THE AFTERMATH AND THE FORGETTING
This book has called into question some common understandings of the origins and content of the Bretton Woods system. It has shown that US policymakers explicitly sought to create a postwar international financial system that was supportive, rather than neglectful, of international development goals. White and other US officials initially had quite ambitious ideas in this area, ideas that built on US–Latin American initiatives of the late 1930s and early 1940s. These ambitions were tempered somewhat by the time of the Bretton Woods conference, but the commitment to promoting international development remained core to the US vision of the Bretton Woods system. This feature was apparent not just in US backing of various provisions of the IBRD and of the IMF’s articles of agreement but also in its financial advisory activities in Southern countries at the time. Officials from several other Northern countries also favored, to varying degrees, these international development goals.
Southern countries were also much more deeply involved in the creation of the Bretton Woods system than has often been acknowledged. Most significant was the role of Latin American officials and analysts, beginning with their input into the Good Neighbor financial partnership of the late 1930s and early 1940s (which set the stage for the Bretton Woods proposals) and carrying through to their participation in the Bretton Woods negotiations and the Triffin missions. In these contexts, Latin Americans were keen to promote international initiatives that would further their development aspirations. Analysts and representatives from other Southern countries—particularly India, China, and eastern Europe—also participated actively in the Bretton Woods negotiations. Like their Latin American counterparts, these figures also stressed the need to build an international financial order that met the distinctive development needs of poorer countries. Officials from the Philippines and Ethiopia—though they made little contribution to the Bretton Woods conference—also appreciated the link that US officials drew between the Bretton Woods system and support for development-oriented monetary reforms.
The international development content of the Bretton Woods agreements, and the North-South dialogue that produced it, represent forgotten foundations of the postwar international economic order. They have been forgotten not just by many historians of the Bretton Woods system but also by those scholars who date the invention of international development to Truman’s inauguration speech of early 1949. The Bretton Woods stress on international development both predated Truman’s speech and went much further than what Truman proposed. Moreover, it built on a number of international development initiatives with an even deeper history, the most significant by far being those associated with the Good Neighbor financial partnership. Other precursors that influenced various Bretton Woods negotiators included the 1918 visions of Sun Yat-sen, some of the League of Nations activities, and (in the case of Britain for example) changing colonial policies. The invention of international development, in other words, took place much earlier than Truman’s 1949 speech and had many more authors, among whom should be included the large number of participants in the Bretton Woods negotiations themselves.
Although the goal here has been to shed light on these forgotten foundations of Bretton Woods, one question remains: What was their fate in the postwar years? A comprehensive answer is beyond the scope of this book, but a brief exploration, focusing on the main developments, is worth while. The Bretton Woods development goals first of all fell victim very quickly after the war to changing US priorities in the context of domestic political shifts and new strategic priorities. This outcome in turn led to frustrations among many Southern policymakers which escalated by the 1970s into calls for as New International Economic Order. Southern demands resurrected many ideas discussed during the Bretton Woods negotiations, but reference to that history was rarely made either by supporters or by opponents. Although various modest international economic reforms were introduced during the 1960s and 1970s that built upon the development foundations of Bretton Woods, the ambitious NIEO project soon collapsed in the early 1980s. In the early twenty-first century, changing economic power encourages speculation about the renewed relevance of the development content of Bretton Woods.
The US Foreign Policy Shift
To understand the fate of the international development goals of Bretton Woods, it is necessary first to explore how US foreign economic policy changed quite suddenly with Truman’s ascent to the presidency after Roosevelt’s death on April 12, 1945. Although the Truman administration shepherded the Bretton Woods legislation through Congress, key architects of Bretton Woods quickly found themselves marginalized in the more conservative administration. One of these was Morgenthau, who resigned in July 1945. His departure also undermined White’s influence in the Treasury, a development reinforced by the fact that he came under Federal Bureau of Investigation surveillance in late 1945 for possible links to Soviet espionage activities.
1
White’s changed status became particularly apparent when he was passed over in the choice of the Fund’s first managing director, a job many had assumed would be his.
2
The position went to Camille Gutt from Belgium, an individual Morgenthau had privately dismissed at the Bretton Woods conference as part of “a little group” supported by New York interests and with ties to the old order in international finance.
3
White accepted instead a two-year appointment as the US executive director in the IMF, but resigned that post early in March 1947 after suffering a heart attack. Then, three days after denying allegations of espionage before the House Committee on Un-American Activities in August 1948, White died of another heart attack.
In the new Truman administration, members of the New York financial community acquired much more sway in US foreign economic policy than they had had in the Roosevelt years, and they lobbied successfully for the ambitions of the Bretton Woods institutions to be scaled back. The status of the IMF and IBRD was further diminished when the Truman administration launched the Marshall Plan that placed the US government, rather than multilateral institutions, at the center of the task of constructing the postwar international economy. For the next decade, the IMF played only a marginal role in international monetary affairs as many countries took advantage of the provisions for a “transition” period to keep their currencies inconvertible. The IBRD also assumed a much more limited role in European reconstruction than many of its supporters had anticipated.
The Bank’s conservative approach to development lending was equally striking. Partly because of concerns about marketing the Bank’s bonds, the Truman administration had nominated a former investment banker, Eugene Meyer, as its first president. He quickly became involved in disputes over development loans with Collado, the first US executive director in the Bank and a veteran of the Good Neighbor financial partnership. After the first few loans of the Bank had been for European reconstruction projects, Collado urged it to agree to a Chilean request for a loan to support various projects of its public development corporation, but Meyer delayed a decision. When Meyer resigned after only six months, he was succeeded by New York investment lawyer John McCloy who refused to accept the job unless Collado—who he thought was too liberal and independent—resigned and was replaced by Chase Bank’s vice president Eugene Black.
