Adam Tooze's Blog, page 28
December 19, 2021
Chartbook #61 RIP: A climate revolution in fiscal policy?
NB: As you will see from the below, this newsletter was being edited literally as Joe Manchin was killing Build Back Better on Fox TV. Gutted. Trying to figure out what comes next. Pinwheel for now …. pinwheel in the darkest colors.
Back in November, a good friend from the climate community (you know who you are) sat me down and explained how he saw the negotiations over Biden’s Build Back Better infrastructure and welfare package working. Out of that came the slow-cooked piece that appeared in the New Statesman last week.

In the New Statesman I attempt a broader assessment at what is at stake in Build Back Better. I want to focus here on the climate part which was the original motivation for the piece.
In the foreground was the haggling with the centrist Democrats Joe Manchin and Kirsten Sinema. With them it was a matter of pork, of “pay-fors”, of fiscal evaluation by the Congressional Budget Office – conventional fiscal politics in other words. It was tortuous and demoralizing to see Biden’s undersized investment program being further whittled down.
To address climate, the dereliction of infrastructure and America’s many social ills, let alone the “China challenge”, the investment program would have needed to have been hundreds of billions more per annum. For a country of America’s resources, the railway and EV-charger components are laughable. Defense spending in excess of $760 billion per annum puts everything else. This is what America is capable of if its political class actually agrees.
But for all the gloom, there was a glint of enthusiasm in my friend’s eye. Behind the scenes the people pushing Build Back Better had a secret weapon – the modeling teams working the numbers for CO2-emissions.
There were several of these teams. Another interlocutor named three that were particularly influential: Rhodium, Energy Innovation and the Princeton Net Zero project. WRI and E3 have also been working on the problem. There is talk of a group of staffers around Senator Chuck Schumer. When Schumer refers to “the best available data from a wide range of organizations that specialize in policy analysis”, he is, presumably, referring to this network.
If there are other key groups involved that I have not mentioned, I apologize. I would love to hear about their work and to assemble a map of this complex of modeling and analytic project. A project for 2022.
I am sure there is a lot more one could say about the different models they use and their implications. But I want to focus here on the political implications.
What they have been doing, through all the Congressional haggling, is to score each of the revised versions of the bill, as they come down from Capitol Hill, with a view to keeping the overall package in line with the climate objectives of the Biden administration. Above all this has involved replacing sticks with carrots. When Manchin strikes a penalty you add in an inducement to speed up the EV-transition.
The upshot, as the WRI has most recently confirmed, is that so long as the basic provisions of Build Back Better make it through the Senate, there is enough there to give the Biden administration a fighting chance of keeping the US on course for a 50 percent emissions reduction relative to 2005 by 2030.

Energy and CO2 emissions modeling have helped to guide the rearguard action. In the context of the broader discussions about the emergence of a new paradigm in economic policy in 2021, this seems to me to be a significant point.
Often the tendency is to assume that new concepts and ideas in economic policy take the stage when a progressive policy program is on the front foot. That, I think, was the tone of the discussion earlier in the year that accompanied the inauguration of the Biden administration. Indeed, the hope was that with new ideas one might actually gain political momentum. Novelty and innovation build energy and momentum. Its a caricature, perhaps, but I think that was the vibe around the association between MMT and the Green New Deal.
What we are seeing in the context of the “Build Back Better”-fight is a different theory of change. New types of knowledge are being brought to bear on the policy-process, but as part of a rearguard action, to save what can be saved.
The scoring of fiscal policy on the basis of CO2 emissions rather than votes in Congress, impact on the Federal deficit, output gaps or GDP, strikes me as a remarkable innovation.
The idea of doing a green stimulus has been around at least since 2007 and the birth of the first Green New Deal. A lot of modeling has been done on the energy transition. But this is something different: blow by blow negotiation of fiscal policy guided by CO2 scoring with a view to achieving a particular target for emissions reductions within a given timeframe. This is much closer to output gap calculations, or conventional fiscal rules, but with CO2 rather than percentages of GDP as the basic metric.
I’m going to call this a historic first.
I think the idea came to me because I had been teaching a segment in my “Capitalism and Democracy” class on the so-called “Keynesian revolution in government” during the 1940s. One of the key issues in that debate about British and American government is: when does fiscal policy become subordinated to a clearly macroeconomic logic?
The historiography is quite technical and seems to have died down on the UK side about thirty years ago. One good summary for the UK side is by Rollings (1988). For the US William J. Barber’s Design within Disorder is a useful overview.
It is parochial in its focus on the Anglosphere. Planners in Goering’s Four Year Plan were doing output gap estimates at the latest by 1938.
It should not be confused with the broader debate about the “invention of the economy” as an object of government, which to my mind predates the “Keynesian revolution in government” by at least two decades.
But there is no doubt, that as far as fiscal policy in the US and the UK is concerned, the 1940s brought major institutional and conceptual changes. And what is striking, is that the Keynesian revolution in government, particularly in the UK, was innovation on the defensive.
One might think that a Keynesian revolution in government, one in which Keynes himself participated, would have been all about full employment and fiscal stimulus. In fact, in the 1940s it was all about how best to achieve to inflation control.
In the UK, the 1941 budget, marked the first attempt to estimate and manage aggregate demand in order to reduce inflationary pressure. In 1947 the UK Labour government used Keynesian analysis to justify its austerity budget to control inflation. The Economic Section headed by the Keynesian James Meade, argued that price subsidies should be cut. In the short-run that might result in price increases but by reducing macroeconomic imbalance it would help to reduce inflationary pressure in the medium-term.
So strong was the emphasis on inflation-control that if you take the true message of Keynesianism to be the argument for budget deficits to stimulate aggregate demand for the sake of ensuring full employment, you might ask in the British case, whether the Keynesian revolution ever happened. That was Jim Tomlinson’s skeptical view.
In climate terms, how would we feel, if we were using energy and CO2 models to gauge the impact of investing in a large fleet of coal-fired power stations? That is the situation of climate activists when it comes to India or China, not the US or the EU.
Of course, you could take the view that Build Back Better is billed as a climate measure, so it is unsurprising that it is scored in climate terms. We will have to see whether the CO2 approach will generalize to other policy domains, assuming, of course, that the Biden administration gets to pass any further legislation.
It will be interesting to see, also, whether the kind of CO2 analysis of fiscal policy put into action in the US begins to operate in Europe as well.
It is an interesting test of how far the climate governance framework is truly becoming hegemonic. Will CO2 metrics become as omnipresent as GDP currently is?
In the mean time, the general point stands. When we are looking for innovation in economic policy, hard-fought rearguard actions should be as interesting as the moments when history appears to lurch forward.
After all, when do you have to think most carefully about how to get what you want? When you have a big blank canvas and and unlimited budget? Or when you are trying to dance in a phone booth?
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Ones & Tooze: The Pentagon vs. Walmart
Season 1, Ep. 13
Congress has approved a $768 billion defense budget for 2022. If the Pentagon were a private company, would it be bigger than Amazon? Walmart?
Also, can $859 billion buy you love? Or at least domestic goodwill? That’s the amount of money Americans will spend on themselves and their loved ones ahead of the Christmas holiday.
We want to hear from you! To fill out our 2021 listener survey, go to survey.fan/foreignpolicy.com
Chartbook #60: Books we read in International and Global History HistGR8930
Over the last few months I’ve had the pleasure of teaching the introductory course on “Approaches to International and Global History” for the MA program that Columbia jointly runs with the LSE. It wasn’t a course I had taught before. But this is one of the fun things about teaching – the impulses you don’t expect.
I picked a list of books and articles that I wanted to read and I thought would drive an interesting methodological conversation. NB: This is not an introduction to International and Global History, but an introduction to “approaches” to such a history. Nevertheless, I wanted a broadly chronological spine.
To my mind, the course really worked. I was very lucky to have a great group of smart and highly engaged students who drove a fascinating discussion.
Week 1 I started with a Brief History of Commercial Capitalism by Jairus Banaji because for the first week I wanted a text that was short, but “high concept” and challenging.

#2 was a long selection from Geoffrey Parker. Global Crisis: War, Climate Change and Catastrophe in the Seventeenth Century (2013) – to address climate and the early modern global crisis from every angle.

#3 The Great Divergence: Pomeranz and his critics. Not just because it addresses the economy, but because it raises such interesting questions about causation, historical method, politics etc.

A pairing with Prasannan Parthasarathi is always stimulating.

#4 Anthropology and history: Sidney Mintz
Sweetness and Power is obligatory reading on courses like this. For good reason. It is a classic, but …

As several students remarked, it is far more interesting if read, not in isolation, or as a foundational text for “consumption studies” etc. but against backdrop of Mintz’s anthropological work that goes back to the mid century and focused not on production in the “global North” but on plantation production in Puerto Rico and the Caribbean. This essay by Mintz on the Caribbean is simply brilliant. And this essay on Columbia anthropology in the Cold War is highly illuminating.
#5 Family life and Empire: Emma Rothschild, The Inner Life of Empires. Princeton University Press, 2011.

Love this book by my old friend and mentor from Cambridge. Subtle, twisty, reading 18th century through 18th-century concepts. Very smart.
#6 Revolution in global context: Haiti and the French Revolution
At the suggestion of one of the students we read Michel-Rolph Trouillot’s memorable essay: “An Unthinkable History: The Haitian Revolution as a Non-event”. Highly recommended.

#7 Global nations.
We revisited Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism, 2nd ed. (Verso, 1991). First time I had reread it in more than a decade. Quite a trip down memory lane. His trio of functionalist determinations: how do societies anchor power, truth, time, proved generative for the entire rest of term. We paired it with Duara, Prasenjit. Rescuing history from the nation. University of Chicago Press, 1996 which I found impressive and Rebecca Karl’s Staging the World. Chinese Nationalism at the Turn of the Twentieth Century (2002). The idea of staging the world became a bit of a theme in the following weeks.

#8 On Global Time
We read Vanessa Ogle, The Global Transformation of Time, 1870-1950. The chapter I particularly recommend is the one on debates about time in the Islamic world. Mindblowing.
#9 Color Line.
We paired Mae Ngai, The Chinese Question (2021) with Marilyn Lake and Henry Reynolds. Drawing the global colour line: White men’s countries and the question of racial equality. (2008). It makes for a great “bottom-up”, “top-down” contrast. Ngai’s book has really grown on me. What is particularly impressive, is the arc from a cosmopolitan Pacific in the 1840s and 1850s to the closure of the American nation and finally the devastating conclusion in the forced-labour mines of South Africa. For me it evoked shades of the Third Reich. Lake and Reynolds is a book I come back to again and again. Can’t think of many history books that have more dramatically reorientated my thinking about the 20th century.

#10 The strange histories of Realism
We paired Robert Vitalis’s history of race and the making of international relations between Britain and the US, White World Order, Black Power Politics. Cornell University Press, 2016 with Matthew Specter’s fascinating book, The Atlantic Realists, which traces the origins of postwar realism to the US-German connection. Specter’s book will be out in (2022). His forensic demolition of Schmitt’s postwar self-exculpation is devastating.

#11 Postcolonial worldmaking in a neocolonial world
Great to read Adom Getachew, Worldmaking after Empire. Princeton University Press, 2019. I remember Getachew’s PhD taking shape at Yale back in the day. Fascinating to read the finished product. Her compelling argument about the shipwreck of the postcolonial project leaves me more convinced than ever, that an intellectual history of cocoa prices after 1945 would yield major dividends. Before the oil price shock of 1973 a lot hinges on the disappointing development of cocoa prices following Ghana’s independence in 1957.

