Friday, March 07, 2014

History Never Repeats Itself but It Rhymes

The world has become much more economically interconnected since the last global war. Economic cooperation treaties and free trade agreements have intertwined the economies of countries around the world. This has meant there has been a huge rise in the volume of global trade since World War II, and especially since the 1980s.

Today consumer goods like smartphones, laptops, cars, jewelery, food, cosmetics, and medicine are produced on a global level, with supply-chains criss-crossing the planet. An example: The laptop I am typing this on is the cumulative culmination of thousands of hours of work, as well as resources and manufacturing processes across the globe. It incorporates metals like tellurium, indium, cobalt, gallium, and manganese mined in Africa. Neodymium mined in China. Plastics forged out of oil, perhaps from Saudi Arabia, or Russia, or Venezuela. Aluminum from bauxite, perhaps mined in Brazil. Iron, perhaps mined in Australia. These raw materials are turned into components — memory manufactured in Korea, semiconductors forged in Germany, glass made in the United States. And it takes gallons and gallons of oil to ship all the resources and components back and forth around the world, until they are finally assembled in China, and shipped once again around the world to the consumer.

In a global war, global trade becomes a nightmare. Shipping becomes more expensive due to higher insurance costs, and riskier because it's subject to seizures, blockades, ship sinkings. Many goods, intermediate components or resources — including energy supplies like coal and oil, components for military hardware, etc, may become temporarily unavailable in certain areas. Sometimes — such as occurred in the Siege of Leningrad during World War II — the supply of food can be cut off. This is why countries hold strategic reserves of things like helium, pork, rare earth metals and oil, coal, and gas. These kinds of breakdowns were troublesome enough in the economic landscape of the early and mid-20th century, when the last global wars occurred. But in today's ultra-globalized and ultra-specialized economy? The level of economic adaptation — even for large countries like Russia and the United States with lots of land and natural resources — required to adapt to a world war would be crushing, and huge numbers of business and livelihoods would be wiped out.

In other words, global trade interdependency has become, to borrow a phrase from finance, too big to fail.

There must be an infectious strain of forced optimism going around lately, as we just saw a couple people earlier this week come down with a similar overwhelming urge to tell themselves what they desperately want to hear. Ah, well. Give this poor sap his medicine, Margaret MacMillan:

Globalization—which we tend to think of as a modern phenomenon, created by the spread of international businesses and investment, the growth of the Internet, and the widespread migration of peoples—was also characteristic of that era. Made possible by many of the changes that were taking place at the time, it meant that even remote parts of the world were being linked by new means of transport, from railways to steamships, and by new means of communication, including the telephone, telegraph, and wireless. Then, as now, there was a huge expansion in global trade and investment. And then as now waves of immigrants were finding their way to foreign lands—Indians to the Caribbean and Africa, Japanese and Chinese to North America, and millions of Europeans to the New World and the Antipodes.

Taken together, all these changes were widely seen, particularly in Europe and America, as clear evidence of humanity’s progress, suggesting to many that Europeans, at least, were becoming too interconnected and too civilized to resort to war as a means of settling disputes. The growth of international law, the Hague disarmament conferences of 1899 and 1907, and the increasing use of arbitration between nations (of the 300 arbitrations between 1794 and 1914 more than half occurred after 1890) lulled Europeans into the comforting belief that they had moved beyond savagery.

The fact that there had been an extraordinary period of general peace since 1815, when the Napoleonic wars ended, further reinforced this illusion, as did the idea that the interdependence of the countries of the world was so great that they could never afford to go to war again. This was the argument made by Norman Angell, a small, frail, and intense Englishman who had knocked around the world as everything from a pig farmer to a cowboy in the American West before he found his calling as a popular journalist. National economies were bound so tightly together, he maintained in his book, The Great Illusion, that war, far from profiting anyone, would ruin everyone. Moreover, in a view widely shared by bankers and economists at the time, a large-scale war could not last very long because there would be no way of paying for it (though we now know that societies have, when they choose, huge resources they can tap for destructive purposes). A sensational best-seller after it was published in Britain in 1909 and in the United States the following year, its title—meant to make the point that it was an illusion to believe there was anything to be gained by taking up arms—took on a cruel and unintended irony only a few short years later.

What Angell and others failed to see was the downside of interdependence.