Comparing Economic Effects of the Cold War
The Cold War divided Europe in economics as well as politics. The Western countries, aided by the United States’ Marshall Plan, rebuilt their economies after the destruction of World War II with a mixture of free-market principles and state-sponsored economic development. The Eastern bloc nations struggled in a transition away from communism to free-market economies. Developing countries—those in the “Third World”—faced unique challenges.
State Response to Economic Challenges in the West To promote economic security, many Western European governments created public health systems, built public housing, provided unemployment insurance, and developed state-backed pension plans. The creation of the welfare state, as it became known, was to counteract the attraction of the communist system that promised to provide many of these benefits. As a result, the Western European nations’ economies boomed while the Eastern European economies, under a communist system, struggled to recover from the costs and effects of the war.
State Response to Economic Challenges in the Eastern Bloc The Soviet government quickly transitioned its economy after the war to peacetime endeavors. Yet the military-industrial complex was so large in the Soviet Union that it employed about 20 percent of the workers, many of whom became unemployed during the transition. The Soviet-bloc countries faced a serious economic crisis as the government instituted economic reforms to encourage free-market practices and move away from a state-controlled economy.
However, moving from a state-controlled to a free-market economy proved to be an extremely complex endeavor. Debates swirled about whether to institute reforms gradually or all at once, and party officials resisted the loss of their control over the economy. In the end, reformers have succeeded in removing state controls over prices, and formerly state-owned businesses have been privatized. After a period of decline, the Russian economy is improving.
China made a more gradual transition to a free-market economy and has become a global economic powerhouse.
State Response to Economic Challenges in Developing Countries Many former colonies still had close economic ties to the countries that had colonized them and remained dependent on the extraction and exporting of natural resources. The perspective of many people in the former colonies was that the industrial countries were using this relationship to exploit and undermine the economies of these developing countries. Getting control of their resources was a top priority of developing nations. Oil-rich Angola, for example, left in disarray after years of civil war, has a government-controlled oil conglomerate that accounts for about 70 percent of government revenue and has helped the nation rebuild and update infrastructure.