YEAR IN REVIEW 1996: MILITARY-AFFAIRS

Special Report 1945--A Watershed Year The year 1995 has been called "the 50th anniversary of almost everything," and the hyperbole is arguably slight. The only world many of us have known came into existence in the period from 1945 to 1947. Although that world may have come to its end with the breakup of the Soviet Union--and even though Eric Hobsbawm recently has published a history of the "short" 20th century that he claims ran from 1914 to 1991--the contours of some new world are by no means evident. The following are extracts from articles published in the 1946 edition of the Britannica Book of the Year and were chosen to illuminate the way people thought then about the great events that were defining their lives and that now can be seen as seminal to the age that was beginning. In chronological order, they are: the Yalta Conference, the death of Franklin D. Roosevelt, the surrender of Germany, the Holocaust, the formation of the United Nations, the development and use of the atomic bomb, and the surrender of Japan. [From "United States"] At a meeting between Roosevelt, Churchill and Stalin at Yalta on the Black sea in February plans were discussed for the most effective co-operation of the Allies in bringing about the unconditional surrender of Germany and the treatment of that country in respect to occupation and reparations when the victory should be won. On his return from Yalta President Roosevelt addressed the nation (March 1), reporting the close accord of the Allies and declaring, "this time we are not making the mistake of waiting until the end of the war to set up the machinery of peace." Four days later the governments of the United States, Great Britain and Russia, with the concurrence of China, issued invitations to 39 nations (later increased to 51) to attend a United Nations conference at San Francisco to draft a Security charter on the basis of the Dumbarton Oaks proposals of Oct. 1944. [From "Roosevelt, Franklin Delano"] Roosevelt, Franklin Delano (1882-1945) devoted the last few months of his life to preparing for a victory over the axis and a difficult postwar era which he did not live to experience. When he died suddenly on April 12, 1945, at his Warm Springs cottage in Georgia, the armed forces he had mobilized as commander in chief were beating at the gates of Berlin and bombarding the shores of Japan's home islands. His death caused universal shock. Despite obvious evidence of his physical strain through 1944, the state of his health had been a carefully guarded secret. In late Feb. 1945, Vice-Adm. Ross T. McIntyre, White House physician, gave public assurances that his condition was "excellent." But when he continued to lose weight early in March, Dr. McIntyre prescribed a rest in the south. On March 30 he left for the infantile paralysis centre which he founded. At one o'clock of the fatal day he was sitting before the fireplace of the "Little White House" while a New York artist sketched him. Suddenly he exclaimed to Commander Howard G. Bruen, a naval physician: "I have a terrific headache!" The stricken president was carried into his bedroom, where he died at 3:55 PM, Georgia time, of a massive cerebral haemorrhage without regaining consciousness. The White House announced his death at 5:48 PM, eastern war time, and at 7:09 PM Vice-President Harry S. Truman was sworn in as president in the cabinet room. Quiet, sorrowing crowds lined the railroad tracks as the funeral train brought the body to Washington, where simple ceremonies were held in the east room at 4 PM, April 14. For three days the nation and the world paid him a tribute which no other U.S. president, in life or in death, had received. He was given a military burial on Sunday morning, April 15, in a hedge-enclosed rose garden on the ancestral estate at Hyde Park, N.Y. Almost as if he had a premonition that the end was near, even the energetic Roosevelt had rarely laboured so ceaselessly as he did during those last few months. It seemed as if he were consciously striving to write a last will and testament for what he knew might be a free but chaotic universe. [From "World War II"] The Surrender of Germany.--The death of Hitler, the fall of Berlin and the junction of the United States and soviet armies at Torgau were all factors that quickened the beginning of the end of the long German reign of terror on the continent. The armies of the western Allies and the soviet union were overrunning the entire reich. German resistance was rapidly fading and failure of their military strategy to halt the invading armies led the nazi high command to lay greater stress on political tactics. Their hope was to divide the western Allies and the soviet union. Doenitz, who succeeded Hitler as fuehrer, said in a broadcast May 1 that as long as the western Allies obstructed achievement of his aim to save Germany from "bolshevik" destruction, his forces would carry on the "defensive" struggle against Britain and the United States as well as against the soviet union. This appeal was ignored by Churchill and