FIFTY years ago tomorrow the Bretton Woods monetary conference ended. More, perhaps, than any other single gathering, it helped to shape the post-war world. For it set the framework for monetary order, based on freedom of trade and currency movements, and so underwrote the greatest half-century of economic expansion that the world has ever known.
Even Russia and China, as well as most of the developing world, are belatedly adopting the open trade and financial markets that Bretton Woods sought to establish. The intellectual victory, measured by the extent to which governments around the world frame their policies in line with the system, is complete.
Yet the anniversary is not being greeted with universal acclaim. Rather the reverse. In particular, the twin financial organisations spawned by Bretton Woods, the International Monetary Fund and the World Bank, have found themselves under sustained attack. Part of the hostility comes from what might loosely be called the left. There is a campaign in the US which goes under the banner 'Fifty years is long enough'. In Britain, Christian Aid has this week published a booklet, Who Runs the World?, the start of a two-year campaign calling for far-reaching changes to the bank and the fund.
But the two institutions are also attacked from the right. US congressmen castigate the staff for their lavish lifestyles, and the US administration has been delayed time and again by Congress in its efforts to provide additional funding for the bank.
The Christian Aid booklet well expresses the unease many people feel about the uneven distribution of benefits of world economic growth. And while the world has become richer, there have been costs to individuals and damage to the environment which, rightly or wrongly, can be attributed to the work of the twin Bretton Woods institutions.
This work has changed over the years. In the immediate post-war era there was a clear distinction between the two. The IMF policed the fixed-exchange-rate system, giving short-term loans to countries which found themselves in balance of payments difficulties so that they would not have to impose damaging trade restrictions. The World Bank, meanwhile, lent money to finance investment projects, typically large public-sector ones, such as dams. But over time these roles merged.
In the Seventies the fixed-exchange-rate system broke up, and the IMF's seal of approval for a government's financial policies became more important than its loans. Its clients also changed from being industrial to developing nations, particularly during the Eighties when the fund helped Latin America to resolve the debts it had accumulated with the commercial banks.
The World Bank's role also shifted in the Eighties, becoming an adviser to developing countries on how to change their economies to a more market-orientated system: changes that go by the ugly name of structural adjustment programmes. It would give loans to help finance the changeover.
So today both organisations are in the business of telling countries how to run their economies, and giving some loan money to sweeten the pill.
The fact that two of the main policies advocated by the IMF (and indeed the World Bank) are control of the money supply and privatisation makes many people see these as externally imposed Thatcherism: right-wing policies with no democratic mandate.
In any case, policies that might seem tolerable when foisted on a relatively rich country such as Britain, seem intolerable when imposed on very poor ones. Hence Christian Aid this week calls for an end to structural adjustment programmes, reforms to make the World Bank and the IMF democratic and accountable, and cuts in or cancellation of debts owed by poor countries to the bank and fund. It also calls for fairer international trade.
It is difficult not to have some sympathy with these arguments. The problem with the Christian Aid case is that it is really criticising the way the free market world economy works, as much as how the fund and the bank work. It attributes an enormous amount of power to the twin institutions, power which anyone working within them simply would not recognise as real. In fact, both institutions have become much less powerful in recent years, not more.
The IMF no longer has any authority over large industrial countries. The World Bank's lending programme has been dwarfed by the explosion of private risk capital available for development, the 'emerging market funds'. With just about every country in the world scrambling to set up a stock market, and fund managers eager to put money into it, the need for the bank to lend money to build a dam (or whatever) is greatly diminished. (Maybe the dam should not be built at all: environmentalists argue that many of the bank's loans have actually done more harm than good.)
Finally, the bank has also fallen victim to a shift in perception of how development occurs. This has been brought about by the success of the newly industrialised countries of east Asia, whose experience demonstrates that nations become rich because their people save money and work hard, not because they are granted loans by bureaucrats in Washington.
So what is the future for Bretton Woods? It is a big question, but it is possible to sketch an answer. One useful suggestion as to the IMF's role has come from a commission headed by Paul Volcker, former chairman of the Federal Reserve Board. It argues that the world should try to reassert some discipline over exchange-rate movements by establishing target zones for them. The IMF could help to co-ordinate such a system, leaving the development business to the World Bank. The bank, in turn, should work more closely with the private sector, shifting emphasis to its affiliate, the International Finance Corporation, which specialises in such co-operation.
I would add a further point: the idea that the bank and fund should tell countries how to run their economies is inherently unsatisfactory. If countries wish to change policies and hire the bank as a consultant to help them, that is fine. If countries want to borrow money and the World Bank can do the best deal, that is fine, too. But the idea that the rich should somehow bribe the poor to adopt certain policies is deeply damaging. If that means a smaller World Bank, so be it.
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