The international development of bretton woods: north-south dialogue in the making of the postwar order



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*** DRAFT ***



THE INTERNATIONAL DEVELOPMENT OF BRETTON WOODS:
NORTH-SOUTH DIALOGUE IN THE MAKING OF THE POSTWAR ORDER

Eric Helleiner

Faculty of Arts Chair in International Political Economy

Department of Political Science

University of Waterloo

ehellein@uwaterloo.ca



Comments welcome – do not quote without permission of author.

[please note: this paper is a draft introductory chapter to a book manuscript of the same title. It provides an overview of arguments that draw on extensive archival research. The detailed evidence to support the arguments summarized below is included in the subsequent chapters.]

CHAPTER 1: INTRODUCTION

The 1944 Bretton Woods conference is justly famous for creating the foundation of the postwar international financial system. The Bretton Woods negotiators established a new multilateral legal framework for financial relations as well as two institutions - the International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD) – that remain, albeit in altered forms, at the centre of global financial governance today. These arrangements were underpinned by an innovative “embedded liberal” vision that sought to reconcile a commitment to liberal multilateralism with new interventionist economic practices that had become influential across the world during the 1930s.1



The Bretton Woods conference has also attracted many critics over the years. One of the most consistent criticisms concerns its treatment of international development issues. The Bretton Woods agreements are commonly portrayed as a product of Anglo-American negotiations between 1942 and 1944 in which little attention was paid to the concerns of poorer - or “Southern” – countries.2 This historical narrative has reinforced arguments that the Bretton Woods system has long privileged the narrow interests and perspectives of Northern countries over those of the Southern countries.
This book offers a very different interpretation of the origins and content of the agreements reached at the 1944 conference held at the Mount Washington Hotel in Bretton Woods, New Hamsphire. It shows how international development goals – that is, those aiming to provide official international support for the economic development of Southern countries3 - were in fact quite central to the birth of the original embedded liberal vision and were widely discussed during the negotiations that led up to the 1944 Bretton Woods agreements. These discussions generated many innovative proposals to create a more “development-friendly” international financial order than had existed in the past. Not all of these proposals found their way into the final Bretton Woods agreements, but some important ones did. Far from neglecting international development goals, the Bretton Woods negotiations should be recognized for their pioneering role in successfully incorporating these goals into the multilateral political landscape for the first time.
Furthermore, this book highlights how officials from Southern countries played a much more significant role in shaping and supporting the Bretton Woods outcomes than conventional wisdom suggests. Particularly important were Latin American policymakers who worked closely with US officials from the late 1930s onwards – well before the Anglo-American negotiations of 1942-44 began – to build a new pattern of international financial relations that was supportive of their development aspirations. The policy innovations that arose from this US-Latin American financial partnership served as a key foundation for the Bretton Woods negotiations. In addition to the Latin American role, officials and thinkers from other poorer parts of the world – especially China, India, and Eastern Europe – also strongly backed the development content of Bretton Woods. The Bretton Woods negotiations were thus much more than just an Anglo-American affair. They included a rather extensive “North-South dialogue” which was in fact the first of its kind to shape the global financial order.
This book thus offers a major reinterpretation of the genesis of the Bretton Woods system. Its unconventional history resurrects both the neglected development content and the overlooked North-South dimensions of the Bretton Woods negotiations. In so doing, it shows how the content of Bretton Woods was informed by a much wider political context than the Anglo-American world as well as a longer history than the much-studied 1942-44 negotiations. The analysis also highlights how the ideology of “embedded liberalism” had a much wider meaning from the start - one that was fully inclusive of international development goals - than has been recognized in existing literature.
Why has this history been neglected? Perhaps because key aspects of the development content of the Bretton Woods negotiations were quickly set aside by Northern powers after the war for a number of political reasons that are analyzed at the end of this book. This turn of events set the stage for Southern countries to see the Bretton Woods order as a Northern-dominated arrangement that was ill-suited to their development needs. By the 1970s, their dissatisfaction had escalated into widespread calls for a New International Economic Order (NIEO) to reform the Bretton Woods system in a more development-oriented direction. These demands were largely resisted at the time by Northern powers whose policymakers saw them as too radical a challenge to the Bretton Woods vision. In the charged political context of the 1970s, both supporters and critics of the NIEO overlooked the fact that much of the NIEO package simply resurrected objectives, and even some specific proposals, that had found widespread international support at the time that the Bretton Woods order was negotiated.
If the excavation of this history might have been useful to participants in the NIEO debates, it is also relevant to the current moment. We are living in an era when the North-South dimensions of the global financial system are once again very politically contentious. Policymakers and analysts from increasingly powerful “emerging economies” are demanding better representation in global financial governance as well as specific reforms to the global financial system to better support their development goals. This book provides a reminder that efforts to create a more development-friendly global financial system reinforce the original Bretton Woods vision rather than challenge it. Indeed, policymakers from countries such as Brazil, China, India and Mexico today are following in the footsteps of their predecessors who participated actively in shaping and supporting the original development content of Bretton Woods.
In addition to contributing to debates about the history and trajectory of the Bretton Woods system, the book’s historical findings also new light on current scholarly debates about the history and meaning of international development. Since the end of the Cold War, scholars have becoming increasingly interested in historicizing international development. Within the literature on this topic, it has become commonplace to read – particularly in analyses from a “post-development” school - that international development was born out of US President Truman’s 1949 inauguration speech and the early Cold War priorities of Western policymakers.4 This historical narrative is used to support a broader critique that international development has been, from its very origins, a top-down neo-imperialist political project designed primarily to serve the economic and strategic interests of powerful capitalist states.
While scepticism of the post-1949 international development experience may be justified, this critique rests on a deeply flawed history of the origins of international development. International development was not invented by the Truman administration. It emerged as a prominent feature of international politics well before the Cold War in the context of the US-Latin American financial partnership in the late 1930s/early 1940s and the subsequent Bretton Woods negotiations.5 Moreover, much of the push for international development in this period came from Southern officials and analysts, and many of the pioneers of international development in this period (including those from the US) saw its content differently than Truman and his advisors. The politics of the birth of international development, in other words, is much more complicated than some “post-development” scholarship suggests. From its very outset, international development has had a much more pluralist meaning than that scholarship suggests.
Common Views of Bretton Woods
Before outlining the details of the book’s arguments, it is worth reviewing some of the common views about the role of international development and Southern countries in the Bretton Woods negotiations.6 Typical of the conventional wisdom are the comments of Richard Gardner, one of the leading scholars of the origins of the 1944 agreements. He argues the Bretton Woods negotiations were dominated by a “sterling-dollar diplomacy” between US and British officials in which the question of how to assist the development of poorer countries “was not recognized as a major issue in the postwar planning”.7 His more specific discussion of the creation of the IMF reinforces this point: “the delegates at Bretton Woods gave little thought to the Fund’s potential impact on the less-developed countries”.8 Gardner even downplays the significance of the creation of the International Bank for Reconstruction and Development at the conference:

