Archive for September, 2013

Income distribution, technical change and foreign policy in Germany since reunification

September 26, 2013

The less than innocuous totems of the Kohl-Schröder-Merkel years Luftwaffe flying combat missions over the Balkans for the first time since 1945, Joschka Fischer’s theatrical turn at the UN, monetary rules devised in Frankfurt acquiring continental sway, Bundeswehr preserving NATO’s client state in Afghanistan, Lisbon Treaty signed under German presidency of the EU  — require some explanation deeper than that offered, typically, by polite journalism.

What, besides momentary calculation of interest and symbolic expediency, has driven the Aussenamt since its return to Berlin?

How, in particular, do the internal features of German society — broadly, the manner in which economic output is generated and the pattern of its distribution between classes  affect Berlin’s external stance?

Influence running in the opposite direction — from world conditions to domestic performance and growth trajectory — is plain enough to see, and widely acknowledged.

With exports making up around 50% of German GDP, the chronic global macroeconomic imbalances of the last 45 years have governed the recent evolution of the German economy more than most.

This post is a quick guide to how and why some of Germany’s key economic variables have changed since 1990.

What, finally, does their trajectory imply for Berlin’s future role in world affairs? Above all, how resilient is German Atlanticism, the keystone in the arch of the postwar Federal Republic, likely to prove?

As Angela Merkel embraces photo opportunities in Afghanistan, and deploys new expeditionary forces to Central and West Africa, are Strobe Talbott and his juniors at the Brookings Institution correct to fret about a fraying of Berlin’s commitment to NATO?

In the 1970s, following the Nixon Shock, West German firms and their Japanese counterparts famously maintained export competitiveness, despite sharp currency appreciation, by switching rapidly to new capital-intensive techniques (those using more capital goods per worker).

Mechanization, for a time, reaped higher levels of labour productivity (output per worker).

To be sure, technical progress during the 1970s and 1980s would be slower than it had been in the previous ‘miraculous’ two decades.

But, under the SPD administrations of Brandt and Schmidt, followed by Kohl’s long reign, the Bonn republic’s annual growth rates (labour productivity at 2.7%; capital intensity at 3.4%) still outpaced those of other advanced economies besides Japan.

Since labour productivity grew faster than real wages, the wage share in West German national income fell steadily from 1974 onwards.

Wage share GDP - West Germany

Yet this capital-deepening approach was no longer feasible by the time of later currency shocks: the 1985 Plaza Accord, the Exchange Rate Mechanism and the 1999 advent of European monetary union.

In the decade following the collapse and annexation of the Stalinist DDR, unfavourable technical conditions prevailed in the Bundesrepublik. The much-decried fiscal burdens of reunification, mesmerizing popular media if not policy elite during Kohl’s prolonged dotage, distracted from this deeper malaise.

By the early 1990s, further accumulation of fixed capital (by German firms switching to more capital intensive techniques) no longer yielded a proportionate rise in labour productivity.

In other words, adding more capital goods per worker did not sufficiently increase output per worker.

It also reduced ‘capital productivity’ (the output-capital ratio, or value-added per D-Mark of capital used).

Labour productivity - Germany

Output-capital ratio - Germany

Labour productivity and capital productivity - Germany

Constrained by declining profitability, fixed investment slowed down.

Capital-labour ratio Germany

How then were German firms, unable to resort to currency devaluation, to retain their export markets against competitors?

Unit labour costs needed to be held downwards, as before. But since labour-saving technical change was exhausted, real wages would tend to rise faster than labour productivity.

A deflationary solution was soon provided.

Following the opening of vast labour reserves in eastern Europe, came the ascent to power of the SPD-Greens coalition in 1998.

In 2002, amid much excitement in the press at delivery of cures long prescribed, Gerhard Schröder unveiled his Hartz/Agenda 2010 ‘reforms’ to the labour market.

To the applause of the Economist and the OECD, German real wages entered a decade of prolonged stagnation and decline, amid the growth of sporadic or intermittent employment (so-called ‘mini-jobs’).

Real wage - Germany

Since labour productivity, though still sluggish, now rose faster than real wages, the share of value-added won by employees fell.

Wage share GDP - Germany

The declining wage share counteracted the fall in the output-capital ratio, allowing profitability to rise.

Profit rate - Germany

In 2005 at the World Economic Forum in Davos, Schröder boasted that his government had ‘built up one the best low-wage sectors in Europe.’

The combination of slowing accumulation of fixed capital with greater income inequality (the ratio of non-wage income to wages) has indeed restored the profitability of German firms.

Nonetheless, as the country’s enormous trade surpluses since 2002 show, this has entailed a shortage of domestic spending.

The sum of workers’ consumption, capitalist consumption and private investment, plus government spending is insufficient to absorb Germany’s surplus product domestically.

Instead, locally-owned firms depend for their demand on global liquidity from deficit countries in southern Europe, the United States and Britain (whose propertied classes thereby appropriate a share of the surplus produced by German workers).

Meanwhile Germany’s persistent trade surpluses allow its firms, like those in China and Japan, the opportunity to acquire claims over capital assets in these net debtor countries and elsewhere.

Particularly in the satellite economies of Mitteleuropa  the Czech Republic, Poland, Hungary, Slovakia, Slovenia, Romania, Bulgaria, Austria, Belgium, the Netherlands, Sweden, Finland, northern Italy, etc.  German firms have acquired title to growing numbers of capital assets: shipping out machinery, factory equipment and outsourced or offshored operations.

Germany’s increasing stock of capital holdings abroad, plus its dependence on export markets sustained by US spending, helps explain Berlin’s strategic posture since 1990.

