The Rotten Roots of the IMF and the World Bank
The International Monetary Fund and the World Bank have long been criticized for the onerous influence they exert over the domestic policies of many states. Especially since the 1990s, they have been excoriated for imposing policies—such as structural adjustment reforms and austerity measures—on client states that deepen inequality in the Global South, which, in turn, benefits the powerful countries of the Global North. How do we understand the structural origins of this global imbalance? One fairly standard view is to place the blame solely on neoliberalism. This perspective argues that the IMF and the World Bank—institutions that date back to World War II—at one time allowed for a more equitable system of economic governance under the Bretton Woods system of global monetary management, which collapsed in the early 1970s. In its place, the argument goes, free market economic policies began to dominate. Cemented by the elections of Ronald Reagan and Margaret Thatcher, these institutions moved in a decidedly neoliberal direction throughout the 1980s. By the 1990s, the Democratic Party had made its peace with this ideological revolution. Under Bill Clinton, the IMF and the World Bank furthered their embrace of economic shock therapies. In this way, the turn to neoliberalism is blamed for the Third World Debt Crisis, the Asian Financial Crisis of 1997–98, and the pillaging of Russia and the former Eastern Bloc countries after the fall of the Soviet Union.
Yet in his new book, The Meddlers: Sovereignty, Empire, and the Birth of Global Governance, Jamie Martin challenges this standard narrative. Martin, soon to be an assistant professor of history and social studies at Harvard University, argues that if we truly want to understand the disastrous consequences of the IMF’s and the World Bank’s interference in the domestic policies of sovereign states, it is necessary to understand the first international institutions of economic governance, such as the League of Nations and the Bank for International Settlement, which emerged in the wake of World War I. These institutions gave civil servants, bankers, and colonial authorities from Europe and the United States the extraordinary power to enforce austerity, oversee development programs, and regulate commodity prices. Many of them had civilizational, paternalistic, and white supremacist assumptions, which they used to justify meddling in the economies of other states. Martin argues that these institutions were, in fact, repackaging 19th-century practices of financial imperialism in a new, more sanitized form, given the decline of the European empires and the rising claims to self-determination. In making this analysis, Martin offers an alternative perspective on the crisis of global economic governance today, showing how the interventionist powers of the IMF and the World Bank have all along been rooted in empire and colonialism.
I spoke with Martin about his thinking on the relationship between empire and contemporary global economic governance, why the Bretton Woods system is misinterpreted, his definition of neoliberalism, and what he sees as an attractive economic alternative to “the meddlers.” This conversation has been edited for length and clarity.
DANIEL STEINMETZ-JENKINS: It is typical for critics to consider the economic policies of the International Monetary Fund, the World Bank, and the World Trade Organization through the prism of globalization. Most infamously during the 1990s, these institutions wreaked havoc on states in the Global South and the former Eastern Bloc countries through enforced austerity, structural adjustment reforms, and other economic shock therapies. Such policies were routinely criticized for violating the sovereignty of these states. Your book rejects this narrative, because you don’t see such policies as the consequence of the so-called neoliberal revolution of the 1970s. Why is this the case?
JAMIE MARTIN: The kind of far-reaching interventionist powers of international economic institutions that we associate with the Washington Consensus—powers to enforce austerity in borrowing states and demand they enact extensive liberalizing reforms—did not emerge out of the blue in the late 20th century. Instead, they originated many decades before, at the end of the First World War, when powerful states and private actors forged new partnerships to protect their interests at a moment of enormous global economic and political turmoil.
Now, it’s true that during the 1980s and ’90s, the IMF dramatically expanded its reach by making assistance conditional on borrowers committing to extensive market reforms. This took place during three successive periods of global upheaval following the end of the Bretton Woods system: the Third World Debt Crisis, the collapse of the Soviet Union, and the Asian Financial Crisis of 1997–98. During each of these periods, the IMF exercised enormous pressure on states in receipt of loans—from Argentina to Kazakhstan to Thailand—demanding they commit to austerity and major transformations of their domestic economies. Failing to agree to these terms not only jeopardized the IMF’s assistance; it also jeopardized access to other sources of foreign capital, since the existence of a prior arrangement with the IMF was used by other lenders to determine a country’s creditworthiness. It is this IMF that became notorious for intrusively meddling in the domestic affairs of sovereign states for the sake of globalizing a hyper-liberalized form of capitalism under US dominance.
There are good reasons to associate the emergence of this muscular IMF with the contemporaneous neoliberal revolution. After all, the IMF was insisting on the same kind of market reforms in the Global South and postcommunist states that were then being implemented in the US and Europe. And given the dominance of the IMF by the US Treasury, it was often the very same people overseeing these transformations of the US economy that were calling for them in places like Russia or Indonesia.
