The right man for the job

June 28, 2014 by

As Britain’s first postwar batch of Widmerpools rolled off the production line at King’s College, C.S. Lewis delivered the enterprising students a memorial lecture, known now as “The Inner Ring“:

It would be polite and charitable, and in view of your age reasonable too, to suppose that none of you is yet a scoundrel.

On the other hand, by the mere law of averages (I am saying nothing against free will) it is almost certain that at least two or three of you before you die will have become something very like scoundrels. There must be in this room the makings of at least that number of unscrupulous, treacherous, ruthless egotists.

The choice is still before you: and I hope you will not take my hard words about your possible future characters as a token of disrespect to your present characters.

Lewis went on to describe a scenario that each young catechumen in his audience should expect to face ‘in whatever hospital, inn of court, diocese, school, business, or college you arrive after going down’:

And the prophecy I make is this. To nine out of ten of you the choice which could lead to scoundrelism will come, when it does come, in no very dramatic colours. Obviously bad men, obviously threatening or bribing, will almost certainly not appear.

Over a drink, or a cup of coffee, disguised as triviality and sandwiched between two jokes, from the lips of a man, or woman, whom you have recently been getting to know rather better and whom you hope to know better still — just at the moment when you are most anxious not to appear crude, or naïf or a prig — the hint will come. It will be the hint of something which the public, the ignorant, romantic public, would never understand: something which even the outsiders in your own profession are apt to make a fuss about: but something, says your new friend, which “we”— and at the word “we” you try not to blush for mere pleasure — something “we always do.”

And you will be drawn in, if you are drawn in, not by desire for gain or ease, but simply because at that moment, when the cup was so near your lips, you cannot bear to be thrust back again into the cold outer world. It would be so terrible to see the other man’s face — that genial, confidential, delightfully sophisticated face — turn suddenly cold and contemptuous, to know that you had been tried for the Inner Ring and rejected.

And then, if you are drawn in, next week it will be something a little further from the rules, and next year something further still, but all in the jolliest, friendliest spirit.

It may end in a crash, a scandal, and penal servitude; it may end in millions, a peerage and giving the prizes at your old school. But you will be a scoundrel.

Lewis characteristically declared that the lure of the Inner Ring was a perennial one that dwelt within the heart of all men.

But it’s no accident that his examples of vaulting scoundrelism came from the managerial and liberal professions (academic, ecclesiastic, legal, medical).

After all, the latter’s exalted social position and wage premiums could be explained, according to one subsequent economic theory, by an insider-outsider model.

And, of course, in the service professions  accounting, law, financial services, medical practice  the prevalence back then of business partnership arrangements, now dwindling, nurtured a natural esprit de corps among partners and aspiring salaried associates.

No mundane sociological explanation would have appealed to Lewis, keen as ever to dispense solemnities.

Déformations professionnelles could not crudely be overplayed, as though only some occupations were open to beckoning solicitations from the market.

In 1944, moreover, yuppies were not yet a recognizable social type.

But there is little denying that social position provides some groups with more occasion than others for displaying his vice, i.e. places them more commonly in situations where they might have incentive to follow or indulge the lure of the Inner Ring.

Lewis thus refrained from observing, while nonetheless implying, that an inclination for ‘buying-in’, and related preferences, are fostered and cultivated by the university system. Its ceremonial rites, emblems and incantations form youthful preliminaries in an exclusive order’s sequence of social initiation, one with its own ‘slang, the use of particular nicknames, an allusive manner of conversation.’

In what manner is this done, and for what purpose?

Managerial and professional workers occupy that portion of the labour market known as the independent primary segment, where there are flexible work rules (autonomy from routines), little direct supervision, higher earnings, motivational alignment with employer goals through internalization and independent initiative, well-defined career ladders (internal labour markets with clear promotional paths), secure tenure, agreeable job amenities and low turnover.

These prebends and perquisites announce, for the upper salaried layers that enjoy them, a rather different method of enforcing the employment contract than is applied to the less tractable bas-fonds.

Suppose the administrative hierarchy of a business enterprise is organized according to the familiar pyramidal structure.

The firm’s shareholders (through the board of directors) appoint senior executives. The latter in turn delegate much of their managerial authority to a lower level of division heads, etc. The job of these managers involves overseeing and supervising those subordinates at the bottom level (productive workers) to whom they must apply extrinsic motivators (sanctions and rewards).

Managers thus directly oversee the behaviour of employees, issuing directives or commands that the latter are compelled to obey. Or they may alter the technical conditions of production (e.g. by introducing machines, networked computers or an assembly line).

In this way employees’ routines are prescribed, their range of possible actions is constrained and performance of certain tasks is ‘automatically’ elicited, they cannot shirk, are constantly spurred to work at pace, and so on. The most powerful of all straitening mechanisms is the threat of unemployment.

Consider Herbert Simon’s model of the ’employment relationship.’ By hiring out his capacity to work, the employee agrees to surrender, for a specified period, disposition over his labour.

The employee must carry out the commands of the employer or managerial agent:

We will say that [the boss] exercises authority over W [the worker] if W permits B to select x [a ‘behaviour,’ i.e., any element of a set of ‘specific actions that W performs on the job (typing and filing certain letters, laying bricks, or what not)’].

That is, W accepts B‘s authority when his behaviour is determined by B’s decision.

In general, W will accept authority only if x0, the x chosen by B, is restricted to some given subset (W’s “area of acceptance”) of all the possible values.

This is the definition of authority that is most generally employed in modem administrative theory.

At higher levels of the enterprise or organization, these formal relations of hierarchy and vertical subordination, and the threat of unemployment, are less important.

Instead, independent decision-making and personal initiative are relied upon.

Yet this poses agency problems.

How is it, asked Simon, that executives and managers are trusted to do something for which they could be expected to have no intrinsic motivation, expending energy in pursuit of some goal that isn’t, initially or by inclination, their own, but that is functional and thus desirable for some group or organization?

Counted by the head, most of the actors in a modern economy are employees, who… are assumed to trade as agents of the firm rather than in their own interest, which might be quite different…

This raises several questions, among them ‘how the employees of a firm are motivated to work for the maximization of the firm’s profit’:

What’s in it for them? How are their utility functions reconciled with those of the firm?… Why do employees often work hard?… In particular, how are employees induced to work more than minimally, and perhaps even with initiative and enthusiasm? Why should employees attempt to maximize the profits of the firm when making the decisions that are delegated to them?…

[Most] producers are employees of firms, not owners. Viewed from the vantage point of classical theory, they have no reason to maximize the profits of firms, except to the extent that they can be controlled by owners…

Employees, especially but not exclusively at managerial and executive levels, are responsible not only for evaluating alternatives and choosing among them but also for recognizing the need for decisions, putting them on the agenda…

To be docile is to be tractable, manageable, and above all, teachable. Docile people tend to adapt their behaviour to norms and pressure of the society… In some contexts, this responsiveness implies motivation to learn or imitate; in other contexts, willingness to obey or conform.


Docility is used to inculcate individuals with organizational pride and loyalty. These motives are based upon a discrimination between a “we” and a “they.” Identification with the “we,” which may be a family, a company, a city, a nation, or the local baseball team, allows individuals to experience satisfaction (to gain utility) from successes of the unit thus selected. Thus, organizational identification becomes a motivation for employees to work actively for organizational goals.

Of course, identification is not an exclusive source of motivation; it exists side by side with material rewards and enforcement mechanisms that are part of the employment contract. But a realistic picture of how organizations operate must include the importance of identification in the motivations of employees.

Simon’s ‘docility’ here invested with all the dignity of management theory  is a set of attitudinal traits or behavioural dispositions closely resembling those decried by Lewis as ‘the passion for the Inner Ring… most skillful in making a man who is not yet a very bad man do very bad things.’

In Simon’s terms, it involves adding an increasing number of arguments (or independent variables) to the employee’s utility function.

The ideal manager, and the well-socialized scoundrel too, take ever more matters into account as relevant to their personal happiness: responding with sensitivity to external motivators (rewards, sanctions), plus augmenting their own intrinsic wishes with the firm’s objectives (‘organizational identification’).

Put otherwise, and no less neutrally, there is multiplication of what an Epicurean would consider false wants: a proliferation, to the benefit of the employer, of non-necessary, non-basic, if not vain and empty desires.

Simon extols this propensity as being ‘teachable’, not to say impressionable: being susceptible of instruction and prone to aping others. What role does formal instruction play in its development?

Cultivation of these traits through formal education is less a matter of ‘explicit curriculum [than of] the socialization implied by the structure of schooling’. Students rewarded with success are those who display approbativeness, obedience to authority, willingness to join existing research programmes, etc.

Evidence shows that individuals with higher levels of educational attainment (measured by university credentials or years of study) fetch better rewards in the labour market (greater earnings plus occupational status, promotional advancements, etc.).

Investing in additional years of schooling or higher education does accrue a return.

Jacobsen and Skillman - Labour Market and Employment Relationship

Heckman education

But are productive skills (specialized or technical knowledge, or cognitive aptitude measured by IQ or test scores) the main attributes that employers look for and which help to determine labour-market success, and for which a diploma is proxy?

Not according to James Heckman, University of Chicago econometrician, who points out the importance of what he calls non-cognitive, socio-emotional or ‘soft skills’.

The latter include personality traits, attitudes or behavioural dispositions such as prudence, diligence, conscientiousness, patience, perseverance, attention, obedience, motivation, punctuality, agreeableness, self-confidence, sense of personal efficacy, identification with the objectives of others, etc.

Possession of such traits may involve a reduction in the disutility of effort (‘strong work ethic’), greater degree of subservience to managerial authority (‘willingness to follow direction’), increase in the desirability of retaining a job (non-myopic time preference, ‘orientation towards the future’), or high marginal utility of income (‘ambition’).

Beneath the benevolent sheen of doux-commerce, the lesson learnt is how to mind other people’s business for them. Unyielding garde-fou against unruly elements below; pliant custodian to those above.

In the world’s advanced economies, as I’ve mentioned before, a substantial slice of the population (lawyers, public administrators, providers of business and financial ‘services’, real estate, advertising, insurance, managers and supervisors, security guards, etc.) are engaged in activities that, while unproductive themselves, sustain and preserve the existing social structure: enforcing contracts (e.g. the employment relationship) and upholding claims to wealth (i.e. property rights).

US Standard Industrial Classification - productive and unproductive industries

US Standard Industrial Classification - unproductive and productive services

For the private appropriation of social resources isn’t secured merely by the efforts of the propertied classes themselves.

It demands, as described in this New York Times article, a vast technology of extraction (locks, alarms, cameras, weapons, deeds registry) and an army of functionaries (foremen, supervisors, judicial apparatus, asset brokers, commercial lawyers, conveyancers, bankers).

The latter’s size as a proportion of the workforce has grown spectacularly over the past century (in the United States, lawyers per head of population more than doubled between 1950 and 2013; supervisors now make up around 18% of the labour force).

The duty of this contingent, taken as one, is to enforce titles to wealth, transfer holdings between agents, and uphold the various social relationships (employment, independent contracting, credit relationships, etc.) deriving from this distribution of resources.

Jayadev and Bowles - Guard Labor JDE

This social layer, spanning the middle and working classes, thus receives its income and privileges neither as payment in exchange for productive employment, nor as reward for private ownership of assets.

Instead these upper-salaried workers, whose occupations involve preserving the existing distribution of property, capture part of the surplus extracted from other employees (those who perform productive work).

This sharing of the spoils occurs in a variety of ways: artificial shortages of certain skills, sustained through high training costs or guild-created barriers to entry, which raise the rewards fetched by their holders; the granting of sinecures; patronage and clientelism; rent-seeking at the public trough, etc.

In recent decades, the wages paid to supervisory workers have absorbed an increasing proportion of society’s surplus product (net output minus compensation paid to productive employees).

The increase in the rate of surplus value from 1982 to 2001 financed… a change in the weight of supervisory workers (share of employment down by 3.8%, share of hours down by 5.2%, share of wages up by 19.6%).

Thus, almost all of the increase in the rate of exploitation found its way into the labour income of supervisory workers…

Production workers in productive sectors (productive labour) saw a collapse in their relative wage share of some 14.6 percentage points. Just over a third of this shift in share accrued to supervisory workers in productive sectors, and just under two-thirds to supervisory workers in unproductive sectors.

