Chapter 19 Notes: Global Governance and the Bretton Woods System
What is global governance?
Is global governance a myth or a reality?
How and why was the Bretton Woods system established?
How were the Bretton Woods institutions converted to economic liberalization?
Why have the Bretton Woods institutions attracted so much criticism?
What does the 2007–09 global crisis tell us about the need for global economic governance?
The issue of global governance has received growing attention, particularly since the 1990s. This has occurred for a number of reasons. The end of the Cold War meant that increased expectations fell on international organizations in general and on the United Nations in particular. Accelerated globalization stimulated discussions about the relationship between trends in the world economy and the institutional frameworks through which it is supposedly regulated. And there has been a general recognition that a growing number of worldwide problems are beyond the capacity of individual states to solve on their own. However, hovering somewhere between a Westphalian world of sovereign states and the fanciful idea of world government, global governance is profoundly difficult to analyze and assess. How is global governance best understood? Does it actually exist, or is global governance merely an aspiration? The arena in which global governance is most advanced is nevertheless the field of economic policy-making. This stems from the 1944 Bretton Woods agreement, which sought to establish the architecture for the postwar international economic order by creating three new bodies: the IMF, the World Bank and GATT (later replaced by the World Trade Organization), collectively known as 'the Bretton Woods system'. This system, however, has evolved significantly over time, as it has adapted to the changing pressures generated by the world economy. From an initial concern with postwar reconstruction in Europe and later development in the Third World, its key institutions were drawn into deeper controversy from the early 1970s onwards as they were converted to an agenda of economic liberalization and became inextricably linked to the forces of neoliberal globalization. What factors lie behind the creation of the Bretton Woods system, and how did its mission subsequently change? Have the Bretton Wood institutions been a force for good or for ill?
Global governance is a broad, dynamic and complex process of interactive decision-making at the global level. It hovers somewhere between the Westphalian state-system and the fanciful idea of world government. Although it involves binding norms and rules, these are not enforced by a supranational authority.
Liberal theorists argue that there is an unmistakable, and perhaps irresistible, trend in favour of global governance, reflecting the growing interdependence and a greater willingness of states to engage in collective action. However, global governance is more an emerging process than an established system.
The trend towards global governance has been particularly prominent in the economic sphere, where it has been associated with the Bretton Woods system that emerged in the aftermath of WWII. This system was based on three bodies: the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade, replaced by the World Trade Organization in 1995.
The Bretton Woods system initially supervised the world economy largely though the maintenance of stable exchange rates. This system nevertheless broke down in the early 1970s as floating exchange rates replaced fixed exchange rates, starting the process through which the Bretton Woods institutions were converted to the cause of economic liberalization.
The IMF, the World Bank and the World Trade Organization have each, in their different ways, been drawn into controversy through their association with the processes of neoliberal globalization. Although supporters argue that they have contributed to a remarkable expansion of the global economy, critics claim that they have deepened global disparities and helped to produce an inherently unstable financial order.
The 2007–09 global financial crisis has raised pressing concerns about the effectiveness of global economic governance, leading to calls for reform. However, major obstacles stand in the way of reform, not least the continuing dominance, in many countries, of neoliberal principles and the more diffuse location of global power.