Truman. They insisted on the full and unconditional surrender of the German armies to the soviet as well as the British and United States forces. Consequently the war dragged on. But the defeat of Hitler's Germany was not far distant. . . . Significantly, in the final months of the battle of Germany, most of the major fighting was carried on against the soviet forces. After the crossing of the Rhine, German resistance to the armies of the western Allies was relatively light. With German resistance now virtually nonexistent, Doenitz had no choice but to accept the Allied ultimatum that he surrender to all three forces--United States, British and Russian--simultaneously. He dispatched two emissaries, Gen. Adm. Hans Georg von Friedeburg and Col. Gen. Alfred Jodl, to Gen. Eisenhower's headquarters in Reims, France, where Jodl signed (May 7) the final surrender document. The following day (May 8), Friedeburg, Field Marshal Gen. Wilhelm Keitel, chief of staff of the German high command and Gen. Hans Jrgen Stumpff signed similar documents in Berlin in the presence of Marshal Zhukov. While the cease-fire order was given May 8, the actual signing of the Berlin document did not take place until shortly after midnight May 9. Some fighting continued in Czechoslovakia after the prescribed surrender date but by May 12, all fighting in Europe had ended and peace was restored to the continent. [From "Jewish Religious Life"] The end of World War II revealed how disastrous to Judaism had been the atrocities of Hitlerism. In continental Europe, few Jewish children survived, and the exhausted adult survivors in the underground movements or in displaced persons camps were seen to be for the most part without communities, synagogues, religious or Jewish educational institutions or ritual articles. Outside of soviet Russia, only 1,500,000 Jews remained in Europe; 5,000,000 were destroyed. A typical figure is that from Leipzig, Germany, where of 16,000 Jews, 16 survived, and they only because they were married to Christians and were bringing up their children as Christians. Of the 3,500,000 Jews of prewar Poland, there remained but 80,000, scattered, starved and still being pogromized. In western Europe there was some hope of rebuilding Jewish communities; but in central and eastern Europe the shadow of extinction loomed over what were before the war the greatest centres of Jewish learning and of intensely lived Judaism. There were some encouraging incidents during 1945. Thus, when the first service was held in the reopened Amsterdam synagogue, four-fifths of the congregation was made up of Christians who came to show their sympathy with the Jewish survivors. In Bergen, Oslo and Trondheim, Norway, the surviving Jews were given money seized from German accounts to help them repair their synagogues. But attempts to reorganize Jewish life were generally hampered by the utter poverty that gripped so much of Europe, indoctrinated nazi anti-Semitism, and the unwillingness to give back to Jews seized Jewish property. Thus, at Maastricht, Netherlands, the community planned for U.S. Jewish soldiers a celebration of the Biblical festival of Purim; but it was disapproved of lest it stir up additional anti-Semitism. When at Dachau, Germany, a U.S. Jewish chaplain attempted to hold an open-air religious service, the Jewish displaced persons declared that it would lead to disorders. In the Belsen camp, Polish internees smashed the synagogue set up by the Jewish displaced persons and desecrated the Torahs and prayer books. This atmosphere in postwar Europe tended to drive the surviving Jews to one of two extremes--either a flight from Judaism, dramatized by the conversion to Catholicism of the chief rabbi of Rome, or an intensification of Jewishness which makes the overwhelming majority of the Jewish displaced persons want to settle down only in Palestine. The failure of the British Labour government to live up to British pledged policy of facilitating the establishment in Palestine of a Jewish national home stirred a reaction of a far more militantly determined Zionism in Palestine, in the Jewish people generally, and in the congress of the United States which by an overwhelming vote called for the fulfillment of the international pledge to make a reality of Zionism. [From "United Nations Conference"] The Procedure of the Conference.