Patricia Clavin, Securing the World Economy: The Reinvention of the League of Nations: 1920-1946, Oxford University Press, 2013; hbk £92, pbk (2015) £28.49.
|
RATING: 84
|
Buy this book?
|
Yes
|
Unless you have a depth of specialist knowledge, you may think of the League of Nations as a utopian body that failed entirely to cope with the clash of ‘Great Power’ interests after the First World War, and was virtually moribund well before the outbreak of the Second. There was more to it than that. This valuable book tells, through an original and detailed study of the archives of its largely independent Economic and Financial Organization (EFO), how efforts to support global capitalism became a core objective of the League in the years up to and through the Second World War. In doing so, it throws new light on the period as well as the League itself, makes a fundamental contribution to understanding the relationship between states and international organizations from the perspective of the political economy of the global economy as a whole, and provides an essential backdrop to the subsequent roles of the OECD and the Bretton Woods institutions. 'In its lifetime', Clavin says, 'the world's first global intergovernmental organization confronted the powerful forces that influenced the world economy, to coordinate economic actors, and to articulate policies to take state and international agency in new directions' (1). Her account is fascinating in its detail, and compelling in the picture it provides of efforts to establish an international institution that could lead the restoration of liberal capitalism in a period of protracted crisis.
It shows, in detail that puts the issue beyond doubt, that the leaders of the EFO (particularly Alexander Loveday, the Director of the Financial Section) sought consistently throughout its history to focus on the global capitalist economy as a whole, and to insist on the need for powerful international organizations to manage it, independently from the influence of powerful nation states. The great value of Clavin’s account, then, in addition to its intrinsic historical significance, is the empirical light it throws upon the activity of international organisations in relation to the global economy. Although there is nothing complicated about this, it goes against the common assumption that such organisations are instruments of leading states. The EFO took an explicitly ‘global’ perspective, in which its first priority was to identify policies that would be beneficial for the world economy as a whole, and the whole set of individual states and regions composing it. Second, it systematically gathered data on the performance of the global economy and of states within it, and sought to make them consistent and comparable. Third, it sought to build support for its favoured policies at an international level. Fourth, it sought to develop a long-term perspective, arguing that states found this difficult to achieve. Fifth, it did so from an ideological perspective of ‘liberal internationalism’. In contrast, the ILO, with which the EFO had considerable dealings, was markedly more interventionist in relation to workers’ rights and welfare. But the EFO itself still took a ‘developmentalist’ view of the world economy, insisting that the needs of emerging and developing states and their largely rural populations needed to be accommodated, and that the policies of the leading states were not only injurious to them, but also irrational and inefficient as regarded their own long term interests. It saw states as hampered in the pursuit of more ‘rational’ policies by the hold exerted over them by sectional interests, and sought to counter this tendency through the advice and support it offered.
This approach, which applies equally to the organisations that governed, or sought to govern, the global economy after 1945, is nowhere more apparent than in the final publication of the League, Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace (1945). Clavin summarizes the message of the publication as follows:
The world should aspire to the fullest possible use of the resources of production in all countries, a stable economy, and rising standards of living. No man or woman who wanted work should be employed for any time longer than it takes to train for a new form of employment; goods and services had to be provided to meet the physiological needs of all classes of people; society should distribute the financial cost of unemployment as fairly as possible; and individual liberty should be respected when it comes to employment choices; and educational opportunities be brought on a par with one another. Equality between states was also important: all should share in the markets of the world through the liberalization of trade barriers; and the benefits of modern methods of production should be available to all peoples of the world through trade, and “courageous” international measures of reconstruction and development’ (329).
‘Taken together,’ Clavin concludes, ‘Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace and its supplementary reports were intended as a manual for governments on how to manage the political economy, a guide to the potential sources of trouble in the national and international economy, and how best to tackle issues relating to: labour mobility, the responsibilities of the trade union and business communities, employment and inflation, unemployment in special areas and industries, unemployment due to chronic depression, measures to be adopted by raw-material and food-producing countries, and how to relate these measures to the well-being of the international economy as a whole’ (332).
The report privileged the global over the national, proposing a stronger and more centrally coordinated set of institutions than eventually emerged. It also privileged the needs of competitive capital over the rights of workers. It argued the need for counter-cyclical public spending balanced over time, in view of the inevitability of recurrent recessions, and market-smoothing interventions to stabilize commodity prices to the benefit of both producing and consuming countries, but it rejected direct taxation to redistribute national wealth, as this could act as a disincentive on business and check economic progress. And while Loveday declined to accommodate Gottfried Haberler’s emphasis on the need for state support for unemployment to give priority to labour mobility and flexibility and how it could be developed (in a direct critique of the Beveridge Plan for a comprehensive welfare state) he ‘cut back the report’s sustained consideration of employment policy to emphasize instead Beveridge’s call for equality of opportunity and treatment’ (334). In short: ‘The League order was explicitly liberal and capitalist’ (339).
The series of initiatives that led to this ‘last word’ of the League have obvious significance in their own right, as Clavin draws out. At the same time, they reflect the crystallization of a perspective on the role of international organizations concerned with the working of the global economy that would be characteristic of the new wave of organisations created after the Second World War. In this perspective, in evidence in both the World Bank and the OECD, international organizations devise and promote strategies focused on enabling states to counter or resist the pressures of powerful domestic interests, and to pursue policies conducive to ‘the general good’ (understood throughout as global liberal development). As OECD Secretary-General Gurría would put it succinctly in 2007, international organizations were ‘partners of states in the political economy of reform’. In fact, Alexander Loveday put it a good deal more bluntly in 1942, suggesting to the League’s Secretary-General Sean Lester (who succeeded the Axis-leaning Jean Avenol on 1 September 1940) in relation to the problem of combining economic advancement with social security that the League offered a ‘system of collaboration’ to help ‘baby governments’ to grow up (cited p. 285).
To go back to the beginning, the League grew slowly and unexpectedly into this political economic role, prompted first by crises in Austria, Hungary, Greece and Bulgaria in the early 1920s, and then by the depression - by the time the latter broke, a cycle of international meetings had led to the bringing together an international bureaucracy after initial reliance on 'a transnational arrangement of private agencies - banks, universities, scientific societies - and personal networks', enabling the League to claim agency in economic and financial affairs in its own right. In the process, the focus shifted from initial efforts to promote free trade to a broader agenda embracing surveillance of 'the economic health of all regions, and then of the world as a whole', and involvement in financial crises and economic reconstruction, quite against the instincts and preferences of the British and American architects of the League (11).
