The new global architecture, built in the years following the Second World War, established an international rule of law, breaking with the past when international relations were shaped by the naked exercise of economic, military, and political power.
The architects, however, were divided on how to achieve this objective. Two different models emerged, and the contest between the two has shaped globalisation. In the “international liberal order,” governments are the principle rule-creating authorities, working in concert to solve global problems. In the “global neoliberal order,” markets are the main agents for creating peace and prosperity. In this model, international rules and institutions are used to stop governments from meddling in the free operation of markets.
The contribution of each of the architects to either of these alternative schemes is a theme that runs through the book.
Part I – The Liberal Foundations
Sharing the common experiences of the First World War, the failure of the League of Nations, and the political and economic instability of the 1920s and 1930s, not to mention the Great Depression, a generation of remarkable politicians and bureaucrats conceived of a global order that would create conditions of political security and prosperity through cooperation, creating international institutions that reflected their liberal beliefs. This resulted in the creation of the UN and its agencies, the World Bank and IMF, the GATT and the European Union (as it would become known). These institutions became the foundations of postwar globalisation.
Influenced by the ideas of John Maynard Keynes and members of the Roosevelt Administration, the postwar institutions balanced the sovereignty of nation states with the needs to expand economic and political cooperation and forge an international order that would deliver stability and security.
Chapter 1: One World
Born into a Methodist family, Wendell Willkie was influenced by his father Herman “Hellfire” Willkie who taught him to be true to his beliefs. As a result, Wendell pursued an uncompromising approach to life, which he would carry into business and eventually into politics where his willingness to speak his mind, whether or not it would win him votes, set him apart from other politicians of the time (or since).
Wendell Willkie is best known for losing the presidential election to Franklin Roosevelt in 1940. His campaign was notable for championing internationalism even though he represented the Republicans, a party long wedded to isolationism.
In 1942, Willkie travelled around the world to assess the capabilities of America’s allies. On his return to the U.S., Willkie wrote One World. It sold over two million copies, and, more than anyone else, Willkie convinced Americans that their past isolationism was shortsighted and that they had to engage with the world in order to share their liberal values with others. The book also captured a wide audience outside the U.S. It was smuggled into Europe by the Resistance. In India, it inspired the future prime minister, Jawaharlal Nehru, who read it in prison.
The vision that Willkie projected for globalisation was one in which democracy would dominate, sovereignty would be pooled, markets would be freed, captive nations would be decolonized and the rule of law would govern the affairs of humanity. In addition, he argued that political internationalism could not exist without integration of world markets.
Chapter 2: Last Best Hope for Peace
After supporting the unsuccessful liberal revolution in Russia, Leo Pasvolsky’s parents fled to the U.S. in 1905.
In 1934, the State Department recruited Pasvolsky. Despite preferring to work quietly in the background, he caught the eye of Secretary of State, Cordell Hull, who relied heavily on Pasvolsky for advice on international affairs.
Soon after the war started, Pasvolsky began to work on plans to create a successor to the League of Nations, and historians have credited him with being the “architect” of the United Nations. The real story is more complex and is told in this chapter.
Although Roosevelt was keen on the idea of the United Nations, he did not have a clear idea of how it would operate. The State Department was given the job of coming up with a detailed plan. Pasvolsky found himself sandwiched between Hull and his deputy, Sumner Welles, a circumstance made impossible by the poisonous relationship that existed between the two men.
Hull’s absences because of ill health allowed Welles to gain the upper hand, and he drafted substantial parts of the UN Charter. Hull, however, extracted his revenge when he exposed Sumner as a homosexual in September 1943, forcing his resignation, which allowed Pasvolsky take over.
While accepting most of the ideas taken from Welles, Pasvolsky’s major alteration was to vest executive power in a powerful Security Council, overturning Welles’s regional model, which Pasvolsky feared would result in old-fashioned spheres of influence for the major powers.
In the spring of 1945, Hull resigned due to ill health. The new Secretary of State, Edward Stettinius, relied heavily on Pasvolsky, who dominated proceedings at the San Francisco conference where negotiations on the UN charter were concluded.
