A New Global Conflict or the Same Old Clash of Ideologies?

People are quick these days to speak of a new global conflict, a systemic rivalry between the democratic states and the “autocrats” — by which we are of course supposed to understand a conflict between the good guys and the bad guys. An utterly laughable proposition, to be sure, and it’s no wonder that it’s only in the countries of the self-proclaimed good guys and their compliant media landscapes that people see such a new conflict.

What we are in fact facing are the same old conflicts, which play a far greater role in the developing world than the new ones dreamt up by the West. And in these old conflicts, the “good guys” in the West played a role that they don’t like to acknowledge, but which every child in any developing country knows full well: they were the bad guys.

With utter disregard for democratic principles and human rights, the West, which loves to act as if its aid is “values-based” (unlike China’s), used the International Monetary Fund (IMF) to force an economic ideology onto needy countries that was not only fundamentally wrong and idiotic, but in most cases dramatically worsened conditions in the countries in question.

Under the leadership of the major industrialized nations, the IMF has systematically refused to consider the real problems in these countries whenever there has been a risk that their own economic interests (that is, those of Wall Street or the banking hubs of London or Frankfurt) could be negatively affected. Brazil under its former president Lula is only the most striking example of this: when Lula’s finance minister accurately spoke of a currency war being waged against his country, the Western world simply ignored it.

Dictating Development

The industrialized nations bear direct responsibility for all of this. After all, they are the ones who call the shots in the IMF, which they use to throw their economic weight around without the slightest of scruples. Anybody in a developing country knows this, and is able to draw their own conclusions about it.

It’s only in the “democratic” countries that everybody remains blissfully ignorant, because we couldn’t care less about how much suffering there is in the rest of the world and how much damage our ideologies do. But if you want to find a culprit for the fact that the number of countries in the rest of the world that are willing to clearly stand with the West is vanishingly small, you’d best take a look in the mirror.

China’s development policy has not succeeded because it funds concrete projects, but because it delivers these projects without meddling in the politics of the countries receiving the support. The West, on the other hand, which through the IMF continues to enjoy a near monopoly on providing aid to countries that need foreign currency to pay their bills, has always systematically tied its support to a brutal form of neoliberalism — a neoliberalism that none of the industrialized countries would ever implement at home.

From the standpoint of the government of a developing country in need of international aid (and often through no fault of their own), the support provided by “democratic” states via the IMF is undoubtedly seen as a form of intellectual colonialism, as policy is dictated to them by their creditors, while the aid provided by the Chinese dictators is remarkably administered without recourse to such dictatorial conditions.

Without a complete volte-face in economic dogma, the world beyond the established industrialized nations will realign itself. After all, China has shown that it is possible to be economically successful without having to commit to neoliberalism. We can only hope that the major countries of the developing world manage to swiftly create their own monetary fund, undercutting the IMF.

The West’s Responsibility

Likewise, it is not possible to understand the conflict in Ukraine if we ignore the ways in which, after the fall of the Berlin Wall, “the West” foisted an economic doctrine on Eastern Europe (including Russia), which was not only unsuited to the task at hand, but downright counterproductive.

The result was a large number of countries that only managed to avoid becoming “failed states” because they were able sell raw materials on the cheap once markets had been opened up. Political relations between East and West are not just characterized by feelings of frustration and dashed hopes — the East feels that it was collectively sold out. What’s worse, however, is that many smaller countries continue to believe that there is a simple path out of their misery, which consists of throwing their lot in with the West. The fact that the West never had a plan for integrating and developing the East (and still doesn’t) is something a great many people still refuse to acknowledge.

While the concrete Wall fell in Germany 30 years ago, unfortunately, the walls in the minds of many politicians and economists remain intact. Three decades went by, but with precious little to show for it if you look at the economic gulf between most of the European regions east of the Elbe River and the “golden” West.

This phenomenon begins in East Germany, where despite its total and meticulous absorption into the land of the economic miracle and massive amounts of “development aid”, the economy still lags far behind the former West, and large swathes of the population justifiably feel like they don’t really belong. The further east you go, the worse it gets.

The Russian population’s per capita income is stagnant at levels considerably lower than those of the US. In the wake of the 2008–9 financial crisis, Ukraine scores even lower on this decisive index, far behind even Russia. Meanwhile, China is managing to improve its position with respect to the US.

