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The Political Economy of the Bretton Woods System: Background and Significance

An introductory mini-lecture on the Bretton Woods System for the Level One Module: State and the Market: the battle of ideas at Leeds Metropolitan University. Presented by Dr Alex Nunn, Subject Group Leader School of Applied Global Ethics

Alex Nunn

on 23 February 2010

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Transcript of The Political Economy of the Bretton Woods System: Background and Significance

The Political Economy of the Bretton Woods System Contents Mini-Lecture for State and Market: the battle of ideas, Leeds Metropolitan University www.alexnunn.net or
http://www.leedsmet.ac.uk/international/age/index.htm Dr Alex Nunn
School of Applied Global Ethics The battle of ideas.
Background and context.
The negotiation process.
Explaining Bretton Woods.
Bretton Woods and the Political Economy of the Post-War World Order.
The BWIs since 1980.
Summary: the battle of ideas.
Background and context War with Axis powers.
Increasing British need for US help.
Increasing US desire to intervene and to continue that intervention after the war. B. Political/Military A. Economic Crisis of 1930s.
Widespread adoption of demand stimulus and Keynesian planning ideas.
Increasing acknowledgement of need for an international dimension to this. C. Social Need to re-establish economic growth after war.
Need to ensure jobs for heroes – e.g. Beveridge plan etc.
Need to enhance the role and capacity of the state. D. Ideological Liberal
Self-determination and mutual obligation.
International institutions. Openness to experts: e.g. New Deal Brains Trust and Keynes etc.
Institutions can regulate market behaviour.
Need to incorporate different interests.
Relationship between international and domestic institutional frameworks.

E. Institutional The negotiating process (1) Atlantic Charter – freer trade.
(2) Mutual Aid (Lend Lease) agreement 1942
War-time cooperation conditional on post-war planning and US influence.
“Lunatic proposals of Mr Hull” – Keynes.
“expansion… of production, employment and the exchange and consumption of goods”
Post-war economic planning to be multilateral.
(3) US and UK publish alternative plans for international economic structure (April 1943)
UK – led by Keynes – International Clearing Union.
US – Dexter-White – International Bank for Reconstruction and International Stabilisation Fund.
(4) Bilateral negotiations in Washington during 1943
Joint statement by Experts on the Establishment of an International Monetary Fund.
(5) UN Monetary and Financial Conference (Bretton Woods), July 1944.
A. An overview In 1940 Germans also considering plans for post-war economic organisation.
Keynes asked to respond.
An International Clearing Union.
An international currency – BANCOR.
Fixed currencies, exchangeable to BANCOR.
BANCOR to be bought with gold deposits, but not convertible.
Creditor and debtor states to be encouraged to move toward balance.
International system to avoid deflation, not concerned with inflation as a threat. (1) UK
To secure US support in the war.
Protect British economy from US imports and to restart growth, within the Commonwealth.
To get the US to pay for lead role.
(2) US
keen to ensure free trade and end to Imperial Preference.
“move the financial centre of the world from London and Wall Street to the US Treasury”.
To support a market for US produce.
To avoid too large a US commitment.
(3) Both
To restart economic growth.
Provide for stable balance of payments resolution.
To fund reconstruction and development in Europe.
B. The main negotiating positions C. The agreement (1) IMF
Each member to have a quota.
IMF to be able to assist members with temporary balance of payments problems up to a proportion of this.
A surveilance role on Balance of Payments defecits and currency scarcity.
Fixed exchange rates.
Dollar convertible and convertible to gold.
(2) IBRD (World Bank)
Provide loans up to value of its own capital stock – provided by members.
Loans to finance reconstruction and development.
Explaining Bretton Woods A. General To control international finance and put state(s) in charge of international financial flows.
Promote free trade.
Provide an institutionalised mechanism for cooperation.
Bind states together.
Avoid backtracking.
Protect the domestic economy from adjustment. C. Ikenberry Importance of historical conditions.
Space for technical experts.
Development of a transatlantic expert community, led by Dexter-White and Keynes. C. Reynolds “Competitive cooperation” between US and UK.
Influence of inter-war period.
State driven process. Connected to post-war security concerns. D. Schild General economic necessity. E. Gardner Bretton Woods & the Post-War World Order. (1) Largely peripheral.
(2) WB and IMF replaced by Marshall Plan.
(3) IMF Lending activities minimal until 1970s (e.g. Britain in 1976, Debt Crisis during 1980s).
(4) Partly symbolic:
Control capital flows.
Make 'finance the servant'.
Stabilise currencies and facillitate international trade.
Institutionalise US leadership.

