Hostname: page-component-8448b6f56d-wq2xx Total loading time: 0 Render date: 2024-04-18T15:42:05.969Z Has data issue: false hasContentIssue false
  • English
  • Français

BRITAIN AND GLOBALISATION SINCE 1850: IV THE CREATION OF THE WASHINGTON CONSENSUS

Published online by Cambridge University Press:  12 November 2009

Martin Daunton
Get access Rights & Permissions [Opens in a new window]

Abstract

In August 1971, President Nixon ended the convertibility of the dollar into gold, so precipitating a crisis in the Bretton Woods system which was not successfully resolved by the Smithsonian agreement in December 1971. The pound was soon free to float and the role of sterling as a reserve currency was seriously weakened. The members of the European Economic Community attempted to create stability between their own currencies, which left the British government in a dilemma about whether to join the European monetary experiment to complement membership of the Community. The address considers the tensions and difficulties facing the Conservative and Labour governments of the 1970s, and the response of the Thatcher government after 1979. The trade-off in the ‘trilemma’ between the three variables of exchange rates, capital movements and domestic monetary policy changed in a major way.

Type
Presidential Address
Information
Transactions of the Royal Historical Society , Volume 19 , December 2009 , pp. 1 - 35
Copyright
Copyright © Royal Historical Society 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 These Presidential Addresses on Britain's role in the international economy will be incorporated into a book on the wider issue of how the economy of the world was governed from the Second World War to the present which I am currently writing.

2 Williamson, J., ‘What Washington Means by Policy Reform’, in Latin American Adjustments: How Much Has Happened?, ed. Williamson, J. (Washington, 1990)Google Scholar, and ‘What Should the Bank Think about the Washington Consensus?’, World Bank Research Observer, 15 (2000), 251–64; G. Soros, The Crisis of Global Capitalism (1998), xx, xxvi. For a recent overview of the shift in the economics profession, see R. E. Backhouse, ‘The Rise of Free Market Economics: Economists and the Role of the State since 1970’, History of Political Economy, 37 annual supplement (2005), 355–92.

3 M. Naim, ‘Fads and Fashions in Economic Reforms: Washington Consensus or Washington Confusion?’, at www.imf.org/external/pubs/ft/seminar/1999/reforms/Naim.HTM, last accessed 7 Mar. 2005; Stiglitz, J., Globalization and its Discontents (New York, 2002)Google Scholar; Srinivasan, T. N., ‘The Washington Consensus a Decade Later: Ideology and the Art and Science of Policy Advice’, World Bank Research Observer, 15 (2000), 265–70CrossRefGoogle Scholar; Wade, R., ‘US Hegemony and the World Bank: The Fight over People and Ideas’, Review of International Political Economy, 9 (2002), 215–43CrossRefGoogle Scholar.

4 Toye, J. and Toye, R., ‘How the UN Moved from Full Employment to Economic Development’, Commonwealth and Comparative Politics, 44 (2006), 16–40CrossRefGoogle Scholar, and The UN and Global Political Economy: Trade, Finance, and Development (Bloomington, 2004).

5 For the trilemma, see Daunton, M., ‘Britain and Globalisation since 1850: Creating a Global Order, 1850–1914’, Transactions of the Royal Historical Society, sixth series, 16 (2006), 6–10CrossRefGoogle Scholar.

6 Broadberry, S. N. and Crafts, N. F. R., ‘British Economic Policy and Industrial Performance in the Early Post-War Period’, Business History, 38 (1996), 65–91Google Scholar; Eichengreen, B., The European Economy since 1945: Co-ordinated Capitalism and Beyond (Princeton, 2006), 31–47Google Scholar; B. Eichengreen and J. Braga de Macedo, ‘The European Payments Union: History and Implications for the Evolution of the International Financial Architecture’, OECD Development Centre, Paris, Mar. 2001 at http://docentes.fe.unl.pt/~jbmacedo/oecd/triffin.html, last accessed 20 Nov. 2007. On the origins of this system, see McKibbin, R., ‘Why Was There No Marxism in Great Britain?’, English Historical Review, 99 (1984), 297–331CrossRefGoogle Scholar; and Lazonick, W., Competitive Advantage on the Shop Floor (Cambridge, MA, 1990)Google Scholar.

