National Inequalities and the Political Economy of Global Financial Reform

This paper explores two political economy questions relating to the reform process, with a special focus on global financial governance: What kind of model for global financial governance might be supportive of efforts to address national equalities? What are the political variables that drive and shape the process of global financial reform?

The paper suggests that an examination of the origins of the postwar global financial order can provide useful perspective in answering these questions. It is often forgotten that the key architects of the Bretton Woods system also worried about national inequalities and that their proposals for global financial reform were explicitly designed with these concerns in mind. After providing a brief overview of that history, the paper explores how they linked concerns about national inequalities to an innovative “autonomy-reinforcing” model of global financial reform: one that sought to strengthen multilateral cooperation in ways that bolstered national policy space. It suggests that this “embedded liberal” model may be useful today for those seeking to reform global financial governance in ways that might support efforts to address national inequalities.

The paper then turns to examine how an analysis of the origins of Bretton Woods might also help us to understand how global financial reform takes place. It explores the role of three political variables—ideas, inter-state power relations, and institutional legacies—in shaping the reform process in the early 1940s. Although the world has changed in many ways since that time, these three variables remain relevant to the prospects for a revived “autonomy-reinforcing” model of global financial governance today. The final section of the paper suggests that those seeking this kind of reform need to strategize accordingly.