Bretton Woods Since the 1980s A. Mid 1970s-1990s B. Structural Adjustment C. Late 1990s-2007/8 D. 2008-onwards Rejuvinated by economic crises! (e.g. loan to Britain in 1976.
Reoriented in 1980s to deal with fall out from Debt Crisis.
Became architects of ‘Structural Adjustment’.
Began to provide a much more important surveillance role. Wolfensohn-Stiglitz Project.
Poverty reduction and pro-poor development.
Financial stability. Reform - see G20, UN Commission etc.
Tobin Tax.
Capital adequacy standards.
IMF Capacity.
Voting rights and representation. (1) Part of the deal for helping with the Debt crisis.
(2) Financial support for development and balance of payments difficulties.
(3) Often associated with rolling over debt through the Paris Club.
(4) Conditions attached:
Austerity – reduce the role of the state and welfare and curb corruption.
Privatise state owned assets.
Liberalise trade and capital markets.
Guarantee foreign investments.
Bretton Woods Project: http://www.brettonwoodsproject.org/
History of the IMF: http://www.imf.org/external/about.htm
Use of IMF Credit: http://ucatlas.ucsc.edu/sap/use_of_credit.php.
James Morrison Lecture on Bretton Woods: http://blogs.middlebury.edu/ipespring09/page/2/.
Gardner, R (1986), “Sterling-Dollar Diplomacy”, in Louis, WM and Bull, H. (1986), The Special Relationship: Anglo-American Relations since 1945, Oxford: Clarendon.
Gardner, R (1969), Sterling-Dollar Diplomacy”, New York: McGraw-Hill;
Ikenbery, GJ (1992), “A World Economy Restored”, International Organisation, 46:1 (Winter).
Reynolds, D. (1981), The Creation of the Anglo American Alliance 1937-1941, London: Europa: pp274-94.
Reynolds, D. (1981), “Roosevelt, Churchill and the Wartime Anglo-American Alliance: Towards a new synthesis”, in Louis, WM and Bull, H. (1986), The Special Relationship: Anglo-American Relations since 1945, Oxford: Clarendon.
Schild, G. (1995) Bretton Woods and Dumbarton Oakes, New York: St Martins Press.
Shoup, L. and Minter, W (1977), Imperial Brain Trust: The Council on Foreign Relations and U.S. Foreign Policy. New York and London: Monthly Review Press.
VanDormael, A (1978), Bretton Woods: Birth of a monetary system, London: MacMillan.
Weir, M (1989), “Ideas and politics: the acceptance of Keynesianism in Britain and the US”, Hall, P (ed.), The Political Power of Economic Ideas, Princeton: Princeton University Press;
Mutual Aid Agreement see: http://avalon.law.yale.edu/wwii/angam42.asp.
UK Government (1943), UK Government Proposals for an International Clearing Union, CMD6437, London: HMSO.
UK Government (1944), Joint Statement by Experts on the Establishment of an International Monetary Fund, CM6519, London: HMSO.
UK Government (1944), United Nations Monetary and Financial Conference Final Act, Cm6546, London: HMSO. Resources Summary BW story illustrates the C20th story of the battle of ideas about the relationship between the state and market.
The design of the BW system relfected a social democratic answer to the question about the best relationship between the state and market.
It was developed at a time when the free market solution was discredited.
It was also developed at a time when the social democratic and Marxist solutions were at war with a Fascist alternative.
The BW system reflected an outgrowth of the Anglo/American answer to the crisis of the 1930s.
This was largely a social democratic response - contain the crisis tendencies of capitalism, restart growth, protect the population from the effects of global competition.
BW was offered to the socialist/Marxist alternative at a time when the USSR was still a war time ally, but was rejected.
The collapse of the BW system and reorientation of the BWIs in the 1970s-80s reflected the resurgence of the free market solution, often called neo-liberal.
Today's crisis and the discussion about reform of the BWIs may reflect something of a turn back to social democratic ideas, but that has yet to be determined. State and Market:
Battle of Ideas The free market position.
The Social Democratic position.
The socialist position.
Fascist position. B. The battle of ideas (1) Predominance of the social democratic idea.
(2) But both the other two positions offer a critique:
Socialist - broker consent capitalism while overcoming problems of capitalist competition.
Free market - state capture and self-interest.
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