For the 4th month running – the highest monthly clicks – this time 170,000 – and still counting. I liked this book – and also Branko Milanovic’s comment on it - The Triumph of Broken Promises – the end of the cold war and the rise of neoliberalism Fritz Bartel (2022)
This book argues the Cold War began as a race to make promises, but it ended as aBranko Milanovic has one of the best blogs and wrote this about the book
race to break promises. Democratic capitalism prevailed in the Cold War because it
proved capable of breaking promises and imposing economic discipline.
Communism collapsed because it could not. Neoliberalism rose as the Cold War
waned because its promarket, anti-statist rhetoric provided governments with an
ideological framework for breaking promises. Electoral democracy and neoliberal
ideology gave Western states the political and ideological tools to meet the challenge
of breaking promises. Lacking these tools, the communist states of the Eastern Bloc
democratized their political systems and reformed their ideology in the 1980s as a
means of imposing economic discipline.
The end of the Cold War, then, was a triumph of broken promises because it was the
challenge of imposing economic discipline that ultimately brought the conflict to its
end and gave rise to the neoliberal global economy of the late twentieth century.The book can be summarized as follows. Faced with unprecedented economic
shocks that made the continuation of post World War II policies impossible,
both types of government had to resort to disciplining of labor and to
“breaking of promises” with the citizenry.
Western government were able to weather the storm because they had the
support of capitalist money and enjoyed domestic legitimacy obtained through
elections. Eastern government that heavily borrowed in order not to have to
break promises, couldn’t repay the loans in the 1980s and found themselves
at the mercy of world capitalism, and by extension of capitalist governments
that controlled the international financial system. Now, why were communist governments so keen not to break promises,
while Thatcher and Reagan did break them? And survived.
The answer is politics. Governments in communist countries knew that their
legitimacy could be maintained only so long as they provided numerous
social services and did not insist too much on hard work.
But that equation “we pretend to work and they pretend to pay us” could not
continue forever. The economies sputtered, the rate of growth declined,
social services deteriorated. The only answer was disciplining labor.
In the West, that medicine was applied by Margaret Thatcher as she
repressed organized labor and in particular the miners’ union
(Scargill, any memories?), and in the East, by Edward Gierek and his
numerous successors in Poland. Margaret Thatcher won because she
had the support of other segments of society and labor found itself isolated.
Communist governments could not extract concessions from labor since
society at large did not see the governments as legitimate. Poland and the UK provide almost template cases of the two systems
and Bartel follows them closely. They are natural experiments where many
variables are the same, but one, crucial (political legitimacy) is different.
It did not escape the attention of Mieczyslaw Rakowski, the last
(and ultra reformist) Prime Minister of communist Poland that under
Tadeusz Mazowiecki, the first non-communist Prime Minister, workers
accepted without demurring such significant cuts in real wages and the
standard of living that could not be imagined by any communist
government. In fact, the reforms tried by Vice Premier Sadowski
in Poland in 1987, and those of Leszek Balcerowicz in 1989-90 were
almost identical in their macroeconomic aspects: drastic cut in subsidies,
mopping up of the so-called “liquidity overhand”, increased unemployment,
liberalization of the exchange rate.
But the Sadowski reforms floundered at the first step; the Balcerowicz
reforms survived the difficult period, and established the basis for
Poland’s future growth. It was indeed, in a famous phrase attributed
to Balcerowicz, the short window of “extraordinary politics” that made it possible. There is one aspect however that Bartel overlooks in his, at times overly
eager, search for parallelism between the West and the East.
Communist government were theoretically workers’ governments.
This was their most important, and often sole, claim to legitimacy.
Western governments were/are, despite all democratic sugarcoating,
governments dedicated to the preservation of private property, and hence
de facto capitalist governments. It was ideologically very difficult for
communist governments to go against labor.