Pasvolsky’s scheme for the UN was flawed, particularly as it granted the veto to permanent members of the Security Council. As a result, during the Cold War the UN achieved little, falling well short of the aspirations of its architects.
Chapter 3: Dawn over Bretton Woods
From an early age, John Maynard Keynes showed that he possessed a precocious intellect, excelling in economics at Cambridge. Soon after graduating, he became a founding member of the Bloomsbury Group of artists and intellectuals. He also started to make his mark as a powerful policymaker during the First World War, and after leaving the civil service, he worked on economic theories that revolutionized the discipline.
In private, Keynes was a promiscuous homosexual, who took lovers from among the Bloomsbury Group as well as indulging in rough trade in the backstreets of London. In 1925, he married Lydia Lopokova, a Russian ballerina, and to everyone’s surprise, they lived happily. Moreover, she supplied him with the emotional stability that would fortify him during the Second World War, when he worked on plans for the postwar economic order.
By an extraordinary coincidence, in 1942, a little-known bureaucrat in the U.S. Treasury, Harry Dexter White, had independently drafted plans for a new economic order.
While White shared Keynes’s vision of a liberal world order, there were important differences. During the next two years, Keynes and White engaged in sometimes acrimonious negotiations to reconcile their plans. This pitted the silver-tongued Keynes against White, a backstreet brawler. Nevertheless, they finally settled their differences.
In July 1944, under the joint leadership of Keynes and White, forty-one countries agreed to create the IMF and the World Bank at Bretton Woods.
The new economic order was also to include an International Trade Organization, but it failed, and afterwards the U.S. withdrew its support in 1948. In its place, the GATT was created as a temporary expedient.
This liberal model of internationalism was designed to “make finance the servant, not the master of human desires,” with national governments pooling their sovereignty to create monetary stability, discourage speculation and reduce trade barriers. This liberal order allowed governments to use postwar prosperity to fund social security and welfare, programs designed to shield ordinary people from the harsh winds of economic liberalization.
Chapter 4: The European Experiment
Jean Monnet grew up in Cognac, where his father produced and exported brandy. The atmosphere at home was cosmopolitan, for his father welcomed visitors in to dine with the family so he could collect intelligence on how he might expand his business overseas. In this environment young Jean learned to network, appreciate different perspectives and see that commerce brought people together.
During the First World War, Monnet observed that lack of cooperation between allies hindered transport of supplies to the front lines. Hatching a plan to overcome these problems, Monnet used contacts to arrange a meeting with the French Prime Minister. The young man proved so persuasive that he soon found himself coordinating delivery of supplies between the allies.
During this time, he conceived the idea of a union of European countries, and over the next thirty years he continued to refine plans for a confederation that would involve political, economic and military cooperation.
During the Second World War, Monnet was once again in charge of coordinating logistics between the allies. Now a senior bureaucrat, he used his position to try to kindle interest in a European union, but failed.
After the war, Monnet opportunistically used friction between Germany and other European countries to posit a solution that involved a formal economic union. In 1951, Germany, France and four other countries formed the European Coal and Steel Community, which eventually grew into the European Union.
The European experiment has exposed the strengths and weaknesses of supranational governance. Unfortunately, Monnet’s design resulted in the development of economic integration that ran well ahead of political unification. As a result, the European Union suffers a serious democratic deficit, which the Euro crisis has further inflamed.
Part II – Neoliberal Ascendency
The fortunes of the postwar international institutions were mixed in the quarter century following the end of the Second World War. The Bretton Woods institutions oversaw a period of unprecedented economic growth and prosperity. Trade expanded under the guidance of GATT, but the UN was caught up in the Cold War, and its achievements were exceedingly modest and its failures many.
The 1970s brought two oil shocks, which prompted President Nixon to dismantle the fixed monetary system established at Bretton Woods. Stagnating economic growth and soaring inflation rates soon followed. These factors eroded confidence in the liberal international order. Few politicians were interested in renewing globalisation, and it stagnated.
