Modern History: Ports, Finance, Power, and Free Trade (1919-2019)

I've discussed modern history before, but I see no harm in trying again. Summarizing any time period is bound to exclude important events and people, and assigning exact percentages of influence is impossible. (For example, Elon Musk is better known than Martin Eberhard, but the latter founded Tesla Inc., and Eberhard surely benefited from GM's EV1 research in the 1990s.) With these two caveats in mind, let's continue. 

"Europeans... are the conflicted inheritors of a long military tradition." -- Justin Vaïsse

In 1919, WWI's devastation forced Germany (aka the Weimar Republic) to accept the Treaty of Versailles' onerous terms, which did not contemplate re-establishing Germany as an equal member among world nations. In 1920, the League of Nations, the precursor to the modern United Nations, was convened, but its difficulty enforcing terms contrary to Britain and France's wishes meant true diplomacy was limited from the start. Indeed, in 1922, after Germany claimed it couldn't make its scheduled reparations payment, France and Belgium invaded the Ruhr in 1923 and occupied Germany until 1925 to ensure deliveries of coal, iron, steel, and timber. 

Inflation, high unemployment, and Germany's lack of a stable currency made it hard to administer the German economy in mutually beneficial ways. In 1924, the Dawes Plan, for which Charles G. Dawes and Austen Chamberlain received the Nobel Peace Prize, injected American capital into Germany, shifting much of the burden of German reparations onto American bondholders, creating a more probable repayment scenario and convincing French and Belgian occupiers to leave the following year. 

The United States's credibility in international relations derived in part from its large post-WWI gold reserves, some of which were housed at Fort Knox (built in 1918). Although the U.S. dollar ceased to be backed by gold reserves in 1919, Britain in 1925 returned to a gold bullion standard, likely causing potential investments to leave European neighbors and the United States and enter Britain--around the same time American bondholders had taken risks in stabilizing Europe. Britain's action assisted it in repaying its own debt to the United States as well as signaling an answer to declining wages and inflation across Europe, but had the unintentional effect of France devaluing its own currency to undermine Britain's desired status as superior trade exporter. In choosing the gold standard, Winston Churchill wanted Britain to be both a financial and trading center during a time when America was reeling from the Teapot Dome scandal and President Calvin Coolidge was preoccupied with Latin American affairs: 

I believe that the establishment of this great area of common arrangement [aka the gold standard] will facilitate the revival of international trade and of inter-Imperial trade. Such a revival and such a foundation is important to all countries and to no country is it more important than to this island, whose population is larger than its agriculture or its industry can sustain which is the centre of a wide Empire, and which, in spite of all its burdens, has still retained, if not the primacy, at any rate the central position, in the financial systems of the world. (Churchill, 1925, to Britain's House of Commons)

Although the initial effects of a strong pound/sterling attracted investment, Britain was unable to stimulate demand, leading to sustained unemployment. Meanwhile, in America, taxes were slashed, consumer credit extended, and wartime manufacturing capacity transitioned into peacetime production. Such success led to increased borrowing generally and speculation in America's stock market. 

By 1929, greater complexity in currency obligations, international trade, and wage stability prompted the creation of the Young Plan (promoted by America's J.P. Morgan, Jr. and finalized on August 31, 1929) to supplant the Dawes Plan in 1930, but it was too late. In Germany, the National Socialists (aka Nazis) sought a "Liberty Law" (aka Law against the Enslavement of the German People) to disavow all reparations, which was overwhelmingly voted down on October 16, 1929. Even so, on October 24, 1929, America's stock market crashed, perhaps anticipating global instability and large losses in its German-linked bonds. The German government's rejection of the "Liberty Law" increased Adolf Hitler's and the National Socialists' visibility when they took the proposal directly to the German people on December 22, 1929. On January 30, 1933, Adolf Hitler was appointed Chancellor of Germany. In 1938, Hitler invaded Austria, setting in motion WWII from 1939 to 1945. 

Britain would abandon the gold standard in September 1931, about two years after America's October 1929 stock market crash. By 1933, almost two-thirds of world trade had vanished. That same year, President Franklin Delano Roosevelt banned private ownership of gold bullion, gold certificates, and gold coins, intending to remove impediments to the devaluation of the U.S. dollar in 1934. 