Supervisory workers in productive sectors (a stable proportion of 11–12% of total employment) saw their share of total wages rise by almost a quarter, to 28% of all wages.

Supervisory workers in unproductive sectors increased their share of FTEs [full-time employees] by more than half, albeit from a low base, so that they were still less than 7% of total employment by 2000. However, they more than doubled their wage share to nearly a fifth of all wages.

Most of these increases occurred after 1979…

[For] supervisory workers, annual hourly real wage growth after 1979 is more than half as much again as in the earlier period, and more than 27 times higher than the concurrent annual hourly real wage growth of productive workers…

The growing extraction of surplus value out of productive labour, which is so marked a feature of the US economy after 1979, was appropriated not as corporate profits, but primarily as the labour incomes of supervisory workers.

Full-time employees and wages - productive, unproductive and supervisory workers

What does this imply for our starting point, now seeming more than ever like antediluvian piety?

Lewis’s portrait of middle-class status-seeking, collusion and misfeasance was never exactly politically trenchant. Nor, to be fair, was it intended to be so.

Now smelling mustily of an antiquated commercial society of dense professional networks and family firms, long since past, it needs updating for a postwar capitalism in which, among other changes, most professionals no longer earn partnership income in jointly-owned enterprises, but are salaried employees of corporate bureaucracies. (Meanwhile, deepening the opacity of class positions, capital owners, for tax purposes, increasingly rebadge their dividends and interest revenue as partnership income).

Are not weak interpersonal ties, rather than gentleman’s clubs, more crucial for professional success and recruitment to the social elite?

To postmodern eyes, Lewis’s vision of the Inner Ring may thus appear hackneyed and lurid.

To induce individuals to corruption, professional misconduct or a drop in personal standards of probity, there need not be any conspiracy devised in a smoky boardroom, basement auditorium, wood-panelled Cabinet or party room. There need not be any direct application of pressure, explicit coercion, controlling intelligence or indeed any awareness at the managerial heights.

For example, institutions may simply be designed to reward conformity, the dynamics of which are well known. The psychological mechanisms generating group loyalty via hazing rituals are also understood. Competition for some scarce prize, such as a promotion or bonus, may provoke an escalating arms race, war of attrition or ascending-bid auction of boundary-pushing and rule-bending.

Meanwhile the enormous post-1945 expansion of access to university education, and growth of the new media industries and advertising with their plebianization of culture as entertainment, flattening of the fine-arts hierarchy, and recruitment of a vast new literate and educated public for intellectual products — seem most sharply to divide Lewis’s age from our own.

In fact, however, such developments merely furnish a mass market for that commercially available ‘lifestyle’ (on the bookshelf, prize-winning middlebrow novels left over from college; in the lounge room, relics from the arthouse festival circuit of ‘world cinema’) by which the middle classes hope to distinguish themselves.

Photography and architecture conveniently replace easel painting and belles-lettres in the aesthetic hierarchy, as more outwardly visible, and readily brandished, displays of discernment.

Today’s consumers are increasingly encouraged  through ‘versioning’product differentiation and ‘group pricing’ to sort themselves into differentiated market segments and fine-grained niches based on personal attributes, spurious distinctions in taste, and willingness to pay.

Firms selling information goods attempt to build ‘networks’ or subcultures from which they can extract monopoly rents (e.g. locked-in dedicated Apple users).

Thus, for all that, today’s professionals and managers understand and revel in their wage premiums, and build exclusive claustral enclaves, in much the same fashion as Lewis described in the ‘Inner Ring’.

Boundaries of in-group membership are patrolled, and entrants self-congratulated, by display of positional goods: informal shibboleths, esoteric knowledge and badges of (putative) cultural sophistication.

Fredric Jameson describes, in rather frenzied, overwrought period fashion, how ‘yuppies can find some satisfaction in sheer know-how’:

[It] is no longer exactly profit as such that forms the ideal image of the process (money is merely the external sign of inward election, but fortune and “great wealth” are harder to represent, let alone libidinally to conceptualize, in an epoch in which numbers like billions and trillions are more frequently encountered).

Rather, what is at stake is know-how and knowledge of the system itself: and this is no doubt the “moment of truth” in postindustrial theories of the new primacy of scientific knowledge over profit and production; only the knowledge is not particularly scientific, and “merely” involves initiation into the way the system functions.

But now those in the know are too proud of their lesson and their know-how to tolerate any questions about why it should be like that, or even worth knowing in the first place. This is the insider cultural capital of the nouveaux riches which includes the etiquette and table manners of the system; along with cautionary anecdotes, your enthusiasm — fanned into a veritable frenzy in cultural spinoffs like the cyberpunk corporate fiction already mentioned  has more to do with having the knowledge of the system than it does with the system itself.

The social climbing of the new yuppie in-group knowledge now spreads slowly downward, via the media, to the very zoning boundaries of the underclasses themselves; legitimacy, the legitimation of this particular social order, being secured in advance by a belief in the secrets of the corporate life-style that includes the profit motive as its unspoken “absolute presupposition,” but which you can’t learn and question all at once, any more than you can mentally redesign a sailboat you are doing your first sailing in.

Gratified by journalistic talk about ‘skill-biased technical change,’ members of the liberal professions (certified academics, architects, lawyers, accountants, etc.), together with civil servants and other members of the skilled professional salariat, imagine that the income premium they command, and other privileges, are due to their ‘different genius’ (as in Adam Smith’s parable of the philosopher and the street porter).

Their relatively high earnings (compared to the wages and salaries earned by employees generally) are understood as a just reward for talent.

According to the prevailing economic ideology, the level of payment they fetch in the labour market (or receive as proprietorship or partnership income) is set by the worth of what they contribute as an input to production.

The latter capacity is held to derive either from intrinsic characteristics of the person themselves (superior cognitive skills), or from a provident and well-calculated investment of time and effort in education: foregoing earnings for several years of additional study, bestowing upon them a stock of human capital.

These qualities (so it is believed) also manifest themselves in good taste and discernment in consumption, e.g. the best food, clothes,  furnishings, décor, cultural products, tourist destinations, etc.

Products marketed at this audience thus often contain deliberate signs of ‘quality’, difficulty and seriousness. These are a kind of screening device: consumption of such products is a reliable signal of the consumer’s underlying ‘type’, since it requires a costly investment (e.g. of effort, time or money spent acquiring the taste, knowledge or capacity for appreciation) that most cannot afford (due to lack either of resources or motivation).

Through these products, consumers can thus signal their correct thoughts, depth, sophistication, possession of good taste, and status as a Serious Person.

product differentiation

Long ago, Adam Smith gave expression to this middle-class self-regard, describing the mental atrophy induced by ‘the employment of the far greater part of those who live by labour, that is, of the great body of the people’:

[The] understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging…

In our fallen present, amid the market populism and aesthetic dreck of late capitalism, such reproaches to the demotic have lost their sting.

They bear little meaning for middle classes whose members are themselves, for the most part, now collected into paid employment, barracked inside grotesque office towers, and culturally as far as anyone from the Bildungsbürgertum of old.

Of course, similar consolations are available to those of more modest means, such as office clerks and other predominantly young employees, for whom educational qualifications are necessary, but whose material position and social standing is tenuous, and for which symbolic esteem serves as a surrogate.

Those lacking the purchasing power for true luxury consumption (yachts, antiques, jewellery, fine art) may yet, as compensation, use private consumption choices and leisure activities to flaunt credentials, intelligence and adherence to in-group norms (in the manner satirized by Stuff White People Like).

Outside the true citadels of social power, however, today snobbery and hauteur accompany, as a marketing device, the horizontal distinction of consumer niches, rather than pointing to any vertical differential of standards, now much diluted.

The chubby pimpernel

May 31, 2014 by

Charles Ryder, both eager to preserve order and hankering for a street skirmish, skips back across the Channel in Evelyn Waugh’s Brideshead Revisited:

I returned to London in the spring of 1926 for the General Strike.

It was the topic of Paris. The French, exultant as always at the discomfiture of their former friends, and transposing into their own precise terms our mistier notions from across the Channel, foretold revolution and civil war.

Every evening the kiosks displayed texts of doom, and, in the cafés, acquaintances greeted one half derisively with: ‘Ha, my friend, you are better off here than at home, are you not?’ until I and several friends in circumstances like my own came seriously to believe that our country was in danger and that our duty lay there.

We were joined by a Belgian Futurist, who lived under the, I think, assumed name of Jean de Brissac la Motte, and claimed the right to bear arms in any battle anywhere against the lower classes.

We crossed together, in a high-spirited, male party, expecting to find unfolding before us at Dover the history so often repeated of late, with so few variations, from all parts of Europe, that I, at any rate, had formed in my mind a clear, composite picture of ‘Revolution’  the red flag on the post office, the overturned tram, the drunken N.C.O.s, the gaol open and gangs of released criminals prowling the streets, the train from the capital that did not arrive.

One had read it in the papers, seen it in the films, heard it at café tables again and again for six or seven years now, till it had become part of one’s experience, at second hand, like the mud of Flanders and the flies of Mesopotamia.

Then we landed and met the old routine of the customs-shed, the punctual boat-train, the porters lining the platform at Victoria and converging on the first-class carriages; the long line of waiting taxis.

‘We’ll separate,’ we said, and see what’s happening. We’ll meet and compare notes at dinner,’ but we knew already in our hearts that nothing was happening; nothing, at any rate, which needed our presence…

He collides fortuitously with his old chum Mulcaster, who already has enrolled with the defenders of property, but whose paramilitary urges remain equally unsatisfied:

We dined that night at the Café Royal. There things were a little more warlike, for the Café was full of undergraduates who had come down for ‘National Service’.

One group, from Cambridge, had that afternoon signed on to run messages for Transport House, and their table backed on another group’s, who were enrolled as special constables. Now and then one or other party would shout provocatively over the shoulder, but it is hard to come into serious conflict back to back, and the affair ended with their giving each other tall glasses of lager beer.

‘You should have been in Budapest when Horthy marched in’ said Jean. ‘That was politics.’


We went to a number of night clubs. In two years Mulcaster seemed to have attained his simple ambition of being known and liked in such places. At the last of them he and I were kindled by a great flame of patriotism.

‘You and I ‘ he said, ‘were too young to fight in the war. Other chaps fought, millions of them dead. Not us. We’ll show them. We’ll show the dead chaps we can fight, too.’

‘That’s why I’m here,’ I said. ‘Come from overseas, rallying to old country in hour of need.’

‘Like Australians.’

‘Like the poor dead Australians.’

Boy Mulcaster (Jeremy Sinden)

We were sitting round after luncheon that day when Bill Meadows came back from the telephone in high spirits.

‘Come on,’ he said. ‘There’s a perfectly good battle in the Commercial Road.’

We drove at great speed and arrived to find a steel hawser stretched between lamp posts, an overturned truck and a policeman, alone on the pavement, being kicked by half a dozen youths. On either side of this centre of disturbance, and at a little distance from it, two opposing parties had formed.

Near us, as we disembarked, a second policeman was sitting on the pavement, dazed, with his head in his hands and blood running through his fingres; two or three sympathizers were standing over him; on the other side of the hawser was a hostile knot of young dockers.

We charged in cheerfully, relieved the policeman, and were just falling upon the main body of the enemy when we came into collision with a party of local clergy and town councillors who arrived simultaneously by another route to try persuasion. They were our only victims, for just as they went down there was a cry of ‘Look out. The coppers,’ and a lorry-load of police drew up in our rear.

The crowd broke and disappeared. We picked up the peace-makers (only one of whom was seriously hurt), patrolled some of the side streets looking for trouble and finding none, and at length returned to Bratt’s.

Next day the General Strike was called off and the country everywhere, except in the coal fields, returned to normal. It was as though a beast long fabled for its ferocity had emerged for an hour, scented danger, and slunk back to its lair. It had not been worth leaving Paris.

Jean, who joined another company, had a pot of ferns dropped on his head by an elderly widow in Camden Town and was in hospital for a week.

Counter-revolutionaries thwarted by the absence of revolution; heroic ambitions frustrated, and reduced to play-acting, by the sedate doddering of British Labourism: it is a droll picture. (This blog has described the historical context of British society in the interwar years, and aspects of the political situation in Europe during the 1920s.)

But the scene is less farcical, and the players politically sharper, than the official anti-austerity ‘opposition’ mustered today against Mulcaster’s boyish lookalike, the Australian Treasurer Joe Hockey.

