On the 80th Anniversary of Bretton Woods, Frank reflects upon the current state of the current world order.
There are three conditions required for the creation of new international institutions, or for the major overhaul of existing ones.
First, there needs to be a large redistribution of international power, a redistribution that wipes away older stakeholders that are defending the status quo. The second condition is the emergence of a hegemonic leader with the power to guide the establishment of a new order. The third condition is that there has to be a “big idea” animating the need for change.
Since the beginning of the 20th century, there have been four critical junctures that met the first condition of redistributing state power: the First World War, the Second World War, the period of the oil and debt crises in the 1970s-80s, and finally the period today.
At the beginning of the 20th century, the dominant big idea governing the international order was classical liberalism, shaped by Britain, the world’s leading economic power. This was when the world was on the Gold Standard. The First World War severely weakened Britain, and the United States at that point could have stepped into a global leadership role. It chose, however, not to do so when the Senate defied President Wilson and failed to ratify membership in the League of Nations.
Without a global hegemon, the world fell into a chaotic nationalism. The gold standard proved unable to deal with the global banking crisis in 1932-33, leading the new Roosevelt administration to pull out of the system. Economic nationalism gave way to political nationalism, and the Second World War was the result. As a result, the Bretton Woods conference took place towards the end of that war, when it was increasingly clear that the Axis countries would be defeated. This led to the creation of modern institutions such as the International Monetary Fund to manage monetary policy and an International Bank for Reconstruction and Development (the World Bank) to promote economic growth.
While American hegemony eroded in the 70s and 80s with the rise of decolonization, non-aligned countries, and the OPEC Oil Embargo and spiral a of inflation in the United States, America nonetheless proved itself to be self-resilient, even more so after the fall of the Soviet Union.
This newly resurgent America was animated by another big idea. It rejected embedded liberalism in favor of what has been labeled “neoliberalism,” which pushed the pendulum back in the direction of classical liberalism by seeking to remove the state from economic intervention to the extent possible. Washington exercised its newfound hegemonic power through the Bretton Woods institutions to push developing countries suffering from hyperinflation and currency crisis into structural adjustment.
**The rise of neoliberalism and the “Washington Consensus” had both good and bad effects.** Globalization and trade liberalization permitted developing countries like China, Vietnam, and India to enter the international trading system and achieve unprecedented rates of growth. On the other hand, the displacement of jobs from North America and Europe to East Asia laid the groundwork for a powerful political backlash in the 2010s. As a result, **this period of renewed U.S. hegemony lasted for approximately two decades, from the fall of the Berlin Wall in 1989 until roughly the subprime financial crisis in 2008.**
Unfortunately, it was marred by two major mistakes in U.S. policy, which were underpinned in turn by two mistaken ideas that were derivative of the then-dominant neoliberalism. The first was the 2003 invasion of Iraq, built on the belief that hard military power could be used to reshape the politics of a distant and culturally different part of the world. The second big mistake was the promotion by the Bretton Woods institutions of capital mobility — that is, the ability of banks and other financial institutions to move large amounts of short-term money across international borders — as a key part of the Washington Consensus.
U.S. power has been in relative decline since its peak in 2008. The American share of global output has been declining as a result of the rise of China and other East Asian countries. The United States has become a huge debtor country, with enormous pools of capital residing beyond its borders and outside its control. The American military, while still the world’s most powerful, is increasingly challenged by rising great powers Russia and China, as well as by new middle powers like the Gulf states, Turkey, and others. The American political model is no longer broadly imitated or even admired. America’s greatest global weakness is its internal polarization, which makes it difficult for Americans to agree on issues like aid to Ukraine. This then makes the U.S. model less attractive internationally. While the number of democracies around the world grew steadily from the mid-1970s to the first decade of the 21st century, they have been in decline for nearly the past 20 years.
(Cont)
!ping HISTORY&DEMOCRACY
AmericanPurposeMag on
>The conditions for a major reform of the Bretton Woods institutions, or the creation of new institutions to take their place, is therefore not propitious. While there has been a major redistribution of international power in the early 21st century, the other two of the three conditions for reform are not present: no hegemon has arisen to take Washington’s place, and there is no big idea to guide reconstruction of world order.
>**While neoliberalism has been criticized endlessly in recent years, it is not clear what set of guiding principles will emerge to underpin global development.** The only plausible alternative hegemon is China, but that country does not seem eager enough to invest in global public goods to play that role, nor will its legitimacy be broadly accepted. The Chinese have a big idea embedded in their Belt and Road initiative, but that project has already run into serious problems and backlash. It remains likely, therefore, that the Bretton Woods institutions will continue to adjust to their new conditions slowly and cautiously. But anything like a major institutional innovation of the sort that took place in 1944 seems very unlikely at this critical juncture.