At the outset, the UK and US wanted their war debts paid before attending to the development of commerce on a global scale, and they repudiated any notion of intervention in free markets. But circumstances forced their hands. Prior to the International Financial Conference held in Brussels in September-October 1920, the first Secretary-General of the League, Sir Eric Drummond (Eton and Oxford) created an Economic and Financial Section headed by Sir Arthur Salter, Britain's former Minister for Shipping and, more importantly, secretary to the wartime Supreme Economic Council in Paris, with a young Jean Monnet alongside him. With the issue of war debts kept out of the hands of the League, attention focused on the fragility of the economies of a group of countries in central and Eastern Europe, too close for comfort to the recently established Bolshevik regime in Russia. Here Clavin highlights Gustav Kassel's Memorandum on the World's Monetary Problems (1920), which stands alongside Keynes' Economic Consequences of the Peace as a key document of the period. Kassel was among other things the progenitor of PPP (purchasing power parity) measures of national income, and a strong critic both of proposals to restore exchange rates to pre-war levels, and of the deflationary policies pursued by the US. The 1920 Conference did not achieve much in itself, but it affirmed the League's engagement in economic diplomacy, launched its effort to gather internationally comparable data, established a methodology of (relatively) undogmatic discussion in an open forum, gave rise to a series of independent publications from a heterodox community of experts, and brought Germany and the USSR together at a post-war conference for the first time (21, and ft. 28). By 1922 the League had 36 individuals working on economic and financial issues and a Joint Provisional Economic and Financial Committee put together with careful ambiguity to preserve its flexibility and independence: '[The] Brussels [Conference] had established a platform from which to imagine, categorize, and measure the world, and its regions and nations' (22). At this point the focus remained on 'the quest to recreate, as far as possible, the liberal economic order of the late nineteenth century that lived on in the minds of centrist politicians across Europe' (24). And as the case of Austria showed, the prescription was for independent central banks, a return to the gold standard, a rigorous programme of fiscal retrenchment, removal of food subsidies, and the appointment when necessary of a Commissioner General of Finances from outside (in this case, from Holland) to control all aspects of state expenditure (27-30).
By 1924 (the point at which the Commission dropped the ‘Provisional’ from its title) three elements were in place: the Economic and Financial Section, which ‘developed its own policy agenda to effect coordination and cooperation in the world economy’ (34); separate intergovernmental Financial and Economic Committees; and a capacity to recruit scientific advisers and set up specialist enquiries. For the rest of the decade the EFO directed its energies towards the promotion of free trade and the Most Favoured Nation principle, convoking the World Economic Conference in 1927 in an effort to advance these ideas against the protectionism of the United States and gathering protectionist sentiment in Europe. As Clavin summarises: ‘Until 1930 … the EFO’s attempts to inform and reshape the world economy were dominated by its determination to coordinate rather than direct states’ policies with the aspiration to return the world economy to the levels of growth and global exchange enjoyed before the First World War’ (30) – not least because the secretariat ‘was staffed almost entirely by proponents of classical liberalism, for whom free trade was an article of faith’ (40). Its broadly liberal internationalist principles would not waver, but within them, its prescriptions for a new international economic order would evolve significantly.
The first efforts of the EFO to impact on public policy were halting. In successive interim reports, the Gold Delegation set up in 1928 backed away from overt criticism of the gold standard even from a minority of its membership for fear of revealing division and exacerbating the crisis (57-64). It began to play a more decisive role only in the early 1930s, primarily through the coordination of efforts to find a way forward in the wake of the crash, Britain’s abandonment of the gold standard and embrace of imperial preference and economic nationalism, and France’s repudiation of its war debts. The vehicle was the World Economic Conference that met in London between 1932 and 1935. The League sought to harmonise policies across the world economy, promoting agreement that countries on gold would reduce interest rates and expand credit, while those that had left it would refrain from further devaluation (105). But its authority was limited – it needed allies among the major powers (successively Britain and the United States in the late 1920s and early 1930s respectively), and it was only partially able to recruit independent experts rather than national representatives to its initiatives. The World Economic Conference failed, in the face of irreconcilable differences, and swiftly evolving circumstances marked by the rise of Hitler to power and the succession from Hoover to Roosevelt in the USA. Roosevelt effectively torpedoed the Conference with the ‘bombshell message’ from his holiday yacht off the coast of Cape Cod in July 1933 (the 1930s equivalent of a presidential tweet) demanding an end to the primary focus on monetary relations between the blocs of countries on and off the gold standard respectively. The focus then began to switch to unwinding the highly protective tariffs that had sprung up in the early 1930s, with Britain a major culprit, and to measures for expanding domestic demand. But the fact was that one mechanism for regulating the global economy (the gold standard) had broken down, and no other was yet in view that could take its place. Clavin does not claim too much for the League in these circumstances, but she brings welcome clarity to a turbulent period, highlighting three crucial points in a skilful chapter on the understudied period between 1933 and 1936, which saw Italy’s invasion of Ethiopia and Germany’s militarisation of the Rhineland, and laid bare the League’s impotence as a force for peace. First, the leading officers of the League articulated a broad liberal doctrine that would become the hallmark of the OECD many years later:
‘foreigners are purchasers of our products; they are those who have to pay us the interest on the capital we have lent them; they are those who, by transporting their goods to our country and our goods to their country would provide work for our railways and our shipping, who, visiting us as tourists, would spend their money in our hotels and our shops. In short, those ‘foreigners’ are an indispensable link in the chain of our activities, or, to express it more aptly, they are members of our body economic; to impoverish them is to impoverish ourselves’ (144, citing the landmark 1935 Remarks on the Present Phase of International Economic Relations, p. 10).
Second, though, in this troubled interregnum, they could identify no way forward:
‘While the vision of a liberal capitalist economy and the benefits it would bring to the world remained unchanged, the EFO’s civil servants and expert advisers were uncertain where the paths they sought to carve out of the forest of protectionism and depreciation would take them. At the same time it was clear that states acting on their own, whatever their political inclinations, had not found the policy recipe for economic growth’ (148).