7 See for example, Foreign Relations of the United States, 1961–1963: IX: Foreign Economic Policy, 30: letter from John Kenneth Galbraith to President Kennedy, Washington, 28 Aug. 1963 at http://dosfan.lib.uic.edu/ERC/frus/frus61–63ix/03_Section_3.html, last accessed 2 Aug. 2004; Foreign Relations of the United States, 1969–1976: III: Foreign Economic Policy, 1969–1972: International Monetary Policy, 1969–1972, 12: memorandum from the president's assistant for national security affairs (Kissinger) to President Nixon, Washington, 17 Mar. 1969, and 60: memorandum from the under-secretary of the Treasury for monetary affairs (Volcker) to the president's assistant for international economic affairs (Peterson), Washington, 1 Apr. 1971 at www.state.gov/r/pa/ho/frus/nixon/iii/53336pf.htm, last accessed 31 July 2004.

8 For the development of capital flows, see E. Helleiner, States and the Re-emergence of Global Finance from Bretton Woods to the 1990s (Ithaca, 1994); and M. Obstfeld and A. M. Taylor, Global Capital Markets: Integration, Crisis and Growth (Cambridge, 2004).

9 Foreign Relations of the Unite States, 1969–1976: III, 161: memorandum from the assistant director of the Office of Management and Budget (Schlesinger) to the president's assistant for international economic affairs (Peterson), Washington, 20 July 1971, at www.state.gov/r/pa/ho/frus/nixon/iii/53336pf.htm, last accessed 31 July 2004.

10 Triffin, R., Gold and the Dollar Crisis: The Future of Convertibility (New Haven, 1960)Google Scholar; Rueff, J., The Monetary Sin of the West (New York, 1972)Google Scholar; Chivvis, C. S., ‘Charles De Gaulle, Jacques Rueff and French International Monetary Policy under Bretton Woods’, Journal of Contemporary History, 41 (2006), 701–20CrossRefGoogle Scholar.

11 Zeiler, T. W., American Trade and Power in the 1960s (New York, 1992)Google Scholar; Evans, J. W., The Kennedy Round in American Trade Policy: The Twilight of GATT? (Cambridge, MA, 1971)CrossRefGoogle Scholar; Public Papers of the President of the United States: John F. Kennedy, i: 1961 (Washington, DC, 1962), no. 17, ‘Special Message to the Congress: Program for Economic Recovery and Growth’, 2 Feb. 1961; no. 23, ‘Special Message to the Congress on Gold and the Balance of Payments’, 6 Feb. 1961; no. 136, ‘Special Message to the Congress on Taxation’, 20 Apr. 1961.

12 Matusow, A. J., Nixon's Economy: Booms, Busts, Dollars and Votes (Lawrence, 1998)Google Scholar.

13 See de Vries, M. G., The International Monetary Fund, 1966–1971: The System under Stress (Washington, 1976)Google Scholar; Gavin, F. J., Gold, Dollars and Power: The Politics of International Monetary Relations, 1958–1971 (Chapel Hill, 2004)Google Scholar; James, H., International Monetary Cooperation since Bretton Woods (Washington and Oxford, 1996)Google Scholar.

14 ‘Integral Text of the Final Communiqué of the Conference of the Heads of State or Government on 1 and 2 December 1969 at The Hague’ and ‘Report to the Council and the Commission on the Realisation by Stages of Economic and Monetary Union in the Community [Werner Report]’, supplement to bulletin of the European Communities 11 – 1970, both at http://europa.eu.int/comm/economy_finance/euro/origins/origins_2_en.htm, last accessed 25 Apr. 2009. For an account of EMU, see Ludlow, P., The Making of the European Monetary System: A Case Study of the Politics of the European Union (London, 1982)Google Scholar.

15 Matusow, Nixon's Economy, 157.

16 Ibid., ch. 6, quote at 178; see also James, International Monetary Cooperation.

17 Friedman, M., ‘The Case for Flexible Exchange Rates’, in his Essays in Positive Economics (Chicago, 1953), 157–203Google Scholar.

18 Meade, J. E., ‘The Case for Variable Exchange Rates’, Three Banks Review, 27 (Sept. 1955), 3–27Google Scholar.

19 The debate over floating at the time of Operation Robot is discussed in Daunton, M., ‘Britain and Globalisation since 1850: III, Creating the world of Bretton Woods, 1939–58’, Transactions of the Royal Historical Society, sixth series, 18 (2008), 23–33CrossRefGoogle Scholar.

