The 1970s economic crisis largely came as a result of the oil embargo imposed by Arab oil producers against the U.S. (and indirectly the OECD) for its support of Israel during the 1973 Yom Kippur War. While the embargo was lifted in early 1974, oil prices remained high throughout the rest of the decade, with OPEC annual averages rising from around 1.30 U.S. dollars in the late 1960s to more than 11 USD in the 1970s. The western dependency on Arabian oil imports then came to the fore, as the embargo and spike in oil prices exposed how reliant the “Golden Age of Capitalism” had become on foreign oil supplies. Although many countries had their own coal and natural gas industries, these fuels were less efficient than oil, output was not high enough to meet market demands, and the time or financial investment needed to convert fuel sources was an unrealistic prospect for most. The Bretton Woods system, a monetary system similar to a gold standard, had been in place since 1944 and bound most western currencies to the U.S. dollar; in 1971, however, the U.S. abandoned this system (as part of the “Nixon shock”), leaving many international currencies freely floating and unstable when the recession hit.
Impact on the West
Initially, the recession resulted in a spike in the cost of agricultural commodities, although the oil shortage then became the most obvious factor. Some countries came up with various short-term solutions, such as rationing energy or oil supplies or by restricting times when fuel or electricity could be used (such as the West German ban on Sunday driving). The most severe- measures were taken in the U.K., where the British government introduced the Three Day Week, which only allowed private consumption of electricity on three consecutive days per week. This then led to industrial action by coal miners, as the coal industry supplied the majority of the U.K.’s fuel at the time.
The long-term impacts of stagflation posed the most serious threat, and governments were required to reassess their approaches to economic policy and introduce stabilizing measures. In some cases the under-development of economies such as Ireland or Spain granted limited protection, but this was rare. By 1976, recession had ended in virtually all developed economies, although consumer prices remained higher in many areas, unemployment and (some) inflation rates would not return to pre-recession levels until the 1980s, and the rapid growth in prosperity experienced during the Golden Age had come to an end for most countries.
Impact on the rest
The west’s recession also had far-reaching implications for the rest of the world. The Soviet Union had supported the Arab invasion of Israel in 1973, and most of the Eastern Bloc’s fuel supply came from the USSR and Romania, whose oil pricing strategies were independent of the OPEC. Because of this, most of the Eastern Bloc was protected from a sharp rise in oil prices; the major exception to this, however, was Poland. The Soviet Union had granted more autonomy to CMEA members in the 1970s and encourages trade with the west in order to bolster manufacturing industries and make them internationally competitive. Unfortunately for Poland, the western recession saw a sharp decline in the demand for exports to the west and a steep increase in the price of western imports. Additionally, Poland had borrowed heavily from western creditors, but the economic strain in the west saw these creditors demand repayment, and Poland was forced to borrow more. Poland’s Secretary, Edward Gierek, had been elected on a progressive platform, and Poland was unique in the level of freedom it granted to the press and trade unions, most notably Solidarity; this backfired for the government as the challenges posed by these groups intensified as economic difficulties continued. Communist Poland never fully recovered from this debt, despite later regimes implementing martial law and banning trade unions in the 1980s, yet the rise of Solidarity proved to be the beginning of the end for communism in Poland. Additionally, Poland was not alone in its indebtedness to the west. Romania’s debt, in particular, saw the government implement extreme austerity measures in the 1980s; these measures ultimately saw the western debt repaid but were so severe that the public eventually overthrew the government and executed its Secretary, Nicolae Ceaușescu, in 1989.
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