In The World Is Flat, published in 2005, Thomas Friedman argued that global trade and finance, presided over by international institutions – the IMF, the World Bank, the WTO – were making the planet not only richer but less hierarchical and unequal. This was a pumped-up version of the Enlightenment theory of doux commerce, which held that growing trade, founded on mutually beneficial contracts and the rule of law, would provide opportunity and riches for all, and eventually consign wars, empires and great-power politics to the past. The belief that market-led development strategies would benefit everybody underpins the Washington Consensus, a set of ten policy points drawn up at the end of the Cold War, and dictates decisions at the World Economic Forum at Davos.
For decades Davos was the meeting place for global elites, but since the Covid pandemic it has ceded ground to the more inclusive and tumultuous COP meetings on climate change. Davos talk is usually banal (the theme for 2008, months into the financial crisis, was ‘the power of collaborative innovation’); COP debates bring more drama. In 2021, Glasgow’s COP26 ended with the chair, Alok Sharma, asking forgiveness for the diluted final agreement, while activists at last year’s COP27 in Sharm El-Sheikh denounced the West for ‘climate colonialism’ and demanded reparations. At COP, it’s often taken for granted that the end of formal empires only occluded the links between colonialism and global capitalism and that multinationals and technocrats are the new face of exploitation.
Jamie Martin’s impressive new book, The Meddlers, considers the League of Nations and other interwar precursors of ‘neutral’ institutions of doux commerce to show how closely the ‘birth of global economic governance’ was entangled with empire. Martin focuses on a small group of European and American officials and bankers who tried and failed to stabilise capitalism after the First World War. By the late 19th century, the majority of lawyers agreed that while imperial states had the right to intervene in the internal affairs of their colonies, it was unacceptable to do so in those of other states. In practice, however, the distinction wasn’t clear-cut. Between imperial and independent states were the murky enclaves of ‘informal empire’, stretching from Latin America to the Ottoman Empire to China, in which Europe and the US interfered – whether by means of force or intrusive economic ‘meddling’ – to promote their own interests. Sometimes this involved coercion of the reluctant and uncooperative: Britain fought the two Opium Wars in part to compel China to participate in ‘free trade’.
As Western investors became controlling shareholders in the railways, mines and plantations of the global South, the supposedly peaceful worlds of trade and finance became harder to distinguish from imperialism. The rules of global capitalism require that international debts are repaid, and the great powers resorted to the methods of empire to ensure they were, even when supposedly independent states were involved. In 1902, for instance, British, German and Italian ships blockaded Venezuelan ports to extract debt repayments (President Cipriano Castro had refused to pay foreign debts and damages suffered by European citizens in the recent civil war). Indebted local elites elsewhere headed off gunboat diplomacy by accepting intrusive economic controls. In 1876, the khedive of Egypt, theoretically a subject ruler of the Ottoman Empire, invited the British and the French to set up a debt commission, staffed by European officials, with extensive quasi-sovereign powers to tax, spend and direct Egyptian revenue, and to supervise debt. European involvement in the Egyptian economy steadily increased: the American economist Henry Carter Adams believed the commission was so powerful it was becoming the ‘practical dictator of Egypt’. This exercise of ‘soft’ imperialism led to a nationalist rebellion, British military intervention and the creation of a ‘veiled protectorate’ in 1882.
Some countries tried to resist financial imperialism with diplomacy. At the 1907 Hague Peace Conference, Argentina succeeded in limiting the right of foreign powers to use force to recover debts. But European countries continued their surreptitious power grabs, which were justified on both commercial and imperialist grounds. Frank Nixon, a British Treasury official who worked for the League of Nations in the 1920s, described Albania as an ‘oriental’ country where ‘a certain amount of financial wisdom may have to be instilled by means of a revolver.’ By this time, the gun had mostly yielded to the pen – preferably wielded by a former colonial administrator. Nixon was impressed by one candidate for a job at the League who had ‘experience governing rather wild people’ in the Dutch East Indies.