Such opposition has, for now and in the manner predicted, been successfully ushered, to the advantage of political stability, into unthreatening and expedient channels. In thrall to Labor and the Greens, faithful to the trade unions: la gauche respectueuse backed by tidy street demonstration.

One feature of this landscape is the extraordinary burst of publicity given lately by Australia’s mainstream media to Socialist Alternative, a tiny organization itself well versed in street theatre.

Dispatches from the Grand Hotel Abyss: the Frankfurt School comes to Morningside Heights

April 22, 2014 by

Christina Stead has had the peculiar fortune among twentieth-century Australian novelists to have enjoyed, at last count, three revivals of critical attention, reissued or newly collected works, and renewed fashionability.

The most recent bubble (they have taken place roughly two decades apart) yielded a biography and publication of Stead’s letters to her husband, William Blake.

Despite the biography’s concessions to contemporary ideological fashion, these letters remind us that all the leading figures in the Australian literary efflorescence of the 1930s (Eleanor Dark, Xavier Herbert, Katherine Susannah Prichard, Jack Lindsay, Dame Mary Gilmore, Vance and Nettie Palmer and their daughters, etc.) were Communist Party members or fellow-travellers of Stalinism.

Stead’s close friendship with the economist Henryk Grossmann features heavily.

‘I had better become a bit more intelligent before my Escort turns up next,’ she joked to Blake about Grossmann in April 1942:

I wonder at my temerity (in private) in going out cheerfully with the world’s leading Marxist, etc. but my Australian brass comes to my aid.

Stead had arrived in New York in 1937 to promote House of All Nations.

She stayed there until 1942, writing The Man Who Loved Children, joining the League of American Writers and describing herself as ‘a good Stalinist’.

Her social circle in wartime New York also included Mike Gold, whom she called a ‘perverse, deep, vain and self-interested man’ who ‘gives speeches without shame, when he has prepared nothing, for the sake of the money.’

Letters Christina Stead and William J Blake

Grossmann likewise spent the years 1937-1947 as an émigré scholar in New York.

Working in solitude  having been spurned by his old Frankfurt School milieu  he was desperate for company, intellectual stimulation and a rapprochement with Stalinist circles.

Stead sought his tutelage, hoping he might provide a fictional model for a character of the revolutionary ‘type’ (Lukács’s concept of novelistic types was then in the air).

She found to her disappointment that ‘psychology does not occur to him at all. He does not think psychologically and what he said was utterly useless.’

Grossmann eventually served as a fictional model for her Jan Kalojan (or Callowjan) in her short story ‘The Azhdanov Tailors.’

When after the war Grossmann accepted a teaching position in the DDR, Blake sought his patronage to win himself an academic place at the University of Leipzig.

In 1950 the US citizen travelled to the DDR, and enthused to Stead of the life they might enjoy under bureaucratic rule:

Like Henryk I was a nobody in America relatively, here I am a Marxian writer, which in Leipzig is the highest honour in the world apart from that of the directors of party policy and actual high administration.


He lives beautifully, really like a prince. So would we. He lives in a rococo palatial apartment house opposite a beautiful house…

Sadly Blake found Grossmann in hospital, dying of prostate cancer.

Christina Stead NLA

Stead’s letters regarding Grossmann provide a useful resource about Grossmann’s banishment from the Institute for Social Research, located then in New York.

Grossmann’s complaints of ‘sabotage’, related by Stead, show how the personnel and research program of the Frankfurt School, where Grossmann had worked in the 1920s and 1930s, were evolving into their familiar postwar configuration, in which he was no longer welcome.

By purging politically suspect figures like Grossmann, Max Horkheimer established a coherent ‘Frankfurt School’ research program based around himself and T.W. Adorno.

‘Critical Theory’ would be made academically respectable and salonfähig in time for the Cold War and German economic miracle.

Henceforth the Frankfurt School, shorn of any perilous links to classical Marxism, would rival Paris as the intellectual capital of Western Marxism.

While Grossmann lay on his deathbed in Leipzig, Adorno was making a triumphant return to Adenauer’s Federal Republic, where Horkheimer had been appointed rector of the University of Frankfurt.

As Perry Anderson described in Consderations on Western Marxism, the postwar Frankfurt School would be ‘officially feted and patronized’ in what remained ‘the most reactionary major capitalist country in Europe’.

Henryk Grossmann

In The Dialectical Imagination, his history of the Frankfurt School to 1950, Martin Jay wrote how Grossmann’s relationship with the Institute became ‘scarcely more than a formal one’ during the 1930s, leading to a ‘complete break’ during the Second World War:

An enormously learned man with a prodigious knowledge of economic history, Grossmann is remembered by many who knew him as the embodiment of the Central European academic: proper, meticulous, and gentlemanly.

He had, however, absorbed his Marxism in the years when Engels’s and Kautsky’s monistic materialistic views prevailed. He remained firmly committed to this interpretation and thus largely unsympathetic to the dialectical, neo-Hegelian materialism of the younger Institut [for Social Research] members. 


More orthodox Marxists within the Institut, such as the economist Henryk Grossmann, were always criticized for their overemphasis on the material substructure of society…


Grossmann’s ideological inflexibility prevented him from having much impact on the Institut’s analysis of Nazism, or on much else in its work for that matter.

Grossmann was author of The Law of Accumulation and the Breakdown of the Capitalist System (1929), a former member of the Polish Communist Party and, before then, secretary of the Galician Bundists.

Unwelcome in Pilsudski’s Poland from 1926, he had become a researcher at the Institute for Social Research, an organization whose charter announced its dedication to the ‘history of socialism and the labour movement.’

The Institute was attached to the University of Frankfurt. Independent of the latter, it was directly answerable to the local Ministry of Culture, which appointed the Institute’s director.

The first director, Carl Grünberg, was an economist and Austro-Marxist, and Grossmann’s supervisor. (Jay later derided his ‘rather undialectical, mechanistic Marxism in the Engels-Kautsky tradition’, and his ‘inductive epistemology… a tone very different from that set after Horkheimer replaced him as director.’)

In June 1924 Grünberg had launched the Institute with the following words:

[In] contrast with the pessimists, there are the optimists.

They neither believe in the collapse of Western culture or of culture in general, nor do they alarm themselves or others with any such prospect. Supported by historical experience, they see, instead of a decaying form of culture, another, more highly developed one approaching. They are confident: magnus ab integro saeculorum nascitur ordo, a new order is being born out of the fullness of time.

And for their part they consciously demand that what is outmoded should stand aside in favour of what is emerging, in order to bring it more speedily to maturity.

Many people, whose numbers and influence are constantly growing, do not merely believe, wish and hope but are firmly, scientifically convinced that the emerging order will be a socialist one, that we are in the midst of the transition from capitalism to socialism and are advancing towards the latter with gathering speed.

According to Rolf Wiggershaus’s history of the Frankfurt School, its founder’s ‘heartfelt wish was… to create a foundation similar to the Marx-Engels Institute in Moscow, equipped with a staff of professors and students, with libraries and archives and one day to present it to a German Soviet Republic.’

Institut group photo

Just a few short years after the aborted Communist insurrection, the Institute’s academics, most of them KPD or Social-Democrat members, were naturally monitored by the Weimar authorities.

In 1926 the Frankfurt Chief of Police confirmed that Grossmann had ‘not actually drawn any attention to himself politically’. He safely ascended to an economics professorship in 1930.

Meanwhile Grünberg’s successor, Max Horkheimer, was appointed director of the Institute in 1930, despite looser ties and lesser academic standing than Grossmann and other members. The Ministry of Culture, it was felt, would deem him less ‘politically suspect’ than these others, and his appointment would be ‘easier to push through’.

Horkheimer, a mediocre scholar, was ‘more trustworthy to his university colleagues’:

With no hope of attaining a professorship in the normal way, Horkheimer was pushing for the post of director, which brought with it the prospect of an accelerated academic career.

In 1931, the Institute ceased to issue the Archives for the History of Socialism and the Workers Movement; its new review was more innocentlv entitled The Journal of Social Research.

To a correspondent, Horkheimer straightforwardly declared himself ‘not interested’ in the traditional topics of socialism, economics or history. Rather, his ambitions lay ‘in a sociological theory appropriate to the society of those years and in the research that would be helpful for this task.’ Those seeking the substance in this vacuous formula were directed to Horkheimer’s inaugural address.

If intended as an accommodating signal of complaisance, this re-badging was of little avail by the early 1930s. Fascist ascendancy soon forced a scattering abroad.

In 1937 Grossmann was invited to New York by Horkheimer, director of an Institute now transplanted to premises on West 117th Street owned by Columbia University.

Like the Institute’s other designated ‘communist’, Karl Wittfogel, Grossmann was also excluded from the ‘Horkheimer circle.’ Without an office, Grossmann worked from home.

Five years into his stay, Horkheimer terminated the Institute’s relationship with Grossmann and trimmed other scholarly personnel from the payroll. In 1941 Grossmann’s work on economic dynamics, Marx and the classical political economists was not published under its auspices.

Grossmann decried all this as ‘sabotage’, and like Erich Fromm threatened to sue the Institute for breach of contract.

Columbia building

Stead’s letters shed some light on these grubby events, which are of broader interest.

Horkheimer’s renovation of the Frankfurt School certainly involved thwarted ambition, baronial intrigue and petty envy. But its consequences were neither trivial nor limited to the direct participants.

The program was one of lustration, with the conditions of exile allowing, ahead of time, the purifying cleanse of postwar liberation.

The churn of staff allowed the director, who boasted of his ‘dictatorship’, to remove those antiquated fogies whose ‘overemphasis on the material substructure of society’ clashed with his favoured research agenda.

As Jay’s history declares openly, what Horkheimer sought to displace from the Institute was a particularly musty, hidebound central European ‘tradition’, traceable to Engels and Kautsky: the ‘relative orthodoxy of the Institut’s Marxism’,  still dimly alive in figures like the Galician Jew Grossmann, ‘the embodiment of the Central European academic.’

The regional, ethnic and generational nature of this turnover in personnel was no accident.

Initially Stead’s letters present the ‘gallant Cracovian’ Grossmann as a pitiable figure, if ‘highly presentable and entertaining’: ‘desperately lonely’, ‘crazy as a bedbug’, a ‘a splendid fellow, though quite a trial as a conversationalist’, ‘a marvellous fellow when he is not in one of his black or silly moods.’

Grossman was covetous of her time (‘I’ve noticed before with the Gallant, that although he may appear to give you a choice or choices, it always veers around in no time to his choice: pertinacious elf.’).

He moaned often to her of his deliberate mistreatment at the hands of Horkheimer and Adorno, and was bewildered by US society (‘All old people, went to bed 9 o’clock, lights out, finally he said, Isn’t there a café here [poor European!] and they said, Yes and showed him. A milk bar. Poor European’).

In 1942 Stead wrote to Blake in San Francisco regarding Grossmann:

He is very lonely. He talked about himself all the time, his past, his successes in Europe, what everyone said about him – what the newspapers said, praise from adversaries, etc. etc. – what is that (in a man of Grossmann’s mind) but utter loneliness!

They do not like him in the Institute – he has a contract with them and if they did not pay him he “would make them a law” [Stead’s rendition of Grossmann’s clumsy English] – but they say he is “genial but they sabotage, they compliment him, we all know Dr. Grossmann and at first he was too stupid, but now he sees it was only to sabotage.” (sabatayge) They want to cut down his work, take out all the parts that are really Grossmann and would make him stand out above them.

Then he sets out to explain Akkumulations-Theorie to muh! Let me tell you one thing – in his atrocious English he makes himself clear and interesting. He is a born expositor and teacher. He regrets most his “workshop”; all the brilliant young men he taught now scattered – where are they – he had letters from Yapan – now at war – a world scattered – what a world for a scholar says he.

And I see it as he speaks – he is tired, I think. It breaks his heart that after all his work in Europe, known and admired by enemies even, that no one even knows he exists here…

Poor lonely scholar. Isn’t it pathetic? I am quite sure that if you would work with him in S.F. he would go there at once – and that is positively all he has in mind.

He is getting rather bowed; very much so, in fact. He reads books about seven hours a day, and works in the evening too.