4
Collado’s forced resignation left many Bank staff upset, and McCloy shocked them further with speeches in which he argued that the Bank should be closed down once it had succeeded in reviving international private investment.
5
Under McCloy’s leadership, Bank loans were also blocked to countries that had not reached settlements on their external debts to foreign bondholders.
6
The contrast with the views of White and Morgenthau was stark.
The Bank’s lack of development lending angered many Latin American officials, including Mexico’s Monteros.
7
Urquidi, who had jointed the Bank in October 1947 was also increasingly frustrated by its lack of enthusiasm for development issues and he left his position in mid-1949.
8
Latin American governments complained, too, that they had been discouraged from borrowing from the Fund. In mid-1947, one US official who had been involved with wartime Latin American financial relations, Frank Southard, even warned his Treasury colleagues that “we must take account of the danger of a Latin American exodus from the Fund and the Bank.”
9
Latin American frustrations were only compounded by the refusal of the US Congress to ratify the International Trade Organization (ITO), which had included some provisions to address trade-related development issues that had been raised at Bretton Woods, such as commodity price stabilization and recognition of the right to protect infant industries. The only multilateral trade rules left were those embodied in the much less ambitious 1947 General Agreement on Tariffs and Trade (GATT) that included relatively little development content. Whereas seventeen Latin American countries had signed the ITO’s Havana Charter, only three (Brazil, Chile, and Cuba) had felt sufficiently enthused to sign up to the original GATT.
10
Alongside these changes (and explaining some of them) was a dramatic transformation in US policy toward Latin America. Since the end of the war, Truman administration officials had declared firmly that they would no longer provide public development loans to the region. They also rejected proposals for commodity price stabilization and became quite critical of Latin American state-led development policies, arguing that Latin American governments should be doing more to create a market-friendly business climate that was attractive to private international investors. Indeed, US officials now argued that private investment flows and free trade should serve as the main engines for development in Latin America, a perspective that many regional officials viewed very skeptically.
11
Symbolizing the shift away from policies of the Good Neighbor financial partnership, the Truman administration even formally withdrew the IAB legislative proposal from Congress in April 1947, despite enduring Latin American interest in the idea.
12
To explain the sudden shift in postwar US policy toward Latin America, it is useful to recall how US support for the Good Neighbor financial partnership emerged from a combination of strategic interests, New Deal values, and economic interests. At the end of the war, the strategic rationale for the policy collapsed as the region no longer had the same kind of importance to US security interests that it had had in the face of the Nazi threat.
13
Indeed, at the height of US interest in the partnership in 1940, some Latin American officials, such as Mexico’s Suárez, had correctly predicted that US financial assistance for Latin American development might vanish at the end of the war when the region’s strategic importance diminished.
14
The shift in US policy also reflected the greater ideological conservatism of the Truman administration. The turn away from New Deal values in US policy toward Latin America was symbolized by the new influence of individuals who had been critical of the Good Neighbor financial partnership. They included not just bankers but also Spruille Braden who replaced Rockefeller as Assistant Secretary of State for American Republic Affairs after the latter was dismissed in August 1945.
15
Braden used his position (which he held until mid-1947) to attack “the virus of economic nationalism” in Latin America as well as past US public lending to the region. He emphasized for the region that “private enterprise is the best and in most circumstances the only really sound means to develop the known or unknown resources of a new country.”
16
In the Chilean loan debate, Braden had also strongly opposed Bank lending until Chile settled its external debts; indeed, he also wanted the Chilean government to end exchange and tax policies that discriminated against US copper companies.
17
Not all US officials involved in US–Latin American relations after the war shared Braden’s views. For example, as we saw earlier, Triffin (who was no fan of Braden) and his Federal Reserve colleagues continued in the immediate postwar years to recommend reforms in Latin America along the Paraguayan model (although with more conservative content in two of the most prominent missions after the war involving Guatemala and Dominican Republic).
18
Even after Triffin went to the IMF in 1946, this policy endured under his successor in the Fed job, David Grove, who shared Triffin’s views closely and remained in this role until the early 1950s.
19
The approach even persisted in the Philippine case despite considerable opposition from private US financial interests, a result that partly reflected the Philippines’ strategic importance and the fact that reforms would reduce the need for further US financial assistance to the country. The latter consideration highlights one way in which the Federal Reserve Board’s missions were in fact compatible with the new more conservative postwar US Latin American policy: they addressed Latin American economic problems through domestic reform rather than international public assistance. As we saw earlier, this had in fact been a point emphasized by Triffin to the Fed Board after his Paraguayan mission.
What about economic interests? It is interesting how private economic interests that had backed the Good Neighbor partnership—such as manufacturers—did little to rally to its defense in this period (although they played a role in the Philippine case). In attempting to account for how US policy toward Latin America could shift so suddenly, Wallich argued in 1948 that the US business lobby with an economic interest in the region’s development was simply not all that substantial. As he put it, “with some exceptions, there has been a tendency on the part of manufacturing exporters to disregard Latin American needs whenever the going became difficult or when the home pastures looked greener…very few of our businessmen have to regard Latin American business as their bread and butter.”
20
The Cold War and the Point Four Program
The onset of the Cold War engendered some renewed US interest in international development policies, as signaled by Truman’s famous January 1949 inauguration speech that committed the United States to combat “underdevelopment.” The new “Point Four” program was accompanied by considerable hype. Secretary of State Dean Acheson, for example, argued that the Point Four legislation created “economic development of underdeveloped areas for the first time as a national policy” of the United States.
