Coordinating commodity production then and now: will this time be different?

As mounting geopolitical tensions and the urgency of decarbonization recast relations between North and South Jamie Martin’s The Meddlers reminds us of how, from the First World War through the 1980s, global economic coordination was regularly limited by the hierarchies and habits of the declining European empires and the rise of Wall Street, but also how boldly heterodox and effective global coordination can be, despite the overhang of these hierarchies and the blinders they usually impose. The book warns us that today’s response might, again, limit the immediate effects of crisis while leaving the structures of global privilege in place. The Meddlers doesn’t address the problems of the present directly. But by showing the continuities in the global economic strategies of the dwindling empires and the new American hegemon through most of the 20^th century The Meddlers draws attention to novel features in the North/South relation today that suggest how measures to address the current crisis could also be a step towards a more just world order.

In standard accounts of global economic governance, the decades following the Bretton Woods conference in the US in 1944, out of which emerged the GATT, the IMF and the World Bank, are a golden age of “embedded liberalism.” Trade rules encouraged commerce, especially by reducing the risks of competitive devaluations and other self-serving trade behavior, while preserving the “policy space” within which national governments could construct welfare states and manage the domestic economy by Keynesian precepts. Such is the attraction of this Goldilocks solution that some of the most thoughtful critics of the current, excessive or hyper globalization urge a return to Bretton Woods as the best chance for a more equitable world economic order.^[i]

Martin criticizes this view from two directions. First, building on recent, revisionist writing, he argues that the scope of the Bretton Woods affordances was much more limited than usually supposed.^[ii] For one thing, in the early postwar decades many developing countries were still colonies, with domestic policy limited by imperial control, or ex-colonies, subject to neo-imperial interference. For another, the failure of Keynes and his allies to install institutional safeguards against the emergence of a “grandmotherly” regime, dedicated to order maintenance, cleared the way for the IMF and World Bank to make loans conditional on wide ranging respect for creditors’ interests, continuing the meddling financial interventions of the interwar years (hence the book’s title), to the detriment of development. Accounts that link the rise of intrusive globalism to the advent of neoliberalism – roughly coincident with the transition from the GATT to the WTO in the mid-1990s – therefore ignore the continuities between Bretton Woods conditionality and later practices, to say nothing of the continuities between the Bretton Woods regime in practice and prior efforts at coordination of the world economy since the First World War. On this understanding, there is no golden age to go back to.

But even as he underscores the persistent concerns with conditionality and the meddling interventions to which it led Martin shows in a second line of criticism that many of the earlier interventions, especially before Bretton Woods, have been more audacious and transgressive than usually supposed. In the face of crisis, regime-building industrialists, bankers and technocrats set aside liberal pieties about the minimal role of the state in the domestic economy and the subordinate role of international organizations in a world of sovereigns. When need be they constructed institutions subordinating private to public interest and domestic and imperial authority to international control. The continuing preoccupation with conditionality was thus periodically punctuated by episodes of disruptive, heterodox institutional creation that touched off furious debate among protagonists and observers about the potential for further, wider ranging transformation. The contribution of the book is to show both the weight of orthodoxy and its surprising susceptibility to challenge, and thus to allow us to see the current jumble of orthodox and heterodox ideas — for example, a massive increase in industrial policy, in violation of the neoliberal precept of protecting the economy from markets, combined with a penchant for administering the new policies through the tax system, leaving crucial decisions to markets in a way that might partly console neoliberals — as of a piece with debate at earlier turning points in the path of global economic governance.

The pattern of continuities and discontinuities between the current moment and earlier crises that best highlights the distinctive promise of the present is the case of the coordination of international supply chains for commodities such as tin and rubber (in the period covered by The Meddlers) or steel, forestry products and soybeans (today). In the earlier period the issue was price and the underlying balance of supply and demand. Commodity prices fell precipitously after the First World War, and when markets began to stabilize in the 1920s deflation set in as innovations in mechanization, hybrid seeds, and other technologies increased productivity and led to gluts. The collapse of commodity prices during the Depression only increased the turmoil. By the 1930s the situation in a rich British colony like Malaya was acute. Falling revenues from export duties from tin and rubber put the colony’s finances under strain, stressing in turn the imperial balance of payments. The slump in demand also jeopardized the jobs of hundreds of thousands of Indian and Chinese migrants in Malayan mines and plantations. Their discontent raised fears of racial tensions and ultimately a Bolshevik insurrection.