#12 Sinews of War and Trade
Really enjoyed Laleh Khalili’s Sinews of War and Trade Shipping and Capitalism in the Arabian Peninsula.

Khalili’s wonderfully exploratory method and her engaging writing, encouraged a debate about storytelling, assemblages, the 1970s and declensionist narratives, as well as business history, taking rides on container ships and the links between management consultancy and anthropology. It formed a great bridge to …
#13 Modern ruins

Anna Lowenhaupt Tsing, The Mushroom at the End of the World. Princeton University Press, 2015.
To my mind, this is a truly fascinating book. A micro-study, a macro-history a methodological toolkit a philosophy of history all in one. More on Tsing in a later newsletter over the holiday season.
Conclusion?
Too many to draw out here. Plus, what happens in seminar stays in seminar. But, it was an intellectual trip. Delighted with the way that the texts caused us to reflect on our own positions as “intellectual and global historians”. Delighted also that there are so many other texts that we could and should have included. I will certainly volunteer to do this again in future.
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Chartbook #58: More reading on WWI
Yesterday’s post about World War I has triggered a remarkable crop of suggestions from readers. They are so good I thought I would pass them on.
It is holiday season after all. Perhaps there are one or two things here that folks might consider for xmas stockings etc.
From Michael Pettis (with many thanks):
“I just read your excellent Urkatastrophe piece, Adam, and it occurred to me that you ought to read, if you haven’t, Charles Arthur Conant’s “The United States in the Orient: the nature of the economic problem” (1900). Conant was a well-known and highly influential (at the time) American economist, and along with Kemerrer the most famous of the “money doctors” of the late 19th and early 20th centuries. I often include him with JA Hobson as the leading proponent of the “excess savings”/imperialism thesis, except that while Hobson opposed imperialism, Conant embraced it. I mention his book because he discusses Russia and the Russian economy a great deal in the book, and his Russia isn’t a decrepit Russian on the edge of revolution but rather one of the most dynamic economies in the world and the only serious rival to US/UK dominance. There is a lot of other very interesting stuff in his book, but as I read your piece it was the comments on Russia that most made me think of Conant.”

You can read it here, for free.
From Policy Tensor a typical hard-hitting riposte, which I in fact largely agree with. With more head space I would have expanded this point.
Wonder why @adam_tooze ignores high racialism as a structuring force in 1890-1914, which was on par with Liberal ideology, if indeed not even more important. World history by conceived by contemporaries as racial history, world politics as the struggle between the races. 1/
— Policy Tensor (@policytensor) December 13, 2021
The book this immediately brings to mind is this wonderful analysis of the global color line by Lake and Reynolds.

A lovely reading list of World War I classic by J. Van Wyck
Worth reading @adam_tooze's latest post on WWI below. The WWI scholarship is vast but I do think the best path is still: Hobson -> Lenin -> Albertini -> Fischer -> Joll -> Clarke. Gives you contours of debate. 'The Deluge' is also vital & provocative. https://t.co/K5JL0Ifi21 pic.twitter.com/4zmgpyx9OA
— J. Van Wyck (@TheRealJVanWyck) December 13, 2021
I agree with Erik Grimmer-Solem that I should have included his brilliant new book amongst the references of the blogpost. It really is highly recommended.
Imperial mindscapes—imagined geographies of upward mobility, prosperity, and security—are crucial for understanding globalization in the age of empire and its breakdown in 1914, esp. for Germany. Have a look at my Learning Empire (CUP 2019)
— Erik Grimmer-Solem (@grimmer_solem) December 13, 2021

It is part of a crop of relatively recent books about Germany and globalization that have finally shown the way out of the dead end that was the Sonderweg (special path) debate.
Top of the list would be Dirk Bonker’s Militarism in a Global Age, a brilliant and eye-opening comparison of German and American navalism in the moment of high imperialism.

From the economic side, Cornelius Torp’s work is crucial:

From the side of cultural and political history, Sebastian Conrad blazed a trail.

Andrew Zimmerman’s Alabama in Africa: Booker T. Washington, the German Empire, and the Globalization of the New South saw connections where no one had seen them.