(Bonus: Germany did not pay off the interest owed on its reparations debt until 2010. As of June 2019, Germany has the strongest economy in Europe, and one of its banks has loaned billions of dollars to the current president of the United States, a man sometimes compared to a former German Chancellor. With "Brexit," Britain continues to vacillate between maintaining preferential American relations or becoming a full member of a new Europe, where it will compete with non-English-speaking France, non-EU Norway, and Germany.) 

In July 1944, forty-four Allied countries attended the Bretton Woods Conference in New Hampshire, where they, anticipating Germany's defeat, looked ahead to a new international paradigm led by the United States. In 1945, Congress ratified the Bretton Woods agreement, establishing a new gold exchange standard promoting currency convertibility, the International Monetary Fund (IMF), and the World Bank. The USSR (aka the Soviet Union), one of the primary reasons for Germany's defeat in WWII, did not ratify the Bretton Woods agreement and did not join the IMF or the World Bank. With respect to the gold standard, America, anticipating greater spending and involvement in the Vietnam War, once again forbade private ownership of gold in 1961, then de-linked the dollar with gold in 1971, four years before its defeat in Vietnam. 

(Bonus: from Allison J. Truitt's Dreaming of Money in Ho Chi Minh City (2013): "The United States' massive military expenditures in Southeast Asia led to the collapse of its ability to maintain the dollar's fixed value relative to gold. When the US government put an end to the dollar's convertibility in 1971, it ushered in a new era of more flexible and more volatile exchange rates.")

After 1945, naval power plus nuclear and satellite-related technology plus natural resources (e.g., oil) determined which countries would set the rules of the world. America could set many of these rules because its two neighboring oceans had afforded it the protection to enter WWII late, minimizing its human and materiel losses. Having the advantage of only needing to rebuild a single state (Hawaii) rather than numerous cities, America was willing to assist other players through a mutually beneficial system in which it distributed power--and favor--through ports, loans, and trade agreements. 

Countering America's power were the Soviet Union--equally determined to spread its economic system--as well as a China comfortable in being isolationist in the short term. The task of rebuilding infrastructure required not just the possession and transport of raw materials but implicit assurances of reliability. Hence, shipbuilding, ship repairing, refueling stations, and port efficiency became prized skills, and strategically-located countries like Singapore, Hong Kong, and Taiwan (aka Chinese Taipei) became valuable allies. 

To diminish the West's military strategy of choosing a small country along a strategic shipping (e.g., Singapore, Eritrea, Falkland Islands) or geographical (e.g., Poland) point, then shepherding that country into an alliance at the expense of its relations with its neighbors, the East attempted to use the same strategy with Cuba and other countries, primarily Vietnam and Mongolia. The East's mimicking of the West in this regard failed, in large part because its comparatively underdeveloped banking, legal, and insurance sectors could not generate similar investment returns, leading to slower income growth (though less inequality) and personal dissatisfaction in Eastern countries. By the 1980s, the resource-rich Soviet Union was borrowing money from Western banks because its ruble was not freely convertible to other currencies, foreshadowing its 1991 dissolution. 

While both the Soviet Union and China pursued a strategy of self-sufficiency, America demurred, using its naval power and satellite countries (Singapore, Taiwan, South Korea, Saudi Arabia, Israel, South Africa, United Kingdom) to increase its share of worldwide foreign trade. By 1962, America's Trade Expansion Act allowed President Kennedy to reduce tariffs by up to 80%, increasing foreign trade and therefore the influence and strength of the U.S. dollar. 

The Soviet Union's failure to create multinational banks--resulting from the assumption its vast natural resources and military strength were enough to maintain empire--meant its economy and ability to project power depended wholly on oil prices. The Soviet Union's lack of economic diversification also exacerbated competition, most pitched during WWII, between the East and West for control of oil supplies. 

Such competition had the effect of requiring large military expenditures to deter others from seeking similar control, rendering empire and power contingent on military and industrial cooperation. As oil, naval efficiency, and multinational banks became more important to an increasingly globalized and interdependent economy, military spending began driving economic growth. To protect investments and jobs, large financial outlays were channeled through an increasingly smaller elite, often associated with banks, insurers, and military on national levels; educators, natural resource producers, and unions on state levels; and real estate development and police on local levels. All aforementioned players would have access to financial terms and conditions unavailable to most people outside their spheres, allowing debt to inflate their influence at the expense of perhaps more innovative competitors. Most troubling, the projection of external power backed by foreign currency into a developing nation disfavored minorities and dissidents within such nations, sometimes with violently tragic consequences. 