The response to these threats was the formation of an international tin cartel. Building on many attempts to build private cartels before the First World War – especially in capital intensive industries – representatives of several hundred tin producers formed an international lobbying group in London, months before the crash on Wall Street, and proposed a voluntary suspension of mining activities. When the limits of voluntary action became evident the group pushed for the creation of a body with formal powers, and in 1931 the International Tin Committee (ITC) was established by agreement among the colonial governments of Malaya, Nigeria and the Dutch East Indies. Bolivia, as one of the key bases of the Anglo-Oriental company, the dominant firm in the global tin market and in the British colonial tin producers, joined as well.

The ITC was a hybrid, and its hybridity, together with its formal authority, gave it enormous power to reshape markets. Besides delegates of the signatory states, the committee included representatives of the most important business interests, particularly the British financier and the Bolivian tin moguls who bestrode Anglo-Oriental. The government delegates to the committee, moreover, often simultaneously held offices in one or more colonial governments and in the corresponding empire. When the ITC spoke, therefore, it expressed a consensus at the highest levels of public and private decision-making.

Despite its authority, protest against the decisions of the ITC was swift and dogged. Small British and Chinese firms in Malaya, using less capital-intensive methods than the new dredging technology favored by Anglo-Oriental companies feared, with good reason, that the latter would use output reductions to shelter their high cost operations, while they, with limited access to capital, would be driven to the wall despite lower operating costs. This concern gave rise to a legal claim asserting that the ITC’s restrictions unlawfully interfered with a lease signed decades earlier granting a British firm the right to freely prospect for 77 years within a designated, 300 square mile area. Such claims are routinely brought today by aggrieved investors under the many investor-protection treaties now in force, which are frequently interpreted to mean that regulatory changes that diminish the profitability of foreign investments amount to illegal expropriations. But in the 1930s, the Malayan courts found that the colonial government had as much power to abridge contracts as parliament did in Great Britain; the privy council in London, the highest court of the Empire, agreed.

Implementation of the new regime was in some cases obstructed by administrative difficulties in the distribution of production allowances. In the Dutch East Indies, where tin production was either in the hands of the government or of a single private corporation, itself under state control, administration was straightforward. But in Malaya, with more than a thousand mines and many, mostly Chinese, women who panned for tin with wooden implements, it was not. Eventually these dulang washers had to be allocated certificates— to be shown on demand— authorizing their individual production quotas.

But these matters were soon brought under control, and the example of the ITC inspired imitators, first in rubber, tea, and coffee; then, as New Dealers saw the potential advantages of commodity price stabilization in agricultural exports, in wheat; and finally in oil with the creation of OPEC. These commodity control commissions, Martin notes, were the only successful attempts at international economic coordination between the Depression and Bretton Woods. They worked well enough that many survived through the 1980s. If they did not become financial motors of development in post-colonial countries, this was not because they failed to stabilize prices and generate reserves, but rather because the new states often invested the proceeds in ill-conceived projects of industrialization.^[iii]

The problems of reorganizing commodities supply chains today are fundamentally different from these earlier efforts at market stabilization, starting with the need for innovation. In many cases, the way to produce an environmentally and economically sustainable variant of a given commodity is, as yet, unknown. Green solutions will have to be found, and investigation will be expensive. Quantity controls had no need of innovation; on the contrary, imposition of quantity controls tended to retard the introduction of innovative technologies for fear that increased productivity would disrupt markets. The task for innovation today is complicated by the idiosyncrasies of place: differences in soil, climate, pests, or geology that together make it unlikely that solutions developed in one setting can be transferred directly to others. Even if, exceptionally, natural circumstances allow a solution to be generalized, differences in social structure severely limit the possibility of implementing it elsewhere in the same way. A further complication is frequently the need to devise solutions both for large technically sophisticated firms and for the dulang workers of today: small competitors, often working at the margins of legality or wholly outside it, typically in loose and lopsided collaboration with larger, more formal firms. If their needs are neglected, smallholders will be tempted to adopt survival strategies with disastrous ecological consequences, as we know from low-density cattle raising in the Amazon, where squatters burn a clearing in the forest, only to move on after a few years when primitive practices have exhausted the soil.

