Reviving Keynes’ Idea for Managing Global Trade

In Le Monde Diplomatique, Susan George argues for a resurrection of Keynes’ proposal on how manage world trade.

The economist John Maynard Keynes came to the postwar table with an innovative project for the future of world trade, which he called the International Trade Organisation (ITO), supported by an international central bank, the International Clearing Union (ICU). The ICU was meant to issue a world currency for trade, the bancor. Why the ITO and the ICU never materialised, and what would have changed if they had, forms a sobering story from which we can learn. It tells us that, in a rational world, it would be possible to construct a trading system serving the needs of people in both North and South.

With an ITO and an ICU, we could have had a world order in which no country could run a huge trade deficit (the United States deficit stood at $716bn in 2005) or the huge trade surplus of contemporary China. Under such a system, crushing third world debt and the devastating structural adjustment policies applied by the World Bank and the IMF would have been unthinkable, although the system would not have abolished capitalism. If we could resurrect Keynes’s concept, another world really might be possible: he figured out how to make it work more than 60 years ago. His plan would have to be dusted off and tinkered with, but its core remains relevant.

Before explaining the rules it would have established, we should consider why the ITO was never set up. The usual explanation is that the US blocked it, which is true but too facile. There were other political reasons. The US and Britain began discussing the ITO agreement long before the war was over, and Keynes had already floated the idea in 1942. He chaired the Bretton Woods monetary conference in July 1944, where it emerged as the official British position. By that time the US, doubtless following the opinions of its corporations, was less enthusiastic and its chief negotiator, Harry Dexter White, pushed instead for the World Bank and the IMF (1). The US Congress subsequently approved both institutions, sometimes referred to as the “Bretton Woods institutions”, but the ITO was not yet ripe for ratification.