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After the gold rush

The spree is over, the global economy is in ruins and our political masters are in disarray. Make no

Meltdown: the End of the
Age of Greed
Paul Mason
Verso, 208pp, £7.99

One of the more entertaining ironies of the global financial crisis is the United States government demanding that the rest of the world follow its lead in implementing radical Keynes­ian policies. It is not just that after the events of the past months few people take American pretensions to financial leadership seriously any longer. More to the point, no Keynesian policies of any kind had a place in the economic orthodoxy – the deservedly forgotten “Washington consensus” – that US officials preached to the world, and imposed on various countries through the IMF and the World Bank, during the decades that preceded the outbreak of the crisis. Then, sound money and balanced budgets were the touchstones of economic virtue – not, of course, for the US, which has always displayed a fine disregard for these neoliberal dogmas in its own case, but for everyone else, and most particularly for the world’s poor countries.

Now, the United States is promoting cheap money and deficit financing as global panaceas while doing nothing to change the neoliberal policies that it did embrace, such as the deregu­lation of banking by the Clinton administration. In a parody of the government-controlled crony capitalism that Washington has relentlessly criticised in emerging economies, the Obama administration is doling out vast sums to chosen banks while allowing them to continue to act as hedge funds. The result is that the US has itself become a kind of hedge fund, and of the more highly leveraged and less well-managed variety that has fared so badly recently.

In these uncertain times it is easy to lose sight of the larger picture and longer view; most reportage and commentary is fixated on ephemera. What people need is a reliable guide to the financial crisis as a historical process, showing how collapsing banks and steeply rising unemployment are part of a large-scale shift in events and ideas. Paul Mason’s Meltdown is the book they are looking for. The economics editor of BBC2’s Newsnight, Mason presents a richly detailed narrative of the events of the past year while setting the story firmly in the context of the flaws in the type of capitalism that was let loose over the past 20 years.

Writing in January this year as he finished the book, he spelled out the future course of the crisis in terms of two possible scenarios, predicting “either a hard and effective nationalisation of the banks or a long, life-changing global slump. There is a slim chance that we will escape with a short, sharp recession – but it looks slimmer by the day. Either way, the neoliberal era is over.”

It is a characteristically astute assessment. As even mainstream economists have recognised, the creeping extension of government ownership is highly unsatisfactory. Partial bank nationalisation leaves the locus of decision-making and accountability unclear, while the scale of toxic debt in the system as a whole remains unknown. Moreover, despite promises about financial regulation at the G20 meeting, it seems unlikely that anything will be done to counter the merging of casino-like investment banking with ordinary deposit-taking that was a cause of the crisis.

Nationalising the banking system on a different and better model would be a useful move, and may even have been necessary if the crisis was to be contained effectively. As Mason points out, Hyman Minsky – one of the few economists whose work is helpful in understanding the crisis – advocated socialised banking as a condition of sustainable market capitalism. However, if there was ever a time when banking could be subjected to root-and-branch reform, it has probably passed. Gordon Brown can legitimately claim to have prevented the imminent collapse of the British banking system (even if, as Mason notes, the detailed work was done by civil servants working into the small hours over takeaway meals and stale coffee).

But there was never much chance that the government would grasp the nettle of nationalisation. The entire New Labour project has been shaped around embracing the City and letting finance capitalism rip; and entrenched habits of mind have dictated that extending state ownership – even where it might stabilise market capitalism – could not be seriously envisioned. Instead, the British state has taken over the unknown liabilities of insolvent banks; as a result, it faces a future of uncertain solvency.

The situation is worse in America, where the political system has been captured by the financial institutions. Given the line-up of Clintonite has-beens who are in charge – figures such as Larry Summers, an important player in the 1999 repeal of the Depression-era Glass-Steagall Act, which limited speculation by banks – it is hardly surprising that radical banking reform is not on the agenda. Even so, the Obama administration’s inept handling of the bailout can only have damaged America’s image further. The fusion of the political and economic processes, against which successive White House administrations have railed in their incessant homilies on the proper regulation of emerging economies, is nowhere more evident than it is in Washington. The details are cloaked in secrecy, but it is clear there is a huge ongoing redistribution of wealth from taxpayers to financial institutions.