He is studying – well, he told me all about his work and he made it interesting, which I consider very smart, for it was all about Descartes, his mechanical view of the universe, quite new and revolutionary for the time; and now he is studying all the algebra that every was and mathematical economics – and the question of why the machines didn’t develop before, for it was invented long before – the Greeks had machines but only for toys, and in the fourteenth century they invented the bobbin, etc. but never used it. Why didn’t they need the machine in Greek times? Slave labour, unemployment, due to robbery abroad, etc. etc.

This guy is so clear in his thinking that though he is an abstruse marxist I keep seeing the clearest pictures and getting good ideas for writing from him…

He is simply overwhelmed that the Marxists don’t known him or criticise him here.

What lay behind the ‘sabotage’ Grossmann complained of?

Wiggershaus’s history tells how, in 1937, the double-dip Depression, and an ‘unlucky touch in investments’ in stocks and real estate, had brought a ‘drastic deterioration’ in the Institute’s balance sheet. (Its endowment had been donated by the grain merchant father of Felix Weil.)

Horkheimer elected to cut salaries and research personnel.

Staff were ‘left confused and insecure by more or less secretive hints about the Institute’s impending financial collapse and by obscure reductions in the salaries’:

When the endowment capital began to shrink, from the late 1930s onwards, Horkheimer’s main concern became to reserve a large enough part of the assets early enough to secure his own scholarly work on a long-term basis. Accordingly, Lowenthal – in his capacity as one of the trustees of the ‘foundations’ among which the funds were distributed – was one day asked to transfer $50 000 to a fund with Horkheimer as its sole beneficiary.

First to go was Erich Fromm (whom less successful members apparently resented: T.W. Adorno had once described him as a ‘professional Jew’).

The work of Grossmann, too, was altogether too redolent of Galicia and classical Marxism, with its embarrassing tendency to cite Plekhanov and Rosa Luxemberg, and its talk of capitalist ‘breakdown’:

[Grossmann’s] long, ponderous manuscripts did not meet the expectations of the Institute’s directors at all, and, with a not particularly happy life, he had become a rather difficult character.

Wiggershaus describes a conflict of interest between Horkheimer, Adorno, Leo Lowenthal and Friedrich Pollock on the one hand, and Herbert Marcuse and Franz Neumann on the other:

With closer incorporation of the Institute into the university [Columbia], the chances of an academic career for Marcuse and Neumann would increase; in contrast, Horkheimer and those basing their hopes on having their material needs supplied by the Institute did not want to see its independence restricted in any way.

The Institute’s co-founder informed Horkheimer that ‘Teddy’ Adorno had ‘one interest in life, to become a minor gentleman of leisure on the west coast as soon as possible’.

By 1943, the only research supported full-time by Institute funding was that of Horkheimer and Adorno. Herbert Marcuse and Franz Neumann now worked for the OSS, and every other scholar was likewise employed in the US government’s war effort.

In Pacific Palisades, a starstruck Adorno giddily assisted Thomas Mann’s work on Doktor Faustus.

Meanwhile Adorno’s stark Minima Moralia, together with his and Horkheimer’s Dialectic of Enlightenment, provided something of a programmatic manifesto for Critical Theory’s new postwar direction. The latter would reject all the aims set out for the Institute in Grünberg’s inaugural address.

Written simultaneously, these books jointly announced, in morose but full-throated tones, the Frankfurt School’s conversion to what Grünberg had called the camp of the ‘pessimists’, taking as their theme ‘the collapse of Western culture or of culture in general.’

With its strictures against ‘positivism’ and famously grim verdict on Francis Bacon and his epigones, Dialectic of Enlightenment provided a remarkable contrast with Grossmann’s history of the Scientific Revolution, also completed during the waning days of the Second World War.

In California, Grossmann’s work would no doubt have been judged as insufficiently ‘mediated.’

Adorno Brentwood residence

After German surrender, the Institute’s return to Europe was funded by the Allied High Commission for Occupied Germany and the City of Frankfurt.

Horkheimer became rector of the University of Frankfurt. With the Institute no longer relying on Weil’s money to fund its operations, Horkheimer appealed to the premier of Hesse.

The solicitation of grants and donations is described by Wiggershaus:

Horkheimer and Adorno sought support, not from the labour movement or from opposition groups, but from the ruling authorities themselves. As Horkheimer put it in a letter of thanks to the Prime Minister of the state of Hesse, Georg August Zinn, they were looking for ‘friends in high places, the sort of friends often hoped for in vain by academics also pursuing the practical goals of genuine education’.

Thus the Cold War Berufsverbot, having been preemptively enacted in exile, would require no more victims, and the Frankfurt School little intellectual defanging.

Henceforth, the long and steady descent to today’s Habermas, an ornament of the establishment — yet a figure, one must remember, of only the second postwar Frankfurt generation, and thus lineal recipient of a virtually pure inheritance from the founders — would proceed smoothly.

Habermas Kosovo

Since the beginning of his career in the 1950s, Habermas had been committed to German Atlanticism, or Westbindung:

The unreserved opening of the Federal Republic to the political culture of the West is the great intellectual achievement of the postwar period, of which my generation in particular could be proud…

That opening has been achieved by overcoming precisely the ideology of the center… [the] geopolitical palaver of “the old central position of the Germans in Europe”…

The only patriotism which does not alienate us from the West is a constitutional patriotism.

If, Habermas maintained, the source of all moral and intellectual authority lay in Western benevolence, and any hope of a future ‘cosmopolitan order’ reposed in Washington, then all trace of a German Sonderweg must be erased. After General Clay and John J. Mccoy had departed, the Bonn republic would have to hunt out and destroy any lingering German pretensions to being a bridge linking western and eastern Europe.

What must go, Habermas explained in the 1980s, if one was to ’emphatically defend the Federal Republic’s orientation to the West’, was ‘an ideology of “the middle”‘:

Only since the end of World War II have Germans this side of the Elbe and the Werra considered themselves, as a matter of course, to belong to Western Europe…

What is in dispute is not whether the Federal Republic belongs to Western Europe, but whether or not the option for the West has to be broadly anchored in a renewed national self-consciousness…

For it is only in the unclouded consciousness of a break with our more fateful traditions that the Federal Republic’s unreserved opening to the political culture of the West can mean more than an economically attractive opportunity and politically almost unavoidable choice…

The West integration of the German Federal Republic has taken place step by step: Economically through the Currency Reform and the European Community, politically through the splitting up of the nation and the consolidation of independent states, militarily through rearmament and NATO alliance, and culturally through a slow internationalization of science, literature and art that was not finalized until the late 1950s. These processes took place in the power context of the constellations brought about in Yalta and Potsdam, and later on through the interactions of the super-powers. But from the very beginning, they met with “an extensive pro-Western opinion among the West German population, an opinion nourished by the radical failure of the NS-politics and the repulsive appearance of Communism”.

What exactly was the pedigree disposed of by this Westbindung, with its ‘anchoring’ of Germany in NATO?

Today the once-enormous historical influence and international renown of German culture and language across Mitteleuropa, from the Baltic to the Balkans, can scarcely be imagined.

A figure like Grossmann was emblematic. He was born into the rickety Austrian political institutions of Franz Joseph: heir to the failed revolutions of 1848, with a large, recently emancipated and urbanizing Jewish population, and a residual landowning class, sharing a mostly German-language high culture across central and eastern Europe.

Long nurtured among the cultivated middle classes of the Habsburg, German and Russian imperial monarchies, since 1945 — and especially following the nationalist fragmentation and irredentism that has consumed the region since 1989, crafting monocultural territories out of formally multicultural federations this shared lingua franca has ceased to exist.

While it lasted, however, it provided a setting in which classical Marxism, during the last third of the nineteenth century, emerged and flourished.

Both the custodians and the enemies of this heritage the opponents of ‘Judeobolshevism’ with rather more relish than its embattled practitioners acknowledged this geographical and demographic pattern.

The original Institute for Social Research thus established its firmest international connections with Vienna and Moscow.

Its early members generally partook of that ‘economic determinism’ (sic), which Horkheimer’s Frankfurt leadership would later repudiate as a cardinal and egregious error, a worn-out relic of the Second International and Stalinism.

Yet against this early continental reach can be measured the later national introversion of the postwar Frankfurt School, with its provincial retreat to Kant, Hegel and (with Habermas) a smattering of Anglo-Americans (Mead, Dewey, Parsons).

The upshot of Horkheimer’s victory can be judged by the following anodyne prospectus, setting out the Institute’s postwar research agenda:

Social research, in all its aspects, and particularly in the areas of research on the structure of society, on human relationships and modes of behaviour within the labour process, of opinion research and the practical application of sociological and psychological knowledge in the last few decades, has received a great boost.

Owing to political events, Germany has not been able to participate in this to the extent that might have been desired. The part these disciplines can play today both in Germany’s public life and in the rationalization of its economy can hardly be overestimated, if the experience of other industrial nations is anything to go by.

Social analyses will be able to throw light on many crucial political and social problems of the post-war period, such as the refugee problem. They can provide an important cognitive basis for the reconstruction of cities and industrial areas. Training in the methods of social research can help young people better to grasp the tensions within our own population, as well as those between nations, and thus allow them to make an independent contribution to overcoming them . . .

Last but not least, social research can open the way to a variety of new professions. The demand for scientists trained in the new methods is no less than that for engineers, chemists or doctors, and they are valued no less than those professions are. Not only government administration, and all the opinion-forming media such as the press, film and radio, but also businesses maintain numerous sociological research bodies.

Social research can create the optimal social conditions in their factories, ascertain and calculate in advance what the public needs in their branch of business, and monitor and improve the effectiveness of their advertising. A similar course of development can be expected in Germany as well.


Taking candy from a baby?

April 13, 2014 by

A front-page article in last weekend’s Australian Financial Review spoke darkly of the federal government’s budget preparations ‘pitting one generation against another.’

A tired locution, no doubt, but has the claim any substance, or is it mere journalistic inflation?

Back in 1959, Abba Lerner compared the standard economic treatment of public pensions to a ‘swindle’ or a ‘chain letter’, criticizing it for neglecting transfers between generations living today, in favour of a spurious infinity of mutual benefit:

[The] “new” welfare economics… cannot consider the distribution of the product between younger and older people living at the same time… They are limited to the consideration of the distribution of an individual’s consumption between his working life and his own retirement.

Through ‘the fairy tale of the time-travel of interest-collecting savings… the authorities can pretend that “social security” is not a “socialistic”  tax and give-away program by the government but a “saving” by each worker out of his current income to provide for his old age.’

But, said Lerner:

[From] the social point of view, the pensions of the old can come only out of current output of consumption goods…

The essence of the matter is that the fable of the time-travel of consumption is accepted with implicit faith by the accountants, as guardians of the private point of view of savers who are putting money aside for their old age. It is the duty of economists, as guardians of the social point of view, to explode this fairy tale…

The only real problem from the social point of view is the allocation of current output of consumption goods between current consumers of different age. This can never be achieved by any kind of trading or lending, but only by a one-way transfer of current consumption from some citizens to others with no genuine quid pro quo. It is only a somewhat more sophisticated fable that today’s transfer from workers to pensioners is a “repayment” of yesterday’s transfer from workers to pensioners…

The tax-and-pension is nothing but a device by which today’s pensioners are maintained out of today’s social product, which is, of course, produced by today’s workers.

Lerner derided ‘the accountants who insist on the “solvency” of the Social Security Administration.’ Pre-funding was a red herring: ‘the “new” welfare economics, by limiting comparisons to the utility of the same individual at different dates, fits in fatally with the accountants’ predilection for considering social security as the translation of savings over time.’

Paul Samuelson, against whom Lerner was arguing, had declared with typically folksy glibness:

Outside of social security and family altruism, the aged have no claims on the young: cold and selfish competitive markets will not teleologically respect the old; the aged will get only what supply and demand impute to them…

Once social coercion or contracting is admitted into the picture, the present problem disappears. The reluctance of the young to give to the old what the old can never themselves directly or indirectly repay is overcome. Yet the young never suffer, since their successors come under the same requirement. Everybody ends better off. It is as simple as that.

This Elysian vision depended upon the premise that ‘each and every today is followed by a tomorrow’:

If each man insists on a quid pro quo, we apparently continue until the end of time… Let mankind enter into a Hobbes-Rousseau social contract in which the young are assured of their retirement subsistence if they will today support the aged, such support to be guaranteed by a draft on the yet-unborn.