21
The analysis here has shown, however, that in spite of the many scholars who have picked up on this view, it is very difficult to square with the evidence of the extensive international development initiatives of the Good Neighbor financial partnership and the Bretton Woods negotiations. Acheson’s statement was an exaggeration, as he would well have known since he had been involved various US policy discussions about promoting development during the war, including the drafting of the IBRD at Bretton Woods.
22
A more accurate assessment of the Point Four program came from Simon Hanson, an ex-Treasury official involved in developing the early stages of the Good Neighbor partnership, who wrote in early 1950 that, from a Latin American perspective, “the Point Four program represents a restatement of objectives rather than a new policy on the part of the Government of the United States. The sympathies of our Government and of our people have long been deeply engaged by the desirability of accelerating the economic development of Latin America.”
23
Other veterans of the Good Neighbor financial partnership also initially saw the Point Four program as a revival of the earlier US wartime support for Latin American development goals. For example, Rockefeller was so encouraged by Truman’s speech that he became actively involved in lobbying Congress to support it. He was subsequently named chair of the advisory board that administered the program.
24
Some of the US manufacturing groups that had backed the partnership and the Bretton Woods provisions for development lending also emerged as supporters of the Point Four program.
25
Interestingly, even the very idea for the Point Four program had come from an individual, Benjamin Hardy, who had worked in Brazil for the Institute for Inter-American Affairs that Rockefeller had created in 1942.
26
It is tempting thus to see Truman’s commitment to international development as building directly on earlier US policy. The degree of continuity with past policy, however, should not be overstated. To begin with, the Point Four program was focused primarily on the provision of technical advice rather than on broader international financial assistance. Even Truman’s efforts to get very modest (in comparison to the Marshall Plan) financing for technical assistance met considerable resistance in Congress. Despite linking his appeal to the battle against communism, Truman’s initial request for only $45 million to support the program was scaled back to $27 million and still only passed the Senate by one vote. As historian Michael Latham points out, opponents argued that public spending “was a weak and ineffective substitute for the only real engine of progress, the unregulated, capitalist marketplace.”
27
In the face of this kind of resistance, Rockefeller resigned from his position in 1951, frustrated by with his inability to change US policy as much as he had hoped.
28
US officials also strongly opposed efforts by poorer countries at this time to establish international mechanisms for more concessional development assistance. In the words of Hans Singer (who experienced this opposition directly), advocates of soft aid for poorer countries—particularly if done under UN auspices—were treated as “subversive” and “as outcasts and out to weaken the Free World,” particularly after Senator Joseph McCarthy’s campaign against communist influence intensified.
29
The weaker political backing for international development finance reflected not just the changed ideological atmosphere but also the new security situation. Some of the poor regions of the world that had been the focus of US development plans during the Bretton Woods discussions were no longer strategic priorities for the United States following the Soviet takeover of eastern Europe and the Chinese revolution of 1949. As US attention shifted to Cold War battlegrounds in Europe and East Asia, Latin America’s strategic importance to United States also continued to diminish. The United States did provide extensive bilateral financial assistance to poor countries at the front line of the Cold War such as South Korea, but the bulk of US assistance now went to Europe and Japan.
American development policy after 1949 also differed from that of the late 1930s and early 1940s because US officials were no longer so favorably inclined to state-led development strategies. Against a background of resurgent conservative business interests and Cold War ideology, US officials increasingly saw economic policy debates in binary terms as a struggle between supporters of free markets and those of communism.
30
For example, Raúl Prebisch found himself a victim of the hardening worldview in early 1949 after he was tentatively offered a top job at the IMF. To his great frustration (as well as that of other Latin Americans working at the Fund), US opposition scuttled the appointment for reasons that were at least partly related to the changing domestic political situation. As Dosman notes, “while not yet hysteria, a groundswell of anti-communism in the US capital demanded the greatest care in choosing senior people for the IMF and World Bank; while no one could possibly argue that Prebisch was pro-communist, he was a Latin American who used terms such as ‘core’ and ‘periphery’ and was therefore not automatically ‘safe.’”
31
The changing US views of appropriate development policies were even more apparent during the Eisenhower administration that came into office in January 1953.
32
The most striking contrast with earlier US policy came with the 1954 coup in Guatemala sponsored by the US Central Intelligence Agency that deposed Jacobo Árbenz Guzmán’s government.
33
Árbenz had been defense minister in Arévalo’s government that had come power in 1945 and whose reformism had been greeted with enthusiasm by Triffin and other US officials. Indeed, during his mission to Guatemala in 1945, Triffin had formed a very positive impression of Árbenz, who reminded him of a “centre-left” politician in his native Belgium whom he had admired. Árbenz had also taken a keen interest in Triffin’s work, visiting him in the evening and often talking with him long into the night. Watching from afar in 1954, Triffin lamented how much US policy had shifted.
34
After the coup, Guatemala’s new government introduced policies that were more market-friendly and replaced the head of the central bank, Manuel Noriega Morales, who had attended Bretton Woods and whose commitment to development had so impressed Triffin in 1945.
35
Even the content of US thinking about financial advisory activities began to shift. In the immediate wake of the Truman speech, the Fed continued to send high-profile missions whose advice roughly followed the Triffin lines, such as ones to Ceylon and South Korea in 1950. By the second half of the 1950s, however, US officials began to support more conservative IMF-led stabilization programs that promoted fiscal and monetary discipline, freer trade, and the removal of multiple exchange rates and exchange controls. Interestingly, one of the first such programs was introduced in Paraguay to tackle high inflation that had been caused by excessive central bank accommodation of lending by a government-owned commercial bank.