This may be seen in the remarks of German president Horst Köhler, a former president of the IMF, who in 2010 explained the Bundeswehr’s mission in Afghanistan:

A country of our size, with its focus on exports and thus reliance on foreign trade, must be aware that… military deployments are necessary in an emergency to protect our interests  for example when it comes to trade routes, for example when it comes to preventing regional instabilities that could negatively influence our trade, jobs and incomes.

For the moment, German property-owners and the German state rely, for a stable internal social order and the fulfilment of external aspirations, upon the successful functioning and continued growth of a world economy that operates under US leadership.

While an integrated world market is intact and international financial architecture continue to function under US protection, the German ruling elite benefits from access to markets and resources, maintained asset values, custodial military support and access to advanced technology, inward investment and protection of external property holdings.

Berlin, to be sure, has real interests and strategic goals which strongly contradict those of Washington.

Nonetheless it is committed, for the moment, to aiding, sponsoring and materially supporting US hegemony. This subordination is embodied in the post-1945 alliance structure of NATO unified command.

Hence Berlin’s support for (if not always fulsome participation in) successive US military expeditions since the 1990s.

Yet, as the case of Willy Brandt (if not Joschka Fischer) makes clear, the lofty sentiments of German Atlanticism rest on a merely temporary alignment of interests.

The convergence between Berlin and Washington will not survive a systemic breakdown and crisis of international markets and finance capital that stifles international trade and investment flows.

Latent competitive ambitions can be perceived without much effort. Concealed beneath the overtly sterile phrases of contemporary state officials are the same fixations that preoccupied German imperialism in the 1930s.

Recent years saw the formation by BASF, Bayer, ThyssenKrupp, Daimler and other German firms of a Resource Alliance. This lobby aims to ‘secure key raw materials in the face of mounting competition from emerging economies.’

Its website explains that ‘international markets can no longer guarantee the availability of relevant raw materials in the required quantities. Thus, German industry therefore again needs direct access to raw materials through involvement in commodity projects in foreign countries.’

Handelsblatt February 2013

In July this year the Frankfurter Allgemeine Zeitung hosted an Energy Security conference which brought together ‘high-level policy makers, representatives from the energy industry and energy experts from non-governmental organisations.’

Speakers included Deutsche Bank executives and the German environment minister, as well as officials from the oil ministries of Iran, Turkey and Iraqi Kurdistan.

They were to ‘focus on political developments in producing countries, particularly the security and geostrategic implications of changing global energy supply routes’:

In the face of growing dependency on oil and gas imports, safeguarding the reliable supply of energy lies at the heart of national and international policy agendas.

The German foreign ministry, its troops placed astride the Oxus river since 2001, touts Central Asia for its ‘as yet untapped gas and crude oil reserves which could be a factor in diversifying Europe’s energy supplies.’

The Central Asian Water Initiative, by which Berlin directs and oversees ‘regional agreement and cooperation on vital resources’, seeks to use the ‘green economy’ to expand its diplomatic influence, while favouring German construction, energy, agriculture and transport firms in the Central Asian marches of the former Soviet Union.

Since 2002, the Termez airbase in Uzbekistan has provided logistical support and a regional footprint.

termez

Finally, one may heed the words of Angela Merkel’s parliamentary spokesman for foreign affairs:

As an open economy closely integrated into the world market, Germany owes much of its prosperity to the stability of the international financial system and open world markets, as the current global economic and financial crisis has so starkly demonstrated…

In addition to this, as a heavily export-oriented economy, we have a great interest in securing maritime trading routes. This is why it is right for the German Navy to be involved in fighting piracy at the Horn of Africa.

Germany’s security depends not least on the most unrestricted possible access to the markets for energy and other raw materials. The German Federal Chancellor has made energy and raw material security an important theme of her chancellorship. The risks that are associated with our heavy dependence on energy supplies from abroad were made abundantly clear by the Russian-Ukrainian gas conflict at the beginning of the year.

Climate protection is closely connected with questions of energy security….

Recently the Handelsblatt was unable to resist characterizing the Desertec project, a North African venture of Deutsche Bank, E.ON and RWE, as a search for Germany’s ‘place in the sun’.

Invoking a ‘hunger for energy’, the business newspaper explicitly recalled the ‘historical precedent’ of the Berlin-Baghdad railway line.

Since the 1960s, and especially since the late 1980s, German and French policymakers have tried with meek persistence to build up an autonomous European military instrument. This would have the capacity to act independently of Washington, projecting power outside Europe in pursuit of their own distinct strategic goals.

The collapse of Stalinist rule in Moscow and Berlin stirred pious hopes that the US-led Cold War security apparatus might also be dissolved.

Instead, European ambitions have again been subordinated to Washington, as NATO has found a new line of business in ‘humanitarian interventions’, peacekeeping operations and the Global War on Terror. Creation of a new supranational political entity, the EU, has not changed matters.

Berlin thus remains reliant, for now, on US cruise missiles and logistics capacity for any expeditionary operations. It cannot openly defy Washington, cut its own deal with energy suppliers, etc.

Yet a prolonged downturn in growth trends, or some other rupture in the capitalist world-system  final annulment or momentary suspension of the postwar practice of interstate benefaction and mutual conviviality of trade — may soon force German rulers to seek a specifically German solution to their problems.

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Swimming in it

September 18, 2013

From Part Six of Paul Carell’s Hitler Moves East, 1941-1943:

In the economic field Hitler’s obsession was oil. Oil to him was the element of progress, the driving force of the machine age.

