Page 14 - Nuvama | IC Report 2023

• DE-GLOBALISATION • DEREGULATION • DEBT • DEMOGRAPHY • DEMOCRACY

Exhibit 1:
Political trilemma
of global economy
HYPER-GLOBALISATION

GOLD STANDARD BRETTON WOODS 2

NATIONAL
SOVEREIGNTY BRETTON WOODS 1 DEMOCRACY

Source: Dani Rodrik’s Political Trilemma, Nuvama Research

Classical Gold Standard – Restricted democracy

Pre-WW1, the world operated under the gold standard. Under this system, the world pursued deeper
The Classical global integration (free movement of goods and capital across borders– often referred to as the first
Gold Standard era of globalisation) while maintaining national sovereignty.
worked because
democracy was But, as Rodrik’s trilemma would suggest, such a system worked because democracy was highly
highly restricted restricted. Universal suffrage had not yet arrived and labour unions were rather missing. Thus, national
policy choices were largely liberated from domestic political considerations. So, if the gold standard
Universal suffrage
had not yet arrived rules so demanded, national policymakers would put domestic economy into a deep downturn for a
and labour unions sustained period without getting penalised.
were missing Recall the famous ‘Cross of Gold’ speech by former US Representative William Jennings Bryan at the
Democratic Party convention in July 1896 when the shortage of gold supply meant mounting deflation
and increasing debt burden for the farmers. But shortage of gold under the gold standard meant that
domestic money supply could not be expanded to reverse the deepening economic downturn.
Against this backdrop, Bryan gave a speech to the assembled bankers of the day pointing out
the tension between the elite that belonged to the finance world (creditors) and the debtors, who
were essentially farmers:

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