Dear Reader,

The September issue of the IMF’s Finance and Development magazine has an article titled, intriguingly, ‘Fairy Dust’s Economic Possibilities’ by Zachary Carter, a scholar with the Carnegie Endowment for International Peace. The reference to fairies comes from Lord Keynes’ speech at the inaugural meeting of the World Bank and IMF, at Savannah in the US, in March 1946.

Keynes, fresh from a performance of Tchaikovsky’s ballet ‘Sleeping Beauty’, said he hoped the Bretton Woods twins, Master Fund and Miss Bank, would receive three gifts from their fairy godmothers: first, a many-coloured coat “as a perpetual reminder that they belong to the whole world”; second, vitamins for “energy and a fearless spirit, which does not shelve and avoid difficult issues, but welcomes them and is determined to solve them”; third, “a spirit of wisdom… so that their approach to every problem is absolutely objective”. Carter writes that Keynes celebrated the co-operation among nations at Bretton Woods as a ‘’victory for the human spirit’’. He quotes Keynes, who told the conference that, “We have been learning to work together. …If we can so continue, this nightmare, in which most of us here present have spent too much of our lives, will be over. The brotherhood of man will have become more than a phrase.”

After the horrors of the Second World War, a longing for the brotherhood of man was inevitable. But the Soviet Union did not sign the Bretton Woods agreement and within a few years, the Korean War had broken out, putting an end to such fond hopes. To be honest, though, Keynes also warned the delegates that “there is scarcely any enduringly successful experience yet of an international body which has fulfilled the hopes of its progenitors”. And he went on to say, again referring to the Sleeping Beauty tale, that he hoped “there is no malicious fairy, no Carabosse, whom he has overlooked and forgotten to ask to the party. For if so the curses which that bad fairy will pronounce will, I feel sure, run as follows: “You two brats shall grow up politicians; your every thought and act should have an arrière-pensée; everything you determine shall not be for its own sake or on its own merits but because of something else.’’

Keynes had tasted defeat at the Bretton Woods conference, where all his proposals were shot down by the Americans, who were intent on ensuring US hegemony through the almighty dollar. Indeed, Robert Skidelsky, in his book on Keynes, wrote, “Frederic Vinson, the US Secretary of the Treasury, took it personally. ‘I don’t mind being called malicious, but I do mind being called a fairy,’ he growled.”

Why bring up Bretton Woods now? The answer perhaps lies in another article in this month’s ‘Finance & Development’ magazine, by former British prime minister Gordon Brown. He writes, “Global challenges that require global solutions are ever present, whether a changing climate or rising cyber threats. And just as we are facing these challenges, the three pillars of the post–Cold War era anchoring the global system—unipolarity, hyperglobalisation, and neoliberal economics—are collapsing around us. These seismic shifts are sowing the seeds of a new wave of populist nationalism exemplified by the “America First”, “Russia First”, “India First”, “China First”, and often “my country first and only” movements springing up round the world.’’ We have moved a long way from the spirit of the Bretton Woods conference and are back to the beggar-thy-neighbour protectionist policies of the period between the World Wars.

But many would question the assumption that the Bretton Woods institutions were anything other than an extension of US power. The IMF’s forcing of austerity down the throats of nations in trouble has come in for much criticism. Indeed, as Carter writes, “Keynes’s greatest fear for the Fund and the Bank… was that the “twins” would become instruments of US power rather than truly independent international bodies’’.

As US economist Benn Steil shows in his book, ‘The Battle of Bretton Woods’, far from being an embodiment of the human spirit, the Bretton Woods conference was full of intrigue, acrimony and rivalry, and it contains a wealth of anecdotes and quotes, some of which have been reproduced here. For example, Keynes had remarked to British economist Richard Kahn at the Savannah meeting: “The Americans have no idea how to make these institutions into operating international concerns,…  and in almost every direction their ideas are bad. Yet. they plainly intend to force their own conceptions on the rest of us. The result is that the institutions look like becoming American concerns, run by gigantic American staffs, with the rest of us very much on the side-lines.” In a lecture delivered at the London School of Economics, Paul Bareau, a member of the British Treasury delegation to Washington, asserted that Keynes said, “I went to Savannah to meet the world, and all I met was a tyrant.” And in a letter to the Foreign Office, Keynes said they had to sign the Bretton Woods agreement without reading it because their hosts had made arrangements to throw them out of the hotel. Brotherhood of man, indeed!

Keynes also detested Harry Dexter White, the leader of the US team at Bretton Woods and most of the other Americans there. Perhaps most scathing was this remark about Mariner Eccles, the Fed chairman: “No wonder that man is a Mormon. No single woman could stand him.”

