Andrés Solimano, President and Founder of the International Center for Globalization and Development, presented on the history of recessions in the 20th century on 11 June 2019 at the OECD Development Centre for their "DEV Talks" series.

1. The Big Recessions of the Past
Hundred Years
Andrés Solimano
International Center for Globalization and Development
Dev Talk OECD-PARIS, June 11, 2019

2. Motivation
• Big recessions are costly. We need to understand them better.
• Big recessions are not easy to predict.
• War, hyperinflation, large external shocks, policy mistakes, populist and
protectionist cycles all can cause economic cycles and
slumps/contractions.
• Three main global episodes in the last 90 years : great depression (1930s),
stagflation (1970s), global financial crises (2008-09).
• Regional crises: Latin America debt crisis of the 1980s, East Asian crisis in
the 1990s, post-socialist slumps in the 1990s.
• Is unregulated capitalism inherently unstable?
• How to avoid slumps? How to recover after slumps?

3. Chapters of the book
• Chapter 1. Introduction
• Chapter 2 . Recessions and Depressions: Theories and Empirics
• Chapter 3. World War I, Hyperinflation in the 1920s and World War II.
• Chapter 4. The Great Depression of the 1930s.
• Chapter 5. Stagflation in the 1970s, Globalization and the Financial Crisis of
2008-09
• Chapter 6. Two Depressions in the Early 21st Century: The Cases of Latvia
and Greece
• Chapter 7. Soviet-type of Socialism and the Post-Socialist Transition
• Chapter 8. Economic Crises in Latin America and East Asia.
• Chapter 9. Summary and conclusions.

4. Intensity and Frequency of Recessions in
1900-2017 (yearly fall in GDP per capita)
Type of decline 1900-2017 1900-1950 1951-2017
Obs. Percent Obs. Percent Obs. Percent
Recessions
Mild recession (less than 3%) 335 45.0% 115 32.7% 220 56.1%
Moderate to large recession
(between 3% and 10%)
261 35.1% 141 40.1% 120 30.6%
Severe recession (between 10% and
15%)
61 8.2% 42 11.9% 19 4.8%
Depressions
Depression (between 15% and 30%) 59 7.9% 34 9.7% 25 6.4%
Mega depression (more than 30%) 28 3.8% 20 5.7% 8 2.0%
Total 744 100.0% 352 100.0% 392 100.0%

5. What caused big recessions in the long 20th
century (1914-2015)?
• Wars (WWI, WWII) and their aftermath.
• Episodes of extreme monetary instability and hyperinflation (Austria,
Germany, Hungary, Poland, Russia 1920s; Hungary and Greece, 1940s, Bolivia,
Nicaragua, Argentina, Peru, 1980s, Yugoslavia, 1990s, Zimbabwe 2008,
Venezuela 2017-19).
• Adverse external shocks, debt cycles and cut-offs in foreign credit (“sudden
stops”).
• Collapse of fixed exchange rate regimes and currency boards (L.America in the
1980s, East Asia 1997-98, Argentina 2001),
• Premature financial liberalization, credit booms and asset price overvaluation.
• Macroeconomic populism (over-expansionary demand and wage policies that
become unsustainable (L. America in the 1970s and Venezuela in the 2010s).
• Political destabilisation, trade embargoes and economic uncertainty.

6. What causes slumps? Theories.
• Monetarism Milton Friedman (central bank’s mistakes). The Austrians
(Central Banks interfere savings/investment process) .
• Debt deflation theoryIrving Fisher (too much debt)
• Aggregate demand failures John Maynard Keynes (too little spending)
• Credit Crunch Ben Bernanke (lack of funding)
• Financial theories of recession Hyman Minsky (inherent financial
instability in capitalism)
• Psychological factors behind crisis Charles Kindleberger (watch episodes
of euphoria, stress, panics)
• We need theory for mega-depressions: war and hyperinflation

