Bretton Woods Conference
The purpose of this article is to scrutinise the salience of the Bretton Woods Conference in 1944, its occurrence, immediate effects and subsequent impact after the abandonment of the principles and modes of economic governance it founded. I will evaluate the Conference’s contemporary relevance in terms of the legacy of its institutional environment and by juxtaposing the political economy at its origination, immediate future and present. My argument emphasises the heterogeneity of the Conference’s influence. My analysis will begin by explicating the conditions that precipitated the Conference and the conclusions that were established. I will then I trace the connections, differences and similarities of topical interest to these origins, where they are meaningful, to illuminate the Conference’s modern day implications. The key themes to be explored are the Euro, global governance and poorer countries.
1944, with World War II pervasively devastating the globe, governments agreed to meet to create a global economic architecture for the post war phase. A broad coalition of countries (including so called developing economies) were mainly represented by technocrats, each with a different agenda to pursue. John Maynard Keynes for the United Kingdom (in significant debt as a result of the war) argued for monetary support to flow from the surplus nations to those in need of funding. The United States represented by Harry Dexter White was recognised for its new economic superiority and as a creditor nation. Using its economic standing, Keynes’ proposal was defeated by White and the International Monetary Fund, created to help countries struggling with finances, involved larger contributions by a variety of nations. To support Europe in its reconstruction efforts an International Bank for Reconstruction and Development was erected. Finally, a new currency scheme was produced to avoid economic havoc in the interwar years. This was a hybrid whereby each currency was priced to the US Dollar, itself pegged to Gold. There were further capital controls which made countries more resilient to rapid capital flows. Until the termination of the Bretton Woods System in 1971, the Conference was recognised as a critical juncture which produced a period of strong, broadly distributed growth, economic cooperation, low unemployment and inflation, and limited exchange rate fluctuations, different from the conditions following the System’s demise. It is important to recognise, however, that academics are not unequivocal in crediting these successes to the Conference.
The most striking parallel between the Conference and present is the management of currency arrangements that we can witness in Europe at present. Whilst the configurations and circumstances are not identical (for example the detachment from gold), the Conference offers an insight into the political economy of global finance negotiations and currency arrangement of the Euro. For example, the Bretton Woods consultation involved discussion and debate as to the fixing of exchange rates to the dollar such that economic strategy must be directed towards minimising deviations from an agreed peg in order to preserve the integrity of the arrangement as a whole.
Along the same lines, contemporary economic strategy in Europe has necessitated Euro area governments to place the preservation and protection of the Euro above other possibilities such as exits and devaluations. As some academics have argued, the Euro currency difficulties are in part a balance of payments crisis prolonged by the unsustainable internal mismatches between nations. The Conference foreshadowed tensions in global governance which I will address later in the essay. Indeed, Germany’s position of economic strength and the role it has played in Euro negotiations is similar to the United States in the Bretton Woods Conference.
It is true that the Bretton Woods Conference illuminates the founding and construction of the Euro more than the difficulties associated with the ongoing sovereign debt crisis. However, there are further connections to highlight concerned with contemporary drafting of policy. First is the function played by technocrats. Keynes, White and other associates were not democratically elected politicians, but individuals with economic expertise appointed by governments to represent their interests. The prevalence of individuals not directly elected driving decision making is broadly visible throughout Europe, perhaps to an even greater extent. This would include the appointment of technocrats such as Mario Monti to lead Italy and the input by bodies such as the European Commission in having an agenda setting role like designing bailout packages. It could be hypothesised that technocrats are relied upon when the intensity of decision making is at its highest. Whilst I appreciate the general thrust of this argument, I would posit that electorates are viewed by elites as a spanner in the works, and the use of technocrats can increase the security of outcome, in contrast to the unpredictability of elections.
An important comparison to highlight between the Conference in 1944 and decision making today is the influence of private sector groups and lobbying organisations. There was no representation of elite financial entities in the proceedings leading to the formation of the Bretton Woods agreement. Rather, the authority accorded to the negotiators was to act in the perceived national interest. For better or for worse, private sector groups in the following years have accumulated considerable bargaining power in determining the course of policy globally across a range of issues. Today, investment banks and corporations like Goldman Sachs have a deep, extensive and influential voice. By comparison, the voice of private sector lobbyists at the 1944 Conference was muted. The contemporary relevance here is the degree to which policy making has become controlled by special interests and the necessity to consider restrictions that can reverse this process.
Linked to this specific analysis of the Euro in particular is question of global governance in general. The Bretton Woods Conference formed a significant precedent by fashioning supranational organisations of the kind not seen before, yet with properties replicated in other organisations such as the United Nations. It is argued that by pooling resources and political will, institutions can take a course of their own complementing and competing with elected governments to forge policy outcomes. Obviously, the International Monetary Fund and the former International Bank for Reconstruction and Development (now part of the World Bank) are the most relevant examples as legacy bodies. I am not arguing that the Conference was the inspiration for all future forms of global governance, but that it stands out for its chronological position.
Hence the contemporary relevance of the Bretton Woods Conference is twofold. In the first place, it has been observed that the IMF has been able to dictate the economic pathways of regions like Latin America in the 1990s and more recently enacted fiscal constraints on states such as Ireland and Greece, all without prior democratic approval. I would therefore posit that the reach of supranational organisations, technocratic prominence and corporate influence has markedly overstepped the original intentions for supranational governance envisaged in the 1944 Conference and, moreover, has lead to poorer outcomes such as high unemployment and stagnant economic growth, thereby reducing the quality of life as well. Tensions between countries, for example in Euro bailout contributions, have been difficult to address. The second prominent influence of the Conference is the template it produced for other supranational organisations to thrive. In addition to the Bretton Wood institutions and aforementioned United Nations, the 1957 Treaty of Rome took some inspiration from this spirit of global interaction. It gave birth to the European Commission which has played a leading role in coordinating countries during tumultuous economic conditions. Other governance structures such as the OECD, Bank of International Settlements and aspects of NATO further relate to supranational governance spawned by the Conference.
Above all, the relevance of the Conference was a critical forum in which countries came to the negotiation table to discuss global economic governance, with an awareness of their interconnectedness and an understanding of the mutual benefits which can arise from cooperation. The same is pertinent today when we consider economic choices which do not appreciate this interdependence. It seems that frameworks for aggregating global preferences are no more sophisticated than in 1944, (e.g climate change) especially when home electorates desires are constrained by other nations.
The final area for my argument is on economic action, with a focus on the poorer countries. The desirable economic conditions created in the post war period have been described. In essence, this can be attributed to the restraint on capital movement that enabled governments to form strong states not at the mercy of global finance. With rating agencies having a greater say in the management of economies than democracies, economic history analyses should strongly consider the reasons for reinstating the Bretton Wood arrangements to offer more possibilities of economic stability. One element of the Bretton Woods Conference not be desired is the support to poorer countries. For sure countries such as India, China and Mexico were represented and had a voice during the proceedings. Yet despite forming a considerable segment of the Earth’s population, the subsequent record for their economic expansion has been unimpressive. Even recently, the growth of the so called BRICs has been unequal and large populations remain impoverished. This may be due to the overrepresentation of industrialised economies in the IMF and World Bank.
To summarise, the Bretton Woods Conference continues to offer important insights into contemporary aspects of political economy, and therefore warrants continued academic attention. It has illuminated the relations and operations between states when erecting and debating governance mechanisms such as the Euro. Additionally, the Conference has provided a template for supranational organisations to be formed and managed ranging from the IMF and World Bank to the EU Commission.