The Political Economy of the Cold War

Western I'm one of the directors in LSE ideas with Professor macaques who's in the audience as well tonight it's a great pleasure to see as many of you here too packed audience because we have competition tonight some of you will know we're competing with the President of Chile and all of the recent events that's someone else earlier on today I compare that to competing with Jesus Christ often a Chinese word there is something to that now if there is any one of those wonderful events that we go witnessing in Chile who would be able to compete with president piñera certainly among historians I think it would be our speaker tonight person you know Ferguson whose day job is as professor of history at Harvard and professor of Business Administration at the Harvard Business School this year professor Ferguson is the Phillip Fulmer professor of history and international affairs here at the LSE and Neil it's really a tremendous pleasure for me to welcome you here and welcome you to Elysee now anyone who has been following public debates about history or politics over the past decade will know who professor Ferguson s it's important impossible not to that's both because of the way he has engaged as a public intellectual in some of the key debates of the age but its first and foremost I would argue the cause of his incredible output as an historian there's no one else I know absolutely no one who's been as productive in this field over the past decade as Neil has been going from the world's banker the history of the House of Rothschild from 1998 to the pity of war a great book on the First World War to the cash Nexus to Empire in 2003 the war of the world in 2006 and most recently - answer the life and times of Sigmund Warburg which came out earlier this year he is now working for good measure on a biography of Henry Kissinger so he has his work cut offered over the next few years among many other things that he will be doing simultaneously so we are all much looking forward to you here at LSE nalddo you will leave a few other historians press s in your wake as lecturing to our students here and as you are discussing history and international affairs in ideas with the other people who are there let me use the opportunity to thank the ideas team wonderful group of people that we have at LC ideas who helped prepare both his lecture and Niels stay at the LSE also want to thank the school and particularly its director Howard Ellis who has been very forthcoming in helping to organize the events that we are running you know ideas first and foremost my thanks to a manual Obama who made this chair possible to a condo nation in the name of his father Philip and it's an annual gift that makes it possible for us to invite such a incredible group of historians and political scientists to teach at LSE for a year now I've been looking forward to this evening for a few years since we first discussed it over beers in Boston professor Neil Ferguson welcome to LSE ladies and gentlemen Neil well thank you very much indeed RNA thank you to the ideas team thank you above all to Emilio hormone it's a great pleasure to be here with you at this evening I'm going to do something extraordinarily reckless which will almost certainly go wrong which is I'm going to try and show you a video clear and I haven't rehearsed doing this but it's quite a nice clip and if I can pull it off without complete embarrassment then it will be a good start to this talk it's also rather appropriate because it's actually about a demonstration of technological technological competence but since I know a Mac person there's every probability that I will not get this to work there's also distinct probability since this is Britain that the computer won't be online so who knows let's see if it doesn't work then I'll just have to come simulate it oh that's not very the here you see ask me later thank you very much now let's see if this works if it doesn't and we can all just don't get so unprofessional of me to do this I should really have come here earlier but I care that Cephas is going to work tense moments for the lecturer the other possibility is that the bandwidth will be so narrow that this was worth tall yeah here we go there must be a free exchange of ideas there are some instances where you may be ahead of us for example magazine development of the thrust of your rockets for the investigation you you must not be afraid of ideas what move are were in Brittany boy to see you a number yachts initial movie where will is easy to open you make apology oh well then let's have more exchange of them we all agree on that right the glasses and when you dominate the conversation you would have made a good lawyer yourself well at that I'm going to leave and Nikita Khrushchev and Richard Nixon then vice-president at what was in many ways a seminal moment in the Cold War this was the famous kitchen debate that happened at the American exhibit at the Moscow trade fair in 1959 and the reason I played that segment is that it begins though we didn't quite hear it but with a wonderful arguments between Khrushchev and Nixon about whether or not the Soviet Union could do color TV see what you're seeing there in that clip is one of the first ever color video recordings and the Americans for whom Richard Nixon was acting as salesman extraordinaire were pitching this as an example of what the United States could do that the Soviet Union could not do and the wonderful thing about this impromptu press conference debate is the duster with which Khrushchev insists not only that the Soviet Union can do that but it can do thing that the United States can do and more and what I want to do is reflect this evening on whether it was a foregone conclusion that he would be proved wrong because today today that clip seemed silly really funny and indeed it elicited the mirth I'd hoped when I was making a television series the war of the world on 20th century conflicts we deliberately began the fifth episode on the Cold War with that sequence with a little extract from that sequence and after that was played I wandered around the park of economic achievement in Moscow making frankly rather snide jokes about Soviet economic performance after 1959 was it's a foregone conclusion it's certainly tempting with the benefit of hindsight to say that it was inevitable that Khrushchev would lose inevitable that in this respect at least Richard Nixon would be vindicated but Nixon's simple claim that he made over and over again despite Khrushchev's bulldozing style of debate that the United States was ahead economically and would stay ahead economically was in fact correct when you look back on the 1960s and here are just two of umpteen advertisements I could have shown you from that period it seems self-evident that the Cold War's economic struggle would be won by the United States think of this jeans denim workman's overalls you might have thought would be something that the sabe Union could make since it was after all the workers paradise and jeans are not that technologically complex as articles of clothing essentially a few pieces of denim stapled or sewn together even with respect to jeans the Soviet Union failed so the extent that by the time I knew Eastern Europe in the early 1980s Levi's were virtually a currency among young people behind the Iron Curtain and when you saw the really awful Ezard jeans that the Soviets manufactured you immediately understood why so it seemed like a foregone conclusion that an economy that couldn't even make jeans that people wanted to buy was bound to lose so the economy that produced both Levi's and Wranglers it's a striking contrast isn't it the consumer goods of real existing socialism did not compare favorably with the hotrods and the denim flares of real existing capitalism there's a great line from wedgies Debray who said there's more power in rock music and blue jeans than the entire Red Army if you've seen Tom Stoppard's play rock