With decision-making in the hands of an inward-looking and not very competent oligarchy, America now bears more than a passing resemblance to an emerging economy. The US has opted to monetise its debts – in other words, to inflate them away. This is the reality behind the sudden revival of Keynes and the febrile hype about deflation. In one sense, there can be little doubt that the ultra-Keynesian mix of extremely low interest rates with fiscal stimulus and quantitative easing will work. There is no limit to the amount of money that can be created; inflation will eventually return, leading to real devaluation of debt. To that extent, the current crisis – at least the part of it arising from the build-up of debt – will be resolved.

But, as might have been pointed out by Keynes (a more realistic thinker than many of his latter-day disciples), these policies will not deliver stability. In countries that are heavily dependent on foreign capital they can easily be counterproductive. There must be a risk of another and larger run on the pound, and, further down the road, increasing pressure on the status of the dollar as the world’s reserve currency. Why should the world’s creditors continue to lend to countries bent on debauching their currencies and thereby devaluing the investments these countries have built up in them? They have no alternative, it will be argued, because they rely on US markets for their exports. China will have to put up with watching the value of its holdings of US government debt melting away. Again, how can China start pulling out its investments without triggering a run on the dollar, in which the value of those investments is further diminished?

Well, we shall see. China’s rulers may not have much choice in the matter. If the contraction of the global economy continues, they may be compelled to deploy national reserves to prop up the domestic economy and stave off civil unrest. In any case, China does not have to sell its existing holdings; it can simply stop replacing them, which would have the effect of raising interest rates and aborting any US recovery. Either way, it would be unwise to rely on the lopsided economic relationships of the past few decades surviving a once-in-a-century global upheaval.

The upshot of Mason’s analysis may be more unsettling than he realises. Now that the time for root-and-branch banking reform seems to have passed, the global economy seems to be heading for the “long, life-changing global slump” he identifies as one of the two scenarios facing the world. This will not be a rerun of the 1930s, if only because the US, along with other countries, has opted for inflation, but it will surely be life-changing. The collapse of the neoliberal project continues, and there is no sign of a successor.

A new edition of John Gray’s “False Dawn: the Delusions of Global Capitalism” will be published by Granta Books in the autumn

John Gray is the New Statesman’s lead book reviewer. His latest book is The Soul of the Marionette: A Short Enquiry into Human Freedom.

This article first appeared in the 27 April 2009 issue of the New Statesman, Rise of the Geek

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What lies beneath: how Europe succumbed to toxic ideology and violence

A review of Ian Kershaw and Heinrich August Winkler’s accounts of Europe’s “age of catastrophe”, 1914-49.

In the current climate of apprehension about what an influx of Muslim immigrants might mean for European values, we should remember what those have included in the past: slavery, serfdom and tyranny, as well as religious wars, violent revolution and rapacious imperialism. And the horrors of earlier centuries pale beside what Europeans did in the 20th century to their own continent and the rest of the world. The titles of two new histories sum up that miserable story, with its ethnic conflicts, industrial-scale warfare, totalitarianism and genocide: “hell”, in the case of Ian Kershaw, and “catastrophe” for Heinrich August Winkler.

Twentieth-century Europe remains such a puzzle for us all. How could a civilisation that produced Shakespeare, Beethoven and Kant, which generated the Renaissance, the Enlightenment and the scientific revolution, or which formulated and promulgated ideas such as constitutional government and human rights, also have produced such appalling cruelties?

These two vast histories aim to explain why Europe went through such a very bad period between the start of the First World War and the end of the Second World War. Both authors try to find that difficult balance between looking at Europe as a whole and as a set of separate countries. For all that it is admirably researched, Winkler’s is the less satisfying, in part because he fails to define his terms. He talks of something called the west (which at various points seems to include the United States and Japan and at others seems to be only Europe) without ever clearly stating what he means by either definition: is it a set of ideas and values, a collection of nation states, or perhaps a typology of political, economic and social organisation? In this, the second in a projected three-volume history of the west, he starts out by saying that he will examine Europe’s “normative project”, which he defines, very briefly, as putting into effect the ideas and ideals of the American and French Revolutions. But which ones? The Rights of Man or the Terror? In any case, the “normative project” largely vanishes in what is nevertheless a useful and thorough history of Europe. If you want to know about the politics of Luxembourg as well as those of bigger states you will find that here.