He had read everything that had ever been written about oil. He was acquainted with the history of the Arabian and American oilfields, and knew about oil extraction and refining.

Anyone turning the conversation to oil could be sure of Hitler’s attention. Goering was put in charge of the economic four-year plan because he was playing Hitler’s favourite card: oil.

Typical of Hitler’s attitude is an attested remark he made about an efficient civil servant in the Trade Policy Department of the German Foreign Office: “I can’t bear the man — but he does understand about oil.”

Hitler’s Balkan policy was based entirely on Rumania’s oil. He had built into the Barbarossa directive a special campaign against the Crimea, merely because he was worried about the Rumanian oilfields, which he believed could be threatened by the Soviet Air Force from the Crimea.

[…]

Every one of Hitler’s idées fixes played its fatal part in the war against Russia — but most decisive of all was his obsession with oil.

 

From a lengthy secret report produced in 1946 by the British Defence Ministry, titled ‘Oil as a Factor in the German War Effort, 1933-1945’:

Bent upon the total mobilisation of all domestic resources, the National Socialists, from the moment of their seizure of power, did everything possible to expand crude oil production.

The Mining Laws were immediately altered to permit large-scale exploration and a comprehensive geophysical survey was set on foot. A large programme was worked out for increased drilling and exploration with public funds and, in addition, industry was compelled to spend large sums of its own for the same purpose.

As a result of these measures total drilling increased from 62,000 metres in 1932 to 220,000 metres in 1938, the exploration drilling in virgin areas increasing from 13,000 to 100,000 metres. The effect was a 150 per cent, growth in crude oil output.

Addendum to Hitler’s Directive No. 34, addressed to the Army’s High Command (OKH) on 15 August 1941:

The most important missions before the onset of winter are to seize the Crimea and the industrial and coal regions of the Don, deprive the Russians of the opportunity to obtain oil from the Caucasus… rather than capture Moscow.

Case Blue

Hitler to Friedrich Paulus and other members of the OKH, 1 June 1942, at the Ukrainian headquarters of Army Group South: ‘If I do not get the the oil of Maykop and Grozny, then I must end this war.’

Hitler’s table talk from August 1942, speaking from his new HQ Werwolf:

We must at all costs advance into the plains of Mesopotamia and take the Mosul oil-fields from the British. If we succeed here, the whole war will come to an end, for the British have now only Haifa as their sole loading port for oil.

As regards oil, statistics show that the Russians until quite recently obtained 92 per cent of their oil from the Caucasus.

Carell on Operation Blue (see Hitler’s directives number 41 and 45), June 1942:

[Hitler] had decided to try something entirely new after the unfortunate experiences on the Central Front in the previous year, and to seek the decision in the south by depriving Stalin of his Caucasian oil and by thrusting into Persia. Rommel’s Africa Army played a part in this plan.

The “desert fox,” who was just then preparing his offensive from Cyrenaica against the British positions at Gazala and against Tobruk, the heart of the British defence of North Africa, was to advance right across Egypt and the Arabian Desert to the Persian Gulf.

In this way Persia, the only point of contact between Britain and Russia, and after Murmansk the greatest supply base of US help for Russia, would be eliminated. Moreover, in addition to the Russian oilfields the very much richer Arabian oilfields would fall into German hands.

German military intervention in Iraq had commenced the previous year, threatening what Time magazine called ‘the carotid artery of the British Empire, the Mosul-Haifa oil pipeline.’

Hitler’s Directive No, 30 announced support for ‘forces hostile to England in the Middle East’, while Rommel undertook ‘an offensive against the Suez Canal, finally to break the British position between the Mediterranean and the Persian Gulf.’

Directive No. 32 then envisaged the ‘despatch of a motorized expeditionary force from Transcaucasia against Iraq’.

Meanwhile British and Soviet forces had occupied Iran to secure oil wells, refineries and export terminals in Khuzestan, and preserve their supply lines through Central Asia.

Iraq petroleum company pipeline

Persian Corridor

Hitler in August 1942, after Maykop was taken: ‘In the East it will be all over once we have cut their communications to the south and to Murmansk. Without oil they are finished!’

The opportunities for plunder offered by the Ukraine and Caspian oil excited particular giddiness and dreams of autarky:

There are here a million tons of wheat in reserve from last year’s harvest. Just think what it will be like when we get things properly organised, and the oil-wells are in our possession! …

When the war ends, the German people need not bother its head about what it is going to do during the next fifty years!

We shall become the most self-supporting State, in every respect, including cotton, in the world. The only thing we shall not have will be a coffee plantation — but we’ll find a coffee-growing colony somewhere or other! Timber we shall have in abundance, iron in limitless quantity, the greatest manganese-ore mines in the world, oil — we shall swim in it!

And to handle it all, the whole strength of the entire German man-power!

NY Times Maykop 1942

The German chancellor, dazzled by cornucopian visions, anticipated the realization of Generalplan Ost, the most ruthless of 1930s imperial projects, which had succeeded the earlier visions of the Pan-German League and the September Program.

The fertile and mineral-rich East would supply German enterprises with raw materials, and German farmers would populate a soon-to-be denuded steppe:

The river of the future is the Danube. We’ll connect it to the Dnieper and the Don by the Black Sea. The petroleum and grain will come flowing towards us.

The canal from the Danube to the Main can never be built too big.

Add to this the canal from the Danube to the Oder, and we’ll have an economic circuit of unheard-of dimensions.

Europe will gain in importance, of herself. Europe, and no longer America, will be the country of boundless possibilities. If the Americans are intelligent, they’ll realise how much it will be to their interest to take part in this work.