At about the same time, transnational corporations were spreading. Impatient with barriers to trade and government restrictions, they became the main driving force for economic liberalization.
These “new globalists” were influenced by the ideas of neoliberal economists such as Friedrich Hayek, who had been waging a war of ideas against Keyneism. Rather than managing globalisation through cooperation between governments, they believed that free markets would create “spontaneous order.” This required global rules that would free trade, protect foreign investment and allow free movement of capital. The World Bank, IMF and GATT were early recruits among international agencies to neoliberalism, and enthusiastically and pursued its economic objectives.
By the 1990s, neoliberalism dominated globalisation, although vestiges of the liberal internationalism remained, creating an uncomfortable mix.
Chapter 5: The War of Ideas
Friedrich Hayek grew up in cosmopolitan Vienna, and when he came of age, he was drafted, fighting on the Italian front during the First World War.
After the war, he settled into academia, where he saw firsthand the hyperinflation that plagued central Europe during the 1920s and 1930s. This experience led him to distrust government planners and to put his faith in the wisdom of free markets. He believed that governments should mainly be concerned with establishing the rule of law to allow the unhindered operation of markets. These ideas became the core of what became known as “neoliberalism.”
During the Second World War and the years that followed, Keyneism began its ascent. Keen to challenge this orthodoxy, Hayek urged neoliberals to engage in the “war of ideas.”
Firing the first shot, in 1944 Hayek published The Road to Serfdom, which became a surprising bestseller. Soon after, he founded the Mont Pèlerin Society, providing a safe haven for academic neoliberals to discuss their ideas. However, these efforts were ineffectual.
It was not until 1955, when Antony Fisher entered the picture, that the war of ideas started in earnest. Fisher was a British businessman, and on Hayek’s advice he created a think tank, the Institute for Economic Affairs (IEA). It proved highly effective in convincing the Conservative Party, and Mrs. Thatcher in particular, to deregulate markets.
Impressed by Fisher’s success, other neoliberals groups around the world imitated the IEA, often calling in Fisher to help them. One of these was the Heritage Foundation, which supplied President Reagan with neoliberal policies during the 1980s.
In 1980, Fisher created the Atlas Economic Research Foundation. Its mission is “to litter the world with free-market think-tanks.” Over the next thirty years, it helped create a global network of more than 400 free-market organizations in over 80 countries.
Chapter 6: The New Globalists
By the late-1960s, political enthusiasm for globalisation had waned among political leaders, and it looked like the project would stall.
A number of businesspeople, who called themselves the “new globalists,” stepped into the breach. They were determined to revive globalisation, and making a break with the past they sought to impose neoliberal prescriptions.
In 1967, investment banker George Ball gave a keynote speech to the International Chamber of Commerce in which he attacked nation states as “archaic” and opined that they had inhibited the growth of truly globalized markets. His call to arms helped cultivate a sense of mission within the private sector, which came to see itself as the custodian of globalisation.
Recognizing that the new globalists were unorganized, in 1972, banker David Rockefeller created the Trilateral Commission. It brought together business and political elites, and its policy papers on economic, political, environmental and social issues advocated greater global cooperation.
In 1971, German academic Klaus Schwab organized the first of what would become annual meetings of businesspeople in Davos. Initially limited to discussing the latest management ideas, by the mid-1970s Schwab expanded the scope of these meetings so that they embraced a broad range of global issues. Changing its name to the “World Economic Forum” in 1987, it has since expanded to the point that Time magazine observed that “Davos–the conference, not the town–is probably the closest thing globalisation has to world headquarters.”
The Trilateral Commission and the World Economic Forum are examples of transnational elite clubs, which have allowed the private sector to take its place in the informal governance of globalisation in partnership with the political elite. Like think tanks, they have spread neoliberal policies.
Chapter 7: Anatomy of an Insurrection
Born into an academic family, Walter Wriston embraced his father’s ideas about free markets and liberty at an early age. He also admired the ideas of Friedrich Hayek.
