The Legacy of Bretton Woods

From Bretton Woods to Economic Globalization

Economic globalization regime: origins at Bretton Woods

How did the contemporary regime of economic globalization come to be? The story begins in Bretton Woods, New Hampshire.

The context of Bretton Woods

The story begins at Bretton Woods as an arrangement among nation-states under the auspices of the United Nations to provide order to the international economy, to promote post-World War II economic growth, and to forestall relapse into a global economic depression similar to the 1930s.

The International Monetary Fund

The lead institution of the Bretton Woods accords, the International Monetary Fund (IMF) was envisaged by Lord Keynes to provide the liquidity to underwrite national deficit spending to expand national economies, to forestall competitive devaluation in currencies, and to correct failures and distortions in financial markets.

The World Bank

Bretton Woods laid the foundation for the International Bank for Reconstruction and Finance, soon called simply the World Bank, but as a companion to the IMF centerpiece.

The official motto of the World Bank is: "Our dream is a world without poverty". The World Bank has formally incorporated sustainable development into its mission.

From GATT to WTO, the World Trade Organization

The lowering of tariffs became a point of contention at Bretton Woods, with no firm agreement. An International Trade Organization was proposed in 1948, but Congress balked at ratification rather than compromise national sovereignty. Soon afterwards, trade negotiations commenced in Geneva, founding the General Agreement on Tariffs and Trade (GATT). Under President John F. Kennedy, the scope of GATT increased and tariffs dropped sharply, but disputes over agricultural subsidies undermined general agreement. In 1994, President William Clinton signed the WTO master agreement that included 117 nations. On January 1, 1995, the World Trade Organization (WTO) was created, converting GATT and concluding the Bretton Woods trio.

The Employment Act of 1945

A companion policy to support the economy, this act stated explicitly that the US Treasury, through fiscal policy, and the Federal Reserve Bank, through monetary policy, supported four national goals:

  1. Economic growth, typically expected to be about 3% per year
  2. Full employment, defined as about 5% rate of unemployment
  3. Low rate of inflation, aimed at below 2.5% per year
  4. Positive trade flow, meaning that exports should exceed imports, thus supporting a strong dollar --- an utter failure.

The American Dream:
Building the Suburbs
and the Sunbelt

President Eisenhower installed policies to support a specific form of post-war economc expansion. The National Highway Defense Act, a major road building program, expanded and connected cities. The Federal Housing Administration and the Veterans Administration provided mortgage guarantees that supported an explosion of home ownership --- the roots of the notorious sub-prime housing problem and the accompanying economic financial crisis that began in September, 2008. The IRS code allowed duduction of mortgage interest and property taxes from taxable income, an enormous subsidy to home ownership.

The Story of Bretton Woods

How did the contemporary regime of economic globalization come to be? The story begins at Bretton Woods as an arrangement among nation-states under the auspices of the United Nations to provide order to the international economy, to promote post-World War II economic growth, and to forestall relapse into a global economic depression similar to the 1930s. The original mission of the Bretton Woods institutions was subverted into the ongoing catalyst of economic globalization under the ideology of neo-liberalism beginning in the 1980s.

The story of neo-liberalism emerged in an idyllic setting within the White Mountains of New Hampshire, at the palatial Bretton Woods retreat in July, 1944. The official title of the gathering from 44 nations was the United Nations Monetary and Financial Conference. There, the presumed victors of World War II gathered to anticipate the post-war state of the economy of the North Atlantic community. The specter of relapse into the Great Depression, the global economic slump which the war economy had remedied, haunted Bretton Woods. Progressive reform rooted in nationalism comprised the Bretton Woods agenda.

Two leaders set the stage for post-war economic planning: Lord John Maynard Keynes, the august British economist, and Harry Dexter White, an intimate adviser to President Franklin Delano Roosevelt of the United States. No one at Bretton Woods imagined a transcendence of the nation-states whose interests they represented and promoted. The global economic institutions they envisioned, based on the acumen of Keynes, rested on the accepted cornerstone of national economic policy making, the welfare states constructed throughout the 1930s. Reconstruction of the war-ravaged industrial nations was foremost, with little thought to what were then the colonies of Asia, Central and South America, and Africa.

The UN Monetary and Financial Conference at Bretton Woods founded two principle agencies, technically specialized operations of the United Nations, the World Bank and the International Monetary Fund (IMF). Both are headquarted in Washington, DC. ^


World Trade Organization

The lowering of tariffs became a point of contention at Bretton Woods, with no firm agreement. In 1948, a charter forged in Havana for the International Trade Organization was proposed, but Congress balked at ratification rather than compromise national sovereignty. Soon afterwards, trade negotiations commenced in Geneva, founding the General Agreement on Tariffs and Trade (GATT). Under President John F. Kennedy, the scope of GATT increased and tariffs dropped sharply, but disputes over agricultural subsidies undermined general agreement. In 1986, trade negotiations resumed in Punte del Estay, Uruguay, concluding in Marrakech in 1993. In 1994, President William Clinton signed the master agreement that included 117 nations. On January 1, 1995, the World Trade Organization (WTO) was created, converting GATT and concluding the Bretton Woods trio.

The WTO, founded as a treaty among sovereign nations, is perhaps the most controversial of the core institutions of economic globalization. WTO prevents governments from regulating international trade and investment, thus favoring the interests of transnational corporations over nations. The WTO can levy permanent sanctions against nations it deems as transgressors of its trade rules. Import substitution policies, seen by many as crucial to incipient sustainable development, are not permitted under WTO rules. The Battle of Seattle in 1999 has focused attention and ire on the WTO more than on the IMF or the World Bank--and the WTO disdains notoriety.

The WTO decides its cases surrounded by secrecy, delegating anonymous trade specialists for its tribunals. It promulgates not only in matters of tariffs, but also in what it deems to be non-tariff barriers to trade, such as India's national constitution which permits generic pharmaceuticals, Canada's cultural policy that restricts magazines from the USA, and the European Union's preference for bananas produced by cooperatives and not agribusinesses Dole and Chiquita (Cavanagh and Mander, et al. 45). Thus, unlike the IMF and World Bank, the WTO can intrude on the domestic affairs of rich and powerful nations, including the USA.

Tariffs have shrunk persistently since Bretton Woods, but agricultural subsidies chronically divide nations and work to the disadvantage of developing countries. Trade-Related Intellectual Property Rights (TRIPs) have divided poor and rich nations, with the USA siding with patent-holders such as giant pharmaceutical and agribusiness firms. At stake are patent claims over agricultural seeds and medicinal plants and the future of biodiversity itself.

The WTO appears to recognize its deficit of accountability and its excess of controversy. Despite its small budget and staff and its hesitation to leap into disputes, the WTO mission and methods contribute to the legitimation crisis of economic globalization. The controversies surrounding the WTO even divide political conservatives who decry the erosion of sovereignty. The WTO appears to tread gingerly, at least for now. However, WTO critics sound an ominous note, claiming, "the WTO is a blueprint for the hegemony of the largest corporations based in the rich countries" (Cavanagh and Mander, et al. 46).

The WTO occupies a strategic niche in the march of neo-liberalism and economic globalization. See the Washington Consensus. ^


Wayne Hayes, Ph.D. | Initialized: 3/6/2007 | Last Update: 3/10/2011