But this was not the first time that this had happened. The first time that an international institution made bailout loans conditional on austerity and central bank independence was by the League of Nations in the former Habsburg and Ottoman lands in the 1920s. This involved adapting the techniques used by semicolonial debt commissions set up in the 19th century by European and US investors and governments to discipline borrowers and extract revenue from them across North Africa, the Balkans, Latin America, the Caribbean, and in China and the Ottoman Empire. There were deep continuities between these tools of informal financial imperialism from before the First World War and the emergence of global economic governance in its aftermath.
When the IMF was being designed in the early 1940s, some of its architects insisted that the new institution would have to abandon these obviously imperial practices. They didn’t want an IMF that could bully states into slashing their budgets and abandoning plans for postwar welfarism—and they agreed that governments should be allowed to protect their citizens from capitalism’s boom-and-bust cycles. This is one of the reasons why there’s so much nostalgia for the Bretton Woods system today, and why it’s so often described as an antidote to neoliberalism: because, in retrospect, its founders seemed to believe in the need for a humane reconciliation of a moderate form of globalization with national welfarism and Keynesian economic management.
But, in fact, there was little real commitment to this vision among the most powerful US actors in the IMF once the Second World War was over and the institution began to make its first loans to member states in the Third World. Already during the early Cold War, the IMF began to act like the earlier imperial creditor arrangements by making loans conditional on austerity and anti-inflationary policies, beginning in Latin American states like Mexico, Paraguay, and Chile, and then more broadly throughout the Caribbean and the postcolonial states of Africa. So it didn’t take the rise of neoliberalism for these practices to reemerge.
JM: A key upshot of this history is to throw cold water on the idea that today’s IMF is likely to drop its insistence on conditionality. There’s good reason to take recent changes in economic ideas at the IMF seriously—from its new emphasis on tackling inequality, to a cautious support for the use of capital controls. But even if the IMF has formally loosened its tight embrace of some neoliberal ideas, the institution continues to link its assistance for vulnerable member states to the same old demands for austerity, including most recently in the series of emergency loans it made during the Covid-19 pandemic. Seeing these practices as innovations of the late 20th century suggests they may be easily abandoned with a shift away from neoliberal ideas. But if you see them as an extension of financial statecraft with over a century of history, it becomes clear why the IMF continues to prove immune to shifting paradigms in academic economics and in policymaking.
DSJ: Can you explain your concept of “meddling,” and specifically how it relates to what appears to be a major tension in your book: the conflict between the rise of national self-determination after World War I, as embodied by the League of Nations, and the global capitalist economic system that threatened national sovereignty? Might you elaborate on this tension? In what sense did the new internationalist solutions to this conflict involve a reinvention of empire?
JM: The idea of meddling explored in the book refers to a kind of power exercised by external actors over the domestic policies, institutions, and laws of sovereign states. One example would be the power exerted when an institution like the IMF insists that a member state slash its budgets or remove a central bank from parliamentary control in exchange for a loan. My book tells the history of how this power evolved from the 19th century through the 20th and how it transformed the meaning of statehood in the process.
Now it’s important to keep in mind that the loss of sovereignty this kind of interference involved was different from that which came from a country signing a treaty, adopting the fetters of the gold standard, or inviting foreign experts to help with domestic reforms. The meddling I’m interested in involved a country being compelled with real force to let powerful foreign actors shape domestic institutions and policies—whether with threats of military intervention in the 19th century or of being cut off from international capital markets in the 20th.
Taking this long view is helpful for understanding the radical nature of the power exercised by institutions like the IMF—and why it generates such resistance. Protection from the interference of external actors in domestic policies and institutions is coterminous with the modern conception of sovereignty itself—even if, in practice, it has historically been only the most powerful states that have enjoyed this protection. Up until the 19th century, it was questions of religion, dynastic succession, and constitutional matters that were seen as the most important to insulate. But by the early 20th century—a period of rapid economic globalization—economic policies were also seen as needing this protection as well.
Take the example of trade: While many trade agreements were signed in the 19th century, tariffs were understood as strictly domestic policies, even though they affected the economic well-being of other countries. It’s seldom remembered that Congress refused to allow the United States to join the League of Nations not just out of some general isolationist sentiment but from a very specific fear: that the league would intervene in two of the most controversial areas of US domestic policy, tariffs and immigration. The same was true with public finance: How a state chose to tax citizens and spend its revenue was one of the most fundamental expressions of its sovereignty. In the early 20th century, any state that allowed others to determine its fiscal system was no longer considered a full state, but instead a quasi-sovereign or semicolonized polity, like China or Egypt at the time.