Chris Manjapra connected imperial Germany to India

GREAT reading all of these. And there are no doubt many more one could add.
I am delighted that Chartbook goes out free to a long list of email subscribers. If you would like to support the effort, why not consider subscribing here.
The annual subscription: $50 annuallyThe standard monthly subscription: $5 monthly – which gives you a bit more flexibility.Founders club:$ 120 annually, or another amount at your discretion – for those who really love Chartbook Newsletter, or read it in a professional setting in which you regularly pay for subscriptions, please consider signing up for the Founders Club.December 12, 2021
Chartbook #57: 1914, the Urkatastrophe of the 20th century
WWI is clearly the “Urkatastrophe” – the original catastrophe – of the 20th century. Not just of the short twentieth century, from 1914 to 1991, but of the long twentieth century too.
1914 is in the news again today as a way of understanding the mounting tension between China and the United States. In this historical analogy, the United States, the incumbent, is allotted the role of the British Empire, seeking to resist the challenger, China, which is placed in the position of the Kaiser’s Germany. (Btw: Apart from the weirdness of this analogy, it also assumes a pretty strong and contentious thesis on what actually happened in 1914. More on this another time.)
The line you take on the outbreak of the war in 1914 colors your entire vision of European and world history. One way of describing the situation is simple. In the words of my good friend Alexander Zevin, as quoted by Perry Anderson: ‘The structural reality is that the First World War took place over empires, for empires and between empires’.
A clash of Empires, for sure. How could it have been anything else? After all, all the great powers at the time were one or other type of empire. To add any value we need to be more precise in defining the historical conjuncture. 1914 was not simply a clash of Empires. The war was a product of a distinct conjuncture, well-labeled as the ‘age of imperialism’ . This conjuncture was defined not simply by empires butting up against each other, as they had for centuries. It was a new epoch defined by a new blend of expansive geopolitical claims, empires dynamized by nation-state mobilization at their core and the imbrication of those states with the interests of the latest generation of capitalist accumulation. All of this took place against the backdrop of a vision of history and global geography that was both grand and claustrophobic. The global frontier closed in the 1890s. The stage was set for the great play of world history to begin in earnest.
Nor was this lost on contemporaries. The wide currency of imperialism theories dates to the moment of the Spanish-American war and the US invasion of the Philippines (1898-1899), the Boxer intervention (1899-1900) and the Boer War (1899-1902). The notion comes in different shades, ranging between J.A. Hobson’s liberal version to Lenin’s Bolshevik classic.
Lenin’s analysis, like that of Rosa Luxemburg before him, is more holistic and deterministic than that of Hobson. They have in common that they described the current moment of imperialism as something new.
The age of imperialism was clearly the final stage in a Western drive to expansion that began in the 15th century. It also continued the history global competition, which in the case of Britain and France went back to the 18th century. But in the late nineteenth century, this took on a radical new expansiveness and violence. Crucially, because it was now conceived of as taking place within a finite sphere. The frontier was closed and because the pressure of historical time and drama speeded up. The German phrase, Torschlusspanik, is apt.
In this remarkable interview, the South African artist William Kentridge defines it as:
The panic of closing doors. The fear of opening one door rather than another, and hearing it slam behind you, once you have made your decision; but maybe that decision is the wrong one, so you would rather stand paralysed in front of three doors to avoid making it. Torschlusspanik.
William Kentridge in interview with Peter Asden, “The art of war” for The Financial Times, 7/8 July 2018.
In 1959 the publication of William Appleman Williams’s Tragedy of American Diplomacy, and in 1961 Fritz Fischer’s Griff nach der Weltmacht, gave imperialism theory a new lease on life in the historical profession.
Amidst the general resurgence of imperialism-talk in the context of Vietnam and Third World struggle, Fritz Fischer’s Germano-centric account of 1914 produced an extraordinary éclat. But as far as the July crisis of 1914 was concerned this was also the last great hurrah of imperialism theory. The critical onslaught against Fischer’s interpretation of the outbreak of the war helped to discredit models of imperialism more generally. It did not help that Fischer’s take on German responsibility got caught up with crude Sonderweg models that tried to identify the supposed abnormalities of Germany’s modernization. This involved tying undeniable and important differences in political organization, military command chain and strategic outlook to subtle and much harder-to-define national social-structural differences. It was an intellectual dead end. What got lost in the process was any awareness of the broader development both of global capitalism and imperialist competition.
By the 1990s, whether or not historians have ascribed responsibility for the July crisis to Germany, the focus has shifted away from a broad-based analysis of imperialism (and the Sonderweg) to one based on politics, diplomacy, the arms race and military culture. Often this is associated with a stress on the July crisis as an event determined by the continental logic of Central Europe rather than the wider forces of global struggle – the scramble for Africa or imperial tension in Asia – that seemed to be implied by references to imperialism.
Economic forces continue to play a key role in any plausible interpretation of World War I – in the form of Russia’s looming development and the costs of the arms race between the major power. But whereas under the sign of imperialism theory the link from geopolitical ambition to economic interests was made scandalously explicit, in more recent work the underlying economic dynamics are no longer foregrounded . The tight connection between the outbreak of war, imperial expansionism and capitalist competition has unravelled.
If conventional historiography displaced imperialism and the discussion of capitalism from the center of the discussion, economists and economic historians were only too happy to concur. British economic historians of empire were in the vanguard of the academic attack on the first generation of imperialism theories. They never liked Lenin.
The body of work on the 19th-century world economy that emerged in the 1990s, notably that jointly authored by Kevin O’Rourke and Jeffrey Williamson, treated the period before 1914 under the rubric of globalization, rather than imperialism. Theirs was not a panglossian history of globalization. Loosely following the model offered by Karl Polanyi’s classic The Great Transformation (1944) they focused on social tensions unleashed by mass migration and the grain invasion in Europe, which collapsed commodity prices and hurt the rural interest. But war lay outside their purview. 1914 was exogenous. Sarajevo appears as a nasty accident.
In 2007 the Communications Director of the IMF remarked ruefully: “Alas a sniper’s bullet on June 28, 1914, triggered a chain of events that reversed globalization.” Indeed, pushed to the limit, the neo-Polanyian school of economic history could be read as arguing that to understand the crises of globalization that arose in the early 20th century, you did not need the exogenous shock of World War I at all. Counterfactually, the “interwar crises” might well have happened even without the wars.
It is strong stuff!
Crucially, monopolies and militarism were not seen as constitutive of globalization, as imperialism theory à la J.A. Hobson would have it, but as antithetical to globalization. As Williamson and O’ Rourke put it with characteristic frankness, in their calculations of market integration they assume that ‘(i)n the absence of transport costs, monopolies, wars, pirates, and other trade barriers, world commodity markets would be perfectly integrated’. Globalisation, by their measure, would thus be complete if only power and politics did not get in the way. The fact that imperial rivalry actually led to major investments in transport infrastructure and enabled globalization is excluded by assumption. Likewise, there is little room for acknowledging the way that large-scale foreign lending – on the basis of an increasingly integrated capital market – supercharged the imperialist aggression of a rising power like Japan. Whilst “domestic” socio-economic stresses are admitted, economics and geopolitics are held at arms length.
An economics squeamish about the question of power converged with an anti-Leninist historiography to squeeze out the question of imperialism and 1914.
Whatever one thinks of the political and intellectual lineage of imperialism theory, this is obviously problematic. A useful theory of globalization must account for global conflict as endogenous to the process of global growth, rather than exogenous.
My book Deluge sought to capture one element of that shift – the dramatic rise of the United States. For that reason it started, provocatively, in 1916.
But, conscious of the need to face the “1914 question”, I addressed the question of the politics and economics of the war in a trio of essays that appeared at the same time as the book.
An essay with Ted Fertik queried whether WWI was really a break in the trajectory of globalization or could instead be seen as a phase in which globalization was rearticulated in violent ways.
Another, argued not that WWI was a war of democracy v. autocracy, as Entente propaganda had it, but a war fought under democratic conditions over what democratization might turn out to be in the 20th century.
I will come back to both those arguments in later posts.
Most pertinently, I contributed an essay to a volume edited by Alex Anievas explicitly on the question of “Capitalist Peace or Capitalist War? The July Crisis Revisited”. A full draft can be downloaded here. – Read now
You can find at least some of the footnotes necessary to support the following sketch argument in that pdf.
Even within the sphere of mainstream academic social science, it is striking that compared to history or economics, political science has been far bolder and more interesting in advancing ways of explicitly connecting economics, politics and war. In arguments over the theories of “capitalist peace”, “democratic peace” and bargaining theories of war, economic development, or the lack of it, is tied to 1914. The PDF article discusses some of those debates as they stood around the anniversary in 2014.
In this newsletter I want to make a more streamlined version of that argument.
The key points are as follows:
The firewall drawn between “1914” and the story of the first globalization is ideological. But it is also a weak form of ideology – a silence rather than a strong thesis. Mainstream historical accounts of the July crisis in 1914 are, in fact, based, more often than not, on a modernization theory that dare not speak its name. Accounts such as Chris Clark’s Sleepwalkers rank Western European Empires and the scrappy Balkan protagonists in developmental terms. Meanwhile, economic accounts of the late 19th century that give a civilian-socio-economic analysis of the stresses of globalization and treat 1914 as exogenous, result not just in a whitewashing of global economic development, but in strange and counterfactual history of the early twentieth century.
Uncoupling geopolitics from socio-economic development is a problem not just for our understanding of 1914, but for the interwar period that follows. Not only is 1914 exogenized but you end up, for instance in Barry Eichengreen’s work, with an account of the interwar period to which the war itself is causally incidental. As I will argue in a future note, this points to a broader problem of articulating global power politics with international economic history in the early 20th century.
In light of all this evasiveness, we should bring the concept of an age of imperialism back.
In a remarkable article published in 2007, Paul Schroeder the doyen of European diplomatic history, asked how are we to characterise the sea-change that had clearly come over the international system in the generation before 1914. The world that the modern political science literature takes for granted, of multi-dimensional, full spectrum international competition was not a state of nature. It had taken on a new comprehensive form in the late nineteenth century. There is still no better concept, Schroeder insists to grasp this competition that embraced every dimension of state power –GDP growth, taxation, foreign loans – that made the constitution of Russia itself endogenous to grand strategic competition, than the concept of an ‘age of imperialism’. Schroeder is not, of course, appealing for a return to Lenin. But what Schroeder wishes to highlight is what it was that Lenin, Kautsky and other theorists of the 2nd international were trying to analyse and rationalise; namely the widely shared awareness that great power competition had become radicalised, expanded in scope, and had taken on a new logic of life and death.
In this view of the age of imperialism the driver is not the competition of individual capitalists, harnessing nation states for their purposes, with Krupp or Vickers Armstrong, or Cecil Rhodes in the driving seat. The notion of imperialism that Schroeder invokes and I would subscribe to, is more general and ultimately framed by state power and politics. As far as the economy is concerned the key is the global balance of (geoeconomic) power, both as a specific construct – number of guns etc – and as a frame for thinking about the world. This links to my early work on the history of statistics. It is against the backdrop of the age of imperialism that both the concept of national economy and, as Quinn Slobodian has shown, the idea of the “Weltwirtschaft” take shape. We enter, in short, the world of mental mapping that we still inhabit today, the mapping that causes us to ask: when China will overtake the United States as the world’s largest economy?
The basic point to be made about global economic growth before 1914 in connection with the outbreak of the war, is that it was uneven. Some national economies grew faster than others. This uneven economic development threatened to shift the military balance of power, by way of manpower, tax revenue and technological capacity as well as strategic assets like railways. And it was that which was a prime driver of the tensions and calculations that lead to war in 1914.
Furthermore, this competition should not be understood merely in objectivist terms – the numbers of troops and speed of railways etc. If we want to understand decision-making we also need to grasp the way in which those differences were made sense of. How they fitted into visions of the present and the future. How they were framed as part of the great drama of world history.
The logic of rivalrous uneven development played out in distinct force fields.
The one most commonly invoked for purposes of historical analogy is Imperial Germany’s rivalry with Britain. This was no doubt serious. It could, at various points have lead to conflict. But, as far as the war that actually broke out in 1914 was concerned, it was an indirect contributor. By 1914, Britain had clearly won the naval arms race. It had sone so, not through superior industrial performance, but through strategic focus, determined technological development and the success of the Liberal government in forcing through a constitutional and a fiscal revolution. Britain had the tax base to compete.
The military-industrial race that directly impelled the outbreak of war in 1914 was not naval but continental and it was not, in fact, one race, but two.
The decisive axis was France-Germany-Russia. This revolved around the relative mobilization of national resources by France and Germany and the sporadic and unpredictable development of Russia. Russia was truly the swing variable.
Russia was defeated by Japan in 1905 and had been shaken by revolution. On the other hand its huge size and enormous potential made it a looming threat as far as Germany and Austria were concerned. The Tsar and his ministers had huge freedom of action. It had a neutered parliamentary system. In Russia’s governing circles politicised nationalist protectionism was rampant. Added to which, with ample funding from France, Russia’s power was growing by the year and its expanding railway network was speeding its pace of mobilization. In the summer of 1912 Jules Cambon of France noted after a conversation with Germany’s Chancellor Bethmann-Hollweg that regarding Russia’s recent advances,
the Chancellor expressed a feeling of admiration and astonishment so profound that it affects his policy. The grandeur of the country, its extent, its agricultural wealth, as much as the vigour of the population … he compared the youth of Russia to that of America, and it seems to him that whereas (the youth) of Russia is saturated with futurity, America appears not to be adding any new element to the common patrimony of humanity.
The French themselves were extremely optimistic about Russia’s prospects. A year later French foreign minister Pichon received from Moscow a report commenting that
there is something truly fantastic in preparation, …. I have the very clear impression that in the next thirty years, we are going to see in Russia a prodigious economic growth which will equal – if it does not surpass it – the colossal movement that took place in the United States during the last quarter of the 19th century.
Was Russia a bankrupt? Or was it a steamroller?
In 1913 the Kaiser’s government finally persuaded the Reichstag to agree to raise the size of peacetime army from 736,000 to 890,000. But the immediate response was to triggers the passage of the French three year conscription law and the promulgation of Russia’s ‘Great Programme’, which raised its peacetime strength by 800,000 by 1917. By 1914 Russia’s army strength was double that of Germany and 300,000 more than that of Germany and Austria combined with a target by 1916 of 2 million. Against this backdrop the Germans were convinced that by 1916–1917 they would have lost whatever military advantage they still enjoyed. This implied to them two things. First, Russia would be unlikely to risk a war until it reached something closer to its full strength. So Germany could risk an aggressive punitive policy in Serbia. If this containment were to fail, then 1914 would be a better moment to fight a major war than 1916 or 1917.
But, no more than Anglo-German competition, was it a direct confrontation between France, Germany and Russia that triggered war in 1914. The stakes were too high for an open clash to happen there.
What launched the war was a clash between their allies in a third zone of competition – the shatter-zone of the Habsburg and Ottoman Empires. The basic question that dominated the rivalry between the Balkan powers and their great power backers was the question of backwardness. This was in part political and military but it was also, crucially, economic. These were the poorest parts of the European economy. Could they catch up? Did any of them, the Bulgarian, Serbians, Austrians or the Tsarist Empire, actually have a place in the 20th century?
In a very general sense this three-sphere model: Anglo-German, Franco-German-Russian, Habsburg-Serb-Russian can clearly be ranked in terms of economic and political development.
But that neat hierarchy is muddled by the fact that the logic of alliances dictated not separation of hierarchical levels but interconnection. For progressives in France and Britain, those who believed most firmly in the logic of progress, it was profoundly disturbing to find themselves from the 1890s onwards, drifting towards a strategic alliance with Tsarist Russia.
On grounds of liberal political ethics an alliance between the French republic and the autocratic and anti-semitic regime of Tsarist Russia was clearly to be regarded as odious. But furthermore, if as liberals insisted, the domestic constitution of a society was predictive of its likely international behavior and its future prospects, then an alliance between a republic and an autocracy was questionable not merely on normative liberal, but on realist grounds. For a convinced liberal placing a wager on the survival of the Tsarist regime was a dubious bet at best. Tsarism’s army was huge and it was convenient to be able to count on the Russian steamroller. But could Tsarism really be relied upon as an ally? Might Tsarism not at some point seek a conservative accommodation with Imperial Germany? Furthermore, given liberals understanding of history, was the Tsar’s regime not doomed by its brittle political constitution and lack of internal sources of legitimacy?
Following the defeat at the hands of the Japanese and the abortive revolution in Russia in 1905, Georges Clemenceau, an iconic figure of French radicalism before his entry into government in 1906 was particularly prominent in demanding that France should not bankroll the collapsing Tsarist autocracy. From Russia itself came pleas from liberals calling on France to boycott the loan to the Tsar. Poincaré typically cast the problem in legal terms. How was Russia to reestablish its bona fides as a debtor after the crisis of 1905? If Russia was to receive any further credits it must provide guarantees of their legal basis. That would require a constitution, precisely what the Tsar was so unwilling to concede. Meanwhile, France’s own democracy suffered damage as Russian-financed propaganda swilled through the dirty channels of the French press. The most toxic product of this multi-sided argument were the notoriously anti-semitic Protocols of the Elders of Zion a forgery generated by reactionary Russian political policemen stationed in Paris, who were desperate to persuade the Tsar that the French-financed capitalist modernisation of Russia was, indeed, a Jewish plot to subvert his autocratic regime.
But the demands from French Republicans and Russian radicals were, in fact, to no avail. The international system had its own compulsive logic that might be modified but could not so easily be overridden by political considerations, however important they might be. The consequences of Bismarck’s revolution of 1866–1871 could not be so easily escaped. By the 1890s the triumphant consolidation of the German nation-state had created enormous pressure for the formation of a balancing power bloc anchored by France and Russia. This type of peace time military bloc might be a novelty in international relations. It might be odious to French radicals. But Tsarism knew it was indispensable. By 1905, Russia was too important both as a debtor and as an ally to be amenable to pressure. With the French demanding that foreign borrowing be put on a secure legal basis and the Duma parliament uncooperative, the Tsar’s regime simply responded by decree powers arrogating to itself the right to enter into foreign loans.
Desperate to escape this dependence on Russia, French radicals looked to the Entente with liberal Britain. Clemenceau indeed risked his entire political career in the early 1890s through his adventurous advocacy of an Anglo-French alliance, laying himself open to allegations that he was a hireling of British intelligence. And certainly some British liberals, Lloyd George notable amongst them, understood the 1904 Entente with France as a way of ensuring that there would be no war between the two ‘progressive powers’ in Europe. But Britain’s own concern for its imperial security was to pressing for it to be able to ignore the appeal of a détente with Russia. It was the hesitancy of the British commitment to France that combined with the Russian revival to push Paris back in the direction of Moscow. By 1912 the French republic was committing itself wholeheartedly not to regime change in Russia but to maximising its firepower.
The appeal of the ‘liberal’ British option was not confined to France. In Germany too the idea of a cross-channel détente with Britain was attractive to those on the progressive wing of Wilhelmine politics. Amongst reformist social democrats there were even those who toyed with the idea of a Western democratic alliance against Russia, including both France and Britain. Bernstein reported that when he discussed the possibility of a Franco-German rapprochement with Jaures, the Frenchman had exclaimed that in that case France would lose all interest in the alliance with Russia and the ‘foundations would have been layed for a truly democratic foreign policy’. Beyond the ranks of the SPD, ‘Liberal imperialists’ speculated publicly about the possibility of satisfying Germany’s desire for a presence on the world stage, without antagonising the British. But in practice the Kaiser and his entourage, no doubt backed by a large segment of public opinion, could never reconcile themselves to the reality that they would forever play the role of a junior partner to the British Empire. Antagonism with Britain, however, implied an alliance system that bound Germany to the Habsburg Empire as its main ally. And this commitment was reaffirmed in 1908 by Bülow’s support for Austria’s abrupt annexation of Bosnia-Herzegovina. This in the eyes of many liberal imperialists in Berlin was to prove a tragic mistake. Richard von Kühlmann, a leading advocate of détente with Britain, who would serve as Germany’s foreign secretary during World War I and was driven out of office in the summer of 1918 as a result of clashes with Ludendorff and Hindenburg, would describe Berlin’s dependence on Vienna as the true tragedy of German power. From the vantage point of a liberal view of history, the true logic of World War I was a struggle over the inevitable dismantling of the Ottoman and Habsburg Empires. For a German liberal such as Kuehlmann for Berlin to have tied itself to the Habsburg Empire, a structure condemned by the nationality principle to historical oblivion, was a disaster. A true realism involved not sentimentality or blank cynicism but an understanding of history’s inner logic. A new Bismarck would, Kühlmann believed, have joined Britain in a partnership to oversee the dismantling of both Habsburg and Ottoman Empires, whose crisis was instead to result in the self-destruction of European power.
Instead, 1914 manifested an utter confusion of hierarchies. And in a historical moment characterized by extreme reflexivity it is hardly surprising that all these theories were anticipated and incorporated such that all sides derived justifications for their actions. Both the rally by German social democracy to national defense and Lenin’s defeatism were justified in terms of hierarchical notions of historical development. For both the pivot of the argument was Tsarist Russia.
At the time of the 1848 revolution and after both Marx and Engels had preached the need for a revolutionary war against reactionary Russia. Since the 1912 election the SPD had emerged as the largest party in the Reichstag. As a socialist party it was committed to a Marxist interpretation of history and thus to the cause both of progress and internationalism. It was also, of course, a mass party enrolling millions of voters many of whom were proud German patriots, who saw in August 1914 a patriotic struggle and an occasion for national cross class unity. Famously the party like virtually all its other European counterparts voted for war credits. But despite the abuse hurled at them by more radical internationalists, for the SPD as for other European socialists, it was not naked patriotism that triumphed in 1914. What overrode their internationalism was their determination to defend a vision of progress cast within a national developmental frame. World War I was a progressive war for German social democracy in that it was through the war that domestic reform would be won. It was not by coincidence that it was during the war that the Weimar coalition between the SPD, progressive liberals and Christian Democrats was forged. It was that coalition that delivered the progressive constitution of the Weimar Republic. This was a democratic expression of the spirit of August 1914. It was the first incarnation of Volksgemeinschaft in democratic form. It was defensive in inspiration. An Anglophile like Bernstein deeply regretted the war in the West, but there was no question where he stood in August 1914. The cause of progress in Germany would not be helped by surrendering to the rapacious demands of the worst elements of Anglo-French imperialism. If the Tsar’s brutal hordes were to march through Berlin, the setback to progress would be world historic. But it was not merely a revisionist like Bernstein who took this view. Hugo Haase, the later founder of the USPD, justified his support for the war on 4 August in strictly anti-Russian terms: ‘The victory of Russian despotism, sullied with the blood of the best of its own people, would jeopardise much, if not everything, for our people and their future freedom. It is our duty to repel this danger and to safeguard the culture and independence of our country’.
Lenin himself employed a similar logic in developing his position on the war in 1914. In his September 1914 manifesto Lenin declared the defeat of Tsarism the ‘lesser evil”. Nor did Lenin shrink from making comparisons. In his letter to Shlyapnikov of 17 October, he wrote: “for us Russians, from the point of view of the interests of the working masses and the working class of Russia, there cannot be the smallest doubt, absolutely any doubt, that the lesser evil would be now, at once the defeat of tsarism in this war. For tsarism is a hundred times worse than Kaiserism.” Early in 1915 this line was reiterated in a resolution proposed to the conference of the exiled Bolshevik party that echoed Marx and Engels in 1848. All revolutionaries should work for the overthrow of their governments and none should shrink from the prospect of national defeat in war. But for Russian revolutionaries this was essential, because a “victory for Russia will bring in its train a strengthening of reaction, both throughout the world and within the country, and will be accompanied by the complete enslavement of the peoples living in areas already seized. In view of this, we consider the defeat of Russia the lesser evil in all conditions.”
Lenin, of course, was at pains to distance himself from the logic of national defense that would seem to follow from his comment for German social democracy. Instead, he called on revolutionaries to raise the stakes by launching a civil war. But, given the difficulties that Lenin had in formulating his own position, it is hardly surprising that the SPD chose a more obvious path. A German defeat at the hands of the Russian army would be a disaster. So long as the main aim was defense against the Tsarist menace they could be won for a defensive war. And this was well understood on the part of the Reich’s leadership who by 1914 were convinced that they needed to bring the opposition party onside. To secure the solidity of the German home front it was absolutely crucial from the point of view of Bethmann Hollweg’s grand strategy during the July crisis that Russia must be seen to be the aggressor. Throughout the desperate final days of July Berlin waited for the Tsar’s order to mobilise before unleashing the Schlieffen Plan. As Bethmann Hollweg well understood, whatever Germany’s own entanglements with Vienna, only if the expectations of a modernist vision of history were confirmed by a first move on the Tsar’s part could the Kaiser’s regime count on the support of the Social Democrats, who were in their vast majority devoted adherents of a stage view of history that placed Russia far behind Imperial Germany. It was Russia’s mobilisation on 30 July 1914 that served as a crucial justification for a defensive war, which by 1915 had become a war to liberate the oppressed nationalities from the Tsarist knout, first the Baltics and Poland then Ukraine and the Caucasus.
The logic of the imperialist age was at work here in multiple layers of determination. In the threat of being locked in life and death competition with Russia. In the significance of Russia’s railway development and the scale of its military mobilization. But also in assumptions about the aggression that such a regime would surely manifest and what the appropriate reaction of a progressive Empire like Germany should be.
Most fundamentally what were at stake were conceptions of history. This subtle point is explicated by Schroeder himself in the telling image he chooses to illustrate the difference between the classical game of great power politics and the age of imperialism.
The classical game of great power politics, Schroeder suggests, was like a poker game played by highly armed powers but with a sense of common commitment to upholding the game. It was thus eventful, but repetitive, highly structured and to a degree timeless. There was no closure. Win or lose, the players remained the same. Imperialism, by contrast, was more like the brutal and notoriously ill-defined game of Monopoly. Under the new dispensation the players’ sole aim was accumulation up to and including the out-right elimination of the competition through bankruptcy. As Eric Hobsbawm also pointed out, one of the novelties of the situation before 1914 was that great power status and economic standing had come to be identified and the terrifying aspect of capital accumulation was that it had not natural limit.
The difference with regard to temporal dynamics is striking. Unlike an endlessly repeated poker round, as the game of Monopoly progresses, the piling up of resources and the elimination of players marks out an irreversible, ‘historical’ trajectory. Unselfconsciously Schroeder thus introduces into the discussion one of the most fundamental ideas suggested by Hannah Arendt in the critique of imperialism and capitalist modernity that she first developed in The Origins of Totalitarianism. What she described was precisely the colonisation of the world of politics by the limitless voracious appetites of capital accumulation. And for her too this brought with it a new and fetishistic relationship to history.
If global capitalist development was tied up in a very deep way with dynamic that drove the powers to war in 1914, so too was its guiding ideology of liberalism. Liberalism is not imperialism’s other, as by 1918 would be suggested by Woodrow Wilson’s reworked version of liberal ideology. Nor, on the other hand, is it reducible to, or identical with imperialism, as some critics would allege. They undeniably existed within the same space and in the early 20th century constituted each other.
Liberalism could justify violent escalation – “the war to end all wars” etc. But that violent dialectic was only one possibility. The moment also gave rise to a new crop of theories of world order order and “ultra-imperialism” as advanced, for instance by Karl Kautsky and J.A. Hobson.
The problem of finding a new global order in the early twentieth century, the idea that came to such prominence in the wake of World War I, is not best understood in terms of “idealism” or the soft tissue of a disempowered international civil society. As I argued in Deluge, the project of world order, is best understood, as a power-political project.
And this is where the question of hegemony enters in.
With the plausibility of empire as a means of global ordering having reached its limit, hegemony is a convenient term for a global ordering of power amongst the powerful. The concept is indispensable. But it is also a snare.
In the wake of the interwar crisis, analysts, taking inspiration from cyclical models of the development of capitalism, posited that hegemony was, if not a universal tendency, then certainly a recurring imperative of modern capitalism. To function well, the system needs a hegemon. Always!
This was the thesis both of Kindleberger and Arrighi.

