Globalisation is not the real problem

The world economic system that operates at today was born with the adoption of the “White Plan” at the Bretton Woods (New Hampshire, USA) conference in July 1944. The International Monetary Fund, The World Bank, and the World Trade organisation grew from The White Plan.

The world was a different place in 1944. World War II was still in progress; Europe was on its knees; governments administered over economies geared solely towards waging war; and the civilian economic concern was survival.

The United States of America was heavily involved in the war effort but maintained an economy not affected by destruction of infrastructure. Not only that, but America was being paid for the armaments it produced and supplied for its allies. In many ways this was a blessing in that the allies in Europe had supplies of armaments that could not be interrupted by the Nazis. But it did give the USA a disproportionate say in economic matters.

Harry Dexter White

The author of the White Plan was Harry Dexter White who was a senior official at the US Treasury at the time of the Bretton Woods Conference. Harry Dexter White had a “colourful” career.

White was the son of Jewish/Lithuanian Catholic immigrants, Joseph Weit and Sarah Magilewski. His surname White was the Americanised version of Weit.

White served in the US army in the Great War before enrolling in university to study economics. Nominally he was a Democrat in the “New Deal” style but was said to be a Stalinist sympathiser.

One of the many things that White was accused of was hiring members of the Communist Party to positions within the Treasury, and of being a member of the Communist Party himself.

More damning are the accusations that he was author of the sanctions and ultimatums that left Japan in the position of commencing war against America or slowly starve to death. On the November 25, 1944, the US Secretary of War, Henry Stimson, is said to have asked “how we should manoeuvre them into the position of firing the first shot”. It was the 10-point ultimatum to Japan largely written by White that provided the answer.

Harry Dexter White was also the originator of the Morgenthau postwar plan that was initially accepted by Roosevelt but withdrawn due to public pressure. The Morgenthau plan was that after the war Germany's industry should be destroyed and Germany would become a purely agricultural economy. In the words of the day Germany should become a “potato patch”. The Morgenthau plan was used by the Nazis as propaganda and is credited with having prolonged the war. This policy was continued undercover.

By late 1946, however, economic hardship and unemployment in Germany were worrying the United States, and former President Herbert Hoover was sent there on a fact-finding mission. Hoover’s third report of March 18, 1947 noted: “There is the illusion that the New Germany left after the annexations can be reduced to a “pastoral state”. It cannot be done unless we exterminate or move 25,000,000 people out of it.” Hoover well understood that an agricultural economy would be able to sustain a much smaller population than an industrialised nation. ("The Marshall Plan at 60: The General’s Successful War On Poverty" By Erik Reinert and Jomo K. S. UN Chronicle.)

In 1947, while being investigated by the House Committee on Un-American Activities on the charge of being a member of the Communist Party, White died of a heart attack. This accusation then escalated to the charge of supplying the printing plates that allowed the Soviets to print American Military Marks (the military occupation currency), thus causing rampant inflation in Germany that cost the USA a quarter of a billion dollars to fix. The accusation was made in 1948; by a defecting Soviet spy Elizabeth Bentley.

White may have been a victim of the “Red under the bed” hysteria created by Nixon/McCarthy that resulted in many innocent lives being destroyed.

The other main character in the story of the Bretton Woods conference is John Maynard Keynes.

John Maynard Keynes

John Maynard Keynes was the son of a Cambridge (UK) economics lecturer, Neville Keynes, and Florence Brown, a successful writer and social reformer. Keynes received an English “upper class” education at Eton, and then Kings College, Cambridge University. Originally Keynes studied mathematics, but swapped to economics.

Keynes’ early adult live is typified by his many homosexual love affairs until he met and married a Russian ballerina, Lydia Lopokova. They remained happily married until his death in 1946.

The first significant event in Keynes' career is his work with the British government at the Treaty of Versailles and his 1922 book that claimed the reparation being paid by Germany was too high.

John Maynard Keynes economic theories from then on established him as a giant in the area economics, and his theories gave rise to a new form of economics know as Keynesian economics, in particular the new field of macro-economics.

He died of a heart attack in 1946. At the time he was trying to negotiate amendments to the Bretton Woods agreement to bring about fairer outcomes for world trade.

Bretton Woods

Keynes contribution to Bretton Woods was a proposal for a central bank with the ability to create money like any other bank and which would oversee the world economy. The World Central Bank would create a world reserve currency called the “Bancor” and all international trade would be conducted in this currency. The most obvious advantage of a world currency is that no one nation would own it.

Within the central banking system there were proposed incentives for nations to avoid imbalances in trade. The system also involved a central clearing house for international trade.

The two factors that seemed to have worked against Keynes proposal was that it was too radical for the times; and the US had all the economic clout and were not about to become one among equals. America owned 75 per cent of the world's existing monetary gold and was by far the world's largest military power. America had become an irresistible force.