7. Germany’s Hyperinflation Cycle in the 1920s
(1918-1926)
Inflation
(annual percent change in Consumer Price Index, 1918-1926)
39.0 74.5
291.4
2.7
2,715.2
-200.0
19.3 2.2
-500
0
500
1000
1500
2000
2500
3000
1918 1919 1920 1921 1922 1923 1924 1925 1926
2.11E+11
-20
-15
-10
-5
0
5
10
15
20
1918 1919 1920 1921 1922 1923 1924 1925 1926
GDP per capita
(annual percent change, 1918-1926)
Source: Reinhart & Rogoff (2010) Source: Maddison (2013)

8. Argentina’s Hyperinflation cycle in the 1980s
(1986-1992)
90.10 131.33
342.96
3079.81
2313.96
171.67
24.90
0
500
1000
1500
2000
2500
3000
3500
1986 1987 1988 1989 1990 1991 1992
Inflation
(annual percentage change, CPI. 1986-1992)
Source: INDEC
Output collapse during hyperinflation
(annual percentage change in per capita GDP. 1986-1992)
Source: WDI, The World Bank 2018
-10
-5
0
5
10
15
1986 1987 1988 1989 1990 1991 1992

9. Venezuela’s Hyperinflation cycle in the late 2010s
(2010-2018)
Inflation rates
(annual percentage change, CPI. 2010-2018)
Source: INDEC
Output collapse during hyperinflation
(annual percentage change in per capita GDP. 2010-2018)
Source: WDI, The World Bank 2018
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014* 2015* 2016* 2017* 2018*
1,300,000
1,320,000
1,340,000
1,360,000
1,380,000
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
2010 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018*

10. The Great Depression of the 1930s.
There is not a single cause of the Great Depression, we can make the following list of
factors that did contribute to it:
I. The stock market crash of 1929 in the United States.
II. The decline in terms of trade and capital inflows by exporters of primary products in
Latin America, Australia that started in 1928 or before,.
III. Bankruptcies of banks in the early 1930s in America, Austria, Germany.
IV. Deflationary policies pursued by central banks in the context of the gold standard,
V. The timing of abandonment of the gold standard (the evidence seems to show that
early exit-countries started their recovery sooner).
VI. The fall in domestic prices that increased the real value of debt held by consumers
and firms with a negative effect on consumption and investment.
VII. The lack of a decisive fiscal policy stance to face recessions and depressions by
governments at that time.

11. United States: Rate of growth of GDP per capita
(percent), 1928-1946
-20
-15
-10
-5
0
5
10
15
20
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
Recovery
Source: Own elaboration based on The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version

12. United Kingdom: Rate of growth of GDP per capita
(percent), 1928-1946
Source: Own elaboration based on The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version
-20
-15
-10
-5
0
5
10
15
20
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
Recovery

13. Chile: Rate of growth of GDP per capita
(percent), 1928-1946
Source: Own elaboration based on The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version
-20
-15
-10
-5
0
5
10
15
20
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
-22.4

14. Greece: Rate of growth of GDP per capita
(percent), 1928-1946
Source: Own elaboration based on The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version
-20
-15
-10
-5
0
5
10
15
20
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
Great
Depression
Foreign ocuppation
and World War II
Recovery
47.9

15. Stagflation in the 1970s
• The emerging economic order, excluded the socialist area that had
emerged after WWII, entailed a new international monetary system, the
Bretton Woods regime, supporting global political institutions, the United
Nations, and a more balanced social contract between capital and labor.
• This new settlement was followed by a period from around 1950 to 1973 of
strong growth, absence of global financial crisis and reasonable social
peace in advanced capitalist countries. This period was labelled the golden
age of capitalism.
• The abandonment of the parities of Bretton Woods, heightened labor
activism, a slowdown in productivity growth and important shocks to oil
prices put an end to this process.
• The 1970s witnessed the simultaneous surge of inflation, slower growth
and higher unemployment, known as “stagflation”.