There is no country that can be to a larger extent autarkic than Europe will be. Where is there a region capable of supplying iron of the quality of Ukrainian iron? Where can one find more nickel, more coal, more manganese, more molybdenum? The Ukraine is the source of manganese to which even America goes for its supplies.

And, on top of that, so many other possibilities! The vegetable oils, the hevea plantations to be organised. With 100,000 acres devoted to the growing of rubber, our needs are covered.

[…]

Through the Black Sea and up the Danube will come iron, manganese ore, coal, oil, wheat — all in an unending stream.

In 26 July 1942 one could find Hitler daydreaming over lunch about the discovery of vast new oil deposits:

The presence of oil in the Caucasus, in the vicinity of Vienna and in the Harz leads one to suspect the existence of an oilfield of whose magnitude and importance one had not the least idea. This is not in the least surprising. As in the case of mineral wealth, the trusts would immediately buy up any newly discovered oil-bearing territories, with the intention of restricting their development to a degree compatible  with their other interests; in this, their primary object would be to prevent exploitation by others.

One must give the Russians their due and admit that, in this respect, they have succeeded in limiting the power of monopolies and eliminating private interests. As a result, they are now in a position to prospect throughout their territory for oil, whose position and probable extension are studied by experts with the assistance of very large-scale maps. In this way, they have not only been able to trace the course of the oil-veins, but have also verified their  facts and extended their knowledge by test borings carried out at the expense of the State. There is a lot we can learn from them.

There is no limit to what we could have extracted from the sources in the vicinity of Vienna, if the State had undertaken the necessary exploitation in time. This, added to the oil-wells of the Caucasus and Rumania, would have saved us from all anxiety for the future. One must not, however, forget that oil-wells are not inexhaustible; and that is why I am still in favour of gas-driven public vehicles, and particularly of gas-driven vehicles for the Party.

Yet these lofty goals were prompted not by grandiose delusion but by simple exigency.

Hitler’s private fixation on oil wasn’t simply a matter of his personal idiosyncracies or predilections. It met the most remorseless, pressing imperative facing the German elite: to secure oil for the Wehrmacht and deny it to the Red Army and British Empire.

Oil lay at the root of Hitler’s notorious difficulties with the Army’s High Command (OKH), whom he said ‘know nothing about the economic aspects of war.’

Germany had abundant supplies of coal in the Ruhr and Silesia, but other strategic materials were less plentiful. For their ongoing supply to be assured against interruption or blockade, it was vital to assert military control over these sources and transport routes, both maritime and overland.

Thus Berlin’s attempt to annex the iron ore of France’s Lorraine basin during the First World War, and the last-ditch lunge for Caspian oil by General Ludendorff in 1918.

In November 1918, the British war cabinet could boast it had ‘floated to victory on a wave of oil’. Later, when describing the actions of Hitler’s government from 1933, the British Defence Ministry would recall this remark of Curzon’s, and the lessons it had imparted to Berlin.

In 1938 Göring’s Reich Office for Economic Development, chaired by the IG Farben’s Carl Krauch, had conducted technical studies into the volumes of raw materials and inputs — oil, rubber, chemicals, tungsten, copper and nickel — that Germany would need for sustained military mobilization.

It estimated that the armed forces would need 485 000 tons of oil products per month, and the entire war and armaments machine would consume almost 700 000 tons.

Estimates of German oil consumptionYet Germany had limited domestic production and refining capacity (200 000 tons per month) and deficient stocks of strategic reserves: only 2.1 million tons, barely enough to cover a few months of civilian commercial activity.

By contrast, Britain had 6.7 million tons of oil in storage at the outbreak of war. The United States, meanwhile, produced 164 million tons of crude oil in 1938, and the Soviet Union 32 million tons.

For aerial warfare, which consumed vast quantities of fuel, Berlin was dependent on unconventional, high-cost sources of energy. The Luftwaffe depended for its aviation fuel on synthetic oil produced from coal via the Bergius hydrogenation process (an alternative to the Fischer-Tropsch process).

In addition, the diesel-powered and fuel oil-driven ships and submarines of the Kriegsmarine would also need ready supplies of crude oil. So would the petrol-fuelled trucks, tanks and motorized artillery of the army divisions.

The territorial boundaries of the German state did not contain the wells and refineries sufficient to meet these needs. In 1939 Germany’s net imports reached 5.2 million tons.

Moreover, Germany’s weak balance of payments position on the current account, and the legacy of Versailles, meant that it had acquired few net assets abroad during the 1920s.

German energy firms therefore lacked the stock of external oil investments held by their continental rivals in France, Belgium and the Netherlands.

German oil production 1944

Given this deficit between its domestic oil production and consumption, and the predictable wartime imposition of naval blockades, interdictions and disruption to overland supply routes (imposed by the British and French from September 1939), German oil stocks would be rapidly depleted.

This meant that the German government’s fuel would have to come from abroad, and would need to be seized.

The Wehrmacht would capture its own oil supplies and deny them to the Red Army and British Empire:

Four days after the [June 1940] signing of the Franco-German Armistice the Office of the Four-Year Plan produced a “Petroleum Plan for Europe.” This plan foresaw a Continental oil deficit, exclusive of the requirements of Great Britain and Russia, of 18 500 000 tons a year. This deficit was to be met by 18 200 000 tons of oil from the Middle East. It is interesting that this plan made no allowance… for any consumption by Great Britain which was presumably envisaged as either standing in unconquerable isolation or as a vassal State no longer worthy of the benefits of oil.

