. Dollarisation Other nations besides the United States use the U.S. dollar as their official currency, a process known as official dollarisation. For instance, Panama has been using the dollar alongside the Panamanian balboa as the legal tender since 1904 with a rate of change of 1:1. Ecuador (2000), El Salvador (2001), and East Timor (2000) all adopted the currency independently. The former members of the US administered Trust Territory of the Pacific islands, which included Palau, the Federated States of Micronesia, and the Marshall Islands, chose not to issue their own currency after becoming independent, having all used the U.S. dollar since 1944.

Two British dependencies also use the U.S. dollar: the British Virgin Islands (1959) and Turks and Caicos Islands. Some other countries link their currency to U.S. dollar at a fixed exchange rate. The local currencies of Bermuda and the Bahamas can be freely exchanged at a 1:1 ratio for US 1. Argentina used a fixed 1:1 exchange rate between the Argentine peso and The U.S. dollar from 1991 until 2002.
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Hwa Chong Institution International History: 1945 2000

The currencies of Barbados and Belize are similarly convertible to a 2:1 ratio. In Lebanon, one dollar is equal to 1500 Lebanese pound and is used interchangeably as de facto legal tender. The exchange rate between the Hong Kong dollar and the United States dollar has also been linked since 1983 at HK$7.8/USD, and pataca of Macau, pegged to Hong Kong dollar at MOP1.03/HKD, indirectly linked to the U.S. dollar at roughly MOP8/USD. Several oil-producing Gulf Arab countries, including Saudi Arabia and Kuwait, peg their currencies to the dollar, since the dollar is the currency used in the international oil trade. The renminbi used by the People's Republic of China was informally and controversially pegged to the dollar in the mid-1990s at Y8.28/USD. Likewise, Malaysia pegged its ringgit at RM3-.8/USD in 1997. On July 21, 2005 both countries removed their pegs and adopted managed floats against a basket of currencies. Kuwait did likewise on May 20, 2007, and Syria plans to in July. In some countries, such as Peru, although USD is not officially regarded as a legal tender, it is commonly accepted. In Cambodia, the USD circulates freely or even preferred over the Cambodian riel. Amount of one dollar or more is given in dollar, while the riel serves as a subunit. The preference of other countries to use the US dollar has propelled the USA as a dominant economic power with an influential currency status and regulation of world trade.
2.11. Foreign aid and investment Foreign assistance is money or other aid made available in developing countries to help them speed up economic development or meet humanitarian needs. USA leads in the amount of foreign assistance given since WWII hence the dominance of USA in political, economic and military influence. Types of aid Grants: funds given free to a recipient state, for example, US regularly gives credits that can be used for purchase of US grain. Loans: given to help in economic development, with long repayment times and low interest rates. Loan guarantees: promises by the donor state to back commercial loans to the recipient. Military aid: geared almost exclusively to political alliances than developmental needs. Foreign aid and investment during the Cold war Aid was largely provided by the USA after WWII not only to help in the development of the affected wartom countries but almost certainly to counter the influence of communism. 2.11.1. Post-WWII aid and investment: growth of the capitalist economy Refer to US aid to Japan and role in Japanese economic recovery, aid to Taiwan and Korea and impact (See lecture 1), Marshall Aid and impact on Europe. By 1949, with US aid, Europe was able to make a rapid recovery with increased availability of goods in Europe and North America. 2.11.2. Agency for International Development: USAID The main agency dispensing US foreign economic assistance (but not military aid) is the State Department's Agency for International Development (USAID); which works mainly through the US embassy in the recipient country. Major recipients of foreign aid include Israel, Turkey, Egypt and Iraq (since 2003)all important strategic allies in the volatile Middle East.

The US uses the promise of aid or the threat of cutting it off as a leverage in political bargaining with recipients. For example, Pakistans nuclear weapons programme in the late 1980s, despite US warnings, resulted in the termination of a sizable flow of US aid. When Pakistan supported US military action in Afghanistan in 2001, US aid was restored. The US has sometimes cutoff foreign aid to protest human rights violations by a country's military.

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Hwa Chong Institution International History: 1945 2000

In this aspect, the through the control/use of aid, USA is able to influence, dominate a recipient country's political, economic orientations and hence its ability to play a vital role in world affairs. In foreign aid, the donor must have the recipient government's permission to operate in the country (back to the principle of national sovereignty). This is occasionally violated when the US and its allies provided aid to Iraqi Kurds against the wishes of the Iraqi government following the Gulf War.
2.11.3. The U.S. Peace Corps The U.S. Peace Corps provides U.S volunteers for technical development assistance in developing countries. They work at the request and direction of the host state but are paid by the US government. It was started by President Kennedy in 1961, the Peace Corps now has about 7000 volunteers to 72 countries where they participate in projects affecting about a million people. 2.11.4. Aid through UN Most of the multilateral lateral development aid goes through UN programmes that are dominated by US who has major influence in the Security Council (before 1971) and contributions to UN funds. The flow of such aid is coordinated by the UN Development Programme (UNDP) which manages about 5000 projects at once around the world (focusing on technical development assistance). Other UN programmes focus on capital, transferring technology and developing work force skills for manufacturing. UNIDO works on industrial trials, UNITAR on training and research. Most UN programmes such as UNICEF, UNFPA, UNESCO, WHO focus on meeting basic needs.

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