So third, they began to turn their attention in a new direction: ‘The search for an agenda to restore liberal capitalism and to promote the prospects of peace now turned towards the everyday concerns of the world’s citizens’ (158).
From the mid-30s onwards, then, Clavin identifies a change of emphasis. ‘For the EFO’s secretariat, the answer to the crisis was to redouble League efforts to inculcate a broader view of states’ duties, as well as rights, to the societies they represented and to the international economy as a whole’ (159). In particular, she documents a broad approach to ‘human security’ that would surface again and erroneously be celebrated as new 75 years later: ‘For the Secretariat the key to understanding the challenge before the world lay in two parts: the unequal recovery and development of the economy on a national, regional and global scale; secondly, recognising the challenges before the world’s poorest producers because they were hit especially hard’ (160). So for the September 1935 assembly of the League, Alexander Loveday, the Director of the Financial Section, and Frank Lidgett McDougall, Economic Adviser to the Australian High Commissioner and an influential supporter of League initiatives on nutrition and development, ‘crafted a speech for [former Australian Prime Minister Stanley M.] Bruce in which he stressed that the world needed to lower tariff barriers, increase market access to industrial countries for agricultural producers, and reduce the scandalous level of poverty in agrarian countries’ (170).
The perspective advanced here was explicitly one that focused on the global economy as a whole, and on the development of the world market. It clearly was not one that passively reflected the demands of the most powerful states, or corporations. Nor was it ‘idealist’. Rather, it was founded on a conception of global liberal political economy in terms of which European practice was irrational. As Clavin summarises it, the attempt to make European nations or regions self-sufficient in food ‘was a parochial policy that ignored the well-being of peoples beyond Europe’s frontiers, perpetuated inefficiency within Europe, kept European living standards low, and made its citizens unhealthy’ (ibid). Two years later, the Final Report of the Mixed Committee of the League of Nations on the Relation of Nutrition to Health, Agriculture and Economic Policy (1937) argued that ‘industrialized countries should concentrate agricultural production on milk and fruit to meet their domestic markets’ need for perishables, but, for the good of their own economic development and the balance of the world economy as whole, they should produce less wheat, sugar, and cereals – the world’s major traded commodities’ (171; cf. 236). One outcome of this line of work was a conference on European Rural Life convened in September 1939, motivated by evidence of widespread poverty in Central and Eastern Europe linked to onerous trade deals with Germany that were in turn tolerated by Britain in the name of economic appeasement. It fell victim to the outbreak of war. In the meantime, the League set up a Sub-Committee on the Standard of Living in 1938 – the French delegates and the League Assembly would have preferred to name it the Sub-Committee on Human Well-Being. If the leading Western democracies did not promote the general welfare, William Rappard declared at its third meeting in December 1938, it was because ‘in democracies different groups jostled to get their interests represented’, resulting in many countries in ‘the desire to protect certain classes … in opposition to the general welfare’ (Minutes, p. 8, cited 177). At the same time, a major emphasis in the work on nutrition was its potential impact on the health and productivity of workers in the industrialized world.
The crucial point about the 1930s is that global capitalism was not so much in crisis as in abeyance. Its disciplines were not working at all. Not only had the Soviet Union rejected the system entirely, but Britain had abandoned its position as a champion of free trade (albeit along with Empire), Japan, Germany and Italy had broken with liberal economic principles at every level, and the United States was itself still heavily protectionist. The gold standard as a means to enforce the discipline of global competition by forcing the downward adjustment of employment, wages and living standards in situations of failing competitiveness was broken, and nothing had taken its place. Moreover, leading states were not giving priority to the relationship between capital and labour, but instead preparing their citizens for war. While the League of Nations proposed ‘win-win’ strategies based on free trade in agriculture and rising living standards for industrial workers, the British Foreign Office view was that
‘so long as the[ir] enquiries appeal only to the democratic nations, there is some danger in stressing overmuch the need for better conditions and housing and higher standards of life as the effect is to accentuate the disparity between their standards and those of the totalitarian Powers and to make it more difficult for Democratic powers to organise their peoples for the sacrifices that they may be called upon to make’ (Harvey to Cleverly, 9 March 1938, cited p. 3, ft. 117).
So when the Swedish economist Bertil Ohlin noted the rapidly rising expenditure devoted to re-armament, and asked in the same year why it was ‘that public opinion was prepared to tolerate budget deficits when preparing for war, but was so resistant to them when it comes to fighting economic depression and extreme social hardship’ (cited p. 198), he was putting his finger on a crucial aspect of the political economy of the period. In these circumstances, the League set out in January 1938 to explore measures ‘constituting an inherent part of a systemic endeavour to revive activity’, as well as those ‘adopted as expedients intended to meet some critical situation’ (200-201, emphasis mine). Concluding that ‘governments absorbed economic ideas into policy in an unsatisfactorily haphazard way that stymied League efforts to coordinate policy developments and facilitate cooperation’ (201), it decided at this point to move from circumspect comment to direct policy recommendations. The vehicle for this was the 1938 ‘Depression Delegation’ (Delegation for the Study of Economic Depressions), ‘a project oriented towards the future, imagined in a space and time when capitalism might be rebuilt, rather than towards the problematic present’ (202), with its roots in explorations of business cycle theory from the early 1930s onwards, heavily promoted by the League, in which first Ohlin and Gottfried Haberler then Jan Tinbergen were key figures (202-6). The League surveyed member states on the policies they had adopted to address to deal with immediate problems and to promote a stronger basis for long term recovery respectively, and their degree of success (prompting replies that ranged from meagre in the case of Britain to extensive in the case of the USA). It also produced 52 sizeable preparatory reports of its own (212). Before this work could be carried very far, the outbreak of war, and the growing realisation that the USA would emerge with unrivalled dominance once it was over, reinforced by the move of the EFO itself to the US (in fact, to Princeton) shifted the perspective from which the EFO viewed events.
