“If you want to do critical analysis of contemporary capitalism, stick with the trouble, stay inside the machine. Follow the people who are operating the machine and you’ll be amazed what they’ll tell you. Absolutely staggering what they will say out loud.”
Adam Tooze.
Does the Banking and the Business Community prefer war over peace?
A few weeks ago I posted a piece here in Daily Kos in which I suggested that President Biden’s approach to the war in the Ukraine was perhaps one of the more historically significant changes to conducting foreign affairs through warfare. I wrote there:
The form of international cooperation envisioned in the creation of such institutions as the League of Nations and the United Nations sought, basically, a political order composed of nations acting jointly to preserve world peace and prosperity. They have for the most part failed. They failed to a great extent because the great powers had the economic and military strength to effectively exempt themselves from international collegiate control. Today, due to the efforts of the Biden Administration, the political and private economic interests of the world may have begun to realize rogue great powers engaging in military warfare to secure its goals are a threat to all and at best only meager benefit to some and more importantly they, as a group acting in coordination with one another, have the economic power to deter and even defeat the military ambitions of even a great power.
Hyperbole aside, I believe that it was relatively unprecedented for Biden to attempt to gain the support of the world’s democratic states (and many not so democratic ones) in order to use the existing international economic, trade and monetary systems as a means to blunt and perhaps even defeat Russia’s ability to pursue to success a military means for achieving its economic, political, and security goals in the Ukraine. Previously, the main involvement of an interested but non-participant in the armed conflict like what is occurring in the Ukraine was to supply the side it preferred with arms and country to country economic punishments. We are still doing that in the Ukraine War, but the Biden initiative is something different. More like something that would be appropriate in WWII rather than a conflict between two countries that border each other. In the past three decades, we have seem the growth of globalization. Biden and his advisers have grabbed onto it as a more powerful way to exert economic rather than military pressure on a rogue nation.
Recently, however, the business and investment community may be beginning to question this approach. After all, the Biden initiatives, in part, may adversely affect business and profits as existing and future economic opportunities are restricted and restrained and some cases even extinguished.
In a recent article in The Signal the author, Michael Bluhm, interviewed economic historian Adam Tooze on the effect of Biden’s economic punishment initiatives in the war in the Ukraine on globalization and the dynamics of world trade. He wrote:
“The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” Larry Fink, the CEO of BlackRock—the world’s largest asset-management firm—wrote in the latest of his widely read annual letters to shareholders. It’s an idea gaining currency. Adam Posen, the head of the pro-globalization Peterson Institute for International Economics, says in Foreign Affairs—the flagship publication of the influential U.S. organization the Council on Foreign Relations—that the war has accelerated a “corrosion” of globalization. And the prominent American columnist David Brooks wrote in The New York Times that “globalization while flows of trade will continue, … globalization as the driving logic of world affairs—that seems to be over.” Why would a war between two countries with relatively limited roles in the world’s economy cause such a historical transformation in it?”
The answer to the question, it seems to me, is the good old traditional big power politics that has infected the world for the past several hundred years, the conflict between Western Europe (including the United States), The Russian/Soviet Empire, and China to dominate the borderlands between them for economic and security reasons.The Biden initiatives, although almost world wide in scope, are the West’s response to Russian aggression in a centuries old military political battle over the borderlands between them and Western Europe. The conflict traditionally has been expressed militarily and by the occupation of land. One side, Russia, has chosen the traditional military option to address their ambitions. The West, under Biden and his team’s leadership has chosen to use the economic coercive powers inherent in globalization. Globalization is a somewhat new phenomenon beginning in its current form only in about the the last decade in the 20th Century.
No one nation, no matter how powerful, can use only its own economic power to affect the dynamics of world trade enough to deflect a great power once that great power chooses to mobilize its military in pursuit of its ambitions. Biden and his team, on the other hand, appears to have organized co-operative action among almost all the economically significant nations of the world to do just that. Even China, the third of the traditional great powers has remained more or less neutral.