Before the First World War, it was usual to consider this kind of high-handed ‘meddling’ necessary only in states with Muslim populations, or those, like Greece and Serbia, that languished under Ottoman tutelage despite their Christian culture. After 1918, far trickier situations arose as financial crises hit ‘advanced’ states and bankers refused to finance their debts unless they accepted the intrusive supervision usually imposed on less ‘civilised’ nations. Should Europeans have to suffer the humiliation of debt commissions and financial imperialism too? Intervention ran the risk not only of provoking nationalist opposition but also of undermining the West’s claims to global dominance. This dilemma sharpened when the successor states to the defeated Habsburg and German empires suffered economic collapse. Private banks refused to lend to unstable countries, and the victorious powers, fearing revolution and renewed conflict, concluded they had no choice but to intervene.
They created a new hybrid order, a halfway house between doux commerce and empire. Officials from ‘neutral’, non-imperial organisations would tactfully manage global commerce for those ‘civilised’ nations that were bankrupt, while the victorious empires would continue to govern their chunks of the globe as they saw fit. During the First World War, the Allied powers had set up a number of councils to co-ordinate global production and trade; after the war, liberal internationalists hoped to adapt them to solve a range of peacetime problems. Loans and debt were taken on by the League of Nations, better known as a peacemaking organisation: the League would appoint former domestic and colonial officials to design and implement debt repayment programmes; private lenders would then, it was hoped, open their chequebooks. The ‘direct’ control of the prewar debt commissions would be avoided. As Nixon put it, the League would act as a ‘shock absorber’, defusing opposition to foreign intervention while ensuring that racial and civilisational hierarchies were respected. In a letter to Keynes, he stressed that bankers who favoured a prewar-style debt commission failed to appreciate that Austria was not a ‘n***** country’ which could be treated in the same way as Egypt, Turkey or China. As a member of the League, it was voluntarily submitting itself to the necessary disciplines of peaceful commerce.
In practice, though, as Martin shows, the Austrian scheme operated in much the same way as the prewar debt commissions had, and attracted the same bitter resistance. Both left and right accused the League of ‘Ottomanising’ a European power, or reducing it to the colonial status of Madagascar. Nonetheless, it became the model for other loan programmes, including the Dawes Plan of 1924, which was designed to ensure that Germany paid reparations. The League’s extensive supervision of this plan, from control over state budgets to the complete reorganisation and management of the railways by a French commissioner, was seen by Germans as deeply humiliating. The economist Max Sering said it debased his country ‘to the level of the subjugated coloured peoples’; Nazis and other nationalists played on this feeling to attract followers. By the end of the 1920s, governments from Poland to Portugal were rejecting the League’s programmes – the backlash in Portugal against one such loan contributed to the rise of António Salazar.
The League’s schemes weren’t just tainted by the legacy of empire but undermined by their reliance on austerity programmes as a precondition for loans. The imperial commissions had focused on making sure foreign lenders got their money back, but the League was more ambitious: its aim was to impose financial ‘orthodoxy’, including a return to the gold standard. These measures – shielded from democratic accountability by the mechanism of an independent central bank – benefited local elites and investors by imposing limits on state spending and making money ‘sound’, but led to recessions and high unemployment. They also made spending on ambitious development projects all but impossible. The League’s commissioner in Austria, Alfred Zimmerman, a former mayor of Rotterdam, stabilised the currency by presiding over the sacking of 85,000 civil servants (almost a third of the total) and a punishing recession, but his actions provoked strong opposition. As Karl Polanyi put it, this was a ‘brilliantly successful operation on Austria’s krone, which the patient, unfortunately, did not survive’.
