Category Archives: States and Institutions

BRETTON WOODS SYSTEM

Posted on by

Tomas Ocampo
Department of Politics, University of California, Santa Cruz

The major financial institutions that guide international monetary and economic policy today were established following the 1944 United Nations Monetary and Financial Conference (more commonly known as the Bretton Woods Conference) in Bretton Woods, New Hampshire. This includes the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which is now known as the World Bank (WB) Group. The Bretton Woods System largely refers to these institutions and the agreements made at the conference that established the framework for the world economy after World War II. The main concerns of the conference included reducing trade barriers like tariffs, maintaining exchange rates, providing financial assistance to countries to fix deficits in their balance of payments, and providing financial assistance to rebuild nations ravaged during the war. 

However, the Bretton Woods System can also be understood as the framework for the international capitalist economic order that governs the global economy, despite the Bretton Woods System’s decline following the US move to end the dollar’s convertibility to gold in 1971. The negotiations of the Bretton Woods agreement demonstrates that the US and UK were the primary conductors of the conference, having started drafting plans years prior to the 1944 gathering (US Department of State). However, they also had the most influence at the negotiations, possessing larger economic weight than the rest of the attendants since many of the other European countries present had governments in exile and/or relied on the US for financial assistance (Mikesell 1994, 3). As Panitch and Gindin (2012) argue, while Britain was not able to achieve “the creation of stable conditions for globalized capital accumulation,” the US now had through its role as an informal empire (7-8). It is important to understand that the Bretton Woods System then, and by extension the international finance system today, was orchestrated by the US (and Western industrialized countries) to secure the conditions for capitalism to flourish globally.

The foundation for Bretton Woods was set by proposals by two key economists, John Maynard Keynes, who attended on behalf of the UK, and Harry Dexter White, a US Treasury Department official (Mikesell, 2). However, the Bretton Woods System largely reflected White’s proposal, which sought to do several things, including: securing currency convertibility and exchange rate stability; addressing the deflationary implications of balance-of-payments deficits; and providing capital to reconstruct the European economies (Panitch and Gindin, 75). The goal was to create a framework for “a high degree of coordination and collaboration among the nations in economic fields hitherto held too sacrosanct for multilateral sovereignty” (75). Panitch and Gindin argue that this constituted a way to bind states to a “new rule of law in the international economy” while recognizing “multilateral sovereignty” under a new American empire (75-76). This is evident in the way the IMF and World Bank would be governed, with each member afforded votes in decision-making equal to the size of the gold, national currency, and government securities each possessed, which gave the US essentially a veto on most decisions. As such, the Bretton Woods System comprises the legal structure, or rule of law, of the global economy set by the capitalist states and enforced by the US (informal) empire.

The development of the IMF and World Bank in particular encapsulated this process of creating an international capitalist economic order under American empire. While the IMF was tasked with overseeing the international monetary system, the World Bank (initially IBRD) was tasked with financing the reconstruction of the war-torn countries of Europe. The IMF’s Articles of Agreement clearly outline its role:

To facilitate the expansion and balanced growth of international trade, and to continue thereby to the promotion and maintenance of high levels of employment and real income, and to the development of the productive resources of all members as primary objectives of economic policy; to assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. (IMF 1944, 2)

The US Treasury department played a significant role in developing the IMF, despite the protests of Wall Street banks and private investors (Panitch and Gindin, 78). The goal was to make it work to stabilize prices and safeguard international trade for capital, rather than address full employment or implement other Keynesian economic goals. One instrument that typified the IMF’s role in maintaining trade safe for capital was Structural Adjustment Programs (SAPs). While setting conditions for receiving aid or loans was debated at Bretton Woods and subsequent conferences, there was agreement that recipients of aid had to meet certain criteria to ensure they could pay back that money. As such, SAPs were conditions set for recipients to receive IMF money that reshaped their domestic economic and social policy, ensuring their internal market would become amenable to private investment and not renege on repayment. These conditions included tax reforms, privatization of public services, deregulation of industries, cuts on social welfare spending and reprioritization for business and corporate development, and trade liberalization. SAPs would come to be criticized by many recipients and countries in the Global South, and a number of reforms implemented in the 2000s, but they would also come to be utilized less after the 1990s (Ocampo 2017). Nevertheless, the conditions set by the IMF for recipients to receive loans underscore the influence of the international system on reshaping countries’ domestic policy to further trade liberalization and safeguard investment and capital.

