The Rules Based Order

What it is, where it came from, and where it’s going

Not many people have seen or heard of the “Rules Based Order” unless they’re foreign affairs geeks who take the trouble to look beyond the major media platforms. The TL/DR is that it’s the US dollar-based framework within which most international business has been conducted since the end of World War Two. But because the RBO is the underlying issue at stake in the war in Ukraine it behooves us to understand what it is, why the USA ruling class is so intent on preserving it, why countries that govern 80% of the worlds population initially chose to observe the conflict from sidelines, and finally why and how increasing numbers of those countries are also now pushing back against the RBO’s strictures. Along the way we’ll learn that if at a couple of critical points events had gone another way, the post-World War Two era very likely would have been much more peaceful. We’ll pick up the story early in World War II, shortly before the USA became a combatant.

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Most people in the USA believe President Franklin Roosevelt and Prime Minister Winston Churchill were cheek by jowl on war aims. This was not the case; they differed fundamentally on two issues. The first of these was the post-war future of colonialism. The difference was laid out on the table aboard the ships in Argentia Bay, Newfoundland, in August 1941 at what became known as the Atlantic Charter Conference, four months before Pearl Harbor. As Elliott Roosevelt related in his 1946 book As He Saw It, the president said the following:

“I am firmly of the belief that if we are to arrive at a stable peace it must involve the development of backward countries. Backward peoples. How can this be done? It can’t be done, obviously, by eighteenth-century methods. Now – “

“Who’s talking eighteenth-century methods?” [replied Churchill. Roosevelt continued] “Whichever of your ministers recommends a policy which takes wealth in raw materials out of a colonial country, but which returns nothing to the people of that country in consideration. Twentieth-century methods include increasing the wealth of a people by increasing their standard of living, by educating them, by bringing them sanitation – by making sure they get a return for the raw wealth of their community.” p 36

Elliott was an Army Air Force Reserve officer who was in the area identifying suitable sites for refueling bases to be built for lend-lease planes to be ferried to Europe. FDR had requested his son be temporarily assigned as his aide during he conference. The issue came up again at the Casablanca Conference in January 1943. By this time Elliott was the commanding officer of Allied aerial reconnaissance in the western Mediterranean theater and, again temporarily serving as his father’s aide, summarized a private conversation with his father as follows:

“His thoughts turned to the problem of the colonies and the colonial markets, the problem which he felt was at the core of all chances for future peace. The thing is,” he remarked thoughtfully . . “the colonial system means war. Exploit the resources of an India, a Burma, a Java, take all the wealth out of those countries, but never put anything back into them, things like education, decent standards of living, minimum health requirements – all you’re doing is storing up the kind of trouble that leads to war. All you’re doing is negating the value of any kind of organizational structure for peace before it begins.” P 74

This observation makes crystal clear how adamant President Roosevelt was that a lasting peace could not be obtained until the countries of the world, large and small, were genuinely sovereign and free to develop in their own ways without being preyed upon by other countries. And that achieving this demanded an end to colonialism. Churchill, by contrast was determined British colonialism would not end on his watch.

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The other key point of contention between the president and the prime minister was about the nature and severity of the threat of presented by fascism. Although because of domestic political sensitivities there is little on record in the way of FDR’s true views on the matter prior to December 7 1941, his actions before that date speak loudly, saying the ideology’s threat to government of, by, and for the people was dire. The most telling of these was the administration’s implementation of a plan to deliberately incite a Japanese attack on USA military facilities somewhere in the Pacific. Speculation that this might have been the case began before the sun set on that terrible day, but it was only confirmed a half century later by researcher Robert Stinnett. His 1999 book Day of Deceit: The Truth about FDR and Pearl Harbor, contains a photo copy of Lt. Commander Arthur McCollum’s original memo laying out the multi-step plan for the purpose, a key element of which was the redeployment of the Pacific Fleet from the west coast to Hawaii. McCollum had been born in Japan to Christian missionaries and was raised there until early adolescence. Following his graduation from the US Naval Academy in 1921 many of his duty postings were to various positions in the Bureau of Naval Intelligence in and/or relating to Japan. Because he was cared for by a Japanese nanny as a young child he had near-native fluency in the language. He was also deeply familiar with Japanese culture and politics.