Meddling involved more than cuts and currency policing. After the Turkish-Greek population exchange of 1923, when more than a million orthodox Christians from the Ottoman Empire became refugees in Greece, the League embarked on a resettlement programme that prefigured the development projects of the World Bank after 1945. Its Refugee Settlement Commission appropriated land, built housing and arranged start-up loans for ploughs, fishing boats and textile machinery. The strict financial orthodoxy of its schemes meant that all the loans were brokered through private banks and repaid by the refugees themselves. Debts were collected by refugee ‘co-ops’: as one official told the British banker Eric Hambro, a ‘frictionless eviction of a lazy cultivator by his own fellows’ was the commission’s preferred means of control. But its projects were still seen as harsh and intrusive, and were openly criticised during General Pangalos’s short-lived coup of 1925-26. The commission staggered on for another five years, despite continuing tensions over loan repayments and the warning of its boss, John Hope Simpson, a former Indian Civil Service official, that the ‘unpleasant duty’ of debt collection and mass evictions would ‘probably lead to revolution’.
Yet the League continued to roll out unpopular debt-led development projects. In the early 1930s it proposed a loan for the Chinese nationalist government of Chiang Kai-shek. Despite the long and unhappy history of Western meddling in China, British officials were keen to finance trade-boosting railways and hoped that an advisory body of Western businessmen and Chinese representatives might sweeten the pill of foreign loans. But the gulf between private bankers’ demands for meaningful autonomy and the Chinese government’s intense suspicion of financial imperialism – together with the Japanese invasion of Manchuria in 1931 – meant that these efforts to offer ‘an entirely different kind of control from that hitherto identified in China with the foreign devil’ were doomed from the start. As early as 1925, Ludwik Rajchman, the Polish bacteriologist who led the League’s public health work in China, commented that even the term ‘international’ had taken on a ‘sinister meaning’. Such sentiments became increasingly common around the world, contributing to a backlash against the League’s globalising ambitions from both left and right. The rise of imperial trading blocs and rearmament in the 1930s destroyed all hopes of a stable global economic order of any sort.
The defeat of the Nazi and Japanese empires encouraged new attempts to bring about a more equal order, which would acknowledge the failures of 1920s laissez-faire and financial orthodoxy and make greater efforts to free global capitalism from the stain of empire. The architects of the economic system negotiated at Bretton Woods in 1944 – largely British and American – hoped to create a world where poorer states, in the North as well as the South, were no longer in thrall to great powers and their private banks. Keynes proposed a radical plan for an International Clearing Union, which would prevent rich creditor nations such as the US from using their surpluses to control economically weaker and developing nations. Harry Dexter White, a US Treasury official, had ambitions to invest Western capital in the broader economic development of the global South. The final agreement established the IMF and World Bank, which were created to lend to nations in financial difficulty without imposing the ferocious austerity that had destabilised Europe in the 1930s. By curbing the ability of bankers to switch their investments from country to country, Bretton Woods empowered states to wrest control of the global economy from private finance, avoid boom and bust cycles and promote investment in long-term development.
As Martin stresses, however, the intrusive meddling and quasi-imperialist view of the global South typical of the League crept back in. This was largely a result of the US’s desire, shared with its European colonial predecessors, to enforce and protect its economic dominance. Keynes’s radical proposal that the debt surpluses of rich countries be recycled to support poorer ones was defeated early on, while a turn to the right in Washington after the war brought an end to White’s development plans for the global South. By 1945, American conservatives were denouncing the IMF as a communist plot to ‘make of this nation a feeding trough for the have-nots of the world’, as Agnes Waters of the National Blue Star Mothers of America put it. Meanwhile, Wall Street’s influence increased and the global hierarchies of the interwar era persisted. The Mexican negotiators at Bretton Woods lobbied hard for the equal treatment of both strong and weak economies, but during Mexico’s balance of payments crisis of 1948-49, the IMF imposed ‘appropriate’ spending limits as a loan condition, as it had for Chile a year earlier. By contrast, Australia drew down funds without any conditions. The habits of empire were hard to shake, and in the 1960s the West was criticised for ‘neo-imperialism’ by the G77 (the group of 77 non-aligned nations, founded in 1964). By the 1970s this critique had coalesced into an ultimately failed programme to build a ‘new international economic order’, which would involve redrawing the terms of trade and rewriting trade rules, redistributing surpluses, and giving nation-states full economic sovereignty.