As the West's international influence grew through debt and trade agreements, so did domestic vested interests, making substantive change increasingly difficult. For example, though the 2007-2009 financial crisis was caused by excessive debt and lax financial regulation, by 2019, overall debt had increased beyond its 2007 threshold. Such debt was deemed necessary to project influence or gain access to lucrative markets, though wise politicians found a balance between foreign trade and domestic infrastructure spending. As competition increased between major powers--designated by access to the most advanced nuclear, AI, cyber-warfare, surveillance, and satellite technology--risks continued to multiply in the interlinked worldwide economy. A rising EU, China, and Russia meant post-WWII alliances such as U.S.-led NATO no longer yielded the same positive economic or humanitarian results. [From UNHCR (2019): "the number of people who are forcibly displaced globally is indeed at an all-time high since the end of World War Two."] 

With technological advances outpacing cultural understanding (e.g., seamless and accurate language translations), negotiation and cooperation within the same geographical spheres became unwieldy and ROI uncertain, causing politicians to use tariffs and other measures to favor their own technological platforms, currency, and media content. In addition, the desire for consistent debt repayments made monopolies more acceptable and free trade's premise of fair competition less benign. 

Part of the problem was that overlapping and trans-continental trade agreements were based, at their root, on economist David Ricardo's ideas of tangible trade between just two nations: Portuguese wine for English cloth. In short, the global trading system assumed a paradigm of clear laws, finite trading partners, mutually beneficial cooperation, and tangible products. In reality, countries favoring fair play had to contend with greater unpredictability in consumer demand, tax revenues, informal economic actors, and domestic resource needs, making them more dependent on debt. As such, "free trade," especially within the context of intellectual property rights, favored developed over developing nations, and corporations over individuals, with developing nations often pledging fealty to one particular developed country over another to gain access to capital. 

Despite perennially low (and sometimes even negative) interest rates, the economic stability promised through open markets and respect for domestic producers had not come to fruition, reducing esteem for moderate Western politicians and existing practices. Smaller or less developed countries began to better utilize trade associations such as ASEAN or to develop new ones like the African Continental Free Trade Agreement (AfCFTA), realizing their local consumer populations were sufficient to improve living conditions without excessive interference by developed countries. The more developing countries began to wean themselves from post-WWII economic rules, the more the future of capital and labor became unpredictable, causing a rise in extremism. As governments, mostly in the West, realized they had sanctioned a technologically-driven economy without any firsthand technological expertise, they enacted flaccid countermeasures which further damaged their credibility. In 2019, tech corporations, often run by executives not subject to removal due to supermajority voting shares, began exploring plans to issue their own currencies. 

[W]e believe that the right to coin money and issue money is a function of government... We believe it is a part of sovereignty and can no more with safety be delegated to private individuals than can the power to make penal statutes or levy laws for taxation... I [say] that the issue of money is a function of the government and the banks should go out of the governing business. 

-- William Jennings Bryan, American, anti-imperialist politician, in 1896 

By summer of 2019, the first stanza of W.B Yeats' 1919 poem, "The Second Coming," written after WWI, seemed tailor-made for the present: 

"Turning and turning in the widening gyre 
The falcon cannot hear the falconer; 
Things fall apart; the centre cannot hold; 
Mere anarchy is loosed upon the world, 
The blood-dimmed tide is loosed, and everywhere 
The ceremony of innocence is drowned; 
The best lack all conviction, while the worst 
Are full of passionate intensity."

So it goes. 

© Matthew Mehdi Rafat (2019) 

A Primer on Modern History

The study of modern history is needlessly complicated. Unfortunately, most history teachers and professors spent their lives in a few countries or studied only a single subject, rendering them unable to provide the context students so desperately need. I have tried below to provide a straightforward framework acceptable to everyone. Without such a framework, historical understanding will fracture, and humanity will continue to repeat the same mistakes.

