The Case for a New Bretton Woods. Kevin P. Gallagher

system. But those interests resented the constraints on their activities and were quick to push back and sow seeds of discontent in the years immediately following the conference. New coalitions were established to finance political parties, candidates, and an apparatus of experts that pushed for a revival of classical liberalism, first in national capitals and then at the international institutions themselves (Blyth 2002; Gallagher 2015). The overarching philosophy is now referred to as “neoliberalism,” which pushes for unregulated markets and individual freedoms as primary ends, arguing that “free trade,” “free enterprise,” and the unbridled movement of capital are the only guarantees of a healthy economy and widespread prosperity.

      These efforts achieved some early success, but not enough to reverse the ideological tide in support of social solidarity and interventionism that had emerged from the wartime experience and continued to animate policy discussions over the following three decades. They began to yield more bountiful returns from the early 1980s with the abandonment in advanced countries of full employment, the privatization of state-owned assets, and the deregulation of financial markets, with further gains as these measures were adopted and spread by the Bretton Woods institutions.

      The resulting “liberal international order,” often lauded as “rules-based,” now serves gargantuan and increasingly footloose firms in their endless pursuit of higher rents in heavily concentrated markets across the globe. The result is a polarized world economy in which instability and insecurity have become the norm for more and more households in rich and poor countries alike.

There are three pictures of what the neoliberal economic order now looks like that we think will help illuminate the scale of the problem and the urgent action that is needed. The first is what has become known as the “Elephant Curve,” designed by the former World Bank economist Branko Milanovic. Figure 1.1 reproduces that figure, showing how the top 1 percent of the global income spectrum has captured 27 percent of total growth since 1980, while the bottom 50 percent captured just 12 percent over the same period – and the fact that the latter amount was gained by developing countries is largely explained by the rise of China and India. The middle classes in the United States and Europe, and the vast majority of the world’s poor, have felt their incomes squeezed.

      Figure 1.1 The Elephant Curve: Global Income Distribution and Real Income Growth, 1980–2016

      Source: World Inequality Report 2020

The second picture is a figure we created for an earlier report and dubbed “The Crocodile Graph.” Shaped like the jagged mouth of that rapacious reptile, this figure exhibits the top 2,000 multinational corporations’ profit in terms of percentage point change of GDP, versus the global labor share of income.

      The World Inequality Lab estimates that since 1980 inequality has risen or remained extremely high nearly everywhere in the global economy, with some of the sharpest rates of increase occurring in India and China and among emerging-market and developing countries, showing that even in the places where larger aggregate growth has occurred it is not shared across the population (World Inequality 2020).

      The third picture is the Weather, Climate, and Catastrophe Index. The twenty-first century has been marked by climate-related natural catastrophes that have posed great economic risks to the world economy, and the risks are rising each year. There has been an increased incidence of floods, droughts, heatwaves, and fires globally that has cost hundreds of billions of dollars on an annual basis. The price tag for these events has been upwards of $6 trillion in this century. Just one event in Dominica in 2017 caused over 200 percent of GDP in economic damage, while the cost for just the first half of 2021 was $298 billion, showing that the climate crisis is bringing major economic costs as we speak.

      Figure 1.2 The Crocodile Graph: Top 2,000 Transnational Corporations’ Profit and Global Labor Income Share (Percentage Point Change of GDP)

      Source: UNCTAD 2017

      Figure 1.3 Economic Losses from Extreme Weather

      Source: Climate, Weather, and Catastrophe Insight 2021

Rewriting the Rules of the International Economic Order

According to the IMF managing director, Kristalina Georgieva, “we face a new Bretton Woods moment” (Georgieva 2020). The Financial Times (April 3, 2020) concurs: in its call for radical reforms to reverse the policy direction of the past four decades and establish a new social contract that works for all, the international dimension is embraced and the parallel with the Bretton Woods moment of 1944 acknowledged. But unlike then, reforms have the actually existing multilateral system to contend with. The global economic order needs a reset that scales back unduly intrusive global rules in some areas and expands the system in others, in order to provide a broader set of global public goods and to align international cooperation with economic, social, and environmental goals that require a better mix of international resources and national policy autonomy.

      With this backdrop in mind, we co-convened a series of roundtables in Geneva and Boston in 2018 and 2019 – including diplomats, experts and scholars, civil society organizations, union representatives, and former and current government officials – to articulate a set of design principles for a new multilateralism. We titled these principles the “Geneva Principles for a Global Green New Deal”:

       Global rules should be calibrated toward the overarching goals of social and economic stability, shared prosperity, and environmental sustainability and be protected against capture by the most powerful players.

       States should share common but differentiated responsibilities in a multilateral system built to advance global public goods and protect the global commons.

       The right of states to policy space to pursue national development strategies should be enshrined in global rules.

       Global regulations should be designed both to strengthen a dynamic international division of labor and to prevent destructive unilateral economic actions that prevent other nations from realizing common goals.

       Global public institutions must be accountable to their full membership, open to a diversity of viewpoints, cognizant of new voices, and have balanced dispute resolution systems.

With a renewed set of national goals and global public goods (outlined in Table 1.1), and guided by the Geneva Principles, this short book draws on the work of the United Nations Conference on Trade and Development (UNCTAD) and the academic literature to make the case that the international economic order needs to be fundamentally reformed to align itself with and support these new goals and ambitions. After this short introduction, Chapter 2 puts the international economic order in its proper historical context, tracing the collapse of the liberal order after World War One, the construction and rise of the embedded liberal order, and the rise and fall of neoliberalism. Chapter 3 focuses on how the neoliberal order has made the international monetary and financial system more unstable and asymmetric. Chapter 4 traces the rise of neoliberalism in the World Trade Organization (WTO)