When institutions of global economic governance began to emerge after World War I, the political problem they faced was whether they could intervene in these domestic policies and institutions. It was clear that governing global capitalism could not only involve managing relations between states, such as preventing one from going to war with another; it could also involve weighing in on sensitive domestic economic questions. But these institutions had to try to exercise these interventionist powers in ways that would not look like just more of the same kind of bullying that empires had long visited on states on the peripheries of the global economy.
Now there was little question that the new international institutions like the League of Nations were inheriting old imperial practices. The most powerful members of the league, after all, were Britain and France—two sprawling colonial empires. But during an era of rising claims to self-determination, self-governing polities—particularly states that had recently won their independence, like, say, Poland or Albania—didn’t want to be bossed around like the poor, semi-sovereign debtors of the 19th century, constantly under the watch of their creditors and not fully in control of their domestic policies.
The point of international institutions was to make this less humiliating, by offering formal representation to the state where these powers were being applied. In this way, these institutions were to serve as legitimation machines—making older imperial practices easier for sovereign states to tolerate in an era of demands for self-determination. But even in this new sanitized form, these powers generated enormous resistance wherever they were brought to bear.
DSJ: How do we see similar dynamics still playing out today?
JM: From the late 1990s, more and more countries have turned away from the IMF after it became clear what accepting an IMF bail-out involved. This is particularly true for those “emerging market” economies—Russia, China, South Korea, and Turkey—that have developed ways of dealing with financial instability that obviated the need for IMF assistance. This isn’t because all of these states have been waging a war on neoliberalism; far from it. Take Putin’s Russia, long committed to a deeply conservative form of fiscal restraint and boasting a central bank staffed by the most modern technocratic economists. This Russia would never have allowed the IMF to tell it to commit to these policies, particularly given Russia’s experiences with the institution after the collapse of the Soviet Union. Allowing this kind of interference in its domestic affairs by an institution dominated by the US Treasury would be akin to admitting to the kind of loss of sovereignty that comes from losing a war. In some ways, we might see the rise of Putin as a self-described protector of Russian autonomy and civilizational prestige as a direct reaction to the perceived humiliations of allowing institutions like the IMF to become so deeply involved in Russia’s domestic economy and politics during the 1990s.
One of the aims of my book is to show just how old this dynamic is. Even states that have accepted the need for liberal reforms or fiscal restraint have always been reluctant, except when in severe distress, to commit to them when demanded to do so by powerful outside actors. Accepting the discipline of a body like the League of Nations or, later, the IMF could of course be strategically useful for certain political actors—delegating away a decision to impose austerity, for example, was often done by governments to block domestic opposition to it. But doing so was always politically risky, since it was likely to be seen as moving a given state to a lower rung in global hierarchies and as a relinquishment of autonomy that threatened a loss of statehood itself. This was an extremely shaky ground on which to build a viable vision of international cooperation.
DSJ: Can you pinpoint the civilizational, racial, and cultural hierarchies of these first international institutions of economic governance and, in turn, how they made their way into the Bretton Woods Conference of July 1944, which led to the founding of the IMF and the World Bank?
JM: In the early 20th century, many countries with formal sovereignty saw extensive unwanted interference in their domestic affairs. This took many forms. Foreign-run commissions controlled assets and dictated policies in borrowing countries like Egypt and Nicaragua; other states, like China and Siam, lost their power to set their own tariffs. In many countries, natural resources and land were owned by foreign actors and central banks were controlled by foreign directors. States like Haiti, Liberia, Iran, Mexico, Greece, and many others did not see their legal sovereignty translate into real autonomy from external compulsion.
Well aware of this contradiction, many attempted to justify it in various ways. There were glaringly racist defenses of this sovereign inequality—with some arguing that true autonomy and economic self-determination really only belonged to white- and Christian-majority countries in the West. There were also justifications of it in terms of development: the idea that newly independent states needed foreign tutelage to set them on a path toward “responsible” government and economic progress. This was also a time when states were judged according to the side they had chosen during the First World War. It was no coincidence that it was in the losers of the war—Austria, Germany, and Hungary—where some of the earliest and most interventionist tools of international economic governance were developed. But opponents of these tools also appealed to the same imagined civilizational hierarchies. From the vantage point of a state like Germany or Austria in the 1920s, opposition to external interference was described by political actors of all ideological commitments as key to preventing the country from falling to the status of a China or a Greece—formally sovereign, but constantly subjected to humiliating interventions in their domestic affairs.