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**Article Summary**
On the 80th Anniversary of Bretton Woods, Frank reflects upon the current state of the current world order.
There are three conditions required for the creation of new international institutions, or for the major overhaul of existing ones.
First, there needs to be a large redistribution of international power, a redistribution that wipes away older stakeholders that are defending the status quo. The second condition is the emergence of a hegemonic leader with the power to guide the establishment of a new order. The third condition is that there has to be a “big idea” animating the need for change.
Since the beginning of the 20th century, there have been four critical junctures that met the first condition of redistributing state power: the First World War, the Second World War, the period of the oil and debt crises in the 1970s-80s, and finally the period today.
At the beginning of the 20th century, the dominant big idea governing the international order was classical liberalism, shaped by Britain, the world’s leading economic power. This was when the world was on the Gold Standard. The First World War severely weakened Britain, and the United States at that point could have stepped into a global leadership role. It chose, however, not to do so when the Senate defied President Wilson and failed to ratify membership in the League of Nations.
Without a global hegemon, the world fell into a chaotic nationalism. The gold standard proved unable to deal with the global banking crisis in 1932-33, leading the new Roosevelt administration to pull out of the system. Economic nationalism gave way to political nationalism, and the Second World War was the result. As a result, the Bretton Woods conference took place towards the end of that war, when it was increasingly clear that the Axis countries would be defeated. This led to the creation of modern institutions such as the International Monetary Fund to manage monetary policy and an International Bank for Reconstruction and Development (the World Bank) to promote economic growth.
While American hegemony eroded in the 70s and 80s with the rise of decolonization, non-aligned countries, and the OPEC Oil Embargo and spiral a of inflation in the United States, America nonetheless proved itself to be self-resilient, even more so after the fall of the Soviet Union.
This newly resurgent America was animated by another big idea. It rejected embedded liberalism in favor of what has been labeled “neoliberalism,” which pushed the pendulum back in the direction of classical liberalism by seeking to remove the state from economic intervention to the extent possible. Washington exercised its newfound hegemonic power through the Bretton Woods institutions to push developing countries suffering from hyperinflation and currency crisis into structural adjustment.
**The rise of neoliberalism and the “Washington Consensus” had both good and bad effects.** Globalization and trade liberalization permitted developing countries like China, Vietnam, and India to enter the international trading system and achieve unprecedented rates of growth. On the other hand, the displacement of jobs from North America and Europe to East Asia laid the groundwork for a powerful political backlash in the 2010s. As a result, **this period of renewed U.S. hegemony lasted for approximately two decades, from the fall of the Berlin Wall in 1989 until roughly the subprime financial crisis in 2008.**
Unfortunately, it was marred by two major mistakes in U.S. policy, which were underpinned in turn by two mistaken ideas that were derivative of the then-dominant neoliberalism. The first was the 2003 invasion of Iraq, built on the belief that hard military power could be used to reshape the politics of a distant and culturally different part of the world. The second big mistake was the promotion by the Bretton Woods institutions of capital mobility — that is, the ability of banks and other financial institutions to move large amounts of short-term money across international borders — as a key part of the Washington Consensus.
U.S. power has been in relative decline since its peak in 2008. The American share of global output has been declining as a result of the rise of China and other East Asian countries. The United States has become a huge debtor country, with enormous pools of capital residing beyond its borders and outside its control. The American military, while still the world’s most powerful, is increasingly challenged by rising great powers Russia and China, as well as by new middle powers like the Gulf states, Turkey, and others. The American political model is no longer broadly imitated or even admired. America’s greatest global weakness is its internal polarization, which makes it difficult for Americans to agree on issues like aid to Ukraine. This then makes the U.S. model less attractive internationally. While the number of democracies around the world grew steadily from the mid-1970s to the first decade of the 21st century, they have been in decline for nearly the past 20 years.
(Cont)
!ping HISTORY&DEMOCRACY
>The conditions for a major reform of the Bretton Woods institutions, or the creation of new institutions to take their place, is therefore not propitious. While there has been a major redistribution of international power in the early 21st century, the other two of the three conditions for reform are not present: no hegemon has arisen to take Washington’s place, and there is no big idea to guide reconstruction of world order.
>**While neoliberalism has been criticized endlessly in recent years, it is not clear what set of guiding principles will emerge to underpin global development.** The only plausible alternative hegemon is China, but that country does not seem eager enough to invest in global public goods to play that role, nor will its legitimacy be broadly accepted. The Chinese have a big idea embedded in their Belt and Road initiative, but that project has already run into serious problems and backlash. It remains likely, therefore, that the Bretton Woods institutions will continue to adjust to their new conditions slowly and cautiously. But anything like a major institutional innovation of the sort that took place in 1944 seems very unlikely at this critical juncture.