The fact that Poland’s government had to fight its own workers showed
its ideological bankruptcy. But for Western governments to go against labor
was ideologically acceptable, even when it was politically difficult in countries
where trade unions and socialist and communist parties were strong (France, Italy). On the other end of the world, Paul Volcker’s “disciplining” caused a
deep recession in the United States and hurt labor.
But by increasing confidence of capital owners that the US would be willing, and
able, to take a strong stance against labor and in favor of capital, they brought
back confidence of the financial markets and stimulated large international capital
inflows into the United States (“Volcker’s willingness to impose unprecedented
economic discipline on the American people showed global capital holders that
American policy makers could, and would, ultimately protect the interests of
capital over the interests of labor”, p. 340).
Those money inflows allowed the US to run forty years of uninterrupted current
account deficits —a thing no other country in the world can dream of. The structural difficulties, described in the case of Poland above, were magnified
for the USSR. Because the USSR not only had to deal with similar internal
economic problems as other East European countries, but also bore the burden
of an inefficient empire. In several fast-pacing chapters Bartel describes the
dilemma of Gorbachev and the Soviet leadership. They realized that there was
a trade-off between domestic economics on the one hand, and military spending
and subsidization of the Empire on the other (“We are at the limit of our capabilities”,
told Gorbachev the Politburo in 1986, p. 178). Gradually, they reconciled themselves
to the loss of the Empire provided they could “sell it” for hard currency with which
to shore up domestic economy. But Gorbachev, Bartel argues, never really bit
the bullet by reforming the economy. He talked and talked, promising that if
money were forthcoming, he would use it to deepen and accelerate the perestroika.
But even when the money came (as in the case of West Germany giving to the
USSR aid and loans to the tune of 15 billion DMs), the reforms were not undertaken,
and the fate of money is unclear. (The end of Chapter 10 which tells the story of
this unseemly bargain is riveting. It is a grand bazaar. Gorbachev begins by asking
DM 20 billion in order to remove Soviet troops from East Germany.
Kohl comes with only DM 5 billion. He asks Americans to help: they refuse.
Kohl then scrambles to find a total of DM 8 billion, the offer that Gorbachev rejects
as a “dead end”. Kohl moves to DM 12 billion. Still no good. In desperation,
Kohl offers an additional DM 3 billion of interest-free loans. Deal.) The last chapters leave us with tantalizing questions, particularly today.
Why was Gorbachev so inept, both in negotiations and policy-making?
Why was there such a disconnect between what Gorbachev rightly saw he
needed to do and what he did? If the empire was to be sold, why was bargaining
so badly done? Was it the lack of knowledge and sophistication from the leaders,
shortage of time, inability to grasp consequences?
It is unclear, but Bartel’s book, particularly in the chapters on the Soviet Union,
will prompt many readers to ask these questions.
When comparing Gorbachev endless chatter followed by begging for money
with the exceedingly rational, cool, and measured Kohl (as well as George Bush senior)
one is struck by the difference in the quality of statecraft.
But surely individual differences cannot be a full answer for what happened.
Gorbachev worked under the conditions where (perhaps because of the policies
he adopted too) the ground was constantly shrinking: his room for maneuver
was getting tinier and tinier by the day. Kohl, on the other hand, buoyed by
the inflow of East German citizens, quasi bankruptcy of GDR, and “deep pockets”
(to quote James Baker) of the Federal Republic, had a permanently expanding
space for negotiation. The book ends with a pertinent reflection on the two empires: the American Empire
was/is a net gain to the United States, as the US managed to have members
of the Empire fund its deficits and increased military spending.
For the USSR, on the other hand, the empire was a net cost: it had to subsidize it,
keep its military ever poised to intervene, and trade it off for domestic prosperity.
(“After 1980, the American empire became an enormous material asset to
Washington, while the Soviet empire remained an enormous burden for Moscow”
, p. 341). One empire was/is composed mostly of voluntary adherents,
the other was composed of countries that were roped in.
But the real difference was that one was economically successful and the
other was not.
