Prior to the beginning of World War I, the world economy was held up by four pillars: the gold standard, free trade, communication and transportation, and capital and labor labor mobility. After facing two world wars and a worldwide economic depression, economists and governments from around the world implemented several development strategies. Some strategists tried to rebuild the order from before World War I in a more flexible and stable way while others bucked the traditional world order all together in an attempt to develop more quickly. While import-substituting industrialization provided short term benefits and long-term problems to the nations that practiced it, the Bretton Woods System provided sustainable economic growth to…show more content… Nations that practiced ISI could never entirely eliminate their dependence on the world economy, and ISI’s bias against exports left nations with very little export revenue which could be used to pay for things that the nation absolutely had to import. These balance of payments crises hurt domestic economies, often leading to social unrest and coups. Compounding the problems caused by balance of payments problems, nations which practiced ISI also tended to have high inflation rates as well as high income-inequality caused by privileging industrialization at the expense of agricultural classes. Ultimately, ISI nations began experiencing massive social, political, and economic problems which stifled further development.
After World War II, the Western economic powers implemented the Bretton Woods System, an attempt to concurrently return to, build upon, and strengthen the pre-World War I economic system. The stringency of the Gold Standard was replaced by an economic system in which currencies were tied together by the more flexible US dollar, which was itself backed by gold. Free trade was reimplemented by GATT, which would later become the WTO. Under the Bretton Woods System, the world saw an incredible amount of post-war economic growth. Jeffry Frieden points out that in the postwar period, advanced capitalist nations “grew three times as fast as in the interwar years and twice as fast as before World War I”. The Bretton Woods System allowed for