06 August 2019

Three quarters of a century since Bretton Woods. Are we now witnessing the disintegration of the liberal world order?

Niculae Iancu

July 2019 marks 75 years since the Bretton Woods Conference, which set the cornerstone for the construction of the current international relations system, which was named by historians of the field as the liberal world order.

Image source: Mediafax

The structure of the current international system was finished not even half a decade following Bretton Woods. According to the vision of its founding fathers, the rules of the new system would ensure, through dialogue and cooperation, the preservation of world peace, protection of human rights, promotion of international law and respecting the sovereignty and territorial integrity of states. The only concern of people and their leaders would have been the rhythm in which prosperity would accumulate and the manner to fairly distribute this prosperity inside a world of global freedom and security.

Today, three quarters of a century since Bretton Woods, it is probably more necessary than ever during these decades to revise the logic of the international system, at least regarding the capacity of its fundamental institutions to serve their meaning, as it was thought by the leaders of allied powers at the end of the biggest global conflict.

The origins of the new global order

One month following the allied invasion of Normandy, the representatives of 44 countries from the only 68 existing sovereign states at the time met at the Mount Washington Hotel in Bretton Woods, New Hampshire, in the north-eastern part of the United States, to decide the course of the world economy after the end World War II. The Bretton Woods Agreement would become the D-Day of the new world order and was about to launch a cycle of institutional firsts, which reached its highlight with the creation of the United Nations in 1945, and end, from the West’s perspective, with the establishment of NATO in 1949.

The 730 delegates who met within the great conference at the Mount Washington Hotel discussed for three weeks how to regulate the functioning of the international currency and financial system after the end of the most devastating war in humanity’s history. The organizer’s immediate objective was to ensure the structural coherence of the post-war economic reconstruction, by promoting international cooperation, as it was reflected in the winner’s vision. At the time, the Allies were in full offensive against Nazi Germany on the Western Front in Europe, and were also taking over the initiative economically, where Western strategists anticipated that the future’s great battles will take places. Specifically, the United States considered that it had the legitimate right to become the engine of the new global security architecture, even more as they were expecting to end the war as the world’s greatest power.

Politically, the interest of grand Western powers was to “save” the Axis powers, Germany, Japan and Italy, after the conflict, by including them in reconstruction mechanism based on economic cooperation and mutual support, a measure considered to be essential to prevent a future great war, at least in Europe. The Allies’ economic offensive started from the wish to avoid the mistakes they had made three decades earlier, in the Paris Peace Conference of 1919. This time, peace was to be prepared firstly from an economic standpoint. The beginning of new European economic collapse, such as the one which fuelled ultra-nationalist radical movements not even two decades ago and favoured the ascension of the aggressive totalitarian and revanchist regimes which started the war.

In this context, President Roosevelt wished to promote a new world order dictated by the interest of the United States and supported by promoting the values of Western democracies, free trade and stability of exchange rates worldwide. This time, “worldwide” also had to include the losing side. The US administration considered that a firm approach was necessary to promote the Western economic system model, which would prevent the Axis’ central states from slipping towards the Bolshevik sphere of influence and block the expansion of communism towards the Atlantic Ocean. The moment was critical, as Stalin wanted the total occupation of Germany in order to obtain war reparations and create a safety belt around the soviets, which would also become, in only a couple of years, the so-called Communist Bloc, which would be kept captive by Moscow behind the Iron Curtain.

The participants at Bretton Woods convened to establish the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), the central pillar of the future World Bank (WB). Although the creation of a mechanism to support free trade – considered essential for the states’ sustainable economic progress – was also discussed, the subject did not materialize. Three more years were necessary to convene the General Agreement on Tariffs and Trade, which would transform into the World Trade Organization (WTO) only at the middle of the 90s.