Kershaw inevitably goes over much of the same ground but provides the more sustained analysis. In his view, several forces came together in the 20th century to produce a toxic brew of suspicion and hatred among Europe’s people. A new kind of nationalism emerged, driven by the assumption that nations are based on not only shared ethnicity, but blood – inhabitants of another nation were often described as being another “race”. Given the mix of peoples in Europe, demands for territory often led to nations claiming lands inhabited by those of other, supposedly lesser “races”. Class conflict often overlapped with ethnic conflict, so that, for example, Slavic peasants and Polish landowners found even more reason to hate each other. The long crisis of capitalism was undermining the legitimacy of the existing regimes, some of them weak enough to begin with. And caught up in the midst were Europe’s Jews, the unjustified focus for ethnic and class hatreds, blamed for the problems created by capitalism.

Both writers take some pains to look at ideas (fascism, communism, liberalism) or trends, from economic growth to changes in the position of women, that transcended borders. They also point out that Europe contained very different levels of development that were not necessarily coterminous with national borders. Such measures as literacy, standards of living or urbanisation were generally higher in the western parts of Europe. In terms of constitutional and democratic government, the east lagged behind. And while the likes of France and Britain had long since taken diverse peoples and instilled in them a strong sense of shared nationhood (though Britain failed with the Irish, who persisted in seeing themselves as a separate people), the old empires of Russia and Austria-Hungary had failed to do so before the First World War. Indeed, the gradual introduction of representative institutions and a broader franchise in ethnically diverse areas led to an unedifying search for spoils. After 1918 the dominant elites in the successor states often lacked the will to respect their own substantial ethnic minorities. Political leaders all too frequently used demagogic and ethnic appeals to their masses to keep themselves in power.

While there are clearly continuities between the worlds before and after the First World War, that prolonged and costly conflict served to shatter much of the old order and to speed the introduction of certain ideas, attitudes and practices. As Kershaw rightly says of 1914, armies with values belonging to the 19th century or earlier found themselves fighting a 20th-century war as Europe’s organised, industrialised mass societies hurled themselves against each other. In its course, European nations threw away the lives and talents of millions of their men and exhausted their resources. The French coined a new term: total war. For this was not like the wars of the previous century, fought for clear and limited aims, but rather a struggle between peoples for dominance and survival. In the course of the war, racial and national stereotyping entered the public discourse. For Germans it was the barbaric Asiatics; for the French and the British, the brutal Huns. Conflict broadened to include civilians: men, women, children were all part of the war effort. And in the mixed regions of the east and southern Europe and the Ottoman empire the first ethnic cleansings and genocides occurred, though they were not yet called by these names.

Towards the end of the war the US president Woodrow Wilson’s public support for self-determination, inspired by noble sentiments about the rights of peoples to govern themselves, spurred demands in the heart of Europe for ethnically based nations to be established in defined territories. New nations, which might have worked and traded with each other, too often fell out over competing claims to the same pieces of land. And because ethnic nationalisms are generally intolerant of multiple and overlapping identities, those who refused (or were perceived to refuse) to accept a single identity became useful scapegoats. Older traditions of anti-Semitism were now reinforced by the pseudo-sciences of racism and social Darwinism. The pre-war pogroms against Jews expanded with renewed vigour into the war and the postwar years. In Russia’s revolutionary civil war, for instance, up to 60,000 Jews were killed in the Ukraine.