Established in 1944 as the IBRD, the World Bank Group today consists of the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes (ICSID). Among its principal tasks, the World Bank “provides financing, policy advice, and technical assistance to governments, and also focuses on strengthening the private sector in developing countries” (The World Bank). However, Panitch and Gindin (2012) see the lending role of the WB as a secondary goal; the larger role was encouraging “private capital to go abroad for productive investments by sharing the risks of private investors” (75). This is compounded by the WB’s mandate, which changed to include “development” in its purpose, not just the reconstruction of European economies in the post WWII economy. This particular goal is clear and was outlined in a 1964 IBRD report that included the IFC’s work in financing to create or expand the number of private companies engaged in manufacturing, strengthening private companies to finance or assist the development of industry, and recruiting international capital to stimulate private investment (International Bank for Reconstruction and Development, 126-127). The WB served as an instrument to arrange and guarantee loans to “developing” countries, or to secure the ability for international capital to make inroads in what were considered “underdeveloped” regions of the world. Today however, the WB has changed its language to frame its work as assisting developing countries “reduce poverty and increase shared prosperity” (The World Bank). Yet, its legacy as an instrument for the investment of private capital and its role in upholding the global capitalist economic order is still evident today.

Overall, the Bretton Woods System was central in shaping the international economic system that furthered global capitalism. Additionally, the proliferation of loans made to developing countries during the late 20th century, via private banks and the IMF/World Bank, has resulted in many carrying high internal debt that they are not able to pay back. The Bretton Woods System never developed a sound framework to work out or restructure debt, nor ensure that countries receive equitable treatment in the process (Ocampo 2017, 166). However, since the decline of Bretton Woods, restructuring debt and resolving sovereign debt crises have become regular topics of discussion among the international finance institutions and at the United Nations. In 1996, the IMF and World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative to assist in alleviating the debt burden developing countries faced (IMF). This was followed up in 2005 with the Multilateral Debt Relief Initiative and in 2012 with extending zero interest loans to poor countries. However, much of this debt relief is only provided if those countries meet certain criteria set by the IMF including economic reforms and adopting a Poverty Reduction Strategy, which harkens back to the stipulations that countries had to follow under SAPs. The debt that many developing countries (i.e., the Global South) hold and the international finance system’s inability (or reluctance) to restructure or absolve that debt constitutes what some consider neocolonialism, given that the economies of these countries are subject to control by international financial institutions created by the Western “developed” countries to uphold global capitalism.

(See Crisis, Europe, Fossil Fuels, Geopolitics, Monetarism, Price System)

Bibliography

Panitch, Leo and Sam Gindin. The Making of Global Capitalism: The Political Economy of American Empire. New York: Verso,  2012.

Ocampo, Jose Antonio. Resetting the International Monetary System. Oxford: Oxford University Press,  2017.

International Bank for Reconstruction and Development. “Annual Report of the International Bank and the International Development Association.” International Organization, 19 (1): 122-129. 1965. Retrieved from: https://www.cambridge.org/core/journals/international-organization/article/international-bank-for-reconstruction-and-development/55CFBF300DB1384B6B6D371B96CCA266

Mikesell, Raymond. “The Bretton Woods Debates: A Memoir.” International Finance Section. Princeton: Princeton University, 1994. Retrieved from: https://ies.princeton.edu/pdf/E192.pdf

United States Department of State. “The Bretton Woods Conference, 1944.” US Department of State Archive, January 20, 2001-January 20, 2009. Retrieved from: https://2001-2009.state.gov/r/pa/ho/time/wwii/98681.htm

The International Monetary Fund. “Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative.” IMF Factsheet, March 23, 2021. Retrieved from: https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/11/Debt-Relief-Under-the-Heavily-Indebted-Poor-Countries-Initiative

The International Monetary Fund. “IMF Survey: IMF Extends Zero Interest Rates on Poorer-country Loans.” IMF News, December 21, 2012. Retrieved from: https://www.imf.org/en/News/Articles/2015/09/28/04/53/sonew122112b

The International Monetary Fund. Articles of Agreement of the International Monetary Fund. July 22, 1944. Retrieved from: https://www.imf.org/external/pubs/ft/aa/index.htm

The World Bank. “History.” The World Bank: Who We Are. Retrieved from: https://www.worldbank.org/en/about/history

The World Bank. “The World Bank Group and the International Monetary Fund.” The World Bank: Who We Are. Retrieved from: https://www.worldbank.org/en/about/history/the-world-bank-group-and-the-imf

ORDOLIBERALISM

Posted on by

Tamara Ortega-Uribe
Department of Politics, University of California, Santa Cruz
Boyeong Kim
Department of Latin American and Latino Studies, University of California, Santa Cruz