The idea that the League of Nations was moribund from 1939 onwards is particularly harmful, then, if it is allowed to obscure the effort that was put in to imagining and shaping the post-war global economic order. The EFO was committed from the beginning of this period to the idea that governments should balance their budgets over the business cycle rather than from year to year (following the Swedish model); it recognised the benefits of welfare provision, and of unemployment benefits in particular; and it stressed the need to promote consumption around the world. From this period onwards Bruce (a key figure) and the EFO would present freer trade ‘as a development best secured by tying it closely to social policies that would safeguard the well-being of the poor members of society. An altered pattern of production, coupled with social policies intended to ameliorate the worst effects of free trade, would enable countries to drop protective barriers and reintegrate their economies into the international economy as a whole’ (236; cf.246-7). As war approached, it was clear that although the League was in principle a universal body, the EFO at least was taking sides, and after a period of internal conflict which saw the replacement of Avenol as his sympathy for the Axis powers became apparent, it emerged as the dominant force in the organisation as its role in peace-keeping and disarmament faded into insignificance. As a result, social and economic issues came to the fore. At this time, Loveday was pressing for an internal reform that would weaken the role of leading member states in the League, proposing that ‘governments should nominate particular states that would, in turn, identify non-governmental representatives from industry, commerce, finance, labour, agricultural, and consumer interest groups at a second meeting’ to create a ‘Central Committee’ (247), in which non-governmental representation would dominate, and a wider range of countries could be drawn in:
‘The proposed structural change reflected a trend that was evident in the EFO’s work from the mid-1930s onwards and was to underpin its contribution to post-war reconstruction and a new world order after 1945: that, while liberal economics offered the best hope for sustained economic growth and world peace, national and international government had to recognize that not everyone benefited equally from free market economics. Social and health policies were essential to ameliorate their sometimes challenging effects and to underline the responsibilities of the world’s richer members to its poorer ones. Development should be at the core of their contribution to global relations’ (250).
The Council and the League Assembly did not meet between their expulsion of the Soviet Union from the League on 14 December 1939 and their final act, the dissolution of the League itself in April 1946. In the meantime, the move of the EFO to Princeton created a US-based international network, funded in part by the Rockefeller Foundation, that brought League employees and advisers together with US government departments, politicians and academics. At the outset, ‘the EFO’s arrival coincided with high-level political contacts between the White House and the ILO that were to prove troublesome’ (270). There was considerable ideological affinity and interaction between the ILO (by this time relocated to Montreal) and the ‘New Dealers’ while the EFO had ties to the internationalist free-marketeers in Roosevelt’s administration, and to the State Department, Treasury and Federal Reserve Board. The result was the emergence of contrasting projects for post-war order, though at a time when the New Dealers were losing ground (276). Britain aligned itself with the ILO and its commitment to post war planning, in contrast to the commitment to the ‘primacy of the market’ on the part of the EFO and its US allies (274). The ILO had an institutional advantage in that the US was a member, and it was expected to continue in existence (neither was true of the League of Nations). It made the running from 1941 onwards with a series of initiatives culminating in the Declaration of Philadelphia (10 May 1944), which called for universal labour rights on the basis that ‘labour is not a commodity’, but its influence would decline in tandem with that of 'New dealers' in the US administration. The Princeton group went ahead in the meantime with developing a wide-ranging programme for the post-war period, while the White House asked the ILO to restrict itself to ‘informational and educational tasks’, and ‘the influence grew of businessmen and financiers who were less interested in labour codes than in opening up international markets’ (278).
Clavin goes on from this point to recount the EFO's design and promotion of international machinery that would deliver a liberal trade regime, as part of a wider interest in the possibility that international organisations might play a role in coordinating the internal policies of states (282). In May 1943 the League published The Transition from War to Peace Economy (published as the first part of the report of the Depression Delegation), with a universal perspective focused on ensuring the fullest possible use of the ‘resources of production, human and material, of the skill and enterprise of the individual … to attain and maintain in all countries a stable economy and rising standards of living’ (p. 40, cited 286). In particular, this report acknowledged the pro-labour policies promoted by the ILO, but sought to embed them in a broadly liberal framework. In doing so, it prefigured the ‘embedded liberal compromise’ of the post-war period (Ruggie, 1982), notably in its endorsement of full employment as an objective of government policy in the context of movement towards liberal practices on trade. In the same year, the League published Gotttfried Haberler’s study, Quantitative Trade Controls: Their Causes and Nature, which drew on previous EFO work to argue that ‘states could not and should not rush to liberate themselves from economic controls. A reformed monetary order would help – as had the gold standard – to shape the behaviour and expectations of markets, but the reliberalization of the world economy had to be facilitated more by state and international management than by market forces. The process was to be supported by a technocracy of experts and civil servants in new organizations dedicated to international coordination, cooperation and oversight’ (300). Clavin comments that ‘debates about governance were at the heart of scientific work in the field of international economics, where there was a pronounced move to institution building’ (305), and highlights Ragnar Nurkse’s International Currency Experience: Lessons of the Inter-War Period (1944) as part of a stance, emphatically shared by Loveday, in favour of multilateral coordination over hegemonic control (308-19), and focused in relation to the proposed IBRD (World Bank) on ‘the maximum long-run benefit to the borrowing countries and to the world as a whole’ (Nurkse, 144: 219, cited p. 319).
Then came Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace, derived too from the work of the Delegation on Economic Depressions and published as the second part of its report. Clavin is pardonably protective of and even affectionate towards her objective of study, and is at pains throughout to identify cases where its work and influence behind the scenes have not been duly recognized by other scholars. But she makes no bones about its failure to secure its objectives as a new world order took shape. Its aspirational thinking was at the mercy, once the war was over, of the United States as the single dominant power. In the new world order that took shape from 1944 to 1946, its social and economic agenda was shunted off to the UN’s ECOSOC, the IMF and World Bank were set up in Washington, away from the influence of the UN, and no single, powerful supervising body of the kind Loveday proposed for the world economy as a whole ever materialized. But although Clavin does not note it, the OECD would develop a very similar perspective to that of the EFO, and the World Bank would evolve towards the same position on the basis of much the same analysis (in relation to vested interests, for example). These international organisations were and are neither instruments of powerful states nor utopian talking shops, but classically liberal institutions focused on the political economy of global production and exchange and the logic and needs of ‘capital as a whole’. By showing this so clearly for this neglected wing of the League of Nations, and providing evidence of such affinities with subsequent organizations (up to and including the World Bank's World Development Report 2019), Clavin has produced a study of vital importance. It is a pity that the low standards of setting and proof-reading now characteristic of Oxford University Press, along perhaps with some lack of attention by the author, have produced an unacceptably high number of garbled sentences, transpositions, and other assorted errors. But this is a major achievement all the same.
