Expectations for the World Bank in 1944

Looking back today at “Questions and Answers on the Bank for Reconstruction and Development,” distributed by the U.S. Treasury to the delegates and journalists attending the Bretton Woods conference, it is apparent that the World Bank has been less important than was expected in 1944. The document refers to the decline of foreign investment in the 1930s as evidence that without guarantees such as the World Bank is intended to provide, investment may be small even though sound investment opportunities are extensive. In a number of places the document stresses the pump-priming effect World Bank guarantees will have.

It is understandable that those who wrote “Questions and Answers” should be pessimistic about a rebound in foreign investment. They had just experienced the worst 15 years for foreign investment since…maybe ever. Moreover, under the proposed agreement for the International Monetary Fund that was the main focus of the Bretton Woods conference, member countries pledged to open their current accounts (trade in goods and services) but made no such pledge with respect to their capital accounts (financial investment).

As it turned out, the World Bank did little of the post-World War II reconstruction work envisioned in its long title, the International Bank for Reconstruction and Development. The Marshall Plan was larger and quicker. And once Western European countries undertook currency and other economic reforms, they moved from privation to adequacy and then to prosperity. The long Western European boom began a renewed era of growing foreign investment, which broadened and deepened over time until today it includes most of the world’s countries and an even larger share of its population.

The World Bank has played a role in reconstruction following a number of civil or regional wars, but it has mainly been a development institution. That it has had a supporting role rather than a main role in international capital markets testifies to the overall success of the internationalist spirit underlying the Bretton Woods conference. The terrible 15 years up until Bretton Woods were not a predictor of things to come. Given the right environment, private investment proved willing to move across borders on a large scale without the World Bank’s guarantee.

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About Kurt Schuler

Kurt Schuler, co-editor of The Bretton Woods Transcripts, is Senior Fellow of Financial History at the Center for Financial Stability and an economist in the Office of International Affairs at the United States Department of the Treasury.

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