Post-WWI Economic Shifts: Europe's Decline and New Policies

Direct Economic Consequences

1. Decline of Europe in the International Economy

This involved significant leadership changes:

• Strong regression of European participation in world GDP, Information Technology (I.T.), and industrial weight, leading to the relative impoverishment of Europe and the enrichment of other areas.
• Collapse of European economy (transport, equipment, capital) compounded by hunger and the 1918 flu epidemic.
• Transition cost from war (demobilization) to peace economy, resulting in excess supply in steel and naval sectors.
• Rise of Japan (JP), the United States (US), and some European neutral countries, alongside new nations (Canada (CA), Australia (AU), and some Latin American countries), benefiting from the “war business cycle” gains (industrialization, import substitution, and reduced European clientele).
• European agricultural crisis, as neutral countries expanded supply, creating post-war deflationary pressure.

2. New Economic Policies

War imposed State intervention in economic organization, breaking the laissez-faire tradition. This included:

• Direct State dirigisme (control over strategic sectors, nationalizations, planning).
• Indirect control (price regulation, licenses, credits).
• Increased union power, the rise of mass parties, and social democratic movements demanding greater social equality.
• Incorporation of women into the labor market, contributing to unemployment issues.
• Influence of the Soviet economic experience.

Indirect Economic Consequences

These consequences derived from the 1919–1920 peace treaties (Versailles, Sèvres, Trianon, Saint-Germain, Neuilly) imposed on the defeated powers.

1. Territorial and Political Changes

The disintegration of the Prussian, Austro-Hungarian, Russian, and Turkish empires resulted in the multiplication of states: Finland, Estonia, Latvia, Lithuania, Poland, Yugoslavia, Czechoslovakia, and Hungary.

2. Increased Barriers to Trade and Movement

Increased borders, customs, tariffs, and currencies created significant obstacles to the movement of productive factors.

3. Economic Segmentation

The disintegration and rupture of economic complementarities in regions previously integrated within the same empire led to:

• Segmentation of industries, markets, and communications.
• Increased investment requirements to establish new infrastructure and supply chains.

4. Economic Precariousness in New Eastern European States

The economic fragility of these new nations necessitated a more active State presence to accelerate modernization. Their agrarian nature, shortage of domestic savings, and low export competitiveness resulted in:

• Increased weakening in international markets.
• Greater international isolation.