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    The year 2022 was a threat to European democracy – Russian’s invasion of Ukraine history tells us what to expect in 2023 and beyond

    December 2022

    The story of human race is war said Winston Churchill. Except for brief and precarious

    interludes, there has never been peace in the world; and before history began, murderous strife was universal and unending. In recent decades, policymakers and business leaders who attended gatherings at Davos and had the ears of western leaders were inclined to think otherwise. After the fall of the Berlin Wall in 1989, a near – consensus prevailed among them that peace was the natural condition of the developed world and that globalization was immune from geopolitical risk. This confidence extended to a belief that generating prosperity through trade was conducive to democracy in developing countries – a notion that played an important part in the west’s decision to welcome China into the global economy and grant it membership of the World Trade Organization (WTO) in 2001. There is, of course, a superficial plausibility in a logic that echoes Shakespeare’s Julius Caesar, who declared “Let me have men about me that are fat” because he feared the “lean and hungry look” of the murderous Cassius.

    The extraordinary post – cold war climate of optimistic liberal internationalism was accompanied by notable complacency among central bankers and mainstream economists, who trumpeted a decline in macroeconomic volatility that they dubbed the “Great Moderation”. There followed the great financial crisis of 2008 / 2009.

    Now in the year of 2022, with Russia’s invasion of Ukraine ending up in a bloody war and the strategic competition over Taiwan with an enduringly undemocratic China have in my opinion given a new edge to Churchill’s Hobbesian observation – all the more so since Vladimir Putin’s announcement in September of a partial mobilization of reserves, together with hints that Russia might deploy nuclear weapons. And then there is the high possibility that Xi Jinping’s increasingly assertive China could inflict further damage on western industrialists and investors. The question remains: how did the developed world sleepwalk into this mercantile trap over the year in 2022 with before unthinkable election results in multiple European countries?

    John Maynard Keynes famously remarked, in his ‘General Theory of Employment, Interest and Money’: the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.

    The big idea behind western capitalism’s, growing economic interdependence with authoritarian, nuclear – armed bedfellows is one usually attributed to the French enlightenment thinker Montesquieu who claimed: “ The natural effect of commerce is to bring peace. Two nations that negotiate between themselves become reciprocally dependent, if one has an interest in buying and the other in selling”.

    This economic brand of liberal internationalism, which was shared by such thinkers as Adam Smith, Voltaire and Spinoza, reached its apogee in the first great period of globalization that lasted from the 19th into the early 20th century. John Stuart Mill believed commerce was making war obsolete, while the pacifist and anti – imperialist Richard Cobden declared: “ I see in the free – trade principle that which shall act on the moral world as the principle of gravitation in the universe – drawing men together, thrusting aside the antagonism of race and creed and language, and uniting us in the bonds of eternal peace .”

    We can argue that the gains of victory were always outweighed by the costs as was the futility of war in conditions of economic interdependence. It in my opinion demonstrated precisely that nationalism and tribal instinct can trump economic interest.

    The war of 2022 in my opinion also exposed the failure of such thinkers to understand the European “balance-of-power” system. A war in general throughout history was the ultimate mechanism for addressing any power disequilibrium. In the first half of the 20th century, disequilibrium occurred because Germany, after unification in 1871, was too big and assertive to be contained by balance-of-power coalitions within Europe. It took interventions by the US and the Soviet Union to put an end to its hegemonic ambitions. The curious thing in my opinion is that the devastation wrought in two world wars did not prove fatal enough. In proposing the establishment of the European Coal and Steel Community in 1950, French foreign minister Robert Schuman declared that he wanted a process of European economic integration to “make war not only unthinkable but materially impossible”. That process, aimed at preventing farther war between France and Germany and cementing a broader peace across Europe, paved the way for the EU.

    Today, Ursula von der Leyen, president of the European Commission, and fellow members of the Brussels elite like to refer to the EU as a peace project. This is in my opinion the great half-truth of the post war settlement. The reason that peace has prevailed in Europe – the Balkans apart – is, first, that after losing two catastrophic world wars Germany was never going to adopt a third – time – lucky stance and send the tanks rolling outwards. France and Germany were anyway united after 1945 by a common enemy in the shape of the Soviet Union. Nuclear weapons added a further constraint on military aggression. And if Europe was protected from external threats it was thanks to the US security guarantee embodied in NATO, not the EU.

    A more fundamental point is that wealth in modern economies, which in my opinion relates more to people than natural endowments, is much harder to steal through force than was the case with agricultural and early industrial societies. The decline in the value of disputed territory relative to technological innovation means that the proceeds of resource theft via conquest are increasingly thread-bare – a point indicating that this year’s thinking was not entirely without substance, even if its predictive power was nugatory.

    It in my opinion also highlights that hacking government computer systems and stealing corporate intellectual property are low-cost alternatives to warfare.

    Indeed, globalization itself may have reduced the spoils of territorial conquest by making it easier to acquire resources via markets rather than the use of force. Had there been a global energy market in 1941, Japan in my opinion might not have felt a need to attack Pearl Harbor in a preventive action designed to secure access to energy and natural resources in the Pacific region.

    Big European powers no longer want to fight for territory, still less to bear the costs of acquiring subject populations. Resource – based conflict is now largely confined to developing or downright poor countries. As for Russia’s invasion of Ukraine this year, it looks in my opinion like an anachronistic throwback. Putin’s motivation appears primarily concerned with destroying an independent Ukrainian state and rebuilding a Russian empire, not primarily economic plunder, even so Russia’s occupied and annexed territory consists of huge quantities of race earth materials.

    The success of the Ukrainian counter – offensive has highlighted the unexpectedly high cost of Putin’s imperial ambitions.

    The genius of Schuman and the founding father of what became the EU was rather that they established a reconciliation process in a continent where history provided grounds for extreme mistrust. This mistrust has been ameliorated by institutional checks and balances together with international co-operation and shared sovereignty. Yet Europe remains in my opinion a continent in which it can be convenient to believe in commerce as a substitute for foreign policy, particularly in the case of Germany. The country makes a striking case study on the trade and peace thesis, given its chronic export dependency and extensive overseas investments. Understandably, in the light of history, postwar German politicians have not wished to play a foreign policy role commensurate with Germany’s size in the world economy. They have cloaked themselves in the mantle of the EU.

    Under chancellors Gerhard Schröder and Angela Merkel, Germany pursued a policy of “Wandel durch Handel”, or “change through trade”. This in my opinion led to extreme energy dependence on Russia. It was, in effect, an outgrowth of “Ostpolitik”, the policy of engagement with the Soviet Union pursued by chancellor Willy Brandt in the 1960’s and 1970’s. The snag is that trade in my opinion brought the wrong sort of change. By waving a green flag to the Nord Stream 2 Russia – to – Germany gas pipeline after Russia’s annexation of Crimea in 2014. Germany sent a signal to Putin that he could probably invade Ukraine with impunity. It pursued a similar “change through trade” policy towards China, sharing the US assumption that integrating China into the global economy would make it more politically liberal. Yet China – as well as Russia – failed to oblige western expectations.

    The two states now find themselves at odds over Hongkong, Taiwan and the South China Sea. This in my opinion sits very uncomfortable with German industry’s huge investment in China, especially in the motor industry. More than a third of total sales of Volkswagen, BMW and Mercedes Benz take place there. VW is estimated to rely on the country for at least half of its annual net profits.