This begs the question of why Roosevelt felt so strongly about Fascism. First of all there was the apparent effectiveness of the fascist governance model. Mussolini bragged about getting the trains running on time, and Germany under Hitler had rapidly recovered economically and rearmed. Then there was its blitzkrieg defeat of France in the spring of 1940 followed a year later by Operation Barbarossa that had the USSR reeling on the ropes by the time the leaders of the USA and Britain were convening in Canadian waters. FDR was also aware of the efforts of numerous politicians in Old Blighty to gin up a fascist party in the 1930s. Popular post-war historians would have us believe this was mostly Oswald Mosley’s doing, but many other prominent people including none other than Winston Churchill himself, were involved until late in the decade when cooler heads realized Nazi Germany had become a dire strategic threat. Nevertheless, throughout the war the UK continued to regard Russia – the USSR – as the greatest long term threat to its hold on India, as it had since the 19th century. This, in turn, led to conflicts with the Americans over war strategy.

Fascism also had enthusiasts on the western side of the Atlantic. It appealed to the numerous authoritarians the USA had propped up in Latin America, and the possibility of them aligning with the Axis countries posed a serious strategic threat to the United States, especially if American control of the Panama Canal was imperiled. But it’s likely FDR saw the greatest danger even closer to home. In the early 1930s a cabal of Wall Street bankers and industrialists started to organize a coup d’etat and sought to boost retired USMC Major General Smedley Butler up onto the white horse, in hopes of enabling the junta to rule from behind the steed. They had even sent one of their minions to Europe for months to study what Mussolini and Hitler were doing and how. But Butler, who was the most popular military man in the country not only because he had been awarded the Congressional Medal of Honor twice but also was the most vocal advocate for World War One veterans on issues such as the promised bonus, was also a patriot. He strung the plotters along until he understood the plan in depth and then exposed them. However the traitors had sufficient clout to avoid prosecution.

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Well before the war ended President Roosevelt, Secretary of the Treasury Henry Morgenthau, Treasury economist Harry Dexter White and Vice President Henry Wallace began planning for a post-war international structure intended to promote widespread prosperity, while minimizing incentives toward war. Historians have dubbed their program as Rooseveltian Internationalism, and it envisioned two main thrusts: to foster the recovery of the war-torn countries; and to assist former colonies to become prosperous and truly independent, sovereign states now that the decolonization movement that began during World War I was re-energized. The plan was fully fleshed out when it was presented to the United Nations Monetary and Financial Conference held in the summer of 1944. Another feature of the proposed post-war regime was the Mogenthau Plan for de-industrializing Germany. It was reminiscent of, but not as severe as, what Martin Luther advocated four centuries earlier in his infamous anti-Semitic screed “On Jews and their Lies.”

That conference is better known by the name of the small town in New Hampshire where it was held, Bretton Woods. 44 countries were represented at the negotiating tables and others, including the USSR, were non-voting observers. There were 3 major accomplishments, the first of which was formal agreement that gold and the US$, pegged at $35/oz, would be the post-war unit of international account settlement. The other two were authorizations to stand up the World Bank and International Monetary Fund as overseers of the post-war financial regime soon after the hostilities were brought to a close.

The USA held the high cards at Bretton Woods because it was the only major combatant physically undamaged, and also the strongest both industrially and financially. Chief US negotiator White was therefore able to embed de facto USA veto power in the charters of both the World Bank and the IMF. These provisions were aimed at the European colonial powers which Roosevelt expected to fight tooth and nail to resuscitate their empires after the war. John Maynard Keynes, the leader of the delegation from the UK, was not happy but was resigned to the situation.

However President Roosevelt died in April of 1945, 26 days before the end of the war in Europe. Until becoming vice president his successor, Harry Truman, had been a senator from Missouri focused mainly on domestic policy and wartime corruption. Since being sworn in as vice president less than three months earlier he had had almost no substantive conversations with either the president or senior people in his inner circle. Regarding international relations he was a mostly blank slate.