and roll you'll know just what he meant and it seems pretty clear when it came to a contest over consumer goods not just jeans but the whole panoply of things that made the 60s what the sixties were the Soviets couldn't cut it it was therefore from the vantage point at least of Western Europe a foregone conclusion that the Soviet empire in Eastern Europe would crumble and die as it did between 1989 and 1991 events that were formative events for me personally let me tell you about the scoop that never was I was a young graduate student in the summer of 1989 and I was living and working in Berlin and because in those days as I suspect it's true today British graduate students weren't terribly well-paid I had to eke out my existence by moonlighting as a journalist and I financed the writing of my DPhil by appearing under a variety of pseudonyms in the British press in effect I covered at West Germany for the Daily Telegraph under the alias Alec Campbell and when I really was hard up I would prostitute myself no not literally but metaphorically by writing for the Daily Mail which just goes to show that what goes around comes around I am I I was in Berlin in July of 1989 and I'd spent a lot of time in East Berlin because as a Brit it was easy for me to go back and forth and I'd traveled in East Germany a little and I'd seen for myself just how astonishingly backward that the East German economy was but as soon as you got 500 yards out of Alexanderplatz it was extraordinary obvious that there had been no investment in the infrastructure in the building's since 1945 the shell holes were still there that the Red Army had left and so it was staring the obvious to me just with the evidence of my own eyes that a major economic problem was looming in at least that part of Eastern Europe and it seemed an obvious inference that if the East Germans were in trouble then the situation in Belarus was hardly likely to be better so in the summer of 1989 noticing an increasing number of East Europeans traveling from East Berlin to West Berlin including Hungarians and poles something that I'd never witnessed before because there was a period for many years really from 1961 right down until the summer of 89 when you traveled alone back on the s-bahn from free toast tosser because nobody else could come over and some of you will remember that experience well in the summer of 89 that changed because relaxation of travel restrictions in other East European countries began fundamentally to alter the dynamics of travel in Central Europe so I was very excited I thought here's an opportunity to make some money so I phoned up in fact I didn't phone up I wrote a piece and filed a piece with the headline the Berlin Wall is crumbling can you imagine if that had been published the kudos that I would have earned I could die note on that story for the rest of my life but it wasn't published it was spiked and the juicy editor explained well Neil I've spoken to the editor and quite frankly he thinks you've been listening to one too many Ronald Reagan speeches so the scoop didn't come my way and when the wall did come down as I predicted I was in Cambridge by even more bad luck on the eve of my via vivace DPhil examination and that was when I realized I was going to write history rather than make it let's now turn from anecdote to hard evidence if the end of the Cold War the economic failure of the Soviet Union was a foregone conclusion is there good data to support that hypothesis I think there is as I'm about to show you in a series of slides the growth rates declined dramatically in the Soviet Union after Khrushchev's period in office perhaps more importantly a total factor productivity a measure of the efficiency of the utilization of economic resources plummeted to the point that Soviet factories were valued subtracting the raw materials were worth more when they went into the factory than when they came out as finished products just as friedrich hayek the great genius his spirit still hovers over this institution foresaw price controls and a planned economy fundamentally did not work because in the absence of market signals resources were grotesquely misallocated so that's for example steel consumption was four times higher in relation to GDP in the Soviet Union than in the United States monstrous inefficiency was in fact a predictable consequence of economic planning as Steven Cochran has recently argued the only thing that kept the show on the road after 1969 was the subsequent rise of the price of oil and the Soviets discovered to their great surprise because they'd never thought about this before that in fact they might possibly be sitting on rather a lot of fossil fuel and that exporting this might be a way of making money this was the Armageddon averted of Cochran's recent book Andre Schleifer my colleague at Harvard has analyzed theoretically why corruption was endemic in the planned economic system the whole incentive structure was screwy as well as as well as the moral structure you pretend to pay us and we pretend to work just like British academic life only were moreover as Paul Kennedy argued at the time though he was subsequently Moss for his excessively pessimistic views on the United States it was indeed the case that the Soviet Union was crippling its economy with excessive defense expenditure the great disaster at Chernobyl just Illustrated what was bound to happen somewhere sometime because of the inadequate allowance for the depreciation of the capital stock and then on top of that you had endemic rampant alcoholism so here are the data if you look at gross national products and your growth rates here divided into various sub periods from 1950 through to 1985 or GNP per employed person or total factor productivity all the revised TFP data that the CI produced it's a story of pretty spectacular decline from the high hopes of the 1950s the Soviet economy essentially stagnated and from 1975 negative productivity growth was a clear sign that it was on the critical list we have some reasonable data actually now for the economic performance of the Soviet Union various component parts of the Soviet Union and satellite states in Eastern Europe but notice here that there are two sub periods we have more for the second 1950 to 73 1973 to 90 the interesting thing is that in the 1950 to 73 period the countries for which we have data had relatively robust economic growth rates these are per capita GDP inflation adjusted numbers you can see for example that Yugoslavia was growing rapidly Bulgaria was growing rapidly Romania was growing rapidly and even the Soviet Union on these numbers was managing a three percent three point five percent annual growth rate but when you look at 1973 290 it is a story of unmitigated failure and in some cases catastrophic on the performance notice the extremely poor performance of the stands the Central Asian Republics and of Poland which was on a fast track to economic breakdown in the run-up to the Revolution if you compare the rate of growth of total factor productivity with the major Western economies and particularly with the West European economies where productivity grew very rapidly even in the 1970s when the USA in fact performed quite badly it's clear that the USSR was in serious trouble indeed in chronic trouble the sad truth was that despite the exaggerated estimates that the CIA made for a time Soviet GDP by the end of the Cold War was probably more like 36 percent of u.s. GDP which was not a massive improvement on 1945 when it had been around 27 percent according to Mark Harrison's estimates that was not really a case of we will bury you that was a case of we will be buried by you and if you look at per-capita consumption it was roughly a quarter of the American level basically the Soviet Union had an average standard of living equivalent to that of Turkey the defense expenditure story is unquestionably a part of what went wrong in order to match the three or four times larger US economy in an arms