“There was simply no conception of the vast needs of the less developed countries and of the role the Bank should play in meeting them. Indeed, the Bank was conceived mainly as an institution for reconstruction. Incredible as it seems today, the word 'development' did not even appear in Harry White's first draft circulated within the US Treasury Department.”9


Gardner’s view of the Bank’s original purpose is shared by others. For example, in a prominent book analyzing the Bretton Woods institutions, geographer Richard Peet argues:

“The IBRD was a mere afterthought. What little exchange there was concerning the IBRD centred on its possible role in the post-war reconstruction of Europe. On the few occasions that poor countries were – briefly – mentioned, issues such as poverty never came up. Indeed, such were the preoccupations of the Europeans and Americans at the time that labels such as ‘poor countries’, or the more critical term ‘underdeveloped countries’, did not exist as functional geographical categories - countries outside Europe and North America were referred to as ‘the colonies’.”10


The most recent official history of the Bank comes to a similar conclusion about the Bank’s intended role. Echoing Gardner, the authors of this history argue that the first US draft of the Bank written in early 1942 by Harry Dexter White “made no mention of development”.11 They argue that, in the subsequent international negotiations leading up to the Bretton Woods conference, the Bank also received much less attention than the Fund and that as late as May 1944 the British “had expressed no interest in what thus far was an entirely American idea”.12 When Britain’s lead negotiator, John Maynard Keynes, finally became more interested in the Bank, these authors argue it was only because he saw it as a potential source of funding for the UK and that he downplayed its development role. They conclude that “development arrived almost by accident and played a bit role at Bretton Woods”.13 Like many others, they argue that it was not until the late 1940s that a serious interest in international development emerged.14
Existing scholarship has also often downplayed the role of poorer countries in the creation of the Bretton Woods system. For example, here is how economist Gerald Meier, a leading authority in the history of development thinking, describes the Bretton Woods conference: “Most of the developing countries were still colonies, and only a relatively few, mainly independent nations of Latin America, were invited. The political power lay with the United States and Britain, and from the outset it was apparent that issues of development were not to be on the Bretton Woods agenda”.15 Like many other scholars, he also cites a comment from Keynes before the conference in which he dismissed the potential significance of many poorer countries invited to the conference, arguing that they “clearly have nothing to contribute and will merely encumber the ground… The most monstrous monkey-house assembled for years.”16
Meier also argues that poorer countries themselves did not press for development issues to be included on the Bretton Woods plans: “At Bretton Woods, the developing countries tended to view themselves more as new, raw-material-producing nations and less as countries with general development problems. Comprehensive strategies of development and policies to accelerate national development were yet to be identified”.17 In Meier’s view, it was thus not only American and British officials who “were not directly interested” in development during the negotiations. As he puts it, “even most of the representatives of LDCs seemed unconcerned”.18
The role and significance of poorer countries is also minimized by John and Richard Toye in their important contribution to the UN Intellectual History project. They argue that “close cooperation between the British and American delegations” at the conference “helped ensure that the voices of developing countries were drowned out”.19 When discussing the US and British plans, Toye and Toye also argue that “there was no apparent recognition that the interests of countries participating in the proposed multilateral regime might differ – there were no special concessions to countries with less-developed economies”.20 This latter argument is echoed by Edward Mason and Robert Asher in their detailed history of the World Bank:

“insofar as the Bretton Woods delegates considered the question specifically, they saw no reason to distinguish between those policies relating to trade, payments, and capital flows that were considered to be favourable to the growth and prosperity of the developed countries of the world from those favourable to less developed countries. In fact, the distinction between developed and less developed and between North and South – the special problems of the ‘third world’ – had scarcely swum into the ken of postwar planners.”21