Yet the future would not last forever, Lerner averred: growth would slow or the day of reckoning arrive. And when it did, Samuelson’s fairy tale of optimal saving, an attempt to legitimize PAYG, would have left Social Security exposed to attack from its enemies: the ‘accountants’ and their backers:

In our society many people feel that social security by redistribution of income by the government is alien to the pure essence of the individualist capitalist system so that, if “social security” has to be provided it should take the form of individual saving for old age. This has led to the belief that a social security system cannot operate honestly unless it has acquired a fund actuarially corresponding to the savings of all those members of society who have paid in their contributions in the past and who will be taking them out as benefits in the future…

[The] fact is that such a fund is completely unnecessary. It is called for only because accountants look on the social security program as old age insurance provided by an enterprise that must accumulate assets to match its contingent liabilities. Such accounting practices are completely justified for a private insurance company, which must be prepared for the eventuality of failing to enrol any new customers and still having to pay the covenanted benefits to its old customers.

Lerner’s objection provided a downbeat and untimely interruption during the postwar golden age of capital accumulation. Samuelson, heedless, could dispatch it with characteristic insouciance: ‘The beauty of social insurance is that it is actuarially unsound… A growing nation is the greatest Ponzi scheme ever devised.’

But, as public retirement provision has come under attack during the last three decades, it has become more congenial for its opponents to acknowledge, and profitable for them to belabour, Lerner’s point that pensions are simply a tax-based income transfer between generations or birth cohorts.

Abruptly, the principle of intergenerational equity has entered the journalistic lexicon (the Stern Review having sped the acquisition).

To its horror, conventional opinion has discovered that the elderly are cosseted, not abiding by Samuelson’s social contract of give-and-take.

Society’s rules are ‘seriously biased against the young.’ This alleged fact is finally discerned just as a looming demographic shock  increased life expectancy and reduced fertility rates —  lowers the natural rate of workforce growth, promising a higher dependency ratio in the advanced economies.

Australia dependency ratio

Samuelson’s roseate vision of mutual benefit no longer fits the bill. ‘Intergenerational catastrophe’ has now taken its place.

As his own generational cohort has been succeeded by the likes of Martin Feldstein, and collegial academic debate given way to ambitious policy programmes, it has been acknowledged (as Milton Friedman once insisted) that retirement income does involve redistributing today’s output between currently living social groups.

Hysterical claims about trillions of dollars worth of unfunded pension liabilities over an infinite horizon have been just one of several tactics used by advocates of  ‘individual saving for old age’.

As I suggested in an earlier post, policy circles have also luridly announced a ‘war’ between young and old, a zero-sum game for scarce resources, in which benefits for one generation can only come at the expense of another: ‘welfare policies have favoured the elderly at the expense of the young.’

David Thomson Selfish Generations

The crudity of this divide-and-rule campaign  pursued with asinine zeal by politicians as well as academics, journalists, media commentators and policy analysts — can scarcely be exaggerated.

This year the Australian treasurer, Joe Hockey, has spoken repeatedly of public spending on pensions as ‘intergenerational theft’. So has his parliamentary secretary, Steven Ciobo.

Looking ahead with trepidation to fifty years of a ‘greying’ population, and invoking Hayek for comfort, minister for Social Services Kevin Andrews has described ‘intergenerational theft… [an act that] picks the pockets of our children who’ll be left to pay the bill. It’s a raid on the future prosperity of young Australians, both born and yet-to-be-born.’ So has his assistant minister, Mitch Fifield.

Josh Frydenberg and Brett Mason, both parliamentary secretaries, have also deployed the term.

Thus the welfare of future cohorts  the youth, our nation’s shining future  provides the satisfyingly elevated creed served up to the mass electorate, a thin gauze veiling a ruthless distributional claim to today’s social product.

At stake is the price of state debt and valuation of the chief asset on the government balance sheet: the discounted present value of all future primary surpluses (net private-sector tax liabilities imposed by the state). State bonds promise their holder a stream of interest payments financed out of tax revenue.

Behind the putative conflict between baby boomers and subsequent generations is, therefore, an elite constituency seeking to sustain, rather than diminish, the value of interest-bearing government debt.

To accomplish this, the claim on future net output represented by the state’s obligations to the elderly, infirm and other dependants must be reduced.

Treasury intergenerational report 2010 - pension forecast

Why, as this goal of the propertied classes finds popular expression, is it embellished as intergenerational conflict? Why risk such strident and incendiary terms, when more decorous evasions, more pious expressions of national harmony, might conceivably be found?

In the first place, electoral mobilization depends increasingly on appeals to narrow demographic groups (the Australian Greens have sought to convert young adults into a vote-bank), with today’s parties lacking the broad social constituencies, and the programmatic variety, of the past.

The increased salience of non-class forms of social classification or ascribed status (ethnicity, race, gender, generational cohort) is also a pacifying factor during recessionary phases of business cycles or more enduring periods of instability.

In Australia, privatization of public pensions (supplemented by a means-tested system of residual relief for the poor) arrived long ago. In other, more stubborn jurisdictions, it has been the desired end-goal (‘one of the most important conservative undertakings of modern times’). In every case the accompanying rhetoric has involved panic over the solvency of a system of unfunded liabilities (‘the current system is heading for an iceberg… That reality needs to be seared into the public consciousness’).

Local talk of an ‘ageing tsunami’ simply partakes of this global idiom.

Finally, the demographic shock, apparent by no later than the mid-1970s, does pose a genuinely epochal challenge to Australia’s state elite. The diminished natural rate of labour growth has called forth an assiduous policy response including mass immigration, pro-natalist subsidies, efforts to increase workforce participation rates through ‘social migration’ of housebound women and disabled people, etc.

Treasury Intergenerational report 2007 - Projected contribution of net inward migration to population growth

McDonald and Temple - Demography and labour supplyRBA - Female labour force participation

Yet the impact in Australia of the demographic shock is broader and deeper still.

Even in the absence of full employment, a less elastic supply of employable labour imposes a constraint on profitable investment, especially when technical change is stunted (as it has been since the 1970s). Slow capital accumulation in recent decades  reducing productivity growth and channelling funds into unproductive and speculative pursuits — has therefore maintained the relative bargaining position of Australian firms in conditions where excessive labour demand might conceivably have raised the bargained wages of employees.

This curtailing of productive investment, involving the diversion of the surplus into residential expenditure, asset markets and luxury consumption, has been the decisive feature of Australian society in the last three decades.

The turn from long-term investment to shareholder value has entailed restructuring of the labour market towards sporadic, tenuous and low-paying employment, a change that has disproportionately affected young adults. Youth, lacking the savings and the borrowing capacity of their elders, and contributing much of the necessary slack in the labour market, then provide an aggrieved constituency for those intent on stoking intergenerational rancour.

oz young unemployment

Keating - Working Nation

The headaches and misery of the day

April 6, 2014 by

With plenty of time to himself during the Phoney War, Sartre mused about André Gide’s ethic of disponibilité:

Barnabooth sells all his goods, ‘castles, yachts, cars, huge properties…’ and he calls that ‘dematerializing his fortune.’ The gesture is inspired by that of Ménalque or of Michel in L’Immoraliste. Gidian.

That word ‘dematerialize’ made me dream. For when you come down to it, it’s really a question of detaching yourself from goods, as the concrete aspect of wealth, and of keeping only its abstract aspect: money. Here, moreover, in the guise of bundles of shares and cheques.

In short, that’s the advice given by Gide and followed by Barnabooth: to swap real possession for symbolic possession, to swap property-wealth for sign-wealth.

It’s no accident that Gide preaches disponibilité. Basically, the Gidian homme disponible is the one whose capital isn’t tied up. And what I saw clearly was that Gide’s moral code is one of those myths that marks the transition from big bourgeois property — concrete ownership of the house, fields and the land; private luxury — to the abstract property of capitalism.

The prodigal son is the rich grain-merchant’s child who becomes a banker. His father had bags of grain, he has bundles of shares. Possession of nothing, but this nothing is a mortgage on everything.

Do not, O Nathanael, seek God anywhere but everywhere: reject material possession, which limits the horizon and makes God a withdrawal into oneself; swap it for symbolic possession, which will permit you to take trains and boats and seek God everywhere. And you’ll find him everywhere, so long as you put your signature on this little bit of paper, in your cheque-book.

I’m not exaggerating: that’s exactly what the Gidian Barnabooth, on page 18, calls a ‘burning quest for God.’ And Gide himself, now a traveller and now head of the patriarchal community of Cuverville, is a great transitional figure between the propertied bourgeoisie of the 19th century and the capitalism of the 20th.

Try to ignore Sartre’s idiosyncratic terminology, which confuses the issue somewhat.

Here he mixes up large-scale historical changes in property systems (the movement from what he calls the ‘big bourgeois property’ of the Second Empire to the ‘abstract capitalist’ of the Third Republic) with an individual’s portfolio choice (allocating wealth between liquid financial assets and productive capital goods).

The transition Sartre describes is that from the typical nineteenth-century personification of capital — the individual entrepreneur whom Marx called ‘our friend Mr. Moneybags’ — to the twentieth-century world of corporate enterprises.

In that later period, the capitalist agent is famously personified by several different figures (shareholders, managers, etc.), each of whom takes care of a specialized financial, administrative or supervisory responsibility within a firm or spread out across an economy.

In this team effort, Gide’s homme disponible performs the rentier function.

Gide - Fruits of the Earth

Nathanael is thus exhorted to stray far from ‘the concrete aspect of wealth’ (organizing and superintending the production process). He can reap a flow of dividends, interest payments, capital gains and royalties while he idly enjoys the fruits of the earth, frittering his income away on la volupté just as an Edwardian coupon clipper might have done on servants for his country house.

This historical development (in which the business enterprise also becomes its own legal person and accounting entity) is one with the increasing scale and mechanization of production.

Sartre, himself an avid traveller, plainly regarded Gide’s advice as frivolous (‘it would be absurd to offer Ménalque as an example to an unskilled labourer, a man out of work or an American negro’. But Nathanael is ‘a rich white Aryan, the heir of a great bourgeois family…’).

The ‘princely games’ of Lafcadio were replaced in Sartre’s work by a succession of pitiful, wealthy young runaways and would-be Nietzscheans, from Lucien Fleurier to The Reprieve‘s Philippe.

And in place of disponibilité was the tough-minded doctrine of committed literature:

Since the writer has no way of escaping his time, we want him to embrace his era — tightly. It is his only chance; it was made for him and he for it… We don’t want to miss out on anything of our time. There may be better ones, but this one is ours: we have only this life to live, amid this war, and perhaps this revolution…

Thus, by taking part in the singularity of our era, we ultimately make contact with the eternal…

We are obliged to be satisfied with forging our history blindly, one day at a time, choosing from all the options the one which seems best to us at present… We are inside.

Here can be detected Sartre’s obsession with captivity, a horror and fascination, most notable in his plays, with themes of confinement and sequestration.

As an aggressive statement of art’s debt to politics, Sartre’s editorial introduction to Les Temps modernes is often grouped with the avant-garde manifestos of the mid-twentieth century. But littérature engagée was a label with no hint of a collective movement or school behind it.

As with the later invention of ‘Abstract Expressionism’ by art dealers, critics and the CIA, Sartre’s declaration was clearly a new kind of exercise in commercial self-promotion, a rather platitudinous and non-committal branding of journalistic territory in postwar France’s up-ended publishing scene.

les temps modernes ninth edition

But, more importantly, was Sartre’s ‘writing for one’s age’ not also marked by the same mutation in property forms he described above?

For the other side of this historical development (growth of the limited-liability company and a class of idle creditors) was what happened to the ‘concrete aspect of wealth’. Who took responsibility, while Nathanael larked vagrantly about, for the capital goods that were tied up in accumulation, and the production processes that needed overseeing?

Here could be found the emergence of professional managers and bureaucratic functionaries, accountable to owners, with delegated control rights in a firm or organization’s physical assets (i.e. decision-making power over how some item of equipment was to be used or task undertaken). These administrators might or might not receive property income in the form of high salaries and stock options. They might be more like Veblen’s engineers.

More to the point, their prerogatives were tied to specific assets, which they themselves could not transfer or liquidate. The factories and machines over which they exercised power could not be bought, sold, or bequeathed for their private benefit — not by anyone in the case of state property, nor by a non-owning manager in the case of privately owned wealth.

For them, therefore, not Nathanael’s possession of ‘nothing’, but acute dependence on this thing. If God was everywhere for Gide, eternity was right here and now for Sartre.

