Time to Rethink Global Economics

Article excerpt

Just weeks after D-Day, while the Allied armies were still battling their way toward Germany, a quieter event occurred that would shape the world as powerfully as the war in Europe.

On July 1, 1944, 730 delegates from 44 nations assembled at the Mount Washington Hotel in Bretton Woods, New Hampshire. They stayed three weeks. When they left they had laid the groundwork for the reconstruction of Europe, for a global money and trade system, and for the World Bank and the International Monetary Fund (IMF).

Fifty years later, we can declare the first goal of Bretton Woods, the reconstruction of Europe, an unqualified success. The second goal, a system of fixed exchange rates backed by the solid American dollar, was abandoned in the 1970s. The dollar proved not so solid. But the trade that was the point of the exercise goes on at a pace that wouldn't have been believed in the summer of 1944.

The third and fourth achievements of Bretton Woods, the World Bank and the IMF, evolved into powerful institutions still very much with us. They could be called successes, too. They will celebrate themselves royally this year. But the celebrations will be marred by raucous dissent. In English, the protest signs will read "Fifty Years is Enough!" In Spanish, "Con 50 Anos, Basta!"

Both the celebrations and the protests are appropriate. The World Bank, having reconstructed Europe, turned its attention to constructing the Third World. It loaned hundreds of billions of dollars for power plants, roads and other installations deemed necessary to economic development. To the poorest nations, it lends at low interest and provides technical experts along with the money.

The IMF is the lubricant of world trade. It lends U.S. currency, say, to Costa Rica, so that Costa Rica can buy U.S. computers. Then Costa Rica sells us coffee and bananas and earns dollars to pay back the loan. Without the IMF, trade between every nation and every other nation would have to be balanced at all times - which would slow things down considerably.

The Bretton Woods inventions play essential roles. But their critics are angry enough to pound on the governments that fund these institutions - especially our own - and demand cutoffs of the money. Their accusations center on bigness, arrogance, unaccountability and narrowness of vision.

The World Bank and IMF keep a sharp eye on credit balances around the world, but lose sight of people and nature. They make loans in chunks of hundreds of millions of dollars, when development may be better served at a scale of hundreds of dollars. They impose their theories of development despite evidence that those theories are not valid.

For example, the World Bank has been a major lender to India's massive energy program, financing open-pit mines and coal-burning power plants that pollute an enormous area with acid drainage and smog. The project will soon be the single largest new source of greenhouse gas emissions in the world. It has displaced 140,000 people who were not compensated, who have no place to go and who are not even served by the electricity the project generates. …