Demise of doctrine: Policy-making in the real world

Caroline Atkinson, 12 June 2018

In her talk, Caroline Atkinson discusses the development of the post-war doctrine of cooperation, the implications of shifting political and economic power, and policy-makers’ rigid response to the 2008 financial crisis.

After WW2, the world adopted a more rules-based system designed to foster cooperation and openness. Domestically, under the influence of John Maynard Keynes, economic doctrine began to play a significant role in political decisions. The Marshall Plan, IMF, and World Bank fostered global economic cooperation--with national governments ceding a degree of sovereignty to these institutions to ensure international cooperation.


Cross-border trade increased with both the establishment of economic institutions that ensured cooperation and central banks adoption of floating exchange rates. But this economic flexibility and interconnectedness required political cooperation among the world's most powerful countries to keep the system in balance. By the 1970s, the United States had the most power among the G6 (later G7) nations. The US saw itself as the steering system for the new global order.

Eventually, countries previously part of the Soviet Union joined the Western financial system; China experienced rapid economic growth. It then became clear that the G7 had left out out too many economic powers. There was a growing backlash against the "Washington Consensus"--the economic and political policies of the US and Europe.

Global policy became more inclusive and political. The G7 broadened to the G20. After the 1997 Asian financial crisis, financial ministers began demanding a larger role in shaping policy; they learned the political importance of financial policy.

The 2008 financial crisis led policy makers to reconsider several long-standing economic doctrines, such as tight fiscal policy. But the doctrine of caution in fiscal policy reasserted itself soon. Experts, particularly in Europe, were inflexible in their response to the financial crisis-- stressing tight fiscal policy even as economic growth sagged. Any deviation from fiscal constraint was seen as politically dangerous by both financial ministers and politicians.

Going forward, policy makers need to be mindful of too strict adherence to the economic doctrine of fiscal rectitude. In many recovering countries, there is still a large need for better education, a deeper social safety net, and greater access to financial markets.

Policy makers should also be aware of which countries perceive themselves as the "winners" and "losers" of trade. How can policy makers compensate disaffected countries? How can policy create more inclusive economic systems, upholding the rules-based and cooperative order that has allowed so many countries to flourish in the past?

by Josh Ashkinaze