seminar 3 - 2013 the bretton woods system[1]

7/27/2019 Seminar 3 - 2013 the Bretton Woods System[1]

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POLS90026

International Political Economy

Semester 2, 2013

Seminar 3:

Bretton Woods & the Reconstruction

of the International Political

Economy


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Outline

What were the main elements of the post-war international economic order? What explains it? What survives today?


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Bretton Woods conference, Sept 1944

http://www.youtube.com/watch?v=GVytOtfPZe8


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The US and USSR delegations

Harry Dexter White: a little too friendly?


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Keynes & White at Bretton Woods, NH,

July 1944


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There were other delegates,

including developing countries

The Indian delegation


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US-UK differences

US preferences: creditor position, ideological anti-imperialism, New Deal Strong insistence on fixed exchange rates Large gold holdings: wanted limited international liquidity +

close IMF monitoring of borrowers

No serious policy constraint for Fund creditors Emphasis on private capital markets for long term finance

(IBRD)

British: debtor position, Keynesian full employmentgoal, great power aspirations but bankrupt Preferred more exchange rate flexibility Substantial intl liquidity provision for deficit countries Policy autonomy for debtors, fines on surplus countries


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What did they agree?

Specialized multilateral institutions Informal norms Formal rules & principles


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Main IEOs (UN System)

IMF 1944exchange rates, short-term liquidity

Regional Development BanksIADB (1959), ADB (1966), AfDB (1964)

World Bank (1944)long-term reconstruction & development finance

GATT (1947)trade rules (manufactures)


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1944 Bretton Woods agreement:

the monetary regime

Pegged but adjustable exchange rates (parvalue system)

Current a/c convertibility (capital controls OK) Gold-exchange standard (monetary reserves

privileges role of US$ and UK) Limited collective management/surveillance

Total IMF resources $8.8 bn (US contribution$2.75 bn)

Technical conditions would be applied toborrowers; less constraint on non-borrowersAmbiguous adjustment rules


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The development regime

IBRD (the World Bank) Equity capital injections of $10bn

>80% of these were guarantees, the rest gold & currency $3.175 bn of the total contribution from the US alone Would borrow in private capital markets (mostly NYC)

IBRD functions: Guarantees of private loans for R & D

Make its own loans

Reconstruction of Europe/USSR the initial priority First loan to France of $250m in 1947 (infrastructure)


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Key norms

Growth-oriented macroeconomic policy with scope fordomestic autonomy (political stability)

Trade promotion, with constraints on protection Mixture of private and public international finance,

with constraints on short term private capital flows(Finance as servant)

Greater symmetry of adjustment responsibilities fordeficit & surplus payments countries

No internal political interference: emphasis ontechnical conditions for borrowing (delegated to staff)

Institutionalized inequality (weighted voting, US veto)


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What did Britain get?

Group discussion: what did Britain getfrom the Americans?


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Main explanations

Hegemonic leadership Domestic interests Ideational consensus


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% of World GDP (1990 $m)

0%

5%

10%

15%

20%

25%

30%

35%

1820 1870 1913 1950 1973 1998

China

US

Western Europe ex-UK

UK

Japan

Source: Maddison (OECD)

H M h dd i


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Henry Morgenthou addressing

delegates


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Hegemonic leadership

US far more dominant by 1944-5 than before BW outcome more aligned with US than with preferences ofany other country (incl. UK)

BW institutions based in Washington, D.C. But doesnt explain all policy content

Why did the US change policy? Keynesian ideas matteredhere too (e.g. IMF, Scarce Currency Clause)

Domestic interests, institutions also mattered (next)


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Domestic interests

Making the world safe for US business? Roosevelt as class traitor; Morgenthous objectives Relative unimportance of intl commerce for US business

Which capitalists? (Frieden) Great Depression temporarily weakened influence of inward-

oriented interests vs. internationalist interests

Persistent political concerns about postwar employment Problems with an interests-only explanation

How do interests understand their preferences? (role ofideas)

Institutional differences (e.g. US Treasury vs. Congress)

Id ti l (R i


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Ideational consensus (Ruggie,

Ikenberry, Best)

Societal consensus: Keynes at home, Smithabroad (Ruggie)

Elite consensus/learning (Ikenberry) Problems

Varying acceptance of Keynesian norms, different understandings ofstate intervention (Hall 1989)

US-UK conflict over finance & trade, surveillance v. autonomy Domestic ratification difficult: US & UK on BW; ITO failure, GATTnever ratified Does the New Deal explain multilateralism?

Constructive ambiguity (Best)


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Did the Cold War save Bretton


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Did the Cold War save Bretton

Woods?

1945-6: US anti-imperalism still dominant Dec. 1945 Sterling loan conditions (phasing out of

imperial preference, BW ratification, Sterlingconvertibility by June 1947)

1947 Sterling crisis & Cold War a turning point: Direct bilateral aid to key allies (Marshall Plan) Extended BW transition periods, tolerated trade

discrimination (European integration) & large Europeandevaluations (1948-9)

US military transfers resolve postwar dollar shortage US accepts greater adjustment responsibility, butdollar deficits gradually undermine role of gold

Evolution towards dollar standard by mid-1960s


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What still survives?

Which key norms, principles, rules? Institutions?


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Conclusion

Only a multi-layered explanation works: US leadership crucial, but rationalist explanations underestimaterole of learning, new ideas

No existing theories fully explain the distinctive element ofmultilateralism

Origins in American messianism, exceptionalism? Unique circumstances suppressed role of domestic societal interests, butonly partially & temporarily

Cold War played a key role in shaping the postwar economicorder from 1947/8 Distorted universalism & multilateralism: a western, not a global political

economy, with US alliance leadership at its centre Facilitated compromise, but created future legitimacy problems for

global economic governance


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seminar 3 - 2013 the bretton woods system[1]

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