International Political Economy #3

Re-Building the System

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t
William Kindred Wineco
Indiana University at Bloomington

September 5, 2013

1/19

No Post-World War I Order

Wilson wins 1919 Nobel Peace prize, but is unable to attend peace talks. Treaty of Versailles (which U.S. never ratied) much harsher towards Germany than 14 Points. German dissatisfaction remains. No decolonialization, no free trade, no freedom of the seas, no general disarmament. League of Nations fails, largely because U.S. doesnt join. U.S. should take over leadership it is the biggest manufacturer, supplier of global nance, and overall economy but chooses not to. The global economy tries to go back to the old system, but the foundations are crumbling.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

2/19

The Great Crash

No order. Economic instability (Great Depression):

Kindleberger: The international economic system [was] rendered unstable by British inability and U.S. unwillingness to assume responsibility for stabilizing it.
US nancial weakness prevents lending to Germany, Germany stops paying back UK/France, Depression spreads, gold standard abandoned, fascism rises (rst in Spain and Italy, then Germany). Economic instability often leads to political instability: WWII.

WWII was essentially the same war as WWI: no meaningful pathway for Germany to rise peacefully. No institutions to manage their integration. The result was a collapse in interconnectedness. There was an additional component: the instability of liberal capitalism.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

3/19

The Depression: Collapse in Trade

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t
4/19

The Depression: Devaluations

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t
5/19

Devaluation

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t
6/19

Segue

By the 1930s the system was disintegrating. Trade, output, employment, investment, everything collapsed. It was the worst crisis of capitalism. Domestic politics got nasty: capital vs labor, urban vs. rural.

Post-WWII the US decided not to let this happen again. But if it was going to manage the system, it wanted the system to be governed by its rules.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

7/19

How Did This Happen?

U.S. isolationism was strong in the 1910s-1920s.

Major recession in 1920-1 led to a major of round of US protectionism. As the global economy collapsed in the 1930s, the US was not inclined to lead globally. The result was nationalistic economic competition.

To prevent recurrence, US would have to stop being isolationist.

But others were thinking about new forms of industrial relations as well.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

8/19

The Interwar Experiments

Anglo-style liberal capitalism was being reformed in three ways:

1 2 3

Social democracy (e.g. US New Deal, Scandinavia, France). Fascism (e.g. Spain, Italy, Germany, Japan). Communism (i.e. USSR).

In the rst two, the state played a role in regulating the capitalist economy but diered in purpose: national prestige, or social welfare. In the third, the state planned an industrialized economy.

For awhile, all of these looked better than liberal capitalism. But many thought that they were incompatible with democracy. To some extent, the norm was still expansionist i.e. imperial, albeit in dierent ways.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

9/19

Was the Capitalist Argument a Myth?

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t
10/19

The USs Goal

The US comes out of the Great Depression believing several things:

Market-based capitalism is still better than a planned communist economy, but needs to be regulated. Nationalism is bad, and leads to war. Therefore, the US and its allies should create regulatory institutions that operate at the global level. This easier for the US, since it is not actually in Europe; given that, US leadership was needed.
In other words, have a global version of the New Deal.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

11/19

The Plan

Remake the postwar system in the USs image. The Atlantic Charter (Aug 14, 1941):

National self-determination / decolonization. Open access to resources (no imperial preference). Freedom of the seas. General disarmament. Generally accommodative to rising powers.
Wilsons 14 Points redux?

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

12/19

The International New Deal

Laissez-faire politics not possible; isolationism not an option.

Laissez-faire economics not sustainable; the rise of the New Deal regulatory/welfare state. U.S. didnt want empire, did want inuence; multilateralism and consensus was important (esp once Cold War got going).

Specialized agencies to provide technical regulatory solutions to social problems, organized under a centralized umbrella (the U.N.). Great powers (esp. U.S.) retained disproportionate inuence.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

13/19

The Regulatory Institutions

The Bretton Woods conference laid the framework for three governance institutions: one for trade, one for nance/ exchange rates, one for postwar reconstruction and development.
1

2 3

International Trade Organization (ITO; failed); General Agreement on Taris and Trade (GATT); later World Trade Organization (WTO). International Monetary Fund (IMF). World Bank.

These institutions would be buttressed by American postwar economic power and protected by American military power (hierarchy ), but would be inclusionary and internationalist rather than exclusionary and nationalist, i.e. would promote interdependence. (Their missions would evolve over time. Well return to this.)

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

14/19

The U.N.s Role

The Bretton Woods institutions are U.N. observers.

U.N. also has its own subbranches of economic regulatory agencies:

International Labor Organization (ILO). Trade and Development (UNCTAD). Development Program (UNDP). Protection of Children (UNICEF).

These were less controlled by the major powers, in some key respects. Tension between the U.N. and the Bretton Woods institutions would become relevant in later years.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

15/19

The Shift

These were meaningful changes; a clear break in the pre-/ post-WWII organization of the global economy. US was hegemon, not UK.

USSR was a balancing force, with its own sphere of inuence.

(Regulated) liberalism vs. communism was a test, and a rivalry. Global South is in between the two.

Institutions were designed to provide mechanisms for peaceful resolution of controversies.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

16/19

The Battle of Bretton Woods

The shape of the Bretton Woods system was contentious.

UK was still willing but unable; US was still able and was now willing. UK wanted to maintain its empire; US refused.
Harry Dexter White vs. John Maynard Keynes. White had the power (but weird motives); Keynes had the intellectual credibility. Keynes main goal was to not be steam-rolled by the US; multilateral, rules-based institutions were one way to ensure he wouldnt be.

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

17/19

The Bargain

No more gold standard; instead a dollar standard with the $ pegged to gold. US holds veto power in IMF.

US funds reconstruction, rst via the Marshall Plan and later via World Bank. Capitalism becomes inextricably linked with democracy ever since, but this is historically a new phenomenon.

Democratic peace. Capitalist peace.

The geopolitical goal: foster interconnectedness with the US at the core of the system that is governed by institutions that the US could inuence in order to preserve global capitalism. Europes goal: keep the Russians out, the Germans down, and the US in. US was willing to acquiesce... on its terms.
W. K. Wineco | IPE #3: Setting Up the Postwar IPE 18/19

raf t

The Outcome

Many have characterized this shift as US imperialism.

Marx predicted this; those sympathetic to Marx furthered the argument. If so, its a dierent form of imperialism than any other ever seen.

But its an important question: was global capitalism worth saving?

Well spend the next few classes examining this, but for now lets just note: it is indisputable that the last 70 years have been the best 70 years in history in terms of improving human dignity. Capitalisms dynamism comes at a cost: inequality and periodic crises. But this was true of planned economic systems as well, from the USSR to India to China and beyond. How can we capture the dynamism while reducing the human cost?

W. K. Wineco | IPE #3: Setting Up the Postwar IPE

raf t

19/19