By Amol Agrawal
The 2020s is a decade of introspection, as it figures several anniversaries of significant global developments. The events around World War I (WWI) and World War II (WWII) will have their 100th and 75th/80th anniversaries respectively. The breakdown of Bretton Woods and the oil crisis in the 1970s approach their 50th anniversaries. The collapse of the Berlin Wall and the market reforms of the 1990s will mark their 25th/30th anniversaries. And 2024 marks the 80th anniversaries of the World Bank and International Monetary Fund (IMF) and the 30th anniversary of the World Trade Organization (WTO). These institutions are not just facing crises but also threaten to derail years of human progress.
In the 25-year period of 1914-39, the world witnessed two deadly world wars. The inter-war period also saw the Great Depression, which destroyed economies. The world leaders, while fighting WWII, were also worried about promoting peace after it. There were broad agreements that harsh reparations on Germany post-WWI had fuelled the conditions for WWII. Another reason was restoring the gold standard exchange rate system, which led to deflating economic conditions. Countries also resorted to becoming increasingly protective in the period leading to a collapse of global trade. The onus was thus on creating multilateral economic institutions to address these malaises.
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Leaders from 44 nations gathered at the Mount Washington Hotel in Bretton Woods, United States, in 1944. The group was led by John Maynard Keynes from the UK and the American Harry Dexter White. From July 1-22, they debated vigorously and agreed to form three global institutions to address the problems.
The first was the International Bank for Reconstruction and Development (IBRD), to provide financial assistance to war-torn European economies. The second was the IMF, whose purpose was to monitor exchange rates and provide reserve currencies. The third was the International Trade Organization (ITO), for fostering international trade.
How have these institutions fared?
The IBRD, after helping with the reconstruction of Europe, became a part of the larger World Bank group that comprised other institutions such as the International Finance Corporation, International Development Association, etc. The World Bank continued its role as a development financial institution, but has always been criticised for not being very effective.
The IMF did not have a major role immediately after WWII, as countries adopted fixed exchange rates based on the US dollar, that were stable. However, after the breakdown of Bretton Woods in 1971, there were multiple financial and currency crises in emerging economies. The 2008 crisis also brought the IMF to the limelight, and this time it was helping developed economies.
The story of the ITO was very different. While the leaders quickly agreed to establish the IBRD and the IMF, they decided that the time was not ripe for an ITO. Instead, they formed a General Agreement on Tariffs and Trade to gradually open borders. After many talks and deliberations, the countries finally decided to establish the WTO, and not ITO, as part of the Marrakesh Agreement in 1994. The WTO was successful in the initial years in lowering trade barriers, but the global financial crisis and the pandemic have given rise to protectionist sentiments, blunting the WTO and threatening its progress of the last 30 years.
How do we reflect on the anniversaries of these institutions today?
Before we answer this question, it is interesting to note that the world is facing similar events in the first three decades of the 21st century as it did in the 20th century. Both periods saw a major global financial crisis, a pandemic, the decline of the major superpower, and so on. There has not been a world war, but some voices are suggesting how we are getting there. JP Morgan, in a recent letter to shareholders, stated that “we may be entering one of the most treacherous geopolitical eras since World War II”. The economic outlooks of the IMF and the World Bank are full of words like “geopolitical tensions” and “geoeconomic fragmentations”. Interestingly, the word geopolitics was also coined during WWI.
Ironically, these institutions that were set up to help overcome crises are facing their own crises. Their governance remained with the developed world, with the US controlling the World Bank and Europe controlling the IMF. They paid scant regard to the concerns of the developing world. As the developing world rose in prominence and the developed world faced a crisis, the former created its own institutions. The WTO was more democratic, but is facing an existential crisis. Countries are increasingly rejecting multilateral trading and forming blocks for bilateral trading.
Keynes, the architect of these institutions, watched these horrors play out closely. In 1920, he wrote The Economic Consequences of the Peace, chastising the Allied powers for blaming WWI on Germany. In 1922, he was asked by global media houses to cover a major conference in Genoa attended by major central bankers. While the conference became a referendum for socialism, Keynes noted that the real dangers were from those who rejected international harmony for national glory. He will most likely be turning in his grave to find how we have learnt nothing from history.