Historians who have written the most detailed descriptive accounts of the overall Bretton Woods negotiations have identified some of the specific ways in which Southern countries contributed to the discussions. In these accounts, however, the main focus of analysis is still on the industrial countries and especially the Anglo-American relationship.22 This orientation is also apparent in John K. Horsefield’s important documentary volume that reproduces the original Bretton Woods plans of the US, British, Canadian and French governments while neglecting to include that developed by the Chinese government.23 A widely-read 1993 historical volume titled A Retrospective on the Bretton Woods System also says little about the role of Southern countries in the creation of Bretton Woods. As one of its editors, Michael Bordo, puts it in his introductory chapter, one of the important remaining questions to be addressed by historians is “how did the nonindustrialized world relate to the Bretton Woods system?”24
From political science, John Ruggie’s seminal analysis of the significance of the ideology of “embedded liberalism” – a term he first coined - also devotes little attention to the development content of the Bretton Woods negotiations. Ruggie highlights how American and British negotiators set out to build a multilateral financial order that, unlike the gold standard, “would be predicated upon domestic interventionism”.25 Under this “compromise” of embedded liberalism, countries would commit to stable exchange rates and current account convertibility at the same time that their domestic economies would be cushioned “against the strictures of the balance of payments” by multilateral rules allowing adjustable exchange rates and capital controls as well as by the IMF’s provision of short-term balance of payments support.26 But the “domestic interventionism” Ruggie has in mind was a kind developed by industrialized countries. As he puts it, the ideology of embedded liberalism was informed by a “shared legitimacy of a set of social objectives to which the industrial world had moved”, objectives that were focused on full employment and the provision of social security.27 No mention is made of the new interventionist practices emerging in poorer countries at this time that were aimed at promoting economic development. Indeed, Ruggie argues that “the compromise of embedded liberalism has never been fully extended to the developing countries.”28
Much recent scholarship exploring the origins of international development has also overlooked the importance of development issues in the Bretton Woods negotiations. As noted above, this analysis often focuses on the importance of Truman’s January 1949 inauguration speech in which he declared that “we must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas”.29 For many post-development scholars inspired by discourse analysis, this speech changed world history by inventing, or at least popularizing, the term “underdeveloped”. The term is said to have justified post-colonial Western intervention into, and domination over, poorer countries by suggesting that these countries needed external help to promote “development”.30 As Gustavo Esteva puts it, “Underdevelopment began, then, on January 20, 1949. On that day, two billion people became underdeveloped”.31
Arturo Escobar argues that the US promoted this concept at the time as a response to anti-colonial struggles and Latin American nationalism, as well as the need for new markets and strategic priorities in the new Cold War. Inspired by the promise of science and technology and recent experience with public intervention in their own economies, US and other Northern officials backed a new commitment to international development involving “a top-down, ethnocentric, and technocratic approach” in which development professionals “sought to devise mechanisms and procedures to make societies fit a preexisting model that embodied the structures and functions of modernity”.32 The result, argues Escobar, was a “nightmare” in which “the discourse and strategy of development produced its opposite: massive underdevelopment and impoverishment, untold exploitation and oppression”.33
Some scholars who stress the importance of the Truman speech in inventing international development acknowledge that there were precursors. For example, Esteva argues that the term “underdevelopment” was probably “invented” in 1942 by a former ILO official Wilfred Benson. But he suggests that “the expression found no further echo, neither with the public nor with the experts” until Truman’s speech.34 Another important scholar working in this tradition, Gilbert Rist, also notes briefly how the League of Nations showed some limited interest in international development, but his historical narrative jumps from this episode to Truman’s speech which he states truly “inaugurated the ‘development age’”.35 Escobar (who argues that the term underdevelopment “did not exist before 1945”36) also shows some awareness of two phenomena that are at the core of this book’s analysis: the Roosevelt Administration’s Good Neighbor policy and Latin American development aspirations during the 1930s and 1940s.37 But he overlooks their significance to the origins of international development by neglecting their role in the US-Latin American financial partnership of the late 1930s/early 1940s and the Bretton Woods negotiations.
A Different Perspective
This book provides a rather different perspective on the origins and content of the Bretton Woods system. Its findings diverge from the conventional wisdom on three issues: the degree of US and other Northern support for international development, the role of Southern countries, and the origins of international development.
American and Other Northern Support for International Development
To begin with, this book shows that US negotiators saw international development as a priority issue on the agenda of postwar international financial planning throughout the Bretton Woods negotiations. Despite claims to the contrary, archival evidence shows that White’s earliest drafts of the IBRD did assign it a mandate to promote “development” (he uses the term). The Bank was in fact never seen by US officials as an institution exclusively, or even mainly, focused on postwar reconstruction of Europe. American policymakers also did not view the IBRD as an afterthought. While it is true that more time was devoted to the Fund during the Bretton Woods negotiations, the Bank’s creation was always seen by American officials as a crucial complement to the Fund in postwar international financial planning.
More generally, far from ignoring international development, White’s early postwar plans were in fact particularly ambitious in this area. Anticipating some of the NIEO agenda in the 1970s, White outlined innovative provisions for international development finance, debt restructuring, commodity price stabilization, the control of capital flight, and support for infant-industry trade protection in developing countries. 38 Although not all of White’s proposals found their way into the final Bretton Woods agreements, his commitment to international development was widely shared in the US government throughout the 1942-44 period. So too was his commitment to what Toye and Toye call “procedural multilateralism” which provided many poorer countries with a formal role in the negotiation of the Bretton Woods order and in its subsequent administration.39
The origins of White’s initial plans have sometimes puzzled scholars.40 Drawing on extensive archival research, this book demonstrates that these proposals built directly on a number of initiatives that he and other US officials had launched in the late 1930s to support Latin American development ambitions. These initiatives were part of Roosevelt’s broader Good Neighbor policy towards the region and they even included in 1939-40 the negotiation of a multilateral lending institution – the Inter-American Bank (IAB) – whose core mandate was to promote “development” (again, the term was used) in the region and whose features anticipated many of those of the IMF and IBRD. The content of White’s initial plans is much more understandable when seen in the light of these inter-American initiatives. They pioneered not just the development provisions of White’s initial proposals but also the broader embedded liberal vision of Bretton Woods.
Keynes is often seen as the pioneer of that vision because he developed his first postwar plan before White in 1941 and because of his broader intellectual stature at the time. Rather than “catching up” to Keynes, however, White and other US officials were far ahead of him in mapping out an international financial order based on embedded liberal principles.41 They had been developing, and even implementing, this vision in the inter-American context for several years before the postwar planning process began. US-Latin American financial relations in the late 1930s/early 1940s, in other words, served as a crucial incubator for the Bretton Woods proposals - and international development issues were at the core of those relations.
