Why the historic Bretton Woods agreement is as relevant today as it was in 1944 | Larry Elliott
WThe ar was still raging in Europe and Asia when delegates from 44 countries met at Bretton Woods in New Hampshire in July 1944. Three weeks of negotiations produced two new global institutions, the International Monetary Fund and the World Bank. , and a different economic mindset.
The beggar-my-neighbor approach that marked the 1930s is out. Cooperation came to ensure the reconstruction of war-devastated economies and the goal of full employment.
Bretton Woods did not produce the perfect result. UK delegate John Maynard Keynes argued that if a country runs into balance-of-payments problems, its creditors should be forced to help by increasing their imports. The United States – the world’s largest creditor country at the time – insisted that the burden of adjustment should fall on debtor countries, which has influenced the IMF’s operation since then.
However, Bretton Woods is relevant to today’s world in two ways: countries acted early and they acted big. The participating nations did not wait for the end of the war to come up with their reconstruction plans. They also didn’t think the financial cost of victory meant they had to curb their ambitions. On the contrary, the experience of everything that had happened in the previous decade and a half – the Wall Street crash, mass unemployment, the rise of fascism, World War II – made the case for radicalism. . The feeling was that the system was broken and needed to be fixed.
The current situation has echoes of 1944. The problems began with a deep financial crisis which resulted not in a new approach but in a return to business as usual. Growth has stagnated, real incomes have been reduced, voters have become angrier and more volatile, the major world powers have quarreled. The chance to make health systems in poor countries more resilient to a pandemic has been wasted. A decade has passed during which the planet has warmed and not much has been done about it.
Few highs can match Bretton Woods for impact. Most of the past few years have been talkfests and photo opportunities, but not much more. This is often because participants have very different agendas or cannot see each other. It was a bit of both at the G7 summits while Donald Trump was in the White House.
UK to host two major international gatherings in 2021; the G7 summit in Cornwall next month and the Cop26 climate change conference in Glasgow in November. Both could shape the world for the next decade and beyond.
The good news this year is that there is pretty much full agreement on a number of key issues: The growing number of UK cases of the Indian variant of the coronavirus has shown how rich countries will not be. safe from the pandemic as long as the poorest countries are not safe from the pandemic. are vaccinated; more resources will be needed to achieve this; the fight against climate change is essential to rebuild better; investments in green technologies must be accelerated quickly. In previous recessions, tackling global warming was seen as incompatible with stimulating growth and reducing unemployment, but this is no longer the case.
A report prepared for Boris Johnson because economist Lord Nick Stern’s G7 meeting makes this point clearly. The world faces a set of interlocking challenges spanning health, growth, jobs, climate change and biodiversity, and failure to act on one of the different dimensions of the challenge will weaken progress on the others. .
Rightly, the report warns of the risk of a lost decade for the development of poor countries and of weak or stuttering recovery and growth for the world as a whole. “So this is a special moment in history, offering the chance, if not the duty, for the G7 to lead a coordinated global recovery, driven by sustainable investment and private sector innovation. and public. “
The onus is on the host nation to make a summit a success and Johnson hasn’t made his life easier by slashing the UK’s aid budget from 0.7% to 0.5%. It is not too late to rectify this mistake and the Prime Minister should make it clear that Britain will reverse the reduction and use the money to pay for its share of a G7 fund designed to provide comprehensive immunization coverage.
The pressure on the G7 to make this commitment is increasing. Former Prime Minister Gordon Brown is leading an international campaign to persuade the G7 to close a $ 20 billion funding gap this year. Stern says such action should be the summit’s number one priority.
A legacy of Bretton Woods is that the G7 retains control of the IMF and the World Bank, mirroring the world economy as it once was rather than as it is today. This offends the emerging market economies which have grown in importance in recent decades, and understandably so.
The G7 must recognize that with power comes responsibility. In theory, the IMF and the World Bank could provide the stimulus that central banks and finance ministries in rich countries have provided through interest rate cuts, quantitative easing, and sharp increases in public spending. . In practice, the crisis has highlighted the limits of the two Bretton Woods institutions. In the face of a crisis, they lack the necessary resources and are not really suited to their objectives. The World Bank, in particular, needs to improve its game and the G7 is in a position to ensure that this is the case.
Simply put, the bolder the G7 in Cornwall next month, the greater the chances of success in Glasgow in November. Few peaks really matter. This one does.