race that was conducted at every level from space right down to espionage of course the Soviets had to spend a significantly larger portion of their gross national product on the military the estimates for this are incredibly unreliable there was an enormous amount of smoke and mirrors during the Cold War to disguise the scale of the Soviet defense budget but it seems a reasonable figure than I've used it here but on the eve of collapse even at the end of Gorbachev's period of reforms the Soviet defense budget was still around 14% 1/4 percent of estimated gross national product whereas at that time even in the wake of Caspar Weinberger and Ronald Reagan's defense expenditure increases the United States was basically averaging 5% so that side of Paul Kennedy's story was right if only he'd concluded the rise and fall of great powers by predicting the collapse of the Soviet Union and not the collapse of the United States we might all take that book more seriously the story that cop-con tells is clear it's the explosion of oil prices in the 1970s and to great surges in 73 and 79 that essentially provides a lifeline for the oil-rich Soviet empire and one of the things that the Soviets were able to do as a result of that great surge in oil prices was borrow a lot of money so they rat rushed to the foreign currency markets and throwing a board overboard their various prejudices against capitalism got deeply into debt to Western banks and agencies this was another way of keeping the show on the road without this hard currency borrowing the economic trouble would have set in sooner than it did in 1989 would probably have happened much closer to 1979 in one of many social indicators I could show you of what was going wrong not just at the level of macro data but at the level of everyday life here are some figures for male life expectancy at Birth the Western world has been very good for a roughly a century at delivering steady improvements in life expectancy which is why the students at LSE have a reasonable chance of living longer than the professors a depressing thought for me but not for the majority of you this was something that the Soviets and their satellites totally were unable to do in fact life expectancy flatlined in the Soviet Union and even in its Western republics like Belarus right away from the 1960s to the 1990s hero improvement in Belarus a brief spike in the Soviet Union followed by a total collapse if you take these data forward after 1990 it's very important if you are a historian to admit what you got wrong many people in the profession find this more or less impossible though they don't find it as hard as economists I'm going to tell you what I used to think what I used to teach I'm even going to show you some old slides from when I taught at Oxford and then I'm going to tell you what I now think about this whole question about the foregone conclusion hypothesis let me first tell you what I used to think in a very Eurocentric way about the economic story that I've just sketched for you in data this is how it went the situation in Europe at the end of World War two was dire everywhere in the West and in the East there had been a rise in population somehow incredibly despite the rage of ravages of war but industrial production was down on average 40 percent even more in some places and European countries had almost no ability to raise foreign funding for the imports they desperately needed industrial production in Germany or at least in the Western zone of Germany was at something like a third of its 1938 level only those countries that had stayed completely out of the fray like Ireland and Sweden could report a relatively stable standard of living relative to the pre-war period the worse it was with very few exceptions the more attraction communist parties had this chart just shows you the percentage of votes going to communist parties or coalition's with communists in them in the immediate post-war elections that were in Europe even in Switzerland the Communists got votes in Yugoslavia they dominated the electoral scene in Poland in Romania in Czechoslovakia in Bulgaria but also in Italy in East Germany in France in Finland in in Belgium even in Sweden they were serious political contenders it was a no-brainer capitalism caused the depression according to communist propaganda it also caused a schism the Communists had been prominent in their resistance sometimes suicidal to fascist Authority and the Soviet Union had done the bulk of the dirty lifting the heavy lifting in the fighting that defeated the Third Reich what was the answer to this question the answer was the Marshall Plan Europe must have substantial additional help or face economic social and political deterioration of a very grave character said general Marshall at Harvard June the 5th 1947 and the way I used to teach it this was the key to the post-war miracles in the West European countries that got the aid but because Stalin refused to let countries in his sphere of influence accept the aid they didn't have economic miracles when you look at the impacts of Marshall aid plus domestic economic reform in a whole range of West European countries spectacular growth ensued these are per capita GDP annual average growth rates 1950 to 73 and you can see that a significant group of West European countries were growing at 5% even higher in the case of Spain and only the UK was limping along at a rate comparable with Eastern Europe why did Marshall aid work the way I used to teach this was that although it wasn't a massive amount of money in relation to recipient GDP it did a lot to leverage domestic in and the investment boosted economic growth dramatically there was a big multiplier it also crucially as Barry Eichengreen and brands along pointed out recently helped finance the imports that they desperately needed in the transition from war to peace it was used by the Americans to promote trade liberalization and as Charles Mayer and others have shown to Americanize West European business this was aid with conditions attached and of course it was part of a bigger package that included a security umbrella that essentially West Europeans didn't need to pay for when you look at Marshall aid from an American point of view it was a great deal maybe one 1.1 percent of u.s. GDP but it had the effect of transforming Western Europe from a basket case into a thriving and broadly pro-american sphere of influence notice mind you that the biggest recipients were not the best performance and this is where my old version of the story begins to look a little dodgy the United Kingdom was the biggest recipient of Marshall aid and you'll remember from an earlier slide the worst economic performer in Western Europe after the war so second way I used to explain it to students it must have been internal factors starting from a really low base led to rapid economic growth the more you'd been flattened the better this was manka Olsen's old story about why West Germany did well it was tabula rasa start from scratch you had abundant labor often very skilled labor fleeing from the Soviet zone of occupation and not least because of authoritarian regimes in the 30s and early 40s you didn't have the old problems that had disrupted 1920s life of over powerful trade unions on the contrary a new labor relations model corporatist in mayor's term was brought in that reduced strikes and improved labor harmony the contrast in the West German case between pre and post 1930s is really striking Germany had an abysmal record of labor relations in the 1920s one of the worst in Europe after 1950 it had about the best and then of course over and above that you had a political shift from the extremes of the interwar period to social democracy and Christian democracy everybody as Hayek points that believed in planning believed in a new model in which the state would play a bigger role than it had played before welfare states sprang up everywhere they took different forms from Britain to France