Economic Development During and After World War II

Prior to the world war II, economic globalization has been experienced throughout the world,
but when world war II started it collapsed and also brought about by economic depression. All of
these events have negative effects on almost all major economies (the U.S. economy was a major
exception, at least in terms of the effect of the two world wars). Of particular importance in the
1930’s was the movement of many countries-notably fascist Italy and Germany-in the direction of
autarky, or in the turn inward in order to create as much economic self-sufficiency as possible.
Such a turn inward is, of course, anathema to globalization, which requires that various entities-
including nation states – be outward looking, rather than inward looking, not only in the way they
view the world but also in their actual dealings with other parts of the world.
Autarky - economic independence or self-sufficiency

Anathema - something or someone that vehemently dislikes

Bretton Woods and the Bretton Woods System

A key factor in the Depression was thought to be a lack of cooperation among nation-states. That
lack of cooperation was associated with high tariffs and other import restrictions and protectionist
practices, as well as the propensity of governments to devalue their currencies in order to gain an edge in
global trade over other countries. The latter also made exchange rate wars among the nations involved
more likely.
Those concerns were the backdrop for the creation of the Bretton Woods system and its five key
elements:

1) Each participating state should establish a “par value” for its currency expressed in terms of gold or
equivalently in terms of the gold value of the U.S. dollar.

2) Secondly, the official monetary authority in each country (a central bank or its equivalent) would agree to
exchange its own currency for those of other countries at the established exchange rates, plus or minus a one-
percent margin.

3) Thirdly, the International Monetary Fund (IMF) was created to establish, stabilize, and oversea exchange
rates.

4) Fourthly, the member states agreed to eliminate, at least eventually, “all restrictions on the use of its
currency for international trade”.

5) Finally, the entire system was based on the U.S. dollar (at the end of the world war II the U.S. had about
three-fourths of the world’s gold supply and accounted for over one-fifth of the world exports).
International Monetary Fund (IMF) 190 member countries

The goal of the IMF is macroeconomic stability for both member nations and the global economy.
More specifically, the IMF deals with exchange rates, balances of payments, international capital
flows, and the monitoring of member states and their macroeconomic policies. The IMF is a lightning
rod for critics who see it as supporting developed countries and their efforts to impose their policies on
less developed countries. Its supporters see it as key to the emergence and further development of
the global economy.

World Bank (WB) 189 member countries

The World Bank (WB), officially the International Bank for Reconstruction and Development
(IBRD) is the most important element of the World Bank Group (WBG). The IBRD or the bank was
established in 1944 at Bretton Woods and began operations in 1946. Membership is open to all
member states of the IMF.
Among the missions of the bank are as follows:

● Encouraging development of productive facilities and resources in less developed countries.

● Funding for productive purposes when private capital cannot be obtained on reasonable terms.
● Encouraging international investment in order to promote international trade and development
and equilibrium in balance of payments and
● Helping member countries improve their productivity, standard of living, and labor conditions.

For your information: The Philippines is a member of WTO, IMF and the World Bank.
 Changes in Bretton Woods Era Organizations

In the twenty-first century, the organizations that were spawned by Bretton Woods-the
World Bank, the International Monetary Fund, and the World Trade Organization-are
undergoing dramatic changes. A former U.S. secretary commented: “The Bretton Woods
System has become outmoded. It has served us very well for a long time, but these institutions
haven’t changed with the time. They need to be rethought and restructured. Recent changes in
the organizations are traceable to several major forces including globalization, major trade
disputes, and the increasing power and ambition of growing economic powers, especially in
Asia.
 Changes in Bretton Woods Era Organizations
In terms of the latter, World Bank has been loaning large sum of money to countries whose
economies did not need such loans (e.g., China, including $710 million in early 2009 to help rebuild
areas hit by the 2008 earthquake). In fact, of the bank’s $23 billion in loans in 2006, $13 billion went to
“middle income” countries rather than to poor countries. Even in terms of the funds that do go to poor
countries, the World Bank is an increasingly small player in comparison to various international and
private aid organizations. As a result, one professor said, “It’s hard to see what good it has done
anywhere”. The bank argues it is helping large numbers of the poverty-stricken less-developed
countries, while its critic say it is the opening of markets there, and not bank loans, that has helped in
poverty reduction. Another issue raised was the leadership of these organizations, especially the
preeminent position is occupied by the U.S which has become increasingly controversial for various
reasons including the fact that the U.S. is not contributing as much money as it used to, at least in
comparison to other nations.
 A Critique of the Bretton Woods System
One of the most effective critics of the Bretton Woods System era organizations is the noted
economist Joseph E. Stiglitz. His critique is especially powerful because he had great practical experience as
a member of President Bill Clinton’s Council of the Economic Advisors and as Chief Economist at the World
Bank. Thus, he was able to view the operations of the global economic system not only from the inside, but
also from prominent positions within powerful institutions within that system. It is the fact that this is a critique
from within rather than from those who are in the periphery of the system, and who feel they are being
exploited by it, that gives Stiglitz’s argument so much power.

For Stiglitz, globalization is defined as “the removal of barriers to free trade and the closer
integration of national economies.” He said that economic globalization can be a positive force and can enrich
everyone in the world including the poor. However, he said that this has not been the case because of the way
globalization is being handled, and especially international trade agreements have been managed including
their imposition on less developed nations. As a result, Stiglitz sees an increase in global poverty as well as a
growing gap between the global rich and the global poor.