Ordoliberalism, like neoliberalism, is a body of thought and a mode of governance. The idea began to germinate with the debates of the Freiburg School founded in the 1930s at the University of Freiburg and further developed through the journal Ordo (the Ordo Yearbook of Economic and Social Order) established in 1948. Although its origin can be traced back to post-WWII Germany as a specific European social market economy (Foucault 1979; Leiva 2021), ordoliberalism is more than a part of the German economic history (Beck and Kotz 2017; Horn 2021; Havertz 2019) that is still being witnessed in the current ordoliberalization of Europe (Biebricher 2019), or even globally, with what Slobodian (2018) has called ordoglobalism. Contemporarily, ordoliberalism has gained attention especially in its relationship with neoliberalism, for similarly going beyond the classical liberalism of the nineteenth century by seeking to create a new institutional framework to make free markets work. Whether it is a variant of neoliberalism (Brown 2019; Biebricher 2019; Slobodian 2018) or not (Jessop 2019), for both bodies of thought it is important that juridico-political institutions create space for the economy. Despite the striking commonalities, mixtures and overlaps between ordoliberalism and neoliberalism addressed in recent works (Slobodian 2018; Biebricher 2019), in this definition we focus on distinctive features of ordoliberalism.

In his 1978-79 lectures at the Collège de France, Foucault identifies two streams of ideas that have provided a basis to contemporary neoliberalism: German ordoliberalism (1948-1962) and the Chicago school of economics (1970s/80s). The question that the liberal thinkers of ordoliberalism (or the Freiburg school) such as W. Eucken, F. Böhm, A. Muller-Armck, and F. von Hayek strived to answer was “how to link together the legitimacy of a state and the freedom of economic partners, while accepting that the second must found the first, or serve as its guarantee” (Foucault 2011, 105). The idea of ordoliberalism diverts from eighteenth century liberalism inasmuch as its main concern has not been about freeing the market but about how the market could be a guiding principle of state and social organization. An important mutation of ordoliberalism from the traditional liberal projects is that while the latter saw that the market principally serves as a space of exchange, ordoliberals has emphasized competition as the essence of the market, which has been a “historical objective of governmental art and not a naturally given” (Foucault 2011, 120). The free market is never something that naturally occurs, ordoliberals argued, rather it has to be actively produced, revealing laissez-faire as nothing but a naïve dream.

Ordoliberalism aims for a strong state based on an ethical and juridical-political order to ensure that competition happens smoothly in a capitalist, free market society. The Freiburg School used the word “ordo” as a reference to medieval theology (Slobodian 2018), in which the idea of “functional and humane order” (Horn 2021) as a mode of social organization was emphasized as more than merely a mode of configuration for market exchange. Thus, the ordoliberal mode of social organization involves ethico-political commitments and a specific legal order (Jessop 2019) that Eucken and Böhm called an “economic constitution” to be the central task of the ordoliberal project (Miettinen 2020). That the economic constitution does not refer to a literal legal document, but a desired legal order (Slobodian 2018), implies a certain image of a moral economy where the legal and ethical rules protect the political order and free competition from unhinged personal interests within market activities (Jessop 2019). To that end, ordoliberalism assumes that the state plays an important role in securing economic order, ensuring the competition of a free-market society and avoiding the possibility that economic forces increase their power in society (Yergin and Stanislaw 1998; Vatiero 2010). Thus, ordoliberals argued that a “strong state, a government with the courage to govern” must be created  (Röpke 1950 as cited in Biebricher 2019, 72).

The epistemological and political drives that were at the center of ordoliberalism are related to historical events alongside the crisis of liberal thought at the beginning of the twentieth century. After examining different political regimes and their economic programs such as Nazism, England’s the Beveridge Plan in the UK, the Soviet Union’s planned economy, and the American New Deal, the liberals of the Freiburg school concluded that state intervention that resulted in destructive effects, while the market economy itself had no intrinsic defects. Therefore, they proposed a reversal: “a state under the supervision of the market rather than a market supervised by the state” (Foucault 2011, 116). The correct form of (strong) state intervention, guided by the market, would be the key to overcoming the crisis of liberalism.

As Foucault (2011) referred to this historical period as a field of adversity that ordoliberals sought to address, Biebricher (2019) similarly contends that ordoliberalism, like neoliberalism, was a reaction to the crisis of liberalism, where the main problem was political rather than economic. The crisis of liberalism during the first half of the twentieth century was related to the fact that individual freedom and the freedom of the market were challenged by state power and economic institutions (Vatiero 2010; Biebricher 2019).

