The Rules of the Game
On the UN, the IMF, the World Bank, and what went down in 1972.
We have launched a new issue focused on grasping the extent and the history of U.S. foreign intervention — how does the U.S. conceive of its role in the world, what has it done to maintain that role, and what has or hasn’t changed over time. A new foreign policy consensus seems to be rapidly emerging, and, per usual, the most helpful thing to do is to slow down and try to understand the context of the moment we are in. This is our fourth interview of the series.
This interview with Michael Franczak, Senior Researcher in Multilateralism and Global Governance at the United Nations University’s Centre for Policy Research and author of Global Inequality and American Foreign Policy in the 1970s, was conducted and condensed for clarity.
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My name is Michael Franczak. I am a senior researcher at United Nations University Center for Policy Research here in New York. I'm also a visiting fellow at University of Pennsylvania's Perry World House and an adjunct assistant professor of history at Columbia University. My background is as an historian of international economic relations and US Foreign Policy. I now work in various UN processes on issues that I originally encountered in an historical form through writing my book.
How would you define, broadly, those issues that you discovered in your book?
The book focuses on the 1970s, but the narrative begins in 1944 at the Bretton Woods negotiations in New Hampshire.
This was the creation of the International Economic Order after World War II, the post-war economic order. This refers to the set rules and institutions, chiefly the IMF and the World Bank and the GATT, that form the basis of post-war global finance and trade, and that generally privilege the United States above all countries and the global north over the global south.
How does that economic order specifically privilege the US? What advantages is it given?
For instance, when the IMF and World Bank and the world bank were created, 44 countries were there, but two countries had the largest influence by far – US and the UK. There were inherent inequalities in these post-war institutions when it came voting and power, and when it comes to the role of the US dollar as an international reserve currency. These were objections that were brought up in 1944 by developing countries, and, in the 1970s, this system entered structural crisis, and developing countries saw that as an opportunity to renegotiate that settlement on more favorable terms.
How did they do that?
They did it through diplomatic organization and economic solidarity. In 1964, the Group of 77 developing countries formed in the UN. They were later described by Julius Nayeri of Tanzania as “a trade union for the poor countries.” In 1974, they decided to use the opportunity of breakdown in chaos and global economic relations to renegotiate that settlement from a position of strength. And that crisis was brought on by many factors, but the most visible was an oil price shock that was led by the Organization of the Petroleum Exporting Countries. That shock was used as a catalyst to force developed countries to sit down at the table and negotiate.
It's interesting the way the book framed that shock as sort of a leveling the playing field tool – perhaps different than how we learn it in school – can you explain a bit how that comes about?
Well, that's quite right. OPEC was formed in 1960 because the oil producing countries were getting a pretty raw deal when it came to their oil exports. From 1945 to the late 1960s, the price of oil went was around $2 a barrel. It stayed around $2-3 a barrel for these 20 years. And this is what is referred to as the Golden Age of Capitalism, the Halcyon Days that American politicians harken back to when they talk about the role that America played after World War II. This was a fossil fuel-driven period of growth. Rich countries were importing oil and using this to make manufactured goods and drive food production, and they earned a tremendous amount of wealth. But the exporters of commodities like oil—or bananas, for that matter. did not see those gains. The price for their exports stayed roughly the same, while the price for the imports that they took, the manufactured goods from rich countries, continued to go up.
The idea behind OPEC was to join together to negotiate better prices and to create a more favorable terms of trade. That is why the oil producing countries rallied behind the embargo, which was led by OPEC’s Arab members.
We think of the oil crisis as brought on by US involvement in the 1973 Arab-Israeli War.
But, concurrently, for the rest of the world, there was a food crisis going on. Between 1971 and 1973, the price of critical grains like wheat quadrupled. This is hurting developing countries.
Why were prices going up?
Prices were rising because of a major US government decision tied to foreign policy: clearing out US food stockpiles. After WWII, the US became a primary food exporter to the world, using PL-480, the Food for Peace program, as a soft power tool used as a bid to win friends in newly independent countries around the world. It was also seen as a big win for US foreign policy and domestic politics, because the subsidies that enabled the exports supported American farmers. It was seen as a win-win.
But this system collapsed in 1972. This is where American domestic political economy and free market ideas come in – and where domestic politics and foreign policy collide. The US had a new agriculture Secretary, Earl Butz, who was famous for pushing a shift from New Deal-era managed agriculture — where you paid farmers to keep stockpiles and to not plant in some years — toward a free-market approach.
He had stockpiles cleared out, and the US does a massive grain deal with the Soviet Union, known as the Great Grain Robbery. But, there was a year of bad harvest in 1972, so food prices surged.
The oil shock of the early 1970s was both a part of the food crisis and a response to it, ultimately becoming a tool in the push toward a new international economic order by a coalition of developing nations. The G-77 countries had gained formal political independence through decolonization, and now they were calling for economic independence. And it's on May 1st, international Mayday 1974 in the United Nations that Algeria introduces the resolution for the New International Economic Order.
How would the resolution specifically give them more leverage? Is it like voting power? How does that work?
There are two parts: a declaration on the NIEO and a program of action. The program of action outlines a series of steps to shift the balance of power from the Global North to a more equitable distribution with the Global South.
Meaning within the UN?
Within the Bretton Woods institutions, the IMF and World Bank. But it also called for the creation of new institutions.
It's really an attempt to bring a more equitable distribution of power in the international economy, but it's also an effort to create new mechanisms that will respond to the problems that developing countries have in the economy at that time.