36
As in 1943–44, Paraguay became a kind of model, but of a new kind. The 1957 Paraguayan IMF stand-by arrangement was the first to introduce policy conditionality, and its conditions were part of the Fund’s new “monetary approach” to the balance of payments.
37
With this new approach, the IMF quickly became what one observer called “the bête noire of the Left” in Latin America.
38
In sum, the impact of the initial Cold War on the politics of international development was rather different than is often portrayed in existing literature. The conventional view is that the Cold War acted as a catalyst for the birth of international development, as evidenced by Truman’s inaugural speech. In fact, however, the Cold War had the effect of undermining the already existing international development project of Bretton Woods in two ways. First, US strategic attention was steered away from the poor regions of the world that had been the center of US thinking about the Bretton Woods’s development goals. Second, the ideological polarization of the Cold War eroded US support for the kinds of interventionist development policies—international and national—discussed in the Bretton Woods negotiations.
Southern Contestation
How did Southern countries react to the US retreat from the Bretton Woods development goals? We have already seen the Latin American frustration with the changing US policy toward their region after the war. This frustration was increasingly channeled through the United Nations system where they had a large bloc of votes. Particularly important was their initiative in the late 1940s to create—despite US reluctance—a UN Economic Commission for Latin America to further their region’s development.
39
After being rebuffed for the IMF position, Prebisch assumed a leadership role in ECLA, promoting the kinds of ideas he had begun to express in the early 1940s. He challenged the “false sense of universality” of mainstream economic theory and urged activist state policies to promote more diversified, industrialized economies in Latin America.
40
In an increasingly assertive manner, Prebisch—with much Latin American backing—also called on the United States to foster the region’s development with more financial assistance, support for commodity stabilization programs, and the creation of a regional development bank.
41
Across much of Latin America, his reputation and that of ECLA soared, and he was able to attract prominent economists to work for the organization, including Urquidi, who was employed in ECLA’s Mexican office between 1951and 1958.
While Prebisch’s ideas had been similar to those of many prominent US policymakers and analysts during the early 1940s, his demands were now rejected by US policymakers and his analyses provoked strong criticism from neoclassical economists there.
42
In the McCarthy years, ECLA even fell under the scrutiny of the FBI and CIA, which considered the organization subversive. Some more orthodox Latin American economists—including two members of Brazil’s Bretton Woods delegation, Campos and Gudin—were also increasingly critical of ECLA’s focus on ISI and government planning.
43
After a tour of Latin America in late 1959, two FRBNY officials noted how the views of many central bankers in the region were also changing, with “a noticeable disenchantment with the results of government intervention in the economy and a tendency to allow a greater role to market forces and free enterprise generally.”
44
In the late 1950s, Prebisch began to experience growing criticism from the left as well, including from the prominent Brazilian economist Celso Furtado who suggested that ISI policies were accompanied by growing inequality.
45
Prebisch and other Latin Americans were not the only officials from the South demanding more assistance for international development. Indian policymakers also assumed a lead role after the war, as they had at Bretton Woods, in raising the profile of this issue. During the ITO negotiations, they echoed many of the Latin American demands.
46
India also emerged at this time as a prominent supporter of the proposal for a Special UN Fund for Economic Development (SUNFED) to offer longer-term concessional loans to poor countries. The idea had first been proposed in 1949 by the Indian economist V. K. R. V. Rao (who had studied with Keynes at Cambridge). In 1951, despite US opposition, the UN General Assembly voted by a two-to-one majority to set up a panel to study SUNFED’s establishment.
47
At the 1950 IMF and World Bank annual meeting, Deshmukh—now India’s finance minister—also called on the Bank to establish a department offering such soft development loans.
48
At Bretton Woods, Latin American and Indian calls for international support for their development ambitions had been echoed strongly by officials from eastern Europe and China. But their participation in the Bretton Woods system now became a casualty of the Cold War. The two East European countries that had been most favorable toward development at the Bretton Woods conference, Poland and Czechoslovakia, left the Bretton Woods system soon after the USSR—which never ratified the Bretton Woods agreements—created an alternative economic bloc, Comecon, for its allies in 1949.
49
Rosenstein-Rodan was soon forced to acknowledge that “the practical value” of the detailed development plans for eastern Europe his seminar had prepared for the RIIA between 1943 and 1945 had been destroyed.
50
In 1951, the RIIA chose simply to publish a short overview of his fifty-thousand-word plan, hoping that it might be of use to policymakers in other regions of the world.
51
Rosenstein-Rodan did, however, serve on the IBRD’s staff between 1947 and 1952 and continued to work on development issues, although he found the Bank’s narrow focus on specific project lending frustrating.
52
After serving as Poland’s first executive director to the Bank, the other lead advocate of international development from the RIIA seminar, Leon Baranski, also worked for the institution on development issues in other regions of the world such as Africa.
53
After the communist revolution in 1949, mainland China also ceased to be a member of the Bretton Woods institutions. When the KMT retreated to Taiwan, the United Nations continued to recognize it as the official representative of China, and the Bretton Woods institutions followed suit. Chou En-lai asked the IMF managing director to expel the Taipei government’s representatives from the Fund in August 1950, but he did not include a request that the new People’s Republic of China assume China’s seat in the Fund.
54
Although Chou had appeared to support China’s participation in the Bretton Woods institutions in late 1944, the political context had changed dramatically with the revolution, America’s active support for the KMT government in Taiwan, and the outbreak of the Korean War. Membership in the United States–dominated bodies now held little appeal and the PRC’s relations with the West more generally were largely severed over the next few years, not to be resumed until the UN General Assembly voted in 1971 to give the PRC government the right to represent China.
