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Globalization > Unit 1 > Part 3

Unit 1: Historical and Contemporary Overview of Globalization

Part 3:  Following World War II

In addition to providing a theory compatible with the market skepticism between the wars, Keynes, somewhat ironically, helped lay the foundations of the current “global” order. After the Second World War, at a conference in Bretton Woods, New Hampshire, Keynes helped found the World Bank and International Monetary Fund. The Global Agreement on Tariffs and Trade soon followed, and so were born today’s three most talked about international financial institutions.

WEBSITES:  Click on the following websites for more information about these institutions and agreements:

World Bank
http://web.worldbank.org/

International Monetary Fund
http://www.imf.org/external/pubs/ft/exrp/origins

Global Agreement on Tariffs and Trade
http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm

Right after the Second World War the Bretton Woods institutions did not look like they look today. At that point, although the world was off of the gold standard, the dollar was still pegged to gold, and other currencies were pegged to the dollar. This put the US in the unenviable position of being creditor of last resort for the world: in order for the world to grow, the US had to run balance of payments deficits either through lending capital or borrowing in order to consume. The official vision of world growth saw it depending on the health of the West and more specifically, the US.

In the 1970s this picture changed somewhat. The US let its currency float against other world currencies—it was no longer linked in value to other currencies through the price of gold. The IMF and World Bank began to suggest more in the way of neo-liberal, free-market policies to developing economies and the poor. Indeed, the “structural adjustment” policies that the IMF has advocated universally insist on a laundry list of liberal remedies, frequently without regard to country particulars: tight money, less government regulation, privatization of public amenities, government budget surpluses, export-driven development.

Such advice has not always been entirely well-received; especially in the 1960s and ’70s, national autonomy for some meant adopting import substitution rather than free trade development policies. Import substitution meant raising barriers to imported goods that could be produced at home in order to protect and foster nascent national industries. As the experience of Latin America has shown, ISI hasn’t been terribly successful; there is too much opportunity for corruption, too little incentive to develop efficient, competitive industry. By the late 1970s and early 1980s such policies were generally acknowledged to have failed.

The single bright spot in the development picture as of the 1980s was South East Asia, which followed neither the neo-liberal IMF-World Bank advice nor import substitution policies. The “Tiger” economies of Japan, Korea, Taiwan, Singapore, and Hong Kong all raised tariff barriers to foreign imports in order to support local industry. But their aim was export-led growth, rather than import substitution. That has proved to be among the important differences between developing economies that succeed and those that fail, and it also helps explain Asian economies’ recent positions on trade. (More on this in Unit 2.)

 

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