How does the US respond to these proposals?
This is why I wrote the book, because the typical story of foreign policy in the 1970s focuses on détente between the US and the Soviet Union and human rights. But when I looked through the archives, I found that a major concern across three administrations — Nixon, Ford, and Carter, continuing into the early Reagan years — was the challenge from developing countries uniting to reshape the post-war economic order, where the US stood as first among equals.
US policymakers weren’t worried that every proposal from these nations would be enacted as written, but rather that the alliance between oil-producing and oil-importing developing countries threatened the foundations of US grand strategy.
When the oil crisis hit in 1973, European nations, more dependent on OPEC oil than the US, immediately sought direct deals. Unlike the US, which had reserves and domestic production, Europe had shifted from coal to oil after WWII, making it highly reliant on OPEC. Another concern for both the US and Europe was the emergence of more “OPECs”—commodity-based alliances that could shift power from buyers to sellers.
In some senses, the US-led order was buckling under its own weight.
What ends up happening to the proposal based on these sort of concerns?
The book traces how three U.S. administrations responded to the NIEO challenge – they could not ignore it, and developed different strategies to counter it.
During the Nixon and Ford administrations, Henry Kissinger led the response. He sought to split the Global South using food as leverage. Unlike the more ideological free-market economists in the administration, Treasury Secretary William Simon, Alan Greenspan, and Agriculture Secretary Earl Butz, Kissinger was pragmatic. He saw food as a tool to engage oil-importing developing countries, but his efforts were blocked by economic advisors who viewed negotiations as a threat to global free markets. They argued that if the U.S. did not firmly reject the NIEO, no one else would. This led to a major clash within the Ford administration between Kissinger, who sought compromise, and the free-market hardliners, who wanted to outright reject the NIEO while pursuing their own counter-reforms.
At the same time, Kissinger faced opposition from emerging neoconservatives, particularly Daniel Patrick Moynihan, the U.S. ambassador to the UN. Moynihan argued that decolonized nations had taken over the UN and that the U.S. needed to forcefully defend the liberal international order. Neoconservatives rejected the NIEO not just as an economic threat but as a challenge to American liberalism—and one that American liberals were unable or unwilling to extinguish.
The Carter administration took a different approach, not rejecting NIEO negotiations outright but emphasizing a new development strategy based on "basic human needs." Instead of large infrastructure projects or commodity stabilization schemes, Carter’s aid policy focused on poverty reduction, health, and education. He saw this as aligning with his human rights agenda, believing developing nations would only accept U.S. human rights policies if they had an economic component. However, this approach was more rigid than Kissinger’s—Carter outright refused to alter the structures of the postwar economic order.
There’s a dramatic meeting between Carter and the President of Venezuela at the time, Carlos Andrés Pérez. Venezuela is an interesting case because it did not join the Arab countries’ boycott in 1973, it’s a U.S. ally, it’s a democracy, and in that decade it has the GDP of West Germany. Carter sees this as the natural and perfect ally for his strategy to win developing countries over with a human rights policy that addresses economic and social rights of individuals.
But the President of Venezuela says to Carter in this tense meeting, “Mr. President, you misunderstand. Poverty is a symptom, not a cause.” This lays bare the fundamental gap between how these two sides see the world.
So, in summary, this proposal forces the U.S. to confront its place in the world. Across these administrations, the goal remains maintaining U.S. hegemony, but the approach varies in how much they acknowledge and address poverty concerns.
I think there is a pretty widespread recognition in the early 1970s that the world has changed, a conversation not unlike today, and that it's a newly interdependent and increasingly multipolar world. They recognize that the world is changing and the US position within it is changing, but they're not sure how to respond. What they do agree on, by and large, is that the US must continue to sit atop this order. So when Kissinger is willing to negotiate some aspects, he's doing so out of the belief that he is preserving us hegemony, not giving it away. And the Carter administration is also notable for how ideologically it approaches the North-South dialogue.
What approach to foreign policy or foreign aid remain today that were a response to this moment in time?
Let me start with what does not remain today. The Carter years were a brief experiment in economic and social rights in human right policy. What changes is the valence it has in both Democratic and Republican circles. When Reagan comes into office, he was very critical of Carter's human rights policy – he says that we should be criticizing the communist countries, not our anti-communist friends. This position turns out to be tremendously popular with the American people. And that's when a conservative human rights policy is formed, one that focuses on economic rights and political rights in terms of the freedom of the individual.
Another thing that has changed is developing countries building their own institutions. Part of this has to do with the tremendous rise of China after the 1990s. Part of this has to do with changing economics in the global north. You saw during this time in the 1970s the beginnings of de-industrialization and production moving offshore. This created a big shift in global production and income. The global middle class in China, and India and elsewhere have seen a significant rise in real incomes.
And this is part due to their integration into the global economy, the shift in manufacturing, the opening up of the global economy. This has been a tremendously positive thing in many senses, because it's lifted tens of millions out of abject poverty. And it's notable that this was done in many cases by those countries themselves, and not by, say, the World Bank or other international institutions.
So you have a world where the US is clearly not the dominant actor anymore, but structures which still retain the US as the dominant actor, for instance, in the IMF and World Bank. The risk is that they become irrelevant. If they don't change their structures to reflect the realities of power today, it's unlikely that they'll be able to confront the challenges of today. They won't have the resources to do it. They won't have the political cooperation to do it. So what we're seeing today is pressure for these institutions that were challenged in the 1970s to reintegrate themselves into a multipolar world.