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Viewpoint: Why the shadow of WW1 and 1989 hangs over world events

  • 16 December 2014
  • From the section Magazine
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Berlin Wall - 1989 Image copyright Getty Images

Many of today's global problems are hangovers from bad, ungenerous decisions at the end of previous conflicts, writes Jeffrey Sachs.

This has been a year of great geopolitical anniversaries. We are at the 100th anniversary of the start of World War One, an event that more than any other shaped world history during the past century. We are at the 25th anniversary of the fall of the Berlin Wall, the opening chapter of the demise of the Soviet empire and the end of the Cold War. Yet we know that painfully we observe something far more than a mere remembrance.

As William Faulkner remarked, "The past is never dead. It's not even past." WW1 and the fall of the Wall continue to shape our most urgent realities today. The wars in Syria and Iraq are the legacy of the closure of WW1, and dramatic events in Ukraine are unfolding in the long shadow of 1989.

1914 and 1989 are "hinge moments", decisive points of history on which subsequent events turn. How nations both great and small behave at such hinge moments determine the future course of war and peace.

I participated directly and personally in the events of 1989, and saw this lesson in play - positively in the case of Poland and negatively in the case of Russia. And I can tell you that as I carried out my own tasks as an economic adviser during 1989-92, I kept a constant and always worried gaze on 1914. I carry that same sense of worry today.

In 1919, at the end of WW1, the great British economist John Maynard Keynes taught us invaluable and lasting lessons about such hinge moments, how decisions of victors impact the economies of the vanquished, and how missteps by the powerful can set the course of future wars.

With uncanny insight, prescience, and literary flair, Keynes's 1919 The Economic Consequences of the Peace predicted that the cynicism and shortsightedness at the core of the Versailles Treaty, especially the imposition of punitive war reparations on Germany, and the lack of solutions to the roiling financial crises of the debtor countries, would condemn the European economies to continuing crisis, and would in fact invite the rise of another vengeful tyrant in the coming generation.

Keynes's cri de coeur is one of those remarkable outpourings of genius that speaks across generations. That book and its lessons proved to be a formative guide for me in my own career as policy adviser and analyst.

As a newly minted economist some 30 years ago, I suddenly found myself charged with helping a small and largely forgotten country, Bolivia, to find a way out of its own unmitigated economic disaster. Keynes's writings helped me to understand that Bolivia's financial crisis should be viewed in social and political terms, and that Bolivia's creditor, the US, had a shared responsibility of resolving Bolivia's financial anguish.

My experience in Bolivia in 1985-86 soon brought me to Poland in the spring of 1989, at a dual invitation of Poland's final communist government and the Solidarity trade union movement that strongly opposed it. Poland, like Bolivia, was financially bankrupt. And Europe in 1989, like Europe in 1919, was at a great hinge-moment of history.

John Maynard Keynes (1883-1946)

Image copyright Getty Images
Image caption John Maynard Keynes predicted in 1919 the coming economic crises of the next 20 years
  • Educated at Eton and Cambridge University, where he read mathematics - part of the cultural circle known as the Bloomsbury Group
  • Joined the Treasury during WW1, and in the wake of the 1919 Versailles peace treaty, published The Economic Consequences of the Peace, criticising exorbitant war reparations demanded from Germany, claiming they would harm the country's economy and foster a desire for revenge
  • Best-known work, The General Theory of Employment, Interest and Money (1936) made Keynes Britain's most influential economist
  • Led 1944 British delegation to Bretton Woods conference in US, playing an important role in planning of World Bank and International Monetary Fund

A Point of View: What would Keynes do?

Keynes v Hayek: Giants of economics

Mikhail Gorbachev was in power in the Soviet Union, and was prepared to see Europe reunited in peace and democracy. This great man desired similarly to move his own country to a new democratic order. Poland was the first country in the region to move towards democracy in that momentous year. I quickly became the main outside economic adviser to the new Polish government. Once again, drawing from Keynes, I championed the kind of international assistance that I felt to be vital for Poland to make a peaceful and successful transition to post-communist democratic rule.

Image copyright Getty Images

Specifically, I appealed to the White House, 10 Downing Street, the Elysee and the German Chancellery, for enlightened aid to Poland as a key step in building a new united and democratic Europe.

These were heady days for me as an economic adviser. My wish, it seemed on some days, was the White House's command. One morning, in September 1989, I appealed to the US Government for $1bn for Poland's currency stabilisation. By evening, the White House confirmed the money. No kidding, an eight-hour turnaround time from request to result. Convincing the White House to support a sharp cancellation of Poland's debts took a bit longer, with high-level negotiations stretching out for about a year, but those too proved to be successful.

The rest, as they say, is history. Poland undertook very strong reform measures, based in part on recommendations that I had helped to design. The US and Europe supported those measures with timely and generous aid. Poland's economy began to restructure and grow, and 15 years later it became a full-fledged member of the European Union.

