Bretton Woods, finance and human development
Sometimes, I am amazed at how much I don’t know – especially about things I thought I knew about. Not to mention those things I didn’t even know I didn’t know. Sometimes when I realize something, I feel literally struck. Like right now, while reading, ‘Managing the World Economy: 50 years after Bretton Woods,’ a collection of essays edited by Kenen.
I had been under the impression that the Bretton Woods Institutions (the World Bank and IMF) had something to do with development and developing countries. After all, the original name of the Bank was ‘International Bank for Reconstruction and Development’. What I had not realized (though I am sure I must have read or heard this somewhere) was that the Bretton Woods Institutions were originally founded to secure a global financial order and thus bring the potential of peace to the world. To quote from Padoa-Schioppa:
“BW was a system of multilateral institutions and rules designed for nation-states pursuing full employment and economic stabilization in a world with strong political leadership and limited trade adn financial integration. The system was intended to provide a response to a long period of economic isolationism that had culminated in a global war. As the end of the war was nearing, the governments of hte winning arket-oriented powers….decided to make a drastic turn toward an open and managed multilateral system, in which trade and monetary relations would be subject of formal rules for exchange rate and trade policies aiming at noninlationary growth in conditions of ‘economic peace’ ” (237).
Nothing there about developing countries. Of course, they were in the background; international finance and the flow of private capital had been a key element of the industrialization (development) of Britain and the States for well over a century. The key issues of the BWIs were a)free trade to encourage growth and b) monetary regulation. WHile the bombs were still falling in Britain, Keynes was drawing up a blue print of a system that would lead to global economic stability.
This is a far cry from my first introduction to the BWIs, when I was at the World Social Forum in Kenya and listening to horror stories about Structural Adjustment Programs, or hearing my Indian colleagues bemoan the 80-98% (depending on which numbers you used) failure rate of World Bank water projects in South East Asia.
It’s a far cry because the BWI ‘era’ as it is now called really came to an end in 1971-3, following the United States separating the dollar from the gold standard and thus introducing international floating currencies. With that largely unilateral decision, the multi-lateral approach to monetary finance collapsed, and global finance was no longer globally managed, except by ad-hoc and informal agreements by the G7 and G8 and the ‘natural’ regulations of the Free Market. Recent months have shown how successful that approach has been over the long term.
What struck me the most, however, was not feeling sorry that the IMF essentially got demoted to ‘only’ dealing with developing countries, nor that policy makers have been largely satisfied with having one of the most important aspects of the world largely unmanaged by any publically-held accountable institution or government. It was realizing that BWI, which I consider to be ‘development’ institutions were made for the purpose of managing global finance. and the global finance needed to be managed in order to promote global peace. Because Keynes and others recognized the dangers of isolationist policies. Because countries could not successfully develop alone without endangering other countries and their own internal processes. Because mutuality, not pure independence or pure dependency, was needed to secure long term peace adn the potential for growth. Because the development of any one country depended on the development and co-operation of all countries.
I realized I was reading a strong statement about development that had little to do with North versus South – not least because Keynes and the others were working in a world view that appreciated the natural resources and human capital the South had given the North (or had stolen from them, as many accurately report) and were far more concerned about rebuilding and restabilizing Europe. But for peace and human development – understood broadly here, but Sen’s emphasis on freedom and choice is a good start – to be successful, it was necessary to regulate international finance, and this is something that can not be done alone.
I saw once again that development and international finance are intricately connected, and the moral framework around which we understand them is essential to ensure that financial markets serve human development, and not the other way around. As climate change worsens, ensuring that we get these priorities right will be increasingly (and devestatingly?) important.