16. Globalization, Financial Deregulation and the
Crisis of 2008-09
• The stagflation gives rise to subsequent decades, since the 1980s, of neoliberal
globalization accompanied by a greater frequency of financial crises and recessionary
cycles than in the golden age.
• In the late 1990s/early 2000s US growth fell following the bursting of the dot.com bubble
in the high-tech sector.
• A main crisis of neoliberal globalization took place in 2008-09 and was originated by the
sub-prime crisis in the US spreading to Europe. This was followed by a period of sluggish
growth in advanced (center) economies and serious contraction of economic activity in
the European periphery.
• Peripherial countries had significant levels of sovereign and private debt that rendered
them particularly vulnerable to changes in confidence levels in international capital
markets, making them prone to “sudden stops” that often have devastating effects on
real economic activity
• Increased instability and volatility had become a more structural feature of neoliberal
capitalism.

17. The Phases of 1950-2015: Core Economies and
European Periphery (percent change in GDP per capita)
• Core Economies: GDP per capita, average rate
of change (%) by decade, 1950-2015
• European Periphery: GDP per capita, average
rate of change (%) by decade, 1950-2015
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
1950s 1960s 1970s 1980s 1990s 2000s 2010-2015
Greece Italy Portugal Spain
Austerity
Period
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1950s 1960s 1970s 1980s 1990s 2000s 2010-2015
France
Germany
UK
US
Golden Age Transitional
Decade
Neoliberal
Period
Source: Data for 1950-1989 period from The Maddison-Project, 2013
version; and for 1990-2015 period from World Development
Indicators, The World Bank 2017
Source: Data for 1950-1989 period from Kornai (2006), and for 1990-
2015 period from World Development Indicators, The World Bank
2017

18. Two Depressions in the Early 21st Century:
Latvia and Greece
• We can identify at least two depressions in the European periphery
following the global financial crisis of 2008-09: Latvia and Greece.
Both episodes were surrounded by the direct intervention in the
content of internal economic policies by the International Monetary
Fund and European governments.
• The intensity of the depression was severe in the two countries: in
Latvia GDP declined by 22 percent in 2008-10 and in Greece GDP
declined by 29 percent between 2008 and 2013.
• Both episodes can qualify as depressions if we use at least one of the
two criteria: (i) a successive fall in GDP that lasts at least three years
and (ii) a drop of output above 10 percent.

19. Latvia and Greece: Cont.
• The depressions of Latvia and Greece were closely managed by the IMF
and the troika and were preceded by a domestic boom directly associated
with their modernization project of joining the European Union.
• In the pre-crisis period Greece receive abundant foreign credit to finance
its fiscal deficits and stimulated consumption and investment. Latvia also
received massive capital inflows in the run-up to the crisis.
• Austerity policies in both nations were very costly, leading to severe cuts in
investment, output and rising unemployment. Public debt ratios kept
growing as well as household debt.
• In the two countries the economic crises led also to massive emigration of
part of the local population to escape from domestic economic hardship.

20. Debt and Austerity
0
20
40
60
80
100
120
140
160
180
200
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
General government gross debt (% of GDP)
Household debt, Total (% of net disposable income)
0
10
20
30
40
50
60
70
80
90
100
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
General government gross debt (% of GDP)
Household debt, Total (% of net disposable income)
LATVIA GREECE
Source: Data for Central government gross debt from International
Monetary Fund, World Economic Outlook Database, October 2016,
and for Household debt from OECD (2017), Household debt
(indicator). doi: 10.1787/f03b6469-en (Accessed on 7 May 2017)
Source: Data for Central government gross debt from International
Monetary Fund, World Economic Outlook Database, October 2016,
and for Household debt from OECD (2017), Household debt
(indicator). doi: 10.1787/f03b6469-en (Accessed on 7 May 2017)

21. Crash and Painful Recovery
-25
-20
-15
-10
-5
0
5
10
15
20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Gross fixed capital formation (annual % growth) GDP growth (annual %)
-40
-30
-20
-10
0
10
20
30
40
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Gross fixed capital formation (annual % growth) GDP growth (annual %)
Latvia: GDP growth and Investment Growth
(percent change, 2000-2015)
Greece: GDP growth and Investment Growth
(percent change, 2000-2015)
Source: World Development Indicators, The World Bank 2017 Source: World Development Indicators, The World Bank 2017

22. Output Collapse in the Initial Years of Post-Socialist
Transition
• The size of the contraction of GDP, investment and real wages in the
former socialist countries of Central-Eastern Europe (CEE) in the initial
phase of transition (early to mid 1990s) after the demise of the
socialist regimes was even larger than in the Great Depression and
the Subprime Crisis.
• The return to capitalism in this area of the world has been affected by
two mayor recessionary and stagnation cycles:
• (i) the deep contraction in GDP and investment in the early 1990s
• (ii) the recessive economic consequences of the financial crisis of 2008-09 and
its aftermath.

