radical economist of the 1930s and a convinced protectionist, who was now
Lord Keynes and a Treasury insider
with great influence on policy, they were
no longer free-trade oriented, and were committed to the Sterling Area. But
US economic power was, in the last resort, too great to be resisted – ironically,
since the US wished, in principle, to remove power considerations from insti-
tutional arrangements. As noted above with respect to functionalism, this is
rarely possible, and never when it comes to core economic matters.
The British and
Americans met at Bretton Woods, New Hampshire, in
1944 to negotiate the shape of the post-war economic order, which thus
became known as the
Bretton Woods System (BWS). The BWS met
American notions in several ways. In the first place, attempts were made to
‘de-politicize’ the international economy by dividing up the various interna-
tional issues amongst separate institutions.
Thus an International Trade
Organization (ITO) would handle trade matters, a World Bank would
handle capital movements, and an International Monetary Fund (IMF)
would deal with international money and balance of payments crises. These
separate institutions would be functional agencies of the UN but isolated as
far as possible from the Security Council and other UN bodies dealing with
‘political’ affairs; indeed, in practice, the UN has had no effective control
over these organs. Moreover, the new institutions were to be run by boards
of directors
and managing directors who, although appointed by states (in
proportion to their relative economic strength – no question of ‘one state,
one vote’ here), would have fixed terms of office and would be expected to
act as functionaries rather than as political representatives. The emphasis
would be on technical solutions to technical problems.
In the second place, these organs were to be regulatory rather than man-
agerial. Thus the World Bank would not have funds of its own beyond a
small amount of working capital, but would raise money commercially that
it would then lend on to states at commercial rates to supplement private
loans and intergovernmental dealings. The IMF would not be a world-wide
central bank with the capacity to create international money (as
Keynes had
proposed) but a regulatory body designed to police a set of rules which
required convertibility and national action to defend exchange rates. The
IMF would help states to deal with balance of payments crises, but it would
also lay down conditions for its help, thereby policing the policies of its
members. The ITO would police the trade policies of its members, ensuring
that the rules limiting quotas and promoting tariff reductions were
enforced, although in the event it would be nearly 50 years before the World
Trade Organization (WTO) was finally established in 1995, and in the
meantime a more limited General Agreement on Tariffs and Trade (GATT)
performed this function.
In the immediate post-war period it was impossible
to bring these institu-
tions on line. No country in the 1940s was able to compete with the
Global Governance
127
United States, which was the home of over half the capitalist world’s indus-
trial production. In practice, what led to the reconstruction of the capitalist
world economy and a generation of prosperity was the Cold War. Marshall
Aid, the European Recovery Programme, transferred some $15 billion in
grants to Europeans and the Japanese – far more capital and on easier terms
than Keynes had envisaged in his schemes – but
it operated explicitly as a
response to the threat of communism. Without such a spur there was no
possibility that Congress would have passed such a generous programme.
The attempt to de-politicize international economic relations stood revealed
as a pious hope rather than a reality. In any event, for two decades after the
early 1950s the world economy experienced unprecedented growth and
prosperity. This growth was concentrated heavily in Europe and Japan, but
even Britain and the United States grew steadily, and growth rates in what
was coming to be called the Third World were high, although often under-
mined by rising populations. By the end of the 1950s
most of the leading
economies had re-established currency convertibility, and the GATT ‘rounds’
of tariff negotiations were well under way. Going into the 1960s the system
seemed to be working pretty well, albeit not quite as originally intended.
However, in the 1960s, crisis followed crisis for the BWS, and by 1973 –
when the attempt to work with fixed currency rates was abandoned – it is
widely regarded as having, to all intents and purposes, ceased to exist.
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