Trade and Development Report 2019




Seventy-five years ago, in the cool mountains of New Hampshire, the international community came together to forge a new world order with one central aim: to constrain financial markets and empower states in their place. The immediate goals of the Bretton Woods institutions were to deliver full employment, keep trade flowing, regulate speculative capital and prevent imported deflation. The system would promote policy coordination in support of global economic stability and discourage beggar-thy-neighbour policies that could upset that stability, while leaving policy space for sovereign states to pursue their national priorities.

Forty years ago, market forces struck back. From the early 1970s, a series of hard economic hits unsettled the post-war policy consensus and triggered political strife. As the decade came to a close, a newly elected British prime minister promised to bring harmony and hope by freeing markets and releasing entrepreneurial energies; and to emphasize that doing so would require a clean break with the Bretton Woods era she instructed her Cabinet colleagues to brush up on Friedrich Hayek’s The Constitution of Liberty.

Mrs. Thatcher was joined six months later by a kindred spirit in Washington who – less attuned to the ruminations of the Austrian school of economists – succinctly captured the shifting ideological mood by proclaiming that “government is not the solution to the problem, government is the problem”.

A coterie of academics and think tanks, on both sides of the Atlantic, were ready at hand with market-friendly policies for every economic problem, both real and imagined. Theirs was a simple message: that everything had a price and, if markets were free to determine that price, prosperity and social harmony would follow.

The debt crisis of the early 1980s provided an opportunity to spread the message to the developing world, joined shortly thereafter by the collapsing centrally planned economies of Eastern Europe. The attrition of the public realm went global.

But while economic ideas were the spark plug of the neo-liberal project, the newly liberated financial sector was its engine. Setting capital free from the constraints of government regulation and oversight opened up rent-seeking opportunities for an energized banking sector, while a new set of trade rules (covering financial services, investment and intellectual property rights) extended greater protection to footloose capital.

Alan Greenspan, a one-time disciple of neo-liberal scribbler Ayn Rand, had no doubt that the expansion of cross-border finance along with a new generation of innovative financial products would turbocharge the global economy by improving the worldwide allocation of scarce capital, unbundling and dispersing risk and boosting hedging opportunities. This was, he claimed, Adam Smith’s invisible hand working at the international level; “unregulated global markets do clear” he opined and, “with rare exceptions, appear to move effortlessly from one state of equilibrium to another”.

Things did not turn out quite as smoothly as Greenspan anticipated. Booms and busts punctuated the economic landscape, culminating, in 2008, in the deepest economic crisis since the 1930s, and revealing the darker side of a world driven by private credit creation, underregulated banks and financial chicanery.


With markets in freefall, government, it turned out, really was the solution to the problem. And both separately and collectively (through the G20) they threw resources at the problem on an unprecedented scale; financial institutions were saved, markets stabilized and economies righted. In high policy circles, the era of financial greed was pronounced over and a new set of priorities was promised to tackle the inequities and insecurities of rampant hyperglobalization.

The international community has responded with a set of ambitious and transformative goals, and an exacting delivery date of 2030. But in a dramatic reversal of fortune, the overlords of mass financial destruction are now being asked to avert the threat of mass environmental destruction. Money still talks but governments apparently have lost their voice. Rather, tapping the hearts, minds and wallets of the moneyed elite – whether through a sense of corporate social responsibility or impact investment or financial innovation – is deemed the only way to deliver the big investment projects that are required for a more inclusive and sustainable future. Everything, it seems, has had to change, for things to stay as they were.

This is not only wishful economic thinking; it is, if history is any guide, a recipe for making the world less inclusive and less sustainable. The way to deliver the public goods we need to achieve the Sustainable Development Goals (SDGs) by 2030 is to create a healthy, democratic and inclusive public realm at the global as well as the national level.

Much as it was for the architects of Bretton Woods, restoring “faith in the wisdom and the power of Government” needs to be the first order of business of the international community. But this can’t be framed simply as a return to the Bretton Woods era. The original project had too many flaws of its own; it was run as a rich man’s club that widened technological gaps, failed to address unequal trade relations, tolerated wasteful military spending and was indifferent to environmental pressures.

If we want to reverse the polarization of income within and across countries, create a stable financial system that serves the productive economy, mitigate the threats and seize the opportunities associated with new technologies, and undertake massive investments in clean energy, transportation and food systems, we need a Global Green New Deal.



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