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On post-war foreign policy matters there were two camps. The first were the Rooseveltian internationalists, who envisioned fostering the recovery of the war-torn countries and assisting former colonies to become prosperous, truly independent, sovereign states, and also de-industrializing and de-Nazifying Germany in accord with the Morgenthau Plan. The process of making these happen would be overseen by the “four powers:” the United States, the USSR, Great Britain and China. At Bretton Woods the Rooseveltians had set up the charters of the World Bank and IMF with de facto USA veto power to prevent the European metropoles from using these institutions to recover control of their colonies. However with FDR in his grave their influence faded fast. President Truman quickly replaced Morgenthau at Treasury, and out the door with him went much of White’s influence. Henry Wallace, who had landed as Secretary of Commerce after being pushed out of the vice presidency, was gone by the end of the 1945 summer.

These changes left the field to the other team, the two most important elements of which were the Wall Street investment bankers and the senior war-time staff at the Moscow embassy. Prominent among the former, you will recall, were the fellow travelers of fascism who sought to engineer a coup against Roosevelt early in his presidency. A large part of the American businessmen’s attraction to Mussolini, Hitler and their ilk was their vociferous anti-communism. Regarding the embassy staff, Frank Costigliola wrote in Roosevelt’s Lost Alliances that the main reason for their antipathy to Stalin and the USSR was an extreme case of collective cabin fever engendered by having been confined to the embassy grounds unless accompanied by a team of NKVD minders since the late 1930s. The two most prominent members of this group were George Kennan and Ambassador Averell Harriman. The latter, having been a founder of Brown Brothers Harriman & Co. and thus also a Wall Street insider, linked the two groups advocating confrontation with Moscow. No small feat at the time, Harriman managed to get back to Washington from Moscow within a week of Roosevelt’s death to join the fight for the new president’s mind. This one two punch proved decisive in turning the post-war policy from cooperation with the USSR to confrontation, and the descent into the first Cold War began.

Even while Roosevelt was still president both the British and some Americans were taking actions that were pro-fascist and in opposition to our ally, the USSR.. In December 1944 the UK armed the recently conquered Nazi collaborators in Greece, enabling them to provide critical aid as the Limeys put down an attempt by the left-leaning underground to form an independent socialist government. This same underground had been critical in enabling the Brits to defeat the Nazi puppet wartime government. Similarly when the USSR conquered German ally Romania and a US Army Air Force mission flew in to bring home their comrades rescued from a prison camp since their planes went down during the Ploesti Oil field raid in 1943, Frank Wisner an OSS agent and later senior CIA official, used the occasion as cover to exfiltrate several dozen people who had collaborated with Romania’s wartime Nazi government. Another such instance was Operation Sunrise, in which Allen Dulles without authorization, negotiated the surrender of the German Army formations in Italy on May 2. This took place in direct conflict with the prior agreement with the USSR and the UK that none of the three allies would conduct such negotiations without the explicit, prior approval of the other two. Needless to say Stalin was not amused when he learned of the capitulation.

After the surrender of Germany on May 8 activities that undermined the cooperative relationship between the USSR and the USA ramped up. One of the most historic – and impactful in the present day – was the shielding of General Reihhard Gehlen and his intelligence command on the Wehrmacht’s eastern front from capture by the USSR and prosecution for war crimes. Once again this was Allen Dulles’ doing, and again on his own initiative without authorization. He followed up by taking Gehlen’s organization lock, stock and barrel into the OSS, operating underground in Ukraine while perpetuating Nazi ideology among the receptive folk in the western part of that Soviet Republic. For the Soviets it was “Here’s the new enemy. Same as the old enemy, except it’s run out of Washington instead of Berlin.”

