For historians of the postwar economic era, 2024 is an important anniversary. Eighty years ago, in July 1944, a conference was held in a small town called Bretton Woods in New Hampshire, USA. Its purpose was to establish a new set of rules and institutions that could maintain the global capitalist order after the disasters of the Great Depression and World War II. It is no exaggeration to say that Bretton Woods built the infrastructure of the modern world economy.
Eighty years later, the world is much different. However, post-COVID-19, post-energy price shock, and experiencing rapid climate change, the global economy is once again in crisis. The calls for a new Bretton Woods are getting louder and louder.
Forty-four countries sent representatives to the Bretton Woods conference, but the United States and Britain actually took the lead. Its brain was headed by the brilliant British economist John Maynard Keynes.
Keynes' theories had already revolutionized the way economists thought about domestic policy. Keynes argued that when the economy falls into recession, it is the state's job to increase public spending to maintain full employment. As World War II was coming to an end, Keynes turned his attention to the international realm.
Under Keynes' leadership, the Bretton Woods Conference established two new institutions. It was the International Bank for Reconstruction and Development, later known as the World Bank. and the International Monetary Fund (IMF). The World Bank's mission was to invest in the postwar economic development of countries through both commercial and concessional (low-interest) loans. The IMF's role was to assist countries in financial distress to avoid devaluations that contributed to the Great Depression of the 1930s.
Along with the Marshall Plan, in which the US lent the equivalent of today's $173 billion (£135 billion) to European countries for post-war reconstruction between 1948 and 1952, the Bretton Woods Conference It marked a “golden age” of global economic growth. -1970s. But in the subsequent free market era, after the elections of Margaret Thatcher and Ronald Reagan in 1979-1980, the World Bank and IMF changed. They begin to apply restrictive conditions on loans, forcing recipient countries to make “structural adjustments” in their economic policies, which in practice mean cuts in public spending, deregulation, and privatization. Keynes' creations effectively became instruments of anti-Keynesian counterrevolution.
Currently, the World Bank and IMF are working to address the climate crisis and promote green, “inclusive” (less unequal) growth, which is less free-market oriented. But these companies are still run by shareholders from developed countries, who first provided the capital 80 years ago, and are dominated by the US, EU, UK and Japan. And in the meantime, the world economy has completely changed.
“Brazilian leader President Lula has declared that it is no longer appropriate for the world's major economic institutions to be ruled by the dominant economic power of 1944.” Photo: Andre Borges/EPA
In 1944, the United States produced more than half of the world's manufacturing output. Today it is about 1/6. International trade accounts for less than a quarter of global GDP. Today it's more than half. China grew from a primarily feudal rural economy to an industrial power.
Emerging and developing countries in the Global South currently face five major challenges. First, we need to improve access to public funds to invest in poverty-reducing growth. This requires the World Bank and its sister multilateral development banks (MDBs) in Africa, Asia, and Latin America to increase the quantity, quality, and speed of lending. They need to focus more money on social welfare programs that lift the poor from hunger and contribute to the emancipation of women and girls. and on environmentally sustainable and climate-resilient development, including a just transition to renewable energy systems. As a result, developed countries will be required to make greater financial contributions to the World Bank and other MDBs, both in terms of foreign aid spending and new capital.
Second, the Global South needs better access to private finance. The world's capital markets are overflowing with money. But in developing countries, it costs three to four times more to obtain it than in rich countries. Changing this will require MDBs to share some of the risk and reform of financial regulations in developed countries that prevent pension funds and insurance companies from investing in high-quality projects in developing countries.
Third, an impending debt crisis must be avoided. 60% of low-income countries and around a quarter of middle-income countries are currently defined by the IMF as being in or at high risk of 'debt crisis', indicating that their debt burden has become unsustainable. means. Over the past two years, countries that borrow in dollars have seen their debt payments skyrocket as the dollar's value has followed rising U.S. interest rates in response to U.S. inflation. Many people now spend far more on creditors than on health care or education. These debts need to be restructured, and new debt needs to be designed to be both environmentally and financially sustainable.
Fourth, developing countries need to be integrated into Western supply chains through new trade and investment relationships. The United States and the European Union have embarked on bold industrial strategies to decarbonize their economies and reduce dependence on China for manufacturing. Many countries in Africa, Asia and Latin America have the critical minerals needed, along with the ability to supply materials such as green hydrogen and steel. The new partnership will benefit not only economic security but also geopolitical security.
Fifth, multinational corporations continue to engage in large-scale tax avoidance and evasion. Western efforts to harmonize corporate tax systems need to ensure that multinational companies pay their fair share of taxes in developing countries as well. New international taxes, such as taxes on shipping and aviation emissions, are needed to raise critical funds for climate change adaptation and loss and damage.
The 80th anniversary of the Bretton Woods Conference would be an appropriate time to restructure the world economic order in this way. And there are places that deserve it too. This year, Brazil will hold the chair of the G20 group, which is made up of the world's largest economies. Its leader, President Lula, has already declared that it is no longer appropriate for the world's major economic institutions to be ruled by the dominant economic powers of 1944 and wants reform. And he intends to use the G20 summit in Rio de Janeiro in November to begin this process. Keynes would approve.