The author teaches at Ahmedabad University.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
By Amol Agrawal
The 2020s is a decade of introspection, as it figures several anniversaries of significant global developments. The events around World War I (WWI) and World War II (WWII) will have their 100th and 75th/80th anniversaries respectively. The breakdown of Bretton Woods and the oil crisis in the 1970s approach their 50th anniversaries. The collapse of the Berlin Wall and the market reforms of the 1990s will mark their 25th/30th anniversaries. And 2024 marks the 80th anniversaries of the World Bank and International Monetary Fund (IMF) and the 30th anniversary of the World Trade Organization (WTO). These institutions are not just facing crises but also threaten to derail years of human progress.
In the 25-year period of 1914-39, the world witnessed two deadly world wars. The inter-war period also saw the Great Depression, which destroyed economies. The world leaders, while fighting WWII, were also worried about promoting peace after it. There were broad agreements that harsh reparations on Germany post-WWI had fuelled the conditions for WWII. Another reason was restoring the gold standard exchange rate system, which led to deflating economic conditions. Countries also resorted to becoming increasingly protective in the period leading to a collapse of global trade. The onus was thus on creating multilateral economic institutions to address these malaises.
Leaders from 44 nations gathered at the Mount Washington Hotel in Bretton Woods, United States, in 1944. The group was led by John Maynard Keynes from the UK and the American Harry Dexter White. From July 1-22, they debated vigorously and agreed to form three global institutions to address the problems.
The first was the International Bank for Reconstruction and Development (IBRD), to provide financial assistance to war-torn European economies. The second was the IMF, whose purpose was to monitor exchange rates and provide reserve currencies. The third was the International Trade Organization (ITO), for fostering international trade.
How have these institutions fared?
The IBRD, after helping with the reconstruction of Europe, became a part of the larger World Bank group that comprised other institutions such as the International Finance Corporation, International Development Association, etc. The World Bank continued its role as a development financial institution, but has always been criticised for not being very effective.
The IMF did not have a major role immediately after WWII, as countries adopted fixed exchange rates based on the US dollar, that were stable. However, after the breakdown of Bretton Woods in 1971, there were multiple financial and currency crises in emerging economies. The 2008 crisis also brought the IMF to the limelight, and this time it was helping developed economies.
The story of the ITO was very different. While the leaders quickly agreed to establish the IBRD and the IMF, they decided that the time was not ripe for an ITO. Instead, they formed a General Agreement on Tariffs and Trade to gradually open borders. After many talks and deliberations, the countries finally decided to establish the WTO, and not ITO, as part of the Marrakesh Agreement in 1994. The WTO was successful in the initial years in lowering trade barriers, but the global financial crisis and the pandemic have given rise to protectionist sentiments, blunting the WTO and threatening its progress of the last 30 years.
How do we reflect on the anniversaries of these institutions today?
Before we answer this question, it is interesting to note that the world is facing similar events in the first three decades of the 21st century as it did in the 20th century. Both periods saw a major global financial crisis, a pandemic, the decline of the major superpower, and so on. There has not been a world war, but some voices are suggesting how we are getting there. JP Morgan, in a recent letter to shareholders, stated that “we may be entering one of the most treacherous geopolitical eras since World War II”. The economic outlooks of the IMF and the World Bank are full of words like “geopolitical tensions” and “geoeconomic fragmentations”. Interestingly, the word geopolitics was also coined during WWI.
Ironically, these institutions that were set up to help overcome crises are facing their own crises. Their governance remained with the developed world, with the US controlling the World Bank and Europe controlling the IMF. They paid scant regard to the concerns of the developing world. As the developing world rose in prominence and the developed world faced a crisis, the former created its own institutions. The WTO was more democratic, but is facing an existential crisis. Countries are increasingly rejecting multilateral trading and forming blocks for bilateral trading.
Keynes, the architect of these institutions, watched these horrors play out closely. In 1920, he wrote The Economic Consequences of the Peace, chastising the Allied powers for blaming WWI on Germany. In 1922, he was asked by global media houses to cover a major conference in Genoa attended by major central bankers. While the conference became a referendum for socialism, Keynes noted that the real dangers were from those who rejected international harmony for national glory. He will most likely be turning in his grave to find how we have learnt nothing from history.
The author teaches at Ahmedabad University.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
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