The artisans of the new banking-financial system were British economist John Maynard Keynes and Harry Dexter White, the assistant to the US treasury secretary. Alongside them, a key role was also played by Treasury Secretary Henry Morgenthau Jr. who, as president of the conference, highlighted the importance of the moment and set the meeting’s agenda in his opening speech of the July 1 plenary session. With this occasion, he said that “what we do here will shape to a significant degree the nature of the world in which we are to live — and the nature of the world in which men and women younger than ourselves must round out their lives and seek the fulfilment of their hopes. All of you, I know, share this sense of responsibility. (…) Through cooperation we are now overcoming the most fearful and formidable threat ever to be raised against our security and freedom. In time, with God’s grace, the scourge of war will be lifted from us. But we shall delude ourselves if we regard victory as synonymous with freedom and security. Victory in this war will give us simply the opportunity to mould, through our common effort, a world that is, in truth, secure and free.

Continuing his speech, Morgenthau said the following: “I hope that this Conference will focus its attention upon two elementary economic axioms. The first of these is this: that prosperity has no fixed limits. It is not a finite substance to be diminished by division. On the contrary, the more of it that other nations enjoy, the more each nation will have for itself. (…) The second axiom is a corollary of the first. Prosperity, like peace, is indivisible. We cannot afford to have it scattered here or there among the fortunate or to enjoy it at the expense of others. Poverty, wherever it exists, is menacing to us all and undermines the well-being of each of us. (…) We know now that the thread of economic life in every nation is inseparably woven into a fabric of world economy. Let any thread become frayed and the entire fabric is weakened. No nation, however great and strong, can remain immune.”

Therefore, the builders of the new world order, inspired by the foundations of liberal thought, considered that global economic interactions were indispensable for international peace and security. This materialized the Western model of liberal democracy, which placed the coercive power of states in the backseat of security analyses, behind their ability to cooperate on all levels and in all essential fields, capacity which, much later, after the West’s triumph in the Cold War, was to be named soft power.

In fact, the later leaders of the victors, thrilled about the total defeat of communism, would consider at the end of the 20th century that the liberal democracy model has already proven its universalist prowess and, more than that, the West’s new mission was to spread this paradigm all over the world, inclusively by using force, wherever the forces of evil would have opposed the natural course of human society. However, history would prove the limits of the model, sometimes even with the price of drowning the West and the incontestable world leader, the US, into apparently endless conflicts. This happened in the entire Middle East or in extended areas in Central Asia, North Africa and Sub-Saharan Africa, where the complexity of security issues in the present has the potentially to unfortunately overtake the set of solutions offered by the post-WW2 international system’s rules of functioning.

A new world order without everyone taking part in it

On one hand, the Axis powers and their satellites were not present in Bretton Woods. Therefore, neither did Romania send representatives to the conference. The Socialist Republic of Romania would sign an agreement to join the IMF and IBRD on December 15, 1972 in Washington.

On the other hand, although the Soviet Union was present at Bretton Woods, as a member of the Alliance fighting against Nazi Germany, it did not show too much interest in the conference. Things could not have been different, probably, as long as the model of centralized socialist economy and the Soviet economic isolationism was not fitting in at all with what western states, led by the US, wanted to impose as an international norm. It is interesting that the Soviets were invited to join the group of the “big five” which would have made the rules of the global financial-economical system, similar to the structure of the future UN Security Council, but Moscow refused. In the end, Stalin decided that the Soviet Union will not join the IMF and the World Bank. As a result, the USSR would remain outside of the Bretton Woods system until its collapse, at the beginning of the last decade of the previous century. Later, Russia and the other Eastern European states would join the IMF and the World Bank after the fall of the Berlin Wall, a moment at which it could be said that the international order initiated nearly half a century ago became, for the first time, truly global.

Going back to the moment when the IMF and IBRD were established, the radically opposed visions between the East and the West would deepen the divide between the two ideologically different world which asserted themselves at the end of the World War II. Bretton Woods set the scene for the Cold War’s bipolar world. A new type of total war, much more sophisticated, carried out on multiple levels – political, economic, military, cultural, social. As a result, the new global order, although inspired by deeply humanistic values, cynically determined the apparition of a new major conflict. The collision between capitalism and communism could not be stopped. The intensity of the conflict dramatically changed the destiny of many nations for over forty years.