20 See Eichengreen, European Economy, 242–51, on European responses to the end of Bretton Woods; there is an account in The National Archive (hereafter TNA), T267/36, Treasury Historical Memorandum 30, ‘The collapse of the Bretton Woods system, 1968–73’, chapter 1 section D; James, International Monetary Cooperation.

21 James, International Monetary Cooperation, 234–5.

22 Matusow, Nixon's Economy, chs. 7 and 8; quote from Stein at 186.

23 Eichengreen, European Economy, 247–8; Treasury Historical Memorandum 30, ch. 5; James, International Monetary Cooperation, 239–40. Details and documents are available at www.ena/lu, ‘Historical Events: 1969–79, Crisis and Recovery: The European Currency Snake’, last accessed 6 Apr. 2009.

24 TNA, PREM15/53, and W. S. Ryrie to R. T. Armstrong, 23 Oct. 1970, covering ‘Paper on Proposals regarding United Kingdom Participation in a European Monetary System’, Aug. 1970, and ‘Paper on “Proposals regarding United Kingdom Participation in a European Monetary System”’.

25 This point is being developed by Kyoshi Hirowatari in his Ph.D. thesis at the University of Cambridge. My analysis follows R. Roberts, ‘Sterling and the End of Bretton Woods’, paper presented to the International Economic History Conference, Helsinki, at www.helsinki.fi/iehc2006/papers1/Roberts/pdf, last accessed 8 Apr. 2009.

26 Parliamentary Debates, Commons, 5th series, 1971–2, 21 Mar. 1972, col. 1354.

27 P. Jay, ‘A Half-Hearted Jump at the Four Big Hurdles’, Times, 22 Mar. 1972, 25.

28 Solomon, R., The International Monetary System, 1945–76 (New York, 1977), 221Google Scholar.

29 Quoted by Healey in Parliamentary Debates, Commons, 5th series, 1971–2, vol. 839, 29 June 1972, col. 1723, from Standing Committee E, 19 June 1972, col. 1080.

30 Barber's interview on the BBC's Panorama, quoted in Roberts, ‘Sterling’, 16–17.

31 Glyn, A. and Sutcliffe, B., British Workers, Capitalism and the Profits Squeeze (Harmondsworth, 1972)Google Scholar.

32 Quoted by Roberts, ‘Sterling’, 18.

33 Ibid., 19, quoting his article in Newsweek.

34 James, International Monetary Cooperation, provides an account of the demise of the Smithsonian agreement.

35 See Hirowatari's prospective thesis.

36 Bank of England Archive OV44/128, Working Party on the Sterling Exchange Rate, 7 Sept. 1972. I owe this reference to Kyoshi Hirowatari.

37 TNA, T355/78, PCC(73)2, 19 Mar. 1973, Treasury Policy Co-ordinating Committee: ‘Joining the Community Float: Economic Policy Implications’, note by the secretary.

38 TNA, T355/78. ‘Joining the community float: economic policy implications’, 29 Mar. 1973.

39 These schemes are outlined at great length in TNA, T355/77. The quotes are from: ‘Rejoining the Snake: Alternative Solutions’, D. J. Mitchell, 18 May 1973, and ‘Rejoining the Snake: A Scheme for Small Parity Changes’, J. G. Littler, 18 May 1973.

40 TNA, T355/281, ‘Meade on EMU’, H. H. Liesner, 22 Feb. 1973.

41 TNA, T355/78, A. Barber to prime minister, 19 June 1973.

42 C. R. Schenk, ‘Managing the Decline of Sterling, 1960–73: A Multilateral Approach’, paper presented to the International Economic History Conference, Helsinki, at www.helsinki.fi/iehc2006/papers1/Schenk.pdf, last accessed 9 Apr. 2009, quoting Bank of England Archive, OV47/63, Myners, 3 Jan. 1963, and OV53/30, J. S. Fforde to L. Thomson-McCausland, 2 Dec. 1964.

43 Schenk, ‘Managing’, 14–20; G. Toniolo, Central Bank Cooperation at the Bank for International Settlements, 1930–1973 (Cambridge, 2005), 423–6; TNA, T355/78, ‘Rejoining the EEC Snake: Support Facilities’, 17 Apr. 1973; T355/84, ‘Sterling Agreements and the Basle Facility’, Bank of England, 9 July 1973.