The war made violence normal as a way of settling disputes and carrying out politics. Fighting on a large scale carried on for several years after 1918. In the Russian civil war, which finally ended in 1922, some seven million people died of various causes. In many countries, Italy and Germany among them, politics often took the form of violent street theatre, with opposing factions beating and killing each other. Mussolini rode to power in Italy in 1922 partly because his Fascists intimidated and cowed their opponents, and partly because conservative elites hoped that he could restore order. In Germany, adherents of the right committed 352 political murders between 1919 and 1922. And war retained its glamour and fascination. Despite what we might think, given the popularity of anti-war literature such as All Quiet on the Western Front (1929), many veterans joined paramilitary organisations after the First World War ended, 400,000 of them signing up for the German Freikorps, which fought in the Baltic and along Germany’s eastern borders.

The war also left large numbers of Europeans deracinated: what Winkler describes as “personal shock”. What had seemed solid – whether empires, regimes, their position in society, even their pensions and savings – vanished overnight. Not surprisingly, Oswald Spengler’s deeply pessimistic The Decline of the West (published in German between 1918 and 1922 and in English in 1926), which posited that European civilisation was reaching its end, was very influential and sold thousands of copies, especially in Germany. Many Europeans retreated from engagement in the compromise-heavy sphere of democratic politics because it seemed to provide few solutions in the present and little hope for the future. Outsiders, such as the self-serving Italian poet Gabriele d’Annunzio, who attacked conventional society and expressed nothing but contempt for elected politicians, were dangerously attractive because they somehow sounded more “authentic”. As we look, today, at the antics of Donald Trump and Nigel Farage, that seems uncomfortably familiar.

Europe presented unpromising soil for the new democracies in Poland and Yugoslavia, or older, shaky ones in Italy or Spain. The widespread adoption of proportional representation only led to further political fragmentation and made it increasingly difficult to form stable coalitions. While democracy struggled in parts of Europe, its enemies mobilised, often using its own institutions against it. Challenged by new forces from below, the old elites, especially in eastern and southern Europe, drifted into counter-revolution and threw their support behind conservative parties advocating authoritarian governments. On the left, the new communist parties, modelled on Bolshevik lines, appeared to present a credible alternative both to authoritarianism and to “bourgeois” democracy. Under the strict rule of the Communist International, itself a tool of Soviet policy by the late 1920s, communists across Europe obeyed orders to attack and disrupt democracy. In the streets of Germany communists and Nazis sometimes fought together to ­destroy the Weimar Republic.

On the right, fascism in all its varieties was equally appealing to those who had given up on democracy. Across Europe, fascist leaders attacked what they saw as an outmoded and corrupt system, promising national renewal and a bright and bustling future. Here is how Mussolini described fascism in his 1932 article for the Enciclopedia Italiana: “The Fascist state, the synthesis and unity of all values, interprets, develops and gives strength to the whole life of the people.” It is hard today to understand how even intellectuals could take such vacuous rubbish seriously as a coherent doctrine but many did. When Winston Churchill visited Italy in 1927, he wrote approvingly, “this country gives the impression of discipline, order, good will, smiling faces”. Although the impetus behind fascism differed from that behind Soviet-style communism – one was nationalist and racist, the other promised a classless utopia – in method and style both were totalitarian, another new word that had to be coined to describe the 20th century. Unlike older types of authoritarianism (of which there were still many examples), totalitarian regimes, whether in the Soviet Union or in Nazi Germany, sought to possess the souls and innermost thoughts of their subjects. Both types of totalitarianism used modern media and propaganda to mobilise and sway the masses; both had cults of the all-wise, omni-competent leader; both dealt with any dissent by means of intimidation, imprisonment or murder; and both needed enemies, internal or external, to justify their existence.

The First World War helped to create the conditions that made Europe’s descent into the second war and barbarism possible – yet it did not have to end like that. “But we do dance on volcanoes and sometimes the fires below subside,” said Gustav Stresemann, the German statesman. By the mid-1920s there were grounds to hope that he was right. The world had recovered, certainly in economic terms, from the war. Although the United States had failed to join the new League of Nations, it did not disengage itself entirely from Europe. American observers came to League meetings and American diplomats and bankers took the lead in trying to negotiate a more workable set of reparations demands for Germany, first in the Dawes Plan of 1924 and then the Young of 1929. Under Stresemann’s wise leadership, briefly as chancellor and then as foreign minister, Germany became an international player again, settling its outstanding border disputes with its neighbours in the east, joining the League, and working reasonably amicably with its former enemies.

