The world war two had far reaching consequences on the social, economical, technological and political aspects of the main combatants. The worst hit nations included the European nations and Japan. Technological and economical systems of these nations either collapsed or were left in very poor states. There was an inordinate loss of life on a very large scale, additionally, the wanton destruction of property including industries, public and private property was previously unimaginable.
As the war subsided, different parties were thinking of establishing a system that would facilitate the reconstruction of the affected economies in Europe and Japan. Indeed, even as the war continued, delegates representing several countries converged in Bretton woods New Hampshire (USA) in 1944 and established the Bretton Woods Agreement. These agreements were aimed at assisting in the reconstruction of the major economic systems ravaged by the war. The delegates signed the Bretton woods agreements in July 1945 and established the IMF, the World Bank and the general agreement on tariffs and trade (GATT).
This paper examines the role of Bretton woods institutions in the reconstruction of the European and Asian economies following the end of World war two. The paper especially focuses on the objectives, the role, the achievement and the shortcomings of the World Bank in the post World war two period between 1945 and 1955. Aims and objectives of the World Bank The World Bank was formalized on December 27th 1945 when 28 of the member states ratified the Bretton woods agreement [Milward, A. S. (1984)].
The main arm of the World Bank that was most active in the post world war two was the International Bank for reconstruction and development (IBRD). The core aims of the institution are set out on its inceptions were: • To finance reconstruction projects in the countries ravaged by war. This was done through the provision of loans to these economies at very low rates of interest [Nicholas, C. and Toniolo, G. (1996)]. The loans were meant to facilitate reconstruction through investment activities that had high potential of generating income.
Some of the areas to which loan money was channeled were the agriculture research and development, areas of human development such as education, health and recreation (Sports). Infrastructural development was also targeted to benefit from the loans since the war had brought most systems to their knees. Roads, railways, Airports, Seaports, Communication networks as well as Electrification networks were rebuilt through World Bank loans. In 1947 the World Bank extended $ 250,000,000 loan to France for reconstruction and this remains the biggest amount of loan extended to a single state [World Bank Webite-www.
imf. org/archives]. • To finance the rebuilding of industries in order to promote technological development among the European states and Japan. The post world war two period also provided numerous activities for industrial growth and development of innovation culture that had been fueled by the war. Areas such as Air industry, weaponry industry, Communication industry as well as the Motor industries among others provided opportunities for investment and development [Axel, D. (2004)]. • To seek ways of raising funds for development by issuing securities in the international financial markets.
• To promote private, local and foreign investment that was deemed worthwhile. This was done in collaboration with the particular state’s government as the guarantor of the loan. • To give financial advisory services to member countries. The World Bank endeavored to give these financial services through provision of information and such in the areas of business development and finance [Hanson, J. L. (1972)]. •
These were projects that were considered vital to the economies of member countries. • To provide monitoring and evaluation services. The World bank indirectly sought to keep an eye on the progress made on the projects that it had founded to ensure that funds were not misappropriated or channeled to other projects not ear marked for funding [Hanson, J. L. (1972)]. The World Bank also took pains to evaluate the effects (economical and environmental) of the projects undertaken to ensure that they did not pose a threat to the people in the long run.
Importance of the World Bank and the International Bank for Reconstruction and Development (IBRD). When the World Bank became operational in 1946, it had about $10 billion at its disposal for the purpose of giving Developmental loans to war-torn European nations [Ellis, J. (1999)]. The World Bank played an important role in the dispensation of capital that facilitated a fast rate of economic recovery. The World Bank was charged with the responsibility of identifying projects that were vital to the particular economy and also to provide the necessary support financial or otherwise for their completion.
The formation of the World Bank provided member countries with a channel to pool together resources that enabled them to make speedy progress [Winter, J. M. 1980]. Working closely with the IMF, the World Bank assisted member countries with balance of payment problems and this helped in preventing an economic fiasco similar to the one of the great depression of 1930s[Harold C. L. (2004]. In addition the World Bank was to operate as an independent institution that was managing its own finances as well as its own investment programs.
This ensured that it had money to lend to its members and not have to turn to the subscribers for more money every now and then for money to give as loans. By giving money in form of grants, which was not expected back, the World Bank boosted the economies of the needy states hastening the rate of recovery. At the same time the World Bank embarked on research projects that positioned it strategically in the provision of quality information and advice to guide decision-making. The International Monetary Fund. The International Monetary Fund was established together with the World Bank.
Among the stated objectives of the IMF are to foster global monetary cooperation, secure financial stability, facilitate the expansion of international trade, promote high employment and sustainable economic growth, help in the achievement of a common stable and flexible exchange rate and reduce poverty [Lipsey, Richard, G. (1989)]. The IMF was established to help in dealing with the anticipated post World War 2 growth as well as enhancing the same. It came in handy in assisting to reduce imbalances in balance of payment. It also helped in the regulation of the asset reserves of member countries.
In recent years the IMF has continued to play an important role especially in helping developing nations to reduce poverty among the population. The General Agreement on Tariffs and Trade (GATT). The Bretton woods strategists also created this. It was formed with the aim of eliminating the existing trade barriers that existed between member countries in order to pave way for a speedy economic integration [Pollard, R. A. 1985]. This was a noble idea but GATT never became an institution but remained a set of agreement the US never ratified.
Over the years since the end of World War 2, there have been many GATT talks and resultant agreements called rounds. The most famous is the Uruguay round of 1986 known for its ambitions. It endeavored to increase the GATT reach to new levels. In 1995 the World Trade Organization (WTO) replaced GATT. The WTO is a fully-fledged institution that performs the very purposes for which GATT or International Trade Organization (ITO) was originally designed to perform. European nations post war economic integration
The Bretton woods agreements were designed to enhance the participation of the member countries in international trade through the removal of existing trade barriers [Grogin, R C. (2001)]. The escalation of technological advancement opened new opportunities in industrial developments and the loans offered allowed the member nations to take advantage of the arising opportunities. The allied nations were thus able to strengthen their collective economic dominance [Parillo, M. (2003)]. This was a goal that had been envisioned by the US even before the end of the war [Goldsmith, R.
W. (1946)]. Critics of the US have argued that these self-serving motives were the driving force behind the US commitment in helping the European nations. Nevertheless the effects were increased economic integration of the western European economies. The Marshal plan This plan was by a large extent the brainchild of the US state department secretary George Marshall [Charles L. M. (1984)]. It was devised as a ploy to strengthen the allied nations and by extension strengthen the US standing in relation to the communist force [Hogan, M. J. (1987)].
Marshall plan became operational in1947 and was very successful in the four years it was in operation. Through this program $13 billion was dispensed to assist in the economic recovery of several European nations. The U. K, France, Netherlands, Italy and Germany received some of the largest amounts. These economies responded positively such that in less than seven years after the war, the economies were booming [Hardley, A. (1972)]. The Marshall plan contributed in economic integration because it eliminated some previously existing trade barriers [Harrison, M. (1988)]. Role of multilateral institutions in Post war Europe.
Keen to prevent any further/future conflict of the World War 2 magnitude, the US oversaw the formation of the United Nations (UN) IN 1945. The other institution formed was the North Atlantic Treaty Organization (NATO). The United Nations was very active in post war period and among the first major contribution was the establishment of the Nation of Israel following the Jewish holocaust [Wallich, Henry Christopher (1955)] Additionally the United Nations was also active in providing humanitarian aid to refugees and all those affected by the war. Many historians associate the role of the United Nation with the speedy economic recovery.
Critique Some scholars have criticized the world for being a western tool. By this they imply that World Bank employs economic policies that work in favour of the western countries. The Bank advocates for a free market economy this would mean that economies are fully liberalized. This has the potential of devastating weak economies and give advantage to the strong ones. Other weaknesses include lack of inflexibility in giving loans, delay in intervention usually with negative ramifications and Interference with the sovereignty of some member countries especially the poor nations.
Conclusion The Bretton woods institutions played an important role in the reconstruction of the European nations after the world war two. The rate of the economic recovery that was experienced by these nations, would have been impossible to achieve without the intervention of organized an institution to provide support as well as checks and balances that were necessary in the achievement of this growth. Additionally the formation of the Bretton woods institutions allowed these nations to participate fully in the utilization of the opportunities that the existed in the post war period.
This resulted in the economic boom, especially in the Western Europe between 1950 and 1970 that saw these nations recapturing lost glory and joining the mainstream economies as important players. However critics like professor Noam Chomsky of the Massachusetts Institute of Technology, argue that the World Bank is fulfilling its aims of alleviating poverty and promoting development- but are helping rich nations and individuals get richer, and making it impossible for poor nations ever to pay off their debts. Others have held to the argument that the commitment displayed by the U. S.
A was just a facade that was meant to mask the real intentions of domineering US ambitions. This might have been true but it does not negate the benefits that were achieved. The multilateral institutions that were mostly founded in the 1940s played a significant role in brokering peace as well as ensuring that systems were in place that would allow for peaceful co-existence between nations . The world Bank continues to play a key role especially in assisting developing nations in areas of governance as well as in offering financial support required to enable them to achieve sustainable development.
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