The interwar crisis was the latest to result from a phase of hegemonic transition. In this case the baton dropped as it passed from the British Empire to the US.
There can be little doubt that a baton dropped. But what was at stake was not some ancient scepter of hegemonic power passed down from the Genoese to the Dutch, from them to the British and from there to the United States – the phrase is translatio imperii.
That is of course an attractive idea for empire-builders, but its significance is as a piece of ideology rather than as an explanation. British power in the 19th century constituted the global condition, in Geyer and Bright’s terms, but it had precious little to do with hegemony as the US exercised it after 1945 – as instantiated in organizations like NATO and the European Community. Those were tools of order suited for an age of extremes. The problem of order is defined by the forces in play. The transhistoric notion of a hegemonic imperative fails to do justice to the explosive force of accumulation and state-formation unleashed from the middle of the nineteenth century i.e. the age of imperialism. To corral those forces, hegemony of a far more robust and intrusive kind was required.
The British Empire did attempt to raise its game to match the challenges of the era. I take this to be the point of John Darwin’s indispensable Empire Project. But that radical new British ambition, to hold the global ring not at a distance, but through direct engagement of all the key players, suffered shipwreck in 1922 at Genoa. That was the moment, especially in comparison with the remarkable deal brokered at the naval conference in Washington, that America’s indispensability – in this conjuncture, at this moment – became undeniable. More on this to follow.
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December 10, 2021
Ones and Tooze: Is Democracy Better for the Economy?
Season 1, Ep. 12
With President Joe Biden’s Democracy Summit underway, Adam and Cameron discuss whether democratic principles help or hinder economies. The answer is more complicated than you might think. Also, if you have an old Ford Escort or other classic car, hang onto it. You might get rich.
Subscribe wherever you get your podcasts or learn more at Foreign Policy.
December 4, 2021
Chartbook #56: The West Asian Polycrisis – From Afghanistan to Lebanon
In the recovery from the COVID shock of 2020 there is a stark gap between the rapid rebound of rich countries and the slower recovery of middle-income and low-income economies. It is important to recognize this stark difference and how 2020 differs in this respect from the 2008 crisis. But dividing the world in this dualistic way, between rich and poor, sacrifices any geographical detail. We lose sight of the way the problems afflicting economies and societies in a region can compound each other.
I wrote in Chartbook 20 about the Caribbean and Central America. In commentary of late, South America has been singled out as a possible zone of interlocking crises.“Three shocks unsettle business confidence across Latin America”, warned a recent FT headline.
Regions of polycrisis might be defined succinctly as zones in which the collective trouble is worse than the sum of its parts. Think of a region where climate change brings drought or a historic hurricane that crosses borders, creating misery and refugee flows, with no safe place to go. Think of regions wracked by geopolitical tensions and local rivalries.
Alongside Latin America, another region that might be thought of in these terms, is the region that Fred Halliday once dubbed Western Asia, a region that stretches by way of Pakistan and Afghanistan, to Iran, Iraq, Syria, Lebanon and Turkey (figures refer to population estimates).