It is also important to recognize that US policymakers saw the ideology of embedded liberalism as having both a Northern and Southern side. As noted above, this ideology sought to reconcile liberal multilateralism with new kinds of interventionist economic practices that had become increasingly popular at the domestic level during the 1930s. But the kinds of interventionism emerging from the experience of the Great Depression differed in Northern and Southern countries. In the North, supporters of embedded liberalism sought to reconcile liberal multilateralism with new commitments to social security and Keynesian full employment policies. But US officials also were determined to marry liberal multilateralism with the new interventionist development policies that had become influential across Latin America and many other poorer regions of the world during the 1930s. As noted below, these policies were more focused on promoting rising living standards, rapid economic growth and latecomer industrialization than the welfare state and full employment. For the Southern advocates of those policies, nineteenth century economic nationalists such as Frederich List were more of an inspiration than William Beveridge and Keynes.
US officials worked actively to accommodate these distinctive interests of Southern countries in the postwar planning process. The embedded liberal vision was thus aimed at pioneering a new model for both North–North and North–South financial relations. US support for the IBRD’s provision of international development loans was one way in which the distinctive needs of Southern countries was recognized. But US officials also saw the design of the IMF through a “development” lens. The Fund’s provision of short-term balance of payments finance was seen as particularly useful for commodity exporting countries that were vulnerable to commodity price swings. The Fund’s endorsement of adjustable exchange rates and capital controls was also viewed as particularly useful for Southern governments seeking to bolster their capacity to promote their country’s rapid economic development.
Indeed, at the same time that they were negotiating the Fund’s creation, US officials pioneered a new kind of financial advisory mission that was explicitly designed to strengthen this capacity by supporting wide-ranging domestic monetary and financial reforms in Southern countries. The first two missions of this kind were led by White to Cuba in 1941-42 (during which he wrote his first draft of the IBRD) and by Robert Triffin (of the Federal Reserve Board) to Paraguay in 1943-44. During and in the immediate wake of the Bretton Woods negotiations, White, Triffin and other US financial advisors backed development-oriented domestic monetary and financial reforms in a number of other Southern countries – primarily in Latin America, but also in other countries that had attended Bretton Woods such as the Philippines and Ethiopia. The activities of this new breed of US “money doctor” complemented the establishment of the Fund perfectly. While the latter created a new multilateral framework that was permissive of national development policies, the former helped build domestic institutional capacity to enable those policies to be pursued.
What explains the US interest in promoting international development from the late 1930s through the Bretton Woods negotiations? Economic, strategic and ideational factors all played a role. Economically, US officials argued that this policy served the country’s interests by providing new opportunities for investment, by reducing import costs as the productivity of Southern countries increased, and especially by fostering new export markets. Regarding the latter, many US policymakers anticipated an international division of labour under which US firms would benefit from Southern countries’ industrialization by supplying the machinery and other capital goods needed to produce consumer products for the local market. US manufacturing firms were often very supportive of this vision.42
US officials were also driven by the strategic goal of offsetting the Nazi threat, first in Latin America during the late 1930s/early 1940s and then worldwide once the US joined World War Two in late 1941. Offering to support the development aspirations of Southern governments helped secure alliances and provide a wider moral purpose to the Allied cause in the war, particularly at a time when fascist (and communist) ideals provided alternative routes to development from the preferred US model. As John Ikenberry argues in his analysis of the Bretton Woods negotiations, many US officials sought to legitimate US power in the postwar world by promulgating “a postwar system that would have normative appeal to elites in other nations”.43 For reasons described below, the promotion of international development held much appeal for many Southern elites at this time.
American support for international development also grew out of some values of Roosevelt’s New Deal. A core tenet of New Deal philosophy was that individuals’ economic security was a key foundation of political stability. By the late 1930s, Roosevelt was projecting this idea into the international arena, arguing that the reduction of poverty abroad was a key pillar for international peace. Support for this goal was only reinforced by the broad concern of many New Dealers for the poor and for social justice. The antipathy of New Dealers towards New York financial elites and past US imperialist practices also encouraged their support for Latin American development goals as well as their interest in learning from Latin American experience. The willingness of New Dealers to challenge neoclassical economics and accept a greater role for government in economic life also led them to be more open to exploring the distinctive problems of Southern economies and to experimenting with new public initiatives at the international level to address those problems.44
The US was not alone among wealthy countries in backing international development at this time. Despite claims to the contrary, British officials also expressed support for international development lending throughout the Bretton Woods negotiations, from Keynes’ initial 1941 drafts onwards. Their support reflected similar economic and strategic interests as in the US context as well as some ideational motivations that paralleled New Deal values, particularly among those on the left of the political spectrum. Keynes and many other British officials did not, however, take up the cause of international development with the same enthusiasm as many of the US counterparts for reasons outlined in chapter 8. Officials from other countries such as Canada, the Netherlands, and Australia, were also supportive of the idea of incorporating development goals within postwar international plans. Two Australian officials, Stanley Bruce and Frank McDougall, who had been involved with the League of Nations during the 1930s, were particularly active in lobbying US and British policymakers on this topic and within the League of Nations.
The Role of Southern Countries
Conventional wisdom has also unfairly downplayed the role of Southern countries in the creation of the Bretton Woods system. To begin with, although Meier suggests that “”developing countries” invited to Bretton Woods were only “a relatively few”, the actual number was quite large. The attendees included representatives from nineteen Latin American countries (all but Argentina45), five Asian jurisdictions (China, India, Iran, Iraq, and the Philippines), and four from the African continent (Egypt, Ethiopia, Liberia and South Africa). Also represented were four countries from Eastern Europe (Czechoslovakia, Greece, Poland and Yugoslavia), a region that many (including those from the region) saw at the time as facing similar economic problems as other poor regions. If these countries are added together, they made up a large majority – 32 of the total 44 – those formally represented at the conference.46 Even if one might question whether all these delegations were truly representative of Meier’s category of “developing countries”,47 few would dispute that a substantial majority of the countries represented at Bretton Woods fell in this group.
It is true that the delegations from some of these countries included only one or two people.48 But many others were a respectable size, and some were quite large, such as the delegations from China (32 people), Brazil (13), Cuba (10), India (8), Peru (8), Chile (7), Poland (7), and Mexico (7). Indeed, the size of the Chinese delegation was second only to that of the US (45), while Brazil’s was tied with Canada for the fourth largest behind Britain (15). Moreover, if all the individuals involved in the delegations from the 32 countries noted above are added up, the total comes to 170 people which is considerably more than the 132 involved in the delegations from the other 12 countries represented.49 It is also worth noting that the head of the Mexican delegation was invited to chair one of the three “commissions” around which the Bretton Woods conference discussion was organized (the other two were chaired by White and Keynes).