The importance of process engineering in the green transition calls attention to a second difference between earlier measures and the current situation: the need for close, continuous monitoring all along the commodity supply chain. The steel in green steel is the same as in dirty steel. The difference is that only green steel is produced by green methods. Close monitoring of every step of the production process — which is much more intrusive than the verifications of producer allotments used under quantity control systems — is therefore required to ensure that commodities that purport to be green actually are. Experience with forestry products, soybeans, and beef since the 1990s suggest that it is possible to build effective supply chain monitoring systems, but that doing so is expensive, requires continuous engagement with the local actors, and is much more likely to succeed when it is accompanied by effective technical support, which it seldom has been.^[iv]

If adjustment in the green transition is more expensive than in earlier episodes of quantity control because of the additional costs of innovation and monitoring, the stakes in the green transition are higher too. This is a third crucial difference between then and now. The costs of commodity gluts and shortages are high in the short term; in the longer-term markets adjust. The reverse is true of the green transition. The cost of inaction are nearly negligible in the short term, but catastrophic as time goes on. By itself, of course the prospect of general catastrophe has a limited incentivizing effect because of familiar free rider problems: precisely because of the catastrophe is general, we each think all the others will ride to our collective rescue, and therefore no harm is done in avoiding individual contributions. But the green transition has progressed far enough so that such considerations are giving way to hard-headed determination to cash in on a great business opportunity, along with AI perhaps the opportunity of the new century. The higher costs of the green transition are therefore likely to be greatly outweighed by higher returns, at least for the winners in the race for solutions.

The last difference between commodity-chain coordination then and now reflects not the shift from quantity controls to green innovation, but rather a broader shift in geopolitics, especially of course the rise of China, and with it a new struggle for the allegiance of the global South. The Meddlers covers the transition from British to US hegemony. From the standpoint of the global South, this merely substituted one imperial master for another. Today, neither the US, nor China will be able to stand up to the other without the support of at least some large global South countries, such as Brazil, India, or Indonesia. Part of the price of hegemony – or, if no hegemon emerges, continued global influence – and of a leading role in the green economy of the future will therefore likely be a willingness to share the costs and benefits of the green transition to an extent not previously imaginable.

What would the governance arrangements for the greening of commodities look like? For starters, as in the period of the ITC and companion committees, the unit of action would be the sector, or more exactly individual commodity supply chains. Circumstances differ too much from supply chain to supply chain, even within families such as grains or metals, for more general rules to have any bite.

But where the ITC grouped elites of empire and private industry, while excluding local producers without elite patronage. such as the Chinese firms in Malaya, green commodity committees today will bring together representatives of consumer countries, typically in the North, and producing countries, typically in the South on equal footing. Keynes addressed the inequities of conditionality — the rules by which the powerful allocate access to credit and other benefits so as to preserve their power — essentially by doing away with it and making access automatic. The green committees will address the problem of lopsided rules by making the most vulnerable parties full partners in rulemaking.

The first task of this committee would be to agree on the process requirements to be satisfied for a product to count as green, and on procedures for verifying conformity. Members will export goods to one another duty-free. Imports from non-members will be subject to a tariff, thus protecting firms that invest in expensive, green technology against low-cost, dirty competitors, and penalizing business as usual.

But this agreement would only be the beginning. To achieve the goal of comprehensive decarbonization of a commodity, membership in the committee will have to expand beyond the group of capable and committed countries willing to take the initiative to include almost all producers and consumers. Penalizing dirty production goes only so far. To secure wide embrace of green methods, non-members must be able to join the green club on fair terms, ideally with the support of the founders.

The second task of the greening committee, therefore, is to establish a process for admitting new members. Because the idiosyncrasies of place mean that solutions may have to be adapted to new conditions, and because some innovations may improve on best practices, the criterion for admission cannot be limited to compliance with existing procedures. What will be required instead is a demonstration that measures suited to a candidate’s particular conditions yield outcomes equivalent or superior to those currently obtained by members. In the best case, moreover, the club will provide technical assistance to candidates, especially with difficult problems, like the integration of smallholders, reducing the cost of adjustment and allowing stepwise entry into the green committee as progress warrants. In these ways members’ own practices, no less than those of candidates, will be under periodic review. Far from freezing technological development, as quantity controls tended to do, green committees will encourage it.

Many recent developments, starting with the negotiations between the US and the EU regarding a green steel club, could be interpreted as precursors to such green committees.^[v] But they may just as well result in new forms of protectionism that entrench dirty producers; and at the current pace, it could be a decade before the direction is decided. That is what it means to be at a turning point.

But one thing is clear, even if the ultimate outcome is not: the differences between this time and what went before are so great that there is a real chance that this time will be different.