Building New Institutions: The Peterson Institute for International Economics is Born at GMF

May 20, 2022
4 min read
Photo credit: Kristi Blokhin /
Some of the seeds that the German Marshall Fund planted have grown into tall trees.

Renowned institutions, first and foremost the Peterson Institute for International Economics, were founded with its help.

In the late 1970s, the US economy was in crisis and many citizens were hurting. Unemployment, inflation, and poverty were climbing. The recession marked the end of the post-Second World War economic boom, and the United States experienced a long period of stagflation. Influential politicians on both sides of the Atlantic were considering import restrictions. Free trade, a key principle of the postwar liberal order, seemed under threat.

Facing this situation, the economist Fred Bergsten, who was assistant secretary at the Treasury Department during the Carter administration, sent an urgent request to GMF, asking for support to create an institute for international economics. Hoping to find kindred spirits at the fund, Bergsten wrote on May 6, 1980: “International economic developments have been placing increasing strains on both the world economy and overall relationships among nations. Events in this field have moved far ahead of our ability to cope with them. Yet no center has developed in the United States which is devoted to helping provide the needed thinking on international economic issues.” Bergsten knew that Germany, Japan, and Sweden already had independent economic centers with international expertise. Such an institution would be essential in Washington as well, Bergsten continued, as US “leadership is of critical importance in dealing with the whole range of international economic problems.”

When the idea was presented to the GMF board, it was met with some concern. The fund’s largest gifts up to that point had amounted to about $400,000. Bergsten was asking for a commitment of several million dollars over a five-year period, an amount that would consume more than 20 percent of GMF’s total grant-making budget at the time. But Bergsten prevailed with his groundbreaking idea and Frank Loy, who had been appointed as GMF’s president in early 1981, became one of the staunchest supporters of the project. Having served in government, he saw the need for such an institution and its relevance for transatlantic relations. In the end, GMF’s board approved the request upon Loy’s recommendation.

Having served in government, he saw the need for such an institution and its relevance for transatlantic relations.

In November 1981, the Institute for International Economics was founded in Washington. Its name was later changed to the Peterson Institute for International Economics, in honor of its founding chairman, Peter G. Peterson.

GMF’s investment paid off quickly. In 1984, only three years after the institute had been established, Craufurd Goodwin, a renowned economics professor at Duke University and an experienced analyst of foundations, concluded in his first assessment of the center’s impact: “The institute has delivered everything that could have been expected of it, and more. In a remarkably short time, it has taken a highly visible and constructive role in the American policy community.” Seven years later, in a second review, Goodwin was even more enthusiastic: The institute was “a spectacular success.”

Encouraged by this initial achievement, GMF continued to support budding institutions in the transatlantic space.

Encouraged by this initial achievement, GMF continued to support budding institutions in the transatlantic space. The American Institute for Contemporary German Studies at Johns Hopkins University is another example of an institution that GMF supported during its founding phase.

GMF’s first large institution-building grant turned out to be an extremely farsighted initiative.

Today, the Peterson Institute is one of the world’s most prominent centers for international economics.

Next | Fostering NATO Expansion and Enlargement

Since NATO enlargement began, GMF had carved out for itself the role of giving voice to the Central and Eastern European countries that applied to join NATO but were often drowned out in the concert of the powerful nations. This marked a significant change for GMF. Until that time, it had served as a neutral convener: a platform for policymakers and experts to share their often contrary opinions.

Previous | Acid Rain: Lessons from Germany’s Black Forest

As prosperity rose, so did pollution. British, German, and Swedish, scientists were among the first to warn that increasing levels of sulfur dioxide emissions from factories led to trees dying. In Germany, a country of old woods, beautiful rivers, and historic monuments, acid rain took a heavy toll on the natural environment.

This year the German Marshall Fund marks its 50th anniversary and the 75th anniversary of the Marshall Plan. These historic moments serve as an opportunity to highlight the achievements of one of the most important American diplomatic initiatives of the 20th century and how its legacy lives on today through GMF and its mission. Learn more about GMF at 50.