44 TNA, T355/78, D. J. Mitchell, 18 June 1973.

45 TNA, T355/281, L. Airey to D. Allen, ‘Report of the Working Party on Economic and Monetary Union’, 6 Feb. 1973.

46 TNA, CAB128/60, CM(76), 25th conclusions, minute 3, 7 Oct. 1976.

47 James, International Monetary Cooperation, 317, 322–3.

48 TNA, CAB129/193, CP(76)123, 30 Nov. 1976, cabinet, economic policy and the IMF credit, memorandum by the chancellor of the Exchequer.

49 TNA, CAB128/60, CM(76), 25th conclusions, minute 3, 7 Oct. 1976; 35th conclusions, 1 Dec. 1976; CAB129/93, CP(76)117, 29 Nov. 1976, cabinet, the real choices facing the cabinet: memorandum by the secretary of state for energy; CP(76)116, 30 Nov. 1976, cabinet, the alternative strategy: the case for import controls.

50 TNA, CAB129/193, CP(76)111, 22 Nov. 1976, cabinet. IMF negotiations: memorandum by the chancellor of the Exchequer; CP(76)116, 30 Nov. 1976, ‘The alternative strategy: the case against’; CP(76)123, 30 Nov. 1976, cabinet, economic policy and the IMF credit: memorandum by the chancellor of the Exchequer. Further detail at TNA, PREM16/800–805.

51 Ludlow, Making of the European Monetary System; for documents, see www.ena.lu, the EMS, last accessed 8 Apr. 2009.

52 Stalter, J., ‘British Foreign Policy to 1985: The European Monetary System from Conception to Birth’, International Affairs, 55 (1979), 220–1Google Scholar; Jenkins, R., A Life at the Centre (London, 1991), 477Google Scholar; Healey, D., The Time of My Life (London, 1989), 440Google Scholar; Young, J. W., Britain and European Unity, 1945–1999 (London, 2000), 133Google Scholar; Parliamentary Papers 1978–9 xv, Expenditure Committee, First Report: The European Monetary System (1978); Parliamentary Papers 1978–9 vi, The European Monetary System (Green Paper), presented to parliament by the chancellor of the Exchequer, Nov. 1978. See also Hirowatari. On US attitudes to the EMS, see Joint Economic Committee, Congress of the US, The European Monetary System: Problems and Prospects (Washington, DC, 1979).

53 D. Kapur, J. P. Lewis and R. C. Webb, The World Bank: History, i: History (Washington, DC, 1997), 506–7; also Harvey, D., A Brief History of Neoliberalism (Oxford, 2005)Google Scholar.

54 Lawson, N., The New Conservatism: Lecture to the Bow Group (1980)Google Scholar, and The View from Number 11: Memoirs of a Tory Radical (London, 1992), 8–9 and ch. 7.

55 ‘Plaza accord, September 22, 1985’, www.g7.utoronto.ca/finance/fm850922.htm, last accessed 3 Apr. 2009.

56 ‘Statement of the G6 finance ministers and central bank governors (Louvre accord)’, Paris, 22 Feb. 1987, at www.g7.utoronto.ca/finance/fm870222.htm, last accessed 3 Apr. 2009.

57 Woodward, N. W. C., The Management of the British Economy, 1945–2001 (Manchester, 2004), 178–80Google Scholar; D. Kavanagh, Thatcherism and British Politics: The End of Consensus? (Oxford, 1987), 301–2.

58 M. Zurlinden, ‘The Vulnerability of Pegged Exchange Rates: The British Pound in the ERM’, at http://research.stlouisfed.org/publications/review/93/09/Pegged_Sep_Oct1993.pdf, last accessed 3 Apr. 2009.

59 Speech by the governor, ‘Leading the way towards sustainable economic growth’, speech at the Central Banking Policies Conference, Macau, 14 Aug. 1999, at http://www.bankofengland.co.uk/publications/speeches/1999/speech40.htm, last accessed 3 Apr. 2009.

60 Stiglitz, Globalization and its Discontents, and Making Globalization Work (New York and London, 2006).

61 ‘Globalization Generates Dark Thoughts’, Financial Times, 23 July 2007.

62 ‘Speech by L. Summers, ‘The United States and the Global Adjustment Process’, at http://www.petersoninstitute.org/publications/papers/paper.cfm?ResearchID=200, last accessed 3 Apr. 2009.