The aggregation population of these countries is 491 million, comparable to that of the EU (445 m) or Canada-USA-Mexico (497 m).
State borders in this region are some of the most arbitrary in the world. The Kurdish population of 40 million stretches across Turkey, Syria, Iraq and Iran. Millions of displaced people from Afghanistan, Syria and Iraq lived in improvised camps. The economies are interconnected through the use of multiple currencies, trade and infrastructure connections, particularly for energy. Climate change has inflicted simultaneous drought on Iraq, Iran and Afghanistan. Altogether, the region presents a landscape of crisis more intense than anywhere else in the world.
At the Eastern end of the region, following the Western withdrawal and the Taliban takeover, Afghanistan is on the edge of catastrophe. The UNDP and the IMF are predicting that the Afghan economy may contract by 20-30 percent in a single year, an unprecedented collapse. “Nine out of 10 Afghans are expected to fall below the poverty line by next year. More than half of the 39m population require food assistance.” The G20 meeting in October agreed to take action to address the humanitarian crisis. But despite UN appeals, the foreign assets of Afghanistan to the tune of $9.6 billion remain frozen.
Today is international #GISDay. #GIS plays a critical role in all that we do.
— The Integrated Food Security Phase Classification (@theIPCinfo) November 17, 2021
Behind this map of #Afghanistan, there is the work of 51 analysts, 45 analysis areas, and the #foodinsecurity status of over 41 million people. #GIS helps us get information to those who can help. pic.twitter.com/d2HAEQmYVu
All eyes were on Afghanistan at the moment of Western withdrawal, we should not avert them now that tens of millions of people have to suffer the consequences.
Afghanistan’s immediate neighbors will have no option. Refugees are already beginning to flood into Pakistan and Iran. These are the latest IMF estimates.

Source: IMF
Pakistan is in no position to provide much support to the Taliban regime or to Afghan refugees. As the FT recently said:
“Pakistan’s more than 220m people were spared the worst of the coronavirus pandemic’s initial economic shock, thanks in part to the government’s policy of shorter, looser lockdowns. But they are now facing a new crisis: inflation has surged to the worst level in years, with an index tracking everyday essentials such as fuel, food and soap last week rising above 18 per cent year on year. The rupee has also tumbled to all-time lows, losing 15 per cent of its value against the dollar in six months. Officials fear a surging import bill will deplete foreign currency reserves and further destabilise the economy.”
This poses a major challenge to PM Imran Khan. He came to power in 2018 promising to end “the country’s cycles of economic instability, where high debt and low foreign currency reserves forced repeated bailouts from institutions such as the IMF. But Khan has found himself trapped in this same vicious rhythm ….”.
Since December 2017 the Pakistani rupee has devalued by half. Under Khan’s premiership the devaluation has been 30 percent.
The Taliban victory was celebrated as a victory also for Pakistan, but without strong US backing it is unclear whether Pakistan has the platform to really take advantage. China is Pakistan’s main strategic ally, but on that front too there are mounting difficulties. BRI programs, once loudly hailed, are making disappointing progress.
Apart from Pakistan, Iran is the immediate destination for most people fleeing Afghanistan. In the last few weeks it is reported that some 5,000 Afghans are entering Iran every day. Iran has the resources to cope, but it too will suffer as a result of the Afghan implosion. Since 2018 when Iran faced a dramatic intensification of US sanctions, Afghanistan has served Iran as a conduit for $5billion per annum in cash. Both the US and Iranian currencies were in widespread use in Afghanistan. “… the Iranian rial has been broadly used in western border provinces, such as Herat, Farah and Nimroz. … the Herat governor tried to ban the use of the rial in 2019, arguing that Iranian currency was entering the Afghan economy to essentially drain US dollars. However, usage of the rial has broader driving factors too. There has been extensive drug smuggling originating from Afghanistan, boosting financial exchanges between the two neighbors. Moreover, numerous Afghan border communities purchase many of their supplies inside Iran, hence the demand for the rial.” Now the Taliban have issue a ban on foreign currencies. That may help to explain why the Iranian currency, the rial, weakened as the Taliban consolidated their grip.
Severe as the spillover from Afghanistan to Iran may be, one should not imagine that they are in the same boat. Whereas Pakistan and Afghanistan are stuck at low levels of income. Iran is a middle-income country with a large and highly diversified economy. It is far less agrarian than Pakistan and far less dependent on oil than Iraq. A chart of PPP-adjusted GDP per capita divides Western Asia into three regions.

Given its sophistication and population of 80 million, Iran has the potential to be an economy on the scale of Turkey or Saudi Arabia, both of which are members of the G20. That it is not, is a matter of politics, geopolitics and political economy – the state-run political economy of the Islamic Republic and the dramatic pressure of sanctions. If you bring Iran’s economic development over the last decade into close up, the impact of sanctions is clear. In the summer of 2010, the Obama administration and the EU moved towards an aggressive tightening of sanctions. Within a year you can see the impact in Iran’s GDP per capita figures. The nuclear deal of 2015 brought some relief, but with the maximum pressure policy of the Trump administration from 2018 onwards the decline resumed.

Cameron and I discussed Iran’s situation on Ones and Tooze. In that discussion I made a mistake. I claimed that Iran’s population growth was rapid. It is not. It is weird. Population growth surged in the 1980s, producing a youth bulge, but it is now as low as 1 percent per annum. That bulge accounts for the chronic problem of unemployment.
The latest round of sanctions initiated by Trump have delivered a severe blow. Over the winter of 2017 the news of Trump’s new stance, combined with domestic resentment over price increases to trigger something like a comprehensive crisis of the regime. There was a shock devaluation and inflation surged. Today, at 40 percent, inflation remains the most acute economic problem facing Teheran.
As a backgrounder on the current Iranian economic situation I found this videoed conference interesting. As the speakers in this session make clear, the impact of sanctions is severe, but Iran does not face immediate collapse. Oil is an important part of the Iranian economy, it drives exports and investment and tax revenue. But even when oil prices are high, it accounts for not more than 10% of GDP. Furthermore, under the pressure of sanctions Iran has moved up the value chain. It can now export not just crude but petroleum and diesel, which gives it considerable leverage with its cash-strapped neighbors.
Iran, in short, is not Iraq, which is a caricature petrostate with a vastly overgrown public sector that serves as the fiefdom of rival factions, many of which also command powerful armed militias. The combination of COVID and the collapse in global oil prices triggered a moment of existential crisis in Iraq in 2020. The failed development of the last decade was cruelly exposed. The upshot was an apocalyptic assessment by a team of experts delivered in October 2020 in the form of a White paper report.

Non-oil tax revenues in Iraq amount to a laughable 1.4% of GDP, compared, for instance, to 27.8 or 30.%% in Angola or Algeria. Other than oil, Iraq has no exports to speak of. Crude oil exports account for 95 % of Iraq’s exports, compared to c. 60% for Saudi Arabia and Iran. Iraq’s labour productivity record over the last half century is one of the more shocking graphs you are ever likely to see.

