Later this week, President Bush will hold a G-20 summit to discuss the deepening financial and monetary crisis besetting the world's markets. Some have likened the November gathering to the historic 1944 Bretton Woods conference.
The impetus for the Bretton Woods meeting was obvious to all—years of drought and famine followed by the Great Depression and World War II had destroyed any semblance of a world economy. As we approach this week's meeting, we need to ask ourselves how the current crisis came about and what lessons we can learn from Bretton Woods.
Economic storms start like other storms. The first drops of rain are very small and dispersed. They are only felt by a few. Just as in the 1930s, the first signs of our current economic storm blew in with a farm crisis. In the 1980s, hundreds of thousands of farm families were driven off the land by low prices and unbearable debts. Foreclosures were rampant. Rural communities were feeling the first drops of rain from a corporate-driven storm to have global markets determine food and agriculture policy. This policy eventually became known as the “Washington Consensus” when it was applied to the developing world.
The peak of the “Washington Consensus” arrived in 1994. It started out as policy prescriptions for financially strapped countries like Mexico and Argentina by the World Bank and the International Monetary Fund (IMF). Eventually the “Washington Consensus” became shorthand for the full neoliberal agenda that called for unleashing market forces and removing all regulation on capital. The pinnacle achievements of this movement of market fundamentalism are the 1994 North American Free Trade Agreement (NAFTA) and, that same year, the transformation of the General Agreement on Tariffs and Trade (GATT) into the World Trade Organization (WTO).
Also in 1994 was the 50th anniversary of the Bretton Woods conference, the world economic summit that gave us the World Bank, the IMF and GATT. As the world’s financial leaders and economists celebrated the globalization of markets, the Institute for Agriculture and Trade Policy celebrated by bringing the surviving participants back to the historic Mount Washington Hotel in Bretton Woods, New Hampshire. The same place where 50 years earlier they had met to ensure that the world would never again experience the kind of worldwide suffering and destruction caused in part by a failed international monetary system.
As the surviving Bretton Woods participants arrived for the anniversary meeting, it became obvious that this was not going to be a gathering of old timers reminiscing about the good old days of World War II. Most arrived with draft critiques of what went wrong back in 1944 and even more about how the institutions they had labored so hard to create as regulators of national and corporate avarice had been subverted and misused to promote a Cold War agenda.( IATP collected the critiques and published them as The Bretton Woods-GATT System: Retrospect and Prospect after Fifty Years.)
Following the Great Depression and World War II, it was obvious to all the Allies that to prevent a repetition of the chaos that had preceded the war, it would be necessary to regulate international economic activity. All the participating countries had, in one form or another, a market-based system, but all agreed that cooperation on monetary policy was essential. The two major players at Bretton Woods were the United States, represented by Harry Dexter White, and Britain, represented by John Maynard Keynes (White and Keynes in photo to the right). The U.S. held sway over the outcome, with its focus on controlling inflation trumping Keynes’ and others' hope of ending poverty. Mechanisms were put in place to help developing countries maintain stable monetary systems, but with a steady outflow of unregulated loans and grants from the U.S. (including the Marshall Plan and other aid programs), it was only a matter of years before post-war cooperation was replaced by the Cold War, growing national debts and dependency in the developing world.
The end of the Bretton Woods era is linked to Nixon’s decision to decouple the dollar from gold. His financial and monetary programs were the beginning of the economic storm we are drowning in today. When the Bretton Woods era ended, the “Washington Consensus” introduced structural adjustment programs that have recreated the same inequities and chaos that led to the Great Depression and World War II.
At the 50th anniversary of Bretton Woods, a small group of older men and women gathered in New Hampshire to say that a return to unregulated markets would not work. They knew from experience that unbridled capitalism and national competition would lead to misery and war. Few listened then as they called for a new Bretton Woods summit to prevent the collapse of the world’s financial markets.
Today, most of the survivors of Bretton Woods are gone. But if we hope to salvage the world economy from the failed policies of the last 30 years, we must start with their commitment to justice and human dignity over the interests of property and wealth. The Bush summit is unlikely start from that position, but if we can believe President-elect Barack Obama, a brighter day might be coming.