In 1928 Germany, France and the United States signed the Kellogg-Briand Pact, a solemn agreement to renounce war as an instrument of national policy. Ultimately, 63 nations, including Britain, Italy, Japan and the Soviet Union, added their signatures. Three years later Japan invaded Manchuria; in October 1935 Italy invaded Ethiopia; five months later Hitler marched his troops into the Rhineland, which had been demilitarised under the Treaty of Versailles; and in 1939 Europe was at war again. What went wrong can be summed up in two words: “depression” and “Germany”. Without the collapse of much of the world’s economy and the consequent misery and mass unemployment, democracy and capitalism would not have been seen as bankrupt, failed systems. The extremes of fascism and communism would never have gained the traction they did. If the Weimar Republic had managed to survive beyond its first decade it might have struck deeper roots gradually in Germany.

For both Kershaw and Winkler, what happened in Germany was of critical importance to the fate of Europe, given that country’s location at the heart of the continent, its large population, strong economy and powerful military traditions. The Depression had a disastrous impact on an already polarised and resentful nation. The Weimar Republic was tolerated but not loved, even by many of its own supporters. Key elites, whether the military, the civil service or business, had never accepted it.

Weimar also bore the burden of having signed the Treaty of Versailles. Germans had never really absorbed Germany’s military defeat in 1918, a refusal to recognise reality which was endorsed enthusiastically by the High Command, with its irresponsible talk of German forces having been “stabbed in the back” by defeatists at home. As a result, in Germany, the treaty’s terms were widely seen as illegitimate and punitive, a national humiliation. Hitler and the Nazis offered simple solutions for the country’s complex economic and political problems. They promised a prosperous and dynamic nation, restored to its rightful dominance of Europe. Still, Hitler would never have got into power without the folly and blindness of those who should have known better – from the conservatives around the ageing President Hindenburg to the socialists who, at a vital stage, withdrew their support from the last workable coalition of democratic parties.

Not surprisingly, given that both are primarily historians of Germany, Kershaw and Winkler are at their best analysing the Nazi seizure of power and the steps by which Hitler moved inexorably towards war. Their accounts are less satisfactory when it comes to other players such as Britain and France and, later, the United States. It is hard to disagree with the conclusion, however, that Hitler was not to be appeased, no matter how far the democracies were prepared to go. His vision was of a Germany dominating Europe, if not the world, and of the expansion of the German race into territories that were to be cleared of their inhabitants through expulsion, starvation or murder. Europe as a whole was to be cleansed of Jews. For Hitler, genocide was not a by-product of the war but an integral part. And as both accounts make clear, he found many willing accomplices across Europe.

If Europe had been badly shaken by the First World War, it was all but destroyed by the Second. By 1945 millions of its people were dead or barely surviving. The great European empires were crumbling fast, and European nations lay at the mercy of the two new superpowers – the United States and the Soviet Union. In eastern Europe the Soviet Union was building its own empire. Yet within four years, Europe, especially the western part, had started to recover; more than that, the foundations for what turned out to be an enduring peace had been laid. Kershaw rightly describes it as “astonishing”, although his account of how it happened is regrettably brief.

We face the danger today of forgetting what Europe did to itself in the 20th century and how that came about. The passage of time has made us complacent and we assure ourselves that we would never make the same mistakes as our forebears did decades ago. Yet not all Europe’s demons have been killed for ever. Intolerant nationalisms are growing again. Let us hope that the fulminations of, say, the Hungarian prime minister, Viktor Orbán, against the dangers to European society from “outsiders” – whether gypsies or Syrians – are passing froth on the political scene and not signs of something deeper and more sinister happening below the surface.

To Hell and Back: Europe, 1914-1949 by Ian Kershaw is published  by Allen Lane (593pp, £30). The Age of Catastrophe: A History of the West 1914–1945 by Heinrich August Winkler, translated
by Stewart Spencer, is published by Yale University Press (998pp, £35). Margaret MacMillan is Professor of International History at the University of Oxford and Warden of St Antony’s College. Her books include “The War that Ended Peace” (Profile)

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide