Before we get carried away with the idea of a new Bretton Woods conference to remake the global economy, it is worth recalling four facts about what made the original gathering a success.
First, the original agreement was a response to the shock of the Great Depression and the second world war. The current shock is severe, to be sure, but not that severe. Even the most pessimistic observers expect "only" the deepest recession since the early 1980s, when unemployment in the United States reached 10%, not a depression like that which raised US unemployment to 24% in 1933. And while economic crisis may yet fan geopolitical tensions, no one anticipates repercussions tantamount to the second world war. This crisis has created a willingness to contemplate significant reform, but it is unlikely to support reforms as radical as those reached in 1944.
Second, the conference held in Bretton Woods, New Hampshire in that year took place after three years of extensive planning under the intellectual leadership of Harry Dexter White and John Maynard Keynes in the US and British treasuries. This time, in contrast, treasuries on both sides of the Atlantic have been behind the curve. Advance planning, such as it is, has anticipated events by at most a matter of days.
Third, the Bretton Woods conference was a meeting of finance and treasury officials, not heads of state. Heads of state are prone to grand statements, not detailed proposals for economic and financial reform – Gordon Brown being a rare exception. For substance, as opposed to posturing, we will have to wait for the follow-up conferences attended by specialists.
Finally, the conference took place at a time of unquestioned US hegemony over the western alliance and the global economy. America had the intellectual and financial resources with which to drive the reform process. Now it lacks both. In Europe, France and Germany are squabbling over the form and extent of state intervention in the post-crisis world. In Asia, China and Japan are vying uncooperatively for leadership. Beijing responded favourably to Korea's proposal for a regional bail-out fund, but Tokyo deferred, fearing that this would be dominated by China, given that country's immense dollar reserves. Tokyo then proposed funneling Asian reserves through the IMF, but China deferred, fearing that this initiative would be dominated by Japan, which has long participated in IMF deliberations. Financial diplomacy is evidently more difficult than in 1944.
So what to do? Countries participating in the series of summits starting on November 15 should concentrate on stabilising financial markets, which is the immediate problem to be solved. There are other pressing global problems, from climate change to poverty and underdevelopment, but adding them to this agenda will only make deliberations wordier and less productive. It is far from clear, for example, that the US will agree to a new international agreement if it has to compromise not just on financial regulation but on global warming, foreign aid, and sundry other issues.
Next, move quickly from the leaders' meeting, which is largely about the photo-ops, to the meeting of finance ministers, where the real business will occur. And once there, focus on pragmatic reforms. Clamp down on regulatory arbitrage. Raise capital requirements. Make the regulatory regime less procyclical. Use taxes and regulation to drive transactions in credit default swaps and other derivative instruments into an organised exchange.
This modest approach will not be hailed as a New World Financial Order. But it will be a useful first step toward making the world a safer financial place. And it will minimise the danger that the new Bretton Woods conference will go down in history as a failure.