Nope, Bretton Woods was not about idealism or the spirit of brotherhood. The twin institutions were to be the instruments of US power and the US view was bulldozed through. Paul Bareau said, “We [the British] lost on every issue, not by the process of rational argument in debate but by the solid massing of the cohorts which voted automatically with America, [particularly the Latin Americans,] whose representatives could be depended on to read sometimes with considerable difficulty the speeches prepared for them by the Secretariat of the United States delegation.”

The simple fact is that in Bretton Woods, the US prepared the ground to take over Britain’s role as the world’s greatest power. US historian John Morton Blum wrote: “Congress was spontaneously more generous towards China than towards England, perhaps because no one envisaged China as a postwar rival for power or commerce.” The wheel has turned full circle and China is now America’s bete noire, just as Japan had become in the eighties.

Keynes died within a month of the Savannah meeting, at the early age of 62. The irony was that his American rival at Bretton Woods, Harry Dexter White, was later accused of being a Soviet agent. In August 1948, two days after testifying before the House Un-American Activities Committee, where he denied being a Communist, he died of a heart attack, aged 55.

It is time for soberly facing up to reality, to realise that the world has become a far more dangerous place, to acknowledge that the rules of the game have changed. Instead, the markets are ignoring the increase in risks, preferring to believe in fairy dust. As this FT story tells us, “The medium-term future for globalisation seems set: a struggle between Washington and Beijing for pre-eminence, or at least resilience, which continually threatens to override economic efficiency with national security.’’ Gordon Brown, in his Finance and Development article, says “a power-based order is replacing a rules-based order’’. This is not a time for fairy tales.

Cheers,
Manas Chakravarty

Here, in case you missed them, are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

Yes Bank, Fiem Industries, Fedbank Financial, KIMS, Landmark Cars, Concord Biotech, India Energy Exchange, Metro Brands, Petronet LNG, Gala Precision Engineering IPO, Kaynes Technology, Why this chemical stock warrants attention, post consolidation?

Markets

What’s dragging PSU stocks down?

Something feels not quite right in the mid-cap rally

What’s next for the yellow metal?

More easing in store for bond yields in medium term

SEBI's new eligibility criteria for the derivative segment will reduce market manipulation

IPO investors seek quick returns

India’s family offices boom: 7x growth in six years

Can a Trump presidency bring back a 'Reflationary Rally'?

Motilal Oswal AMC looks at 'high conviction investing' to generate alpha

Financial Times

We are all capitalists now

Index rejects find favour with stock market bargain hunters

Is Jay Powell lucky or good?

Commodities and the soft landing

What we can and can’t say about what we do and don’t know

Martin Wolf: Lessons from the great inflation

EU plan for buying key commodities centrally is over-reach, warn tech groups

Companies and sectors

Bajaj Housing Finance needs more than a successful IPO to become the next HDFC

The policy twists that lie in wait for investors in sugar mills

Indian component makers stare at risks from slowing global auto sales

August Auto sales numbers indicate mixed trend

Home loans the slowest growing segment for lenders in FY24

Is China’s steel output decline the answer to the Indian steel producers’ woes?

How power sector revival altered plans of CESC, Adani Power

Gujarat Gas

How private lenders are winning the margin game

For India’s big banks, small is not beautiful in the NBFC lending market

India to see biggest rise in coal demand among major countries in 2024

Banks are left nearly bald after IBC haircuts; what's the cure?

Rising US sales are boosting profit margins of large pharma companies

Economy and policy

Puzzling divergence between private consumption growth and facts on the ground

Decoding Economics: Will China’s 'overcapacity' lead to a flood of exports, hurting other countries?

World Bank calls upon India to lower tariff barriers to boost exports

Monsoon Watch

Capex to GDP ratio in April-June 2024 highest since September 2012 quarter

What GVA data tell us about the structural change in the Indian economy

The government needs to tread a fine line on Chinese investments

How to plug the target-reality gap in manufacturing march?

The political will needed to reform GST is missing

Pro Economic Tracker

Is oil’s long-term role in the energy mix unavoidable?

Semiconductor success — The key is to make the system bug-free

Gaps in climate finance framework may provide access to new breed of predators

Tech & Startups

Start-up Street: Does India have true-blue startupreneurs or only start-up founders?

Personal Finance

Time diversification: How retail investors can navigate market peaks

The NFO delugeBank-backed AMCs top commission payments to distributors in FY24

Politics

J&K Assembly elections: tough challenge for BJP