The functionary was marooned on an island rather than floating in a sea, engaged in an ongoing dyadic transaction with the same corporation, cartel or government agency, rather than a series of one-shot interactions in spot markets. He could not shirk what, in Sartre’s words, was ‘his only chance; it was made for him and he for it.’

Sartre likewise advocated a thoroughgoing embrace of one’s era and all its features. He himself practised this clinch without scruple (‘In vain would we attempt to be our own historians’), comparing it, as did De Gaulle, to a lover, participating in all its skirmishes, and (here he may have been describing his opportunistic relationship with the PCF) ‘choosing from all the options the one’ which seemed ‘best at the present.’

Deleuze, Sartre, Foucault at Vincennes

Marxists, on the other hand, have typically suggested that some critical distance from one’s contemporary circumstances is a good thing.

In January 1917 Rosa Luxemburg wrote from prison to Luise Kautsky:

Probably for you the desire for music, as for all other things, has gone by for a while, your mind is full of concern about world history, which has all gone wrong, and your heart is full of sighs over the wretchedness of—Scheidemann and comrades. And everyone who writes to me moans and sighs in the same way.

Don’t you understand that the overall disaster is much too great to be moaned and groaned about?

I can grieve or feel bad if Mimi is sick, or if you are not well. But when the whole world is out of joint, then I merely seek to understand what is going on and why, and then I have done my duty, and I am calm and in good spirits from then on. Ultra posse nemo obligatur.

And then for me there still remains everything else that makes me happy: music and painting and clouds and doing botany in the spring and good books and Mimi and you and much more. —In short, I am “stinking rich” and I’m thinking of staying that way to the end.

This giving oneself up completely to the headaches and the misery of the day is completely incomprehensible and intolerable to me.

See, for example, how Goethe stood above things with cool composure. But think what he must have gone through: the Great French Revolution, which must surely have seemed like a bloody and completely pointless farce from up close, and then from 1793 till 1815 an unbroken series of wars, when once again the world must have seemed like a madhouse turned loose.

Yet at the same time how calmly, with such equanimity, he pursued his studies about the metamorphosis of plants, the theory of colours, and a thousand other things. I don’t ask that you be a poet like Goethe, but everyone can adopt for themselves his outlook on life — the universalism of interests, the inner harmony — or at least strive toward that.

And if you say: but Goethe was not a political fighter, my opinion is this: a fighter is precisely a person who must strive to rise above things, otherwise one’s nose will get stuck in every bit of nonsense. — Obviously I’m thinking of a fighter on the grand scale, not a weathervane of the calibre of the “great men” who sit around your table…

Weimar Goethe as a model held up for political emulation by revolutionary socialists?

Goethe and Napoleon at Erfurt

Perverse, one would think.

Yet in 1950 Isaac Deutscher would also include Goethe among ‘great “intellectuals” who, in a similar situation in the past [the Napoleonic Wars], refused to identify themselves with any established Cause. Their attitude seemed incomprehensible to many of their contemporaries: but history has proved their judgement to have been superior to the phobias and hatreds of their age’:

Goethe opportunistically bowed to every invader. But as a thinker and man, he remained noncommittal and aloof… His aloofness, in these as in other matters, gained him the reputation of ‘the Olympian’; and the label was not always meant to be flattering. But his Olympian appearance was due least of all to an inner indifference to the fate of his contemporaries. It veiled his drama: his incapacity and reluctance to identify himself with causes, each an inextricable, tangle of right and wrong…

All three – Jefferson, Goethe, and Shelley – were in a sense outsiders to the great conflict of their time, and because of this they interpreted their time with more truthfulness and penetration than did the fearful – the hate-ridden partisans on either side.

Now as then, the organs of conventional opinion present a menu of false choices — Napoleon or the Holy Alliance? — announcing that these options are exhaustive, and one of them must be chosen.

An urge to clamorously participate  in every ‘struggle’ — ‘the cheap ambition to have a finger in the political pie’, for fear of lost opportunity, accusations of quietism, or organizational market share — turns ambitious ‘political fighters’ into weathervanes, their ‘nose stuck in every bit of nonsense’.

Thus the ‘engaged’ activists of today’s radical protest politics, heedless of principle and refusing to abstain, participate in every trifling and dangerous ‘movement’ that arises: taking up positions in a meaningless Kulturkampf, venturing opinions on this or that media inanity, preferring one monstrous ‘lesser evil’ to another, lending support to one wing of the propertied elite over today’s provisional enemy, greeting wars of aggression as salutary ‘revolutions’.

In the political life of the advanced economies, such squabbles usually involve, at best, tinkering with markets (through subsidies, taxes or other regulation) to shift economic surpluses between groups, transferring rents from one constituency or special interest to another. To immerse oneself in these ‘policy’ debates is to live an arid life (but to do so professionally can attract its rewards).

What is described loftily as a ‘war of position’ (echoing Karl Kautsky’s ‘strategy of attrition’) typically involves the creation of a durable bureaucratic apparatus that can be used for self-dealing or provides a platform for career advancement.

Moreover, if such projects are to be sustained their participants must find solace and consolation where they can. Typically this is done by investing some political agent or figurehead with exaggerated potential, finding illusory messages of hope or imagining that headway is being made. This obliges activists to nourish illusions in what exists: to find silver linings and abandon trenchant thought.

I’ve written before about these varieties of accommodation to what exists.

Motivated mental states include wishful thinking (adapting one’s beliefs to fit one’s desires) and sour grapes (making a virtue of necessity, consenting to the inevitable, or consoling oneself by modifying one’s desires to exclude what is unattainable). Motivation affects not only high-level cognitive processing (i.e. how people think about the world) but basic activities like visual perception.

The futility and corruption of the weathervane can be avoided, as Luxemburg explained to her friend, by coolly taking a little distance. Against Sartre, doing one’s intellectual duty requires treating the present as history: sceptically and mercilessly examining its limitations, including those of its pseudo-oppositional elements, just as one would the past.

Of course, to do this has its bearing on the morale of others. As ‘incomprehensible’ as was the silence of Goethe or Shelley’s rage to their contemporaries, cool appraisals often invite accusations of cynicism (or idealism), purism, maximalism, sterility, pessimism.

War production and investment spending: how many divisions has Putin?

March 19, 2014 by

For a brief period in the 1920s, compelled by circumstance amid the daunting wreckage of Civil War, the new Soviet state became the world centre of development economics.

In swift order arrived Preobrazhensky’s model of surplus mobilization from agriculture (1926), Feldman’s theory of capital accumulation (1928) and Chayanov’s model of the peasant household (1925).

While the Soviet Union has since received its traumatic quietus, the topic at stake in these discussions — industrialization of a largely rural, middle-income economy, in a territory subject to repeated military incursions — never quite vanished.

Today’s reduced circumstances — notwithstanding recent short-lived bubbles of energy, real estate and stock market — grant it renewed relevance.

When the Tsarist state was shattered by blows from the Hohenzollern Empire, harsh lessons were absorbed by its Bolshevik successors. One result was the theoretical flourishing described above.

With the Stalinist bureaucracy having since succumbed in no less catastrophic fashion — vast tracts of its territory excised and conceded, its population whittled down and industrial capacity reduced — no similar outbreak of reflection has been in evidence.

Yet, with capitalism restored in a diminished Russia, old issues have resurfaced for the Kremlin’s policy elite.

One the one hand, lack of internal macroeconomic development bridles Moscow’s military capacity and curbs its conduct of international statecraft. On the other, lopsided devotion to war industry pilfers resources that might otherwise augment Russia’s stock of capital equipment and infrastructure.

Such is the state of disarray, domestic and external, as NATO presses its forces and weaponry against ex-Soviet borders.

In 1930 Tukhachevsky’s proposal to create a ‘military-planning complex’ was dismissed by Stalin, who greeted it with the accusation of ‘red militarism.’

It was, Stalin said, ‘the result of an entertainment with leftist phrases, the result of a play with paper, bureaucratic maximalism… To carry out such a “plan” would certainly ruin the economy of the country, and the army’.

Tukhachevsky had mused about increasing the number of motorized and mechanized units, combining artillery and tanks with airpower:

The success of our socialist construction, as well as the changes in the countryside, put the whole question of a reorganization of the armed forces on the agenda, due consideration of all the new factors of technology and the possibility of mass-scale production of armaments.

By 1933, he suggested, the Soviet Union could maintain 40 000 operational aircraft and 50 000 tanks, allowing 240 infantry, 50 artillery and 20 cavalry divisions:

These figures characterize (by modest indications) our prospective production capacity in aeroplanes and tanks and call for the appropriate organizational forms of the Red Army, which the Army inevitably must adopt.

Stalin, in his clotted style, responded thus to Tukhachevsky’s ‘super rearmament’:

In his ‘plan’ the essential is lacking, that is, there is no calculation of the realistic possibilities in the economic, financial and cultural dimension. This ‘plan’ definitely distorts any conceivable and permissible proportions between the Army, as one part of the country, and the country, as an entity with limits in the economic and cultural dimension. ‘The plan’ fulfils the views of ‘purely military’ men, who often forget that the army constitutes a derivative of the economic and cultural condition of the country.

In other words, the armed forces did not generate their own surplus for reinvestment, nor cover their own operating expenses.

Instead, they depended in material terms upon subventions from the ‘basic’ industries, which set an upper limit to their size.

Ignoring this binding constraint, and engaging in drastic military expenditure, would eat away at potentially investible resources and prevent formation of the very fixed assets that might otherwise support the Red Army.

In 1930, due to the Soviet Union’s economic underdevelopment, the available surplus above current consumption seemed too meagre to squander on lofty goals of military construction, equipment and munitions procurement, which were starting from a very low base.

Supply bottlenecks obliged the Kremlin to choose between investment in new productive capacity (iron, steel, fuel, mechanized equipment, transport infrastructure) and military spending.

Yet by the end of the second Five-Year Plan in 1938, an armaments industry had been erected that, numerically speaking, met Tukhachevsky’s grandiose hopes: doubling its staff, and tripling its output, in the space of four years.

Once complementary investments had come on-stream, capacity existed to build a war machine.

RW Davis - Planning for mobilization

Mark Harrison - Second five-year plan

During interwar years, of course, this story was hardly unique to the new Soviet Union.

The developmental state in Japan provides the obvious comparison: accumulating a stock of fixed capital (shipyards, blast furnaces, automotive plants) that provided Tokyo with a heavy-industrial base for armaments production.

But after 1945 Japan became a US protectorate. Since then, under Washington’s security umbrella, Japanese militarism has no longer frittered away the investible surplus (nor, after MacArthur’s land reform, have an idle class of unproductive landowners). With the hegemon picking up Cold War military overheads, a high proportion of scientists and engineers became available for R&D in the civilian economy.

Partly as a result, down to the 1980s capital goods used per worker and labour productivity increased more rapidly in Japan than anywhere else in the world.

On the other hand, Russia has constituted a national anomaly. For in this perennial Kampfplatz the issue has reappeared insistently, history having contrived no resolution in the form of a benevolent suzerain.

Consider Engels’s remark in 1890 on the results of the Crimean War:

The war had proved that Russia needed railways, steam engines, modern industry, even on purely military grounds. And thus the government set about breeding a Russian capitalist class…

[The] new development of the bourgeoisie was artificially forced as in a hot-house, by means of railway concessions, protective duties, and other privileges; and thus a complete social revolution was initiated in town and country, which would not allow the spirits once set in motion to return to rest again.

Again and again, Moscow’s status as a Great Power, and the country’s security from external threat, has posed for the Kremlin the ‘conceivable and permissible proportions between the Army, as one part of the country, and the country’.

How should the surplus be divided between military spending (wastefully diverting resources from the civilian economy and thus impeding productivity growth) and accumulating new industrial capacity (investing in fixed assets that provide the economic basis for warfare and peacetime geostrategy)?

At different times, depending on parameter values, military expenditure and fixed-capital formation (and labour productivity) might be complementary, moving in sympathy as under Stalin during the 1930s (when both rose) and the 1990s under Yeltsin (when both collapsed). Or they could conflict, moving inversely as in the late Brezhnev years (again, to unhappy effect).

As Stalin noted, this was a problem of apportioning society’s total workforce and other resources to specific activities and different lines of production.