References
Ruggie, John G. (1982), ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, 36, 2, pp. 379-415.
League of Nations (1945) Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace. Geneva: League of Nations, available at https://biblio-archive.unog.ch/Dateien/CouncilMSD/C-1-M-1-1945-II-A-part2_EN.pdf
It shows, in detail that puts the issue beyond doubt, that the leaders of the EFO (particularly Alexander Loveday, the Director of the Financial Section) sought consistently throughout its history to focus on the global capitalist economy as a whole, and to insist on the need for powerful international organizations to manage it, independently from the influence of powerful nation states. The great value of Clavin’s account, then, in addition to its intrinsic historical significance, is the empirical light it throws upon the activity of international organisations in relation to the global economy. Although there is nothing complicated about this, it goes against the common assumption that such organisations are instruments of leading states. The EFO took an explicitly ‘global’ perspective, in which its first priority was to identify policies that would be beneficial for the world economy as a whole, and the whole set of individual states and regions composing it. Second, it systematically gathered data on the performance of the global economy and of states within it, and sought to make them consistent and comparable. Third, it sought to build support for its favoured policies at an international level. Fourth, it sought to develop a long-term perspective, arguing that states found this difficult to achieve. Fifth, it did so from an ideological perspective of ‘liberal internationalism’. In contrast, the ILO, with which the EFO had considerable dealings, was markedly more interventionist in relation to workers’ rights and welfare. But the EFO itself still took a ‘developmentalist’ view of the world economy, insisting that the needs of emerging and developing states and their largely rural populations needed to be accommodated, and that the policies of the leading states were not only injurious to them, but also irrational and inefficient as regarded their own long term interests. It saw states as hampered in the pursuit of more ‘rational’ policies by the hold exerted over them by sectional interests, and sought to counter this tendency through the advice and support it offered.
This approach, which applies equally to the organisations that governed, or sought to govern, the global economy after 1945, is nowhere more apparent than in the final publication of the League, Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace (1945). Clavin summarizes the message of the publication as follows:
The world should aspire to the fullest possible use of the resources of production in all countries, a stable economy, and rising standards of living. No man or woman who wanted work should be employed for any time longer than it takes to train for a new form of employment; goods and services had to be provided to meet the physiological needs of all classes of people; society should distribute the financial cost of unemployment as fairly as possible; and individual liberty should be respected when it comes to employment choices; and educational opportunities be brought on a par with one another. Equality between states was also important: all should share in the markets of the world through the liberalization of trade barriers; and the benefits of modern methods of production should be available to all peoples of the world through trade, and “courageous” international measures of reconstruction and development’ (329).
‘Taken together,’ Clavin concludes, ‘Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace and its supplementary reports were intended as a manual for governments on how to manage the political economy, a guide to the potential sources of trouble in the national and international economy, and how best to tackle issues relating to: labour mobility, the responsibilities of the trade union and business communities, employment and inflation, unemployment in special areas and industries, unemployment due to chronic depression, measures to be adopted by raw-material and food-producing countries, and how to relate these measures to the well-being of the international economy as a whole’ (332).
The report privileged the global over the national, proposing a stronger and more centrally coordinated set of institutions than eventually emerged. It also privileged the needs of competitive capital over the rights of workers. It argued the need for counter-cyclical public spending balanced over time, in view of the inevitability of recurrent recessions, and market-smoothing interventions to stabilize commodity prices to the benefit of both producing and consuming countries, but it rejected direct taxation to redistribute national wealth, as this could act as a disincentive on business and check economic progress. And while Loveday declined to accommodate Gottfried Haberler’s emphasis on the need for state support for unemployment to give priority to labour mobility and flexibility and how it could be developed (in a direct critique of the Beveridge Plan for a comprehensive welfare state) he ‘cut back the report’s sustained consideration of employment policy to emphasize instead Beveridge’s call for equality of opportunity and treatment’ (334). In short: ‘The League order was explicitly liberal and capitalist’ (339).
The series of initiatives that led to this ‘last word’ of the League have obvious significance in their own right, as Clavin draws out. At the same time, they reflect the crystallization of a perspective on the role of international organizations concerned with the working of the global economy that would be characteristic of the new wave of organisations created after the Second World War. In this perspective, in evidence in both the World Bank and the OECD, international organizations devise and promote strategies focused on enabling states to counter or resist the pressures of powerful domestic interests, and to pursue policies conducive to ‘the general good’ (understood throughout as global liberal development). As OECD Secretary-General Gurría would put it succinctly in 2007, international organizations were ‘partners of states in the political economy of reform’. In fact, Alexander Loveday put it a good deal more bluntly in 1942, suggesting to the League’s Secretary-General Sean Lester (who succeeded the Axis-leaning Jean Avenol on 1 September 1940) in relation to the problem of combining economic advancement with social security that the League offered a ‘system of collaboration’ to help ‘baby governments’ to grow up (cited p. 285).
To go back to the beginning, the League grew slowly and unexpectedly into this political economic role, prompted first by crises in Austria, Hungary, Greece and Bulgaria in the early 1920s, and then by the depression - by the time the latter broke, a cycle of international meetings had led to the bringing together an international bureaucracy after initial reliance on 'a transnational arrangement of private agencies - banks, universities, scientific societies - and personal networks', enabling the League to claim agency in economic and financial affairs in its own right. In the process, the focus shifted from initial efforts to promote free trade to a broader agenda embracing surveillance of 'the economic health of all regions, and then of the world as a whole', and involvement in financial crises and economic reconstruction, quite against the instincts and preferences of the British and American architects of the League (11).
