## Fairy Dust’s Economic Possibilities

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### Keynes’s vision and the Bretton Woods mission
- John Maynard Keynes invoked the “Sleeping Beauty” fairies when imagining the christening gifts for the World Bank and the International Monetary Fund: a many-colored coat, a set of vitamins, and the gift of “wisdom, patience, and grave discretion.”
- Keynes celebrated the Bretton Woods institutions as “a victory for the human spirit” and described the 1944 conference as “an outstanding success,” observing “We have been learning to work together.”
- He feared the institutions might become “instruments of US power” rather than independent international bodies; the Soviet Union’s failure to ratify the accords contributed to their Cold War orientation.

### Intellectual challenge: cooperation versus comparative advantage
- Keynes argued that David Ricardo’s theory of comparative advantage was not a substitute for international cooperation, reciprocity, and cultural exchange.
- He critiqued the idea that free trade alone would solve postwar devastation, mocking “the lunatic proposals of Mr. Hull” and emphasizing the need to balance reconstruction, industrialization, and differing developmental needs.
- In the late 1940s, policy tradeoffs included allowing cheap imports to access missing goods versus using tariffs to develop or repair war-damaged industrial sectors.

### Climate change, developmental needs, and policy tools
- The climate crisis has established new developmental needs for even the wealthiest countries; “policy tools appropriate for this century will not simply replicate those of recent decades.”
- Tariffs, state subsidies, and state-owned enterprises—often criticized as barriers—may be essential to develop a global market for climate-friendly industry.
- Green technologies are characterized as “infant industries that require far more protection than discipline.”

### Financing climate action and the role of multilateral institutions
- It is estimated that emerging market and developing economies, excluding China, need $3 trillion a year by 2030 to fund climate action and the SDGs, of which $2 trillion should be raised domestically and $1 trillion will have to come from outside.
- The Summers-Singh Group of Twenty (G20) report has proposed that multilateral development banks provide an annual increase of $260 billion.
- Innovative financial mechanisms, including the use of guarantees to de-risk and scale up private sector investment, must be mobilized to boost and complement these efforts.
- The World Bank and multilateral development banks will need further funds from shareholders through a capital increase.

### Global governance and institutional recommendations
- The G20 should become the premier forum for global economic cooperation; the Group of Seven is “too narrow to be the steering committee for the world economy.”
- For the G20 to function effectively it should:
  - Be more representative through a constituency system.
  - Assemble a professional secretariat to ensure continuity of policy from year to year.
- Multilateral institutions can uniquely help nations pursue new technology and expertise through experimentation with a broad economic policy palette, offering a path toward both climate mitigation and international harmony.

### Historical precedents and outlook
- Historical examples of successful global cooperation cited include:
  - Kennedy’s nuclear test ban treaty in the 1960s.
  - Ronald Reagan’s and Mikhail Gorbachev’s nuclear arms reductions in the 1980s.
  - Multinational efforts to prevent depletion of the ozone layer in the 1990s.
  - The 2009 G20 summit stabilizing the global economy.
  - The Paris accord on climate.
- Two paths are presented: one toward global fragmentation and deepening crises, and one toward collective work delivering “prosperity, progress, and hope.” The author chooses hope.
- Institutional longevity is invoked as reason for optimism: if an international institution can survive for 80 years, “it might serve as a forum for innovative cooperation across the next 80.”

*Source: Zachary Carter, F&D Point of View (September 2024).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/09/carter-pov.pdf_