Democracy and human rights were two key issues in twentieth century. During the century two world wars were fought to make the earth safe for democracy. The post-Second World War era experienced bitter controversies between the liberal economy and the command economy. The leader of the former was the USA and of the later was the former Soviet Union. The world was divided literally into three worlds – the First World led by capitalist USA, the Second by the Socialist Soviet Union and the third comprising unattached developing and underdeveloped countries.
The First and Second Worlds entered into arms race, nuclear weapons race and a race for the control of global trade. The United Nations experienced bitter and acrimonious debates every year on several issues and conflicts.
The leader of the Second World collapsed under its own weight. The cold war came to an end. The United States emerged as the unchallenged hero of the Post- Second World War.
Ever since the United Nations was founded the world was made part of the process of globalization. Globalization reiterates the philosophy of the neo-classical model of development, which advocates a free play of market forces determining the pace and content of growth.
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After the World War the world faced two contending theories of development; one based upon classical liberalism and the other on Marxism-Leninism. But there was also a third alternative which was known as the Realist approach.
The classical liberal approach emphasised the promotion and protection of individual’s economic freedom and disapproved of interference by the State of any other political or economic organisation. When this approach was followed in the global sphere, it made the international markets open for the free flow goods to be governed by the law of demand and supply and for free enterprise in the sphere of industrial and agricultural production without protective tariff restrictions. Such an approach thus presumes the operational validity of the classical theory of trade in promoting export oriented growth economy and in ensuring the flow of foreign capital investment.
The classical-liberal approach ran into difficulties when the question of blending laissez-faire with equality and justice arose. Certain domestic and international developments also made free market appear unrealistic.
Further, the liberal global economy after the World War resulted in inequality and a widening gap between rich and poor nations. The third-world countries became dependent upon the developed countries and the styles of development they adopted led to many problems. The centre-periphery controversy grew more acute and inequalities in the world became more pronounced. The gap between the rich and the poor led to the rise of the second approach namely the Marxist Leninist approach. It wanted to replace of international capitalism with global socialism. This approach to international political economy emphasized that the relations among nations depend upon the extent to which each has developed its productive forces, the divisions of labour and international economic intercourse. This is also known as command economy or closed economy based on the economic principles of restricted trade, close tariff protections and socialist law of state-oriented centralised economy.
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The collapse of the Soviet Union gave rise to a new situation. The command economy in the East European states became eager to embrace the free economy of the west. The crisis of scarcity prevailed over the political consideration of pursuing Marxist-leninist approach.
Since the collapse of the Soviet Union and the failure of command economy in the East European states along with economic recession of West European countries, the international economic system passed through a crisis.
By 1980 it was clear that the world was beset with glaring international inequalities in the distribution of income, knowledge, power and wealth. The liberal market economy caused inequalities among nations. In the 1960s the UNO had suggested that the developed world contribute one percent of its Gross Domestic Product (GDP) to combat poverty and unemployment in the underdeveloped world. The response to this call was not an enthusiastic one, and the problem of global poverty could not be addressed at the global level.
The economy in West Europe was in recession and was unable to compete successfully in a more liberalized global regime of trade, investment and finance. In the face of rising unemployment and economic recession the decision-makers of the west seem to accept that the state should not create jobs by deficit financing and expansion of public investment programme. They came to realise that they can no longer act unilaterally against the overwhelming power of the globalized market.
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The economic scenario in the developing countries, was different. The growth rates of production had began to fall, levels of technical innovation in industry were in decline; there were mounting problems in respect to the quality of production. A wide gap between popular expectations and the standard of living puzzled governments in their efforts to combat poverty. There was an acute balance of payment crisis and the exchequer was empty. The volume of debt grow larger.
In such a situation, there was no alternative for the developed and the developing world but to accept globalization.