At the outset, the UK and US wanted their war debts paid before attending to the development of commerce on a global scale, and they repudiated any notion of intervention in free markets. But circumstances forced their hands. Prior to the International Financial Conference held in Brussels in September-October 1920, the first Secretary-General of the League, Sir Eric Drummond (Eton and Oxford) created an Economic and Financial Section headed by Sir Arthur Salter, Britain's former Minister for Shipping and, more importantly, secretary to the wartime Supreme Economic Council in Paris, with a young Jean Monnet alongside him. With the issue of war debts kept out of the hands of the League, attention focused on the fragility of the economies of a group of countries in central and Eastern Europe, too close for comfort to the recently established Bolshevik regime in Russia. Here Clavin highlights Gustav Kassel's Memorandum on the World's Monetary Problems (1920), which stands alongside Keynes' Economic Consequences of the Peace as a key document of the period. Kassel was among other things the progenitor of PPP (purchasing power parity) measures of national income, and a strong critic both of proposals to restore exchange rates to pre-war levels, and of the deflationary policies pursued by the US. The 1920 Conference did not achieve much in itself, but it affirmed the League's engagement in economic diplomacy, launched its effort to gather internationally comparable data, established a methodology of (relatively) undogmatic discussion in an open forum, gave rise to a series of independent publications from a heterodox community of experts, and brought Germany and the USSR together at a post-war conference for the first time (21, and ft. 28). By 1922 the League had 36 individuals working on economic and financial issues and a Joint Provisional Economic and Financial Committee put together with careful ambiguity to preserve its flexibility and independence: '[The] Brussels [Conference] had established a platform from which to imagine, categorize, and measure the world, and its regions and nations' (22). At this point the focus remained on 'the quest to recreate, as far as possible, the liberal economic order of the late nineteenth century that lived on in the minds of centrist politicians across Europe' (24). And as the case of Austria showed, the prescription was for independent central banks, a return to the gold standard, a rigorous programme of fiscal retrenchment, removal of food subsidies, and the appointment when necessary of a Commissioner General of Finances from outside (in this case, from Holland) to control all aspects of state expenditure (27-30).
By 1924 (the point at which the Commission dropped the ‘Provisional’ from its title) three elements were in place: the Economic and Financial Section, which ‘developed its own policy agenda to effect coordination and cooperation in the world economy’ (34); separate intergovernmental Financial and Economic Committees; and a capacity to recruit scientific advisers and set up specialist enquiries. For the rest of the decade the EFO directed its energies towards the promotion of free trade and the Most Favoured Nation principle, convoking the World Economic Conference in 1927 in an effort to advance these ideas against the protectionism of the United States and gathering protectionist sentiment in Europe. As Clavin summarises: ‘Until 1930 … the EFO’s attempts to inform and reshape the world economy were dominated by its determination to coordinate rather than direct states’ policies with the aspiration to return the world economy to the levels of growth and global exchange enjoyed before the First World War’ (30) – not least because the secretariat ‘was staffed almost entirely by proponents of classical liberalism, for whom free trade was an article of faith’ (40). Its broadly liberal internationalist principles would not waver, but within them, its prescriptions for a new international economic order would evolve significantly.
The first efforts of the EFO to impact on public policy were halting. In successive interim reports, the Gold Delegation set up in 1928 backed away from overt criticism of the gold standard even from a minority of its membership for fear of revealing division and exacerbating the crisis (57-64). It began to play a more decisive role only in the early 1930s, primarily through the coordination of efforts to find a way forward in the wake of the crash, Britain’s abandonment of the gold standard and embrace of imperial preference and economic nationalism, and France’s repudiation of its war debts. The vehicle was the World Economic Conference that met in London between 1932 and 1935. The League sought to harmonise policies across the world economy, promoting agreement that countries on gold would reduce interest rates and expand credit, while those that had left it would refrain from further devaluation (105). But its authority was limited – it needed allies among the major powers (successively Britain and the United States in the late 1920s and early 1930s respectively), and it was only partially able to recruit independent experts rather than national representatives to its initiatives. The World Economic Conference failed, in the face of irreconcilable differences, and swiftly evolving circumstances marked by the rise of Hitler to power and the succession from Hoover to Roosevelt in the USA. Roosevelt effectively torpedoed the Conference with the ‘bombshell message’ from his holiday yacht off the coast of Cape Cod in July 1933 (the 1930s equivalent of a presidential tweet) demanding an end to the primary focus on monetary relations between the blocs of countries on and off the gold standard respectively. The focus then began to switch to unwinding the highly protective tariffs that had sprung up in the early 1930s, with Britain a major culprit, and to measures for expanding domestic demand. But the fact was that one mechanism for regulating the global economy (the gold standard) had broken down, and no other was yet in view that could take its place. Clavin does not claim too much for the League in these circumstances, but she brings welcome clarity to a turbulent period, highlighting three crucial points in a skilful chapter on the understudied period between 1933 and 1936, which saw Italy’s invasion of Ethiopia and Germany’s militarisation of the Rhineland, and laid bare the League’s impotence as a force for peace. First, the leading officers of the League articulated a broad liberal doctrine that would become the hallmark of the OECD many years later:
‘foreigners are purchasers of our products; they are those who have to pay us the interest on the capital we have lent them; they are those who, by transporting their goods to our country and our goods to their country would provide work for our railways and our shipping, who, visiting us as tourists, would spend their money in our hotels and our shops. In short, those ‘foreigners’ are an indispensable link in the chain of our activities, or, to express it more aptly, they are members of our body economic; to impoverish them is to impoverish ourselves’ (144, citing the landmark 1935 Remarks on the Present Phase of International Economic Relations, p. 10).
Second, though, in this troubled interregnum, they could identify no way forward:
‘While the vision of a liberal capitalist economy and the benefits it would bring to the world remained unchanged, the EFO’s civil servants and expert advisers were uncertain where the paths they sought to carve out of the forest of protectionism and depreciation would take them. At the same time it was clear that states acting on their own, whatever their political inclinations, had not found the policy recipe for economic growth’ (148).
So third, they began to turn their attention in a new direction: ‘The search for an agenda to restore liberal capitalism and to promote the prospects of peace now turned towards the everyday concerns of the world’s citizens’ (158).
