UGC-NTA NET Political Science – Global Governance and the Bretton Woods System

Global governance refers to the framework of international cooperation and institutions designed to address global issues. It is characterised by multilateralism, a rule-based order, collective action, and norm-setting. The Bretton Woods System, established in the mid-20th century, is a very important element of global governance that aimed to encourage economic stability and prevent conflicts after World War II.

Introduction to Global Governance

Global governance encompasses various mechanisms and institutions that facilitate cooperation among states and other actors. It aims to manage challenges that transcend national borders.

Key Features

• Multilateralism: Involves multiple countries working together on common issues.
• Rule-based order: Establishes norms and rules to guide international relations.
• Collective action: Encourages countries to act together for mutual benefit.
• Norm-setting: Develops standards for behaviour in the international arena.

Historical Context

The concept of global governance emerged after World War II. The devastation of the war brought into light the need for a cooperative framework to prevent future conflicts and promote economic recovery.

Response to Instability

The post-war period was marked by economic instability and political chaos. The Bretton Woods Conference was a direct response to these challenges, aiming to create a stable international economic environment.

Bretton Woods Conference (1944)

The Bretton Woods Conference took place in July 1944 in Bretton Woods, New Hampshire, USA. It was a landmark meeting that set the stage for the modern global economic system.

Key Figures

Notable figures included John Maynard Keynes from the UK and Harry Dexter White from the USA. Their contributions were instrumental in shaping the outcomes of the conference.

Objectives

• Establish a new international monetary order.
• Promote economic cooperation and development among nations.

Institutions Established

The Bretton Woods Conference led to the creation of several key institutions that have shaped global economic governance.

1. International Monetary Fund (IMF)

• Purpose: To ensure global monetary cooperation and facilitate international trade.
• Functions:
  • Surveillance of economic policies of member countries.
  • Providing financial assistance to countries in economic distress.
  • Offering technical assistance and training.

2. World Bank Group

• Purpose: To provide financial and technical assistance for development projects.
• Components:
  • International Bank for Reconstruction and Development (IBRD)
  • International Development Association (IDA)
  • International Finance Corporation (IFC)
  • Multilateral Investment Guarantee Agency (MIGA)
  • International Centre for Settlement of Investment Disputes (ICSID)

Key Principles of the Bretton Woods System

The Bretton Woods System was built on several key principles that aimed to create a stable economic environment.

Fixed Exchange Rates

Currencies were pegged to the US dollar, which was convertible to gold. This system aimed to reduce volatility in exchange rates.

Capital Controls

Member countries implemented restrictions on capital flows to stabilise their economies. This helped prevent sudden economic shocks.

Economic Cooperation

Countries committed to consult and cooperate on economic policies, encouraging a collaborative approach to global economic challenges.

Impact on Global Economy

The Bretton Woods System influenced the global economy in various ways.

Stabilisation of Currencies

The system contributed to the stabilisation of currencies and reduced exchange rate volatility. This stability facilitated international trade.

Promotion of Trade and Investment

The framework encouraged increased international trade and investment, leading to economic growth, particularly in Western countries during the post-war period.

Challenges and Criticisms

Despite its successes, the Bretton Woods System faced challenges and criticisms.

Collapse of the System (1971)

The system collapsed in 1971 due to various factors, including US inflation and trade deficits. The inability to maintain gold convertibility led to a transition to floating exchange rates.

Criticisms of IMF and World Bank

• Conditionality of loans often led to austerity measures that affected economic growth.
• Perceived bias towards Western interests raised concerns

Evolution of Global Governance

Global governance has evolved to address new challenges and complexities in the international system.

Regional Organisations

There has been a shift towards a more complex system involving regional organisations, such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN).

Emergence of New Issues

New global issues, such as climate change and terrorism, have emerged, necessitating a re-evaluation of governance structures.

Role of Non-State Actors

Non-state actors, including non-governmental organisations (NGOs) and multinational corporations, now play role in global governance, influencing policies and practices.