By the end of the twentieth century, a small number of international institutions had come to wield great influence over the domestic economic policies of many states around the world. The International Monetary Fund (IMF) and World Bank, in particular, made assistance to member states conditional on a broad suite of reforms, often with far-reaching political and social consequences. From Africa to Latin America to Asia, loans were tied to the balancing of government budgets, the privatization of state-owned industries, the removal of regulations, and the lowering of tariffs.

The IMF developed these powers during two decades of global turmoil spanning the Third World debt crisis of the 1980s–90s, the collapse of the Soviet Union, and the 1997–1998 Asian Financial Crisis. In the process, it faced a legitimacy crisis. Around the world the IMF was criticized for interfering in domestic politics and imposing neoliberal policies on states in the Global South and former communist bloc. In the 2000s, mindful of the institution’s poor reputation, some IMF officials claimed that its help now came with fewer strings attached. But when conditions were made more lenient, it was usually because the country in receipt of loans had already undertaken so many liberalizing reforms that it had few left to implement. And while some at the IMF increasingly insisted that the institution had abandoned its previously doctrinaire neoliberalism, it continued to make the same far-reaching demands for austerity when states turned to it for assistance—even during the height of the COVID-19 pandemic.

The IMF and World Bank exert great influence over the domestic economic policies of states around the world.

Today, while the IMF remains the only international financial institution with the resources necessary to deal with serious financial crises, it is usually only the most desperate states that turn to it. More are likely to do so in the coming months, as central banks, led by the U.S. Federal Reserve, hike interest rates, making the servicing of sovereign debt much more expensive. From Sri Lanka to Pakistan to Ghana, many countries today are experiencing extreme debt distress, raising the prospect of another global wave of sovereign defaults. After the last global debt crises of the 1980s and ’90s, when the IMF expanded its reach into the most intimate domestic policies of some of its member states, a widespread backlash emerged against what were seen to be its meddlesome powers. In order to avoid IMF bailouts, various states looked for alternative means of insuring themselves against financial instability, particularly by accumulating vast quantities of foreign exchange reserves. This was true not only for U.S. rivals like China and Russia but also for many emerging market and lower income developing countries, including South Korea and Brazil.

This strategy hasn’t been painless: it has diverted money away from public investment and poverty-reduction programs in low-income countries and channeled capital from the Global South to investments in the government debt of the Global North. But for some states, the alternative—agreeing to a conditional loan from an institution dominated by the U.S. Treasury—was even worse.

As the magnitude of twenty-first-century global challenges only grows, the ideal of international financial cooperation that does not involve these interventionist and unpopular demands on domestic policies seems no closer to realization than ever before. A stable, legitimate form of global economic governance for an unstable world economy has not yet been found.

What is to be done? The answer depends in part on how we tell the history of the crisis of global economic governance. One popular narrative sees it in terms of the rise of neoliberalism. On this view, the Bretton Woods institutions set up in 1944 during the heyday of mid-twentieth century Keynesian consensus—including the IMF and World Bank—were transformed into meddlers starting only in the 1970s. After Nixon unpegged the dollar from gold in 1971, the IMF and World Bank lost their original mandates, and the U.S. state used them to oversee a global market revolution. Before then, the story goes, these institutions had represented what political scientist John Ruggie called “the compromise of embedded liberalism” at the heart of the postwar economic order—a system that was both multilateral and revolutionary for allowing states greater autonomy to pursue expansive economic and welfare policies than had been possible before the 1930s, when the gold standard had severely constrained how they managed their national economies.

The upshot of this story is essentially nostalgic: if we abandon the latter-day neoliberalism, the argument goes, these institutions might function again as the legitimate vehicles of international cooperation they once were. The aim, in short, should be to recover a lost golden age of global economic governance.

But focusing on the postwar neoliberal turn, as consequential as it has been, obscures the flaws of even mid-twentieth-century liberal institutions—flaws that more clearly come into view when we extend our historical focus further back in time. The first international efforts to govern the world economy in fact emerged decades before World War II as nineteenth-century empires adapted to a world order transformed by World War I. Though it was indeed exacerbated by the neoliberal revolution, the emergence of an interventionist IMF is rooted in this longer-term process of imperial adaptation to new forms of mass politics and the rise of self-determination in the early twentieth century.

