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The Globalization of the World Economy.

The world economic system that operates at this time was born with the adoption of the
'White Plan' at the Bretton Woods (New Hampshire USA) conference in July 1944. The
International Monetary Fund, The World Bank, and the World Trade organisation grew
from The White Plan.

The world was a different place in 1944. The World War was still in progress. Europe
was on its knees. Governments administered over economies gear solely towards waging
war and the civilian economic concern was survival.

The United States of America was heavily involved in the war effort but maintained an
economy not affected by destruction of infrastructure. Not only that, but America was
being paid for the armaments it produced and supplied for its allies. In many ways this
was a blessing in that the allies in Europe had supplies of armaments that could not be
interrupted by the Nazis. But it did give the USA a disproportionate say in economic
matters.

Harry Dexter White

The author of the White Plan was Harry Dexter White was a senior official at the US
Treasury at the time of the Bretton Woods Conference. Harry Dexter White had a
'colourful' career.

White was the son of Jewish/Lithuanian Catholic immigrants, Joseph Weit and
Sarah Magilewski. His surname White was the Americanized version of Weit.
White served in the US army in the Great War before enrolling in University to study
economics. Nominally he was a Democrat in the 'New Deal' style but was said to be a
Stalinist sympathizer.

One of the many things that White was accused of was hiring members of the Communist
Party to positions within the Treasury, and of being a member of the Communist Party
himself.

More damning are the accusations that he was author of the sanctions and ultimatums that
left Japan in the position of commencing war against America or slowly starve to death.
On the 25th of November, U.S. Secretary of War Henry Stimson said to have asked 'how
we should maneuver them into the position of firing the first shot.' It was the 10 point
ultimatum to Japan largely written by White provided the answer.

Harry Dexter White was also the originator of the Morgenthau postwar plan that was
initially accepted by Roosevelt but withdrawn due to public pressure. The Morgenthau
plan was that after the World War Germany's industry should be destroyed and Germany
would become a purely agricultural economy. In the words of the day Germany should
become a 'potato patch'. The Morgenthau plan was used by the Nazis as propaganda and
is credited with having prolonged the war. This policy was continued undercover.
By late 1946, however, economic hardship and unemployment in Germany were
worrying the United States, and former President Herbert Hoover was sent there on a
fact-finding mission. Hoover’s third report of 18 March 1947 noted: “There is the illusion
that the New Germany left after the annexations can be reduced to a ‘pastoral state’. It
cannot be done unless we exterminate or move 25,000,000 people out of it.” Hoover well
understood that an agricultural economy would be able to sustain a much smaller
population than an industrialized nation

In 1947, while being investigated by the House Committee on Un-American Activities on


the charge of being a member of the Communist Party, White died of a heart attack. This
accusation escalated to the charge of supplying the printing plates that allowed the
Soviets to print American Military Marks (the military occupation currency), thus
causing rampant inflation in Germany and cost the USA a quarter of a billion dollars to
fix. The accusation was made in 1948; by a defecting Soviet spy Elizabeth Bentley.
White have been a victim of the 'Red under the bed' hysteria created by Nixon/McCarthy
that resulted in many innocent lives being destroyed.

The other main character in the story of the Bretton Woods conference is John Maynard
Keynes.

John Maynard Keynes.

John Maynard Keynes was the son of a Cambridge (UK) economics lecturer, Neville
Keynes, and Florence Brown, a successful writer and social reformer. Keynes received an
English 'upper class' education at Eton, and then Kings College, Cambridge University.
Originally Keynes studied Mathematics, but swapped to economics.

Keynes early adult live is typified by his many homosexual love affairs until he met and
married a Russian ballerina, Lydia Lopokova. They remained happily married until his
death in 1946.

The first significant event in Keynes' career is his work with the British government at
the Treaty of Versailles and his 1922 book that claimed the reparation being paid by
Germany was too high.

John Maynard Keynes economic theories from then on established as a giant in the area
economics, and his theories gave rise to a new form of economics know as Keynesian
economics, in particular the new field of macro-economics.

He died of a heart attack in 1946. At the time he was trying to negotiate amendments to
the Bretton Woods agreement to bring about fairer outcomes for world trade.

Bretton Woods
Keynes contribution to Bretton Woods was a proposal was that a central bank with the
ability to create money like any other bank and would oversee the world economy. The
World Central Bank would create a world reserve currency called the 'Bancor' and all
international trade would be conducted in this currency. The most obvious advantage of a
world currency is that no one nation would own it.

Within the central banking system there where proposed incentives for nations to avoid
imbalances in trade. The system also involved a central clearing house for international
trade.

The two factors that seemed to have worked against Keynes proposal was that it was too
radical for the times, and the USA had all the economic clout and where not about to be
one amongst equals. America owned seventy-five percent of the world's existing
monetary gold and was by far the world's largest military power. America had become an
irresistible force.