to Germany to Italy with different roles played by different institutions but the net result was the same a new social model that offered consensus that offered benefits rather than the harsh judgement of the market here's some interesting long-run data here are some interesting long-run data showing how social services expenditure rose dramatically as a percentage of gross domestic product especially from the 1940s notice there how Britain outstrips the competition really few West European countries had more ambitious plans for expanding welfare than the United Kingdom and what was the alternative the alternative was real existing socialism you paid reparations to the Soviets to the tune of 14 billion dollars you found your economy regulated by Stalinist five or six year plans you had collectivization imposed on your agriculture if you were unlucky enough to be in the Baltic States or Romania and you had forced labor in good old Stalinist fashion yet more canals yet more slave labor camps and the beneficiaries a new class of apparatchiks who set themselves up at the various interstices of the planned economy to engage in rent-seeking behavior not a difficult choice you might have thought why was that story wrong why was I teaching students a kind of fairy story about the post-war world well for two reasons one I neglected to point out that this wonderful model that I had described to them completely malfunctioned in the 1970s which you'll remember it's slightly before the end of the Cold War the West slide into stagflation from the late 1960s through the 1970s totally and I mean totally compromised the claim that Nixon had made in 59 that the Western model was massively better than the eastern model that just stopped seeming true and have you doubted Oh younger members of the audience take a look at this let's look at the extent to which in fact economic performance was not spectacular in the West even in the period before the stagflation era of the 1970s in fact the performance of the UK and the USA in terms of economic growth if you take Madison's data was closer to India than to the star performers at the other end of this chart in terms of productivity to the Western model wasn't delivering on anything like the promised scale and by the time the 1970s came along the story only got worse double-digit inflation is not much fun I hope we won't discover that again in the too near future but at any event for our purposes the main thing to remember is how very badly things went wrong in the mid-1970s and not just in the US in fact the US did comparatively well in a whole range of countries that had been beneficiaries of the post-war American underwritten order not least Britain which it's easy to forget by the late nineteenth by the mid 1970s had inflation above 25 percent and by 1976 had to call in the International Monetary Fund to cope with its chronic fiscal and monetary problems here are the UK retail price data for the 1970s it's very salutary to be reminded of the mess we were in then and here's the FT all share index nominal and adjusted for inflation adjusted for inflation you see that Britain actually had a great crash for an investor it all went horribly wrong after a night around about 1972 secondary banking crisis chronically incompetent and weak governments yes and even a housing bubble it's easy to forget this kind of thing and people did you may remember those people who said the property prices never went down I wonder what they were smoking in the 1970s because to miss this bubble was really quite an achievement of amnesia so the first problem the first problem with my just-so story is simply that it underestimates the massive problems that the West encountered in the 1970s at a time remember when high prices were in the oil market benefiting the Soviet bloc giving it in effect a new lease of life malaise that word inextricably associated with President Jimmy Carter seemed to hang over not only than North America but also over Western Europe now let me tell you in the remaining part of this lecture what I think now and it's very different from what I used to think about the political economy of the Cold War ladies and gentlemen Western Europe's performance in the 1950s and 1960s was not the big surprise of the post-war period Western Europe already been industrialized it had then been blown apart by the depression in the war and after the war it was rebuilt not really that remarkable the phenomenon far more remarkable was the growth of the economies of East Asia led by Japan but in the case of say an economy like South Korea's starting from a far lower base than even the poorest West European country South Korea in 1950 was a poorer country on a per capita GDP basis than Ghana then in fact most African countries and yet South Korea and other economies like is experienced astonishing and sustained growth Japan South Korea Hong Kong Malaysia Singapore Taiwan and even Indonesia these were the economies that consistently throughout the Cold War outperformed everybody else know as honor has pointed out our economic performance was poor in the third world in sub-saharan Africa and in Latin America tremendous opportunities presented themselves to the Soviets but when you look at the part of the world where that didn't happen where economic performance was sustainably strong there were very very few levers the Soviets could pull what's really striking when you put it in this perspective is that South Vietnam was the exception that proved a very strong rule of Asian predominance China aside in that sense the decisive year in the Cold War was not 1989 in the end of the story but 1979 the year that bang champagne went to the United States donned his Stetson hat and effectively acknowledged that the rest of East Asia had got it right and it was time for China to join the party the big story of post-war history is Asia just look at the shares of gross domestic product of the world the Asian share rose from 14 percent to 34 percent between 1950 and 1990 Western Europe's shrank from 36 percent to 22 percent North America's shrank from 44% to 26% I'm enough of an economic reductionist to think that's probably quite important and that any explanation that privileges Christian democracy in Italy above economic miracles in Asia is a pretty lousy explanation now the really really important point is the sustained and indeed accelerating nature of East Asian economic success this chart using data from the World Bank breaks the whole period into decades and what you can see there is how things got worse in the developed countries the growth rate fell in the high-income OECD countries which is basically Europe and North America it deteriorated dramatically in Latin America and sub-saharan Africa after 1980 but in East Asia things actually improved each decade was better than the one before if you compared Japan's performance with the performance of the West European economies it's out of sight stronger this is just productivity measured in output our output per hour in manufacturing the Japanese saw out of sight in this period and data for South Korea and the other economies I've mentioned would not be significantly different this is the big story of the Cold War at least in terms of economic history Japan Singapore Hong Kong South Korea even Thailand the growth rates in these economies seem to me to be the real key to understanding the political economy of this period and again if you do it in a comparative perspective here I've of ranked countries by their performance in the later part of the Cold War the achievement is truly astonishing let's focus on the 1973 to 1990 growth rates here are shown in green South Korea in this period grew at an average annual rate of just under seven percent Thailand was not far behind Hong Kong was almost neck and neck with it Singapore was almost neck and neck with Hong Kong which incidentally tells you something interesting about economic models they don't hugely matter since Hong