Coronavirus brings a “Bretton Woods Moment”

Submitted by InfoBrics, authored by Lucas Leiroz, research fellow in international law at the Federal University of Rio de Janeiro…

The economic effects of the novel coronavirus pandemic continue to appear: stock exchanges close to collapse, stagnant production, falling expectations for global growth, entire economies broken and an uncertain future for the current system. The fragility of the international financial system can no longer be hidden, it is visible and palpable. To survive the crisis, the West becomes less and less “western”, progressively denying its liberal and globalist values ​​of open society, open borders and free markets, promoting increasingly constant and incisive state interventions, closing borders and instituting strong economic protectionism.

To illustrate some of the partial effects of the crisis, we can mention some official data. Federal Reserve System’s President James Bullard recently announced that 46 million people are expected to lose their jobs in the United States. The speculation concerns precisely the positions in which employees work interacting with the public. These jobs are suspended indefinitely by the sanitarian rules, which damage the income of millions of people and require a quick government attitude to guarantee a universal basic income.

In Germany, banks have already anticipated the recession and Europe’s largest economy is experiencing its greatest instability in recent decades. With the overwhelming growth of the infection in the country, there is no other measure than the implementation of the quarantine and the strong action of the State to repair the economic crisis that will result from the isolation. “The coronavirus pandemic will trigger a severe downturn in Germany’s economy and recession is inevitable (…) The federal government acted quickly and correctly. It seems to me that now the most important thing is to keep faith in the actions of the state”, commented the Bundesbank director, Jens Weidmann, in an interview with the newspaper Die Welt.

The oil sector was one of the biggest affected by the economic crisis. Oil prices have almost halved since the beginning of March, amid the slowdown in market demand due to the advance of COVID-19, as well as the lack of agreement within OPEC and the unbridled increase in production in Saudi Arabia. Bloomberg analyst David Fickling said that “future generations will never see the wealth that the Gulf States enjoy today”.

Some experts already classify the pandemic as a new Great Depression. Indeed, the social and economic effects of COVID-19 are only just beginning. The crisis is far from over. The number of cases increases daily on all continents. Few countries have managed to stabilize the crisis so far. What we can expect is an unprecedented catastrophe. As Tobin Smith, analyst and president of Transformity Research, said: “this is as a financial disaster, as a health disaster, as an economic disaster – is like we got three neutron bombs dropped on us.”

Predictions that the current economic order will not be able to restructure after the crisis increase day after day. Jamie Martin, a former British government adviser, believes that the pandemic could represent the end of European liberalism and the return of an authoritarian tendency. However, if the contemporary global structure is failing, it must be reformed or replaced. But what comes after it? What will be the future of the world order? Is this the definitive end of liberalism or just the beginning of a new phase of capitalism?

This week, at a remote meeting of the G-20 summit, Russian President Vladimir Putin proposed the elaboration of a common economic recovery plan, emphasizing the need for international cooperation to overcome the effects of the current crisis. One way to lessen the impacts of the crisis, according to Putin, would be through “green corridors”, free from trade wars and sanctions. The president proposes the creation of a special fund under the International Monetary Fund, which any member of the G20 could use. In his words: “At the moment, it is extremely important to guarantee access to finance for countries that need resources, especially taking into account the countries that have been affected by this crisis and this pandemic”.

In fact, international organizations currently do not have the necessary tools to deal with a crisis of such dimensions, which is why two speeches may arise: the strengthening of National States and the regression of liberalism and globalization or the strengthening of the international organizations, creating new models of global governance that establish more efficient mechanisms to contain damages in crises. Both speeches are booming in public debate.

What we are witnessing is the failure of a model that started in Bretton Woods in 1944, when the main economic powers came together and accorded the post-war economy. Although the Bretton Woods agreements were overcome in the 1970s, their legacy lives on: the belief in the infinite progress of capitalism and the favoring of the US in the world economy. Subsequently, the so-called “Washington Consensus” reinforced this view and updated it for a post-industrial world and for the emergence of financial capitalism. Now, this entire legacy seems to fall apart. In a world where natural resources are increasingly scarce and technology replaces much of the human workforce, how can we still believe in the infinite progress of capitalism?

This is perhaps the time for a “new Bretton Woods”, for a meeting of all world powers to define new parameters for the global economy in an era when the ecological collapse and social upheavals brought by globalization are increasingly evident and dangerous, touched by the outbreak of a deadly virus. If a meeting of such magnitude really occurs, two models will be disputed by the world leaders: the strengthening of National States (through international cooperation and regional integration) and the strengthening of globalization through the revitalization of world organizations and global governance. One of these paths will lead to multipolarity, the other will insist on the error of a liberal globalization. We are experiencing a real “Bretton Woods moment”.