What is the Bretton Woods Compromise

What is the Bretton Woods Compromise? Ikenberry (1993), in his article entitled ‘The Political Origins of Bretton Woods’, firstly points out that the agreement of the Bretton Woods was largely created by the United States and the Great Britain and it was created in order to reopen or reinvent the economies of the world. The consequence of this was that in order to move forward, the contemporary world economy would leave behind the regional currency and head towards a system of liberal multilateralism. There were differing opinion on what the agreement was to be; The British wanted a regime that would safeguard employment and economic permanency while the United States wanted something different. The settlement that was reached does harbour the United States agenda more so than the other states that were involved. The first point I will make will be in relation to Ruggie’s article entitled ‘International Regimes, Transactions, and Change’.
In Ruggie’s reading, he talks about the fact that after the second world war, the type of liberalism that was previously known became the ‘Concept of ‘Embedded Liberalism’ which was difficult to achieve because the Liberal internationalist Convention which stood out more in the United States, proposed to reform the previous order by switching the focus from the pound to the dollar through ending trade discrimination and other practices. The opposition to economic liberalism was widespread externally to the United States. But outside the states, there was a universal refutation of multilateralism. Multilateralism grew from the post-World War two events and it centres around the collaboration over policies from all of the involved parties.
The difficulty lies in choreography between these extremes and to pinpoint a framework that promoted stability in the domestic institutions; Ruggie termed this the core of the compromise of Embedded Liberalism.
In order for Embedded Liberalism to work, Kindleberger (1973) spoke about his concept of ‘Hegemonic Stability’. In an article by Mohd and Yazid (2015), entitled ‘The Theory of Hegemonic Stability, Hegemonic Power and International Political Economic Stability’ say that the role that hegemonic power plays is important in the creation of a stable political and international economy and says that without this one single hegemonic power, the ability to establish a set of rules that will promote methodical exchanges among the other states along with the creation of international stability is not conceivable without a dominant power. Great Britain and other states was not in a position to lead the way forward in creating this orderly international economy which mean the United States had to take up the mantel and lead the way forward.
During the Bretton Woods compromise, the United States had Hegemony over the conference; the conference itself was in New Hampshire and the U.S had the most veto powers and the policies that came out of this conference were comprehended and established primarily by Western policymakers. On page 31 of Luckhurst’s article, the author talks about the United States financial contribution to the funding of post war institutional arrangements. The U.S contributed more than any other state to both the International Monetary Fund and the World Bank of $8.8 Billion plus $ 2.75 billion (Luckhurst, page 31), which was done to purposely grasp more control and power over the fund. While other states such as the Soviet Union, China and Canada also made important contributions, Helleiner, argues that these influences and contribution of these states were often ignored or not taken seriously enough. Ikenberry on page 33 stated that ‘the United States shaped the governing arrangements of the Western system’. What is wrong with this quote is that it is only focusing on the Western regions and it does not extend to outside the West. Adding to this, on page 39, where the author mentions the ‘Triad of Europe, Japan and North America’ this did not include regions such as the Asia-Pacific including China and South Korea but mainly focused on the Western states.
Ruggie in his article entitled ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Post War Economic Order’ (1982), on page 404, in the 1970’s, there were vital transformations in the post war regimes that related to money and trade. The hegemonic decent of the United States was presented as the ‘causa causans’ (Ruggie, page 404) meaning the final causation of these transformations. Ruggie here hypothesises that if by allowing international regimes are not only regimes that are not discharges of the causal dispersal of interstate power but also being representative of the combination of power, legitimate social purpose then cause, and effect becomes more complicated. The reason for this is that due to the decline of hegemony, it does not mean that regimes will collapse but can instead mean that their resolutions remain unbroken. Ruggie moves forward by saying that within the normative frameworks of these regimes, one should still be able to find continuity which reflects the communal purposes and that the new-fangled instrumentalities have to to be more suitable to the innovative power dispersion while retaining the compatibility with the prior normative framework; or a ‘norm-governed change’ (Ruggie, page 405).
