Opinion remains divided on exactly what the second Trump administration represents. Its arbitrary resort to tariffs and flagrant disregard for international norms has prompted many to condemn the supposed sabotage of Pax Americana—what Canadian Prime Minister Mark Carney described as a decisive “rupture” with the post-war multilateral system. Others, citing the administration’s foreign policy on the Middle East and its obedience to financial speculators, see as much continuity as change. Yet regardless of their emphasis, most commentators invoke the standard of a “rules-based international order” against which to measure the current state of global instability and insecurity.
The reality, though, is that such “ruptures” have been a recurrent feature of global governance for decades. If we are to fully understand Trump, and imagine how we might replace the world he symbolizes with a more just and stable one, we must recognize the extent to which the previous period of supposed order has, contra Carney, been a succession of US-led experiments in hegemonic destruction and reinvention. Only then will the contours of a more equitable international settlement begin to reveal themselves.
Bastardized multilateralism
The so-called rules-based international order was born out of the rupture that followed the death of President Roosevelt in April 1945 and the onset of the Cold War. The US’s adoption of the Truman Doctrine broke with the original New Deal aspiration for an expansive model of international cooperation focused on the promotion, coordination, and financing of ambitious public policies and investments. Soon after, the Korean civil war became—thanks to a compromised UN Security Council and a US-led intervention—a full-blown regional conflict, and the confrontation between America and the USSR froze any lingering hopes, harbored by Roosevelt until his death, that the new multilateral arrangements forged through a series of conferences during and immediately after WWII would include the Soviet bloc.
Just as significant was the Truman administration’s abandonment of the “Bretton Wood’s approach” to development, defined by Henry Morgenthau as “the realization that it is to the economic and political advantage of countries such as India and China, and also of countries such as England and the United States, that the industrialization and betterment of living conditions in the former be achieved with the aid and encouragement of the latter.“ In January 1949, Truman made a well-publicized commitment to support “underdeveloped areas” as part of the struggle against communism. His Point Four Program was geared to the provision of large-scale technical assistance, with a particular emphasis on scientific knowledge and expertise, and an expanded role for private capital flows. At the end of that year, the agreement signed in Havana to establish an International Trade Organization, with a strong development mandate, was abandoned to the deliberations of a hostile Congress where it languished and died.
Multilateral development assistance, as well as other bilateral programmes, followed this hegemonic lead, particularly as European countries progressed from recovery to more sustained economic growth. As the emphasis shifted from designing and negotiating rules and institutions to overseeing their day-to-day operation, a hybrid and more technocratic form of multilateralism emerged. On the one hand, it retained some of the founding commitments to financial stability based on a dollarized payments system, capital controls, and adequate liquidity provisioning, as well as preserving policy space in support of growth and jobs; yet, on the other, a coordinated investment push, with a prominent public dimension, gave way to more market-friendly forms of international cooperation and a dogged effort by European powers to maintain colonial business relationships.
Managing disintegration
It did not take long for a further rupture to occur in the relatively new multilateral system. Nixon’s unilateral decision to suspend the dollar’s link to gold, followed in 1973 by its abandonment, combined with a generalized rise in tariffs, ended the system of fixed exchange rates and opened a period of contestation over the future direction of multilateralism. The US defaulted on its gold obligations, throwing the future of world payments into question, as well as the reserve status of the dollar.
As policymakers in advanced countries grappled with a slowdown in growth, recurrent economic shocks, and mounting inflationary pressures, their firms turned to new markets and low-cost investment destinations to boost profitability. Amid the confusion, developing countries saw an opportunity to push, through negotiations at the United Nations, for a new international economic order that would give them greater control over their markets and resources, bolster industrialization efforts, and improve access to international finance and technology. Yet despite some initial momentum, those negotiations stalled over divergent interests, such that it was predominantly policy decisions in the advanced countries that would now determine how this rupture would be closed.
Governments and business groups increasingly viewed the threat of further redistribution measures, and the monetary disorder of the uncertain dollar, as the root of a wider socio-political malaise. Moves to cut welfare provision, control the money supply, liberalize financial flows, and use unemployment as a tool of adjustment crystallized into an alternative policy paradigm. This was aimed squarely at dismantling the post-war political and social compromise, shifting the distribution of income back towards profits and protecting the rights of capital to move where and when it wanted. The international regime needed to be brought in line. This was, yet again, a rupture with any so-called “rules-based order.”
