It seems absurd to turn one’s face away from a world, perceptibly a canvas of Paul Nash’s most shocking depictions of war and destruction captured in The Menin Road of 1919, and focus on something apparently as rarefied as the global or international financial architecture (IFA). As if, then, there is nothing else of concern, the continued unsuitability and dysfunction of this architecture gained attention, again, in May — about three decades after it was first identified as a “thing”.
I beg the indulgence of the reader; never mind the customary polemics and banter, global finance as a cornerstone of historical capitalism has been at the centre of my thinking, learning and work since the end of the Cold War. I make this point only to support my claim that the most recent discussions are somewhat tedious because there has been little movement since at least 1998.
At the end of May, the “international financial architecture”, wrote Michael Krake, executive director for Germany at the World Bank, “is one of the central narratives that have shaped our economic thinking for the past eight decades. Its institutions, rules and central actors affect the way economies, governments, firms and individuals interact financially.
This architecture can catapult economies on to the path of progress, just as it can leave entire regions stuck and marginalised.
— Michael Krake, executive director for Germany at the World Bank
“This architecture can catapult economies on to the path of progress, just as it can leave entire regions stuck and marginalised. It is crucial, therefore, that we ask ourselves what the ultimate purpose of the IFA is, who its beneficiaries are and who is actually telling the story. The IFA we rely on today has its origins in the last century. It emerged from the Second World War, when the UN, World Bank and IMF were established. And its main target, after an era of global conflict and economic chaos, was stability and a rules-based order that ensured predictability.”
As a purely technical issue, inasmuch as it can be disembedded from humans, this architecture refers to a framework of institutions, policies, rules and practices that govern the global financial system, and rules that govern international competition in banking, global capital flows and government debt management policies — especially specific rules governing domestic bank safety nets.
Three of the points Krake raised are important. The “beneficiaries”, “who is actually telling the stories” and the “origins” of the order that “emerged from the Second World War”. The unpredictability of the system is par for the course because failure can be linked to capitalism’s lack of caring and excessive consumer culture. I think I just twisted and abused the words of Arthur Schopenhauer. Never mind.
Enter contingency. A solid understanding of the “beneficiaries” of the system may be tied to its origins and to “who is actually telling the story”. We know that the post-war order was created by the victorious and the powerful to serve their interests; that it helped spur the Golden Age of Capitalism, which former US president Richard Nixon effectively ended in August 1971; that the US felt it “couldn’t uphold all of the responsibilities that it inherited” after World War 2, and that within another decade Ronald Reagan and Margaret Thatcher broke with the belief that whatever happened in the global political economy had to positively improve the lives of societies.
Dislocation
Sure, we have smartphones and epoch-defining information and communication technologies, but there is great suffering, poverty, war and dislocation in the precariat. “Markets” thrived, but very many people drifted into precarity on the periphery of the global political economy.
It has all been terribly reminiscent of Fyodor Dostoyevsky’s observation in Notebooks for the Brothers Karamazov: “Well, then, eliminate the people, curtail them, force them to be silent. Because the European Enlightenment is more important than people.” Replace, “the European Enlightenment” with “markets” and that may make sense.
Back to “who is actually telling the story”. For most of the period since Bob Rubin first referred to the architecture of global finance in 1998, the story has been told over and over again by the very same people, the North Atlantic Community. The story has been repeated almost always by mainstream economists or global public policymakers along an arc starting in Berkeley, California, to Washington and stopping, as it were, in Berlin.
These two factors are important when we recall that the Bretton Woods conference of July 1944 (which inspired the IFA) included 44 countries. Many of these countries were little more than colonial or settler-colonial entities, like SA or “British India”. Also among them were the former Soviet Union and Yugoslavia, which have completely disappeared, and Taiwan, before Chinese nationalists, following earlier patterns set by the Portuguese, Dutch and early Han people, colonised the Austronesian island and people in 1949.
In short, the world has changed significantly, and there is greater diversity among people and opinions in the world. A good next step, moving on from scholars like University of California, Berkeley’s Barry Eichengreen, for whom I have a lot of respect, or Krake, who I am sure means well, would be to convene a gathering that would include more than just economists, and people from the periphery to imagine a better world that would foreground “the people” and not “the market” — as Dostoyevsky may have said.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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