The second point that I want to add to this is that of the United States currency of the Dollar. During the Bretton Woods Compromise, the monetary system was then based on gold. During this time, the United States dollar was attached to gold while other countries currency was attached to the United States dollar; this is called the ‘Gold Exchange Standard’ (Monbiot, (2008). During this period of time, currencies were not afloat, and the exchange rates were static. The United States was also the only state that was selling its reserves in gold for U.S dollars. The problem with doing this was that the reserves of the gold held by the United States after a while became depleted. The reason why this system failed is due to foreign produced dollars being exchanged, which led to the depletion of their gold reserves. Very soon, the ratio of Dollar to gold became more common, which led to the collapse of the gold exchange standard. This is one of the lessons that can be learnt from the Bretton Woods Compromise. That of not having a gold exchange standard. The Group of twenty as I will mention soon all have 85% of their Growth Domestic Product (GDP) into the G20 so it is vital to not have just one major currency involved as this could lead to a repeat of the events of that of the Bretton Woods compromise and the United States Dollar.
Now I will briefly introduce the purpose of the G20. G20 stands for ‘Group of twenty’ which are the twenty different countries who are permanent members of this group and not just guests. It is an international ‘fora’ (Luckhurst, (2018), spoke about the concept of fora in class), that encompasses these twenty countries and brings their economies together. In his book entitled ‘G20 Since the Global Crisis’ (2016), Luckhurst explains that the G20 is also a ‘hub in the sense that it is the centre or focus of key global governance networks…cooperating on areas such as global financial governance and sustainable development’ (Luckhurst, (2016), page 3).
Relating this to the G20 of today, the United States does not have nearly as much Hegemonic and dominant power in the G20 unlike during the Bretton Woods compromise. Today in the G20, members such as China are able to put their influence and concerns into these meeting, knowing that they will be heard and taken seriously as full active members unlike previously during the time of the Bretton Woods compromise where they were not members and were not taken seriously. The lesson that G20 policy makers of today can learn from this compromise is to not be so focused on U.S or western state dominance and power but instead focus on a regime or fora that is all encompassing and is one that allows all of its members to contribute such as changing the geographical location of the G20 summit meeting between all of the states in sharing the responsibility to host the G20.
The third point that I want to make begins on page 37. The section of this reading that I want to talk about from this reading is economic governance which became over focus on Neoliberal hyperglobalist (the belief that globalisation has led to a situation where individual nation-states hold little power and of no significance) analysis during the 1990’s. This neoliberal discourse had many impediments during this time, such as the International Monetary fund’s adjustments to its structural programs in places such as Asia. The articles posed by the IMF director were to allow the IMF to have the authority to enforce international liberalization in relation to capital flows which were undermined by the political aspects of the Asian Financial Crisis. The second part of this is the Organisation for Economic Co-Operation and Development proposals for multilateral agreement of Investment (MAI). This organisation was not met with appeal but instead opposition from developing states and NGO’s. What these two events indicated was a decline in authority, more specifically, the political and cognitive decline in the Bretton Woods institute. The problem with this is that Western states and IFI leaned more towards the emphasis of market-competence and the liberalization of other ‘good governmental norms such as that of improving institutional governance. What the G20 can learn from this is that of not leaning towards market-competences.
In Rodrick’s paper ‘Goodbye Washington Consensus, Hello Washington Confusion’ Rodrick emphasises this lesson to be learnt via the instances of policy reforms in developing states. The Washington Consensus derived from a set of policies that originated from the International Monetary fund and the World Bank are were created to be used by developing states who were facing times of crisis.