For any economy, some tradeoff necessarily exists: every society needs to allocate its aggregate labour resources  person-years per year, or simply working-age persons  between particular tasks or occupations.

A capitalist society generally does this by means of price signals: private investment flows into the most profitable lines of production, increasing labour demand and employment in these activities.

During wartime mobilization, however, labour is deployed to the desired tasks by ‘political’ methods: conscription of prime-age males, placement of orders and procurement by state planning boards, and other bureaucratic procedures.

Even during peacetime, resource planning proceeds at its highest level using ‘in-kind’ physical units. The US Defense Department specifies to Boeing or Northrup Grumman how many combat aircraft or jet engines it needs to procure.

RW Davies - Soviet weapon production

nimitz class supercarrier

What about ex ante mobilization by a state preparing to go to war?

A state fighting a prolonged war cannot just myopically allocate all its labour resources to the war-front in the hope of immediate victory. It must prepare and maintain the civilian productive capacity of heavy industry and capital goods  steel production, shipbuilding, aviation, construction, munitions and armaments, chemicals and engineering, vehicles and parts, fuel and power supply  as well as food, clothing, medicine, transport, communication, etc.

Long-term creation of such a military-industrial base, in order to boost war-making potential, is known as ‘armament in depth.’

Under Stalin, much of this industrial base (e.g. Magnitogorsk) was deliberately dispersed eastward beyond the Urals and Siberia, far from European predation from the west and with its own nearby deposits of fuel and minerals (e.g. the Kuznetsk Basin).

Industrial facilities of this sort provide necessary inputs for the armed forces. Alternatively, during peacetime this military-productive base may produce civilian goods for households or firms, while being available to switch to armaments production in the event of mobilization.

During the 1930s, Stalin’s government maintained enormous peacetime spare capacity in its armaments sector. This exchange was recorded at a meeting of officials in the Heavy Industry Commission.

M.M. KAGANOVICH: You have 500 or 600 machine tools tied up with wire.

I.I. PAVLUNOVSKII: It’s not my fault that there is no war. (Laughter). It is better that these machine tools remain tied up. They are mobilization resources, special equipment, and we must base our current estimates on equipment which is actually working.

Factories and equipment did not merely lay idle, but were also used to produce civilian goods. The historian R.W. Davies records:

[A] document about the planned new artillery and ammunition factories proposed that the artillery factories should manufacture refrigerators, compressors, and road construction equipment, shell factories should make machine tools and ball bearings, explosives factories should make bicycles, gramophones, and metal goods, and gunpowder factories should make plastics and artificial leather.

Including this heavy-industrial base, during the Second World War the war economy of the belligerent states directly and indirectly mobilized up to a half of each society’s total workforce.

Harrison - workforce mobilization in WW2

This demanded enormous fiscal outlays: military expenditure absorbed between 50% and 75% of gross output in Germany, Britain and the Soviet Union.

Government borrowing on this unprecedented scale had been made possible by institutional changes during the previous few decades, which had stabilized government finances while improving credit.

In particular the establishment of central banks and collapse of the gold standard allowed liquid markets for state liabilities to develop.

Liberty bonds

Indeed, most Great Powers had already undertaken such changes, which allowed them to appropriate a huge share of economic output, in time for the Great War.

WW1 government spending in national income - Broadberry and Harrison

The United States, something of an imperial laggard, had more than rectified this lack by the 1940s.

In Stalin’s Soviet Union, where the amount of state procurement was decided in physical terms by the planning bureaucracy and then balanced via a turnover tax, military spending rose from 2% of national output in 1928 to 6% in 1937 and 15% in 1940, roughly the same proportion as in Hitler’s Germany.

Harrison - resource mobilization in world wars

Recall that the level and direction of military spending tells us how labour and other resources are distributed, by whatever means, between different sectors and branches of industry. Resources deployed for military purposes thereby become unavailable for alternative uses.

Diverting resources away from these alternatives uses may, as Adam Smith pointed out, be self-defeating for security purposes. A growing military depends on productivity improvements in other sectors (so that resources are freed up for unproductive use on warfare), yet in return technical improvements in the military sector exercise no such beneficial effect on other industries (I’m referring here to final output rather than intermediate products such as engines).

If, due to some technical innovation, farming grows more efficient then food and livestock become cheaper and more peasants, freed from the land, are available to send to the armed front, and once there will be provisioned at lower cost. But if some invention makes cruise missiles cheaper to produce there is no flow-on to make any production process in future periods cheaper. The state can simply afford more of them. A cruise missile, being purely destructive, is like a luxury good in that it doesn’t enter into the production of other goods, either directly or indirectly.


By 1950 Soviet military spending had declined to 9% of national output. But it spiked again with the Korean War and would subsequently yo-yo obediently over the next 40 years in response to each geopolitical exigency, arms race or change of mood in Washington.

Thus from the early 1970s Brezhnev’s Kremlin dramatically increased the level of R&D devoted to military ends. This, which diverted technical employees (engineers and scientists) away from the civilian economy, helped lead to slower productivity growth in the productive core of the economy.

Coal, oil and steel  the foundation of the Soviet productive base  performed calamitously from 1975 as existing low-cost reserves were depleted and, with technical progress stalled, no adequate replacements found (e.g. the resort to low-quality lignite). The oil price collapse of 1986 would strand hunks of high-cost infrastructure: ageing fields, pipelines and railways littered across West Siberia from Kazakhstan to the Arctic Ocean.

The CIA concluded that by the early 1980s military spending as a proportion of Soviet GDP was around 16%, one-third above its level in the 1960s, and made up one-third of total budget outlays.

A series of RAND Corporation reports claimed that Soviet military clients enjoyed preferential input supply and other priorities that were impeding productivity growth in the civilian economy:

The military R&D sector benefits from a high-powered priority system that overrides the planning network. It receives ample resources and facilities; it has first claim on supplies, specially produced items, and scarce resources. Finally, there are no spillover effects to the civilian economy. This disadvantage stems from secrecy, the need to limit new materials and components, and lack of funds to diffuse the achievements of military R&D.

High-voltage power transmission and oil pipelines from Siberia and Kazakhstan to the country’s west, improved exploration and drilling technology and other projects necessary to maintain and upgrade the Soviet industrial base (and with it the armaments sector) were neglected.

With a falling share of net investment in the plans of the 1970s and 1980s, the immediate needs of the armed forces and those of expanding the country’s productive capacity had entered into sharp conflict.

Robert Allen - Soviet productivity growth by industry 1965-1985

Robert Allen - Soviet TFP 1928-1989

Worse was soon to come after the Kremlin bureaucracy, sensing its moment, opted to restore the old regime.

From 1991, rundown and destruction of the former Soviet Union’s capital stock had the useful result (for Washington) of shrivelling Moscow’s industrial base for military activities.

Absolute deindustrialization would be prolonged and severe. Under Yeltsin, and with technical assistance provided by the US Treasury and Harvard Boys, Russian fixed investment fell by 40% in a single year, reaching an abysmal 12% of GDP in 1999.

With its factories, capital equipment and infrastructure depreciated or sold for scrap, with local savings plundered and assets filched abroad, the Russian state would not rejoin the world market as a peer competitor, but only as supplicant.

Anointed on a glad-handing visit to Washington, and eager to please, a supine Yeltsin agreed to reduce military spending by 15% in a single year.


Since the ‘recovery’ engendered by the oil-price takeoff after 2001, productive investment has remained feeble, barely reaching levels necessary to cover physical depreciation.

A speculative inflow of liquidity from 2004 channelled funds into Russia’s financial system, prompting appreciation of the ruble and an asset-price bubble in local stocks and real estate.

These financed a consumption splurge as foreign goods became cheaper and borrowing more affordable (credit grew by 36% in 2006-2007). But the high exchange rate made non-oil exports uncompetitive and further hollowed out the industrial base. The crash in 2008 saw GDP fall by 8 percent, amid a chain of bankruptcies and defaults.

Today Russia’s surplus product is dissipated on baubles and kitsch displays, embodied in luxury consumption goods imported from abroad for its rentier class. Under Putin, the latter have grown plump but the territory’s productive capacity wanes.

The surviving stock of capital equipment and buildings is disproportionately old, low quality and economically unviable.

Yeltsin’s procurement cutbacks during the 1990s have meant that Russian military equipment is older still: successive Chechen campaigns revealed heritage trucks, helicopters, weapons and armour to be scarcely operable. The Georgian performance in 2008 provided little reassurance.

Though oil revenues have recently allowed Moscow to commence a modernization drive in military hardware, two decades of atrophy have taken their strategic toll. Force disposition reflects straitened circumstances.

Russian military capability 2013

Local conditions were thereby prepared for NATO’s strategic encroachment on the ex-Soviet space (‘From containment to enlargement’, in the words of Clinton’s National Security Advisor).

Since 1991, the latter has involved territorial dismemberment of the collapsed state across its southern and western perimeters, followed swiftly by NATO’s absorption of ex-Soviet Baltic states.

Poland, Lithuania, Latvia, Estonia and Ukraine now provide a cordon sanitaire between Russia and Germany, while extension of NATO’s security alliance to include Romania, Bulgaria and perhaps (long touted) Ukraine allows US domination of the Black Sea and Caspian basin, and thus of the Caucasus and Central Asia.

Moscow’s capacity for naval power projection into the Baltic and Mediterranean, and overland links to the Persian Gulf via the Caucasus and Caspian Basin, have been abruptly diminished.

The extent of the ‘peace dividend’ won by Washington was bluntly spelt out by Brzezinski in The Grand Chessboard (1997):

The collapse of the Soviet Union produced a dramatic historical reversal. In the course of merely a few weeks in December 1991, Russia’s Asian space suddenly shrank by about 20 percent, and the population Russia controlled in Asia was cut from 75 million to about 30 million. In addition, another 18 million residents in the Caucasus were also detached from Russia. Making these reversals even more painful to the Russian political elite was the awareness that the economic potential of these areas was now being targeted by foreign interests with the financial means to invest in, develop, and exploit resources that until very recently were accessible to Russia alone.


The collapse of the Soviet Union produced monumental geopolitical confusion. In the course of a mere fortnight, the Russian people  who, generally speaking, were even less forewarned than the outside world of the Soviet Union’s approaching disintegration  suddenly discovered that they [sic] were no longer the masters of a transcontinental empire but that the frontiers of Russia had been rolled back to where they had been in the Caucasus in the early 1800s, in Central Asia in the mid-1800s, and much more dramatically and painfully  in the West in approximately 1600, soon after the reign of Ivan the Terrible.


In brief, Russia, until recently the forger of a great territorial empire and the leader of an ideological bloc of satellite states extending into the very heart of Europe and at one point to the South China Sea, had become a troubled national state, without easy geographic access to the outside world and potentially vulnerable to debilitating conflicts with its neighbours on its western, southern, and eastern flanks. Only the uninhabitable and inaccessible northern spaces, almost permanently frozen, seemed geopolitically secure.

Brzezinski former Soviet Union

At this turn of events, Brzezinski, like Clinton, felt the Kremlin’s pain:

Most painful of all, Russia’s international status was significantly degraded, with one of the world’s two superpowers now viewed by many as little more than a Third World regional power, though still possessing a significant but increasingly antiquated nuclear arsenal.

But the foreign-policy strategist must keep his head and focus on the prize:

The disintegration late in 1991 of the world’s territorially largest state created a “black hole” in the very center of Eurasia. It was as if the geopoliticians’ “heartland” had been suddenly yanked from the global map.

The collapse of the Russian Empire created a power void in the very heart of Eurasia….

For America, this new and perplexing geopolitical situation poses a crucial challenge… [The] long-range task remains: how to encourage Russia’s democratic transformation and economic recovery while avoiding the reemergence of a Eurasian empire that could obstruct the American geostrategic goal of shaping a larger Euro-Atlantic system to which Russia can then be stably and safely related.

In this project of permanently subjugating an enfeebled Moscow, and reducing its territorial influence to a narrow rump, one (Ruthenian) treasure held particular value:

Ukraine, a new and important space on the Eurasian chessboard, is a geopolitical pivot because its very existence as an independent country helps to transform Russia. Without Ukraine, Russia ceases to be a Eurasian empire. Russia without Ukraine can strive for imperial status, but it would then become a predominantly Asian imperial state, more likely to be drawn into debilitating conflicts with aroused Central Asians… However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as its access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia. Ukraine’s loss of independence would have immediate consequences for Central Europe, transforming Poland into the geopolitical pivot on the eastern frontier of a united Europe.

