Acceleration of Free-Market Economies

Globalization is interaction among peoples, governments, and companies around the world. The Indian Ocean trade and European imperialism are both examples of globalization. However, the term usually refers to the increased integration of the global economy since the 1970s. The Eastern Bloc nations that had been under Soviet control suddenly could trade freely with capitalist democracies. India and other countries that had been nonaligned during the Cold War relaxed restrictions on trade in the 1990s. This opening up of a country’s economy is called economic liberalization.

Ronald Reagan and Margaret Thatcher wanted free markets, which are economic systems based on supply and demand, with as little government control as possible. While Reagan and Thatcher were strongly nationalistic, corporations used the shift in emphasis to move jobs to countries with lower wages, lower taxes, and fewer regulations. Critics charged that globalization led to labor exploitation and environmental damage.

Economic Liberalization in Chile In Chile in 1973, Augusto Pinochet took power in a U.S.-backed coup against a democratically elected socialist government led by Salvador Allende. Pinochet ruled from 1974 to 1990. Then a coalition of citizens ousted him because of his violent tactics. Indicted for kidnapping, torture, money laundering, and murder, Pinochet died in 2006 before he could be convicted. “We buried our democracy, and we buried freedom,” the Chilean author Isabel Allende said about his rule.

However, during his rule, the Chilean economy took a turn away from state control toward a free-market approach. Among the goals of this approach were privatizing formerly state-run businesses and taming the serious inflation Chile was experiencing. Economists known as the Chicago Boys because they studied under free-market economist Milton Friedman at the University of Chicago helped design Chile’s economic reforms. The reforms were unpopular because they did not address poverty and other social concerns, and Pinochet used repression to enact them. Subsequent administrations, however, guided the economy with a balanced approach, using a combination of economic growth as a result of free trade and government programs to significantly reduce poverty. (Connect: Evaluate the success of the free-market economic approach of both Chile and the Soviet Bloc. See Topic 8.9.)

Chinese Economic Reforms Economic liberalization reached China as well. In 1981, Deng Xiaoping became the Chinese leader. Under him, the Communist Party backed away from its commitment to economic equality, and more actively promoted economic growth. Deng called his policy “Let some people get rich first.” The government took several steps to open up the economy, even as it kept overall control:

• It replaced communes with peasant-leased plots of land where the peasants could grow their own crops and sell part of them in markets. This reform led to agricultural surpluses instead of the famines of the past.

• It allowed factories to produce more products for consumers.

• It encouraged foreign companies to set up factories in special economic zones. Foreign firms were attracted to China because of low wages and lax environmental laws.

• It reopened the Shanghai stock market and allowed private ownership of some businesses.

Some Chinese thought that these economic reforms should be accompanied by political reforms, such as freedom of speech and the press and the end of the Communist Party’s monopoly on political power. Political discourse did become somewhat freer than in the past. In 1989, however, a large but peaceful student-led demonstration in Tiananmen Square in Beijing was met by force from the government. Soldiers using guns and tanks broke up the demonstrations, killing hundreds of people. (See Topic 9.5.)