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1946 was a pivotal year in this narrative about the origins of the Rules Based Order, and two events stand out. First, on January 1, the two institutions authorized at Bretton Woods were formally stood up: the World Bank and the International Monetary Fund. By this time Elliott Roosevelt, Henry Morgenthau and Harry Dexter White were all disturbed and disappointed that the Rooseveltian vision of post war cooperation and aggressive decolonization was being cast aside. The irony in White’s case is the fact that although he was named the founding director of the IMF, it was being taken in a direction he didn’t agree with. As for the late president’s son, he sat down that year to the task of writing As He Saw It, which has proved an invaluable insight into the true views of a president who was notoriously opaque during his time in office.

Cynthia Chung in The Empire on which the Black Sun Never Set asserts that since the 1930s powerful elements of the British deep state regarded fascism as the ideal model for world-wide governance in which they, in cooperation with the other predominantly English speaking polities of the world, would continue to rule over and exploit the natural and human resources of the rest of the world as the colonial masters. However four factors militated against this vision:

• • The financial, industrial and human exhaustion of Great Britain itself as a result of the two world wars

• • The unstoppable decolonization movement

• • The financial, military and industrial power of the USA

• • The determination of the USA deep state to lead the world

Given these realities the Brits realized that if they were going to be able to continue extracting wealth from their former colonies they’d have to convince the USA to join them in finding a way to do so. They found enthusiastic allies on Wall Street and among leaders of other sectors of the American economy, and together they realized they’d have to euthanize the widespread peace-loving sentiments among the USA’s populace now that the war was over. The means to do so was to amplify the communist threat, which led to the second pivotal event of 1946: Winston Churchill’s “Iron Curtain” speech on the campus of Westminster College in Fulton Missouri on March 5.

The former prime minister’s address began the campaign to proclaim the dangers of the Red Menace in earnest. Later that year a little known first-time candidate for a House of Representatives district in southern California defeated his incumbent Democratic opponent by loudly proclaiming and repeating he was soft on Communism. The name of the Republican winner was Richard Nixon. Within two years not only had the hopes of the Rooseveltian Internationalists been cast completely aside, but kicking the ladders to prosperity down had become an explicit aim of USA foreign policy, as stated in the State Department’s 1948 “Report by the Policy Planning Staff,” signed off upon by George Kennan, Director:

“ . . we have about 50% of the world’s wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction.”

A narrative about this era is not complete without a few more words about one of the darkest actors in those times, Allen Dulles. We’ve already seen how his freelance initiatives in the weeks surrounding VE-Day began to erode the trust between the USA and the USSR built up during the conflict. The authorization of the CIA that was a part of the National Security Act of 1947 was intended to constrain the new agency’s purview to the collection and evaluation of intelligence. When the agency was stood up Dulles was appointed to a senior position wherein he was able to reinterpret the charter language to enable covert violent actions abroad. When he became Director of Central Intelligence at the outset of the Eisenhower administration in 1953 actions of this type of activity became his primary focus. The first adventure in regime change in sovereign country was the 1953 coup d’etat that overthrew the elected government of Mohammad Mosaddegh in Iran, replacing him with the nation’s theretofore constitutional monarch, and henceforth autocratic Shah Mohammad Reza Pahlavi. Next up was Guatemala in 1954 and the repurposed CIA was off and running. Along the way with the help of his brother, Secretary of State John Foster Dulles, Allen established an organizational culture that for all practical purposes rendered the agency immune to democratic control, as it remains to this day, sixty-two years after the official termination of his tenure as its head.

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Fast forward about a quarter century to 1972 when Michael Hudson, now widely recognized as the world’s most eminent historian of economics and a deep thinker on the subject in his own right, published his first book entitled Super Imperialism. In the book he describes in depth the regime the United States and its allies use to extract wealth from developing countries, and in the process knock the ladders down on which their peoples try to climb to prosperity and genuine sovereignty. Hudson identifies the primary tools for accomplishing this as being the IMF and the World Bank. Thus we have the irony that the USA veto powers invested in these two institutions by their originators in 1944 for the purpose of preventing the restoration of colonialism are now being used by the USA to enforce and perpetuate a stealthy, de facto form of imperialism. The word “now” is appropriate because what Hudson described in 1972 has remained in effect to the present day, as indicated by the fact subsequent editions of Super Imperialism were published in 2003 and 2021. Only since the beginning of Russia’s Special Military Operation has the “super imperialism” begun to recede because of the unintended consequences of the sanctions. Although Hudson was writing decades before the phrase was coined, the “super imperialism” he describes is in essence the lineaments of the “rules based order.”