55
Even then, the PRC did not show a consistent interest in joining the Bretton Woods institutions until Deng Xiaoping committed the country in late 1978 to an outward-oriented development strategy (reminiscent of Sun’s thinking) that focused on state-led growth and industrialization through economic linkages with the West.
56
While Latin American and Indian promoters of international development lost the eastern European and Chinese backing that they had had at Bretton Woods, they gained new allies in the 1950s and 1960s with the rapid decolonization of Africa and Asia. Taking advantage of their growing numbers in the United Nations, a new coalition of Latin American, African and Asian countries—soon called the G77—pushed for the creation of the UN Conference on Trade and Development (UNCTAD) in 1964.
57
Prebisch was named its secretary general and began to promote similar issues as he had in ECLA, such as the need for greater development finance and commodity price stabilization. Prebisch also encouraged initiatives to improve access to Northern markets for Southern manufacturing exports, but on a nonreciprocal basis that would allow poorer countries to retain their tariffs.
In advocating these reforms, Prebisch often critiqued the Bretton Woods system for not taking account of the distinctive needs of Southern countries. As Toye and Toye put it, Prebisch argued throughout the 1960s that “the Bretton Woods/GATT system was based on a failure to recognize the fundamental differences between the industrial centers and the periphery of the world economy and thus sought to apply common principles to what was fundamentally different.”
58
This was an interesting line of argument from a person who had been deeply involved in shaping Triffin’s innovative efforts to further the development content of Bretton Woods through financial advisory activities that were very attentive to the distinctive conditions and goals of Southern countries.
59
Prebisch’s case no doubt reflected his disillusionment with the way the Bretton Woods system had been subsequently implemented. The framing of his cause as a challenge to the Western-dominated Bretton Woods system may also have made some political sense given the anticolonial sentiments in many of the countries in the coalition he was mobilizing. Whatever the cause, Prebisch’s framing contributed to a growing perception that Bretton Woods had overlooked international development issues and the needs of Southern countries.
In the face of the growing Southern pressures and prompted by fears of communist influence in poor regions of the world, the United States and other Northern governments supported several reforms of the international economic architecture. Some of these focused primarily on Latin America, particularly after the hostile reaction to Nixon’s 1958 tour of Latin America and the Cuban revolution of early 1959. For example, the United States finally backed the creation of the Inter-American Development Bank (IADB), which opened its doors in early 1960 and focused much of its initial lending on industrial projects and social infrastructure. To support key allies in the region, US officials also endorsed an International Coffee Agreement that was finalized in 1963.
60
When the Kennedy administration came into office, it even reached out to Prebisch—via a veteran of the Good Neighbor policy, Adolf Berle—to help design its new Alliance for Progress initiative aimed at assisting Latin American development. Prebisch was initially enthused; his new acceptance in Washington reminded him of working with Triffin in the 1940s. But disappointment quickly followed when the ambitions for the Alliance for Progress were scaled back in the face of US business and conservative opposition.
61
At the global level, the United States and other Northern countries finally backed—in part to block the SUNFED proposal—the creation in 1960 of a soft loan facility within the World Bank: the International Development Association (IDA).
62
New regional development banks were also established for Africa (1964) and Asia (1966). In addition, the IMF responded to calls for greater financial assistance for poorer countries facing sudden declines in export earnings by creating the Compensatory Financing Facility (CFF).
63
At the second UNCTAD meeting in 1968, Northern countries also agreed formally to a generalized system of trade preferences allowing greater access for manufactured exports from poor countries on a nonreciprocal basis, although its specific provisions were very weak.
These various initiatives were seen by many policymakers and analysts as pioneering a more development-friendly international economic order for the first time in response to a new kind of “North-South dialogue.” But many of these initiatives simply built upon the original international development content of Bretton Woods that had been constructed by the now forgotten North-South dialogue of that earlier era. The IDA reinforced the widespread support that had existed at Bretton Woods for long-term international development finance, offering it on more generous terms. The CFF strengthened the commitment expressed during the Bretton Woods discussions of the IMF’s waiver clause to provide greater access to IMF’s loans for agricultural-exporting countries that were exposed to large balance of payments fluctuations. The International Coffee Agreement followed up on the resolution passed at Bretton Woods that recommended governments to reach agreement on ways to address international commodity price issues. The IADB also finally brought to fruition the idea of an inter-American bank devoted primarily to development issues, an idea that in 1939–40 had served as a kind of first draft of the Bretton Woods institutions.
The Rise and Fall of the NIEO
Despite these various reforms, many Southern governments remained frustrated that more was not being done at the international level to further their development goals. The political context then changed dramatically when the Organization of the Petroleum Exporting Countries (OPEC) countries quadrupled the price of oil in 1973, a development that seemed to demonstrate the potential power of Southern commodity producers. Emboldened and in the context of the broader world economic crisis, a wide coalition of Southern governments used a special session of the UN General Assembly in 1974 to call for a comprehensive New International Economic Order. The NIEO proposals included many ideas Prebisch had promoted in UNCTAD (from which he had resigned by this time), such as greater financial and technical assistance to poor countries, measures to improve the terms of trade facing such countries, greater “preferential and non-reciprocal treatment for developing countries,” and more influence for the South in international economic decision making.
64
The 1974 UN resolution also introduced other issues such as the regulation and supervision of transnational corporations (including the right to nationalize them), greater economic cooperation among Southern countries, and the broader protection of policy autonomy (“the right of every country to adopt the economic and social system that it deems the most appropriate for its own development”).