In other words, there was no stable era of mid-twentieth-century cooperation that can be easily recaptured today. Since international economic institutions first appeared in 1918, they have always been accused of being meddlers, and they have always been closely linked to the prerogatives of empires. Unlike international bodies tasked with preventing squabbling foreign ministries from declaring war, their work involved reaching deeply into contentious domestic issues. Even when limits were placed on their power, these institutions tended over time to become more interventionist, as their decisions reverberated across many levels of the political, social, and economic life of states and empires. Reckoning with this legacy is essential to building truly cooperative institutions for global economic governance today.

The crucial turning point in this larger story is not World War II but World War I. It was at this moment that international economic institutions—for the first time in history—began to intervene in the most consequential domestic economic decisions of some of their member states. In the process, these institutions oversaw a major transformation in sovereignty and international order, reshaping older tools of financial imperialism for a new era of self-determination. This era of international meddling in domestic economic policy-making has long been downplayed, in large part because the international institutions of the interwar period were considered failures. If measured against their goals of rescuing the world from depression and preventing the outbreak of war, no other conclusion can be reached. But historians have recently shown how the internationalist experiments of these years laid the foundation for the international order of the post-1945 period. Alongside developments in the international regulation of public health, migration, refugees, and the policing of contraband, efforts to govern global capitalism were inaugurated during the tumultuous years separating the world wars—not in the 1940s.

There was no golden era of mid-twentieth-century economic cooperation.

These first international economic institutions were designed to defend capitalism and stabilize a European-dominated international order that World War I had thrown into turmoil. Their powers were shaped according to the prerogatives of a few European governments and central banks—primarily those of the victorious Allied powers, though U.S. private interests and occasionally public authorities also played a role in their genesis. The most important such institution was the League of Nations, partly designed by U.S. President Woodrow Wilson, and founded in 1920, but which the United States never joined. The League’s forty-two founding members stretched from the British Empire and much of Europe to Argentina, Cuba, China, and Japan. It was joined by the world’s first international bank, the Bank for International Settlements, in 1930, and various intergovernmental bodies soon emerged to facilitate the production and exchange of raw materials and agricultural goods such as tin, rubber, and wheat. In the wake of these developments, international intervention became routine as global markets were embedded in new legal and institutional frameworks, underwritten by a handful of powerful states, empires, and banks.

These institutions pioneered interventionist powers similar to those of the modern-day IMF, World Bank, and other organizations. The first time an international institution made loans conditional on a government committing to a program of domestic austerity and central bank independence, for example, was in the early 1920s, when the League of Nations oversaw financial reconstruction schemes in former Ottoman and Habsburg lands, including Austria and Hungary. The bankers and officials involved in these schemes saw them as crucial to preventing financial chaos in unstable regions of Europe, the westward march of Bolshevism, and the outbreak of another war or major territorial changes that jeopardized the fragile postwar settlement.

Similarly, the first time that private investments were channeled to an international development program was in 1923–24, following Greece’s refugee crisis in the wake of its war with Turkey, when the League oversaw the spending of a major foreign loan on a project of agricultural, infrastructural, and housing development. This project involved a foreign-run commission, detached from the Greek government, essentially controlling the economic livelihoods of a huge new population of Greek citizens. And the first major intergovernmental organization to control the production and prices of commodities, as the Organization of the Petroleum Exporting Countries (OPEC) does today with the oil, was pioneered in the early 1930s with two other goods—tin and rubber—as British and Dutch colonial officials sought to contain worker uprisings in Southeast Asian colonies and respond to the demands of business lobbying groups. What united these efforts were the substantive demands they made on the economic policies, resources, and information of sovereign powers, all with the aim of stabilizing a global capitalist system that had been thrown into turmoil by World War I and its aftermath.

Of course, foreign ministries, businesses, and banks had long before this point worked together across national lines, though without allowing any international institutions to touch the vital economic interests of powerful states. And beyond Europe’s borders, few states had ever been insulated from external demands; for centuries empires had violently laid claim to the wealth and resources of the non-European world. Even when their incursions fell short of colonial annexation, imperial powers, including the United States, forced many countries to open domestic spaces to the reach of foreign actors—whether in China, the Middle East, Latin America, the Caribbean, or on Europe’s Balkan periphery. Indeed, in the nineteenth century, banks and the empires that protected them perfected the art of meddling in other countries without engaging in outright colonization. The earliest multilateral institutions of financial control, in fact, were debt commissions created at the behest of European investors in North Africa and the Middle East, beginning in the 1860s. These tools of informal financial imperialism allowed representatives of foreign banks and governments to exercise extensive powers over the revenues and budgets of sovereign borrowers said to be at a high risk of default. By the end of World War I, there was no shortage of precedents of strong countries violating the sovereignty of the weak for the sake of power and profits.