The contribution of Southern countries to the Bretton Woods agreements was not restricted to their participation in the 1944 conference. Through their involvement in the inter-American financial initiatives of the late 1930s/early 1940s, Latin American governments helped lay the groundwork for the early US Bretton Woods plans. China, Brazil and Mexico were then part of an inner core of countries consulted by American and British officials on postwar international financial plans from 1942 onwards (along with the Soviet Union50). American and British policymakers also consulted with many other Southern countries bilaterally and in smaller groupings throughout the negotiation process. In these consultations and at the Bretton Woods conference itself, Southern countries were much more than simply passive observers. They offered detailed commentary on, and contributions to, the content of postwar international financial plans.
In their inputs to the postwar planning discussions, a number of Southern officials and analysts highlighted that they were centrally concerned with how postwar international financial plans could support their general “development” aspirations (and once again, they used this term). At this time (and contrary to some of the arguments noted in the previous section), many Southern policymakers were strongly committed to the goal of raising their countries’ living standards through comprehensive state-led economic development and industrialization strategies. This goal has arisen partly from the traumatic experience of Great Depression that had revealed the vulnerability of commodity exporters to volatile (and declining) commodity prices as well as to agricultural protectionism in Northern markets. The Great Depression also undermined the legitimacy of liberal ideology and policies, opening the door to more statist economic policies – a phenomenon only reinforced by the examples abroad of the centrally-planned industrialization of the Soviet Union, the economic growth of fascist powers such as Germany and Italy, and the growing support for economic planning in countries at the core of the world economy.
The push for industrialization also reflected strategic concerns, particularly given the uncertain international security environment of the time. Industrialization was associated with power – just as it had been in the nineteenth century for “late industrializers” such as the United States, Germany and Japan that had feared British power. Many countries saw “late, late” industrialization strategies as a way to avoid subordination in the increasingly unequal world generated by the second industrial revolution underway in the leading economies. Industrialization and broader national economic development also promised to help reduce economic dependence on the foreign countries more generally.
The growing interest in active development policies also emerged out of heightened awareness of widening international inequality between industrialized countries and the rest. Observers at the time commented on how intensifying communication links across the world were contributing to this growing awareness51. The production of new international statistics also played a role. For example, a widely-noticed 1935 League of Nations survey of nutrition and public health concluded that two-thirds of the world’s population had inadequate diets.52 Colin Clark’s 1939 book Conditions of Economic Progress also drew on national income statistics to compare living standards across the world for the first time. As Heinz Arndt notes, “for the first time, the gulf between living standards in the rich and poor countries of the world was brought home in stark statistical terms.”53 Arndt also calls attention to International Labour Organization’s work in the 1930s comparing levels of consumption across countries in areas such as food, clothing, housing, medical care and education in countries around the world.54
In the nineteenth century, poorer countries seeking to catch up economically had focused on national economic strategies, often ones inspired by List’s advocacy of state-led industrialization. Now, many Southern officials and analysts began to consider how the international community could play a role in assisting their national development initiatives. Encouraged by broader questioning of liberal orthodoxy at the time, they gave particular attention to roles that involved replacing, supplementing and/or regulating international market actors. This thinking was also prompted by the fact that international organizations had become a much more prominent part of the landscape of world politics.
Also significant was the recognition of the large mountain Southern countries would need to climb if they sought to catch up economically to the leading powers. While late industrialization could be accomplished through national initiative, successful late, late industrialization might require international support. Modern day Listians, in other words, might need to combine nationalism with internationalism.55 Figures such as China’s Sun Yat-sen and Argentina’s Raúl Prebisch, whose ideas play an important role in this book, represented this combination well.
The attraction of seeking international support for national development initiatives would, of course, be enhanced if there existed willing international partners for this project. Roosevelt’s New Deal presented just such a partner. Latin American governments were the first to take up this opportunity in the late 1930s/early 1940s period. Despite some scepticism arising from the history of US intervention in their region, many Latin American officials appreciated Roosevelt’s Good Neighbor policy and recognized the potential value of developing coalitions with American New Dealers who shared some of their values. Out of this recognition emerged some key transnational expert coalitions between reform-minded economists from both Latin America and the US who were interested in development issues.56 These coalitions helped to drive the content of some of the key initiatives in the late 1930s/early 1940s and Bretton Woods negotiations that pioneered international development practices.
Their role parallels that of transnational expert coalitions – led by Keynes and White - that Ikenberry has identified as facilitating the Anglo-American dimensions of the Bretton Woods negotiations. 57 While the Keynes-White axis shared a commitment to Keynesian full employment policies and social welfare goals, US and Latin American economists came together around a common belief in new development thinking. As we shall see, Triffin and Prebisch emerged as particularly central figures within this axis in the context of pioneering a new model of financial advising for Southern countries.
While the US-Latin American financial partnership began in the late 1930s, officials from other poorer regions of the world also came to recognize the potential of an international development partnership with the US (and other Northern countries) once the Bretton Woods negotiations began. Their backing of the negotiations was strongly linked to an understanding that the Bretton Woods agreements would be supportive of their development goals. For example, the IBRD’s development lending role was strongly supported not just by Latin American officials but also policymakers from China, India, and East Europe. Many Southern officials – like their US counterparts – also saw various aspects of the IMF’s Articles of Agreement as supportive of their “development” objectives, such as its provision of balance of payments support and its support for exchange rate adjustments and capital controls. For the same reason, many Southern countries welcomed the kinds of domestic financial and monetary reforms recommended by White, Triffin and US officials during, and in the immediate wake of, the Bretton Woods negotiations.
It is also important to recognize that the voices of Southern countries were not “drowned out” during the negotiations that created the Bretton Woods order. Particularly important was the contribution of Latin American policymakers who worked closely with US officials as far back as the late 1930s to pioneer key ideas and practices that helped generate the Bretton Woods outcomes. Analysts and officials from other Southern countries – particularly India and China – also contributed to the Bretton Woods negotiations in a number ways. It is not always easy to prove that their input steered the content of those negotiations in dramatically new directions. But this is simply because many of their development-oriented suggestions dovetailed with Anglo-American ideas.
