Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

“The Most Important Research Project”: The World Bank and the Problem of Stabilizing International Commodity Prices in the 1960s

Hošman Mirek Tobiáš, University of Bologna; Paris City University

In the early 1960s, the commodity problem of international development became a well-known issue. Countries of Global South depended on exports of a limited range of primary commodities to earn foreign exchange revenues. These commodities suffered from sluggish global demand growth and highly volatile prices. Exchange earnings of many developing countries thus rose slowly and were highly unstable, which created pressures on the countries’ balance of payments. Counting in the often limited foreign reserves, a commodity price fluctuation posed a significant challenge (and sometimes an outright disaster) for the financial position and investment plans of Global South countries. The issue was eagerly debated at meetings of GATT and United Nations Conference for Trade and Development (UNCTAD). The World Bank prepared several commodity studies throughout the 1950s to assess the creditworthiness of its clients facing the commodity problem and their capacity to repay the Bank’s loans. Yet, due to internal developments at the World Bank in the 1960s linked to the rise of economists and economic analysis in the organization, the Bank engaged in a more complex analysis of the commodity issue with the hope of finding (and financing) suitable solutions. This paper tells the story of two large-scale studies prepared in the 1960s on the commodity prices stabilization, both of them having substantial consequences on global attempts to mitigate the issue. The first study was prepared by the World Bank and the IMF following the request of UNCTAD. The aim of the study was to examine the extent of the commodity issue, analyze the behavior and structural changes of specific commodity markets, and discuss possible mechanisms for stabilizing international commodity prices, such as individual commodity agreements, export and import quotas, buffer stocks, or even political organization of the whole commodity trade. The second study was prepared by the World Bank, the Food and Agriculture Organization, and the International Coffee Organization (ICO) to specifically look into coffee – the second most internationally traded commodity after petroleum. Although the study was never published, its conclusions led to several changes at the ICO, such as the creation of the Diversification Fund, which operated from 1969 to 1973 and financed 31 projects totaling $73 million. Relying on previously untapped archival documents, this paper explores the evolving understanding of commodity markets and of different mechanisms for stabilizing commodity prices in the 1960s. It reconstructs debates among international organizations on regulating global economy and demonstrates the relationship between economic research conducted by international organizations and its connection to global policymaking processes. Finally, it captures the growing importance of the World Bank’s economic work for its operations in the 1960s as well as its increasing prominence in international development.

Area: Eshet Conference

Keywords: World Bank, Commodity Trade, International Commodity Agreement, International Development, History of International Political Economy

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