This 1940 plan, drafted by Alfred Bentz, Göring’s plenipotentiary for petroleum, concluded: ‘To keep Europe supplied it is essential to secure the petroleum of the Middle East.’

German oil consumption

As it turned out, in 1941 the Luftwaffe consumed about 100 000 tons of oil per month, the Kriegsmarine about 100 000, and the army 200 000, for annual oil consumption of 4.8 million tons.

To meet these needs, in 1940 the Romanian oil interests of recently conquered French, Dutch and Belgian firms were acquired by German firms like Deutsche Bank, and Romanian exports were redirected to supply German industrial needs.

German shareholders had owned 0.2 percent of Romanian oil assets in 1939; by 1941 this figure reached 48 percent. One million tons of Romanian oil went to Germany in 1940 and 2 million in 1941 — by then, being distributed directly to the Wehrmacht on the eastern front.

Meanwhile ‘the effect of the German occupation,’ wrote Adam Tooze in his Wages of Destruction, ‘was to throw France back into an era before motorization. From the summer of 1940 France was reduced to a mere eight per cent of its pre-war supply of petrol.’

But this wasn’t nearly enough.

In October 1940 the Wehrmacht’s military-economic office reflected on its economic platform after the fall of Paris:

Current favourable raw-material situation (improved by stocks captured in enemy territory) will, in case of prolonged war and after consumption of existing stocks, re-emerge as bottleneck. From summer 1941 this is to be expected in case of fuel oil as well as industrial fats and oils.

Early in 1941, before the attack on the Soviet Union, the Wehrmacht’s chief of war economy Georg Thomas warned Göring that the German armed forces only had enough fuel for a few more months of operations:

It is crucial to seize quickly and exploit the Caucasus oilfields, at least the areas around Maykop and Grozny… If this is not successful, we must expect the most serious repercussions, with unpredictable consequences for military operations after 1 August and for the survival of the economy.

Göring replied that the oil resouces of Baku would soon be seized ‘at all costs.’ His notorious Green Folder, a June 1941 OKW directive setting out priorities for the Soviet operation, read:

To obtain the greatest possible quantity of food and crude oil for Germany – that is the main economic purpose of the campaign.

The same month, Thomas drafted a memo for Göring’s Economic Organization East:

The military leadership has again and again to be reminded that a campaign against Russia has largely economic motives and that in this campaign the demands of the economy must be taken into account more than is usually the case.

When winter fell early, Hitler instructed his armies to secure a position on the lower Don and Donets, and prepare for a spring offensive against the Caucasian oilfields.

Soviet Marshal Timoshenko, charged with protecting the latter, observed in late 1941: ‘The only thing that matters is oil… [We] have to do all we can (a) to make Germany increase her oil consumption and (b) to keep German armies out of the Caucasus.’

Meanwhile the Wehrmacht was attempting to seize the shipment ports and airfields of the Black Sea, to protect the Romanian oilfields on its western shore.

In Tehran in 1943, in one of his pithy wartime toasts, Stalin acknowledged that Moscow and its US and British allies were engaged in ‘a war of engines and octanes’.

In the preparation and conduct of this conflict, the supposedly private fixations of the German leadership – Hitler’s obsession with oil, which he shared with Churchill, Roosevelt and Stalin – was most propitious for German imperialism.

The interwar years had brought fragmentation of the capitalist world economy. The benevolent, positive-sum game of the Pax Britannica and the Gold Standard had broken apart into rivalrous autarkic blocs, each armed to the teeth and engaged in zero-sum competition for resources, colonial possessions and markets.

Then, as now, in any conflict between territorial states the winner would be the party that could mobilize the greatest volume of economic resources to squander on war: that could tax, requisition, procure, conscript or plunder the largest surplus from its domestic economy or external sources.

Raymond Goldsmith - WW2 munitions production

Mark Harrison - Military spending as proportion of national income

In this contest to expand war production, certain commodities, in particular oil, presented a strategic bottleneck for each contending power.

Petrol, lubricants and other oil products and distillates (POL) limited a state’s productive (and military) capacity since they were a necessary input for armament production, chemicals, transport and logistics, and military operations themselves.

A state that would advance its interests through extra-territorial aggression was therefore condemned to stalk the earth with heaving breast and slavering mouth, thirsty for oil, sequestering oil reserves from its rivals, and asserting control over supply routes.

That is why US president Roosevelt, in his April 1939 telegram to Hitler, had asked the German chancellor to ‘give assurance that your armed forces will not attack or invade the territory or possessions’ of several European states as well as ‘Turkey, Iraq, the Arabias, Syria, Palestine, Egypt and Iran.’

If Berlin would publicly commit to a ‘a minimum period of assured non-aggression – ten years at the least – a quarter of a century, if we dare look that far ahead’, then:

The Government of the United States would be prepared to take part in discussions looking towards the most practical manner of opening up avenues of international trade to the end that every nation of the earth may be enabled to buy and sell on equal terms in the world market as well as to possess assurance of obtaining the materials and products of peaceful economic life.

After 1945, Washington itself would successfully prise open the European colonial empires and, through the Atlantic Charter and Bretton Woods institutions, secure ‘equal access’ to raw materials.

In the past, once or twice I’ve mentioned Nazi Germany’s preoccupation with oil, and its central place in Hitler’s grand strategy and war aims.

But I suspect these little asides and brief allusions haven’t been very useful, since the topic is now familiar to few people.

Back in 1973, Martin Van Creveld could write that it was ‘fashionable’ to see oil as the chief motivation behind Germany’s Balkan campaign, as well as in North Africa and the Soviet East.