One final point deserves mention about the role of Southern countries in the creation of Bretton Woods. In contrast to the politics of the NIEO period, Southern governments did not present much of a unified front during the Bretton Woods negotiations, with the exception of Latin American countries (whose collective regional voice was often quite cohesive). While there was some general recognition of the common structural problems facing poorer countries, there is little evidence of coalition-building between Latin American governments and representatives of other poor regions of the world. Indeed, when India called at Bretton Woods for the IMF to be given a more formal development mandate, the first opponent of the idea was a conservative Brazilian delegate. Despite some differences of this kind and lack of a sense of Southern solidarity, it is striking how many Southern officials viewed the Bretton Woods proposals through a development lens. These officials were acutely aware that the development problems their countries faced were distinctively different from economic issues facing industrialized countries and they sought to have their countries’ unique needs recognized in the postwar plans.
The Origins of International Development
In light of this analysis, it is clear that international development was not invented by Truman’s inauguration speech. This book argues that international development practices emerged earlier in the context of the US-Latin American financial partnership of the late 1930s/early 1940s and the Bretton Woods negotiations.58 If an American was to be chosen for the title of pioneer of international development policy, Harry Dexter White would be more deserving than Truman because of his leading role in drafting the “development” content of the Good Neighbor financial policies and the Bretton Woods process.59 The pioneers also included a number of Southern officials and analysts; indeed, Sun Yat-sen’s 1918 book International Development of China – which helped inform not just the Chinese position at Bretton Woods but also some American thinkers at the time – stands out as a particularly early advocate.60
Truman was not even the first to popularize the term “underdeveloped” countries. As this book makes clear, that term was used widely in American and British policy debates during the early 1940s (with some uses also predating Benson’s alleged “invention” of the term).61 Further complicating the claims of post-development scholarship is the fact that some Southern officials also used the term before Truman’s speech. At the Bretton Woods conference itself, Indian delegates even attempted to insert it in the Fund’s Articles of Agreement. To support their development goals, the Indian delegation proposed that the Fund’s mandate should include the following phrase “to assist in the fuller utilisation of the resources of economically underdeveloped countries”.62 In this context, the politics were the opposite of those suggested by post-development scholars. Rather than being invoked by US officials to justify intervention in Southern countries, Southern officials used the term “underdeveloped” as part of an effort to request international support. Moreover, the initiative to insert this wording in the Fund’s mandate was blocked by US officials (who feared that the Fund’s lending mandate might then overlap with the Bank).
The importance of recognizing this deeper history of international development is that the content of the international development project in this period was quite different than that described by post-development scholars. The initiatives of the US-Latin American financial partnership of the late 1930s/early 1940s and the Bretton Woods negotiations were much more ambitious than those outlined by Truman. As noted above, they embodied many of the proposals that later resurfaced during the NIEO discussions of the 1970s. The international development project thus had a wider set of meanings in its early years than the Truman-centered vision presented by post-development scholarship.63
The politics generating the birth of international development was also not quite the same as that identified in post-development literature. To be sure, international development was a project supported by dominant capitalist states, particularly the US. This support also partly reflected US economic interests as well as strategic motivations - although the key strategic threat that drove much US policy innovation in this era was the Nazi threat in Latin America in the late 1930s/early 1940s rather than the Cold War of Truman’s era. A key difference, however, was that the values of Roosevelt’s New Deal played a much more important role in generating Northern support for international development at this time.
Equally important, the Southern role in this earlier birth of international development contrasts with that portrayed in post-development scholarship. In the latter, Southern countries are seen to have little agency; they appear largely as passive recipients of the international development project foisted upon them by Northern powers driven by economic and Cold War and imperatives. During the US-Latin American initiatives of the late 1930s/early 1940s and the Bretton Woods negotiations, however, Southern officials and analysts played a significant role in shaping and actively supporting the birth of the project of international development. Indeed, they were a major source of the demand for this innovation in world politics.
There is a certain irony in the neglect by post-development scholars of the agency of these Southern figures. At the centre of their critique of much development literature is that it portrays poor countries as “lacking in historical agency”.64 But their history suffers from the same weakness. Indeed, important pioneers of international development from poorer regions of the world described in this book receive little or no attention in post-development analyses of the origins of international development, including not just Sun Yat-sen and Raul Prebisch but also others such as Leon Baranski, Chintaman Deshmukh, Paul Rosenstein-Rodan, Victor Urquidi, and Eduardo Villasenor, to name a few.65
Post-development scholars might respond by questioning the content of the ideas put forward by these individuals. For example, Escobar dismisses the significance of the ideas of Latin American economists such as Prebisch who were associated with the Economic Commission for Latin America (ECLA) in the late 1940s and 1950s, on the grounds that their basic conception of international development was little different from that promoted by the North. As he puts it, their proposals “were easily assimilated into the established views, to the extent that they lent themselves to a modernization process that international experts and national elites were eager to undertake”.66 The same criticism would likely be levelled against the proposals of Southern analysts described in this book since they were very similar to those of ECLA economists. These proposals fully embraced the goal of catching up economically to the leading industrial powers through “a modernization process”.
But were these goals simply derivative of Northern thinking? To be sure, European thinkers such as List inspired some of the thinking. But the direction of the international flow of ideas was not just North to South. A number of Southern officials and analysts influenced Northern thinking about international development in this period and ideas also flowed among South to South (as in the case of East European influences on Latin American thinking67).
Even more important, however, is the fact that the development goals described in this book responded directly to new material circumstances facing Southern countries, notably the traumatic Depression experience, the international strategic uncertainties of the time, and widening international inequalities (as well as growing international communications and statistics that called attention to those inequalities). In these circumstances, officials and thinkers in different poorer parts of the world arrived independently – and almost simultaneously - at the view that industrialization and economic modernization was needed to reduce their countries’ economic and strategic vulnerability. Given the scale of the task they faced and the growing density of the international institutional landscape, they were also prompted to consider whether international support for their goals could help boost living standards and their countries’ economic development more quickly.
Far from being a tool of oppression, international development thus appeared to these Southern officials and analysts as a potential source of national empowerment and liberation. Some post-development scholarship does seem aware of this possible basis of support for international development. Rist, for example, acknowledges that the global spread of development was partly due to “reasons having to do with military, economic and technological domination”.68 Escobar also notes: “To be sure, there is a situation of economic exploitation that must be recognized and dealt with….There is also a certain materiality of life conditions that is extremely preoccupying and that requires great effort and attention”.69 But both authors say little more about this crucial point, so focused are they on highlighting the power of discourse rather than the influence of structural material conditions.

