Next week I shall be traveling to Bretton Woods in New Hampshire for an event called the Global Economic Visioning. The event is actually a precursor to a larger event next year, on what will be the 75th anniversary of the original Bretton Woods conference.
Back in 1944, the first Bretton Woods was a gathering of 730 delegates from the 44 Allied Nations. It was towards the end of World War II, and the most pressing issues of the day were how to prevent a recurrence of the Great Depression, and to prevent another world war, which had in part arisen out of the economic misery in Germany and Japan which had provided fertile ground for fascist ideas to take root.
To this end, they set up the General Agreement on Tariffs and Trade (GATT). John Maynard Keynes, the key figure at the conference, argued that the rise of protectionism across the industrialised world had contributed to low aggregate demand: people weren’t buying enough stuff because prices were too high, and the economy had ground to a halt. For Keynes, excess protectionism was a primary driver of the Great Depression, so the goal of the GATT was to reduce tariffs across the board in order to boost demand.
In other words, the GATT began its life as an ostensibly benevolent institution, intended to promote economic stability and peace. Just like the original IMF and the World Bank, which were founded during the same conference, it was rooted in Keynesian principles and intended to contribute to the collective good.
So the original Bretton Woods conference, and the institutions that it established, were products of their times. Now times have changed, as have the institutions that were established back in 1944. The World Trade Organisation, created in 1995, has usurped much of the power of the GATT, and free trade reforms have dismantled many of the capital controls that were intended to protect the stability of national economies. Investors can now withdraw their capital at short notice from a particular country if they think they can get a better return elsewhere, and if several investors do this at once, it can leave a country’s economy decimated.
For several decades now, there have been increasingly loud calls for a new Bretton Woods, particularly to create a new international framework to tackle the problems of unfettered capital flows creating global financial crises, imbalances of access to capital between nations, and the exclusion of various constituents from economic progress and political participation. The conference of 2019 is described thus:
“By resetting the table of who is present and introducing the many technologies now available, this event will serve as a jumping off point for visioning an economic future that reflects the immense potential of all parts of our collective human society.”
This all sounds very promising, and I’d like to go even further. For sure, new technologies like blockchain have enabled possibilities impossible to imagine in 1944. And now we have a greater appreciation of the benefits of inclusivity and diversity.
And even more than that, we need to step outside our current story, and take a long, hard look at our global economic system from the outside. We created the economy, and while it has brought many benefits, in its current form it is also encouraging the destruction of our ecosystem and the widening gulf of global inequality. My sense is that we need to create a vision of where we want to be 75 years from now – for example, a world of peace, sustainability, and fairness sounds good to me – and work backwards from there to figure out what principles and structures will support that vision.
To use a good ocean rowing analogy, we need to choose our destination, chart our passage, and determine our waypoints. Then we need to decide what kind of boat, or boats, are most likely to get us safely to where we want to be. And we need to choose the right metric to measure our progress – GDP is almost certainly not it.
The prospectus for the Global Economic Visioning includes my favourite Einstein quote, that “We cannot solve our problems with the same level of thinking that created them.”
Amen to that, Einstein.
Quotes by John Maynard Keynes:
In the long run we are all dead.
The market can stay irrational longer than you can stay solvent.
The difficulty lies not so much in developing new ideas as in escaping from old ones.
Words ought to be a little wild, for they are the assault of thoughts on the unthinking.
Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.
Education: the inculcation of the incomprehensible into the indifferent by the incompetent.
Ideas shape the course of history.
If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.
I very much enjoyed having this conversation with Nicole Haack in Australia for the Message Pod. I hope you enjoy it too!