From the mid-30s onwards, then, Clavin identifies a change of emphasis. ‘For the EFO’s secretariat, the answer to the crisis was to redouble League efforts to inculcate a broader view of states’ duties, as well as rights, to the societies they represented and to the international economy as a whole’ (159). In particular, she documents a broad approach to ‘human security’ that would surface again and erroneously be celebrated as new 75 years later: ‘For the Secretariat the key to understanding the challenge before the world lay in two parts: the unequal recovery and development of the economy on a national, regional and global scale; secondly, recognising the challenges before the world’s poorest producers because they were hit especially hard’ (160). So for the September 1935 assembly of the League, Alexander Loveday, the Director of the Financial Section, and Frank Lidgett McDougall, Economic Adviser to the Australian High Commissioner and an influential supporter of League initiatives on nutrition and development, ‘crafted a speech for [former Australian Prime Minister Stanley M.] Bruce in which he stressed that the world needed to lower tariff barriers, increase market access to industrial countries for agricultural producers, and reduce the scandalous level of poverty in agrarian countries’ (170).
The perspective advanced here was explicitly one that focused on the global economy as a whole, and on the development of the world market. It clearly was not one that passively reflected the demands of the most powerful states, or corporations. Nor was it ‘idealist’. Rather, it was founded on a conception of global liberal political economy in terms of which European practice was irrational. As Clavin summarises it, the attempt to make European nations or regions self-sufficient in food ‘was a parochial policy that ignored the well-being of peoples beyond Europe’s frontiers, perpetuated inefficiency within Europe, kept European living standards low, and made its citizens unhealthy’ (ibid). Two years later, the Final Report of the Mixed Committee of the League of Nations on the Relation of Nutrition to Health, Agriculture and Economic Policy (1937) argued that ‘industrialized countries should concentrate agricultural production on milk and fruit to meet their domestic markets’ need for perishables, but, for the good of their own economic development and the balance of the world economy as whole, they should produce less wheat, sugar, and cereals – the world’s major traded commodities’ (171; cf. 236). One outcome of this line of work was a conference on European Rural Life convened in September 1939, motivated by evidence of widespread poverty in Central and Eastern Europe linked to onerous trade deals with Germany that were in turn tolerated by Britain in the name of economic appeasement. It fell victim to the outbreak of war. In the meantime, the League set up a Sub-Committee on the Standard of Living in 1938 – the French delegates and the League Assembly would have preferred to name it the Sub-Committee on Human Well-Being. If the leading Western democracies did not promote the general welfare, William Rappard declared at its third meeting in December 1938, it was because ‘in democracies different groups jostled to get their interests represented’, resulting in many countries in ‘the desire to protect certain classes … in opposition to the general welfare’ (Minutes, p. 8, cited 177). At the same time, a major emphasis in the work on nutrition was its potential impact on the health and productivity of workers in the industrialized world.
The crucial point about the 1930s is that global capitalism was not so much in crisis as in abeyance. Its disciplines were not working at all. Not only had the Soviet Union rejected the system entirely, but Britain had abandoned its position as a champion of free trade (albeit along with Empire), Japan, Germany and Italy had broken with liberal economic principles at every level, and the United States was itself still heavily protectionist. The gold standard as a means to enforce the discipline of global competition by forcing the downward adjustment of employment, wages and living standards in situations of failing competitiveness was broken, and nothing had taken its place. Moreover, leading states were not giving priority to the relationship between capital and labour, but instead preparing their citizens for war. While the League of Nations proposed ‘win-win’ strategies based on free trade in agriculture and rising living standards for industrial workers, the British Foreign Office view was that
‘so long as the[ir] enquiries appeal only to the democratic nations, there is some danger in stressing overmuch the need for better conditions and housing and higher standards of life as the effect is to accentuate the disparity between their standards and those of the totalitarian Powers and to make it more difficult for Democratic powers to organise their peoples for the sacrifices that they may be called upon to make’ (Harvey to Cleverly, 9 March 1938, cited p. 3, ft. 117).
So when the Swedish economist Bertil Ohlin noted the rapidly rising expenditure devoted to re-armament, and asked in the same year why it was ‘that public opinion was prepared to tolerate budget deficits when preparing for war, but was so resistant to them when it comes to fighting economic depression and extreme social hardship’ (cited p. 198), he was putting his finger on a crucial aspect of the political economy of the period. In these circumstances, the League set out in January 1938 to explore measures ‘constituting an inherent part of a systemic endeavour to revive activity’, as well as those ‘adopted as expedients intended to meet some critical situation’ (200-201, emphasis mine). Concluding that ‘governments absorbed economic ideas into policy in an unsatisfactorily haphazard way that stymied League efforts to coordinate policy developments and facilitate cooperation’ (201), it decided at this point to move from circumspect comment to direct policy recommendations. The vehicle for this was the 1938 ‘Depression Delegation’ (Delegation for the Study of Economic Depressions), ‘a project oriented towards the future, imagined in a space and time when capitalism might be rebuilt, rather than towards the problematic present’ (202), with its roots in explorations of business cycle theory from the early 1930s onwards, heavily promoted by the League, in which first Ohlin and Gottfried Haberler then Jan Tinbergen were key figures (202-6). The League surveyed member states on the policies they had adopted to address to deal with immediate problems and to promote a stronger basis for long term recovery respectively, and their degree of success (prompting replies that ranged from meagre in the case of Britain to extensive in the case of the USA). It also produced 52 sizeable preparatory reports of its own (212). Before this work could be carried very far, the outbreak of war, and the growing realisation that the USA would emerge with unrivalled dominance once it was over, reinforced by the move of the EFO itself to the US (in fact, to Princeton) shifted the perspective from which the EFO viewed events.