Fearing he would forever live in the shadow for his formidable father if he entered academia, Wriston’s first job, after his discharge from the army, was with Citibank. Acknowledging that banking was a “dull” career choice, Wriston would show, in time, that it could be an exciting place to work.
Banking in the 1940s was highly regulated, a legacy of the reaction to the excesses of bankers who had caused the Great Depression. Wriston railed against the ability of regulators to tell the bank what it could and could not do. And so, as he rose within the ranks of Citibank, he led an insurgency against government controls and constraints.
When he became chief executive in 1967, Wriston recruited a group of swashbuckling lawyers whose brief was to find ways around regulations and, if necessary, “break the rules.”
His crowning achievement was to undermine the Glass-Steagall Act, which separated investment from commercial banks. He also opened the way for supersizing banks, making them “too large to fail,” and challenged Bretton Woods’ rules against capital speculation.
More than anyone else, Wriston helped deregulate international banking, which Professor Susan Strange observed “resembled nothing as much as a vast casino.” The roulette wheels in the global casino stopped spinning in 2007, and Wriston’s legacy can lay claim to making a major contribution to the global financial crisis.
Chapter 8: Accelerated Development
Robert McNamara was whip-smart at school, and when Ford recruited him in 1946, he became known as a “whiz kid,” a term that has since entered the lexicon.
In 1960, the Kennedy Administration appointed McNamara Secretary of Defense. Despite reforming the bloated industrial-military complex, McNamara’s reputation took a hit when he became the front man for America’s war in Vietnam. By 1968, LBJ believed that McNamara had gone “dovish” on him, and so he was moved into the presidency of the World Bank to get him out of the way.
Since its creation at Bretton Woods, the World Bank had not fulfilled the aspirations of its architects, and its budget proved woefully inadequate to reduce global poverty. Moreover, the U.S. politicized the Bank, using loans to reward its Cold War allies. This conduct undermined the credibility of the World Bank, particularly among unaligned Third World countries.
Raising funds independent of the U.S. allowed McNamara to both expand the bank’s anti-poverty programs and to reduce American influence over its lending decisions.
Despite additional funding, McNamara realized that the World Bank’s programs were making little headway through poor governance and corruption in developing countries.
In 1979, McNamara started to attach conditions on loans, which required recipients to implement structural adjustment programs. These required them to reform and privatize large parts of their economies. The IMF followed this lead. After McNamara left, both Bretton Woods institutions expanded the number of conditional loans. Unfortunately, they often failed in their objectives, doing more harm than good.
Called the “Washington Consensus,” these policies forced neoliberal economic prescriptions onto developing countries.
Chapter 9: Free Trade Follies
Coming from a family obsessed by rugby, Peter Sutherland adapted the robust tactics he had used on the field to pursue a career in the law, then politics, and finally as Competition Commissioner for the European Union. As commissioner, Sutherland showed that he had the skill, brute strength and intestinal fortitude to take on vested interests and challenge member governments’ intent to protect their local industries.
In July 1993, Sutherland became Director General of GATT, charged with breaking the deadlock that had plagued negotiations to create the World Trade Organization (WTO). His vigorous (some say brutal) negotiating tactics were successful, and in December 1994, he concluded negotiations.
Reflecting on this achievement, Peter Sutherland’s successor, Renato Ruggiero concluded that the authors of the WTO “are writing the constitution of a single global economy.”
Contained within the WTO package were side agreements that flew under the radar. These created international laws on intellectual property and freed up trade in services. Using industry sources, this chapter recounts the untold story of the lobbying that led to these side agreements, concluding that they serve private rather than public interests.
Chapter 10: Global Fifth Amendment
Richard Epstein turned his back on his liberal upbringing —both his parents were staunch Democrats—to become a libertarian. During his law studies, he embraced the idea that government planning was unnecessary in most instances and that many regulations infringed the rights of individuals.