A panel on Iraq’s economic situation posted to youtube in January 2021 by Chatham House delivered a remarkable sense of urgency. It is also, however, a historic document. The reform demands of the White Paper were always exorbitant and since then the immediate pressure has been lifted by the resurgence of oil revenues. The upshot of a more recent LSE panel chaired by the excellent Chloe Cornish of the FT in September 2021, was that so long as the oil revenues continue to flow, so will Iraq’s lopsided political economy limp along.
Iraq remains a disaster waiting to happen. Where this has registered most recently on Western radars is in the appalling scenes on the Belarus and Poland border. Of the 16-17000 people stuck between the two East European countries, between 7,500 to 8,000 are from the Kurdistan region of Iraq, thousands of miles to the South.
The Kurdish region of Northern Iraq (KRI) under its own government (KRG) was once a safe haven. Of its 6 million inhabitants one million are refugees mainly from other parts of Iraq but also Syria. But in recent years the KRG has faced deteriorating economic conditions forcing salary cuts for its one million civil servants and austerity. This in turn is a spillover from the national financial crisis in Baghdad, brought on in 2014 by the collapse of oil prices. This produced a 90% drop in financial transfers from the central government to the KRG. The simultaneous upsurge of ISIS and the collapse of oil prices in 2014 was a perfect storm. Added to which, KRI politics is dominated by brutal and increasingly repressive infighting between two parties: the Barzani family-led Kurdistan Democratic Party (KDP) and the Talabani family-led Patriotic Union of Kurdistan (PUK). Meanwhile, the SIS threat remains acute, particularly in the “disputed areas” between Erbil and Baghdad, …. According to a KRI spokesperson, most of the Kurdish migrants fleeing to Belarus hail from the “disputed areas” as well as Duhok Governorate, where conflict between Turkey and the Kurdistan Workers’ Party (PKK) continues.” Recent Turkish offensives against the PKK in the region have caused damage in over 800 villages in the KRI.“
The struggles across the Kurdish region of Iraq are one example of the pattern that repeats in Syria and Lebanon. Powerful external players – notably Iran and Turkey – maneuver violently for influence in zones of failed or fragile states.
Lebanon was once a safe haven in the region, but since 2018 it has been dragged down by disaster. It is hard to overstate the scale of this collapse. In the spring of 2021 the World Bank reported that: “The Lebanon financial and economic crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century … Lebanon’s GDP plummeted from close to US$ 55 billion in 2018 to an estimated US$ 33 billion in 2020, with US$ GDP/ capita falling by around 40 percent. Such a brutal and rapid contraction is usually associated with conflicts or wars.”
Financial incontinence on an epic scale, corruption, factional infighting, macroeconomic imbalances suspended in mid air, Lebanon’s economy, borders on the surreal. But the effects on the ground are devastating. A society once fabled for its wealth and cosmopolitan culture has been reduced to hunger and acute shortages of essentials. And the situation is getting worse by the week.
In November, the near total collapse of the electricity supply have forced the US and the World Bank to stitch together an emergency program to supply Lebanon, once the financial and cultural powerhouse of the region, with gas from Egypt and electricity from Jordan.
The embarrassment for Washington is that to build a rescue platform for Lebanon it is hard to avoid going through Syria, itself in ruins following a decade of brutal armed struggle. Since 2018 the fighting in Syria has calmed, but the economic situation is disastrous. It reached a peak of intensity in 2020 when the announcement of a new wave of Congressionally-backed sanctions – “the summer of Ceasar” – triggered a panicked devaluation of the Syrian currency. The impact of the new wave of sanctions is unclear, but the collapse of the currency, on top of the COVID shock dramatically increased the pressure on the Syrian population. It was, as one particularly compelling report put it, a perfect storm.
As the Assad regime tightens its grip, the battle for influence continues. Iran spent between $20 and $30 billion backing his regime during the decade of armed conflict and would like to see a return on its investment. But Iran is hobbled by sanctions and lacks the cash to compete with Assad’s new friends in the Gulf. As Amwaj comments: “UAE’s entry as a regional economic giant into the Syrian market will push Iran further to the sideline, considering actions like Abu Dhabi’s promise to build a solar plant near Damascus”.
In Syria, the last remaining resistance stronghold is the starving and freezing enclave in Idlib, home to about 4.4 million people, about half of them refugees. About 75 percent of Idlib province residents are in need of humanitarian assistance. Their one land-connection to the outside world is the Bab al-Hawa border crossing to Turkey, effectively controlled by the Islamist HTS.”
In 2019 as the Lebanese economic crisis escalated, the Syrian pound began to collapse, destablizing Idlib’s precarious economy. In the summer 2020, in search of a financial lifebelt, the Islamists introduced the Turkish lira as the new currency throughout Idlib province. They did so just in time to avoid the precipitate collapse of the Syrian currency following the US sanctions announcement. As a result, prices in Idlib province did stabilize for eighteen months, only for disaster to strike again, this time from across the border to the North.
In 2021 Erdogan, Turkey’s capricious President embarked on his latest confrontation with the financial markets and Idlib’s Turkish currency anchor was torn loose. When the Turkish lira was introduced as a means of payment in Idlib in 2020, the exchange rate was 6.8 lira for one US dollar. As of December 1 2021 it had crashed to 12.9 lira. The result was a savage spike in living costs as the price of imported fuel surged.
Turkey’s rollercoaster financial ride through 2021 is the clincher in the crisis narrative of Western Asia. Turkey is a major geopolitical player (in Libya, Syria, Iraq, Azerbaijan-Georgia). It is a contender in Eastern mediterranean energy politics. It is the key to one of Europe’s refugee crises. It is a major regional power. Its destabilization would have huge regional implications.
But amidst all the crisis talk we also have to put Turkey’s situation in perspective. Since its last major financial crisis in 2001, Turkey’s per capita income, in PPP adjusted terms, has tripled. That remarkable growth is the foundation for Erdogan’s legitimacy. It is also that track record that has given Turkey’s its financial staying power. Seemingly, no matter what Erdogan does, the investors ultimately come back. Since 2018 Erdogan has been flirting with disaster. The question for the months ahead is whether this time Erdogan has gone too far. Inflation in Turkey is accelerating. There has been a huge shock to imports that will generate a current account surplus but also inflict pain on the population. Can Erdogan survive once again?
***
I am acutely aware that a survey like this cannot really do justice to the complexity and drama of the terrain it surveys. The drama and complexity of this region is mind-blowing. In the mean time, a scrapbook may be helpful in orientating ourselves in the flow of daily events. It provides a framework for thinking about the interconnectedness that defines major world regions. It may help to focus our attention on the extraordinarily acute crises facing the populations of Afghanistan and Lebanon, the responsibility of the United States and its sanctions policies in Syria and Iran, and the responsibility more generally of richer and more capable states to act where necessary to relieve humanitarian disaster.
December 3, 2021
Ones and Tooze – How Sanctions Work (and Why They Often Don’t)
Representatives of Iran, the United States, and European countries met this week in Vienna for more talks on reviving the 2015 Iran nuclear deal, but all sides seemed doubtful that an agreement could be reached.
On Ones and Tooze this week, Adam Tooze and Cameron Abadi discuss the toll U.S.-led sanctions have had on Iranians for much of the past decade—devastating the country’s economy but failing to curb its nuclear program.
Also on the show: The travel and tourism industries accounted for a whopping 10.4 percent of GDP worldwide. Then COVID-19 came along.
For more information visit the podcast website at Foreign Policy
November 30, 2021
Chartbook #55: BRICs twenty years on
This week is the 20th anniversary of the coining of the concept of BRICs by then-chief economist of Goldman Sachs, Jim O’Neill.
When O’Neill was named chief economist of Goldman Sachs Group Inc. in 2001 he had a point to prove. He was a known as a man of the currency and bond markets. Could he be a “thought-leader” adding intellectual gloss to Goldman’s brand?
O’Neill had written his PhD in the 1980s on the recycling of oil surpluses. The 1990s had seen a surge of growth across what were then still low-income countries. The tensions of the Cold War were unwinding. America was shaken by the 9/11 attacks. The question that O’Neill and the Goldman Sachs team set out to explore was, how would the world of the 21st-century be shaped by forces beyond the West.
Since the 1990s there had been talk of a rising Asian middle-class. That optimism had suffered something of a setback with the crises of the late 1990s, but by 2000 growth across Asia had resumed. In 2001 and 2002, Goldman was predicting that real GDP growth in large emerging market economies would handsomely exceed that of the G7. What, the Goldman Sachs team asked, would the world look like, if that lopsided pattern of growth was extended into the future. The result was Goldman’s Global Economic Paper Number 66: “Building Better Global Economic BRICs,” published on Nov. 30, 2001.
The impact of the 2001 analysis was amplified by a second BRICs paper published in October 2003 in the Goldman series by Dominic Wilson and Roopa Purushothaman. As O’Neill told Bloomberg reporters, “it was after the 2003 paper that O’Neill remembers financial titans such as Blackstone Inc. Co-Founder Stephen Schwarzman began calling Hank Paulson, then Goldman’s chief executive officer, to rave about the vision. One chart from the latest paper was downloaded from Goldman’s website ten times more often than any other document …”

Source: Goldman 2003
Reading the 2001 paper and its follow-up, Goldman’s 2003 paper on BRICs, one is first of all reminded of how novel the idea was that the world would be shaped over the coming decades not by Europe and America, but by growth in Asia and the emerging markets. Again and again the Goldman Sachs researchers ask their readers to suspend disbelief. They stress that they are simply projecting forward visible trends and extrapolating from uncontroversial structural facts.
A typical passage is this one from the 2001 paper:
We do not really know the ‘right’ answer as to which method is right but will now go on to argue that looking at relative real GDP and inflation trends for the purposes of future global economic policy implementation, it may not matter. Whether you look at the future either in current US$ or PPP terms, relative positions of key countries in the world economy are changing. We will now try to show that China especially deserves to be in the ‘G7 Club’, and under some scenarios, so do others-certainly Brazil, Russia and India relative to Canada.
A repeat of the 2001/2002 outlook is highly unlikely over the next 10 years, but if China and the other three BRIC countries succeed in achieving fast growth and low inflation, then the relative GDP sizes may indeed be more like today’s PPP-determined numbers
It is also striking that the original purpose of the O’Neill analysis was not to promote the EM as investment destinations. As he explained to the IMF, the BRICs concept was advanced to make the case for a change in global economic governance. The G7 had emerged after the collapse of Bretton Woods in the 1970s as a forum for global coordination between Europe, Japan, and North America. But it was increasingly unrepresentative of the dynamic of global growth. As a legacy of the 1970s, Europe and Canada were massively overweight. The formation of the Eurozone created a solid European block and would offer the opportunity to shrink the G7 back to G5.
Even on a current GDP basis, the Chinese economy is slightly bigger than Italy, so an expansionary monetary or fiscal policy in China would be likely to have slightly more global impact than similar policies in Italy. This may be particularly relevant if an economic ‘shock’ such as the 1997/98 Asian Crisis affects the neighbouring region more than elsewhere. Obviously if PPP weights are more representative than current GDP, China’s economy is about four times bigger than Italy’s, magnifying the relative impact of policy change. If the G7 was to become a forum where true worldwide economic policy co-ordination was discussed, the US, Japan, Germany, France and the UK would be joined by China and India rather than Italy and Canada if PPP weights were the appropriate judge
It was not just the fact that China’s economy by 2001 was already far larger than that of Italy, the crucial point for O’Neill was that shocks to the global economy had since the 1990s not issued from the existing membership of the G7, but from outside. If the world economy was going to have collective leadership, it was crucial to include the BRICs as the main growth nodes and as big economies close to where the instability was likely to come from.
The expansion of the G7 did not happen. But in the wake of the Asian financial crises, the G20 had been formed as a meeting of finance ministers precisely to achieve the effect of more expansive coordination. It would be promoted by the 2008 financial crisis as the preeminent forum for the leaders of the large economies.
The Goldman forecasts for global growth in the early 2000s were not overly optimistic. They were conditional. In an interesting backcasting exercise they recognized the fact that Latin America had disappointed in previous decades. Clearly those problems might return.

Source: Goldman 2003
In the original formulation by Goldman Sachs, BRICs, referred only to Brazil, Russia, India and China. The “s” was a plural.
The absence of an African economy was on the mind of the Goldman Sachs analysts. The 2003 report includes a box on the possibility of adding South Africa to the list. Goldman did not think it inconceivable that its growth might hit 5 percent annum.
The first summit meeting of BRICs leaders took place in September 2008 on the side lines of the UN General Assembly meeting. Russia hosted a formal meeting in Yekaterinburg in June 2009.
In December 2010, the BRICs became the BRICS when South Africa was invited to join what was now a newly minted political grouping.

Source: World Finance
Writing in the FT on the occasion of the anniversary, O’Neill’s retrospective on the concept focused on the question of whether they had got the future right. The upshot is that as far as China and India are concerned they were not far off. In fact, as far as China was concerned, they were, if anything, too cautious.
As far as the BRICs as a group were concerned they were right about the first decade. Between 2000 and 2011 the BRICs more than doubled their share of the global economy from 8% in 2000 to 19% in 2011. But since 2014 Brazil and Russia have gone through prolonged recessions, due to domestic political turmoil, international sanctions and the commodity price recession.
By August 2013, amidst the “taper tantrum” Brazil and India found themselves included in a new and less promising grouping – the Fragile Five – an idea coined by Morgan Stanley, to capture the economies vulnerable to investor outflows (joined by Indonesia, South Africa and Turkey).
As an investment strategy betting on the BRICS has not been a winning move. As Bloomberg commented.
Franklin Templeton Investments and Schroder Investment Management launched BRIC-themed funds TEMBRAC and SCHBREA in October 2005, with HSBC Holdings Plc and Goldman Sachs following soon after with their own HSBBRIC and GBRAX. By 2007, Invesco Ltd. and BlackRock Inc. had launched exchange-traded funds built around those developing nations as well with EEB and BKF.
None of those investment vehicles quite lived up to the hype of the early years, though. Goldman folded its money-losing BRIC fund in 2015, merging it with a broader emerging-market portfolio. Invesco’s ETF was shuttered last year in a wave of closures.
An investment into Templeton’s BRIC fund upon its inception would net a total return of roughly 130% today in dollar terms, compared with 220% and 440% for portfolios that tracked the emerging-market benchmark and the S&P 500 Index respectively, according to data compiled by Bloomberg.
Ziad Daoud, chief emerging markets economist at Bloomberg Economics has recently coined a new concept – “BEASTS”—Brazil, Egypt, Argentina, South Africa and Turkey— “which he sees as most vulnerable due to the combination of lower reserves, weaker current account balances and higher external debt”.
Looking back as a historian what is most striking is not so much the accuracy of the predictions, but the shock of the new registered by the emergence and then the circulation of the BRICs concept. Something radical was happening. Coining a neologism was a way to respond to the dramatic change in the structure of the world economy.
Many of us had to go through that reorientation.
Personally, I was shocked into the realization of the global by work I was doing in the late 1990s with the senior leadership of BP, the oil major (h/t Melissa Lane). The close encounter with the wide horizons of the oil business rocked my world. BP was my globalization shock.
Working on a home computer, I embarked on an amateur effort to map cross-national global inequality, marrying national inequality numbers to PPP-adjusted GDP numbers to make a rough estimate of the global middle class. I presented the results, which I will have to excavate from the files in my office, to a BP audience sometime over the winter of 2000-2001. I remember my colleague Simon Szreter button-holing me after my presentation to tell me that there were people working along similar lines at the World Bank.
There was a phase, between finishing Statistics and the German State and before I settled on writing Wages of Destruction, in which I envisioned writing a book about the rise of the Asian middle class.
It was clear that the 21st-century was going to be different. We’ve been scrambling to catch up all along.
Chartbook is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.November 25, 2021
Chartbook #54 (updated): Germany’s New Government – “Dare more Progress”