But post–World War I institutions like the League were supposed to be mechanisms of cooperation among formally sovereign entities, not simply new forms of imperial coercion. A new era of self-determination was ascendant. The collapse of old empires like the Russian and Austro-Hungarian gave rise to new states that guarded their sovereignty warily. These transformations of the global order unfolded alongside ideological and political changes on the national level. Many governments were becoming more democratic as class and gender barriers to suffrage fell and socialist parties gained a foothold in parliaments. This made it harder than ever for governments to justify the incursion of foreign actors into their domestic policies, even when powerful national elites sometimes recognized that doing so could be useful for curbing domestic opposition to austerity or other controversial reforms.

In the early twentieth century, the norm of formal sovereignty protecting states from the reach of foreign actors was deeply rooted in international law. This conception of sovereignty—as a walling off of internal spaces from external meddling—first evolved in the context of religious matters in the early modern period but over time came to focus on the question of whether constitutional changes, revolutions, and civil wars in some states could be quashed by others. By the end of the nineteenth century, the right to non-interference was widely seen to extend to economic matters as well, even when they affected the welfare of other countries—such matters as tariffs, taxation, currencies, and public spending.

Focusing on the neoliberal turn in the 1970s obscures the flaws of even mid-twentieth-century liberal institutions.

But these were exactly the realms that appeared to require intervention in the aftermath of World War I, as a range of Western bankers, government officials, and technocratic internationalists (primarily from the victorious Allied powers) prodded governments to commit to fiscal restraint, lower trade barriers, and oversee sound monetary policies. With demands for self-determination now a powerful ideological force, such efforts to govern the world economy posed a new challenge: compelling governments of sovereign states to relinquish full autonomy over internal policies, resources, and institutions without insulting their claims to self-governance and national pride.

These innovations in global governance were controversial precisely because they were pursued in the shadow of imperialism. In a profoundly unequal world order, how could a sovereign state open its internal affairs to outside intervention without a loss of power and autonomy? How could it allow an institution representing the interests of rival governments, central banks, or capitalists any influence over domestic policy? Engaging in such international cooperation went beyond signing treaties; it meant empowering an institution to make judgments on the most sensitive domestic questions of political economy. And indeed every attempt to transcend states’ economic sovereignty resulted in fierce resistance—from political elites, bankers, workers, and businesses alike. As they fought their own battles, these actors debated whether the new institutions offered a genuine internationalism or simply an ingenious method for laundering or legitimizing empire.

Take the example of the first conditional loans made by the League in the 1920s to defeated Central Powers like Austria and Hungary. Unlike later institutions, including the IMF and the World Bank, the League did not have direct access to capital it could lend, but it could and did mediate the relationship of foreign lenders and member states by appointing advisers to recipient governments to control their budgets. League officials contended that this oversight mechanism would improve recipient countries’ credit and make them less likely to default by ensuring that they committed to the policies widely deemed necessary for financial stabilization: slashing public spending, raising taxes, ending the printing of money, removing central banks from political control, and returning to the gold standard. Doing so entailed adapting a form of semi-colonial financial control previously reserved for sovereign debtors outside Europe or its supposedly underdeveloped Balkan periphery.

But the prospect of establishing public debt commissions in Vienna or Berlin like those set up decades before in China, Egypt, and the Ottoman Empire was extremely controversial. It unsettled imagined boundaries separating the so-called “civilized” world of Europe from the non-European world. By exposing European countries to a form of foreign interference that Europe’s bankers (and the empires that protected their interests) had long foisted on regions of the world coded as “backward,” the sovereignty of European countries was thrown into confusion—as was their perceived standing in the postwar international order. Tools developed for the periphery had been brought to the core.

