UN Monetary and Financial Conference. Bretton Woods, New Hampshire US, 1/7/44 Source: UN/DPI

At the end of World War II, the world’s powers descended on a mountain hotel in New Hampshire to reorganize the global monetary system. If the lessons of the 1930s, the Great Depression and the devastating war that followed taught one lesson, it would be that in times of economic crisis, cooperation among states is imperative to prevent disastrous outcomes. Informed by this lesson, delegations led by the United States and Great Britain emerged from the meeting in Bretton Woods establishing the global monetary order for the next 30 years.  Bretton Woods also saw to creating the World Bank to promote development and the International Monetary Fund to monitor international monetary flows and exchange rates. The United States dollar reigned supreme.

In 2009, the world finds itself in a similar position, scratching its collective heads on how to address  the current economic crisis in an increasingly interdependent world, and whether the greenback should remain the primary means of global exchange.  But while there may be some room for optimism for a Bretton Woods-like reorganization of the global system on issues of regulation or recession-busting fiscal measures, a roundtable discussion at Columbia’s Committee on Global Thought this week featuring Joseph Stiglitz, Benjamin Cohen and Adam Posen largely concluded that such levels of cooperation in world with more stakeholders is unlikely.

“There’s no question the present system is broken,” said Cohen, a prominent international political economy scholar. “The Bretton Woods institutions failed to prevent” the current crisis.

Yet Cohen was the most skeptical of the panel members that major economies could agree on new approaches to crisis response, saying that while international efforts are needed to coordinate national macroeconomic policies, exchange rates, and financial sector supervision, there are significant cleavages in the politics of these countries.  This will occur even with newer forums like the G-20, an expansion of the G-8, that brings the rich countries and emerging economic powers to one table to coordinate economic policy responses. The G-20 conferences have always sounded an optimistic chorus of global unity, which Cohen views as anything but genuine.  “We are talking about sovereign states,” he said. What’s lacking, according to Cohen, is the unity in principle that the world powers (U.S. and U.K.) showed at the end of World War II and an unusual concentration of power in one state, the U.S., that made “agreement” feasible at Bretton Woods.

Posen, an economist at the Peterson Institute who also sits on the Bank of England’s Monetary Policy Committee, was much more optimistic that a Bretton Woods-like reorganization is possible. The problems that need global solutions should be framed as financial problems rather than monetary policy problems, he said. As a result, the number of “veto points” for any changes to global financial regulation is minimized to include only the major financial centers: New York, London, Tokyo and perhaps Hong Kong, Paris and Shanghai. “Regulation can be done,” he said.

A rainbow forms over the Mount Washington Hotel in Bretton Woods, N.H., Friday, Oct 15. 2005. (AP Photo/Jim Cole)

Stiglitz, the Nobel Prize-winning economist, said there was a Bretton Woods moment 18 months ago in the aftermath of President Barack Obama’s hitoric victory – yet the U.S. failed to show leadership at that time. He cited numerous examples where partners in Europe agreed on new measures to stem excessive risk-taking by banks and large volumes of cross-border financial flows – most recently in the form of a financial transactions levy such as a Tobin tax to disincentivize large-scale cross border flows – only to see the U.S. Treasury balk on cooperation. In fact, Stiglitz suggested the U.S. could be the most significant obstruction to international agreements on financial regulation even as Obama assumes the role of global leader on this issue.

“(Bank of England Governor) Mervyn King said ‘if it’s too big to fail, it’s too big,’” Stiglitz said, referring to large banks bailed out by their governments because of their size and importance to the economy. “But the U.S. Treasury had that stricken from the G-20 agenda. The big banks have 51 percent of the vote in Congress, or more than that.”

On balance, perhaps we have been spoiled by the relative success of today’s efforts. The coordination undertaken by major central banks to lower interest rates, or by world leaders to avoid the temptation to raise tariffs, is a far cry from the “beggar-thy-neighbor” policies of protectionism employed by European powers and the U.S. during the 1930s. And negotiations during the Bretton Woods conference were certainly contentious – the British, led by Economist John Maynard Keynes, and the Americans, led by U.S. Treasury official Harry Dexter White, had sharp differences over several key elements of their agreement, such as how much money the U.S. should commit to the IMF, whether a new neutral global currency should be created, and what role the British pound sterling would have as a global reserve currency after the war. On most issues, the end result reflected the preferences of the most powerful group at the table (the United States).

A central message from this CGT event is that today’s problem of economic cooperation is indeed much more complex than the Bretton Woods hey-day: there are more veto players who can obstruct efforts to coordinate policies; the United States is no longer the preponderant world superpower; and the institutions designed to monitor global financial imbalances and exchange rate sustainability largely shirked their duties, presumably out of fear of breaking up the China-currency-devaluation/U.S.-deficit party that drove economic growth over the last decade.

In the short term, there is a low likelihood that a global reorganization on the magnitude of Bretton Woods is in the works. The United States remains powerful enough to resist major changes to the global economic system that contravene its interests, including the emerging uproar by countries with large holdings of dollar reserves against profligate American fiscal deficits. Does this make the G-20, which leaders declared at the Pittsburgh summit in September to be the official global economic policy forum, impotent as a real vehicle for reform?

With a number of developing countries rising to prominence and getting seats at the negotiating table, however, a global reorganization could be all but unavoidable in the long term.