23. • Three periods can be identified in the socialist republics after the
WWII:
I. A cycle of acceleration in the rates of economic growth per capita in the
1950s and 1960s guided by intense inversion and capital formation.
II. A slowdown in the 1970s
III. Stagnation/contraction of the 1980s before the ultimate demise of the
centrally planned regimes.
• Several centrally-planned economies borrowed in convertible
currencies in western capital markets in the 1970s and 1980s,
increasing substantially their levels of external debt.
Output under Socialism and the Post-Socialist Transition

24. USSR and Russia
GDP per capita level in USSR and Russian Federation, 1950-2015 (1990=100)
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
USSR Russian Federation
Source: Data for 1951-1990 period from The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version; and for 1991-2015 period
from World Development Indicators, The World Bank 2017

25. Hungary , Poland , Bulgaria and Rumania
90
140
190
240
290
340
390
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
Hungary
13 years
(1988-2001)
90
140
190
240
290
340
390
440
490
540
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Poland
19 years
(1978-1997)
90
140
190
240
290
340
390
440
490
540
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Bulgaria
19 years
(1984-2003)
90
140
190
240
290
340
390
440
490
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Romania
19 years
(1986-2005)
GDP per capita, 1950-2015 (1950=100)
Source: Data for 1950-1999 period from The Maddison-Project,
http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version; and for 2000-2015
period from World Development Indicators, The World Bank 2017

26. Economic Crises in Latin America and East Asia
• Latin America is a net exporter of commodities, inequality is high and distributive
conflicts make policy consensus often difficult to attain.
• In Chile and Argentina, in the early 1970s left-wing governments implemented
over-expansive fiscal, credit and wage policies. This led to economic and political
destabilization, followed by military coups and democracy collapse.
• Right-wing military regimes embraced free-market therapy and shock treatment
with adverse output consequences. The 1980s was the “lost decade” in Latin
America as a consequence of the debt crisis, high inflation and severe output
contraction.
• There has been episodes of hyperinflation in Bolivia (1985) Nicaragua (1986-91),
Peru(1988-90), Argentina (1999-90) and more recently Venezuela (2017-).
• Venezuela, enjoyed a windfall of high oil prices in the 1970s, maintained
democracy at a time other Latin American countries turned to authoritarian
regimes.

27. Latin America and East Asia
• The economies of East Asia in the period 1970-2018 were affected in
different ways by the cycles of the international economy, domestic
economic policies and other factors.
• The economies of East Asia in the period 1970-2018 had a much lower
frequency of episodes of economic contraction and more rapid recoveries
than in Latin America.
• China and Vietnam had their recessions in the 1970s but avoided output
contractions in subsequent decades.
• The worst meltdown was during the financial crisis of 1997-99 that hit
hard Indonesia, Korea, Thailand, Malaysia and the Philippines.
• The global financial crisis of 2008-09 led to output declines in the
Philippines ( small), Thailand, Malaysia, Hong Kong and Singapore.

28. Synthesis and Interpretation
• The analysis of world economic crisis during the long 20th century, have
shown that they can take place because of several factors:
I. Armed conflicts such as World War I and II
II. Extreme monetary instability and hyperinflation
III. Collapses in exchange rate regimes
IV. Sharp systemic change such as the end of central planning and the transition to
capitalism in the former USSR, Central and Eastern Europe in the 1990s,
V. Macroeconomic crises following over-expansionary fiscal/credit and wage
policies,
VI. Adverse terms of trade shocks,
VII. Sudden cuts in capital inflows and other factors,
VIII. Premature financial liberalization.