The idea that the League of Nations was moribund from 1939 onwards is particularly harmful, then, if it is allowed to obscure the effort that was put in to imagining and shaping the post-war global economic order. The EFO was committed from the beginning of this period to the idea that governments should balance their budgets over the business cycle rather than from year to year (following the Swedish model); it recognised the benefits of welfare provision, and of unemployment benefits in particular; and it stressed the need to promote consumption around the world. From this period onwards Bruce (a key figure) and the EFO would present freer trade ‘as a development best secured by tying it closely to social policies that would safeguard the well-being of the poor members of society. An altered pattern of production, coupled with social policies intended to ameliorate the worst effects of free trade, would enable countries to drop protective barriers and reintegrate their economies into the international economy as a whole’ (236; cf.246-7). As war approached, it was clear that although the League was in principle a universal body, the EFO at least was taking sides, and after a period of internal conflict which saw the replacement of Avenol as his sympathy for the Axis powers became apparent, it emerged as the dominant force in the organisation as its role in peace-keeping and disarmament faded into insignificance. As a result, social and economic issues came to the fore. At this time, Loveday was pressing for an internal reform that would weaken the role of leading member states in the League, proposing that ‘governments should nominate particular states that would, in turn, identify non-governmental representatives from industry, commerce, finance, labour, agricultural, and consumer interest groups at a second meeting’ to create a ‘Central Committee’ (247), in which non-governmental representation would dominate, and a wider range of countries could be drawn in:
‘The proposed structural change reflected a trend that was evident in the EFO’s work from the mid-1930s onwards and was to underpin its contribution to post-war reconstruction and a new world order after 1945: that, while liberal economics offered the best hope for sustained economic growth and world peace, national and international government had to recognize that not everyone benefited equally from free market economics. Social and health policies were essential to ameliorate their sometimes challenging effects and to underline the responsibilities of the world’s richer members to its poorer ones. Development should be at the core of their contribution to global relations’ (250).
The Council and the League Assembly did not meet between their expulsion of the Soviet Union from the League on 14 December 1939 and their final act, the dissolution of the League itself in April 1946. In the meantime, the move of the EFO to Princeton created a US-based international network, funded in part by the Rockefeller Foundation, that brought League employees and advisers together with US government departments, politicians and academics. At the outset, ‘the EFO’s arrival coincided with high-level political contacts between the White House and the ILO that were to prove troublesome’ (270). There was considerable ideological affinity and interaction between the ILO (by this time relocated to Montreal) and the ‘New Dealers’ while the EFO had ties to the internationalist free-marketeers in Roosevelt’s administration, and to the State Department, Treasury and Federal Reserve Board. The result was the emergence of contrasting projects for post-war order, though at a time when the New Dealers were losing ground (276). Britain aligned itself with the ILO and its commitment to post war planning, in contrast to the commitment to the ‘primacy of the market’ on the part of the EFO and its US allies (274). The ILO had an institutional advantage in that the US was a member, and it was expected to continue in existence (neither was true of the League of Nations). It made the running from 1941 onwards with a series of initiatives culminating in the Declaration of Philadelphia (10 May 1944), which called for universal labour rights on the basis that ‘labour is not a commodity’, but its influence would decline in tandem with that of 'New dealers' in the US administration. The Princeton group went ahead in the meantime with developing a wide-ranging programme for the post-war period, while the White House asked the ILO to restrict itself to ‘informational and educational tasks’, and ‘the influence grew of businessmen and financiers who were less interested in labour codes than in opening up international markets’ (278).
Clavin goes on from this point to recount the EFO's design and promotion of international machinery that would deliver a liberal trade regime, as part of a wider interest in the possibility that international organisations might play a role in coordinating the internal policies of states (282). In May 1943 the League published The Transition from War to Peace Economy (published as the first part of the report of the Depression Delegation), with a universal perspective focused on ensuring the fullest possible use of the ‘resources of production, human and material, of the skill and enterprise of the individual … to attain and maintain in all countries a stable economy and rising standards of living’ (p. 40, cited 286). In particular, this report acknowledged the pro-labour policies promoted by the ILO, but sought to embed them in a broadly liberal framework. In doing so, it prefigured the ‘embedded liberal compromise’ of the post-war period (Ruggie, 1982), notably in its endorsement of full employment as an objective of government policy in the context of movement towards liberal practices on trade. In the same year, the League published Gotttfried Haberler’s study, Quantitative Trade Controls: Their Causes and Nature, which drew on previous EFO work to argue that ‘states could not and should not rush to liberate themselves from economic controls. A reformed monetary order would help – as had the gold standard – to shape the behaviour and expectations of markets, but the reliberalization of the world economy had to be facilitated more by state and international management than by market forces. The process was to be supported by a technocracy of experts and civil servants in new organizations dedicated to international coordination, cooperation and oversight’ (300). Clavin comments that ‘debates about governance were at the heart of scientific work in the field of international economics, where there was a pronounced move to institution building’ (305), and highlights Ragnar Nurkse’s International Currency Experience: Lessons of the Inter-War Period (1944) as part of a stance, emphatically shared by Loveday, in favour of multilateral coordination over hegemonic control (308-19), and focused in relation to the proposed IBRD (World Bank) on ‘the maximum long-run benefit to the borrowing countries and to the world as a whole’ (Nurkse, 144: 219, cited p. 319).
Then came Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace, derived too from the work of the Delegation on Economic Depressions and published as the second part of its report. Clavin is pardonably protective of and even affectionate towards her objective of study, and is at pains throughout to identify cases where its work and influence behind the scenes have not been duly recognized by other scholars. But she makes no bones about its failure to secure its objectives as a new world order took shape. Its aspirational thinking was at the mercy, once the war was over, of the United States as the single dominant power. In the new world order that took shape from 1944 to 1946, its social and economic agenda was shunted off to the UN’s ECOSOC, the IMF and World Bank were set up in Washington, away from the influence of the UN, and no single, powerful supervising body of the kind Loveday proposed for the world economy as a whole ever materialized. But although Clavin does not note it, the OECD would develop a very similar perspective to that of the EFO, and the World Bank would evolve towards the same position on the basis of much the same analysis (in relation to vested interests, for example). These international organisations were and are neither instruments of powerful states nor utopian talking shops, but classically liberal institutions focused on the political economy of global production and exchange and the logic and needs of ‘capital as a whole’. By showing this so clearly for this neglected wing of the League of Nations, and providing evidence of such affinities with subsequent organizations (up to and including the World Bank's World Development Report 2019), Clavin has produced a study of vital importance. It is a pity that the low standards of setting and proof-reading now characteristic of Oxford University Press, along perhaps with some lack of attention by the author, have produced an unacceptably high number of garbled sentences, transpositions, and other assorted errors. But this is a major achievement all the same.
References
Ruggie, John G. (1982), ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, 36, 2, pp. 379-415.
League of Nations (1945) Economic Stability in the Post-War World: The Conditions of Prosperity after the Transition from War to Peace. Geneva: League of Nations, available at https://biblio-archive.unog.ch/Dateien/CouncilMSD/C-1-M-1-1945-II-A-part2_EN.pdf