Building on Previous Scholarship
The arguments of this book thus challenge much conventional wisdom. But the book does not break entirely new ground. My own interest in this history began when, in the course of researching another project, I stumbled across some US archives from early 1940s that were discussing international development issues. After exploring further archival evidence, I then read wider secondary literature on this period and found a number of existing analyses that picked up, and contributed to, important parts of the story I was reading in the archives. The relevant scholarship is referenced and discussed in the chapters that follow, but four particularly useful bodies of scholarship are worth noting at the outset.
To begin with, this book builds on the work of some historians of the Bretton Woods negotiations who have touched on various themes developed here. For example, important insights have been drawn from analyses of specific Southern country experiences during the negotiations, such as those of China, India, Mexico, and Brazil.70 The significance of the US-Latin American partnership of the late 1930s/early 1940s to the Bretton Woods experience has also been recognized by Robert Oliver as well as by Michael Bordo and Anna Schwartz.71 Drawing on extensive archival research, this book extends their analyses and also explores in more detail the broader politics that generated the development dimensions of partnership and its link to Bretton Woods.
Second, this book is also not the first to locate the birth of international development earlier than Truman’s speech. In his 1987 study of the history of the idea of economic development, H.W.Arndt argued that “economic development in the Third World as a major interest of Western governments, of economists, and of public opinion generally, was born during World War II”.72 His argument has been reinforced by Amy Staples’ 2006 book The Birth of Development which is explicitly critical of the focus on Truman’s speech and which identifies US and British wartime planning as “the beginning of the idea that development was an international obligation”.73 Elizabeth Borgwardt’s 2005 book A New Deal for the World echoes this theme, highlighting the novel nature of the 1941 Atlantic Charter’s commitment of “freedom from want” for “all the men in all the lands” and its impact on the construction of postwar international institutions.74 David Ekbladh’s 2010 The Great American Mission is also critical of the Truman-centred view of the origins of international development, locating the source of US interest in international development in the 1930s in the context of the twin challenge of fascism and communism.75
While drawing important insights from these works, this book explores the importance of the development content of the Bretton Woods negotiations in much more detail than these works do.76 It also seeks to widen the geographical focus of the analysis beyond the US and British policy contexts which are the main subject of these previous works by exploring the views of policymakers and analysts from poorer countries. In addition, the book calls more attention to an issue that is quite overlooked on these other analyses: the significance of US-Latin American financial relations in the late 1930s/early 1940s for the origins of international development.
For the latter task, the book draws considerably on a third body of literature: historical analyses of the United States’ Good Neighbor policy towards Latin America in the late 1930s and early 1940s. Some historians of this period have identified this policy’s significance in pioneering international development practices, but the link between the Good Neighbor policy and the Bretton Woods negotiations has been overlooked.77 In filling this gap, this book also provides new detail about two key aspects of the Good Neighbor policy that were critical to this link but which have received less attention in historical literature: the 1939-40 effort to establish the IAB and the US financial advisory missions to Latin America that began in 1941. The book’s analysis of the relationship between the Good Neighbor policy and Bretton Woods also devotes considerable attention on the Latin American activities of some US policymakers, such as Harry Dexter White and Robert Triffin, who have been quite neglected in general histories of the Good Neighbor policy.78
Finally, in broadening the focus beyond the US and British policy contexts, the book draws inspiration from the work of several scholars who have analyzed the growing development focus of Southern officials and analysts in the 1930s and early 1940s. One such scholar is Joseph Love whose 1996 intellectual history, Crafting the Third World, highlights how development aspirations in this period emerged not just from Northern sources but also East European and Latin American economists.79 For the Latin American context, other indispensable sources for this line of argument are Edgar Dosman’s recent biography of Prebisch as well as Sarah Babb’s analysis of the origins of developmentalist economic thought in Mexico.80 Margherita Zanasi’s important work on China’s interwar development thought and policy also usefully critiques post-development scholars who assume that Southern governments were simply passive spectators of early international development initiatives.81 Similar arguments have been made by scholars who have studied the agency of Latin American officials in the context of the US Good Neighbor initiatives.82 While these analyses highlight well the need to explore the Southern origins of international development, they are not focused on the importance of the Bretton Woods process itself – a hole in the literature that this book attempts to full.