A mantra from the article by Rodrick; ‘Stabilise, privatise, and liberalise’ showed the attitude of a generation who were concerned with the developing world and the advice given was Important as it gave inspiration for the need to have essential reforms to countries such as Sub-Saharan Africa and Latin America. In the 1990’s as a result, Sub-Saharan Africa and Latin America policies were transformed. This meant these regions experienced an increase in Privatisation, deregulation, and trade liberalisation. The problem after this is that in Latin America, the growth was not expected which meant that the market reforms were not tailored to developing problems such as public health emergencies. This resulted in a lack of faith in the Washington Consensus. Countries such as India and China who had not had any reforms to their policy ended up resulting in a reduction of the number of people who were living in poverty.
Adding to this was the reliance that these countries had on their market forces and their policies included high levels on protection on trade, and a lack of privatisation and a lack of financial policies. The problem of reforming these countries was that by reforming policies of different countries and using the same reform advice was similar to trying to find one policy that fits all or as Rodrick points out; Different problems do not equal the same singular solution. So, the lesson to be learnt here is that the G20 which encompasses regions such as Latin-America is to not focus so much on the liberal reforms. The document ‘learning from reform’ from Rodricks reading presents a new way forward in that it forces us to consider in more depth the economics of reform; focusing more in depth is another lesson that can be learn by G20 policy makers from the Bretton Woods compromise.
The final point that I want to make is from the Horsefield (1969), entitled ‘The International Monetary Fund: 1945-1965 Twenty Years of International Monetary Cooperation’. This article introduces the reader the John Meynard Keynes, who created the plan for a clearing union. The aim of this clearing union was to establish an international currency union which would be based on ‘bancor’ (international money from banks), which would use not only money, but also gold equivalencies used by the Commonwealth and the U.S. The central banks which included all of the member and non-member states would keep their accounts with international clearing union which entitled them to exchange their balances with each other through their par value at Bancor; this would be the currency of the bank. The members would need to clear their overdraft account issued by this bank by the end of the year.
This idea put forward by Keynes at the Bretton Woods conference in 1944, and it was opposed by the United States, more specifically; Harry Dexter White, who instead proposed the ‘International Stabilisation Fund’ which would place the full burden of maintaining the balance of trade on nations that had a deficit. This in time became the International Monetary Fund. This fund which looked after the rich imposed conditions in which no free states would accept and tolerate this which led to the IMF taking from these developing states until they were in dire straits and eventually crisis. So the lesson to be learnt here from G20 policy makers is that of ensuring that not only the rich are cared for but also states which are not.
Conclusion:
In the first reading by Ruggie, the lesson to be learnt by G20 policy makers are found in the theory of Hegemony, the United States and the ‘Gold Exchange Standard’. The second reading by Luckhurst as well as Rodrick presents to the reader the lesson to be learnt of the relation between the Washington Consensus, institutional, policy reforms and not to impose or suggest them to developing states but to be more liberal and open. The third lesson from the reading by Luckhurst shows what happens when the main influence of the Bretton Woods compromise is the U.S and western powers. This could be a contributing factor to its downfall, whereas the G20 is more inclusive, taking seriously and listening to the developing states concerns. The fourth point presented by Luckhurst is in relation to the purpose of the Bretton Woods compromise and that of the G20. The Bretton Woods compromise was needed to stabilise the post war international economy which is long since over which means that we no longer have a need for the Bretton Woods conference because the international economy is much more stable compared to previously. All of the above lessons can be a reminder for the G20 to continue to heed the lessons of the Bretton Woods Compromise.
Something that I wanted to know more about is the discussions of the G20 and whether they are fruitful and any projects or promises of action are undertaken. So, the G20 Meeting from 2017 which took place in Hamburg was focused on climate change, however little progress was made after the meetings. Another example is that of the long-term strategic co-ordination of between these members on global issues such as that of the World Trade Organisations ‘Doha development round’.
Something that I would like to know more on is how projects are managed as a result of the G20, are they successful and what are the downfalls of the G20? What is the future of the G20 what will it leave behind in its legacy?