The Federal Reserve Chairman Paul Volker (an inspirational figure for Carney) made clear that the aim of regime change at the international level was to regain monetary stability in a world of liberated private capital flows and floating exchange rates with a reinvigorated dollar backed by the Federal Reserve. Stability would be managed through cooperation among independent Central Bankers in collaboration with properly trained (at Harvard, MIT, Yale, etc) policy makers familiar with the workings (and rewards) of financial markets. The institutional facade of the international trade and finance system established at Bretton Woods would remain in place, but the interior plumbing was ripped out and replaced with “an open and liberal system of capital movements”.
Living in the past
As a Central Banker and quintessential Davos man, Carney has been a long-time acolyte of what Perry Anderson has called “the neoliberal international regime” that emerged from the rupture of the Bretton Woods System. While he is conscious of the risks of “extreme global integration”—having faced them during the global financial crisis as Governor of the Bank of Canada—the building blocks of his “bigger better stronger and more just” world are clear: untethered private capital flows, endless financial innovations, deeper “free” trade agreements, and what Alan Greenspan calls “sound public policy.” Preserving this regime, albeit without a hegemonic lodestone, and with more liberal values and professionally managed markets, is the principle of Carney’s “third way.”
There is little concern here about the fact that our world has become populated by an unprecedented number of billionaires, rent-seeking corporations, traumatised workers, distressed households, and heavily indebted governments. The only policy agenda on offer is a familiar litany of tax cutting, trade liberalization, public private partnerships, increased military spending and derisking measures. Nor does this account of the international order contain any acknowledgement of the institutions and alliances that have emerged from—and among—the countries of the Global South in recent years, as a response to their continued economic subordination and restricted policy options. In a telling faux pas during Carney’s Q&A session at Davos, he falsely claimed that 20 percent of global economic output comes from Canada and the Nordic countries (they actually account for less than 3 percent), and ignored the fact that the BRICS’ share is currently well over 30 percent.
This interpretation of recent history thus has no means of tacking the most damaging trends of a hyperglobalized world or reforming an international architecture that has liberated and strengthened capital, via tax havens, corporate carve outs, intellectual property rules, investor-state dispute systems and an ingrained austerity bias. If discussions on reforming the international trading system, currently underway at the WTO in the run-up to its Ministerial, are any guide to the ambition of “middling powers,” then we are not headed for rupture so much as repetition.
Echoing Carney’s “value-based realism,” fairness, predictability, flexibility, and transparency are liberally scattered across the proposals from the collection of middling powers known as the EU for reforming a system that no longer reflects “the nature of contemporary global trade.” Far from pushing back against the weaponization of trade measures by the Trump administration, or recognizing their own derogations from “free trade” and the advantages enjoyed by their own multinational corporations, the reform proposals are aimed squarely at what they deem the abusive practices of developing countries who have resisted further opening of their markets, and whose state owned enterprises and industrial policies are accused of fragmenting the level playing field and undermining a fair trading system. The US submission to the WTO ministerial follows much the same logic. Getting governance right in a ruptured system, it turns out, means less multilateralism, more liberalization, and the marginalization of development challenges.
Back to the future
What is noticeable in the recent surge of rupture rhapsodies is their unwillingness to engage with the multilateral principles forged during the first half of the 1940s against a backdrop of World War and the memory of a Great Depression. To the New Dealers who advanced those principles, “organized money” had rigged financial markets, captured politicians, and created a world of deep economic instability. Kowtowing to the “privileged princes” of finance was no more acceptable at the international level than at the national one, with strong regulatory controls required on both fronts. Building an open and stable international economy was then seen as inseparable from strengthening the capacities of national governments to pursue a public policy agenda tied to local goals and circumstances without falling back on the kind of “beggar my neighbor” measures that had compounded the economic chaos of the 1930s.
This meant strong and inclusive growth, robust aggregate demand fuelled by rising wages and backed by organized labour, and a full employment economy. It meant strong public investment to boost the “general welfare” at home and abroad, plus state guidance and regulation to ensure that the profits of private business are channeled into productive investments. The aim of the new international architecture was to support those ambitions, mitigate contagion from unforeseen shocks, and counter bullying by the most powerful players.
Allowing private capital free rein to roam and rack its way across the global economy under a variable geometry of middling powers offers no blueprint for a better future. Rather than bemoaning the unilateralism of the current moment or reinventing international alliances to preserve the inequities of a hyperglobalized world, we could instead begin to think about recovering these basic principles of a decent economy which were used to establish multilateralism some eighty years ago, and could help us to reform it today.