The Bretton Woods conference was in reality a sham. It was convened only to ratify negotiations between the USA and Britain that had been going on for two years. Because of world circumstances few countries were able to send proper representation. Many could not speak English, the official language of the conference; and most had not had the opportunity of reading through two years of complex negotiations between Britain and the US.

It is ironic that the original British plan had been developed in 1941 by Keynes as a counter to a monetary “New Order” put out by Germany as their model for the world economy after they had won the war. In the British model the USA was not included until after Pearl Harbour.

There are three initiatives that came out of Bretton Woods that make up the un-holy trinity of world economics, the IMF, the World Bank, and the WTO.

The IMF (International Monetary Fund)

The IMF is a fund designed to stabilise exchange rates and provide a pool from which member countries could borrow. Originally there were 44 member countries; this has increased to 185 today.

There is a system of monetary quotas imposed on IMF members that also relates to the voting rights of member nations. The USA holds 16.97 per cent of the voting power. Japan has 6.02 per cent of the voting power, but various agreements between America and Japan, including America providing a “Nuclear Umbrella” for Japan, make it unlikely that Japan would vote against America. This means the US effectively has 22.99 per cent of the voting power with the remaining nations having 77.01 per cent of the votes split between 183 nations.

Member nations have to provide 25 per cent of their contributions in gold, or a gold backed currency (read US Dollars). This makes the US dollar the de facto world currency. This, together with the US voting block, means that nobody is ever going to win a vote against the US. Effectively the US runs the IMF.

There is also the controversy surrounding the economic support given to dictatorships. Should the IMF be involved with human rights issues? Detractors say it already is, especially if it supports dictatorial regimes which are friendly to US or European corporations. If a country is falling apart economically and it is affecting the bottom line of a US corporation would the US-controlled IMF intervene to save it?

In return for loans, member countries are often forced to make economic adjustments that might increase economic viability but often increase poverty. These issues are generally perceived shortcomings that may or may not be always or sometimes true. The real problem is that there are no transparent systems, checks or balances that ensure that these criticisms are not true.

The IMF does not have any code of economic conduct to go with membership. Thus the US can engage in practices of unbridled greed that back-fire and plunge the world into recession. An effective organisation designed to promote economic stability must have mechanisms to divorce rogue economic behaviour from the well being of the rest of the world.

The World Bank

The World Bank consists of two organisations, the IBRD (International Bank for Reconstruction and Development) and the IDA (International Development Association).

The World Bank came into being as part of the Bretton Woods conference and is supported by member states in the same way the IMF is supported. Originally the IBRD was created to help reconstruction of Europe after World War II. In this it was largely ineffectual because of US policy towards Germany (reducing it to a pastoral economy) that did not allow Germany to trade. There were European countries that produced surpluses that they had to destroy meanwhile Germany suffered from severe deprivations and many died from freezing to death in the harsh European winters.

America changed policy and through the Marshall plan gave help directly to Europe. Thus the IBRD was bypassed and Europe became indebted directly to America. The IBRD then changed its policy to become an institution to aid developing countries fight poverty. Funding is through issuing bonds on international markets, backed by the guarantee of member nations. All loans require a sovereign state guarantee.

The issues surrounding the IBRD are much the same as the IMF: voting powers, transparency and the self interest of member nations.

The IDA grew out of the IBRD. The IBRD lends to “middle class” countries while the IDA gives interest free loans to the very poor. Criticisms include a perceived improper use of funding; a voting structure dominated by the US; and the policy of promoting free trade that is often seen as detrimental to the country receiving the loan.

There is a larger group called the World Banking Group that includes the IFC (International Finance Corporation), the MIGA (Multilateral Investment Guarantee Agency and the ICSID (International Centre for Settlement of Investment Disputes). These are later “add-ons” and not part of Bretton Woods.

WTO (World Trade Organization)

The WTO is an organisation of member states primarily aimed at removing trade barriers by negotiation. It has a set up similar to the IMF and World Bank in that member nations vote according to contributions. The WTO grew out of GATT (General Agreement of Tariffs and Trade) which was the entity that grew from of the Bretton Woods conference. GATT deals with goods and produce, while the WTO deals with services and intellectual property.

The overriding criticism of WTO (with GATT) is that they promote free trade and that favours the powerful over the weak. The rich get richer and the poor get poorer.

Conclusion

The underlying issue is the White Plan signed at Bretton Fields in 1944. This agreement set up the IMF and effectively gave the management of the world economy to the United States of America by making the US dollar the world currency.

As a result of this countries who are signatories to the White Plan are at the mercy of American greed and mismanagement. America messes up and the world pays. It is time to pull out of the White plan and start again with a new world economic system that allows countries to take responsibility for their own affairs and that does not tie the world to the USA.

Globalisation is not, then, the real problem. The real problem is the form globalisation has taken since Bretton Woods. If the IMF, the World Bank and the WTO had any relevance at the time of Bretton Woods that time has long since past. The world has change out of all recognition since then. We need new world institutions based on equality to fit the needs of today's world. Hopefully these will be institutions that have the ability to change and evolve as the world changes and evolves.