--The conference opened on April 25 with an address of welcome from President Truman, who spoke from Washington. During the first eight plenary sessions the heads of 37 delegations addressed the conference, stating the general views of their respective states concerning the nature and functions which should be possessed by the future United Nations organization. Many of these delegates took the opportunity to point out what they believed to be basic shortcomings of the League of Nations which must be corrected if the new organization were to achieve its stated goal of maintaining international peace and security. . . . As the committees plunged into their work, it soon became apparent that the major line of cleavage on issues was between the sponsoring powers and their smaller satellites, on the one hand, and those small and middle-sized states which, having no political ties such as to limit their freedom of action, were vocal in criticizing the draft charter because of its substantial departures from the principle of state equality. Australia and New Zealand assumed strong positions of leadership in the latter group, but the Netherlands, Belgium, Norway and many others joined vigorously in the fray. The sponsoring powers followed the general policy of trying to reach agreement on controversial issues outside the committee rooms, so as to present a united front in defense of the Dumbarton draft, or at least in defense of a compromise offer to which they could agree. The position of France was somewhat equivocal. Though not a participant in the Dumbarton Oaks conversations or the Yalta conference, France was assured a permanent seat on the Security council. In a sense, therefore, the French were torn between a desire to go along with the other great powers and the desire to force a greater recognition of their status of equality by taking an independent stand on debatable issues. The policy which they generally followed was that of supporting the great powers' positions but indicating at the same time that they had made their decisions entirely for individual reasons. The Latin-American states, for the most part, vacillated between approval of the United States positions and support of the small-power stand. Czechoslovakia, Yugoslavia, the Byelorussian S.S.R. and the Ukrainian S.S.R. generally sided with the U.S.S.R. . . . When the final printed texts in the five official languages of the charter and the new statute of the court of international justice were officially signed on June 26, the day President Truman addressed the closing session of the conference, the delegates also placed their signatures on another document, the Interim agreement, which set forth the subsequent procedure to be followed in establishing the United Nations organization. This agreement established a new executive committee, consisting of the same states as those which had served on the executive committee of the conference and a preparatory commission, composed of one representative of each national delegation. The new executive committee was directed to assist the preparatory commission in making arrangements for the holding of the first general assembly meeting of the U.N.O., to make plans for the secretariat of the organization and to canvass the whole problem of taking over those properties and functions of the League of Nations which were desired by the new organization. These bodies were directed to make their temporary headquarters in London. As a result of their work during the months of November and December it was agreed that the first general assembly meeting should be held in London in Jan. 1946. [From "Atomic Bomb"] Atomic bomb is the name given to a bomb which obtains its explosive violence from the release of atomic energy, or more exactly, the conversion of matter into energy by an atomic transformation known technically as nuclear fission. No comparable weapon has existed in the history of the world. The first one dropped had more power than 20,000 tons of T.N.T. Based on the discovery of uranium fission by O. Hahn and F. Strassman in Germany in 1939, the atomic bomb was perfected in the United States during World War II as a joint venture of the United States, British and Canadian governments. The first bomb was exploded in a test on the New Mexico desert on July 16, 1945. Two atomic bombs were dropped on Japan from U.S. aeroplanes, the first on Hiroshima on Aug. 6, 1945 (Japanese time), the second on Nagasaki on Aug. 9 (Japanese time). Japan surrendered on Aug. 14. Former Prime Minister Winston Churchill estimated that by shortening the war, the atomic bomb had saved the lives of 1,000,000 U.S. soldiers and 250,000 British soldiers. The release of atomic energy is one of the greatest triumphs in the history of science, perhaps the most significant development in the progress of mankind after the discovery of the use of fire. It has equally vast potentialities for good and for evil. . . . Economic Affairs NATIONAL ECONOMIC POLICIES United States. Economic growth slowed sharply in the first half of 1995, but a recovery in the second half put the U.S. economy on a sustainable growth rate. GDP (Table I) for the year as a whole expanded at about 2.5%, down from 4.1% the year before, which in turn was the best performance for a decade. In view of the slowing economy and the relatively low inflation rate, the Fed cut short-term interest rates by 0.25% in July, signaling an easing in its tight money policy. The slowing of the U.S. economy early in 1995 was largely due to the reaction of interest-sensitive sectors--residential investment and private consumption--to the rise in interest rates over the previous 18 months. Consumer spending fell by 3.4% in the opening quarter, led by a slump in automobile sales. Retail sales were also weak. As longer-term interest