Rediscovering Growth. Andrew Sentance

responses with new trade barriers being imposed. But the open rule-based trade system policed by the World Trade Organization (WTO) has been kept intact. Indeed, more countries and people are actively participating in the world trading system than at any previous time in the history of the world. The WTO currently has 159 member countries which account for over 98% of global trade and GDP and around 94% of the world’s population.

      So if the lessons of the 1930s have been heeded and have had a major influence on policymaking, what about the lessons of the 1970s? The economic turmoil we saw then has been a less obvious point of reference for policymakers and economic analysts recently – perhaps because that decade is remembered, particularly in Britain, as a time of rip-roaring inflation. Even though inflation has been higher than expected in many countries in recent years, it has not become the dominant economic problem that it was for major economies like the United Kingdom and the United States in the 1970s. But this important difference has deflected attention away from other parallels between our current position and the 1970s. Economically, we have gone back to the 70s in four significant ways.

      Back to the 70s: Financial crisis

      As in 2008, an international financial crisis – with its roots in the policies pursued by the United States – paved the way for the economic turmoil of the mid 1970s and beyond. Unlike our recent crisis, the financial turbulence of the early 1970s did not originate from instability in banks and other private sector financial institutions. It stemmed from the unravelling of the official framework underpinning financial stability – the system of fixed exchange rates which had been in place for a quarter of a century after World War II. This set of arrangements – known as the Bretton Woods system – provided a vital anchor for the long post-war expansion which dominated the 1950s and 1960s in Europe and North America.

      The Bretton Woods system derives its name from a town in New Hampshire in the United States where the Allied nations met in 1944 to plan for the post-war economic future, amid growing confidence that they would be victorious in World War II. The objective was to put in place a more cooperative system of international finance and economic policymaking to avoid the problems which had plagued the world’s major economies in the 1930s. The great economist John Maynard Keynes played a major role in the conference – though not all his ideas were adopted.