The Bretton Woods conference was a sham. It convened only to ratify negotiations
between the USA and Britain that had been going on for two years. Because of world
circumstances few countries could send proper representation. Many could not speak
English, the official language of the conference, and most had not had the opportunity of
reading through 2 years of complex negotiator between Britain and the USA.

It is ironic that the original British plan had been developed in 1941 by Keynes as a
counter to a monetary 'New Order' put out by Germany as the model for the world
economy after they had won the war. In the British model the USA was not included till
after Pearl Harbor.

There are three intuitions that came out of Bretton Woods that make up the un-holy
trinity of world economics, the IMF, the World Bank, and the WTO.

The IMF (International Monetary Fund)

The IMF is a fund designed to stabilize exchange rates and provide a pool which member
countries could borrow from. Originally there were 44 member countries, but that has
increased to 185.

There is a system of monetary quotas imposed on IMF members that also relate to the
voting rights of member nations. The USA holds 16.97% of the voting power. Japan has
6.02% of the voting power, but various agreements between America and Japan,
including America providing a 'Nuclear Umbrella' for Japan, makes it unlikely that Japan
would vote against America. This means a 22.99% power with the remaining nation
having 77.01% voting spit between 183 nations.

Member nations had to provide 25% of there contributions in gold, or a gold backed
currency (read US Dollars). This makes the US dollar the de-facto world currency. This.
together with the US voting block, means that nobody is ever going to win a vote against
the US. Effectively the US runs the IMF.

One of the problems this creates for the USA is whilst all that power is nice while the
world economy is healthy it guarantees any recession is going to be a big one. This is
because if the US economy goes down everyone goes down. If the US economy goes
down it needs strong external economise to help it trade out of trouble. But if everyone is
in trouble there is no one to trade with.

This is an often misunderstood problem with being 'World Leader'. When things are good
they are good, but when thing go bad it goes really bad.

There is also the controversy surrounding the economic support given to dictatorships.
Should the IMF be involved with human rights issues? Detractors say yes, if it supports
dictatorial regimes friendly to US or European corporations. If a country falling apart
economically would injure a US corporation would the US controlled IMF intervene to
save it?

In return for loans member countries are often forced to make economic adjustments that
might increase economic viability but often increase poverty. These issues are generally
perceived shortcomings that may or may not be always or sometimes true. The real
problem is that there are not transparent systems, checks or balances that ensure that
these criticisms are not true.

The IMF does not have any code of economic conduct to go with membership. Thus the
US can engage in practices of unbridled greed that back-fire and plunge the world into
recession. An effective organization designed to promote economic stability must have
mechanisms to divorce rogue economic behavour from the well being of the rest of the
world.

The World Bank.

The World Bank consists of two organizations, the IBRD (international Bank for
Reconstruction and Development) and the IDA (International Development Association).
The World Bank came into being as part of the Bretton Woods conference and is
supported by member states in the same way the IMF is supported. Originally the IBRD
was created to help reconstruction of Europe after the World War. In this it was largely
ineffectual because of US policy towards Germany (reducing it to a pastoral economy)
that did not allow Germany to trade. So European countries produced surpluses that they
had to destroy whilst Germany suffered from severe lack and many died from freezing to
death in the harsh European winters.

America changed policy and through the Marshal plan gave help directly to Europe. Thus
the IBRD was bypassed and Europe became indebted directly to America. The IBRD
then changed is policy to become an institution to aid developing countries fight poverty.
Funding is through issuing bonds on international markets, backed by the guarantee of
member nations. All loans require a sovereign state guarantee.
The issues surrounding the IBRD are much the same as the IMF, voting powers,
transparency and the self interest of member nations.

The IDA grew out of the IBRD. The IBRD lends to 'middle class' countries whilst the
IDA give interest free loans to the very poor. Criticisms include perceived improper use
of funding, a voting structure dominated by the US, and the policy of promoting free
trade that is often seen as detrimental to the country receiving the loan.
There is a larger group called the World Banking Group that includes the IFC
(international Finance Corporation), the MIGA (Multilateral Investment Guarantee
Agency and the ICSID (International Centre for Settlement of Investment Disputes).
These are later 'add-ons' and not part of Bretton Woods.

WTO (World Trade Organization).

The WTO is an organization of member states primarily aimed at removing trade barriers
by negotiation. It has a set up similar to the IMF and World Bank in that member nation
vote according to contributions. The WTO Grow out of GATT (General Agreement of
Tariffs and Trade) which was the entity that grew from of the Bretton Woods conference.
GATT deals with goods and produce, whilst the WTO deals with services and intellectual
property.
The overriding criticism of WTO (with GATT) is that they promote free trade and that
favours the powerful over the weak. The Rich get richer and the poor get poorer.

Globalization is not the real problem. The real problem is the form globalization has
taken since Bretton Woods. If the IMF, the World Bank and the WTO had any relevance
at the time of Bretton Woods that time has long since past. The world has change out of
all recognition since then. We need new world institutions based on equality to fit the
needs of today's world. Hopefully these will be institutions that have the ability to change
and evolve as the world changes and evolves.