Success of Bretton Woods Institutions - Essay Example

Were the Bretton Woods s successful? Nowadays, the existence of deeply connected globalized world seems to be an obvious fact that determines all the activities in the contemporary international system. However, such a global regime did not exist from the very beginning of the world. In fact, the huge role in providing liberalization and multilateralism as defining trends in the whole world was played by the newly established Bretton Woods system that appeared in 1945. In particular, the institutions created by this postwar world order are vivid today, even though their activity was changed significantly since the beginning of their existence. In this context, the effectiveness of their primary roles in the new world is questionable for the modern political thought. Therefore, in this essay the success of the Bretton Woods institutions is analyzed in terms of the intent of their establishment, the way of their design, and the development of their activity. To start with, the foundation of the Bretton Woods institutions is the first example of negotiations in the international community concerning the world monetary order (Cohen, n.d.). In particular, the lesson defined by Jamie Martin (2013) as “the worst war in history [that] had followed shortly on the heels of the worst economic crisis” encouraged international community to prevent any further global political and monetary crisis in the near future. In other words, the war was a cornerstone for governments to change the rules of the business in order to create completely new economic and political environment (Ikenberry, 1991, p. 293). In fact, the new balance between “market” and “authority” emerged (Ruggie, 1982, p. 386). And so, the Bretton Woods system can be considered as the background of the whole modern world order. Within the new global monetary system, the Bretton Woods organizations were created as the crucial financial institutions that influenced to some extent all the economies in the world. However, the creation of this system is deeply connected with discussion between two officials – namely, John Maynard Keynes (UK) and Harry Dexter White (USA) (Martin, 2013). In context of this struggle, the preparation of the new world order lasted for two years in the teamwork of British and U.S. economists (Cohen, n.d.). In fact, the future scenario of “the Western world order” (Underhill, 2006) was seen differently by these two representatives. On the one hand, Americans in a team of Harry White wanted to create an open international economy on the background of both liberalism and multilateralism; on another hand, British representatives headed by John Keynes were willing to save imperial system mainly based on bilateral trade agreements (Ikenberry, 1991, p. 289). As a result, even though the number of participants in the conference arranged at American resort village of Bretton Woods was representing forty five countries, the agenda was set by these two countries (Cohen, n.d.). Hence, the other allies that won World War II were critical to the Bretton Woods system; in particular, the French leader Charles de Gaulle and rulers of Soviet Union were suspicious to the postwar world order. Moreover, during the conference Asian countries such as India and China spent lots of time to convince world leaders that they are much more significant in the new world than Americans and Europeans currently think (Martin, 2013). Nevertheless, most of the countries sooner or later had nothing but to accept the new rules of the world economy. In fact, the whole text of this new arrangement can be presented in four main points. As Benjamin Cohen (n.d.) determines them, fixed currency rates, gold exchange standard, free multilateral payments and established international institutions occurred in the new world order. In case of three former innovations, a “fixed but flexible system of exchange rates” (Underhill, 2006, p. 106) was launched. For instance, it forced Europe to change its bilateral style of trade agreements that showed its imbalance in previous years to multilateral ones (Oatley, 2001, p. 951). In context of the last point, International Monetary Forum (IMF) and the International Bank for Reconstruction and Development (the World Bank) were created. In particular, the great importance of IMF was defined by its triple role in the Bretton Woods order. In particular, it was created in order to regulate the rules of currency functioning, supply the liquidity, and provide a forum for cooperation between the governments (Cohen, n.d.). In other words, these two brand-new international institutions were designed in order to help other countries in adjusting to the financial problems that might appear in this new framework (Underhill, 2006, p. 105). Actually, the activity of IMF showed it instant reaction on all the changes in the international system (Ruggie, 1982, p. 410). And so, contemporary significance of IMF for developing countries is based on the ability of the Bretton Woods institution to adapt their behavior to the global circumstances. Hence, in terms of accuracy IMF and the World Bank can be considered today as successful organizations. However, the main despair experienced by John Keynes during the negotiations was that the IMF and the World Bank were settled in Washington; hence, it was hard to control the growth of USA in the new world order (Martin, 2013). In practice, British fears were proved by the post-war reality. In fact, the sufficiency of these fresh institutions was not lasting enough to prevent USA from becoming the only actor who is responsible for global monetary stabilization (Cohen, n.d.). But, the significant fact in this change is that USA showed the willingness to play such an