The 1999 “Battle of Seattle” brought the issue of accelerating global economic inequality into public consciousness, as more than 40,000 protesters blocked access to a World Trade Organization (WTO) conference, and trade representatives went home without making any agreements. Leftwing activists named the villains of globalization: the WTO, the World Bank, the International Monetary Fund (IMF), and the various multinational corporations that were driving the new “neoliberal” model of global free trade, which favored untrammeled international capitalism, exemplified by moving manufacturing to the countries with the lowest wages and undermining local, national and workers’ power.
If you want a deep dive into how economic power in the world works, Martin Daunton’s The Economic Government of the World will give you the framework in both fine detail and sweeping scope. It begins with the Bretton Woods system, the global economic order that came forth from the ashes of World War II. That system incorporated a series of trade rules, such as foreign currency being convertible into U.S. dollars (and dollars to gold), and created the institutions to help integrate, rebuild, and develop the postwar world.
“During the war, [President Franklin D.] Roosevelt’s aim was the construction of liberal world order. He had saved capitalism in the United States by the New Deal,” Daunton writes. “Now he wished to reform the world by spreading American values of free enterprise, personal initiative and responsibility.” Daunton, a University of Cambridge economic history professor, believes the postwar world order was intended to create a stable economic regime that balanced domestic national welfare and global economic integration.
In the postwar era, the American right wing led the challenge to global economic integration, as it campaigned to reject the ratification of Bretton Woods. Ohio Senator Robert Taft, the scion of a leading conservative family who had opposed the New Deal, referred to the Bretton Woods system as pouring money “down a rat hole.” Daunton quotes rightwing descriptions of Bretton Woods as a “nefarious plot to rob the United States of its gold reserves; an attempt to make Uncle Sam the milch cow for the rest of the world.” Wall Street, still smarting from the New Deal’s success, went full gold bug, and the American Bankers Association opposed ratification as well.
Eighty years later, that rhetoric sounds familiar.
This new internationalism also produced the United Nations and its World Health Organization agency, and there was strong emphasis on agriculture and nutrition in war-scarred areas. Roosevelt, acknowledging the Soviet Union’s immense civilian and military sacrifices to turn back fascism, had hoped to include the Soviet Union and China in the postwar order. He also directed the United States to join the International Labor Organization; however, issues of international labor standards took a back seat to trade, and the Communist countries, which had supposedly ended capitalism, did not see a strong need to contribute to international labor law.
As the world split between the Capitalist West and the Communist East, the Cold War enveloped the developing world, with hot wars in Korea and Vietnam. That provoked criticism of the Bretton Woods system from the Left as updated imperialism. For Daunton, the “embedded liberalism” at the heart of the postwar order balanced internationalism and domestic welfare, and the system rejected Hayekian libertarianism that would have restricted state action and empowered markets. There is not much discussion, however, of the Vietnam War and the violence that underpinned American-led power.
As the Vietnam War dragged on and government deficits mounted, President Richard Nixon’s administration faced other problems. The gold standard necessitated that a country slash prices and labor costs when its balance of payments declined, in order to boost exports. In the summer of 1971, Nixon suspended the dollar’s convertibility to gold at $35 per ounce. Its exchange rate now floated, the Bretton Woods financial system broke down, and a financialized future opened.
The U.S. became a debtor nation in 1986, but a large consumer culture emerged, and global investment flocked stateside, including to U.S. Treasury bonds. Yet President Ronald Reagan’s “morning in America” hadn’t come yet for declining corporate profits. A new economic and financial model was wanted.
Daunton prefers the term “market liberalism” to “neoliberalism.” He defines it as believing that “human relations are based on buying and selling, and that individual self-interest maximizes collective welfare” and that “markets were more efficient and effective than planning, that private property rights were more appropriate than collective ownership, that growth and incentives were more important than questions of distribution and economic security, that the power of capital and finance were superior to labor, and that the pursuit of cosmopolitan capitalism had priority over national capitalism.”
Central banks and financial institutions flexed their muscles. The Federal Reserve jacked up rates to combat the inflation of the late 1970s. The WTO replaced the Bretton Woods system, while the IMF and World Bank made loans during times of national crisis that imposed market-liberalism principles such as slashing public payrolls, cutting social spending, privatizing state-owned industries and general austerity.
The push and pull of internationalism vying with economic nationalism dominates The Economic Government of the World. Globalization created winners and losers. Asian economies led by the rise of China and India have closed the inequality gap with the West. The winners have been the global 1% and the middle and working classes in emerging economies, especially in China, where hundreds of millions of people have escaped poverty. The losers were Western industrial workers who lost their jobs and the lower middle class that got mired in low wages, high health insurance and housing costs, and loss of societal solidarity.
Following the 2008 economic crash caused by Wall Street’s rampant speculation in sub-prime mortgages, the economic government of the world’s market liberalism came under increased fire from leftwing anti-austerity movements in the U.S. and Europe, most famously Occupy Wall Street. Meanwhile, rightwing populists redirected popular rage at immigrants and other easy scapegoats with great success. In England, it led to severing economic ties with the European Union in the name of Brexit while Trump came to power in the U.S. threatening to impose tariffs and wage trade wars that would have been inconceivable a few years earlier.
The 21st century’s challenges of climate change, disease and the specter of nuclear war will need a coordinated global response. The Economic Government of the World’s closing chapters confront them. Any resurgent left will have the role of emphasizing international solidarity and mutual aid as the environmental and economic disasters pile up. Rightwing economic nationalism, though, seems to have staying power.
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The Economic Government of the World, 1933–2023
Martin Daunton
Farrar, Straus & Giroux; 2023, 1024 pages