rates fell in the spring and the effects of the higher taxes introduced in the November 1993 budget dissipated, spending recovered, ending the year 2.6% up (3.5% in 1994). Retail spending at Christmas proved to be a disappointment, which indicated shaky consumer confidence. Government spending recovered in the second half of the year, reversing declines recorded in the opening quarter. Industrial production (Graph II) mirrored the trend in domestic demand. As demand weakened, manufacturers reduced output to prevent an excessive buildup in inventories. After four months of decline, output stabilized and rose in the second half of the year, registering a 2% gain for the year as a whole. Likewise, capacity utilization, having reached a 15-year high of 85.5% in January, fell back to below 83%. For the second year running, nonresidential investment climbed at a double-digit rate, encouraged by healthy corporate profits, high-capacity utilization, and a drop in long-term interest rates, as well as by good export prospects. Residential investment did not fare so well and fell after a strong gain in 1994. The labour market improved in the autumn, but job creation remained relatively low. Payrolls grew by a monthly average of 226,000 in the first quarter, 82,000 in the second, and 114,000 in the third. As in past years, most of the new jobs were in low-paid, part-time service sectors. From a peak of 5.8% in April, the unemployment rate (Table III) improved in the summer and autumn and stood at 5.6% in November. Against the background of economic slowdown, inflation remained subdued. Year-on-year inflation (Graph I) moderated to 2.6% at the end of December from a two-year high of 3.2% in May. The rise in the inflation rate earlier in the year was largely due to the decline in the external value of the dollar (Graph V). Wages and salaries grew by an average of 3% during 1995. This meant there was hardly any real growth (inflation adjusted) in the take-home pay of most employees. After a slow start in early 1995, export growth picked up and expanded by about 9% for the year as a whole. Export growth was largely due to the strong demand from industrial countries and LDCs, with Asia leading the way. The lower value of the dollar early in the year also boosted exports during the summer and autumn. Once again, imports grew faster and the trade deficit widened. The current-account deficit (which includes trade balances on invisible and capital movements) was expected to rise by a record $176 billion, up from $151 billion the year before. Economic policy during 1995 was characterized by two main features: the easing of the Fed's monetary policy and disagreement between Congress and the Clinton administration on future spending cuts and tax reform. Given the sharp economic slowdown earlier in the year, coupled with low inflationary pressures and a money supply expanding at the low end of the target range, the easing of monetary policy was a relief to businesses and consumers (Table II). Following the 0.25% reduction in the Fed funds rate to 5.75% in July, banks cut their prime rates by 0.25%, to 8.75%. Late in the year both rates were cut another 0.25%. Further reductions in interest rates during 1996 were widely expected. (For short-term rates, see Graph III; for long-term rates, see Graph IV.) In contrast to an easier monetary policy, there was a move toward a tighter fiscal policy. The budget planned by the Clinton administration in February intended a nominal fall in the real value of the budget deficit. The Republican-controlled Congress passed a budget resolution to reduce spending over the next seven years on various federal programs, however, including social security, Medicare, and Medicaid. Tax cuts of $245 billion were also proposed. It was claimed that this proposal would have balanced the budget by the year 2002. Clinton subsequently proposed an alternative plan, to balance the budget in 10 years. The differences between the two proposals proved difficult to resolve, and the new fiscal year started without an agreement. With presidential elections due in 1996, neither side wanted to back down first. Following a partial shutdown of some government services in mid-November and the furloughing of some 800,000 "nonessential" federal employees, a compromise was reached to balance the budget in seven years, but it failed to hold. Another shutdown in December left 280,000 government workers idle and thousands of contractors without pay. Clinton and the Congress remained at an impasse at year's end. Treasury Secretary Robert Rubin, who juggled funds to prevent a default on interest payments on the national debt in November, indicated that a default on interest due in February 1996 was still a possibility. Japan. The recovery from the long economic slowdown in Japan failed to take root during 1995. Although the recession had touched bottom nearly two years earlier, the upturn was so feeble that 1995 marked the fourth consecutive year of negligible growth. Renewed economic downturn in evidence in the closing months of 1994 continued