Kong had a completely different model from Singapore then Taiwan and then Malaysia by the time you get down to Indonesia and Pakistan it's less spectacular sure but look at Latin America and Africa which I've put at the bottom of the chart for reference growth in Latin America and Africa was miserable in this period is it any wonder that the flash points of the Cold War in the third world came there and not in East Asia so the challenge is to understand Asian success and particularly East Asian success and to see what it signifies for the outcome of the Cold War now I'm going to offer some conclusions which I hope will upset you number one it proved to be tremendously good for a country to have a long term security guarantee from the United States based on the aftermath of a successful military intervention that was the story in Japan that was a story in South Korea implicitly at least it was the story in Taiwan which had its existence underwritten by the u.s. second point under this security umbrella radical economic reforms were undertaken in these countries that significant may boosted their economic performance of which perhaps the most important is also the most neglected I wonder how many of you are aware of the radical nature of the land reform that General MacArthur and his men imposed on Japan after World War two in 1946 there was a complete abolition of feudalism in Japan and a wholesale transfer of land from the feudal elites to the people the tenants who worked the land Hernando de Soto and I were talking about this the other day and we concluded that this was one of the magic bullets that gets no credit for Japan's subsequent astonishingly successful economic performance and as he remarked the intriguing thing about the neglect of this in the literature is that Americans today don't understand how important that kind of reform is in the aftermath of a military intervention empowering people as property owners is the single most important thing you can do if you want a capitalist economy to function and that's precisely what happened in Japan after World War two thirdly these countries were the principal beneficiaries of the economic order that the United States created after 1945 with its combination of increasingly free trade an increasingly mobile capital the u.s. created a perfect environment for an economic strategy based on the export of manufactures to the developed world it was a very benign environment and these economies that I'm talking about to varying degrees are benefited from it American foreign direct investment an American consumption this is one of the key arguments of Charles Mayer's recent book among empires were the juice on which the economic miracles of Asia fed but if one looks at the engine itself the engine was an extraordinary synthesis of the state and the private sector focusing on productivity gains in manufacturing it worked so well that eventually even the Chinese adopted it with results that we are living with today like almost everything I do and say this argument poses problems for liberals I'm sorry about that because part of what I'm saying is that US military intervention in the past was very successful in creating the basis not only for loyal allies but for economic miracles and we should add into the equation the success of British military intervention in Malaya the great success of counterinsurgency in Malaya and keeping the Communists out laid a foundation for that part of the world's relative success in the Cold War era South Vietnam to repeat was the exception that proved the rule if the Americans had not flunked South Vietnam it would have been South Korea 2.0 that's a perfectly plausible counterfactual the mistakes were made and here I do increasingly agree with Henry Kissinger not in Vietnam but in Washington DC that was where the war was lost to the great cost of the people not only of Vietnam but of Cambodia another problem for liberals that follows from this argument is that economic success in East Asia was not the function or achievement of democratic institutions you know the Chilean President is in town doing well-deserved lap of Honor for rescuing those miners but so think how much more we've heard of other Chilean leaders in this country in the past think of the great indignation which always greets the name of Pinochet whenever it's mentioned particularly at the London School of Economics why is so much less opprobrium heaps on for example General Park chung-hee or general Chun doo-hwan they too were dictators military dictators and they too were certainly abuses of human rights arguably on a larger scale than pinoche ed and they too presided over economic reforms that ultimately just as one can say of Chile put their country on the path to economic success and ultimately to a democratic transition whether one looks at South Korea or Singapore or Indonesia even Taiwan even Japan where a one-party state prevailed throughout the Cold War the story is remarkably similar although the economic miracle was usually followed by a democratic transition we cannot attribute it to democracy moreover success in these economies was not based on a standard market model the role of the state from Singapore with the notable exception perhaps of Hong Kong to South Korea was really very significant indeed in a sense these countries benefited from a free market environment from an increasingly open world that ultimately earned the title of a globalized economy but domestically domestically they were not run in the sense that Adam Smith had in mind when he described the ideal economy in the wealth of nations so those are the problems that my argument poses for liberals on the other hand one must say that this economic or political economic model worked a great deal better than the alternative which increasingly was adopted by American policymakers after the initial successes of the 1950s the alternative was to intervene after things had gone wrong not preemptively but ex-post an ex post interventions in Iran Guatemala Congo Brazil the Dominican Republic Chile even when they were from the vantage point of the CIA successful had none of the benign consequences that I've been describing in cases like South Korea and when interventions failed as they effectively did in Indonesia Cuba needless to say South Vietnam not to forget Angola Ethiopia and Afghanistan while the consequences could be truly economically cataclysmic so if one had to choose between models the Japan South Korea model of winning rather than intervening after the fact looks an awful lot more attractive I want to conclude with one of those counterfactual questions with which I hope I shall be associated long after I'm dead I want to ask would the United States have won the Cold War if East Asia hadn't experienced the economic miracle that I've described if East Asia had been like Latin America or if it had been like sub-saharan Africa a far from remote possibility how might the Cold War have turned out because as I will argue in the next public lecture that I give here the date of which of course I've forgotten it is in the future the Soviets were a great deal better position to win what deserves to be called the third world's war thank you very much this robot Hoffner but let me just stop with one down here while people are catching their breath quite literally after this are you entirely right about there being two great stories here that come together around 1970 maybe early 1970s one is the story of the Cold War the other is the story of the rise of East Asia and I've been wondering for some time how these connected and I think you presented a fully plausible argument and then some lines of how they how they link up I think you're entirely right in what you are saying about the contribution of the changes in East Asia with the most important change in quotation mark being the continued growth through the nineteen seventies and how that influenced the outcome of the Cold War what I'm wondering about is