The Bretton Woods system emerged after the Bretton Woods conference in 1944, after which the General Agreement on Tariffs and Trade (later known as the World Trading Organisation), International Monetary Fund (IMF) and World Bank (WB) were established. There had been an agreement among the states attending the 1944 conference that economic hardship had encouraged the rise of fascism in Germany and the disorder that followed across Europe. As such, the founding aims of the system were to ensure stability in a postwar world of social, economic and political unrest through economic guidance and principles of liberal free-market economics. Based on the distribution of economic knowledge, trading rules from the WTO, the IMF and World Bank’s attitude towards developing countries, it can be concluded that the Bretton Woods system provides guidance, rather than stability, for the world order in a direction that best benefits the Western states that founded it.
It can be argued that the Bretton Woods system provides stability through the reliable economic insight it gives to the members of the world economy. For instance, the IMF advises member countries on how best to manage their economies, particularly less-developed ones in which technical economic expertise may be lacking. During the 2016 ‘Brexit’ referendum, the IMF provoked criticism from the ‘Leave’ campaign by publishing a report a week before the referendum that predicted Brexit would lead to increased inflation and reduce the UK’s GDP. Fundamentally, the Bretton Woods system, and its founding principle of economic liberalism, encourages states to reform their economies to an economic model that has delivered considerable economic growth in most developed states. For liberals like Francis Fukuyama, the IMF’s role of distributing knowledge and studies of economics epitomises the egalitarian nature of the Bretton Woods system, where the majority benefits from the advantages of the minority. Therefore, the Bretton Woods system can be seen as providing stability because it streamlines the process of economic development and makes it more efficient, thereby supporting developing states and the future of the world economy.
However, it can be argued that the informative function of the Bretton Woods system stabilises the Western world’s economy at the expense of the rest of the world economy. A key part of the IMF and World Bank’s economic advice to developing countries in need of economic assistance was to implement Structural Adjustment Programmes (SAPs), which are top-down programmes of market reform designed usually by US-trained technocrats which do not account for local needs and circumstances. SAPs were a part of the IMF and WB’s loan conditionality and required developing states to implement austerity, privatisation, an increase in taxation and a reduction of public sector wages. According to Joseph Stiglitz, SAPs often result in greater poverty rather than less because they attended to the interest of donor states, who sought expanded investment and trading opportunities, than they did the needs of the developing world. Rather than being an instrument for the liberal project of the equality of states and equal opportunities for all, realists like Ha-Joon Chang argue that the major developed countries use interventionist economic policies, via platforms of global economic governance like the Bretton Woods system, in order to get rich whilst suppressing the development of potential rivals. For example, World Bank-imposed SAPs led to Zambia privatize its state-owned copper mines, which has meant that $29 billion worth of copper has been extracted from Zambia in the last ten years, to the benefit of Western TNCs. For ‘dependency’ theorists like Wallerstein, the Bretton Woods system is a Western institution that actively seeks to perpetuate the economic instability and vulnerability of the developing world, rather than help them overcome it. Overall, therefore, the informative function of the Bretton Woods system does not provide stability for the world economy because it is rooted in a Western bias.
However, this bias can be countered through the argument that the Bretton Woods system provides stability for the world economy in its projects to assist the sustainability of developing countries. Whilst it can be argued that there is a structural pro-Western bias in the Bretton Woods system, the recent move to ‘write off’ third world debt can be seen as a positive that benefits all members of the world economy. In a G8 summit of June 2005, members agreed to write off $40 billion worth of debt owed by 18 Highly Indebted Poor Countries (HIPCs) to the World Bank and the IMF. By 2013. 35 countries were receiving full debt relief from the IMF. Liberals argue that writing off debt provides stability for the world economy as a whole because it enabled developing countries to focus on capital investment, which would in turn lead to higher growth of the global economy. In turn, the developed world would benefit from a strong third world because they are potential export countries. Moreover, debt burdens entrench poverty in the South, and thus strengthens the pressure to expand international aid and other forms of assistance.
The practise of debt relief can be seen as an indulgent short-term measure for global economic stability that intensifies the long-term repercussions of writing off third world debt. Realists like Charles Harvey argue that debt relief acts as a perverse reward for countries that lack financial discipline, thereby discouraging states from establishing a sustainable economic structure which would aid the long term stability of the global economy. Moreover, it can be argued that external debt in the third world is caused by bad governance and unreliable government. As Acemoglu and Robinson argue ‘giving money can feed the hungry and help the sick- but it does not free people from the institutions that makes them hungry and sick’. Dependency theorists would argue that the glorified act of writing off debt is a shallow concession on the part of developed states that gives them a good reputation, but in reality a lack of debt makes the corrupt governments of developing states less accountable and enables them to continue to fail their people. For instance, in the case of Angola, which had a debt of $50 billion by 2017, the government has a history of corruption, with the daughter of the former President being the richest woman in Africa despite 1/4 of Angolans not having access to electricity. Nonetheless, the fact that the Bretton Woods system engages in debt relief shows that they do consider the needs of the developing world and are not solely driven by the interests of the first world.
The World Trade Organisation can be seen as a crucial pillar for the stability of the world economy because of the international rules and guidance its provides. The WTO stabilises the world economy be resolving trade disputes between member states and agreeing inter-state rules of trade in a way that reduced barriers in both goods and services. Since 1995, over 500 disputes have been brought to the WTO and over 350 rulings have been issued. Given that the WTO membership accounts for 97% of world trade, such a framework of dispute resolution and trade guidance leads liberals such as Ikeberry to hail the WTO as the ‘most formal and developed institution of the liberal international order’. Thus, the international rules imposed by the WTO theoretically means that global markets are more predictable, stable and ultimately profitable for all.
Nonetheless, it can be argued that the WTO does not provide stability for the world economy because it is fading into irrelevance. In addition to the ignominious Doha Round, which had been gridlocked since 2001, the WTO struggles to be an effective decision-making body, having only reached one major international trade deal in its lifetime. For realists, this is evidence that the task of providing stability for the world economy is an unachievable one in an ‘anarchical society’ of states (Hedley Bull). More recently, there have been claims that the ‘World Trade Organisation has died’, with President Trump left ‘holding the murder weapon’, according to the Council of Foreign Relations’ Edward Alden. In a demonstration of its growing atrophy, President Trump by-passed the WTO in March 2018 when he announced a succession of unilateral tariffs on Chinese imports, including steel, aluminium and washing machines. Therefore, the WTO does not provide stability for the world economy because it fails to enforce a respected framework for trade agreements.
In conclusion, the Bretton Woods system does not provide stability for the world economy with the IMF and World Bank and WTO being impeded by either a bias in favour of MEDCs or irrelevance respectively. Whilst the Bretton Woods system still maintains some redeeming features, such as writing off external third world debt, providing trade regulations and dispute resolution, these measures only aid the world economy rather than entirely stabilising it. Therefore, the Bretton Woods system only guides the world economy towards a Western liberal agenda rather than stabilising it as a whole.