international role – namely, it turned into “money manager of the world” (Cohen, n.d.). In addition, European governments were willing to experience such a degree of U.S. centralization over the world (Oatley, 2006, p. 967). Actually, they were incapable to discover an alternative bilateral system and had nothing but to build cooperation with USA on favorable ground for both these actors (Ikenberry, 1991, p. 307). In fact, the concentration of the economic power had eroded in the new circumstances of the Bretton Woods system; and so, the hegemonic role played by USA could not be as strict as it was before in case of British prevalence (Ruggie, 1982, p. 384). In this context, scholars even call such a phenomenon of accepting both opinions as “political miracle” (Ikenberry, 1991, p. 290). And so, even though the Bretton Woods started transformed into the U.S. domination, it was accepted by all the main actors in the Western world. The main criticism towards the Bretton Woods system was that it turned the international system into a “hegemonic monetary regime centered on the dollar” (Cohen, n.d.). In this context, the new system allowed the United States to import the foreign goods, launch numerous aid programs, and fill all the national market with dollars (Cohen, n.d.). To explain such phenomenon, hegemonic stability theory was created (Cohen, n.d.). But, the new world order cannot be considered as the rule of USA in forcing the world to accept liberalism (Underhill, 2006, p. 104). In fact, the United States did not constantly promote liberalization as it met lots of difficulties with its implementation in the world (Underhill, 2006, p. 104) and experienced plurality of opinions on it within its own borders because of discussions between the State Department and the Treasury Department over the international planning (Ikenberry, 1991, p. 314). In particular, the U.S. control over its own currency was limited by state borders with no access to the rates at which Europe and Japan buys and sells dollars (Cohen, n.d.). As a result, the Bretton Woods system by being centered on USA brought enough advantages for the U.S. allies in Europe and Asia and can be called an effective one. For instance, Marshall Plan as an aid program for European economies in terms of co-operation with each other demonstrates the example of an American style of policy-making within this system (Underhill, 2006, p. 107). Moreover, the establishment of multilateral style of trade arrangements in Europe both reduced outstanding obligations and removed previous discriminatory economical restrictions (Oatley, 2006, p. 952). And so, the image of the Bretton Woods system can be considered as optimistic one while the rational component and difficulties for the U.S. policy are discovered. In addition, even though it had limited the privileges of European countries and Japan, it actually helped them to recover economically. Another flaw in the Bretton Woods system is seen in gold reliance on dollar defined by the Triffin dilemma (Cohen, n.d.). In this context, when the inflation of dollar started because of national social programs and Vietnam War, the whole Bretton Woods system started to agonize (Cohen, n.d.). But, the rules of the system were created so thoughtful that the termination of this world system was not catastrophic for the world economy. In retrospective, for Europe the Bretton Woods rules enabled both centralization and considerable flexibility to creditor-debtor relations (Oatley, 2006, p. 962). Therefore, the Smithsonian Agreement was negotiated as allowing all the industrial countries to independently manage with their money (Cohen, n.d.). And so, the main goal of the Bretton Woods system as preventing the economic disaster that caused the previous world war was achieved. In order to sum up, the Bretton Woods system as the new way to manage the world economy was a progressive idea for its time. As the continuously negotiated agreement between two main economical actors, the final variant of this post-war order was created in order to accept both sides of the agreement. As a result, multilateral liberalism was combined with national authority in defining the exchange rates within its borders. And so, the fact that the Bretton Woods system assisted USA to become the most important actor in the international community was caused by the objective inevitability but not unfair rules of the game. Therefore, the collapse of the system happened when the recovered economies in Europe and Asia felt like they are strong enough to be more independent than before. Hence, the Bretton Woods institutions showed their success in the long-term perspective of preventing the economic crisis after the World War II and strengthening the world economy in general and European and Japanese ones in particular. References: Cohen, B., n.d. ‘Bretton Woods System’ [online], in Routledge Encyclopedia of International Political Economy. Available at: [Accessed at 30 August 2014]. Ikenberry, J., 1992. A World Economy Restored: Expert Consensus and the Anglo-American Postwar Settlement. International Organization, 46 (1), pp.289-321. Martin, J., 2013. The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White and the Making of a New World Order, by Benn Steil. Reviewed in: London Review of Books, 35 (22), pp.16-18. Oatley, T., 2001. Multilateralizing Trade and Payments in Postwar Europe. International Organization, 55 (4), pp.949-969. Ruggie, J., 1982. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order. International Organization, 36 (2), pp.379-415. Underhill, R., 2006. Global Issues in Historical Perspective. In: Stubbs, R. and Underhill, R. eds., 2006. Political Economy and the Changing Global Order. 3rd ed. Oxford: Oxford University Press. Pp.103-118. Read More