into 1995, and GDP in the opening quarter registered zero growth. Economic growth picked up a little in the second and third quarters, helped by the reconstruction in the Kobe area after the Great Hanshin Earthquake, reversal of the earlier rise in the yen, lower interest rates, and higher government spending. On the basis of incomplete data, GDP was likely to have grown by about 0.5% for 1995, virtually unchanged from the previous year's growth rate (Table I). In part, the continuing weakness of the economy was due to unfavourable developments in the value of the yen (Graph V) and the Japanese stock market in the first half of the year. By the summer the yen had appreciated by 17% against the U.S. dollar, or by about 15% against a basket of currencies, and share prices on the Tokyo stock market had fallen by 25%. The strong yen, by making Japanese exports more expensive and imported goods cheaper, undermined domestic production (Graph II) and weakened consumer confidence and investment. The prolonged weakness in asset prices (share prices had fallen by 60% from their peak level and land prices were down by 50%) affected the balance sheet and profitability of many banks. This weakened the banks' ability to extend new loans and threatened a financial crisis. To help boost the stagnant economy, the economic policy makers announced various measures during the year. The Bank of Japan cut the discount rate twice to curb the strength of the yen. A cut of 0.75% in April was followed by a further 0.5% cut in September to a record low of 0.5%. This, together with concerted moves by the authorities in the U.S. and Germany, succeeded in moving the yen against the U.S. dollar to about 100 yen to the dollar, back to the level it had been at the beginning of the year. In addition to interest-rate cuts, the government announced three fiscal packages. (For short-term rates, see Graph III; for long-term rates, see Graph IV.) The first one was in April in the aftermath of the Great Hanshin Earthquake, and it was quickly followed by another one in June. As both were modest and were seen by economists to have had only a limited impact on the weak economy, a third attempt in September to kick start the economy came as no surprise. This sixth package in three years proposed 14.2 trillion yen in extra spending. About one-third was earmarked for public works projects, 15% for Kobe, and a smaller amount for land purchase to improve property prices. Given the unresolved problems surrounding the Japanese financial system, trade barriers, and land and tax reform, the long-term effectiveness of the latest package was also questioned. Despite these measures to boost domestic demand, private consumption, in particular retail sales, remained weak. Early in the year, consumption was affected by the Kobe disaster. High unemployment and low wage increases also made consumers cautious. Excluding the effect of the opening of new stores, retail sales during the first nine months of the year were about 1.5% down from the same period in 1994. Although the strength of the yen reduced the prices (Table II) of imported goods in the shops, it did not encourage consumers to change their spending habits and bring forward into 1995 purchases that they had intended to defer until a later date. The labour market, having begun to improve in late 1994, stalled in early 1995, reflecting the renewed weakness of the economy. The strong yen increased production costs and encouraged firms to shift manufacturing abroad. The unemployment rate (Table III) in November stood at a record level of 3.4%. At this level 2,170,000 workers were seeking employment. If unemployment were to be defined in the same way as in other industrialized countries, it would be considerably higher than the official figures suggested--perhaps about 9%. Despite the rise in unemployment, wages rose by nearly 2.5% in 1994, but both overtime working and bonuses declined. Because the inflation rate (Graph I) was close to zero, however, the small increase in wages meant there was a real rise in earnings, after adjusting for inflation. The underlying investment trend strengthened a little. Stronger expenditure on plant and equipment, boosted by reconstruction at Kobe, was partly offset by a reduction in housing investment. Government investment recovered, too. Thus, total investment was nearly 2% up in 1995. The strong yen in the first half of the year reduced the trade deficit by depressing exports and making imports cheaper. Although the sharp weakening of the yen from the summer eased the burden of the exporters, in yen terms exports were only 3% higher than a year earlier, but imports increased by nearly 10%. In dollar terms the trade balance was likely to have been close to the 1994 figure of $146 billion, but as a result of a larger deficit on invisible items, such as services and foreign travel, the current-account surplus fell a little to $177 billion ($129 billion in 1994). Although this was still high in absolute terms, Japan's trade partners, the U.S. in particular, welcomed the downward trend.