Discuss the reasons for the stagnation in the international economy during the 1970’s.

Introduction:

Countries generate economic growth by increasing their production capacity of tradable outputs, by increasing the supply of labour, by reducing their expenses and by increasing the level of education. In other words, a decrease in the rate of production, trade, employment, innovation and an increase in costs/expenses would engender a deceleration of the growth rate. In this case the economy of a country is likely to converge towards a stagnation or recession state.

“Stagnation is a prolonged period of little or no growth in an economy.”

“Economic growth of less than 2 to 3% annually is considered stagnation, it is highlighted by periods of high unemployment“

“Stagnation is a situation that occurs within an economy when total output is either declining, flat or rising just slightly.”

Source: http://www.investopedia.com/terms/s/stagnation.asp#ixzz4T2b1EUcu

This essay will discuss the different reasons of the 1970’s stagnation by analysing the international economic climate of the period before the stagnation and by examining the factors which lead and accelerated this international stagnation. This essay will also provide an outlook of the effect that this stagnation had on populations.

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Background to the 1970’s stagnation

In 1947, two years after the world war 2 which generate a huge economic loss (1939-1945) and during the cold war which was a conflict between the CAPITALIST Western bloc (the United States of America with France, United Kingdom, West Germany and other capitalist countries) and COMUNIST Eastern bloc (the Soviet Union with Albania, Ukraine, Yugoslavia, and other communist/socialist countries), The USA established a loan of over $12.5 billion to help for the recovery of the western Europe and the reparation of the war’s damages. This help was “the marshal plan”. The marshal plan’s aims were to eliminate the trade barriers, boost the European economy and defeat the expansion of the communism. According to The Marshall plan 50 years later written by Martin A. Schain the majority of the loan was received by the UK which received approximately 26% percent of the total loan followed by France which had 18% and west Germany with 11%.