Olaf Scholz has completed his remarkable comeback. After relatively concerted and efficient negotiations, the traffic-light coalition is complete. It is an unprecedented agreement between the Social Democrats, the Greens, for whom this is the second chance at national government, and the FDP, who turned down the chance to govern in 2017 and will now fly the flag for their version of free market liberalism.
The cabinet positions are distributed as follows:
SPD – Chancellor, Interior, Labour and Social Policy, Defense, Housing, Health, International development. Chancellery. Migration and refugees and integration. New (Eastern) member states.
Greens – Foreign Office, Economy and climate, Family, Pensions, Women and Youth, Environment and nuclear safety, Food and agriculture. Plus the right to nominate Germany’s EU commissioner provided the EU President isn’t German. Culture and Media.
FDP – Finance (outch), Justice, Transport and digital, Education and research.
The coalition has issued its founding document, the Koalitionsvertrag (coalition contract) – under the title “dare more progress” – a nod to Willy Brandt’s famous manifesto – “dare more democracy”. It promises an alliance for freedom, justice and sustainability.
As if the shift from democracy to progress was not telling enough, the coalition partners then add: “Progress must go hand in hand with a promise of security and the confidence that this can be achieved together.”
The rationalization for the government of three very different parties seeks to make a virtue of their differences.
Their different outlooks reflect the complexity of German social reality they insist. “If we manage to push things forward together that can be an encouraging signal for society as a whole: that cohesion and progress is possible even with very different points of view.” 129-131
It is a document written by committee. There are long passages of boilerplate. It is very long – 177 pages. But the sophistication of its language and terminology is also testament to the sophistication of German public discourse.
This is a first, rapid reading of the document. I have cited line numbers where relevant. All told it comes to 6018 lines.
Was das Land herausfordert – what challenges the countryGermany, as the authors of the manifesto admit, faces a polycrisis. This consists of “pandemic, climate crisis, competitiveness, international system competition, digitization, societal tensions (gesellschaftliche Spannungen)” 31-35
“These challenges are immense, interwoven and demanding in their simultaneity.” 32 “They will shape our country and society for the future. If we manage these transitions, they offer great opportunities. The task of the coalition is to set the necessary innovations in motion politically and to provide orientation. We thus want to unleash a dynamic that acts into the entire society.”
Modernising The StateStrikingly, the coalition agreement begins with more than a dozen pages dealing with the need to modernize the state itself. 39 This is a constant refrain of modern German politics, but one dramatically amplified by the weaknesses exposed by the COVID crisis.
“Germany will only be able to meet the challenges of the moment (auf der Höhe der Zeit agieren), if the state itself is modernized.”
One passage reads: “We will create a set of rules that open the road to innovation and measures that will allow Germany to embark on a path of 1.5 degrees change.”
The coalitions promises as “fundamental change’ to a “facilitating, learning and digital state”, that acts presciently for its citizens. Its aim should be to make life easier and to foster the “energy of civil society”.
National identitySome of the most strikingly clear and emphatic passages of the manifesto concern migration and national identity.
“We are united by an understanding of Germany as a diverse society of immigration.”
In the 1970s-1990s, when the current generation of German leaders were growing up, any such statement would have been politically explosive.
They continue: “Migration has been and is today a part of the history of our country. Immigrants, their children and grand-children have helped to build our country and shape it. The 60th anniversary of the guest-worker treaty with treaty with Turkey is symbolic of that.” 3943-5
Like the last Red-Green government, this one promises to modernize Germany’s citizenship laws. This time it will permit multiple citizenship. Naturalization will normally occur after 5 years, or 3 years in the case of exceptional integration performances (sic) (Integrationsleistungen). Right of abode will be acquired after 3 years. Retroactively they promise to examine the naturalization of the Gastarbeiter generation who were for a long time excluded form citizenship.
Any mention of the concept of ‘race’ will be expunged from the German constitution
Climate policyClimate policy is everywhere in the manifesto. After the modernization of the state, it is the first substantive subject heading. But it is also a catch-all category for every measure of industrial policy and business promotion.
This may reflect the fact that Robert Habeck (Greens), who had set his sights on the Finance Ministry, a position for which I strongly backed him, has had to settle instead for the position of Minister of the Economy and Climate. Previously, under Peter Altmaier of the CDU, this was the Ministry for the Economy and Energy.
Here is the rubric for Habeck’s Ministry:

