Background:
From the 1870s to 1913 the gold standard and British bankers underpinned a global pro-flow policy. In the 1920s, policies were inconsistent. In the 1930s there was a retreat to protectionism, which was transformed into more sophisticated Keynsian (pro-government intervention in favor of employment) policies. Since the 1960s, pro-flow policies have gradually been reinstated across much of the world.
The Lead-Up
Trade, interntational investment and national economies
flourished in the 1920s. But international trade and currency policies were
chaotic in the 1920s. Many countries increasingly refused to implement policies
that would resolve balance-of-payment problems (such as scaling down public
expenditures and raising interest rates) because they could be detrimental
to employment and economic growth. Short-term speculative capital and unpredictable
policies also proliferated, making the international economy increasingly
risky and unstable.
The Depression caused even greater withdrawal into nationalistic and regional economic barriers. John Maynard Keynes perfected his theories of interventionist government economic policy and public spending in the 30s as a reaction to what he saw as the undisciplined international economy of the 20s. Britain developed a trading preference bloc across the commonwealth and many colonial empires increasingly integrated themselves behind a single wall of external tariffs. German and Japanese conquests also came with an economic plan to implement free-trade blocs centered around an industrialized metropole.
During the war, Britian asked Keynes to write up a proposal for international economic regulation to counter the German proposal by Wilhelm Funk to create a European free-trading zone. Keynes proposed an International Clearing Union that would support gold-backed currencies at stable exchange rates. Member nations would subscribe to its funds, and funds would be dispersed liberally to compensate for balance of payment problems. In theory, this would make it possible for countries to avoid austere deflationary policies and pursue more appropriate domestic economic policies. Pressure would also be placed on creditors to modify their policies.
Bretton Woods (Other Journalistic
and economic
accounts of Bretton Woods)
The leaders of 45 countries met at Bretton Woods, New Hampshire in July,
1944 to draw up plans for the post-War regulation of the world economy.
The shared concern was to find a medium between the unfettered capital flows
of the 1920s and the intense protectionism of the 1930s, both of which were
thought to generate global instability. Keynes argued for the necessity
of capital controls, so that individual nations could set up interest rates
and economic policies suitable to local conditions and prohibit the exodus
of capital to wealthier countries. The US argued for more liberal trade
and capital policies and for non-discriminatory trading policies--i.e. breaking
up trading blocs identified with colonial empires.
The resulting agreements established three incompatible goals: fixed exchange rates that could only be altered with the agreement of other countries; the gradual achievement of free capital mobility; and independent national monetary policies. In particular, the last principle was potentially opposed to a commitment to capital mobility and to maintaining a fixed exchange rate.
The first two principles were the most widely disregarded over much of the 1950s. Developed countries tended to follow Keynsian principles that favored full employment and social welfare. Even in the U.S., economic liberals remained relatively muted, despite their fears that the Bretton Woods agreements would lead to inflation, unsustainable debts and a world unfavorable to U.S. exports and capital. Ultimately, the U.S. government did not press the issue thinking that it was more important to promote European economic development and gain the coopration of Western Europe as allies against the U.S.S.R. The Marshall Plan gtave massive financial aid help rebuild European economies as a bulwark against Communism. But it also promoted U.S. interests by building up a dependency on the dollar, thus promoting the dollar as an anchor of pegged exchang rates and resisting the creation of trade and currency blocs (such as the emergent European Payment Union).
As economies flourished, trade boomed, increasing six-fold from 1947 to 1970. With stable economies and rising trade, European governments were more willing to collaborate in establishing fixed exchange rates (pegged to the dollar by the late 50s) and reducing capital controls. The latter was partly compelled by the fact that individual investors increasingly resented capital controls and found ways to circumvent them.
IMF
The IMF was the main institution encharged with
enforcing the Bretton Woods agreement. It was based on the model of the
Clearing Union designed by Keynes to bail out countries having balance-of-payment
troubles. But the original model was watered down through compromise with
the U.S: It commanded fewer funds, was given a much lower scope of lending
abilities; and voting rights were determined by amount of capital subscribed
rather than proportion of world trade. This last provision led to US domination
of IMF policy. In the 50s, the IMF generally acknowledged the desirability
of Keynsian economic policies international cartels. But IMF activities
were minimal in the 1950s, amounting to no more than 5% of total US aid
to Europe. By the 1970s, IMF funds increasingly came with demands to engage
in traditional austerity and deflation policies, precisely the kind of thing
Keynes had hoped to avoid.
World Bank
The International Bank for Reconstruction and Development
(World Bank) was also established by the Bretton Woods agreements. It started
by providing loans for the reconstruction of Europe Poland was the first
nation to withdraw in 1950, citing the Bank's intention to subordinate Europe
to US interests. By the late 1950s, the bulk of World
Bank loans were directed to undeveloped countries, to help bolster economies
and decrease the possiblity of Communist revolution. Most loans went to
help modernize agriculture, purchase machinery, or build large water and
power projects. The World bank still claims that it is the greatest funder
of projects to support health, AIDS prevention, education and biodiversity.
(World Bank Homepage)
ITO & GATT
The United States supported the organization of
the International Trade Organization for the liberalization of trade in
the late 1946. But the final agreement, signed by 53 countries in Havana
in 1948, contained multiple and complex provisions for trade protection.
The United States refused to ratify it. At the same time, the GATT (General
Agreement for Trade and Tariffs) was developed with provisions for the gradual
reduction of trade restrictions, including trade and currency blocs. This
was seen as only a temporary expediency, but the Agreement persisted and
ultimately became the basis for the WTO.
United Nations
The United
Nations charter was signed in San Francisco, June 26, 1945. The main
principles written into the charter were, "To develop friendly relations
among nations based on respect for the principle of equal rights and self-determination
of peoples, and to take other appropriate measures to strengthen
universal peace" (Article 1.2), "The principle
of the sovereign equality of all its Members" (Article 2.1), and "promoting and encouraging respect for human
rights and for fundamental freedoms for all without distinction as to race,
sex, language, or religion" (Article 1.3).
Each member nation may send up to five representatives to the General Assembly. By virtue of sheer numbers, the General Assembly is the only international forum in which weak nations have a loud voice. UN reports on social and economic conditions have often taken the perspective of lesser-developed nations.
Nonetheless, the weaker nations have had little practical influence. Substantive decisions in the UN are made by the Security Council. Ten member nations of the Security Council are elected for two-year tenures. The five permanent members (China, France, Great Britain, U.S., U.S.S.R.) must all agree on any UN resolutions.
Due to the high level of cooperation that must be orchestrated, it has proven difficult to formulate and enforce UN decisions. Some of these problems arise from contradictions inherent to the charter, which promotes both human rights and the sovereignty of member nations. Thus, UN intervention is only justifiable in cases where international peace and harmony is threatened. Member nations can use the principle of national sovereignty and self-determination to block intervention in civil war and gross cases of human rights abuse.