Who today retains this impression?

General historiography remains more fascinated than ever by the Innenpolitik of Nazi racial doctrine, the microhistory of ‘everyday life’ under Hitler, and, in the (mostly Anglophone) scholarly backwaters, the psychology of political leaders.

For Hans Mommsen, ‘the regime’s foreign policy ambitions were many and varied, without any clear aims’: merely the haphazard outcome of domestic contingencies.

Thus, for the most part, the striving for oil in Hitler’s Drang nach Osten is judiciously left to the narrow and specialized attention of military historians. The recognized scholarly monuments afford oil a passing mention, at most.

‘Left-wing’ histories, like Ernest Mandel’s The Meaning of the Second World War or Clement Leibovitz’s In Our Time: The Chamberlain-Hitler Deal, do little better.

Meanwhile, military historians writing for a popular audience (Antony Beevor’s Stalingrad or William Craig’s Enemy at the Gates) deliberately divorce their precise ‘soldier’s-eye view’ descriptions of famous battlefield ‘showdowns’ from any broader historical context, strategy, antecedents or consequences.

Thus the thirst for oil is absent from today’s conventional view of Hitler’s wars of aggression. Such an obvious elision of historical fact was not necessary until recently.

Robert L Baker 1942

Today, however, Washington is itself engaged in a full-scale drive to secure military control over the world’s energy installations, transport networks and sea lines of communication.

Once again, a desperate and predatory imperial power is trying to sweep through Iraq, Iran, the Caucasus, Central Asia and North Africa.

As this project has proceeded, it has been necessary to obliterate a prior stock of nationalist myths, wartime slogans, popular knowledge and historical interpretations, in order to sustain ‘the Allied victory over Nazi tyranny’ as an enduring ideological symbol supporting the institutions of US hegemony.

Even respectable, mainstream British historians of Nazi Germany have noted this deliberate cleansing of the historical record.

Thus Richard Overy observed, with reference to the US-led invasion of Iraq, how ‘popular ignorance about the nature of oil politics’ had been encouraged via the ‘view that oil is some kind of Marxist red herring’.

Yet, deplorably, such political confusion and historical ignorance has been spread with the help of several self-described Marxists, including the historian Robert Brenner and his epigones like Vivek Chibber.

These academics, linked to the group Solidarity, have derided as un-Marxist the idea that the 2003 invasion of Iraq was a ‘war for oil’:

With respect to neo-liberalization, the Bush offensive was, at best, beside the point, an unnecessary distraction. At worst, it could conceivably endanger the globalization project…

Because the Gore administration would have sought both to sustain the post-Cold War status quo and to further the neo-liberal offensive, it would almost certainly have confined itself to attacking Afghanistan, most likely via NATO, but eschewed a military campaign in Iraq. Against this background, the shift in US policy represented by the attack on Iraq was not even conceivable apart from 9/11…

Given the already achieved level of US geo-political hegemony — in the sense of legitimized dominance — there was so little to be gained in terms of standard US geopolitical and pro-capitalist goals, that the risk-adjusted cost — especially taking into account the multiple ways in which things could go disastrously wrong — ruled out any campaign to significantly revise the world political order.

[…]

Because the goals of the Bush administration are, in effect, so sweeping, they are not remotely capable of being put into practice. Because, in so far as they are practicable, they speak to such narrow interests, they are not easy to sell to the US elite as a whole (although it must be admitted that they command major support within the Republican Party, precisely because those interests are disproportionately represented there). In the end, in view of its meager foreign policy payoffs, how the program of these adventurers could achieve such a powerful grip upon the US state constitutes a real conundrum, from the standpoint of both theory and history.

[…]

The paradoxical conclusion of the foregoing analysis is that very broad sections of US capital support, or at least acquiesce in, a new, and breathtakingly ambitious, imperialist project that, in itself, speaks in no obvious way to their interests.

[…]

In terms of the premises that had underpinned US postwar foreign policy, there seemed little requirement, or motivation, for the sort of global campaign that the Bush administration has now unleashed.

Brenner again:

Is it really conceivable that world oil, today capitalism’s most globalized and profitable industry, would be subjected — in its production, pricing, distribution, and so forth — to government regulation by the most free-market, oil industry-dominated régime in American history? …

On the other hand, any attempt by the US to use control over the oil spigot as a geopolitical weapon, by withholding oil from an opponent to extract concessions, would be considered tantamount to war — as in World War II, when the US sought to close off the supply of oil to Japan. But if the US were willing essentially to declare war by preventing another nation from accessing Middle-East oil, there would be no need to invade the Middle East in order to do so. It could merely use its control of the air and the sea to interdict the flow from that region.

And, repeatedly, from the economist Cyrus Bina:

[Why] do people find it necessary to appeal to anachronistic and misleading phrases, such as “No Blood for Oil”? Would it not be better for the Left, and for the global peace-movement in general, to re-examine the meaning of their actions and slogans? Isn’t it worthwhile for the Left to study the stigma of commodity fetishism behind this phrase?

Such remarks bespeak a view in which imperialist war constitutes an unnecessary, regrettable and messy diversion from the ordinary, clean, peaceful business of capitalism.

Today such a view is even less sustainable than it was in 1938.

Credit where it’s due

September 8, 2013

Let’s recognize the bashful philosophers and coy Just War theorists at this, their hour of professional triumph. Pay no heed to their mortified glares and expressions of humility.

