For Germany, the Great Depression was a final nail in the eye of Weimar democracy. The prospect of shared economic growth based on international co-operation being no longer credible, many Germans turned to the Nazi Party, which promised a revived Germany based on national socialism and militarist expansion. By 1932, the Nazis became the largest party in the German parliament. Shortly thereafter, Adolf Hitler overturned the Weimar Republic and took control over the country.
At approximately the same time that Germany was experiencing its upheavals, Japan was undergoing its own problems of reconciling its material needs with international economic realities. Since the late nineteenth century, Japan had been experimenting with Western political and legal institutions as part of its modernisation campaign. Borrowing from the West, it had adopted a parliamentary political system with multiple political parties and a relatively free press. In 1925, Japan granted voting rights to all males over the age of 25. However, Japan s liberalisation campaign was still struggling with older military and feudal elites, who dominated what was an outwardly democratic form of government. These elites campaigned vociferously for a policy of military expansion as a solution to a growing Japan s need for markets and resources.
A small country with few natural resources and limited fertile land, Japan could not even grow enough food to support its own population, forcing it to import large amounts of rice. These imports had to be paid for by exports. However, other countries tariffs limited Japan s ability to export. Emigration was one possible solution to Japan s exploding population, but this option was cut off by restrictions placed by other countries on Japanese immigrants.
When the Great Depression hit, Japan s export markets shrank. When countries put up additional protectionist barriers in the 1930s as a response to the crisis, Japan faced disaster. As a result, Japanese militarists gained the upper hand politically, and they embarked upon a policy of military expansion in the hope of forcibly capturing markets and building an empire as a permanent solution to Japan s economic problems.
The German and Japanese policies leaded to what we know as World War Two. As we all know, both of these countries were defeated and the end of this second World War led to the growth and greater acceptance of free trade policies.
The building of free trade policies after World War Two
When Germany and Japan were defeated in 1945, American policy makers were careful not to repeat the mistakes of the past in constructing a new post-war order. They believed that free trade and general prosperity were formidable deterrents to war, and hoped to create a new international peace based on a revival of free trade. With the right economic incentives, they felt, the forces of militarism could be kept in check or eradicated altogether.
One component of American policy in the period after World War Two, was the temporary aid program known as the Marshall Plan. Although the Marshall Plan has been viewed by many as proof that government aid is a good way of solving social problems, leading to repeated calls for new “Marshall Plans” for other regions of the world or for the American inner cities, it is important to note that the Marshall Plan was in fact merely a temporary measure designed to cover for particular shortfalls in the economies of the countries devastated by the war. As American policymakers were well aware, in the absence of major reforms in the direction of stable currencies, property rights, free markets, and free trade, post-war economic recovery in Western Europe and Japan would not have been possible, no matter how much aid the U.S. poured into its allies.
In fact, the Marshall Plan was explicitly designed so as to promote a free trade zone in Europe, ending the traditional approach of nationalist autarky and beggar-thy-neighbour policies which resulted in so much harm in the past.
The U.S. pressured the states of Europe to establish a permanent Organisation for European Economic Co-operation (OEEC), in order to distribute Marshall Plan aid, co-ordinate European recovery, and gradually lower trade barriers throughout Western Europe.
In Germany, American occupation officials, with the aid of the German economist Ludwig Erhard, issued a new, stable currency and ended controls on the market in 1948. Almost immediately, the economy began to recover. In fact, across Western Europe economic recovery was swift and dramatic. By 1952, production levels in the region exceeded pre-war levels. In such an environment, extremist parties had little to latch on to. Even as increasing tax rates and economic regulation in later decades hindered Europe s growth and job creation, trade barriers in Europe continued to fall, ensuring that the economic disasters of the 1920s and 1930s were not repeated. As predicted, the unprecedented prosperity made possible by means of peaceful exchange made policies of militarist expansion unattractive.
Japan experienced a recovery as dramatic as Europe s. Although Japan never completely liberalised its economy, nor fully opened its domestic economy to foreign manufactures, it was able to insinuate itself into the free-trade system set up by the U.S. Consequently, Japan finally found a reliable market for its exports and a steady source of raw materials to import. In fact, it is not likely that Japan s export-oriented growth strategy could have succeeded at all if the U.S. was not willing to accept Japanese imports. Free trade made all the difference in confirming pacifist intentions in this small, resource-poor, island nation. Although in recent years, the Japanese economy has faltered, the Japanese are well aware that their economic problems are internal, and require internal reforms rather than external expansion.
It has become popular of late to claim that the long peace between liberal-democracies in this century demonstrates the importance of promoting democracy in other countries. However, such a claim overlooks the large role that a system of free trade plays in promoting general prosperity and thereby providing incentives for peace. When opportunities for voluntary exchange with other productive nations are maximised, there are strong incentives to avoid major military conflict. When trade is restricted or denied, nations will more often resort to militarist policies as a solution to their economic plight. Indeed, free trade plays a significant role in ensuring that liberal democracies do not succumb to militarist movements in the first place.
However, the long post 1945 peace cannot be taken for granted. The temptation to erect barriers to trade continues to exist to this day, and democracies are not immune to this temptation. The desire to retreat from the world into nationalist autarky, to defend one s country from the effects of global competition, or to punish other states by denying them trade, are still powerful impulses in the domestic politics of many nations.
Conclusion
This report shows that free trade is beneficiary for countries. Even though there are drawbacks, it seems as though these can be overcome to a large extent. Moreover, free trade seems to provide a more stable and peaceful environment for countries. No longer do they have to go to war to acquire new economical wealth.
Some proof of this can be seen in post-World War times. Western Europe has had a long period of peace and is moving toward integration. Not only is this evident through the EU, one must not forget the monetary union or, for that matter, WEU which is the military co-operation of the western member states, currently being formed.
Many areas of free trade in the world has seen similar positive effects. The NIC (newly industrialised countries) in south east Asia have developed tremendously, with one reason being their free trade policies.
Hopefully, at one time, free trade will be the slogan of the world, possibly putting an end to many conflicts that still exist. This utopia however, will most probably never see daylight but if it is kept as the goal it might still create many more peaceful co-operations and relations between countries and people.