The OECD’s origins in the trenches

1914 2014To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains.

The OECD was created in 1961, but you can trace its origins back to the First World War, the centenary of which we’re celebrating this year, and in particular to today, Armistice Day. The Great War didn’t end formally with the signing of the Armistice on 11 November 1918, but on 28 June 1919, with the Treaty of Versailles. A year later, Australian artist Will Dyson published a prophetic cartoon about the Versailles Treaty. In Dyson’s drawing, we see a baby behind a pillar with “1940 class” written above its head, and Clemenceau, the French President, is saying “Curious! I seem to hear a child weeping”. By the time that baby was old enough to join the army, the Second World War had broken out.

The Versailles Treaty was harshly criticised right from the start, not least by Keynes, who had attended the conference as part of the delegation from the UK Treasury. In fact his bestselling The Economic Consequences of the Peace is one of the reasons the Treaty has such a bad reputation. Keynes’s critique is twofold. His first attack is to a large extent moral and political. He accuses the Versailles agreement of betraying US President Wilson’s “Fourteen Points” on which the peace was supposed to be built, notably concerning the reparations the defeated nations had to pay and territorial agreements concerning colonies and the European mainland. His second criticism is more economic. For peace to last, he argued, Europe’s economies had to become more integrated, and the Treaty worked against this.

Will Dyson was almost right about when the Second World War would start, but Keynes was spot on, predicting that it would happen 20 years after the 1919 signing due to the despair and economic catastrophe the Versailles Treaty would contribute to. As the Second World War drew to a close, Keynes led the British Delegation to the Bretton Woods Conference in July 1944 that would shape the post-war economy. The leaders of the Allied nations were determined to avoid the mistakes of the past and realised that the best way to ensure lasting peace was to encourage co-operation and reconstruction, and not to punish the defeated. The Bretton Woods Agreement and the institutions created to administer it such as the IMF and World Bank Group were similar in many ways to what Keynes had proposed in 1919.

The politics and economics of the immediate post-war years would give birth to the predecessor of the OECD. As the Office of the Historian of the US Department of State reminds us, “Fanned by the fear of Communist expansion and the rapid deterioration of European economies in the winter of 1946–1947, Congress passed the Economic Cooperation Act in March 1948 and approved funding that would eventually rise to over $12 billion for the rebuilding of Western Europe.” The Organisation for European Economic Cooperation (OEEC) was established to run this “European Recovery Program”, better known as the Marshall Plan, in 1947.

While US financing was important, that $12 billion would be only worth around $120 billion in today’s terms, compared, for example, to the $700 billion the Emergency Economic Stabilization Act of 2008 authorised the US Treasury to spend on the bailout following the subprime crisis. It was actually by making individual European governments recognise the interdependencies of their economies that the US made its greatest contribution to the economic rebirth of Europe.

The success of the OEEC and the prospect of carrying forward its work beyond Europe led Canada and the US to join OEEC members in signing the new OECD Convention on 14 December 1960. Others followed, starting with Japan in 1964, and now 34 member countries worldwide regard it as normal to turn to one another, within the OECD, to help identify problems, analyse them, share experiences, and devise solutions. Another 100 other countries take part in OECD work.

Most of the areas the OECD works on – employment, growth, agriculture, and so on would be familiar to economists of Keynes’s generation, although the actual mechanisms have changed radically since the OECD was created, and even more so since Keynes went to Versailles in 1919. But if you look at the “Topics” menu on, you’ll see one area that a specialist from a century ago would feel familiar with. While our trade specialists for example are dealing in new concepts like trade in value added, or the industry analysts are trying to understand the information economy, my colleagues at the Centre for Tax Policy are trying to demolish an international tax system that was conceived a hundred years ago and allows big companies and rich individuals to get away with paying little or no tax. That’s a war worth fighting.

Useful links

The history of the OECD

Patrick Love

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