It’s worth pausing to acknowledge this: Russia’s neighbour — whose fate we are all bemoaning and with whom we declare our solidarity every day — was led into an economic situation by its Western advisors (under the direction of the IMF) with dire consequences for the functioning of Ukraine as a young democracy and for the economic prospects of the populace.

The staunch faith in the miraculous powers of the market economy, free trade, and the free flow of capital implemented by the institutions of Washington has also proven to be a catastrophe in the transitional countries of the post-socialist bloc. The jewel in the crown of all of this was the dogma of monetarism, the belief — largely cast aside even in prevailing economic doctrine — that flickers of inflation must be contained through the strict control of the money supply by an independent central bank. In terms of government expenditure, the consensus prescribed austerity, telling governments to keep taxation as low as possible without the need to take on debt.

Inflationary Dangers

Another stunning feature of the “advice” offered to the post-socialist countries was that it completely failed to resolve the currency issue. In the transitional phase from a planned economy to a market economy, the toughest task for almost all countries was preventing lasting, open inflation, because the inflation that had been suppressed in the planned economy rose to the surface, and in all countries workers tried to catch up to the West with rapid wage increases secured from companies that had no idea what they were about to be confronted with on the global market once the borders were opened.

Because the IMF views wages as “market values”, making them off-limits for economic policy, and functioning trade unions with a real understanding of the macroeconomic context generally didn’t exist, massive bouts of inflation were common in the years after the borders were opened. This was particularly stark in Ukraine. The only tool that the IMF could think of was of course restrictive monetary policies via high interest rates and/or pegging local currency exchange rates to a Western currency (as an anchor), through which cheap imports were supposed to discipline domestic producers.

In Ukraine, the exchange rate with the US dollar was fixed after the end of the period of hyperinflation, at the beginning of the transition process, and was kept at this level until 2014. This led to a horrendous imbalance in foreign trade, and ultimately to a severe devaluation of the currency. After this, however, the currency remained the plaything of Western currency speculation, as evidenced by the dramatic fluctuations in the exchange rate.

Russia was the biggest and most important country to be thrown into the icy waters of the international capital markets by its utterly naïve political leadership in the 1990s. Without the Russian currency crisis and the failure of the Yeltsin government, Putin would most likely never have risen to power.

Fixed exchange rates as anchors had fatal consequences for the real production capacities in the key industries of transitional economies. Almost all domestic products disappeared, because the Western producers, with their drastically undervalued currency, were able to rapidly move in and take over the market. With this development, the fates of the most important producers from East Germany to Vladivostok were sealed — forever. Once a company had given up its economic basis as a transitional company, it was almost impossible to rebuild, even when external conditions became more favourable. It would be disingenuous to suggest that there was ever anything resembling independent industrial development and the establishment of market-based structures in these countries.

No Fair Trade without Fair Competition

The countries of Eastern Europe and beyond were at once victims of the hubris and business cunning of the West.

Unthinking assertions were made that the opening of all markets would automatically and rapidly create new fields of commerce for the transitional countries because of the principle of comparative advantage, enabling even countries that were not immediately capable of competing with the West in absolute terms to play a considerable role in the international market. This simply isn’t true. The principle of comparative advantage is a chimaera, a mirage, which is hauled out whenever people have nothing substantial to offer.

For a new beginning to be possible, it is fundamental to understand that there can be no fair trade between countries without a fair and rational currency system. Leaving currency issues to the market was the most important of the many economic-policy failures made after the fall of the Iron Curtain.

The currency relations between all countries must be managed such that no country can secure absolute advantages over any other, which means that the real exchange rates need to be constant, and it also means that no country as a whole can gain or lose competitiveness internationally. The principle of constant real exchange rates must be applied both outside and inside the EU’s Economic and Monetary Union (EMU). Every country that joins this Union or is associated with it must receive the guarantee that the exchange rate of its currency will be protected from speculation with the help of the ECB, and will be valued at a level that balances out the inflation differences between them and the EWU.

A political reset across Europe must also involve a clarification of Europe’s stance on China. The American hegemonic claim, with its tendency to paint China as the prime enemy purely because it can produce much stronger economic dynamics than the US, must never become a model for Europe. China is big, and it will get bigger economically, and even if the country continues to be governed dictatorially by a Communist Party for many years to come, we need to find sustainable ways to cooperate and to interact peacefully with each other.