My Kingdom for a Counterfactual!
While reading a post on Dani Rodrik’s blog, I was struck by a phrase he wrote that didn’t really have anything to do with the argument in his post. The phrase that caught my attention was “the phenomenal success of the Bretton Woods Regime”. While 1947-1972 was a successful era for some countries, I wonder how much of any such success can actually be attributed to the Bretton Woods Institutions that "ran" the regime? These institutions are the World Bank (WB), the International Monetary Fund (IMF) and the International Trade Organization (ITO). Let’s review, shall we?
(1) WB chartered as the International Bank for Reconstruction and Development in 1945 was woefully inadequate for postwar reconstruction. The US initiated the Marshall plan to get done what the WB was supposed to get done. Then, throughout the cold war era, the WB was to a large extent a tool of US foreign policy, propping up authoritarian regimes throughout the developing world. The IDA was created more or less to give concessional loans to countries the IBRD wouldn’t loan to that the US feared would come under Communist sway. Then, post Bretton Woods, there was the sad, sad saga of structural adjustment and the pure comedy gold of every year’s new magic development bullet unveiled in the World Development report. Make no mistake my friends, the WB = epic fail.
(2) IMF- also initiated in 1945 could have only been designed by a committee of international bureaucrats featuring as it did the “adjustable peg”. Countries adjustably pegged to the US dollar which was pegged to gold and convertible into gold. But the system didn’t actually work as planned. The US allowed discrimination against its imports via the European Payments Union until 1958. It wasn’t until 1961 that enough countries finally allowed free convertibility of their currencies for trade purposes for the IMF to certify compliance with Article VIII of its charter. Two years later, the amount of dollars held by foreign monetary authorities became larger than the amount of gold held by the US (i.e. the Triffin Paradox started to bind) and with capital flows starting to roll, the handwriting was on the wall. After the spectacular collapse of the system it was entrusted to manage, the IMF got into the development business and the financial rescue business with equally good results. A suggested slogan for the IMF: “We make the WB look good”.
(3) The ITO. Never came into being. Stillborn. Clearly the least unsuccessful of the Bretton Woods Institutions.
Flat out-all out serious here, people. These attempts at central planning on a global scale were spectacular failures and the vestigial ghosts of them that remain today should be abolished.