30 years later John Perkins, in Confessions of an Economic Hit Man, blew the whistle on an even darker side of Hudson’s “super imperialism,” although what he describes based on his personal experience was taking place in the same 1970ish time frame when Hudson was writing. Perkins was hired as an economic analyst by an engineering and construction firm that specialized in electrical infrastructure – power plants, transmission lines, etc. – in the developing world. The position required extensive training at a three letter federal agency, where he learned his real job was to produce estimates of countries’ economic potentials that were to be as close to absurdly optimistic as possible without falling into incredulity. When a developing country undertook a project based on one of these inflated estimates and the resultant economic development fell short, it probably would be unable to meet the repayment terms of the sovereign loan that funded it. This was a feature, not a bug.

The terms of such loans called for the International Monetary Fund to ride to the rescue in these situations, and Hudson describes in detail how the IMF demands policy changes within the country that will generate sufficient funds to meet the terms of the existing or restructured loans. These policy changes would call for the reduction of government subsidies and the selling off of revenue-generating government properties, especially infrastructure such as energy, communication and transportation utilities. The buyers of these properties were almost always firms based in the USA or one of its western allies. For the peoples of these countries the results were increased privation and austerity. This frequently resulted in protests, and when a country’s elite violently suppressed them they could expect the USA to look the other way while covertly supporting them. But if the government stood up for its people the consequences for the country’s leaders could be dire.

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In 1991 the USSR disintegrated and the Red Menace was no more. For forty-five years most of the American people had bought into the meme that the USA was doing god’s work by helping developing countries fend off the communist threat, even if it meant dealing harshly with nations that didn’t want such help. Omelets, breaking eggs and all that. Significantly, during those four and a half decades more than a few USA business sectors, such as finance and natural resources had become addicted to the predatory profits of stealth imperialism, and they and their political and deep state allies saw the demise of the USSR as a validation of their modus operandi. Far from backing off, they doubled down, especially on the harsh measures employed to coerce compliance. Thus the proliferation USA military posts around the world, and the stand-up of more proconsulships, such as AFRICOM, led by four star military officers.

Predictably the increased levels of USA intrusions, soft and hard, into other nations’ sovereignty generated increasing levels of push-back, not only among those intruded upon but also by increasing numbers of American citizens. In typical American fashion the powers that be saw this as a marketing challenge presented by the end of the Cold War, specifically one of branding. Hence the “Rules Based Order.” However it's unclear when, where and from whom the phrase originated.

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As mentioned at the outset, the Rules Based Order is the underlying issue in the conflict in Ukraine. The United States incited the conflict in order to obtain Russia’s full compliance with it, and it appears the USA had both a primary and a back-up plan to achieve this goal. Plan A was to induce Ukraine to launch a surprise attack to overrun the rebel Russophone oblasts of Donetsk and Lugansk. (You may recall that after the coup d’etat instigated by the USA in 2014, the junta government banned the public use of the Russian language, which led these two 90% Russophone oblasts to rebel. Or you may not recall because western media has blacked out these and other historical facts that led to Russia’s “Special Military Operation.”) As soon as “Mission Accomplished” was declared Ukraine would be immediately be inducted into NATO and nuclear-tipped missile bases would be set up near its Russian border forthwith. However in this age of satellite surveillance it was impossible for the Ukraine army to disguise its intentions and Russia, upon observing the concentration of forces on the lines of control, formally recognized the two rebel oblasts as sovereign states on February 22, 2022, citing the same “Responsibility to Protect” article in the UN charter the USA has used to justify many of its numerous interventions. Two days later Russia launched its preemptive “Special Military Operation.” So much for Plan A.