To be sure, Michael Walzer had already announced victory back in 2002:

The triumph of just war theory is clear enough: it is amazing how readily military spokesman during the Kosovo and Afghanistan wars used its categories, telling a causal story that justified the war and providing accounts of the battles that emphasized the restraints with which they were being fought.

‘Moral theory, said Walzer, ‘has been incorporated into war-making as a real constraint on when and how wars are fought.’ It was no longer merely a concern for clerics, jurists and professors, but of generals too. Just as the careful and delicate missile strikes of the first Gulf War had been an improvement on earlier bombardments of Korea and Vietnam, so NATO’s pummelling of the Balkans and Central Asia had granted ‘just war theory a place and standing that it never had before.’

Walzer – speaking at a New School conference alongside Richard Holbrooke, Michael Ignatieff, Samantha Power, David Rieff and Marty Peretz – denounced a ‘doctrine of radical suspicion’ that would ‘condemn and oppose’ any and all ‘American military actions.’ The role of the philosopher was not to carp and criticize from the sidelines, but was ‘internal to the business of war.’

Walzer therefore looked forward to Just War theory developing ‘a description of legitimate occupations, regime changes, and protectorates’.

Of course, the father of a scholarly sub-field is rarely a reliable guide to its future direction and preoccupations. But in 2002 little clairvoyance was needed to see that the war-legitimation business was about to expand.

Larry May Aggression and Crimes against Peace

Thus it has been a busy decade in the professional lives of Larry May, the guys and gals at the Centre for Applied Philosophy and Public Ethics, and all the under-appreciated thinkers tucked away in international relations departments at Anglophone universities, military academies, NGOs and policy think tanks around the globe.

These are the ‘little screws and bolts’ of Washington’s war drive.

These folks – they know who they are, even if you don’t – have helped to make it all possible, jurisprudentially and ideologically speaking. Preemptive strikes, ‘limited punitive actions’, the lot.

John Kerry’s big reveal, his statement laying out a casus belli for Syria, was strikingly desultory and underwhelming, even by recent standards. (‘I’m not asking you to take my word for it. Read for yourself, everyone, those listening, all of you, read for yourselves the evidence from thousands of sources, evidence that is already publicly available.’)

Essential for the State Department’s ‘credibility’, therefore, were the prior efforts of policy intellectuals straddling academia, journalism and the security state. Despite the implausibility of Kerry’s claims and the listlessness of his performance, respectable public opinion has long since adopted the view that power projection and military expeditions in the name of human rights and ‘international norms’ are, after all, a rather airy and vaporous business, in terms of actual legal constraints or even normative prohibitions.

For this we can thank the scholars of ‘global governance’. With official imprimatur and government funding, they have spent the past two decades undermining the prohibition on aggressive war that was codified in the Kellogg-Briand Pact, Nuremberg judgements and UN Charter.

Territorial sovereignty, these intellectuals have insisted – post-Desert Storm, post-Walzer – does not necessarily bind or impede the activity of other states. It is instead a conditional licence granted to lesser states by powerful ones – that is, by the ‘international community’.

Its transgression does not per se make a crime: its revocation may be warranted, at some moments, if Washington so desires.

Larry May (2008):

My view is that crimes of aggression are deserving of international prosecution when one State undermines the ability of another State to protect human rights [i.e. only under this particular condition].

This thesis runs against the grain of how aggression has been traditionally understood in international law.

Previously, it was common to say that aggression involved a State’s first strike against another State, where often what that meant was simply that one sovereign State had crossed the borders of another sovereign State. In this book I argue that the mere crossing of borders is not a sufficient normative rationale for prosecuting State leaders for the international crime of aggression.

At Nuremberg, charges of crimes against humanity were pursued only if the defendant also engaged in the crime of aggression. I now argue for a reversal of this position, contending that aggression charges should be pursued only if the defendant’s acts involved serious human rights violations. Indeed, I argue that aggression, as a crime, should be defined as not merely a first strike against another State but a first wrong that violates or undermines human rights.

If there are to be prosecutions for crimes against peace (or the crime of aggression) that are similar to prosecutions for crimes against humanity and war crimes, then there must be a similarly very serious violation that aggression constitutes. Mere assaulting of sovereignty does not have the same level of seriousness and is not as universally condemned as are the other crimes. For this reason, among others, I argue that aggression, as a crime, needs to be linked to serious human rights violations, not merely to violations of territorial integrity.

[…]

If a given State is not generally protecting human rights, it will be less clear that war waged against such a State is indeed best labeled aggressive and unjustified war. Indeed, if States systematically violate the basic human rights of their citizens, then those States have no right to insist that other States respect their sovereignty

[…]

Of course, there are States that have been massive violators of human rights, and wars waged to stop such States are not generally aggressive in my view.

[…]

What made the Nazi case stand out was the scale and viciousness with which it was fought, not that it was a case of aggression. So, the value of Nuremberg as a “precedent” for future trials of leaders for aggressive wars is here also unclear.

[…]

It is odd indeed to call the humanitarian actions of a State by the name “aggression” since that implies that there is some hostility behind the intervention. If the intervention is truly motivated by humanitarian concerns, then calling it aggression and therefore also hostile seems out of place.

It is also hard to see that humanitarian interventions constitute wrongs at all, let alone the most important of wrongs in the international arena, and hence we have reason to think that crossing State borders is not always wrong. Humanitarian intervention may indeed often be ill advised since anything that contributes to the horrors of war is to be avoided at nearly all costs. But if the motivation for the humanitarian intervention is to stop genocide, then the war may not be ill advised even though there is a serious risk of the major loss of civilian life that occurs in most wars. Here we might do some rudimentary utilitarian calculation to see that stopping genocide by means of a war could be justified.