At the same time, the order set at the end of the Second World War would show its limits during its seven decades of existence, both outside and within the Western world. The numerous military, political and economic crises highlighted the international system’s inefficacy to enforce its rules of functioning, and shaped the states’ low appetite to follow these rules unconditionally. Not once were decisions of the UN General Assembly or Security Council resolutions ignored, challenged or violated. When the system proved to be incapable of satisfying the interests of great powers, they regrouped in alternative work formats such as elitist G-type meetings, or established coalitions as alternative to the traditional solutions of common action in conflict situations, considered to be much too slow or uncapable of offering answers matching the gravity of some atypical security threats.

75 years after Bretton Woods, there are more reasons for concern than celebrations

The succession of structural shocks during after the end of the Cold War made the stability of this world order to be tested several times. With the passage of years and the occurrence of major systemic changes, it became increasingly more obvious that there was a need to reform the international system’s core institutions. For example, despite the fact that its rules were assumed internationally and that the necessity to activate support mechanisms in crisis situations was understood, agreements with the IMF created most of the time anxiety instead of hope. Almost every time when the results were not favourable, the mechanisms of international financial-banking organisations to oversee the stability and consistency of macro-economic parameters influenced by governments were considered by many politicians as interference into home affairs. Most of the times, these types of criticism transformed into political narratives with nationalistic, protectionist or isolationist nuances, contrary to the purpose of core international institutions and, implicitly, opposed to the international system’s course of functioning.

In the past couple of years, the debate has clearly insinuated itself into questions of righteousness in assuming the absolute the absolutely necessary responsibility for these institutions to function. Increasingly more critical tones surfaced, recently, right out of the system’s heart, in Washington, made leaders worldwide view the capacity of the system to ensure unconditional cooperation between states, especially in crisis situations, with growing reserve, and also take into account the construction of their own security systems. The manner in which these changes occur made many analysts state that division is more present today than cooperation, and that states have yet again entered a deeply realistic competition for economic and military superiority.

The many questions addressed today to the IMF, World Bank, WTO or UN models of functioning are not only important to understand the necessity to reform each organization, but also to revalidate the principles of global governance impregnated into the international system’s essence. Talks on the matter more times revolve around “saving” rather than “improving the efficiency” of the systems. It is probable that the growth in the number of challenges to contemporary society, caused by the technological boom, climate change, social changes and hybridization of conflicts, justify the dramatic tones and activate survival instincts.

However, paradoxically, the multiplication of problems mostly calls for multilateral approaches, rather than isolationist solutions built on the primordiality of self-interest at the behest of common interest. But most centres of strategical analysis claim that the liberal world order is falling apart. In the absence of the system’s global guardians we have new rivalries among great powers, while frontlines are extending at a furious rate. The decrease in the appetite for cooperation causes withdrawal to the barracks or regrouping the forces in new directions of interest. These directions do not still totally coincide with the original sense of the international system’s construction made three quarters of a century ago.

The question is what will come after and, especially, what will be the effects of the disintegration’s shockwave. It is also unknown whether this shockwave will only affect traditional cooperation and alignment formats or if it will also violently strike into national borders, with potentially devastating effects for states already under the pressure of internal revisionist or secessionist movements. It remains to be seen in what way this scenario will affect the European Union, which does not yet seem mature enough to face globally tectonic events. More than that, we can not avoid asking what would be the impact of the international system’s disintegration on NATO, an organization currently operating under the pressure of the trust deficit insinuated from a multitude of reasons among allies between the two shores of the Atlantic. But, more than anything, we should ask the question of where Romania will find itself in the future global security architecture, especially in the conditions of continued tension accumulation in the geopolitical field of its existential interests.

Translated by Ionut Preda