After obtaining an academic position with the University of Chicago, Epstein refined a legal doctrine based on the Fifth Amendment of the U.S. Constitution, arguing that governments should be forced to compensate landowners when its regulations reduce the value of their land. Called “regulatory takings,” this doctrine could also be used by transnational corporations to sue a government when its environmental law has diminished their ability to generate profits.
Neoliberals, particularly in the Reagan Administration, embraced Epstein’s doctrine and embarked on the “Takings Project,” aiming to implement it through legislation and the courts.
The Takings Project made little progress in the U.S., but took on a life of its own when it was incorporated into the North American Free Trade Agreement (NAFTA). Bilateral investment agreements have attached similar provisions.
In a test case, Mexico had to pay damages of $16 million to compensate an American-based waste disposal operator when the government declared an adjacent area an ecological park, closing down the company’s landfill.
In 1994, the OECD tried to create an agreement that would apply regulatory takings to the rest of the world. Called the Multilateral Agreement on Investment, it was withdrawn when it faced protests around the world.
Despite this setback, the finalization of over 2,500 bilateral investment agreements has achieved the same global coverage.
This doctrine of regulatory takings substantially erodes the sovereignty of nation states, giving corporations legal standing to sue them for exercising their democratic responsibilities.
The Global Fifth Amendment completes the neoliberal trinity: free trade, free movement of capital and international protection of foreign investment.
Part III: Taming Globalisation
Opposition to the growing neoliberal hegemony over globalisation started to spread during the second half of the 1990s. This was manifested by the campaign against the Multilateral Agreement on Investment, followed by a series of anti-globalisation street protests in Melbourne, Prague, Gothenburg, Davos and Genoa. The most significant occurred in Seattle when 40,000 demonstrators forced the abandonment of the WTO Ministerial Conference.
Increasingly, these protests conflated corporate power and neoliberal policies with globalisation, and this opposition presented a clear and present threat to further economic liberalization.
Prominent members of the global elites, particularly those associated with the UN, responded by developing programs designed to give globalisation a human face. To soften the adverse effects that some transnational businesses were having on areas like the environment, human rights and health, the UN and corporations have produced a body of informal and formal rules and norms designed to improve the behavior of transnational corporations.
Chapter 11: Assault on the Summit
Maurice Strong was born in rural Manitoba, and while his family was poor, he found richness in the natural environment, which he explored in his spare time.
Displaying a natural aptitude for business, Strong was a multimillionaire by his early thirties. His wealth allowed him to pursue his passion for protecting the environment, and during the 1960s, he became active in the environment movement.
In 1972, the UN Secretary General asked Strong to organize the first Earth Summit in Stockholm. During that event, he used personal diplomacy to convince developing countries that poverty alleviation was part of the environmental agenda. This concept evolved into the principle of sustainable development, which was pursued during subsequent Earth summits.
In 1992, he organized the second Earth Summit in Rio de Janeiro. Seeing that governments were unwilling to commit to wide-ranging environmental programs, Strong forged partnerships with the private sector, going so far as to personally intervene in order to help create the World Business Council for Sustainable Development. This association promoted industry self-regulation and free trade, key elements of the neoliberal agenda.
Subsequent Earth Summits in Johannesburg in 2002 and in Rio once more in 2012 saw corporations take center stage, as they launched practical sustainability projects, while governments ramped up the rhetoric in support of the environment but offered little by way of action. This has been most noticeable in the area of climate change.
Strong’s contribution to globalisation was to convince transnational corporations to tackle environmental improvement. He also opened the way for business to play a part in shaping global environmental policy. An unintended consequence of these developments is that governments have stepped back, preferring to leave global action on the environment to the private sector.
Chapter 12: Moral High Ground
As Leon Sullivan grew up in West Virginia in the 1930s, he was able to accept his poverty, but he railed against the racism that was an ingrained part of Jim Crow’s America. Brought up by his religious grandmother, Carrie, Sullivan felt he had a special mission from God to help black people. On graduating in divinity, he moved to Philadelphia, where he took up a ministry with Zion Baptist Church.