65
UNCTAD subsequently added to the overall reform agenda more specific initiatives relating to commodity price stabilization, as well as proposals for an international debt-restructuring mechanism.
66
The NIEO proposal was widely seen as a major challenge to the Bretton Woods order.
67
But once again, the objective to create an international economic order that was favorable to the state-led development goals of Southern countries was one that had been shared by many officials involved in the Bretton Woods negotiations, including those from United States. To be sure, many of the specific NIEO proposals went much further than what the Bretton Woods negotiators had endorsed. But in its general aspirations, the NIEO proposal could be seen as an initiative that built upon the Bretton Woods foundations. Indeed, when one looks at the NIEO agenda, it is striking how many of the issues it raised had been discussed by White in his early postwar plans as well as by others during the development of the Bretton Woods agreements: long-term international development finance, short-term compensatory financing for commodity export shortfalls, an international debt-restructuring mechanism, backing for infant industry trade protection, commodity price stabilization, the regulation of capital flows, and support for national autonomy in the pursuit of state-led development policies.
In a few instances, participants in the NIEO debates seemed to recognize this. For example, in advocating for commodity agreements, the Sri Lankan official Lal Jayawardena circulated Keynes’s early 1942 proposals on this topic that he had found in the British archives.
68
Prebisch also referred to Keynes’s ideas on this topic and hoped that Northern countries might finally be willing to implement the famous economist’s proposals.
69
For the most part, however, the rich history of the international development discussions of Bretton Woods was not mentioned by participants in the NIEO debates. Even the active participation of Southern countries in the negotiation of Bretton Woods—and their dominant numbers at the conference itself—were overlooked. For example, as part of its critique of the status quo, the 1974 UN resolution highlighted how the existing international economic system “was established at a time when most of the developing countries did not even exist as independent States.”
70
This statement was of course true, but its implication—that Southern countries had little role in the creation of Bretton Woods—was not.
For most of those involved in the NIEO debates, this neglect of the Bretton Woods history may have simply reflected a lack of knowledge. Aside from Gardner’s 1956 book
Sterling-Dollar Diplomacy
(which neglected the development content of Bretton Woods), there were few serious analyses of history of the Bretton Woods negotiations available at the time.
71
Indeed, Jayawardena was only able to find Keynes’s proposals because the British archives had just made them available under their thirty-year rule.
72
The forgetting of the development content of the Bretton Woods negotiations may also have had some political sources. The framing of the NIEO as a frontal challenge to Bretton Woods by Southern supporters matched the heated rhetoric of the time. On the other side, it also allowed Northern officials who disliked the NIEO proposals to represent them as too radical a challenge to the principles of “global liberalism” that had been embodied in the international economic regimes established at the end of the war.
73
Indeed, while Northern governments initially made some concessions to Southern countries, the position of many Northern governments hardened by the end of the decade, particularly after the election of Margaret Thatcher in Britain (1979) and Ronald Reagan in the United States (1980). Those political changes symbolized and reinforced the growing support for free-market—or “neoliberal”—ideas in the North. Many neoliberals disliked the interventionist economic ideas of the NIEO and argued that the poverty of Southern countries would be better addressed by domestic reforms that dismantled statist economic policies. By the time of the North-South summit at Cancún in 1981, it was clear that the NIEO proposal was dead.
It is worth noting that the NIEO attracted critics not just from the neoliberal camp. From the left, neo-Marxist “dependency” thinkers argued that the global capitalist system was not reformable in the way that NIEO advocates suggested. They critiqued the NIEO project as a strategy of “the Third World bourgeoisie” designed simply to promote state-led capitalist industrialization (much as Marx had critiqued List) and they urged instead a more radical “de-linking” from the capitalist Bretton Woods system altogether.
74
From an emerging “Green” perspective, the environmental and social costs of the Southern governments’ quest for rapid industrial growth were increasingly questioned, including by E. F. Schumacher who had been involved in the Bretton Woods negotiations and whose 1973
Small is Beautiful
became a core text for the Green movement.
75
This critique was not new; Schumacher was partly inspired by the ideas of Gandhi who had advanced a similar line of argument at the time of Bretton Woods. In the 1940s, Gandhi’s critique of modern industrial growth was very much a minority voice, but it now found a much wider international audience, as the meaning of “development” became more hotly contested than it had been in the 1940s.
The collapse of the NIEO project also reflected the fact that the power of Southern governments had diminished rapidly by the early 1980s as their unity on various issues unraveled and as it became clear that OPEC’s power was not easily emulated by other commodity exporters, particularly after the global recession of 1979–82 caused commodity prices to plummet. That recession and the sudden hiking of US interest rates also provoked severe external debt crises in many Southern countries that redirected their governments’ attention away from global reform to immediate crisis management at home. While creditor banks and Northern countries formed a tight IMF-led cartel, the debtors failed to organize themselves and were left bearing the brunt of the adjustment to the crisis. The growing influence of neoliberal thinking among many policy elites in Southern countries also encouraged acceptance of the creditors’ preferred solution to the crisis: the introduction in debtor countries of austerity and structural adjustment programs that ushered in free-market policies.
A consequence of this resolution of the international debt crisis of the 1980s was that the goals of the NIEO were turned upside down. Instead of increased development finance for poor countries flowing from North to South, large resource transfers flowed from South to North for most of the decade to pay off external debts. Policy autonomy was also undermined rather than strengthened as state-led development policies were dismantled under IMF and World Bank guidance. In place of greater influence in global economic decision making, Southern countries also found their voices marginalized in a world economy dominated more than ever by rich countries through the Group of Seven (G7) club. In their role as promoters and enforcers of austerity programs and neoliberal reforms, the Bretton Woods institutions also took on a very different role from that envisioned in 1944.