DSJ: In what sense was this hierarchy modified given the United States’ rise to an economic and military superpower? What did the US learn from British and French meddling during the period between the world wars? And in what ways did the British and French now have to deal with a taste of their own medicine with the US meddling in their economies after World War II?
JM: There is a well-known story about the origins of the Bretton Woods system during the Second World War. In 1944, representatives of 44 countries met at the Mount Washington Resort in New Hampshire to rewrite the rules of the international economy and create two new institutions, the IMF and the World Bank, to govern the postwar world economy. On most accounts, this process involved fraught negotiations between a declining great power—the British Empire, represented by John Maynard Keynes—and a rising one—the United States, represented by the Treasury economist Harry Dexter White—that resulted in one of the greatest international agreements of all time.
But Bretton Woods was, at best, a mixed achievement. Sure, the United States took on more commitments to provide global public goods and fight crises than ever before. But the IMF, the more important of the two Bretton Woods institutions, was designed to be dominated by the US—even more so than the British had dominated the League of Nations before this. As the British came to grips with this fact, they began to worry that the United Kingdom, weakened by the war, now faced the risk that the IMF would intervene in its domestic affairs, just as the UK had long done in the Balkans, the Middle East, and elsewhere. British officials worried that the UK was sinking in US eyes to the level of the kind of “irresponsible” debtor state long subject to the intervention of US officials and bankers in its affairs. This was a replay of older dynamics: In Germany and Austria in the 1920s, contemporaries constantly referred to these countries being treated by Britain and France in the ways that these empires had treated the Ottoman Empire and China before the First World War.
Keynes worked tirelessly to prevent the IMF from developing these interventionist powers—not out of some commitment to universal sovereign equality (he was mostly dismissive of Latin American and non-Western delegations at the Bretton Woods Conference), but because he feared a weakened British Empire was now vulnerable to US meddling. Just days before the Bretton Woods Conference, he drove this point home to his counterparts in the Roosevelt administration by asking them how they’d feel if an international institution had told the United States it couldn’t afford the New Deal.
Whether or not the IMF would be able to do this was left ambiguous at the Bretton Woods Conference. Keynes felt confident that he had won a commitment from Washington that the institution would not tell Parliament it couldn’t afford the Beveridge Plan. But soon after the conference, Keynes realized he’d lost this struggle: The US-dominated IMF was clearly going to be able to tie its assistance to extensive demands on the domestic policies of borrowers. Sure enough, as soon as the IMF opened its doors, shortly after Keynes’s death in 1946, its British and French members saw that this was not the institution they had signed up for. In a stark reversal of fortunes, the meddlers now risked becoming the meddled-with. But in the end, it wasn’t Western Europe where the IMF developed its most interventionist powers. It was in the Global South.
DSJ: How did representatives of the Global South deal with the meddling of the IMF and the World Bank in the 1960 and ’70s? For instance, there has been much written of late about the New International Economic Order that emerged at this time. What did it hope to achieve?
JM: The evolution of IMF conditionality during the Cold War was seen by representatives of Global South countries as being similar to the many other kinds of foreign interference their countries had long faced. As such, it was they, often backed by the Soviet Union, that were the most consistent in claiming a right for all states to enjoy protection from the meddling of others. This became a central demand at the United Nations, including in the push for a New International Economic Order in the early 1970s. The major exceptions to this were apartheid in South Africa and Jim Crow in the United States, which were seen as domestic legal and institutional arrangements that should not be hidden behind sovereign walls. But when it came to economics, the anti-interventionist emphasis of Global South countries was consistent.
Within the IMF, the conflict over this issue began well before the rise of the Washington Consensus. Already in the 1960s, there was a growing backlash among representatives of Third World states to the double standards and asymmetries of IMF interventionism. This reached a fever pitch after the IMF bailed out the United Kingdom in 1967 without nearly as many demands on British policy as it routinely made on the policies of members in, say, South America. As scholars like Adom Getachew and Christy Thornton have shown, there was, well before the Cold War, a long history of Global South officials and activists attempting to make sovereign equality a reality in a deeply hierarchical international system, but without calling for a full retreat to nationalism. So, too, did the backlash to conditional lending appear much earlier than during the wave of global protests against the IMF in the 1990s.
DSJ: Let me ask you to elaborate on something you alluded to previously. In the conclusion of The Meddlers, you state that “the history told in this book suggests that the challenges of global governance in the early twenty-first century are more significant than what is implied by stylized histories of embedded liberalism and its collapse into neoliberalism.” Is this an indictment against liberalism in general? Do liberalism and empire go hand in hand?