As Martin argues, the nostalgia felt today by many on the centre-left for the postwar ‘trente glorieuses’ is misplaced – they were rather more glorious for the West than for anyone else. But the Bretton Woods system did curb some of the power of private finance, when compared to the League era before it and the neoliberalism that followed. Poorer states were less vulnerable to bankers’ frequent insistence on austerity and impatience with long-term projects, and had a degree of autonomy in development strategies. The economist Dani Rodrik has gone so far as to describe these decades as a ‘golden age of growth’ for the global South, which benefited many regions, including sub-Saharan Africa and the Middle East. East Asia has taken many of the spoils.
The advantages of Bretton Woods became much more evident in the 1980s, when many of the problems associated with the liberal economic order of the 1920s returned. Private finance was again unfettered and replaced states as the major driver of global investment. Meanwhile, the IMF and the World Bank abandoned their earlier commitment to mixed economy and became neoliberal evangelists, responding to financial crises in the global South and post-communist countries by imposing injurious debt regimes – most controversially the ‘shock therapies’ implemented in Latin America and Eastern Europe. Their ambitions were bolder even than those of the League: their ‘structural adjustment programmes’ demanded the wholesale implementation of a neoliberal economic model – the Washington Consensus of deregulation, privatisation and liberalisation.
The IMF and World Bank in this era differed from the League in one significant respect: they were more successful in overcoming the old association between economic liberalisation and informal empire. The IMF was still dominated by the US Treasury, and Western banks still demanded austerity and marketisation, but neoliberal technocrats became adept at presenting their policies as merely the application of the ‘laws’ of economic ‘science’. The racist rhetoric of the 1920s gave way to talk of level playing fields, ‘emerging markets’ and the universal goals of competition, productivity and efficiency. The losers were those who supposedly failed to keep up with inevitable change – not only in Africa, Eastern Europe and Latin America, but in the Rust Belt and the North of England too. Neoliberal solutions were employed by politicians across the world, from Carlos Salinas de Gortari, who signed Mexico up to the North American Free Trade Agreement in 1992, to Manmohan Singh, who accelerated the end of India’s ‘permit raj’ in 1991. Even Putin, no market enthusiast, introduced a raft of neoliberal reforms in the early 2000s, designed to appease the World Bank and tempt foreign investors.
The Washington Consensus did not go unchallenged. Charges of debt imperialism re-emerged during the financial instability of the late 1990s: South Korea accused the IMF of ‘humiliating’ it during the Asian crisis of 1997-98; Putin weaponised hatred of the IMF and its ‘Harvard Boy’ economic advisers after the Russian crisis of 1998. More recently, the austerity measures imposed by the EU and the IMF on Greece in the 2010s sparked protests against a German ‘Fourth Reich’. Today, poorer countries, overwhelmed by global inflation and debt crises triggered by Washington’s interest-rate hikes, continue to protest that the economic system is rigged against them.
The present moment is in some ways reminiscent of the 1970s, when the US, the USSR and China were all competing for influence in the global South, while the G77 countries took advantage of Cold War struggles – and high oil prices – to push for a fairer deal. At COP27, China and the G77 banded together to approve the creation of a ‘loss and damage’ fund, which will compensate poorer countries for environmental destruction, against initially strong US opposition. But China’s own sphere of influence is much greater than it was fifty years ago, and it has itself been accused of debt imperialism in Africa and elsewhere.
The Biden administration has departed from the neoliberal purity of the Washington Consensus by pouring billions of dollars into green industries. Yet, as in the 1920s, the US government still hopes to align the interests of the state with those of private banks, using public funds to ‘derisk’ private investments in green development, ensuring stable returns for the likes of BlackRock, Vanguard and BNP Paribas. The danger, as the economist Daniela Gabor has argued, is that the old Washington Consensus is now being replaced by an investor-dominated Wall Street Consensus in which financial interests are placed before planetary protection, even as Thomas Friedman’s ‘flat world’ is rebranded as the ‘green economy’.
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