As a result, ordoliberals sought to reduce the political and economic power of states, thus expanding the notion of liberalism, while simultaneously re-embedding the economy in society, and challenging the myth of laissez-faire and market fundamentalism attributed by Polanyi (Slobodian 2018). Ordoliberals believed that liberal economy is not a spontaneous reality or a natural result of laissez-faire; market freedom needs an economic order provided by the state (Horn 2021). In this sense, ordoliberals took a moderate position by rejecting classical laissez-faire liberalism (Boas and Gans-Morse 2009). Indeed, Hayek, who is considered an ordoliberal, referred to laissez-faire as one of the mistakes and aberrations that cause harm to the liberal cause (Biebricher 2019).

While ordoliberals of the Freiburg School tried to redefine economic rationality, the Chicago School’s attempt was more radical: they attempted to exert economic rationality into every inch of human life. The reorganization of society under the principle of “competition” and “entrepreneurship” led to a new governmental mechanism that differed from modern disciplinary power and created a new subject, an ‘entrepreneur of self’ that voluntarily invests themselves, manages their own risks, and internalizes market principles and desires. Some scholars have pointed out that although ordoliberalism is seen with negative connotations related to neoliberalism, ordoliberalism comes in a number of varieties, and it seeks a strong state to contain the power of the market, making a good contrast to the Chicago School of liberalism (Beck and Kotz 2017). Others claim that Eucken’s competitive order is a good way to reach (social) justice (Wörsdörfer 2013). Still others present more complicated pictures. For example, recent work reveals how the ordo-neoliberal version of social market economy carried out in Chile resulted in an interventionist state which watched over the economic order of market competition, and commodified and financialized social rights (Leiva 2021). Hence, concerns about alleged self-regulating markets and new types of political endeavors are notable in current political debates. If the early twentieth century was the end of the liberal era (Slobodian 2018), the twentieth first century could be the beginning of a post ordoliberal/neoliberal era, or as Biebricher (2019) has pointed out, the beginning of an authoritarian liberalism. Regardless, the theory and practice of ordoliberalism remains important in contemporary political economy.

(See Accumulation, Capital, Varieties of Capitalism, Variegated Neoliberalism, Neoliberalism)

Bibliography

Beck, Thorsten, and Hans-Helmut Kotz. Ordoliberalism: A German Odddity? CEPR Press, 2017. 

Biebricher, Thomas. The Political Theory of Neoliberalism. Stanford University Press, 2019. 

Boas, Taylor C., and Jordan Gans-Morse. “Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan.” Studies in Comparative International Development 44, no. 2 (2009): 137–61. https://doi.org/10.1007/s12116-009-9040-5. 

Brown, Wendy. In the Ruins of Neoliberalism: The Rise of Antidemocratic Politics in the West. Columbia University Press, 2019.

Foucault, Michel. The Birth of Biopolitics Lectures at the College De France, 1978-1979. New York: Palgrave Macmillan, 2011.

Havertz, Ralf. “Right-Wing Populism and Neoliberalism in Germany: The AFD’s Embrace of Ordoliberalism.” New Political Economy 24, no. 3 (2018): 385–403.
 https://doi.org/10.1080/13563467.2018.1484715. 

Horn, K. “Ordoliberalism: Neither Exclusively German nor an Oddity. A Review Essay of Malte Dold’s and Tim Krieger’s Ordoliberalism and European Economic Policy: Between Realpolitik and Economic Utopia.” The Review of Austrian Economics, 2021.
 https://doi.org/10.1007/s11138-020-00536-3. 

Jessop, Bob. “Ordoliberalism and Neoliberalization: Governing through Order or Disorder.” Critical Sociology 45, no. 7-8 (2019): 967–81. https://doi.org/10.1177/0896920519834068.

Leiva, Fernando. The Left Hand of Capital: Neoliberalism and the Left in Chile. SUNY Press, 2021. 

Miettinen, Timo. “Ordoliberalism and the Rethinking of Liberal Rationality.” Political Economy and International Order in Interwar Europe, 2020, 269–95.
 https://doi.org/10.1007/978-3-030-47102-6_10. 

Slobodian, Quinn. Globalists: The End of Empire and the Birth of Neoliberalism. Cambridge, MA: Harvard University Press, 2018. 

Vatiero, Massimiliano. “The Ordoliberal Notion of Market Power: An Institutionalist Reassessment.” European Competition Journal 6, no. 3 (2010): 689–707. https://doi.org/10.5235/ecj.v6n3.689.

Wörsdörfer, Manuel. “Von Hayek and Ordoliberalism on Justice.” Journal of the History of Economic Thought 35, no. 3 (2013): 291–317. https://doi.org/10.1017/s1053837213000199.

Yergin, Daniel and Joseph Stanislaw. “Ordoliberals.” Adapted from Commanding Heights. 1998. https://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_ordoliberals.html