From Latin America to China to India, critics saw this new kind of international governance as little more than an attempt to disguise old-fashioned imperial practices. In fact, after realizing how much autonomy was lost by the recipients of League stabilization loans, many countries rejected similar offers for assistance. Even in its desperate search for capital, for example, the Nationalist government that came to power in China in the late 1920s refused to consider any loans that came with the same demands that the League had made on Austria and Hungary. So too did the government of Liberia in the 1930s reject a League scheme of technical assistance on the grounds of the far-reaching interference it would bring into the domestic affairs of one of the League’s only sovereign African member states. From Portugal to Yugoslavia to Poland, one state after another decided that preserving their autonomy was more valuable than accepting loans that came with onerous demands on their domestic policy. This resistance offered a prelude to the backlash against IMF conditionality of many decades later.

Despite this fierce resistance, the new style of bankers’ diplomacy ultimately won out. A lasting practice of international governance was born—one that continues to shape the relation of debtors and creditors today.

These same questions about sovereignty and interference took center stage in the negotiations that led to the mid-century Bretton Woods agreements. This fact is often missed in stories about Bretton Woods, which tend to focus on how the British economist John Maynard Keynes battled with his U.S. counterpart, Treasury economist Harry Dexter White, in the quest to create an international monetary system that would stabilize currencies, prevent a balance of payments disaster for Britain, and reconcile international financial stabilization with national full employment and welfare policies. The compromise they reached was, with a few modifications, ratified at the Bretton Woods Conference in July 1944.

Far from marking a radical break from the pre-war global economic regime, however, Bretton Woods intervened in ongoing disputes about how international institutions could walk the tightrope of exercising legitimate power over sovereign states without subjecting them to the meddling of foreign governments and private interests. In designing the IMF, Keynes and his colleagues sought to ensure that the institution respected the economic autonomy of its member states by keeping out of their domestic fiscal and monetary policies, particularly as it became clear that the institution’s U.S. representatives would be able to wield effective veto power over its decisions; its focus had to be restricted to what Keynes called “the international terrain.” They sought to avoid anything that resembled the League’s style of lending, which clearly implied the possibility of the British Empire, weakened by the war, facing the kind of foreign controls formerly reserved for Britain’s vanquished enemies.

The Bretton Woods institutions were less the defenders of sovereignty and democracy than the inheritors of old-style financial imperialism.

But while the British were reassured that the IMF would not develop these powers, their efforts to prevent an interventionist organization did not succeed. Soon after it was established, the IMF gradually adopted an older style of bankers’ diplomacy, linking access to its resources to increasingly intrusive demands on sensitive domestic economic policies. Already by the early 1950s, the promise of access to capital gave the IMF enormous leverage over the policies of some of its member states, as Wall Street bankers—who had seen their influence temporarily diminished during the war—gradually assumed more power in the institution. It is unsurprising that the demands made by the IMF on states in receipt of its assistance were, at first, most extensive in traditional sites of U.S. and European informal empire, particularly in Latin America. While European representatives made use of IMF resources, it was outside of Europe where the most extensive fiscal and monetary conditions were placed on access to IMF capital—from Bolivia to Chile to Paraguay.

These practices continued throughout the 1950s and 1960s, as the IMF refined its methods for attaching conditions to loans through its so-called “stand-by arrangements” and focused its efforts primarily on providing financial assistance to countries in the so-called developing world. After the breakdown of the Bretton Woods system in the early 1970s, the IMF’s conditional lending practices expanded in scope, leading to the emergence of the interventionist IMF familiar to us today. During the 1980s the institution’s reach into the domestic affairs of some member states broadened dramatically, moving beyond fiscal and monetary questions to include major structural reforms as well: privatization, trade liberalization, deregulation, the imposition of central bank independence, and changes to social policies and labor laws. While these were more extensive powers than the IMF had ever wielded before, it had not taken the rise of neoliberalism for them to first emerge: they had always been latent in the IMF’s design.