One reaction to the seeming initial success of the Biden initiative is the fear by some that this co-operative action by a group of nations to control or affect international trade to secure its political objectives signals the end of globalization. Adam Tooze, in his response to a question by Bluhm, comments:
It’s saying that the Russian invasion of Ukraine has put an end to the globalization we’ve experienced over the last three decades. It’s not saying globalization as such is coming to an end; it’s saying globalization as we’ve known it is coming to an end.
The first wave of contemporary globalization, from the 1990s and 2000s, began to plateau in the early 2010s. That wave had included the North American Free Trade Agreement and China joining the World Trade Organization, which was a massive shock to the foundations of American society. We’re still living through the reverberations. The plateau was partly because of a deterioration in relations between the U.S. and China since 2011—and certainly since the Trump administration—which the Biden administration shows no sign of reversing. Then, Covid-19 raised a question about supply chains, in quite a dramatic way.
But what we’ve seen is not de-globalization but this plateau—a reconfiguration, politicization, and weaponization of interdependence.
Bluhm then asked Tooze what he means by weaponization. Tooze responded:
Weaponization means the geopolitical use of interdependence, as with the current sanctions against Russia. These sanctions are a time-limited tactic. If you do that two or three times, folks who feel that they might find themselves in antagonistic relations with the United States—and it’s a relatively short list of countries—will start to wonder whether it’s safe to hold foreign-exchange reserves in dollars.
Russia thought it had learned that lesson and had a cunning plan: It diversified its foreign-exchange reserves out of dollars into the euro. It turns out that if you invade a European country with an army of 150,000 people and start bombing civilians, the Europeans will join the Americans in sanctioning those foreign-exchange reserves.
We should call it a euro-dollar trap. And it is a trap; it’s weaponized. But it’s not obvious where you can go if you want to get out of it. Rather than the emergence of a new currency system, it’s more as though a cold war has broken out within a currency system that’s very difficult to change. It’s like trench warfare within the financial system. It is antagonistic, but it doesn’t actually shift anything very much, because there’s nowhere for countries to go.
Tooze then goes into a long discussion, (with a digression into the United States’ attempts to restore its leadership in Smart-phone manufacturing), about what changes and damage to globalization could occur from the Ukrainian war and the response to it by most countries of the world. He seems to believe it could lead to the politicization of globalization.
While I have no doubt there will be some effects from the current situation, I think he fails to recognize that any similar use of the massive of coordination international economic might could only occur where there is direct military action by a great power to upset the status quo by invading another country that has military and economic significance to another great power. Otherwise, why would the countries of the world needed to implement the strategy join? There needs to be a perceived immediate grave threat to most of the countries involved.
Biden’s actions are directed at ending a military activity for which a military response would be inappropriate and perhaps doomed. From the start of the Korean War until the termination of the US military involvement in the Middle East military conflict has proven to be unfruitful at best. There seemed to be no means to end the rapacity of the several power blocks in the world that did not engender horror or war and stalemate. The non-militarily engaged nations of the world’s coordinated use of the current state of the instruments controlling globalization to wreck economic havoc on a war-like nation in order to force it to desist in its military adventurism seems to be a great benefit to humanity.
Some may criticize Biden for being too moderate, others for being too liberal but no-one can say he does not know how international affairs works. He is perhaps the most experienced and knowledgable president in international affairs this nation has ever had.
As for the fear of politicization, any similar attempt by a nation or a group to use these techniques for their own economic purposes will fail. What makes Biden’s approach novel is, in addition to gaining the support and coordinating the activities of most of the nations of the world, is that it represents an alternative to military action. And, while the current actions are clearly prompted by actual military adventurism, if the Biden Initiative succeeds, I expect in the future, a powerful country casting a hungry eye on another may find military adventurism far less appetizing than it has been.