A New Bretton Woods for Prosperity and the Planet

By Kevin P. Gallagher

The last time the world economy became defined by financial instability and recession, inequality and right-wing populism, a lack of global leadership and war, leading countries came together in Bretton Woods, New Hampshire to forge a set of principles and institutions to foster stability and prosperity for a greater peace.

Eighty years later though, that system and its core institutions – the International Monetary Fund, the World Bank and the World Trade Organization – loom large in a world bearing a striking resemblance to a past the Bretton Woods delegates hoped would be gone forever. What is more, the similar phenomena plaguing the world economy again are compounded by a climate crisis that could not have been contemplated in earlier times.

In my recent book with Richard Kozul-Wright, ‘The Case for a New Bretton Woods,’ we call for a new Bretton Woods moment that establishes a fresh set of principles that form the basis for reforming global institutions to foster stability, prosperity and peace in the 21^st century.

In the book, we lay out five principles for a new multilateralism:

• Global rules should be calibrated toward the overarching goals of social and economic stability, shared prosperity and environmental sustainability and be protected against capture by the most powerful players.
• States should share common but differentiated responsibilities in a multilateral system built to advance global public goods and protect the global commons.
• The right of states to policy space to pursue national development strategies should be enshrined in global rules.
• Global regulations should be designed both to strengthen a dynamic international division of labor and to prevent destructive unilateral economic actions that prevent other nations from realizing common goals.
• Global public institutions must be accountable to their full membership, open to a diversity of viewpoints, cognizant of new voices and have balanced dispute resolution systems.

 Based on these principles, we articulate three core sets of reforms to the global economic system:

1. Reform the international financial system:
   • Regulate and steer private capital flows toward productive economic activity that is low-carbon and socially inclusive.
   • Massively expand the scale and scope of the so-called “Global Financial Safety Net” of emergency liquidity facilities to help countries anticipate and mitigate financially instability in a manner that accelerates green and inclusive prosperity—including a system of sovereign debt restructuring.
   • Reform governance and cooperation across the international financial system and align it with shared climate and development goals.
2. Align the international trade and investment regime:
   • Curtail market global monopolization and global rent-seeking through strong global competition rules.
   • Re-orient global trade and investment incentives away from fossil fuels and toward green and inclusive globalization.
   • Replace privatized dispute resolution systems so disputes are resolved by nation states and stakeholders.
3. Scale up development finance:
   • Mobilize a stepwise increase in development finance toward a 21^st century Marshal plan for green and inclusive prosperity.
   • Condition new financing on alignment with shared climate and development goals.
   • Support massive green industrialization and employment efforts, as well as significant adjustment financing for those in fossil fuel intensive industries.
   • Foster equitable cooperation among development finance institutions to coordinate for shared and sustainable prosperity.

A Bretton Woods moment is urgently needed to avoid further health, climate and financial crises and to build a new trajectory toward sustainable, inclusive prosperity. The required reset of the international system to face contemporary economic and environmental challenges will not succeed through backroom diplomacy and grand summitry. Rather, such a moment should be part of a global conversation with voices from Bali, Bogota, Buenos Aires, Berlin, Brazzaville, Beijing, Bangalore, Boston and beyond. This book hopes to spark that conversation.

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