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The oil crisis and the end of the Welfare State
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The end of World War II opened a new period of growth, practically uninterrupted from the late 1940s until the mid-1970s. World exports went from 60,000 million dollars in 1948 to two trillion in 1980, which is a good indicator of the magnitude of the accumulation process and the internationalization of the economy of those years. The consolidation of the Welfare State and with it the rise in the standard of living in Western economies and the expansion of international investments was seen as such a permanent phenomenon that the world economy was considered to be on a stable and definitive path of economic growth.
However, throughout these years new economic disturbances appeared and the general growth, as well as the Welfare State model, were severely weakened. The stable upward trend in consumption (expansion of the aggregate demand) put pressure on prices and companies continued to rely on the cheap credit (low interest rates) to ensure that the increase in their productive capacity compensated for the wage increases that workers consistently claimed.
The growth in public spending (fiscal policy) and money supply (monetary policy) added to the overheated economy in the West. All these factors led to a crisis in 1973 when the oil prices skyrocketed and the world economy entered a phase of disorder and acute crisis that lasted well into the 1990s.
As a consequence of a decision by the oil-exporting countries (OPEC) to, in an unprecedented manner, increase the price per barrel, the Western economies who were net oil importers, saw their trade balances deteriorate almost instantaneously. At the same time, governments continued to face enormous expenses. The first responses were to continue to carry out Keynesian policies to increase public investment: increasing social benefits as unemployment grew and helping companies in crisis.
However as the crisis provided less and less public revenue, it turned out that the public deficits were getting higher, increasing public debt incessantly. All this brought with it the economic recession in Western countries, combined with a large drop in production and employment, a rise in prices, and the expansion of the money supply that attracted financial speculation and the financialization of the economy as a whole.