Humanitarian wars can at least be prima facie defended in such circumstances as the genocide in Darfur. Such wars might be technically aggressive – at least, according to traditional doctrine – in that they involve invasion by one State against another State that is resisting rather than consenting to the invasion. Yet, since no “hostility” motivates the invading State and the international community in effect consents to allow the invasion, it seems as if the designation of aggression is the kind of technical characterization that doesn’t bear much normative weight. Aggression, as traditionally understood, is not itself a trigger of normative disapproval; some aggression, such as that form that stops worse aggression, could be a very good thing indeed, as theorists from the Just War tradition and contemporary international law have claimed. This is one reason I urged that we abandon the traditional way of understanding aggression.

Take that, Putin! Suck it, Pravda! Take a seat, Benjamin Ferencz and Sundus Shaker Saleh!

We might also take this moment to mention the Responsibility to Protect people, such as Power, except that they’ve already had their moment in the Saharan sun.

Distributional conflict and technical change in Australia, 1963-2009

September 3, 2013

For anyone hoping to understand Australian society, it’s essential to be acquainted with a few stylized facts about the Australian economy and its macro trajectory.

Throughout the past 50 years, mechanization (the adoption of more capital-intensive techniques through capital-using, labour-saving technical change) has increased the level of output per hour worked, more or less steadily.

But higher capital intensity hasn’t brought a proportionate increase in labour productivity. Especially over the last decade, capital deepening (the increase in capital used per employee) has proceeded more quickly than labour productivity has risen.

Capital-labour ratio - Australia

Labour productivity and capital productivity - Australia

The result has been that the output-capital ratio (i.e. net value added per dollar of fixed capital, which may be called ‘capital productivity’ in analogy to labour productivity) has fallen. Again, the last decade in particular has been notable in this respect.

output-capital ratio - Australia

One reason for this sustained decline is a long-term exhaustion of technical innovation in the capital goods sector, observed worldwide since the exceptional postwar boom petered out in the 1970s.

The decades of the mid-twentieth century were distinguished by a change in the composition of the fixed capital stock, occasioned by differential rates of productivity growth experienced by the various types of tangible capital goods. Marked technical advances during the 1930s and 1940s saw a relative decline in the cost of structures compared to machinery and equipment in the advanced capitalist core, and a substitution away from using structures and towards using equipment (metal products, electrical and non-electrical machinery, transport equipment, communication equipment, office machinery, and professional and scientific equipment).

Maddison capital stock

This adjustment within the capital stock was completed within a few decades. Since the 1970s, despite bursts of investment in software and IT equipment, no comparable sustained cheapening of fixed assets has occurred.

But, along with this real (i.e. physical, non-price) change, another factor in Australia’s falling output-capital ratio is nominal: the decline in Australia’s terms of trade and the exchange rate of the Australian dollar throughout much of this period. Australian firms import much of their machinery and equipment. Depreciation of the dollar during the 1980s and 1990s meant that the price of imported capital goods would have risen relative to Australian-produced goods.

It should be noted that the secularly declining profile of the output-capital ratio has been arrested or reversed during several periods of the above series (the mid-1980s and late 1990s).

Several causes account for this. The latter include the movement of capital into new, relatively labour-intensive lines of production (e.g. ‘service’ industries such as health and education), the growth of unproductive employment (e.g. in law, advertising and financial services), and the offshoring of production.

But since 2001 these haven’t been sufficient to prevent the output-capital ratio from falling.

This trajectory of the output-capital ratio is important since the gross profit rate is the product of two terms: capital productivity and the profit share of GDP.

What then of this second factor?

Australian real wages were stagnant for nearly two decades, throughout the 1980s and until the late 1990s, and again for much of the 2000s.

This interval was made possible by political changes to labour-market institutions (including the ALP-ACTU Prices and Incomes Accord and the dissolution of the ALP as a social-democratic or labourist party) and the replenishment of vast, under-utilized labour resources (e.g. collapse of the Soviet Union, rural migration in China, stagnant pools of petty producers in India, greater labour-force participation of women, vast immigration inflow).

Throughout this period, labour productivity rose more swiftly than real wages, reducing the wage share (i.e the share of net output captured by employees as wages and salaries) and raising the profit share.

wage share - Australia

This, together with the temporary rebound in the output-capital ratio allowed the profit rate to recover during the 1980s.

Ultimately, however, the increase in labour productivity hasn’t been sufficient to prevent the output-capital ratio from falling. The long-term impasse in capital productivity has once again, over the past decade, dragged down the profit rate.

Profit rate - Australia

These circumstances make it essential for Australia’s propertied classes and the policymaking elite that labour costs be reduced.

This imperative is what lies behind the assertion — repeated quietly but assiduously by senior Australian bureaucrats, policy advisors and politicians over the past year — that ‘national living standards’ must fall following the federal election this Saturday. (The project, of course, had already long commenced.)

Indeed, the entire drawn-out election campaign — with its various follies, diversionary sideshows, deliberate pollutions of popular opinion and officially foredained result — has been conducted to guarantee this result. The codeword, by which political leaders speak to elite audiences while evading public detection, is ‘productivity.’

Pursuit of this elite objective also helps explain the institutional renovation of the Australian state over the past two decades.

The latter includes strengthening of repressive organs, ‘anti-terror’ measures, mass incarceration at the whim of the executive of people innocent of any crime, and technocratic forms of policymaking.

As with the reconfiguration of the US state, these changes are designed to allow measures to be implemented against mass opposition.