More than the failure of the structures established in 1944, what has happened is the systematic deviation from them by the more powerful among the Bretton Woods signatories. In addition, the world economy has outgrown Bretton Woods and faces new problems and challenges, even as the landscape of global economic power has been vastly transformed from what it was in 1944.

Forty four countries attended the 1944 Bretton Woods Conference. The United States, then the emerging superpower, was assertive to the point of being arrogant; the United Kingdom, the receding colonial power, could only throw its dead weight around, although in John Maynard Keynes it offered the world the most influential economist of the century. Almost all the attendees were World War II allies and signatories to the UN Declaration of 1942. Many of them were colonies. Germany, Italy and Japan, the Axis countries, were excluded. The Soviet Union, then the formidable socialist threat to world capitalism, attended Bretton Woods but did not sign on to the agreements. India came to the conference, but only as Britain’s biggest colony. China, under Chiang Kai Sheik, was there as a lackey of the West, pre-Mao Zedong and not yet the red star of the East.

The new landscape

Fast forward to 2008 and the G-20. The emergence of the Group of Twenty itself illustrates the changes in the global economic landscape. What began as the exclusive economic club of five (G-5 comprising US, UK, Germany, France and Japan) in the late 1970s, guardedly expanded to include Canada and Italy to become G-7, and then invited Russia to make it G-8. Thus far and no further was how the US and Europe rebuffed attempts to expand the group to include emerging Asian and South American economic powers. Keep the barbarians at the UN political talk shop and keep them off from the inner sanctums of global economic decision making, was the thinking. The Europeans did not want to lose the majority they had in G-8. Individual western leaders like Paul Martin, former Canadian Finance Minister and Prime Minister, worked hard to set up the Group of Twenty but it was stalled at the level of Finance Ministers and Central Bankers.

It took a financial tsunami and the Great Recession for America’s lame-duck President Bush to get off the high horse and host in Washington the first summit of the G-20. The old power houses, US and UK, have been cut to size. The former outlaws, Germany, Italy and Japan are in but neither Germany nor Japan is as economically strong as they used to be for most of the postwar period. Regionally, Canada and US, the world’s largest trading partners, are the two North American countries; Argentina, Brazil and Mexico represent the Central and South Americas; from Europe are Germany, France, UK, Italy with a separate chair for the EU; South Africa is the only member from Africa, and so is Australia from down under; Saudi Arabia is there for its oil along with Turkey, the hothouse between the East and the West; Russia is the lone attendee from Eastern Europe, a sad shadow of the once mighty Soviet Union; completing the pack are the five Asian countries – China, India, Japan, South Korea and Indonesia.

The new landscape tolls not the demise of capitalism; capitalism doth prevail despite its crisis. The socialist hopes of the past - Russia and China, and the exponent of mixed-economy experiment – India, are all now entrenched in market capitalism, in their own ways. India has moved beyond the old self-deprecating annual “Hindu growth rate” of 3.5% and is registering rates two to three times high. It is even poised to ward off a technical recession - two successive quarters of negative growth. China is the new power in the global economy, not anyone’s lackey; but it is a capitalist power, no more the red star of the east. The era of Mao has come and gone between Bretton Woods and G-20, between the Great Depression and the Great Recession.

Casino capitalism

Yet, the G-20 summit was not a ringing celebration of capitalism, but a crisis gathering to deal with its latest calamity. Indian Prime Minister Manmohan Singh, the only academic economist at the summit, reportedly went into lecture mode and quoted from Keynes’s General Theory: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.” Also borrowing from Keynes, Dr. Singh had earlier criticized the current crisis as the result of casino capitalism.

For most of the last three decades, casino capitalism has enjoyed currency under the euphemism of risk taking. For Alan Greenspan, the former US Federal Reserve Chairman and until now the universally respected financial oracle, competition and risk taking are the essence of capitalism. The purpose of the welfare state, Greenspan suggests in his book, The Age of Turbulence, is to control excessive risk taking through regulation, and to reduce the rewards of risk taking through taxation. True to his free market principles, Greenspan, during his long and influential stint as Chairman, led the dismantling of a good deal of the regulatory scaffoldings that were set up by President Roosevelt as part of his New Deal to rescue America from the Great Depression and avert its recurrence.

Not that there were not enough American economists or regulatory officials who raised voices of informed concern about the casino forces that deregulation was unleashing. But these voices were silenced and marginalized by the magic of Greenspan, Rubin and Summers (the powerful triumvirate in the Clinton Administration), perhaps more gently and less obtrusively than Colin Powel’s concerns over invading Iraq were dismissed in the Oval Office by the war mongering pair of Cheney and Rumsfeld.  The deregulation fiasco that Greenspan presided over is at the root of much of America’s current woes.

Greenspan’s mea culpa

It is poetic justice, therefore, for Mr. Greenspan to live through America’s melt down, and in an extraordinary Congress hearing in October, to confess mea culpa. It was really maxima culpa! He admitted to being “in a state of shocked disbelief” after what he described as “once-in-a-century credit tsunami” brought about by the failure of the financial institutions to rely on their self-interest to protect the equity of their share holders. Contrite though he was, Greenspan was far from becoming a zealous convert supporting a revamped regulatory regime. Regulatory changes are necessary to compensate for the “failures of counter-party surveillance … the central pillar of competitive markets”, he characteristically convoluted; in the next breath, he waxed eloquent that any new regulatory regime will pale in comparison to the self-restraint that the markets have already begun to show.

To translate, the markets will be more cautious and careful in future against individual or corporate casino capitalists. The market requires no Smithsian “hidden hand”; it can play god. Rather, Greenspan let the market play god with people’s lives, not just in America, but around the world. Remarkably, Robert Rubin and Larry Summers (both Treasury Secretaries under Clinton) of the old triumvirate are now new converts supporting a stronger role for the State in the incoming Obama Administration as it tries to formulate the elements of a new ‘New Deal’ even before the inauguration on 20 January, 2009.

The old New Deal of Franklin Roosevelt was a comprehensive assault on what was then the prevailing laissez faire system. It included a social safety net for workers, farmers, the elderly, and the jobless; public works programs to stimulate the economy; and institutionalized regulations of the financial industry. At the international level, Bretton Woods achieved a consensus among states on financing public works programs, stabilizing exchange rates around a fixed value of gold in dollars, and fostering free trade. The biggest roadblocks to free trade were the more powerful countries. Bretton Woods also established the IMF and the World Bank, but both structured to be oligarchic and undemocratic in their operations.

Today, the world needs not only a universal return to the old New Deal, but also the democratization of the international financial institutions. It is conventional history that the world was saved from the Great Depression by the ideas of John Maynard Keynes. The so called ‘Keynesian revolution’ of state welfare programs and government spending on public works beyond its normal revenues was the result of several antecedent and contemporary developments that both challenged and forced reforms in the operations of unbridled capitalism. Not least among them was the fear of revolution that Karl Marx had envisaged. There is no fear of revolution at the present juncture, but only a new interest in the writings of Marx and his critique of capitalism. Ironically, the impetus for new changes could come from China and India but not by the strengths of their market economies; only if they are able to harness the projects of rescuing capitalism to the interests of their ordinary citizens and those of other developing countries.