One of the upshots of this longer view is to throw cold water on any nostalgia for the mid-twentieth century. The international economic institutions created in 1944 were not the first of their kind, and they did not respect the autonomy of all of their member states. “Embedded liberalism” was a limited doctrine at best, relevant primarily to North Atlantic states in its most robust form. After 1945 much of the world continued to reside within the bounds of colonial empires, not sovereign nation-states, where there was little policy autonomy to speak of. Countries that achieved formal independence rarely saw their new legal status translate immediately into freedom from external pressures. Most of all, the new Bretton Woods institutions never, in practice, gave up powers to reach into the internal affairs of states. Almost as soon as the IMF began to provide financial assistance to member states in Latin America, their receipt of aid was made conditional on austere and anti-inflationary reforms. Even after the gold standard was abandoned, various countries continued to face external disciplinary pressures, now enforced by intergovernmental institutions exercising discretionary judgments that were inescapably political. These institutions were less the defenders of a radically new reconfiguration of sovereignty, democracy, and global capitalism than the inheritors of an old style of informal financial imperialism, updated for an era of U.S. global primacy.

The flip side of this repudiation of nostalgia must be a clear-eyed, ambitious confrontation with the realities of the global governance of twenty-first century capitalism. The challenges are far more significant than stylized histories of neoliberal rupture imply. In light of profound global power imbalances, the ability to intervene in another state’s internal economic affairs, whether directly or indirectly, has always led to major legitimacy problems, undermining the project of international economic cooperation altogether. One of the greatest challenges for internationalists has been to convince states to relinquish some sovereignty for the sake of cooperation while at the same time affirming the existence of a domain that belonged to the state alone. These efforts are jeopardized when these sacrifices are not demanded of all states, but only of those perceived to occupy a subordinate position in the global order, and when they are designed to promote private profits and the strategic aims of competing states rather than a genuine form of international cooperation. The fact that this problem, in various forms, has persisted for more than a century suggests that only modest reforms to existing institutions will be insufficient to produce a more stable and legitimate form of global economic governance.

But this very insufficiency might also spur more ambitious thinking about how to design a new architecture of international cooperation that goes beyond the institutions of the twentieth century and the legacies of empire.

What might this involve?

A first step would be to expand and consolidate existing forms of financial assistance to states that do not involve the same onerous demands on domestic policy. A method for doing so already exists at the IMF: Special Drawing Rights (SDRs), which provide unconditional liquidity to all member states, in amounts determined by their quotas. While the IMF allocated $650 billion of SDRs in August 2021, only a small amount of this sum went to the lowest-income countries that needed it most. Congressional opposition makes it unlikely that any amount higher than this will be approved, however, in large part because these assets are provided not only to U.S. partners but also to rivals like Iran and China. The U.S. state is not uniformly opposed to unconditional financial assistance: at moments of severe crisis in 2008 and 2020, the Federal Reserve made billions of dollars available in currency swap arrangements to foreign central banks without strings attached. But this money only went to a select number of countries, primarily close U.S. partners.

We need an economic internationalism, grounded in social movements, to push for new institutions that advance ambitious goals.

What is needed, at a minimum, is a truly worldwide financial safety net that does not tie the fate of debtors to the strategic whims of great powers. Despite its flaws, the IMF is the only existing multilateral institution that could, at least in theory, operate on this scale. But the capital at the IMF’s disposal is not up to the magnitude of the challenges it faces. Efforts to increase the size of member quotas—and to rebalance the share of these quotas to make the institution’s decision-making more representative—have been blocked by its U.S. directors. The fact that the United States wields veto power in the IMF means that the sclerotic nature of U.S. domestic politics plays a key role in determining what this ostensibly global institution can and cannot do. And it ensures that the major decisions of the IMF, despite its multilateral nature, are ultimately shaped by U.S. strategic imperatives.

As long as the IMF is dominated by its U.S. representatives, the many new blueprints for technocratic fixes are unlikely to result in meaningful change. Real pressure is vital to make policy-makers back a fundamental transformation in how power is distributed and decisions made within its halls. Over the long term, a revitalized politics of economic internationalism, grounded in existing and new social movements, is needed to push for new institutions that advance ambitious goals—whether the channeling of capital to low-carbon transitions or the creation of a global financial safety net that does not come with the same interventionist, one-size-fits-all demands on debtors that have long characterized their relationship with creditors in international institutions. Otherwise, the future of international economic cooperation is likely to be stuck in the same cycle of crisis, overreach, and backlash that it has been for over a century—if it does not collapse entirely.


Editors’ Note: This essay is adapted with permission from the author’s new book The Meddlers: Sovereignty, Empire, and the Birth of Global Economic Governance, published by Harvard University Press.