The Global Economic Order - A Brief History

This chapter surveys the various changes undergone by the global economic order since the early modern period, concluding with some reflections on what the past reveals about the present time. The mercantilist era was anarchic, characterised by constant warfare amongst the leading powers as well as activist trade and industrial policies that were formed under that context. The 19th century saw the gradual emergence of a generally liberal international order, although independent states protected both industry and agriculture. Elsewhere, imperialism implied low tariffs. A system—characterised by the gold standard and the most-favoured nation (MFN) treatment principle—emerged as a result of individual countries' monetary policy choices and bilateral trade deals into which they entered. The system fell apart between World War I and World War II, but not before the gold standard helped spark the Great Depression and the MFN treatment principle was abandoned as the world splintered into blocs. The post-1945 settlement attempted to remedy these defects with fixed but adjustable exchange rates and capital controls as well as the General Agreement on Tariffs and Trade (GATT), which was committed to trade liberalisation with MFN treatment as a key principle. The new economic system that emerged was—for the first time—underpinned by multilateral treaties and institutions, although it implied Western trade liberalisation. Capital mobility, the move to floating major currencies, global trade liberalisation, the end of the Cold War, and intellectual changes led to a transition towards the current system, which is marked by less domestic policy flexibility. This is now changing as a result of various financial crises, pandemics, wars, and domestic inequality. None of this is surprising in light of history; the international order has always been geopolitical, and when rules become too constraining, they are abandoned.