in a way the opposite taking you contractual at the end and returning it upside down how much of this would have happened could have happened if it weren't for the Cold War in other words the kind of policy that United States led including in the 1970s when it couldn't really afford to do so with stimulating open markets at least for its friends in its enemies of course for embargo them and isolated and insisting on that when that point of policy for instance with regard to Japan came on a tremendous passion in the United States itself how much that in itself as a political or strategic policy came to influence the kind of growth that we saw happening in East Asia in other words was it a cold war circumstances that were critical for the kind of hyper growth that we saw happening first along the coast and on the audience and then when China became a key Cold War ally of the United States inside China itself well thanks Anna's a great question to begin with and it directs our focus right squarely on the 1970s as the pivotal decade and it was one of the contributors to an excellent conference that we held at Harvard a couple of years ago on the 1970s the Proceedings of which have subsequently been published with the grandiose title the shock of the global and as an international history of the 1970s I think this volume has has a lot to offer one of the things that emerges from this very international collection of essays is the way in which particularly the Nixon administration navigated this extremely hazardous path and I think the way to understand it is as follows the United States remained committed to free trade unflinchingly during and after the Cold War but on condition that there were flexible exchange rates that was the great innovation of the Nixon administration the abandonment of Bretton Woods and the decision that it was a decision to impose a weaker dollar on the principle success stories of the post-war economy starting with Japan appreciation of the yen and indeed of the deutsche mark therefore were the solution to the problem that in a previous generation might have tried to solve with tariffs and this I think was how they managed to reconcile the obvious contest or conflict between domestic politics where manufacturers were getting badly hurt in Heartland States by Asian competition with the maintenance of an open economic order it turned out to be as famously the Treasury secretary Connally said our currency your problem and that's of course still true but that particular that particular tentative US political economy has been more or less an unvarying component of every administration's approach since 1971 and we're seeing it in full bloom right now the other point which is really important and it came again from Dan sergeant's working in that excellent volume is that there was in the 1970s a very very difficult decision to be taken about what to do with the huge surpluses that began to accrue to the Petroleum Exporting Countries you know global imbalances are nothing new folks and the imbalances that arose in the oil crisis were in many ways as large in relation to GDP as anything we've seen more recently there were those who favored in a kind of Keynesian way maintaining some governmental control over the investments of that kind of surplus remember one of the characteristic features of marshal aid had been that in the period of the 1950s it was the only capital export show in town and it was essentially state controlled and one of the characteristic features of the Bretton Woods system was not only fixed exchange rates but basically capital controls and governmental controlled transfers or loans across borders the decision was taken in the 70s and maintained in the 80s that these large surpluses should be recycled through banks through the private sector and that was a very very important first step in the direction of that financial liberalization that was to be a dominant light motif of the 1980s and 1990s so I think that maybe the best answer I can give to your question it probably sounds a little bit nerdy to some members of the audience but weird though it may seem floating exchange rates and increasingly liberal capital movements really provided a solution to the problem that if you are successful in your policies you create competitors that's that that's the dilemma of a liberal superpower when you succeed and they did succeed and you turn your enemies into trading partners they are also manufacturing rivals and nowhere more spectacularly than in the ultimate success story of China and I do think just to follow on from something you said that's terribly important there is a continuum here that leads form success in post-war Japan right the way through the Asian Tigers to reform in China it's a not a straight line that's for sure and you've shown that in your your work on East Asia but it does seem to me that it is it is a line we group them will take two or three questions put together could you just indicate you want to also question my dear friend and co-director you show your hands both here and upstairs Mickey thank you very much honey and thank you neil for a wonderful lecture and your wonderful grass court british technology by the way you shouldn't feel ashamed of writing for the for the Daily Mail I wrote an article for the son LSE ideas friends and comrades including a good not investor there died out on that joke forever the when they write about you that I said if I could write for eight million people and you guys can arrive for a couple of thousand who's winning I suppose that it's it's it's a larger question near which you didn't touch upon although I think was implicit I thought at the beginning of your lecture you were kind of arguing very very much close to something like a an over determination that given the economic correlation of forces and all the rest of it that ultimately we should have known that this thing would come to an end and at one side the West Western economic system whether in Europe or Asia the United States whatever would win and that the other side would lose and that that was really the import what you were saying the forgone conclusion is a sense of inevitability later on in the lecture I thought it became a bit more contingent about the 70s and other things but I don't wanna go into that but that's an interesting kind of tension I thought in your argument between determinism and contingency but the question is that if everybody was clearing their minds then or is it just now that we're clear in our minds why did so few people predict it because at the end of the day the reality is that if we've got all these economic stats that you put together and I could add many more to those of course being an old Soviet ologist why was it that all the experts including the CIA including all the economists that I knew working in the West at the time Bergson Alek know if I could go through a whole list of people why is it that they failed to predict what finally happened thanks Mick had a question over here yes the just pause the mic please yes hello yes could you comment on the fact that it was not being able to unwind the geopolitical strategy within the Soviet Union that calls the collapse then we had a question upstairs right at the back blue shirt yeah please sir okay yes yellow all right yeah go ahead as higher can a lot of other liberal thinkers have argued control over the economic for whatever reason NASA takes control over the political as the Soviet Union showed but then as East Asia showed and you just highlighted you can be in control for political but that doesn't necessarily mean that you have to be in control of the economics that sort of age-old equation has been inverted but do you think these societies can sustain the sort of catch-up growth that they've demonstrated while still retaining control the political because after all Chinese GDP per capita is still only 8% of the United States role it's fantastic growth in recent years and ultimately