The truth of the matter was crisply put: ‘Now a non-Eurasian power is preeminent in Eurasia — and America’s global primacy is directly dependent on how long and how effectively its preponderance on the Eurasian continent is sustained.’

This sober reckoning of respective forces supplies a bracing antidote to today’s Euro-American media consensus, the weight of the political class behind it, for which a ravening Muscovite bear again stalks Eurasia.

Brzezinski - NATO axis 2010

Roemer’s retour à property rights; or, Justice as squareness

February 12, 2014 by

The Hayekians Tyler Cowen and Peter Boettke have alerted econobloggers to a recent article by John Roemer: ‘Thoughts on arrangements of property rights in productive assets’.

Roemer has kept quiet on this topic for the past 20 years, having proposed a coupon/mutual-fund model of market socialism back in the early 1990s.

Two decades on, what does he have to say about these issues? On the whole, very little.

Roemer market socialism

Roemer’s impatience and waning interest in the subject had been evident back in A Future for Socialism (1994).

In that book, property relations were candidly described as mere means rather than ends in their own right. They were not intrinsically worthy of attention, whether political or theoretical:

[In] Eastern Eu­rope, many different proposals for what to do about the formerly state-owned firms are currently under debate…

My view is that socialists have made a fetish of public ownership… What socialists want are the three equalities [of welfare and self-realization, political influence and social status]; they should be open-minded about what kind of property relations in productive assets would bring about those equalities… The link between state ownership… and the three equalities is tenuous, and I think one does much better to drop the concept from the socialist construction….

Another instance of the fetishism of public ownership is the position common among socialists that the public should decide, presumably through some kind of representative democracy, how to use the economic surplus (or, as economists say, how to determine the rate and sectoral distribution of investment)…

[But if] there were a full set of futures markets, if externalities associated with investment were small, and if people’s preferences were formed under conditions of equal opportunity, I would have little objection to determination of investment by the market…

In sum, I view the choice of property rights over firms and other resources to be an entirely instrumental matter; possibilities for organizing such rights should be evaluated by socialists according to the likelihood that they will induce the three equalities with which socialists are concerned.

Such pragmatic insouciance, while long a feature of Roemer’s work, had not hitherto applied on this fundamental question.

Previously, as late as 1989, he had seemed to think such doctrinal matters were essentially settled and non-negotiable. Revision or amputation of these basic socialist principles, unlike many others, was deemed unnecessary.

Roemer himself still retained the classical enthusiasm for socialized industry, to judge by his article from that year, ‘Public ownership and private property externalities’. There, exhibiting little of the later diffidence, he lined up dutifully behind public ownership, calling for the ‘abolition of capitalist private property… not simply the particular distribution of it that exists in capitalist societies.’

‘Market socialism’, in its 1989 definition, and even later, meant: ‘(a) public ownership of the means of production and (b) private ownership of skills and labour.’

As Mill had once pleaded that the ‘principle of private property has never yet had a fair trial in any country’, and should be judged ‘at its best… not as it is, but as it might be,’ Roemer likewise declared that Stalinism could not constitute the final verdict on socialized property, for the latter had been warped and perverted by its bureaucratic rule.

Yet, as with many other left-wing intellectuals, Roemer’s political beliefs and professional networks were transformed abruptly during five years in the late 1980s and early 1990s.

Thus, amid the collapse of European Stalinism, Roemer would present his 1994 book as a blueprint for a more ‘feasible socialism’, shorn of outmoded features. With restoration now underway in eastern Europe, might not that region provide a testing-ground for novel projects?

The countries where the opportunity costs of adopting market socialism are the least are, I believe, those that have formed in Eastern/Central Europe and out of the Soviet Union since 1989. These countries face a momentous task of institution building, no matter what kind of market system they will have, and one could argue that the costs of designing a coupon stock market, a bank-centric monitoring system, and constitutions that adequately shelter economic institutions (banks, firms) from state interference would be no greater than the costs of building a capitalist system along Anglo-American lines…

[I]ntroducing the kind of market socialism advocated here in some of these states will perhaps be politically possible in a few years… I think, as well, that this kind of transformation is not out of the question in China or Viet­nam, or perhaps in Cuba.

This was recognizably wishful thinking, and unsurprisingly events did not turn out as Roemer had hoped.

An unkind reader (Jon Elster?) might suggest that Roemer could not candidly admit to himself or his readers how irresistibly the political and ideological wind was blowing in the direction of capitalist restoration, for to do so would have exposed his own work as just one more unexceptional instance in the general market-embracing process.

Roemer’s market-socialist vision did not provide any group with political inspiration, left behind no adherents, and is long forgotten. (It proved itself of momentary use to some. When in 1995 the British Labour Party abandoned its own ‘fetish’ for nationalized industry, two of its house intellectuals, writing in New Left Review, acknowledged Roemer’s coupon model as kin, if not direct inspiration, for Tony Blair’s ‘new politics of ownership’).

Roemer subsequently shifted intellectual territory, devoting himself to innovative work in political science. As a kind of minor post-Rawlsian, he also did some less groundbreaking work on distributive justice

The latter field now provides occasion for him to revisit matters long neglected.

He has contributed to a special journal issue devoted to John Rawls’s idea of ‘property-owning democracy’.

This latter term, vague and short on institutional specifics, was introduced by Rawls as a possible ‘alternative to capitalism.’ It is flexible enough to have been adopted by Margaret Thatcher (indeed, its roots lay in British anti-Labourism). On anyone’s reading, whatever substance the term might have lay in the compound adjective rather than the noun it modified. Lately it has been rediscovered as fertile material for political philosophers, generating much learned commentary.

Roemer starts his new article on familiar old ground. If exploitation arises from asset inequality (differential ownership of productive resources allows the wealthy to appropriate the labour effort of employees) he imagines what would happen if everyone owned his or her per capita share of capital goods:

In thinking about alternatives for the arrangement of property rights in the United States, it is useful to begin with some facts.

In 2007, before the financial crash, the total market capitalization of US stocks was $51 trillion. There are approximately 114 million households, and so if those corporate assets were to be owned in equal shares by households, each would own about $449 000 in corporate equities. The share of capital income (profits, rent, interest and proprietors’ income) in national income is around 25%, but this oscillates over time.

Thus, under an egalitarian distribution of capital assets, and assuming profitability and labour supply remained about the same as now, each household would earn about one-fourth of its income from capital. If we take the average real rate of return on capital to be 4%, then each household would earn about $18 000 per annum from returns on its equity portfolio.

This would, in particular, have a substantial impact on poverty.

In the 1980s Roemer had presented this scenario as ‘people’s capitalism’, in which there was no abolition of private property per se, but only a correction of its unequal distribution.

It is recognizable as Rawls’s model of property-owning democracy, and less so as Roemer’s own blueprint for market socialism.

In the latter scheme, public ownership was, though mutilated beyond recognition, nominally preserved. Roemer had defined his market socialism as ‘a politico-economic mechanism embodying competitive politics, market allocation of most goods, and public ownership.’

(In the conclusion to A Future for Socialism, he repeatedly spoke of ‘nationalization of private assets’ as a step ushering a society towards his market socialism. Elsewhere he emphasized the ‘reorganization of property rights’, rather than simply their redistribution. With Pranab Bardhan he declared: ‘We take public ownership, in a wider sense, to mean that the distribution of the profits of firms is decided by the political democratic process—yet the control of firms might well be in the hands of agents who do not represent the state.’)

It is true that a distinction between the two schemes, Roemer’s market socialism and Rawls’s property-owning democracy, is hard to maintain. In the early 1990s Roemer exerted little effort to deny their practical equivalence. In any case, his own stated views obliged him to carry on as though the precise arrangement of property relations was irrelevant: what mattered were the downstream consequences for egalitarianism.

Thus he declared early in A Future for Socialism: ‘This work was not initiated by the socialist movement but by the publication of John Rawls’s book, A Theory of Justice, in 1971.’

But Rawls, for one, insisted that ‘property-owning democracy’ was something distinct from the market-using economic arrangement he called ‘liberal socialism’.

And Roemer, in 1994, found it both meaningful and congenial to use the appellation ‘market socialism’, and to assert, with some adamance, that ‘socialism remains an ideal worth pursuing’, and moreover worth preserving as a distinct kind of egalitarianism not otherwise provided for.

He continued to refer to himself as a Marxist, not a liberal egalitarian, and did not publicly resile from previous statements like: ‘[The] Marxist negation of “unequal ownership of the means of production” is not “equal but private ownership of the means of production.”‘

Twenty years later, however, the political setting warrants less compunction than before. Roemer thus goes further, saying his vision had, like Rawls’s, simply ‘intended to maintain approximately equal corporate ownership by households.’ In A Future for Socialism he had merely proposed a system of property relations that was ‘what we currently have, except… egalitarian.’

Roemer model - Per capita profit income

Having retrospectively given his scheme the name ‘property-owning democracy’, Roemer now declares himself ‘skeptical of further pursuing the approach I proposed in 1994.’

Tyler Cowen is not quite correct to describe this as Roemer’s recantation. It is instead a peculiar mix of revisionism, confession and apostasy: What I said was not what I claimed to be saying at the time, and anyway I don’t believe it (“Which part?” “None of it!”) any more.

Roemer proceeds thereafter in rambling and discursive fashion, making breezily gnomic assertions about what is feasible and what is desirable, and rarely slowing to provide evidence for his claims:

[There] appear to be three alternatives for the way in which firms can be owned, which might deliver a more egalitarian distribution of income: state ownership, worker ownership, and household ownership.


The efficiency of state ownership continues to be debated. A number of industries, in a number of countries, have done well under state ownership: steel in Korea, insurance in Germany, oil and railroads in a number of countries, retail liquor in Canada, many sectors in China, and banking in Taiwan and some other countries. The key seems to be to give a good deal of autonomy to the industry, that is to shield it from political interference. As a template for the economy as a whole, it is probably not workable.


One of the very important developments of the late twentieth century was that the composition of the richest tranche of the US population changed. A very significant portion of the income of the very rich now comes from salaries, not from capital. It is earned income, in IRS terminology.

These people are the upper management of corporations, both financial and industrial, movie stars, some athletes, some highly paid professionals, and I conjecture that, for the most part, the salaries of these individuals are competitively determined. No one would challenge this claim with respect to movie stars or athletes, but many would challenge it for corporate management. I think it may well be true of their salaries as well.

It’s that sort of article. More formal or technical argument may well have been out of place, but it is remarkable that after his long hiatus Roemer did not feel obliged to be more seriously minded about the topic.

Were there no criticisms from the left he might have addressed? Was A Future for Socialism marred only by its author’s excessive political optimism and radical fervour? Do the only ‘problems that one must face if one wants to design a property-owning democracy in which the distribution of ownership of firms remains quite egalitarian’ arise from a ‘culture of greed’ existing in the contemporary United States?

Roemer today is ‘not eager to defend’ A Future for Socialism. Has he outgrown it, or have events rendered its proposals outdated? There are good reasons to imagined him satisfied with its consequences, though the book failed in its explicit aim of ‘designing the next wave of socialist experiments’.

In the late 1980s many left-wing academics found themselves in a professional bind. They had made large Marx-specific investments (the sunk costs incurred in acquiring specialized knowledge about property relations, classes, modes of production, etc.).

The time, effort and money put into this training were designed not for general scholarly purposes. The skills learnt were suited for a particular world in which socialism and social democracy were serious prospects and could be discussed, with people much like themselves, in polite collegial conversation, while also providing opportunities for deployment outside the university.

With the collapse of Stalinism and social democracy/labourism, these dedicated skills were suddenly much less valuable. Such specialized expertise could not easily be redeployed, especially in economics and political science departments. Specific investments could either be written off at a loss, or put to alternative use, if the latter could be found.

Engaging in speculation about market socialism and ‘transitology’ thus served a purpose for people like Roemer. It allowed them to deploy their available skills in an academically respectable manner, smoothing out the switching costs while gradually converting to mainstream social science.

Once this transition was achieved, it became apparent that their preoccupations now lay permanently elsewhere. The topics of the past became the past, no longer meriting sustained concern. What had been a hasty and undignified rush for the exit would henceforth discourage any return to collect belongings or settle arrears.

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

September 26, 2013 by

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.


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.

Swimming in it

September 18, 2013 by

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 by

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.