In response to these events Biden, Blinken, Sullivan & Nuland LLC launched Plan B, the most draconian set of sanctions ever imposed. They were expected to bring the Russian economy and society to its knees, isolate the country internationally, and lead to the collapse of the Putin-led government. But none of that happened. Russia had foreseen the possibility of a conflict on its Ukraine border at least as far back as President Putin’s speech at the 2007 OSCE meeting in Munich, and had regarded it as a virtual certainty since the events of 2014. Accordingly they had taken steps to become much more autarkic in order to mitigate the effects of the anticipated sanctions. As a result post-SMO civilian life within Russia has been only moderately affected.

The international isolation thingy didn’t work out so well either. The USA had expected banishment from the SWIFT international settlement system would be the most devastating sanction, rendering it impossible for Russia to get paid for whatever it might try to sell abroad. But less than a month after the start of the SMO India announced it would pay Russia directly in rubles for oil purchases. During that same Ides of March week in 2022 the Eurasian Economic Union and the BRICS countries announced they had jointly launched a study group to explore setting up an alternative to SWIFT.

Together these two events constitute the huge unintended consequence of setting off the decline of what the Ukraine/NATO project was intended to reinforce, the Rules Based Order itself. Since then similar bilateral agreements have proliferated involving such major economic players as China/Russia, China/Saudi Arabia and Brazil/Argentina, and smaller nations as well. The SWIFT alternative is proving to be a challenge, as Yves Smith at Naked Capitalism foresaw here and here, addressing the political and info tech issues involved respectively. But the train has left the station and there’s no turning back. The purview of the Rules Based Order has peaked and it is now receding. How fast, to what extent, and with what collateral consequences remain to be seen.

We are indeed living in interesting times.

Postscript

It goes without saying that had President Roosevelt lived out his fourth term it’s far more likely his internationalist vision would have come to fruition. That probably would have been the case if he’d lived just another year or two, or even just a few months beyond the surrender of Japan.

But something happened eight months before his passing that, had it not occurred, might also have enabled the Rooseveltian internationalists to direct the future. At 10:00 PM on the evening of July 20, 1944 the delegates to the Democratic Party National Convention were returning to their seats after marching around the Chicago Stadium in celebration of the renomination of the president by acclamation. They were about to do likewise for Vice President Henry Wallace when a cabal of big-city bosses and southern Democrats leaned on the temporary chairman to gavel the session closed. After an overnight flurry of wheeling and dealing Wallace fell narrowly short of 50% of the votes in the first ballot the next morning. His support collapsed and Harry Truman, a machine pol from Kansas City Missouri won the necessary majority on the 2nd ballot.

Prior to his appointment as Secretary of Agriculture by President Roosevelt in 1933, Henry Wallace had been the editor of the Wallace Farmer, a magazine founded by his grandfather in 1904. He had also been a life-long Republican. However it wasn’t long before became an avid supporter of the New Deal agenda and formally joined the Democrats. In 1940 significant differences arose between FDR and his incumbent vice president, John Nance Garner, not the least of which was the president’s contemplation of a third term. When Roosevelt received the nomination on the first ballot he chose Wallace as his running mate, who also fully supported the president’s domestic and internationalist policies.

Had Wallace been renominated on that July evening and subsequently reelected, he would have pushed strongly for the Rooseveltian internationalist agenda in which he’d been involved in formulating. But as with all alternative histories, we’ll never know.

References & Further Reading

Treasonable Doubt, R. Bruce Craig

Henry Wallace, Harry Truman and the Cold War, Richard J. Walton

The Devil’s Chessboard, David Talbot

The Secret Team, L. Fletcher Prouty

The New Empire, Walter LaFeber

The True Flag, Stephen Kinzer

The Plot to Seize the White House, Jules Archer

War is a Racket, Maj. Gen. Smedley Butler, USMC Ret.

The Money Makers, Eric Rauchway

Roosevelt’s Lost Alliances, Frank Costigliola

JFK, L. Fletcher Prouty

Super Imperialism, Michael Hudson

Confessions of an Economic Hit Man, John Perkins

The Empire on which the Black Sun Never Set. Cynthia Chung