Since 1945, every single government and military has been focused on attaining or preventing others from attaining nuclear weapons. After the United States dropped bombs on Hiroshima and Nagasaki, ending WWII, politicians and military leaders realized existing defense/protection paradigms no longer applied. A country with the most skilled troops, superior munitions, most efficient supply chains, best hygiene (to prevent disease, which often killed more soldiers than active combat), and even superior strategy would not necessarily prevail. Now, only three things mattered: technology and the ability and willingness to use it. Developing brawn had given way to developing brains and gaining (accurate) information.

Military budgets prioritized R&D and began to emphasize covert operations. As governments continued competing for the moral high ground, questions became more complex. When was a first strike politically acceptable? How could one determine whether a recruit would keep secrets? How could countries identify the best minds in the world and entice them to relocate? (e.g., Operation Paperclip) 

Such a shift required a mix of intrigue, psychology, persuasion, media influence, and propaganda. Intelligence communities realized they would be key players in the new paradigm and, in an era prior to CCTVs and ubiquitous technological surveillance, reliable human assets and agents would be the difference between victory and defeat. Furthermore, where soft power and persuasion would not work, assassinations and abductions would--preferably through a third party ally. [Evidence: Operation Damocles; Anwar al-Awlaki and his 16 years-old son; Israel assassinating Iranian nuclear scientists Masoud Alimohammadi, Majid Shahriar, Darioush Rezaeinejad, Mostafa Ahmadi Roshan, and possibly Ardeshir Hassanpour, mimicking USA's strategy against Germany.] 

Such tactics were not enough for military and intelligence units, which also resorted to false flag operations or coups on a much wider scale. [e.g., Gulf of Tonkin, Lavon Affair/Operation Susannah, Operation Ajax (1953), Operation Musketeer (1956)] Facing potential conflicts between civilian and military objectives, democratic regimes sought to limit international interference with domestic governance, causing ideological splits regarding the balance of law, order, and dissent. As domestic resistance increased, it had the potential to upend military alliances post-WWII, which involved important economic treaties and investments. (See “most favored nation” clause, which used USA's stronger currency to tilt trade in its favor: “The American workman, by 1960, had the highest standard of living in the world, and all due to what they genteelly called ‘the most favored nation’ clause in every commercial transaction with the East.” – Philip K. Dick) 

The failure of Western governments to foresee strong domestic resistance to international policies led to more secrecy in the name of national security, both at home and abroad. The private security industry, not subject to invasive government oversight, began its ascent. British-based Securicor is one example. In 1953, it specialized in delivery and logistics, eventually making its way into the telecom (aka surveillance and data-gathering) business. Today, it is part of G4S, the world's largest security company. With 585,000 employees, G4S is the world's third largest private sector employer and the largest in Europe and Africa. (See the film Logan (2017) for a dystopian view of the possible evolution of private security firms.) 

Returning to the 1960s, covert operations and violations of territorial sovereignty (Operation Menu) became more accepted within governments as the United States began to realize its superior armaments were not enough in Vietnam. As nuclear energy and more lethal weapons accelerated the risks of being outside established alliances, countries and military leaders were forced into one of two camps: pro-Soviet Union (which in practice often meant pro-China) and pro-American. Meanwhile, existing and aspiring world leaders learned that favorable (or in the case of Vietnam, unfavorable) media coverage and asymmetrical warfare—later used by Osama bin Laden—could defeat larger powers or at least convince them to leave. Like private security firms, the general media industries--in this case, television and radio--began their steady ascent. 

Its ability to influence world affairs now jeopardized by increasing Chinese and Soviet influence in Asia and Eastern Europe as well as domestic turmoil, America began addressing matters under its direct control more forcefully. American police started using the same tactics as the military and intelligence communities on their own people. (Potential lesson: once the military uses a particular strategy successfully, it is only a matter of time before the civilian government deploys similar strategies.) 

Surveillance, infiltration, and financially-debilitating lawsuits were used against antiwar groups and activists from MLK to Muhammad Ali to John Lennon. The term “law and order” became a justification for a proxy war against protesters, later morphing into President Reagan’s "War on Drugs." Ironically, countervailing forces that bolstered social change came partly from the military, which had relied on greater female participation in the private workforce during wartime as well as soldiers of color, including but not limited to Jackie Robinson. 