The increasingly worldwide spread of neoliberal policies after the end of the Cold War further marginalized those who sought to reform the global economic order along the lines of the NIEO. Even many critics of the Washington Consensus no longer saw the reformist agenda of the NIEO as a model. At the fiftieth anniversary of the Bretton Woods conference in 1994, a common slogan of protesters with an interest in development issues was “Fifty Years Is Enough.” Rather than reform of the global economic order, outright rejection was coming into fashion, a stance that became even more prominent among many in the widespread antiglobalization protests of the late 1990s and early 2000s.
What Next?
In the early twenty-first century, however, echoes of the Bretton Woods development discussions have begun to be heard once again. A key catalyst has been the rising economic power of so-called emerging economies such as China, India, Brazil, Mexico, Indonesia, and South Africa. The most dramatic symbol of the new power of these countries came with the creation of the Group of 20 (G20) leaders forum at the height of the global financial crisis of 2008, a body that includes all of these large Southern economies. The G20 quickly eclipsed the G7 to become the premier forum for international economic cooperation and it provides Southern countries—albeit just a select few of them—more influence in global economic decision making than they have had since the 1970s.
As at Bretton Woods, many of the Southern G20 countries are governed by policy elites committed to state-led development goals, including some of the most powerful countries such as Brazil, China, and India. With their support, Southern governments are placing many of the international development issues affecting Southern countries that were discussed at Bretton Woods back on the global economic agenda: more long-term development finance, greater access to short-term balance of payments assistance, new mechanisms for debt restructuring, special trade provisions, measures to address commodity price volatility, regulation of international financial flows, and enhanced policy autonomy (or “policy space”) for development. The prospects for significant reforms in these areas have also been enhanced by the growing criticism of neoliberal ideas in the wake of the 2008 global financial crisis.
International economic reforms demanded by Southern governments may be resisted—as they were in the 1970s—by Northern officials on the grounds that they depart too radically from the Bretton Woods ideals. The history told here, however, shows that efforts to address these issues build upon foundations established precisely at Bretton Woods. The Bretton Woods architects—from both North and South—in fact saw the reconciliation of liberal multilateralism with the state-led development priorities of Southern governments as one of the core features of the postwar settlement. The construction of initiatives on that foundation has been slow and uneven since the end of World War II. For those seeking to accelerate the building process, this forgotten history may generate some ideas and inspiration. And for those less keen on the kinds of international development goals outlined at Bretton Woods—on either the left or the right of the political spectrum—this analysis provides a sobering reminder of their deep historical grounding.
1.
Black 1991, 53; Rees 1973, 362–63, 377.
4.
Kapur, Lewis, and Webb 1997, 79; Casey 2001, 141–44, 152–56; Kindleberger 1991, 46.
5.
Oliver 1961a, 49, 57–58.
6.
Kapur, Lewis, and Webb 1997, 81–82; Kofas 1997, 162.
7.
Casey 2001, 157–60; Fuchs 1974b, 47–48.
8.
Urquidi 1996, 45–46, 49.
9.
Frank Southard to Snyder, July 17, 1947, p. 1, TSF, 450/81/20/07, box 28.
10.
Williams 1991, 22. Article XVIII of the 1947 GATT did allow trade restrictions for economic development purposes, but subject to some conditions and the consent of the contracting parties. Because of these limitations, Williams (1991, 23) notes that “in practice, this article was hardly ever used” before its revision in 1954. See also Wilkinson 2006, chap. 2; Toye and Toye 2004, 33–40, 214–15; Gardner 1980, 364–68; Scott 2010.
11.
Green 1971, chap. 7, 11; Gilderhus 2000, 124–25; Schoultz 1998, 332–23; Urquidi 1996, 44; Grow 1981, 91; Wallich 1948, 156; Dosman 2008, 241; Hilton 1981, 602–4; Rabe 1978.
12.
Congressional Record
, April 17, 1947, vol.,93, part 3, p. 3583. For enduring Latin American interest in the IAB, see Green 1971, 206, 284; Urquidi 1996, 33; Fuchs 1974b, 48.
13.
Green 1971, chap. 7; Hilton 1981, 602–4; Rabe 1978.
16.
Quotes from Grow 1981, 91, and Green 1971, 262.
18.
For Triffin’s views of Braden, see Triffin to Arthur Schlesinger, May 13, 1946, ISF, box 156.
19.
For Grove’s views, see for example David Grove, “The Potentialities of Monetary Policy in the Economic Development of Latin America,” June 18, 1951, ISF, box 156. Chapter 3 also noted the support of the FRBNY’s Wallich for the creation of Cuba’s central bank in 1950 on the lines recommended by the 1942 report of the White mission.
21.
Quoted in Packenham 1973, 43–44.
22.
Acheson’s role in drafting the Bank should not be overstated. At the conference, he became very irritated at one point about the lead role he had been given—and even threatened to step down—because he knew so little about the proposal and was getting little staff support. MD, book 753, p. 80–81, 141–52.
23.
Hanson 1950, 66. After his work at the Treasury, Hanson worked for Rockefeller’s Office of Coordinator of Inter-American Affairs.
25.
Maxfield and Nolt 1990, 58–59.
29.
Singer 1984, 296–97 n. 47. See also Toye and Toye 2004, 173.
30.
Maxfield and Nolt 1990, 57–59, note, however, some enduring support for ISI policies.