when it has to stop copying to catch-up and actually has to innovate to catch-up do you think its political system will prevent a hindrance to its growth Thank You Neal well thanks for those excellent questions I'll take them in order I do think it's far more a contingent than then over determined Mick I really wanted to create a straw man at the beginning which is my old way of thinking about it and in a way that that's that's a helpful corrective and it makes it seem less of a miserable failure on the part of the the experts you know the the reasons why people who were professional experts on the Soviet Union failed to anticipate its demise maybe as simple as this that they were located in a West that seemed from an academic vantage point not to be going too well when I was trying to explain why people in the 1970s had such a negative view of the 1970s one argument that I came up with was that academics as a group were the relative losers of the inflation era and they were I mean in real terms they tended to take tremendous hammering in their incomes and they also in the case of an historian like AJP Taylor saw their investments wiped out because they were tremendously naive about the impact of inflation on nominal savings so I think as a profession academics were very close to the epicenter of the nineteen seventies crisis and that made them I think exaggerate how bad the problems were in the US and in Western Europe in addition there were ideological blinkers and I don't think anybody would no doubt that the extent to which people in the Academy work towards the left and strongly attracted to convergence theory can hardly be overstated it was unquestionably the consensus view in Harvard Yard the kind of thing you'd agree with Galbraith at a party about and those who said this things going down were seen as a kind of rather unsavory Goldwater like elements in the body academic it wasn't fashionable academically to predict the fall of the Berlin Wall that's why I had to write as Alec Campbell for the ticky Telegraph I have really knew that if it became known sin my senior academic colleagues in Cambridge or an Oxford that I was rising for the factor I press my chances of promotion would be significantly impaired so I think there was a degree of ideological wishful non thinking to use one of Sigmund Warburg's favorite phrases the geopolitical consequences are rather geopolitical dimension of the Soviet failure is a really important subject you know I didn't touch on the Middle East in in in that talk at all and of course you have to because if there was one thing that they really got wrong in the seventies it was the Middle East they were completely outmaneuvered perhaps one of the great coos of the Nixon Kissinger years was the disappearance of Soviet influence from Egypt and after that really from the whole the whole region and as a sense in which that was part of a wider series of strategic miscalculations culminating at the other end of the greater Middle East in Afghanistan one can certainly to emphasize once again the elements of the contingent one can certainly find the Soviet leadership guilty of a series of unforced errors of major blunders which cost them very dear indeed and then thirdly at the question of of economic and political control I've been grappling with this as a as a staunch Hayekian and trying to understand what exactly it is in the East Asian model that he would have disapproved of and this is a really particularly painful question when one contemplates the stunning success of Chinese economic performance today you could just about live with what happened in Japan or for that matter in Taiwan even in Singapore because there was the promise at least a semi serious promise of a transition to some freer political order and that has pretty much been delivered on in Korea it should be said in fact having just visited Korea last week I came away very impressed by the extent of a free speech that's now possible there and that isn't so very long after military dictatorship China's more problematic because this seems so little sign of the Communist Party relaxing its control on media relaxing its control on political life generally and although one hears occasionally talk of democracy in a Chinese style that clearly doesn't mean anything other than the continuation of the one-party state and in some respects that state has become more rather than less relaxed about free speech and non governmental agencies in recent years can China continue in this way without making any concessions to representative government to individual political rights even to the rule of law as it's conventionally understood in the West that is actually the most important question that confronts the world today it seems to me there's one thing for surely they can combine their present political system with innovation if there's one thing the people in the West should stop saying to themselves it's what you and your question said they can't innovate they can only replicate wrong wrong wrong wrong in if you look at patterns applications over the last decade the most striking thing about innovation in the world is that it is already happening more in Asia than in the West Japan has been in the lead when it comes to applying for new patents for many many years China just overtook Germany and is now clearly in in second place the quality of these patent applications is not all that high so when you look at things that are successfully registered internationally their shares much lower but there's no question that they're moving in I think the right direction in other words it seems possible to be technologically innovative without a truly politically free society that's the bad news for Hayek another question upstairs yes please yeah just in response the last point she made about China I just wonder if premier Wen's recent speeches slightly striking and odd speeches to make in his last two years about freeing up China whatever it means by freeing up and increasing local increasing democracy at a local level actually as it disagrees a good conclusion who came to but the main point I want to make is your is really taking on your point about oil price hikes delaying Soviet decline I suppose this is looking towards the future - do you think that that russia's obvious dependence on gas exports actually should exclude it from being included included by Jim O'Neill in Manama brick that actually Russian decline is inevitable including also the demographics in Russia we did have did around on that last week and I think it was some agreement with what you stipulating in that question anyone else down here want to ask a question yes please Emanuel yuiko LSD ideas as well I want to question you about your views of the differing post-war narratives the old one persistent no one maybe it's simply just the case that you're talking about the story in Western Europe as opposed to the story in Asia because I think the old narratives still has explanatory power for instance the welfare state is in trouble because it promised too much but it cannot pay what it promised now and you can also say that the problems of having to make the West too much of an export market is also becoming problematic at this time in that incomes are not growing anymore so much in the West but many countries are still looking to export their so perhaps these are not really conflicting narratives thank you we had one more question order yes please yet to what extent do you think the collapse of Soviet Union was down to short term factors such as the Soviet invasion of Afghanistan and the economic collapse leading up to that do you think it was less long-term and maybe perhaps the short term that made it happened in 89 and could have happened a bit later on thank you no good the last person who asked that question has waved their hand because I didn't actually locate you thanks because Thea I can hear the voice but it comes from exactly the same place wherever you're sitting