This line is laid our clearly also in the phrase: “We see the path to a CO2 neutral world as a great chance for Germany as a industrial economy (Industriestandort Deutschland).”
To put flesh on these bones, the manifesto does contain a number of important commitments.
Renewables to make up 80 per cent of electricity output by 2030 (previous target had been 65 per cent)
Use two percent of German land for onshore wind power; begin work on comprehensive planning of these areas in first half of 2022 with federal, national, local authorities
Communities near renewables installations should “profit appropriately”
Where wind farms are already in place, it must be possible to replace old wind turbines with new ones without a major approval procedure
Offshore wind targets: 2030: 30 gigawatt; 2035: 40 GW; 2045: 70 GW (status 2020: 7.8 GW)
Solar PV target for 2030: ca. 200 GW (status 2020: 54 GW)
Rooftop solar mandatory for new commercial buildings, “as a rule” on new private buildings
Phaseout of coal to happen ‘ideally’ by 2030 (previous target had been 2038). This is to be supported by rapid development of renewables AND construction of high-efficiency gas power stations (a phrase repeated two times in the manifesto). Gas-fired stations must be ready for conversion to green gas, H2. This is likely to cause consternation in the climate community. More gas capacity may well be a step in the wrong direction.
Goal of at least 15m electric cars on German roads by 2030 (out of a total stock of 48 million).
Government to ensure that industry is offered competitive electricity prices to encourage rapid electrification.
Heavy emphasis on investment in green hydrogen with aim being to establish a European Union for green hydrogen. In interest of developing the market as rapidly as possible, subsidy will be provided for hydrogen use even in cases where supply of green hydrogen fuel is not yet secured. Seen as vital for areas where eletrification if not feasible.
Public procurement to favor low-carbon industries.
Establish minimum CO2 price of €60/tonne
Commitment to EU program of expanding carbon pricing under EU’s “Fit for 55” program.
Europewide minimum carbon price with carbon border adjustment, expanding into an open international climate club.
Carbon Contracts for Difference (Klimaverträge, CCfD)
Regular and serious stress testing of heating and power supply systems.
We want to mobilize more capital for energy transformation. With this in mind the coalition commits itself to exploring how public development banks may be able to provide risk guarantees for energy investment. In dialogue with business, trade unions and trade associations the coalition will engage in negotiations to found an “Alliance for Transformation”, which in the first six months of 2022 will provide stable and reliable parameters for the ongoing energy transformation.
Germany’s KfW public investment bank will set up a transformation fund. They will mobilize contracts for difference, lighthouse “first mover” projects and incentives for innovation in climate-neutral production.
The coalition recognizes that negative emissions are part of the climate strategy and undertakes to prepare a long-term strategy for dealing with 5 % residual emissions.
Research, innovation, investmentThe coalition commits to raising public spending on research and development to 3.5 percent of GDP by 2025.
Key areas of research are: climate-neutral industrial processes (e.g. steel); clean energy and mobility; climate research, biodiversity, sustainability, earth systems; adaptation and sustainable agriculture; resilient health care systems that take advantage of possibilities of biotech and advanced medicine with an emphasis on addressing illnesses of old age and poverty; technological sovereignty with a focus on ditital, artificial intelligence and quantum technologies; data-based solutions across sectors; space and ocean exploration with a view to sustainable utilization; societal resilience, gender parity, social cohesion, democracy and peace.
Carbon pricing and just transitionIn light of rising CO2 price component, the renewable energy transfer payment system that launched Germany’s energy revolution twenty years ago will be wound down. As of 1 January 2023 any subsidy costs will be transferred to the general budget. Finance will be provided by way of a special energy transformation fund, EKF, that is fed from the revenues of carbon emissions trading and general revenue.
With the completion of the exit from coal (in the 2030s) any further subsidy to renewable energy will cease.
The aim is to remove both subsidies and supplementary payments for energy, but the coalition also promises that business will face no increase in energy costs. Can this circle be squared?
The German government is committed to the EU’s aim of expanding CO2 pricing under Fit for 55 program to heating and transport. Steps must be provided to ensure that EU member states provide social compensation.
“We are committed to a rising CO2 price as an important instrument, in combination with a powerful social offset… what is good for the climate should be cheaper – what is bad should be more expensive.”
By the 2030 there should be a unitary European CO2 market for all sectors that does not transfer costs in an unfair way to consumers. The language is unclear but the presumption seems to be that the consumers in this case are households (not businesses).
The current ETS price is 60 Euro/Tonne. Prognoses suggest it will remain at least at this level until 2040. Were prices to slump and the EU not to agree on a minimum price, Germany will take national measures (through cancelling permits or a minimum price) to ensure that the price does not fall below 60 Euro/Tonne.
Energy and CO2 prices should be treated indifferently. The new government, in light of social concerns, will take account of the current global energy price surge and maintain its intended price trajectory for energy and CO2. To offset a future price increase and ensure social acceptance of the market mechanism, the new government will develop a social compensation mechanism.
Income/welfare – SPDOlaf Scholz himself is known above all for his commitment on social issue.
The SPD’s key electoral agenda item was the increase in the minimum wage from €9.60 an hour to €12. Further help will be provided by cheaper energy for residential customers, thanks to the abolition of the renewables levy on electricity bills
The pension system will be kept stable: there will be no reduction in pensions and no increase in the pensionable age. The private pension system will be comprehensively reviewed.
‘Basic income’ for children to be introduced. Strong emphasis in the manifesto on equality of opportunity and the promotion of social mobility by way of early childhood education.
Another of Scholz’s personal agenda items is the fairness of taxation, both with regard to corporate taxes and tax avoidance.
Housing – SPDHousing is one of the key agenda items of German domestic policy at the moment.
The new government commits to building 400,000 flats a year, 100,000 of them subsidised by the state.
It also commits to toughening rent controls, particularly in big cities with high demand; increases capped at 11 per cent over three years (previously 15 per cent).
A ministry of construction in the hands of the SPD will drive this popular agenda item.
On housing and climate, as Clean Energy Wire notes, the aim is to “Reach a fair division of the CO2 price (on heating) between landlords on the one hand and tenants on the other. On 1 June 2022, the coalition wants to introduce a new model that, based on a building’s energy class, regulates the allocation of the CO2 price according to the fuels emissions trade law (Brennstoffemissionshandelsgesetz – BEHG). Should this legislative solution not be possible in time, the increased costs due to the CO2 price will be divided equally between landlord and tenant from 1 June 2022.”
EuropeThe manifesto makes very frequent reference to Europe, but on the absolutely cardinal issue of European finance it has relatively little to say. There are fewer lines on European financial policy than there are on combatting money laundering.
The passage reads as follows:
“Europe’s Stability and Growth Pact has proven its flexibility (a favorite Scholz phrase). On the foundation it provides we want to secure growth, maintain debt sustainability and ensure sustainable and climate-friendly investment. The further development (Weiterentwicklung) of the fiscal policy rules should be orientated towards these goals, to secure their effectiveness in the face of the challenges of our times.”
The acknowledgement that the rules will have to be developed and that they must take account of the “challenges of our times”, is potentially a significant concession on the part of the FDP. Its meaning, however, is unclear.
“The stability and growth pact should be simpler and more transparent, in part also to ensure its implementation.”
Everyone agrees on this, of course.
“Next Generation EU (NGEU)” package is described, in passing, as an instrument that is limited in time and size. That is not quite the same as saying that it is a one-off instrument not to be repeated. But could be interpreted in that direction.
“We would like to see reconstruction program achieving a rapid and future-orientated recovery from the crisis for all of Europe. That is also in the elementary interests of Germany (Das liegt auch im elementaren deutschen Interesse.)”
One can almost hear the SPD and Greens pounding the table on this issue. But what it means in practice is left unclear.
“We want to strengthen existing instruments for budgeting.”
En passant the coalition agreement remarks: “Price stability is elementary for the prosperity of Europa. We take very seriously the worry of people about rising inflation. The ECB can best fulfill its mandate, which is above all the goal of price stability, if budgetary policy fulfills its responsibilities both at the EU level and in the member states.”
Again, that could be construed in a profoundly conservative direction, or not. What, after all, are the responsibilities of budgetary policy?
And that is it. Over and out. No more. As Christian Odendahl comments, it is a statement of principles, at most, rather than a concrete policy.
The German coalition agreement is not conclusive about Germany‘s fiscal position, neither at home nor in Europe.
— Christian Odendahl (@COdendahl) November 24, 2021
It is relatively open, stating principles and options. Which is … probably a good thing.
Since an assertive German position on European policy is a matter of deep concern, Christian may be right: the less said the better.
One point that may turn out to be significant, concerns European policy coordination. The coalition parties specifically commit themselves to regular European-policy coordination meetings.
I don’t know whether this was in previous coalition agreements. It may be significant as a form of oversight over independent “Aktionen” by various Ministries. It would provide a way for the SPD and the Greens to check any tendency on the part of Christian Lindner, to use Finance Ministry as a bully pulpit for a more conservative line than is approved by the rest of the government.
It should be said that right now the financial issue in Europe is less pressing than the rule of law clash with Poland and on that theme, as several observers have noted, the agreement contains very strong language.
The German coalition agreement
— Katalin Cseh (@katka_cseh) November 24, 2021devotes an entire section to the #RuleOfLaw— with a strong, principled stance. The consistent & prompt use of EU tools is *exactly* what we have been calling for.
A really hopeful sign for all those in&
fighting for democracy. https://t.co/x2j1IUt5bF
On Europe’s future as such the coalition program is downright radical.
“We will use the Conference for the Future of Europe for reforms. We support necessary changes to the Treaties. The Conference should open the way to a constitutional assembly leading to the development of a federal European state (föderalen europäischen Bundesstaat) that will be organized on the principles of subsidiarity and proportionality with a charta of basic rights as its foundation. We want to strength the European parliament … We will give priority to the community method, but, where necessary, go forward with individual member states. We support a unitary European franchise with partially transnational lists and a binding Spitzenkandidat-system.”
These passages are, in fact, taken straight out of the electoral program of the FDP.
There they declare:
“This path is an explicit alternative (Gegenmodell) to the retreat of Europe into nation state particularism (nationalstaatliche Kleinstaaterei), or the creation of a centralized European super-state. Until this is realized we want to see European integration deepened in parallel on the model of a “Europe of different speeds”.
It is hard to avoid the impression that this is the kind of boilerplate you insert when you know it has no possibility of being realized in practice. We shall see.
Public financesIf the coalition agreement is vague on European finance, it is not much more concrete when it comes to domestic policy.
Only in outline can one discern how the clash between the liberal FDP and the investment-focused Greens may be squared.
As of 2023, the debt brake will come back into force. But, the coalition agreement goes on to stress, that we will need to mobilize “resources on an unprecedented scale (in nie dagewesenem Umfang zusätzliche Mittel) to meet the goal of containing climate change at 1.5 degrees, transforming the economy and meeting after-effects of corona.”
To add emphasis, the agreement goes on to stress that meeting those challenges can only be achieved over the long-term if essential and urgent investment is undertaken. Significantly, the agreement explicitly emphasizes that delaying investment will dramatically increase future costs.
Is this the opening to a redefinition of financial sustainability in terms of the urgency of climate change? This may be suggested by the following passages. The coalition will establish, “security of planning by making long-term investment commitments that are laid out in a long-term investment plan. Embarking determinedly on the transformation is an essential precondition for the long-term sustainability of public finances.”
But then the agreement immediately adds: “At the same time the federal government must bundle all its resource and deploy them concertedly to ensure that as of 2023 the constitutionally anchored “normal path” according to the debt brake can be achieved.”
Quite gratuitously, in the midst of a domestic-policy section, the document remarks: “Germany as an anchor of stability must continue to live up to its leading role in Europe (Vorreiterrolle in Europa). “Financial solidity and frugal use of tax money are principles of our budgetary and financial policy.”
This passage is so striking that I repeat it here in the original: “Deutschland muss als Stabilitätsanker weiterhin seiner Vorreiterrolle in Europa gerecht werden. Finanzielle Solidität und der sparsame Umgang mit Steuergeld sind Grundsätze unserer Haushalts- und Finanzpolitik.”
What “leading role in Europe” does this government imagine for itself, one wonders.
What the Greens had promised is 50 billion euros per annum in public investment in Germany to meet the challenges of the climate crisis and to rebuild Germany’s public infrastructure.
Perhaps it is significant, therefore, that at this point the coalition document pivots to discussing the mobilization of private capital and the role of public development banks in mobilizing capital. They will offer capital-market-adjacent (kapitalmarktnah) risk guarantees. The KfW will be activated as an agent of innovation and investment. Future funds for start ups and touted as a good example. Existing tools will be assessed and scaled up to provide the necessary flow of funding. The capital base of the KfW will be assessed and potentially expanded. Cooperation with the EIB may provide one route.
On the debt brake specifically the agreement states:
Debt retirement for the excess deficits of 2020-2022 will be regulated according to an amortization plan approved by the Bundestag. This will incorporate also the Next Gen EU funds.
In future, special funds will be accounted for under the debt brake on a 1:1 basis. This sounds like a restrictive decision but may have the opposite effect. Hitherto both Federal injections into these funds and payments out of them were counted as expenditures, which apparently resulted in double counting. On the hand, any top-up payments by the Federal governments to funds (Sondervermögen) will count against the debt brake. Longer term this seems like a restrictive safeguard against “off balance-sheet measures”. Was there some deal done between Lindner and Habeck?
The supposition was always that this would be organized through “special funds” that were under the direction of a super Ministry for the Economy and Climate. That is now Habeck’s job but what funds does he have at his disposal?
The coalition document states: “The current energy and climate fund (EKF) will be developed into a climate and transformation fund (KTF). In the 2021 budget, borrowing authorizations already approved but not yet used will provide an inflow of funding to the new KTF.” This will help to energize the energy transition and make good investment foregone during the crisis period.
As Philippa Sigl-Glöckner notes, this sounds expansive but amounts to funding long-term expenditure out of short-term, one-off financial flows.
Vorläufige(!) Takeways zu
— Philippa Sigl-Glöckner (@PhilippaSigl) November 24, 2021Haushalt & dem
Stabilitäts- & Wachstumspakt im #Ampel #Koalitionsvertrag. TLTR: Notlage geänderte Berechnung des Defizits erhöhen den fin. Spielraum, Beträge werden nicht genannt. Bei EUR mehr Offenheit als ich dachte. https://t.co/6WXdevYwI3 /1
For the future, the coalition agreement promises merely that in the budget for 2022 “we will assess how the climate and transformation fund can be reinforced within the limits of the constitutional provisions”, i.e. the debt brake.
One way out of this impasse may be to reassess not the debt brake as such but its operation. On the basis of 10 years of experience, including systemic crises, the coalition agreement says that it is time to review the cyclical adjustments methods used to define how tightly the debt brake binds at any given moment. As several experts have noted this may provide a way to work around the tight provisions of the debt brake and enable low-cost public borrowing.
The coalition agreement gives no details. Instead it goes on to emphasize that all expenditure will be reviewed, reprioritized and directed in a transparent way towards the achievement of the coalition’s goals.
One promising proposal is the creation of a comprehensive inventory of public assets to properly account for depreciation and guide investment and maintenance expenditure. Strikingly, this is presented as a contribution to intergenerational fairness. This is significant because it is normally only debt that is discussed as a burden on future generations. If rather than fewer debts, it is a healthy public balance sheet that must be passed to future generations, that would be a step in the right direction.
The new government also promises to reduce any financial commitments (Geldanlagen) that are incompatible with its climate goals.
The issuance of green bonds will be encouraged.
One unglamorous but important measure is the commitment of the new government to achieve a comprehensive financial restructuring of local government debt. As former mayor of Hamburg, Scholz was heavily involved in the federal aspects of finance. A priority of his government will be to provide a solution that puts communes with overwhelming burdens of legacy debt, on a more viable basis.
Sour

Source: Die Welt
These debts are a source of much local tension over the inability to afford essential welfare payments. If local government is to be part of the public investment push, those crippling debt levels must be lifted. This will require a common and one-time effort of the federal government and those states whose communes are afflicted by this problem. This will require a constitutional amendment and a deal with the CDU/CSU. It will be capped by a new system of monitoring to prevent any backsliding into unsustainable debts.
Conclusion?Clearly, it is far too early to make any overall assessment. Lindner as Finance Minister is a major threat to any progressive ambition on the part of the government. I stick to that judgement and hope to be proven wrong. Much will depend on who advises him at the Ministry. German economics is not the conservative monolith it once was, one can only hope for the best. The FDP’s coalition partners are certainly aware of the risks.
More generally Germany’s new government is important to watch because it promises to continue the process of adapting and modernizing a European nation-state that began in the 1960s and is now a multi-generational project. The Social Democrats, the Greens and the liberals have been important parts of that process, whether in the social-liberal coalitions of the 1970s and 1980s or as Red-Green. Merkel’s modernization of the CDU owes much to her borrowing from the SPD. This is a government that embraces the climate challenge and has the political backing to do something about it. It has no excuses. Germany is pivotal to Europe’s climate ambitions. And, more generally, the success or failure of this government will tell us a lot about the capacity of sophisticated democracies around the world to adapt to our 21st-century polycrisis.
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