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Failed 1933 London conference a warning for G20

(Agencies)
Updated: 2009-04-01 10:40

LONDON -- On June 12, 1933, more than a thousand of the world's top finance and government officials squeezed into London's stuffy Geological Museum to hear a speech from Britain's King George V - broadcast live by radio to underscore the gravity of the meeting - and set about trying to save the world from the Great Depression.

Six weeks later, the World Economic Conference gave up. Without any major agreements, it adjourned amid squabbling and finger-pointing between the world's democracies.

It's a sobering example ahead of the Group of 20 summit, which gathers Thursday at London's ExCel conference center a few miles (kilometers) from the Geological Museum, now part of the Natural History Museum.

To be sure, differences are many between then and now. The Soviet Union and Nazi Germany will have no representatives at the ExCel center. Issues that had people at each others' throats then - such as debts from World War I - have been long consigned to history books.

Economists, after decades of studying the Great Depression, have a better understanding of why it happened and how the standard economic thinking of the 1930s - balance budgets and raise import tariffs - made things worse.

Despite the differences, the 1933 conference serves as an example of how badly things can go wrong when diplomacy takes place on a public stage, says historian Patricia Clavin of Jesus College at Oxford University.

As a result of its failure, the US, Britain and France went their separate ways on economic policy and traded public recriminations for years about who spoiled the conference and about its now-forgotten financial issues - as the economy kept on sinking and as aggressor nations such as Japan and Nazi Germany armed for war against them.

"The fact that the whole thing was played out in public meant that Germany also knew there was very little cooperation between Britain and the United States," said Clavin, author of "The Great Depression in Europe, 1929-1939." "That was the potential combination which they knew would be very dangerous to German ambitions. And when they saw the US and Britain couldn't get on, they said, 'Hey, great."'

The real problem was that despite grand rhetoric about working together, the leaders were not willing to abandon economic policies that they thought were helping them back home.

Britain had sharply devalued the pound, supporting exports, and imposed protective tariffs - and had no intention of giving up either policy. US President Franklin D. Roosevelt had taken America off the gold standard, devaluing the dollar as well to improve the position of exporters and help fight the deflation that was plaguing the US economy, and farmers in particular. France stuck with the gold standard and a strong currency and wanted other countries to do the same.

Things went poorly from the start. Roosevelt sent Secretary of State Cordell Hull, an advocate of free trade, by ship but undercut him by having a more protectionist official, Raymond Moley, dramatically race to the conference by plane.

Then, secret side negotiations aimed at stabilizing exchange rates - so they wouldn't distract the conference participants for its duration - turned instead into a major distraction. Roosevelt, determined to stick with a lower dollar in any case, lost patience with what he considered dithering over a side issue and European unwillingness to tackle the big picture.

On vacation aboard his yacht off the coast of the northeastern New England states, he fired off a sharply worded telegram rejecting the currency deal and fuming about "the old fetishes of so-called international bankers."

It was the end to the search for international solutions to the Depression.

Roosevelt's telegram was quickly blamed for disrupting the conference. "There has never been a case of a conference being so completely smashed by one of its participants," Britain's chancellor of the exchequer, or treasury chief, Neville Chamberlain, wrote on July 15.

Historians say the conference could have cut the tariffs strangling world trade. Or, the US and Britain could have led a coordinated devaluation of major currencies, helping growth without unfairly giving one country a trade advantage over another.

But the will wasn't there, independent of Roosevelt's lack of tact. So countries returned to economic nationalism - protectionism and other us-first policies - as the solution.

Junior officials who experienced the conference were so impressed by its failure that they moved to firmly institutionalize international cooperation as senior policymakers in 1944 at the Bretton Woods conference in the US state of New Hampshire.

They rummaged the unused ideas of the 1933 conference - for instance, for a stabilization fund to deal with currency crises and a way of helping poor countries - and came up with the International Monetary Fund and the World Bank, which today are supposed to perform those tasks.

"They go back to the technical solutions that were developed in 1933 and they also institutionalize cooperation," Clavin said.

"And all of the officials involved worked very hard to impress upon the politicians the value of cooperation - and the fact that you have to work very hard to sustain it."

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