JM: If we focus too much on the relatively recent history of neoliberalism, we risk overlooking a much longer-term evolution in the relationship of global capitalism and empire. We miss that we continue to live in a world shaped by older practices of informal financial imperialism, which date back at least to the mid-19th century and have existed under the many varieties of liberalism that historians and social scientists often see as neatly separated: classical liberalism, “embedded liberalism,” neoliberalism, and so on. Structural adjustment is not just a kind of distant relative of empire, but its direct descendant.
DSJ: I recently interviewed Gary Gerstle, whose new book on the rise and fall of neoliberalism specifically argues that something like “embedded liberalism” did collapse into neoliberalism, eventually bringing down the New Deal order with it. Gerstle also argues for a global perspective, but sees the rise of a neoliberal order being inseparable from the downfall of the Soviet Union. How, though, do you explain the gradual undermining of the New Deal since the 1970s (something that has analogues across the North Atlantic) from the global perspective you put forward in the book?
JM: Generally, accounts of IMF interventionism focus on the transition from the supposed Keynesian consensus of the early Cold War to the neoliberalism of the late 20th century. On this telling, the Bretton Woods system replaced the interwar gold standard with a new international system that allowed states more autonomy to pursue expansive policies, build welfare regimes, and insulate their citizens from economic crisis—all without resorting to the kind of competitive nationalism that shattered the world economy in the 1930s. The insight of the Estonian economist Ragnar Nurkse is often used as shorthand for this innovation: The world economy was now to be governed for the sake of domestic social and economic priorities, not the other way around. The political scientist John Ruggie described this arrangement as an “embedded liberal” compromise in 1982.
But this narrative relies on a mythical rendering of the mid-20th century. This kind of autonomy was a luxury that few states could afford. Now this is not to say that neoliberalism is not real or that the undermining of postwar social democratic arrangements, where they existed, was not a major political development with worldwide consequences. Far from it. But I think we should be careful to avoid nostalgia for a postwar moment when social democracy was secure, states could control their own economic destinies, and welfarism was vibrant and universal. We know full well just how much this is a myth on the national level.
The racist compromises and structural contradictions at the heart of the New Deal state are obvious to US historians; so too is it clear that Keynesianism was much less of a consensus in postwar America than many would like to think. What I want us to see is that we should also be wary of using the concept of embedded liberalism to describe the global order after 1945, unless we’re referring to a small handful of relatively wealthy states in the North Atlantic during a brief period of time. Obviously, much of the world still lived within the confines of colonial empires, and few states that achieved “flag independence” saw this translate into robust autonomy in practice. Embedded liberalism may have been something that US and British officials talked a lot about during the Second World War. But it was not something that ever became an organizing logic of the global order after 1945, as much as we’d like to wish that it had and that it could somehow be recaptured today.
DSJ: What historical alternatives might we consider—paths not taken—that would allow us to rethink the relationship between the national and the international so as to overcome meddlers today?
JM: There are pushes for reform at the IMF that we should encourage, and new ideas are clearly taking root in the institution. There’s a welcome recognition among some IMF officials that the institution overreached in the 1990s and that forms of lending without strings attached, like special drawing rights, have a place in the institution’s toolkit. There are efforts to reform how the IMF treats debtors, particularly by reducing its punitive surcharges. And the G20—if it’s not to be completely hamstrung by great power competition—has some potential to lead collective efforts at sovereign debt relief. Despite the current moment of global crisis (or perhaps because of it), now is a time when there are vibrant and productive discussions about how to reform international economic institutions.
But I also think we need to escape thinking in terms of reaching “a new Bretton Woods,” as is so often the tagline of these calls for reform, or of limiting our ambitions to tweaking existing institutions. These institutions were designed at a time when empire was still taken for granted as an organizing principle of the global order, and were set up to ensure the dominance of one great power. We need to think creatively, from the bottom up, about what kinds of institutions might actually work in our multipolar and unstable world order: institutions that are able to achieve collective aims, whether this is the reduction of global inequalities or mitigating climate change, and that states look to with enthusiasm, not just under duress.
I don’t have the answer to what exactly this would look like. But I see this as a long-term effort that needs to be engaged across multiple sites of scholarship, politics, and social movements. I find it difficult to imagine life on earth continuing as we know it if we cannot craft collective responses to the existential challenges we face. But we can’t begin to imagine what is politically feasible without reckoning with how we’ve arrived where we are now—and with how the legacies of empire need to be continually overcome in the pursuit of new and more just forms of international cooperation.