ALEJANDRO OLARTE BLANDON.

Why did the United States rise to become a great global power by the start of the 20th
century?

The United States emerged as a world power from the economic boom it experienced after
WWI. The United States had already experienced an immense strengthening as an
imperialist, militarized world power after its victory in the Spanish-American War in 1898
and its colonial, imperialist acquisition of Puerto Rico, the Philippines, and Guam as a
result. Because of the Industrial Revolution, the United States was able to be a part of a
massive war economy that led to a huge economic boom for the United States.

How did the two world wars impact on the economic, political and military power of the
United States?

For the United States, the 2 World War and the Great Depression constituted the most
important economic events of the twentieth century. The war’s effects were varied and far-
reaching. The war decisively ended the depression itself. The federal government emerged
from the war as a potent economic actor, able to regulate economic activity and to partially
control the economy through spending and consumption. American industry was revitalized
by the war, and many sectors were by 1945 either sharply oriented to defense production
(for example, aerospace and electronics) or completely dependent on it (atomic energy).
The organized labor movement, strengthened by the war beyond even its depression-era
height, became a major counterbalance to both the government and private industry. The
war’s rapid scientific and technological changes continued and intensified trends begun
during the Great Depression and created a permanent expectation of continued innovation
on the part of many scientists, engineers, government officials and citizens. Similarly, the
substantial increases in personal income and frequently, if not always, in quality of life
during the war led many Americans to foresee permanent improvements to their material
circumstances, even as others feared a postwar return of the depression. Finally, the war’s
global scale severely damaged every major economy in the world except for the United
States, which thus enjoyed unprecedented economic and political power after 1945.

What are the key ideas of ‘neoliberal’ economics and why did they become dominant in
South America in the 1980s?

The adoption of neoliberal policies could thus be seen as a specific response to the impact
of the 1980s debt crisis. However, in many countries, the adoption of a new paradigm also
constituted a wider response to the perceived economic failure of the previous political
economy paradigm of inward orientation. By the 1980s, this paradigm demonstrated two
key economic problems. The first problem was that of stagnant export trade, partly linked
to the historical pattern of overvalued exchange rates during inward orientation. Secondly,
the inward oriented model left a legacy of very high inflation in many countries,
particularly in the 1980s, and increased the problems of economic instability in Latin
America. In addition, the 1980s and 1990s have witnessed big advances in the globalization
of the world economy, with global capital flows, trade and investment increasing
dramatically. The inward oriented model was effectively cutting Latin American economies
off from the advantages and problems of being more fully inserted into a globalizing world
economy. Neoliberal policies provided the framework for Latin American economies to
increase trade with other world regions and increase inward investment and capital inflows
from firms and banks in those regions.

Why the informal economy is so large in Latin America and what impact does this have?

Why is growth persistently low and so unevenly distributed in emerging Latin America
compared to emerging Asia despite a huge potential? Potential growth is ranging around 2-
3% in the region. Some refer to dependence on commodities, poor education, weak
business environments, or corruption as possible causes. But the question is deeper and
more complex. A crucial factor for Latin America is low productivity, often related to a
poor use of available resources. Across the region, many workers and significant amounts
of capital are stuck in activities that are not efficient. The reasons for this are many, but two
important forces stand out: high informality and weak competition.

High and persistent informality in the region leaves workers more vulnerable and deprives
them from social protection, thus contributing to inequality. For example, old age poverty
in Colombia is high as low-skilled workers spend much of their working lives in informal
employment, without pension contributions. In Brazil and Argentina, informal workers
retire later than others for the same reason, until they eventually reach the age to benefit
from a non-contributory pension. In Mexico, poverty and informality are highly correlated
among regions. Informality also tends to keep companies small with often low productivity,
as growth would entail high costs of formalization. Indeed, informal sector productivity in
the average LAC country is only between 25% and 75% of total labour productivity, and
productivity decreases as informality rises. Informality also reduces the tax base for
corporate and personal income taxes, reducing the capacity of the public sector to boost
productivity and reduce inequality, and this requires a higher tax burden on larger formal
companies.