Politicians like America's Joseph McCarthy had used the media to blacklist anyone deemed an adversarial nonconformist in the 1950s at the same time the Soviet Union and its satellite forces were blacklisting and jailing dissidents.As power-hungry politicians gained more power, propaganda against dissenters became more widespread, with police officers in some jurisdictions ordered to attack nonviolent protestors while federal agencies (J. Edgar Hoover) spied on civil rights leaders. As lines between international and domestic operations blurred, the Watergate scandal was a natural and inevitable result. (See The Most Dangerous Man in America (2009).) 

Were it not for the courageous work of American whistleblowers and journalists (e.g., All the President’s Men (1976)), who often ignored conservative legal advice from their employers, secretive operations would have continued without abatement. Unfortunately, civilian resistance movements against the Eastern Establishment were not as strong as ones in the West, thus preserving the East's status quo--a status quo that would later prove to be unsustainable, essentially bankrupting the Soviet Union and ending its petro-military-industrial economic model. 

In the West, where the status quo was fraying, greater diversity flourished, both strengthening and weakening authoritarian impulses. Taking advantage of distractions in Southeast Asia and Central/South America, some countries decided to cooperate outside U.S. or Soviet-led alliances, much in the same way China would later exploit America’s failure to “pivot to Asia” after the costly and counterproductive 2003 Iraq War. [Examples: creation of ASEAN in 1967; “mid-level” countries like Argentina and Iran working to resume nuclear cooperation, only to see outside events interfere with their relationships, such as the Buenos Aires 1992 embassy bombing, in which neither Argentina nor Iran strangely derived any benefit.]

In 1973, the OPEC embargo added yet another disruptor to the existing world order, namely the integrity of the oil supply chain, which formed the underlying basis of U.S. dollar strength and numerous economic treaties. Post-Nixon and the cessation of active armed conflict between West and East, economic statecraft became the way forward, with America’s mighty Navy and more developed financial markets giving the West a clear advantage. Trade, oil, weapons development, and continued control of nuclear energy would dominate international relations until the birth of the internet in the 1990s. The formal dissolution of the Soviet Union on December 26, 1991 provided America with the opportunity to create what President George Bush, formerly the CIA's Director, called a “new world order” on September 11, 1990, a period lasting until September 11, 2001. America's 2003 invasion of Iraq, driven by falsified pretenses, shattered America's reputation, allowing other countries to vie for global dominance. And here we are. 

© Matthew Mehdi Rafat (2017)

Bonus: another historical pattern is that when two countries enter into a treaty—whether to avoid war or after a conflict—often only one party intends on upholding the terms. The other party uses the break in tensions to disarm—both literally and figuratively—the other signatory, eventually invading the former enemy and prevailing through political chicanery.

Bonus: when we hear the term, "divide and conquer," we typically understand the term absent historical context. After WWII, the British, despite prevailing, were in debt and could not maintain their empire, which once spanned a quarter of the globe. They attempted to break up or partition several areas in order to more easily manage them and to allow Western powers to maintain naval supremacy. Singapore's break from Malaysia is one example--keep the port, leave the land. Divide and conquer. Yet, even with lesser security obligations, European powers, particularly the British and the French, could not afford empire status. By the time of the Vietnam War, Europe had effectively handed off empire duties and corresponding security--both for Westerners living abroad as well as Western-owned businesses--to the United States. 

Bonus: from Allison J. Truitt's Dreaming of Money in Ho Chi Minh City (2013): "The United States' massive military expenditures in Southeast Asia led to the collapse of its ability to maintain the dollar's fixed value relative to gold. When the US government put an end to the dollar's convertibility in 1971, it ushered in a new era of more flexible and more volatile exchange rates." 

Bonus: counterpoint from Singapore's Kishore Mahbubani's Has the West Lost It? (2018)

Bonus: if you enjoyed this post, you may also like this one: Ports, Finance, Power, and Free Trade. 

Bonus: "History... is not merely something to be read... On the contrary, the great force of history comes from the fact that we carry it within us, are unconsciously controlled by it in many ways, and history is literally present in all that we do.  It could scarcely be otherwise, since it is to history that we owe our frames of reference, our identities, and our aspirations." -- James Baldwin, USA (1965)