The Cold War Competition: Social Democracy Versus Communism from 1946 to 1979

With fascism defeated, the formerly allied capitalist and communist countries split into first and second world blocs after World War II. The Soviet-led communist bloc would see rapid industrial growth until 1960, when it stalled due to lack of innovation. The Soviet Union would stagnate and then decline economically as it remained repressive politically. Germany and Japan were forced to adopt liberal constitutions after World War II and then recovered quickly with sustained economic growth. That growth was part of the U.S. led first world system of social democracy, which achieved gains across the income distribution, a high overall growth rate, and the best improvements in living standards to date. Decolonization movements began immediately after World War II, leading to the independence of many countries that formed the third world. Most of them struggled economically, but did see some real improvement in life expectancy. The modern world of 200 nation-states took shape and then moved into crisis with oil shocks in the 1970s. This exacerbated the already rising U.S. inflation, and the resulting stagflation undermined confidence in social democracy, setting the stage for the emergence of neoliberalism in 1980.