The Bretton

Woods System
was inaugurated in 1944 during the
United Nations Monetary and
Financial Conference to prevent the
catastrophes of the early decades of
the century from reoccurring and
affecting international ties.
was largely influenced by the ideas
of British economist John Maynard
Keynes who believed that economic
crises occur not when a country does
not have enough money, but when
money is not being spent and thus,
not moving.
Governments have to reinvigorate
markets with infusions of capital when
economies slow down (Global
Keynesianism).
Two financial institutions were created:

1. International Bank for Reconstruction

and Development (IBRD, or World Bank)
 Responsible for funding postwar
reconstruction projects.
2. International Monetary Fund (IMF)
 Global lender of last resort to prevent
individual countries from spiraling into
credit crises.
 Shortly after Bretton Woods, various
countries also committed themselves to
further economic integration through
GATT (General Agreement on Tariffs and
Trade)
 Neoliberalism and Its
Discontents
 Global Keynesianism came in the mid 1940s
to the early 1970s.
 Governments poured money into their
economies, allowing people to purchase
more goods and, in the process, increase
demand for these products. As demand
increased, so did the prices of these goods.
 At first, it was considered a welcome
development as it was accompanied by
general economic growth and reduced
unemployment.
However, in the early 1970s, however, the
prices of oil rose sharply as a result of the
Organization of Arab Petroleum Exporting
Countries (OAPEC) imposition of an
embargo in response to the decision of US
and other countries to resupply the Esraeli
military with the needed arms during the
Yom Kippur War.
The oil embargo affected the Western
affected the Western economies that were
reliant on oil.
To make matters worse, the stock markets
crashed in 1973-1974 after the US stopped
linking the dollar to gold, effectively ending
the Bretton Woods system.
A phenomenon called Stagflation
had occurred.
 A decline in economic growth and
employment takes place alongside
a sharp increase in prices (inflation).
 Neoliberalism
 Influenced by ideas of Friedrich
Hayek and Milton Friedman arguing
that the government’s practice of
pouring money into their economies
had caused inflation by increasing
demand for goods without
necessarily increasing supply.
 Washington Consensus
 Dominated global economic policies from
the 1980s until the early 2000s.

 Its advocates pushed for minimal government

spending to reduce government.
 Called for privitization of government-
controlled services like water, power,
communications, and transport, believing
that the free market can produce the best
results.
 Pressured governments, particularly
in the developing world, to reduce
tariffs and open up their
economies., arguing that it is the
quickest way to progress.
Note: Advocates of Washington
Consensus conceded that , along
the way, certain industries would be
affected and die, but they
considered this “shock therapy”
necessary for long-term economic
growth.
National Economy-Household
Analogy
Advocates like US President Ronald Reagan
and British Prime Minister Margaret Thatcher
justified their reduction in government
spending by comparing national
economies to households. Thatcher even
promoted an image of herself as a mother,
who reined in overspending to reduce the
national debt.
The problem with the household analogy is
that governments are not households.
Governments can print money, while
households cannot.
Moreover, the constant taxation systems of
governments provide them a steady flow of
income that allows them to pay and
refinance debts steadily.
 Defects of Washington
Consensus
 After USSR collapsed in 1990s, the IMF
called for the immediate privatization of
all government industries.
 IMF assumed that such a move would
free these industries from corrupt
bureaucrats and pass them on to the
more dynamic and independent private
investors.
 However, what happened was that only
individuals and groups who had
accumulated wealth under the previous
communist order had the money to purchase
these industries.
 In some cases, the economic elites relied on
easy access to government funds to take
over the industries (A practice that has
entrenched an oligarchy that still dominates
the Russian economy to this very day).
 THE GLOBAL FINANCIAL CRISIS AND
THE CHALLENGE TO NEOLIBERALISM
 Aside from Russia’s case, the global
financial crisis of 2008-2009 likewise
challenged the efficacy of
Neoliberalism(Washington Consensus).

 The crisis can be traced back to the 1980s

when the United States systematically
removed various banking and investment
restrictions.
 In their attempt the promote the
free market, government authorities
failed to regulate bad investments
occuring in the US housing market.
Taking advantage of cheap
housing loans, Americans began
building houses that were beyond
their financial capacities.
To mitigate the risk of these loans, banks
that were lending house-owners’money
pooled these mortgage payments and sold
them as mortgage-backed securities
(MBSs). One MBS would be a combination
of multiple mortgages that they assumed
would pay a steady rate.
Note: The problem was, the banks were less
discriminating and began extending loans
to families and individuals with dubious
credit records-people who were unlikely to
pay their loans back.
 Missed Assumptions
1.Even if many of the borrowers who would
struggle to pay, a majority would not
default.
2. That housing prices would continue to
increase. Thus, even if home-owners
defaulted on their loans, the banks could
simply reacquire the homes and sell them
at a higher price, turning a profit.
 But sometime in 2007, home prices stopped
increasing as supply caught up with demand.
 More families defaulted their amortizations ,
which triggered rapid reselling of MBSs, as
banks and investors tried to get rid of their
bad investments.
 This dangerous cycle reached a tipping point
in September 2008, when major investment
banks like Lehman Brothers collapsed, there
depleting major investments
 The crisis spread beyond the US since
many investors were foreign governments,
corporations, and individuals.

 The loss of their money spread like wildfire

back to their countries.
 The pattern remains on economic
integration and on increasing free trade.

 Is there a way of turning back?

 Who benefits more?

 Economic globalization remains an un

even process