In 1971, General Motors appointed Sullivan to its board, a first for an African American. He used this position to demand that corporations with investments in South Africa desegregate their workplaces and promote blacks into positions of responsibility.
In 1976, Sullivan created a set of principles that addressed inequality in the workplace, which he wanted corporations to adopt. By embracing what became known as the “Sullivan Principles,” corporations were able to take the moral high ground while continuing to operate in South Africa.
By 1981, little progress had been made, and Sullivan hardened his position, urging companies to disinvest. The resultant flight of capital out of South Africa contributed to the eventual downfall of the apartheid regime.
The Sullivan Principles have provided a model for industry sectors that wish to restore their reputation after a PR disaster. Voluntary codes of practices are now commonplace and private laws are now part of the global legal system. The problem with such laws is that, in most instances, they are vague and lack monitoring and enforcement.
In 1999, Kofi Annan asked Leon Sullivan to create a global set of Sullivan Principles for the UN. This further consolidated the principle that transnational corporations should be left to regulate themselves through codes of moral principles.
Chapter 13: Civilizing Globalisation
Born into an aristocratic family of the Fante tribe, Kofi Annan left Ghana in 1959 to study in the U.S. While overseas, he was captivated by Kennedy’s Camelot and soaked up the liberal aspirations that dominated the American polity in the early 1960s.
After graduating, Annan worked for the UN and its agencies, slowly fulfilling a number of progressively senior roles as he moved up the career ladder, until he became its first black Secretary General in January 1997.
His major priority was to make the UN a key institution in the evolving global architecture. To this end, he pursued two signature programs.
Within the UN family of agencies, little coordination existed, which hampered efforts to tackle global problems. To encourage agencies to work together, Kofi Annan created the Millennium Development Goals, which allowed them to develop programs in partnership with each another and major corporate donors. This permitted the UN to assert its leadership over global issues, like social justice, human rights and health.
His other signature program was the Global Compact, launched in 1999. It encouraged transnational corporations to commit to a set of ten principles that addressed global problems such as poverty, underdevelopment and human rights abuses. In this way, Annan hoped to “civilize globalisation” by softening its sharper edges. This initiative was based on ideas of “embedded liberalism,” expounded by John Ruggie, who helped design the Global Compact.
The Global Compact acts as a code of practice, following the lead of the Sullivan Principles, and companies report annually on their progress.
In return for the support of the business sector, Annan positioned the UN as a champion of economic liberalization, arguing that people were “poor not because they have too much globalisation, but too little.”
Chapter 14: Partners in Sickness and in Health
Gro Brundtland grew up in a family that was part of the political aristocracy in Norway. She went to school with the son of the prime minister, major political figures were among the circle of her parent’s friends and, in 1955, her father was invited to become a minister in the Labor government.
Despite being steeped in social democratic traditions, she married an archconservative, Arne Brundtland. Notwithstanding their political differences, he supported her when she became minister for the environment and later prime minister.
After four terms in the top job and with a popularity rating hovering around 90 percent, she resigned in 1996.
Her retirement did not last long, and soon she was campaigning to be elected head of the World Health Organization (WHO).
At the start of her term in 1998, she found WHO under-funded and weak. To address these problems, she successfully raised funds from the private sector. This policy attracted criticism, particularly WHO partnerships with the pharmaceutical industry. These were attacked for compromising WHO’s independence and distorting its priorities.
Brundtland’s other major contribution was to force through international rules that limited the promotion of tobacco products. Despite opposition from the industry, she succeeded. This legally enforceable code set a precedent by demonstrating that the UN has the ability to create hard laws to address global problems. Up to this point, enforceable rules had only been incorporated in trade and investment treaties. The question left hanging was: Would the UN pursue other noneconomic codes in its determination to civilize globalisation?
The epilogue draws a number of conclusions regarding the evolution of globalisation, identifying flaws in its design and what issues will need to be addressed by the next generation of architects should the project address is globalisation is to survive and thrive.