31.
Dosman 2008, 234. The US decision was also driven in part by its effort to improve relations with Argentina’s Perón who strongly opposed Prebisch’s appointment. Brazil also opposed the appointment, a position that Dosman (2008, 234) attributes to Bulhões’s “envy.”
32.
Gilderhus 2000, 139–57.
33.
Latham 2011, chap. 5.
34.
Triffin 1990, 28–29. For Triffin’s relations with Árbenz in 1945, see also Triffin to Board of Governors, October 2, 1945, p. 2, ISF, box 221. After participating in a 1952 financial advisory mission requested by Iran’s Mohammed Mosaddegh, Triffin had also been critical ( just months before Mosaddegh’s overthrow) of the unwillingness of the United States and Britain to listen to the Iranian concerns: “Iran’s Negotiations Criticized,”
Washington Post
, March 9, 1953.
35.
Latham 2011, 128; Horace Sanford and Francis Schott, “Report on Visits to Central Banks of Mexico, Curacao, and Eleven Central and South American Countries, October and November 1955,” December 1955, Part 2, p. 41, ISF, box 229.
36.
Horace Sanford and Richard Dosik, “Report on the Visits to Central Banks of Argentina, Paraguay, Bolivia, Costa Rica, Nicaragua and Cuba, November–December, 1959,” January 1960, p. 13, ISF, box 229, file: Foreign Missions, Latin America, Pocket. In 1945, Triffin himself had anticipated the difficulties the Paraguayan central bank was likely to have in limiting its assistance to the government. He noted that his legislation tried to minimize this risk, but argued that “in the final analysis no mere banking provisions can solve this problem…this will remain one of the crucial problems of Paraguay for a long time…”; Triffin to Board of Governors, “Second Mission to Paraguay,” January 10, 1945, pp. 5–6, ISF, box 162. By contrast, at the 25th anniversary of the establishment of the Bank of Guatemala in which he had been so deeply involved, Triffin noted that it could boast since its founding of absolute stability of the exchange rate and cost-of-living increases averaging less than 1.5 percent per year (Triffin, untitled, May 1971, p. 1, RTP, box 27, file: Triffin in Guatemala.
37.
Boughton 2011, 383–84; James 1996, 78–83.
38.
Campos 1996, 101. Roberto Campos had been a Brazilian delegate to Bretton Woods.
39.
Dosman 2008, 236–37; Toye and Toye 2004, 138–39.
40.
Quote from Dosman 2008, 249. See also chaps.11, 12, and 13.
42.
Dosman 2008, 248, 292–94. Some of the critics included individuals who had favored development ideas during the Bretton Woods planning process, such as Charles Kindleberger and Jacob Viner.
43.
Dosman 2008, 287–88, 282–84. Some other Southern delegates at Bretton Woods also became advocates of free-market positions, such as India’s Shroff who co-founded the think tank “Forum of Free Enterprise” in 1956 to critique the interventionist policies of Nehru.
44.
Sanford and Dosik, “Report,” p. 3.
49.
Poland withdrew voluntarily in early 1950, complaining of US domination of the system after its requests for two loans from the Bank in 1946–47 were turned down. Czechoslovakia was forced to withdraw in 1954 after the United States accused it of not providing information that was required under the Fund’s charter (McKinzie 1973). After this and throughout the 1960s, the only centrally planned economy from East Europe that remained in the IMF and World Bank was Yugoslavia (Jacobson and Oksenberg 1990, 27).
50.
“Analysis and Method in the Study of Economic Development: Selected Papers Relating to Eastern Europe, Compiled by Dr. P. N. Rosenstein-Rodan, edited and with an introduction by A. L. Minkes,” p. 1, (n.d., but with covering memo dated October 22, 1952), RIIACR 9/23qq.
52.
Oliver 1961c, 2; Kapur, Lewis, and Webb 1997, 128–30.
53.
For his work for the IBRD in Africa in the early 1960s, see Tignor 2006, 186–89; Oliver 1961b, 19.
55.
Jacobson and Oksenberg 1990, 44; Jian 2001, chap. 2
56.
Jacobson and Oksenberg 1990, 63–70; Vogel 2011, 808 n. 16. The PRC became China’s official representative in the institutions in 1980.
57.
Williams 1991; Toye and Toye 2004, chap. 8.
58.
Toye and Toye 2004, 43.
59.
Toye and Toye (2004, 43) argue that his criticism “was largely correct,” but they note that Prebisch underestimated the importance of some of the concessions that poor countries gained in the negotiation of the postwar trading system. The same criticism can be made of his views of the Bretton Woods international financial order. Toye and Toye themselves downplay the role of Southern countries in the Bretton Woods negotiations (p. 23).
60.
Toye and Toye 2004, 216.
61.
Dosman 2008, 357–59; Toye and Toye 2004, 175; Pollock 1978, 69–71.
62.
Kapur, Lewis, and Webb 1997, 154–6.
63.
The first country to use it was Brazil, the Southern country that been most forceful in pushing this issue at Bretton Woods (James 1996, 145).
65.
Quote from UN General Assembly, ”Declaration,” p. 1.
66.
For debt, see Helleiner 2008, 104–5.
67.
For the debates surrounding the new NIEO “ideology,” see Murphy 1984.
68.
Williamson 1977, 94; Keynes 1974.
70.
UN General Assembly, “Declaration,” p. 1.
71.
For Gardner’s neglect, see the introductory chapter above.
73.
Krasner (1985) describes this line of thinking.
74.
Quote from Amin 1990, 115. See also Dos Santos’s (1970) critique of ECLA ideas.