The Fractured Foundations of Global Economic Governance: A Comprehensive Analysis of Systemic Failures and Pathways to Reform

Introduction

The global economic order, once heralded as a bastion of liberal multilateralism and shared prosperity, is now fractured by decades of policy missteps, institutional decay, and geopolitical upheaval.

From the collapse of the Bretton Woods consensus to the resurgence of protectionism under Trump-era policies, the architecture of international economic governance has failed to address widening inequality, climate crises, and the destabilizing effects of hyperglobalization.

This article synthesizes evidence from economic histories, contemporary policy analyses, and critical scholarship to trace the roots of this disintegration. It examines how neoliberal reforms since the 1970s prioritized financialization over equitable growth, how institutions like the WTO and IMF lost legitimacy through austerity mandates and democratic deficits, and how new forms of geoeconomic fragmentation threaten to bifurcate the world into competing blocs.

Drawing on frameworks from Mariana Mazzucato’s mission-oriented economics to proposals for a New International Economic Order (NIEO), the analysis concludes that rebuilding trust in multilateralism requires redefining value creation, redistributing technological and fiscal sovereignty, and recentering public purpose over extractive rent-seeking.

Historical Context: From Bretton Woods to Neoliberal Disintegration

The Postwar Consensus and Its Contradictions

The Bretton Woods system, established in 1944, aimed to stabilize global capitalism through fixed exchange rates, capital controls, and institutions like the International Monetary Fund (IMF) and World Bank.

As detailed in Carnegie Endowment research, this framework sought to balance open trade with domestic policy autonomy, allowing states to pursue full employment and welfare programs while avoiding competitive devaluations.

However, the system inherently privileged Western powers: the U.S. dollar’s hegemony granted America disproportionate influence over global liquidity while developing nations faced structural barriers to accessing credit and technology.

By the 1960s, these tensions erupted as postcolonial states demanded an NIEO to redistribute wealth and decision-making power—a movement stifled by Cold War geopolitics and IMF conditionality.

The collapse of Bretton Woods in 1971, triggered by Nixon’s abandonment of gold convertibility, marked a pivotal shift toward financial deregulation.

Floating exchange rates and removing capital controls enabled speculative flows destabilizing emerging markets, as seen in the Latin American debt crises of the 1980s.

Concurrently, the rise of neoliberal ideology recast the state as a market facilitator rather than a direct economic actor, legitimizing privatization and austerity.

As Bivens argues in Failure by Design, this paradigm eroded labor protections and redirected growth gains to the top income brackets.

Policy Failures and the Erosion of Shared Prosperity

Wage Stagnation and the Debt-Dependent Growth Model

Since the 1970s, U.S. median wages have stagnated despite productivity gains. The EPI traces this divergence to weakened unions, offshoring, and regressive tax policies.

To sustain consumption, households turned to debt—a trend epitomized by the subprime mortgage bubble.

By 2008, private debt reached 300% of GDP, inflating asset prices while masking underlying income inequality.

The Great Recession exposed this fragility: while Wall Street received bailouts, austerity measures imposed on Southern Europe and developing nations exacerbated unemployment and poverty, fueling a populist backlash.

The Limits of Neoliberal Globalization

The post-Cold War “hyperglobalization” project, enshrined in WTO rules and trade deals like NAFTA, promised universal growth through unfettered capital mobility.

Instead, it accelerated deindustrialization in advanced economies and race-to-the-bottom labor standards globally. As Mazzucato notes, financialization diverted investment from productive sectors to rent-seeking activities, with tech monopolies and private equity firms extracting value without contributing to innovation or wages.

The result, as Trump’s 2016 and 2024 campaigns capitalized on, was a political revolt among Rust Belt workers and disenfranchised middle-class voters.

Institutional Decay and the Crisis of Multilateralism

The WTO’s Paralysis and the Rise of Geoeconomic Blocs

The WTO’s dispute settlement mechanism, once a cornerstone of rules-based trade, has been paralyzed since 2019 by U.S. vetoes over appellate judge appointments.

This institutional collapse mirrors broader trends: unilateral tariffs, friend-shoring, and export controls fragment trade into U.S.- and China-aligned blocs.

CSIS analysts warn that such decoupling could cost up to 4.6% of global GDP, with developing nations disproportionately harmed by severed supply chains and lost tech diffusion.

While rhetorically committed to multilateralism, the Biden-Harris administration’s industrial policies have deepened this bifurcation through subsidies favoring domestic cleantech and semiconductors.

The IMF and World Bank’s Legitimacy Deficit

Critics from the Global South have long denounced Bretton Woods institutions for imposing structural adjustment programs prioritizing creditor repayments over public health or education.

Recent proposals like the Bridgetown Initiative seek to repurpose these institutions for climate finance, yet wealthy shareholders resist.

Meanwhile, the IMF’s failure to prevent currency crises in Sri Lanka and Pakistan underscores its outdated governance model, where voting power remains skewed toward advanced economies.

Reimagining Economic Governance: Contested Visions for Reform

Mission-Oriented Economics and the Entrepreneurial State

Mariana Mazzucato’s work offers a blueprint for reasserting public purpose in economic planning. Governments can catalyze innovation by directing state investment toward “moonshot” missions—from green transitions to pandemic preparedness—while ensuring equitable benefits.

The EU’s Horizon Europe program, inspired by Mazzucato’s advocacy, funds cross-border R&D in renewable energy and AI ethics, though critics argue it remains underfunded and overly technocratic.

Similarly, South Africa’s experiment with mission-oriented industrial policy highlights the need for adaptive governance structures that empower local stakeholders.

Toward a New International Economic Order

Reviving NIEO principles requires democratizing global economic governance. Key proposals include:

Debt Justice: Implementing binding sovereign debt restructuring mechanisms and abolishing vulture fund litigation.

Tech Sovereignty: Licensing green technologies through patent pools like the WHO’s COVID-19 Vaccine Access Pool (C-TAP).

Tax Cooperation: Establishing a global minimum corporate tax rate and cracking down on offshore havens.

While the UN’s 2023 Global Digital Compact made tentative strides toward data governance, power asymmetries between Silicon Valley and developing nations remain unresolved.

Conclusion: Repairing the Fractures

The broken economic order stems not from isolated policy errors but systemic pathologies: the conflation of market efficiency with human welfare, the capture of institutions by rentier interests, and the exclusion of marginalized voices from governance.

Reversing this requires more than technocratic fixes; it demands a redefinition of significance that rewards care work, environmental stewardship, and collective innovation over financial extraction.

As Gary Stevenson’s critiques underscore, until economic rules cease to prioritize capital over labor, inequality will continue corroding democracy.

The path forward lies not in nostalgia for Bretton Woods but in building agile, mission-driven alliances that transcend geopolitical rivalries and recenter the public good.