The 1970s Oil Crisis and the Rise of Neoliberalism

The Crisis of the 70s-80s: Monetarism and Neoliberalism

The Post-War Economic Miracle

Between 1945 and 1973, the world experienced three decades of an economic miracle. The most extreme case was that of Germany. After World War II, 20% of its entire housing stock was destroyed, and its industrial production in 1947 was only one-third of the production achieved in 1938. However, in just three years, the economy began growing so strongly that the average GDP growth rate in the 1950s climbed to 8% a year and remained at a high level in the next decade, although it was not as spectacular.

The Oil Shocks: A Turning Point

The situation, however, would change in the 1970s, a decade known for its oil shocks. In 1973, as a result of Western support for Israel in the Yom Kippur War against Syria and Egypt, Arab countries, through a supply reduction, managed to multiply the price per barrel of oil threefold (from approximately $4 to $12 per barrel). In 1979, the price multiplied by three again, reaching $34, this time marking the rise of the Ayatollahs in Iran.

Underlying Economic Causes of the Crisis

While these events had political triggers, there were also underlying economic causes, which were a direct result of the extraordinary growth of the previous decades. Much of the world had grown very quickly, leading to a series of unsustainable excesses:

• Excessive demand for raw materials: The extractive sector and the primary sector in general could not grow at the same speed as the industrial sector.
• High employment and labor demands: High employment rates marked a golden age for trade unionism and labor demands.
• The Welfare State and inefficiency: The Welfare State was seen by some as stifling initiative. Nationalized companies and state monopolies became a deep source of inefficiency, fostering a logic where individuals had forgotten past sacrifices and considered themselves deserving of inalienable rights.

Consequences of Unsustainable Growth

The result was a general increase in all costs. This stemmed from the excessive taxation required for an oversized and inefficient state, the management of labor which had become inflexible downwards due to low unemployment rates and the achievements of the union movement, and the rising cost of raw materials due to the market power of Third World countries and supply constraints.