Outline of the Book
The book is organized into three main sections. The first three chapters making up Part 1 examine the unusually creative financial partnership that emerged during the late 1930s and early 1940s between US and Latin American policymakers and that served as an incubator for the embedded liberal vision and development content of the Bretton Woods negotiations. Chapter 2 explores the motivations on both the US and Latin American side that generated this financial partnership. It also provides an overview of a number of the initiatives that emerged from this partnership before the entry of the US into the Second World War, beginning with the new US lending for short-term currency stabilization and long-term development purposes in 1938-39 and carrying through to the more ambitious initiatives of 1940 to stabilize the prices of major Latin American commodity exports, renegotiate Latin American external debts, and promote regional economic cooperation.
Chapters 3 and 4 provide a more detailed analysis of two initiatives in this period that were particularly important in setting the scene for Bretton Woods. The first was the negotiation of the IAB in the fall of 1939 and spring of 1940 by the US and Latin American governments. Drafted largely by White, the Bank’s charter had an explicit mandate to promote development across the inter-American region and many of its provisions acted as important precedents for White’s first drafts of the IMF and World Bank. The other was the US financial advisory mission sent to Cuba under White’s leadership in 1941-42. The mission supported the Cuban government’s goal of overhauling the Cuban monetary system to support the government’s development goals through de-dollarization and the creation of a new governmentally-controlled central bank that could pursue a more activist monetary policy aimed at domestic needs.
Both of the IAB proposal and the Cuban mission were, however, slightly ahead of their time. Despite support from the Roosevelt administration and many Latin American governments, the IAB floundered when opposition from financial interests and conservatives in the US blocked its approval by the US Congress. The Cuban mission encountered opposition from the same quarters, as well as from some Cuban financial interests, which delayed the adoption of its recommendations by the Cuban Congress. Despite these failures, both the IAB initiative and the Cuban mission served as key precursors for the Bretton Woods negotiations. The IAB pioneered a new kind of multilateral public financial institution, while the Cuban mission’s advice signaled the new embedded liberal values. Many of the key figures involved in these initiatives also went on to play leading roles in Bretton Woods planning.
The three chapters that make up Part 2 of the book highlight how the US- Latin American financial partnership helped shape the international development content of 1942-44 Bretton Woods negotiations. Chapter 5 explores the US support for the inclusion of development goals within the plans for postwar international financial system. It analyses how some key provisions in White’s initial drafts of early 1942 built directly on the experience of the US-Latin American initiatives of the late 1930s/early 1940s and how he and other US policymakers had a Latin American audience clearly in mind when developing the early drafts. While some of the ambition of White’s original development proposals was watered down by internal US government discussions in 1942-43, the core commitment to support international development remained and was pervasive across many branches of the Roosevelt administration at the time. Latin America also remained a key focus of US development plans for the postwar world.
Chapter 6 describes how the US support for development goals abroad manifested itself in one other way during the Bretton Woods negotiations. In 1943-44, the US Federal Reserve responded to a request from Paraguay for a financial advisory mission to reform its monetary system by creating a new national currency and central bank. Under Robert Triffin’s leadership, the mission reiterated the kind of advice that White’s Cuban mission had offered, but now argued explicitly that this would help reinforce, at the domestic level, the goals of the new Bretton Woods system. Triffin was also more successful than White had been in Cuba: his advice was immediately adopted by the Paraguayan government which saw its monetary reforms as foundational for its developmental ambitions.
Chapter 7 explores the Latin American contribution to the Bretton Woods negotiations. It highlights how Latin American governments were important and active partners for the US in the negotiations, showing particular interest in how postwar plans could support their development aspirations. They played an important role in protecting and strengthening the IBRD’s development mandate which they saw as a direct follow-on from the IAB proposal. For development reasons, they were also strong supporters of the IMF’s balance of payments lending and its provisions for exchange rate adjustments and capital controls. Latin American support for the Bretton Woods vision was also apparent in the widespread praise that Triffin’s 1943-44 Paraguayan mission received across the region. Indeed, after returning from Paraguay, Triffin was kept busy in 1944-46 responding to a number of Latin American governments’ requests for him to emulate his work for Paraguay in their own country. In this work as well as that of Paraguay, he worked closely with, and cited his intellectual debt to, Prebisch and other Latin American thinkers.


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