The challenges hit countries unequally. The system survived by changing its rules and ideas.
The challenges hit countries in different ways. Oil exporters earned huge sums in the 1970s but suffered when prices fell in the 1980s. Rich industrial economies faced stagflation. Poorer countries that imported oil borrowed heavily and then faced debt crises.
East Asian exporters adapted best. Economies such as South Korea, Taiwan and Singapore kept growing by moving into new industries and expanding exports.
The system adapted. Floating exchange rates soaked up some shocks. Leaders of the major economies met at summits and acted together in the Plaza (1985) and Louvre (1987) agreements.
Economic ideas changed. Governments moved from managing demand towards controlling inflation and freeing markets. Many poorer countries opened their economies, sometimes under IMF pressure.
The challenges also showed how closely economies were linked. A war in the Middle East or a rise in US interest rates could spread across the world within months.
- Uneven impact
- Winners and losers differed by region and period.
- Adaptation
- Floating rates, summits, the Plaza and Louvre accords.
- Links
- Oil shocks fed the debt crisis and protectionism.
Worked example: Using the links between challenges
How were the challenges connected?
- 1973 oil shock: created petrodollars for banks to lend.
- 1979 oil shock: brought high interest rates.
- High interest rates and recession: triggered the debt crisis.
- Recession and unemployment: fed protectionist pressure.
Watch out for this
The challenges harmed every country equally.
Oil exporters, industrial economies, Latin American borrowers and East Asian exporters were affected very differently.
Check your understanding
Which group adapted best to the challenges of the 1970s and 1980s?
- East Asian exporters such as South Korea, Taiwan and Singapore
- Latin American borrowers
- Oil exporters after 1986