Image copyright Getty Images
Image caption Mikhail Gorbachev

I wish that I could stop my reminiscing here, with this happy story. But alas, the story of the end of the Cold War is not only one of Western successes, as in Poland, but also one of great Western failure vis-a-vis Russia. While American and European generosity and the long view prevailed in Poland, American and European actions vis-a-vis post-Soviet Russia looks were much more like the horrendous blunders of Versailles. And we are paying the consequences to this day.

In 1990 and 1991, Gorbachev's government, seeing the emerging positive results in Poland, asked me to help advise it on economic reforms. Russia at the time was facing the same kind of financial calamity that had engulfed Bolivia in the mid-1980s and Poland by 1989.

In the spring of 1991, I worked with colleagues at Harvard and MIT to assist Gorbachev to obtain financial support from the West as part of his efforts at political reform and economic overhaul. Yet our efforts fell flat - indeed they failed entirely.

Gorbachev left the G7 summit that summer of 1991 and returned to Moscow empty-handed. When he returned to Moscow with no results, a conspiracy attempted to oust him in the notorious August Putsch, from which he never recovered politically. With Boris Yeltsin ascendant, and the dissolution of the Soviet Union now on the table, Yeltsin's economic team again asked me for assistance, both in the technical challenges of stabilisation, and in the quest to obtain vital financial assistance from the US and Europe.

Image copyright Getty Images
Image caption Moscow 1991: The attempted "August putsch" against Gorbachev

I predicted to President Yeltsin and his team that help would soon be on the way. After all, emergency help for Poland was arranged in hours or weeks. Surely the same would happen for the newly independent and democratic Russia. Yet I watched in puzzlement and growing horror that the needed aid was not on the way.

Where Poland had been granted debt relief, Russia instead faced harsh demands by the US and Europe to keep paying its debts in full. Where Poland had been granted rapid and generous financial aid, Russia received study groups from the IMF but no money. I begged and beseeched the US to do more. I pleaded the lessons of Poland, but all to no avail. The US government would not budge.

In the end, Russia's malignant financial crisis overwhelmed the efforts at reform and normality. The reform government of Yegor Gaidar fell from grace and from power. I resigned after two hard years of trying to help, and of accomplishing very little indeed. A few years later, Vladimir Putin replaced Yeltsin at the helm.

Throughout this debacle, the US pundits blamed the reformers rather than the cruel neglect by the US and Europe. Victors write the history, as they say, and the US felt very much the victor of the Cold War. The US would therefore remain blameless in any accounts of Russia's mishaps after 1991, and that remains true today.

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Image caption Vladimir Putin and Barack Obama

It took me 20 years to gain a proper understanding of what had happened after 1991. Why had the US, which had behaved with such wisdom and foresight in Poland, acted with such cruel neglect in the case of Russia? Step by step, and memoir by memoir, the true story came to light. The West had helped Poland financially and diplomatically because Poland would become the Eastern ramparts of an expanding Nato. Poland was the West, and was therefore worthy of help. Russia, by contrast, was viewed by US leaders roughly the same way that Lloyd George and Clemenceau had viewed Germany at Versailles - as a defeated enemy worthy to be crushed, not helped.

A recent book by a former Nato commander, General Wesley Clark, recounts a 1991 conversation he had with Paul Wolfowitz, who was then the Pentagon's policy director. Wolfowitz told Clark that the US had learned that it could now act with impunity in the Middle East, and ostensibly in other regions as well, without any threat of Russian interference.

In short, the US would behave like a victor and a bully, claiming the fruits of Cold War victory through wars of choice if necessary. The US would be on top, and Russia would be unable to stop it.

In a recent speech in Moscow, Putin has described US behaviour in almost the same terms as Wolfowitz. "The Cold War ended," said Putin, "but it did not end with the signing of a peace treaty with clear and transparent agreements on respecting existing rules or creating new rules and standards. This created the impression that the so-called 'victors' in the Cold War had decided to pressure events and reshape the world to suit their own needs and interests."

Image copyright Getty Images
Image caption Russian tanks arrive in the Crimean capital, March 2014

By making these observations I do not mean to exonerate Putin of responsibility for Russia's recent illegal, cynical, and dangerous acts of violence in Ukraine. But I do mean to help explain them. The shadow of 1989 looms large. And Nato's continued desire, expressed again just recently, to add Ukraine to its membership, thereby putting Nato right up on the Russian border, must be regarded as profoundly unwise and provocative.

1914, 1989, 2014. We live in history. In Ukraine, we face a Russia embittered over the spread of Nato and by US bullying since 1991. In the Middle East, we face the ruins of the Ottoman Empire, destroyed by WW1, and replaced by the cynicism of European colonial rule and US imperial pretentions.

We face, most importantly, choices for our time. Will we use power cynically and to dominate, believing that territory, Nato's long reach, oil reserves, and other booty are the rewards of power? Or will we exercise power responsibly, knowing that generosity and beneficence builds trust, prosperity, and the groundwork for peace? In each generation, the choice must be made anew.

You can listen to The Shadow of the Cold War on BBC Radio 4's Four Thought on 17 November at 20:45 GMT, or via the iPlayer.

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