because of the microphone I really don't like answering questions to invisible questioners well I think first of all that the the the official line in China for some time has been that there's a kind of Chinese form of democracy that can be transitioned to but when you actually try and find out what that really is it turns out just to be slightly broader access to party membership as far as I can see rather rather than any meaningful pluralism and I can illustrate that point with the story I was in when Joe recently making the television series that will come out in in March and one of the things that interested us when we were there was the relative growth of Christian churches unofficial Christian churches in that city you know the trouble we had trying to film any of those so-called house churches even to take a picture of churches that were there by the road with neon red crosses was extraordinary and that I think confirms that the regime remains deeply wary of any agency that it does not control that it is not that is not within the realm of the pot of course you asking the wrong person about this because I only knows about a thousand times more about China than I do and I should defer to him and all these questions Russia yeah Russia should never have been included in that acronym brick by Jim O'Neill I think it was done P it sounds it sounds better than beach s yeah there there were all kinds of alternative acronyms they could have come up with it's certainly better than pigs let's face it but BICS makes a lot more sense or bicky's or whatever you want to say that the Russian position is unquestionably one of a kind of continued dissent if I took any of the charts that I showed you and took the story forward post 1990 through the 1990s and even through the two thousands many of the lines would continue their miserable trajectory of which the worst would be the male life expectancy number which I think got worse than Bangladesh at one point and may have improved slightly in the last few years but only slightly so one can't feel over optimistic about a country with a declining population and massive reliance on natural gas you know the top natural gas is it there turns actually quite a lot of this that is not owned by Gazprom it's one of the very few energy commodities that is declined in price in the last year and a half and I would venture to say that gas Proms whole strategy of expanding large areas of natural gas exploitation in Siberia will turn out to be an economic failure of a monumental scale so I'm not too long Russia right now the narratives are they compatible I think that's a good question one of the temptations in historical rhetoric is to create false dichotomies false opposition's purely in order to make the lecture more interesting and keep the audience awake so one of the reasons that I presented it this way was to juxtapose a Eurocentric version of Cold War history with what I would consider a more global version in the spirit of a vest ad and I think that that's really the point it's not that they're somehow mutually exclusive interpretations that whole West European story doesn't make zero sense it's clear that marshal aid did matter it did help Western Europe get back on its feet but the point I want to stress is that a there were countries that did really well without it B there were countries that did really badly with it C after all was said and done the great Christian Democratic social democratic synthesis of the 1950s and 60s practically fell apart in the 1970s except in West Germany and therefore I'm not sure how much explanatory power West European quote unquote success has for the end of the Cold War and that's really the critical point here what was decisive one of the key arguments I want to make here is that if things had gone differently in South Korea in Taiwan in Singapore in Hong Kong apart from anything else the Chinese would not have had that strong example before their eyes of what an alternative economic model could do for them one of the big differences between being the PRC between being China and being the Soviet Union is that there weren't little enclaves of Russians in little cities around the world engaging in free trade and making a lot of money the way there were enclaves of Chinese in Hong Kong and Singapore and elsewhere who were doing just that so I think the East Asian story it's not that it's the opposite or somehow negates the West European story I think it's just more important and we haven't focused enough on it I bet you if you looked at what is taught in UK universities about the Cold War you could count on the fingers of one hand the number of articles much less books assigned on South Korea but South Korea seems like the most interesting case to go from being poorer than Ghana to being in the OECD to transition from basically to military dictatorships to a functioning democracy having been at the epicenter of a huge war I mean it's the it's the anti-vietnam it's the opposite outcome and we just kind of don't think about it we watch mash repeats that's about as much attention as we give to South Korea and that brings me to the final question how how much can we experience of it collapse with short-run factors you know I'm incredibly sympathetic to parsimonious explanation the biggest vise of the historical profession is to go right back to mixed question we love to over determine events something big happens what what a Manuel would call a tail event and no sooner has it happened than the historians arrive on the sea and despite the fact that this event was completely unforeseen by anybody they then spend the next 10 years explaining its causes some 10 20 30 or 40 years in the past and constructing elaborate chains of events that are tremendously plausible and make great books explaining something that probably was caused by an event a week before I mean that is the tragedy of the historical profession superfluous narratives I nevertheless would be very reluctant to come up with an interpretation of the Soviet collapse that just said it's Afghanistan stupid because it's clearly a little bit more than that they would not have come so unstuck over Afghanistan if their economy had not already been excessively dominated by the military underperforming woefully the sheer disenchantment that the war brought up was already there I think embedded in the failure of the whole economic model so while I'm attracted to short-run explanations and I certainly like to explain world wars in terms of relatively short run blunders something like the collapse of the Soviet Union I think requires a few decades of stagnation to make sense are we going to have fun in ideas this year yes we are very very going to discuss but also how we're going to discuss it Neil will follow up on this dealing with the third world war in November I believe it's November 24th can someone get another hat yes November 24th be here fun continues tomorrow when we will hear jump in power percent on the new Machiavelli how to wield power in the modern world and since this is by Tony Blair's chief of staff for more than 10 years it could easily be called how to wield power lose it in the modern world I guess make Hawks will be chairing that expertly it's here at 6:30 or Wednesday over in ideas contesting Asian economic integration u.s. in Japan with Shawn Breslin Christopher dent and myself but let us now concentrate on congratulating again DLSE for having been lucky enough to bring over you

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Keywords: LSE, London_School_of_Economics, Public, Lecture, Event, Seminar, Professor, Niall, Ferguson, socialscience, Political, Economy, history, Cold, War, Cold_War, economics, United, States, USA, U.S., Russia, Soviet, Union, Economic, systems, economically, financial, globalisation, competition, different, difference, freedom, living, standards, technological, innovation

Id: o2sUsfqdFiY

Length: 84min 59sec (5099 seconds)

Published: Fri Jan 07 2011