The Guardian view on a four-day week: policies needed to make it a reality

After the first world war, workers wanted a peace dividend for their sacrifices. Within three years they got it. Almost every industrialised nation – with the exception of Japan – accepted the newly established International Labour Organization’s call to limit working hours to eight a day and 48 a week. While most developed countries enacted legislation to achieve these aims, Britain, along with the United States and Italy, did so through collective agreements.

Today, the triple crises of Covid, Russia’s war in Ukraine and Brexit will create job-altering shocks. Employers are already implementing remote working. Some workers, perhaps those with comfortable homes, prefer online messaging to water cooler chats and web conference calls to in-person ones. Others, meanwhile, are opting out of work altogether. From Monday, thousands of workers in 70 UK companies will be paid the same wages for a four-day working week as a five-day one. Like an eight-hour day in 1919, workers are demanding changes once regarded as fringe, eccentric ideas.

There are good arguments for a four-day week. Studies suggest improvements in workers’ happiness and improvements in productivity. The UK has for too long fostered a working culture that encourages long hours and employee exhaustion. About 10 million people – almost one in three people in work – would work fewer hours if they could. Remarkably, 3 million of them would take fewer hours even with a loss in pay.

Having to work less hard for a desired income is obviously welcome. But such a desirable outcome is complicated by factors such as the pressure to consume, security of employment and inequalities of power and income. Given the prevalence of in-work poverty, and with inflation hitting those on lowest incomes the hardest, many British workers cannot afford to cut their hours.

In 2019, the economist Lord Skidelsky considered the problem in detail for the Labour party. His report compared how European countries had managed to make employment more compatible with wellbeing. He noted, with approval, how collective bargaining in Germany had seen workers receive real wage increases and reductions in working hours in return for improved productivity. He rejected a French-style legislated national limit, noting that it broke down within a few years.

The peer’s insight was that the economic security and rights of UK workers had to be improved so that they were in “a position to decrease their working hours voluntarily should they wish to”. In the modern age, it is clear that the market cannot provide continuous full employment. That is why Lord Skidelsky advocated for a new role for the government as an “employer of last resort”, by guaranteeing jobs paying the living wage to the unemployed who cannot find work in the private sector.

By providing an alternative to the market, argued the peer, the state would gain a powerful lever to push down the average number of hours worked. Lord Skidelsky thought that a 35-hour working week in the public sector over 10 years was achievable with the right policies. Britain’s experience a century ago is worth recalling. The loss in output from cutting working time was largely offset by increased hourly productivity. The shorter day led to the growth of leisure and consumer industries. Currently, the financial logic that governs the rules of employment is inimical to reducing workloads. What is needed are countervailing institutions to push society in the technologically possible direction desired by most people.

The Case for Nordic and NATO Realism

To be a realist in international relations is to accept that some states are more sovereign than others. “Strict realism” now requires that Sweden and Finland pause before rushing into NATO’s arms, and that the Alliance take a step back before accepting them.

LONDON – Finland and Sweden have announced that they will apply for NATO membership. But joining the Alliance is more likely to weaken than enhance their security and that of Europe.

Strategic neutrality has preserved Sweden’s independence and freedom from war for 200 years, and Finland’s independence since 1948. Has anything happened to justify ending it?

Swedish and Finnish officials point to two episodes. In December 2021, the Kremlin went from desiring Swedish and Finnish neutrality to, in essence, demanding it, sending a clear and threatening message that an independent foreign policy is a privilege, not a right, for Russia’s neighbors. More important, Russia’s invasion of Ukraine has fundamentally worsened the two countries’ security environment by increasing the risk that Russia will attack or seek to intimidate them. Since they cannot hope to defeat Russia in battle, singly or jointly, they must join an organization that can.

In expert-speak, NATO membership will “raise the threshold of deterrence.” Faced with the certainty of retaliation (including nuclear, if necessary), Russia will desist from attacking, or seriously bullying, Sweden and Finland. This argument strongly implies that, had Ukraine been a NATO member, Russia would not have invaded it, since, as the Swedish foreign and defense ministries point out, “Russia (or the Soviet Union) has never attacked a NATO ally.” But Sweden and Finland’s efforts to strengthen deterrence might be self-defeating, because NATO enlargement could raise the threshold of Russia’s willingness to invade them, at least before they become Alliance members.

Judging the wisdom of further NATO enlargement requires taking a view on two matters. First, is Russia’s invasion of Ukraine (however unjustified in law and brutal in execution) evidence of a general expansionary intent, or is it sui generis? Second, what responsibilities for maintaining peace fall on small countries that abut big countries?

History offers some guidance on both questions. After 1945, Stalin could have absorbed Finland into the Soviet Union, or ruled it through a puppet. Finland had been crushed in a war in which it fought on the side of the Germans – something Finns don’t like to be reminded of, though their alliance with Hitler came about only following Stalin’s 1939 invasion.

Still, Stalin was never interested in restoring Czarist rule over Finland. His concern was strategic. As Stalin said in 1940 following the Soviet Union’s “Winter War” with Finland, “we can’t move Leningrad, [so] we must move the borders.” What he demanded, and eventually got, was some 10% of Finnish territory, including a big slice of Karelia near Leningrad (now St. Petersburg), plus some strategic islands.

After this land grab, Stalin guaranteed Finnish independence in the 1948 Agreement of Friendship, Cooperation, and Mutual Assistance, on condition that Finland promised to “fight to repel” any attack on the Soviet Union “through Finnish territory,” with help from the Kremlin if Finland agreed. Unlike the Soviet Union’s Eastern European satellite states, Finland was not required to join the Warsaw Pact when it was established in 1955.

There is a superficial parallel between Ukraine’s current tragedy and Finland circa 1939-48. Stalin made Finnish neutrality a condition of its independence, while Russian President Vladimir Putin claims that his main demand is that Ukraine renounce the goal of NATO membership.

But the differences between the two cases are greater. Although part of the Czarist empire, Finland was never part of “historic” Russia as Ukraine was, and contained no large Russian minorities. Putin regards Ukraine as an “inalienable” part of Russia, and blames Lenin’s establishment of a Ukrainian Soviet Socialist Republic for creating Ukrainian nationalism. So, while strategic considerations may have been uppermost in Stalin’s mind, it is reasonable to suppose – as Ukrainians and Ukraine’s Western supporters do – that Putin is using the threat of NATO expansion as an excuse to undo what he sees as Lenin’s historic mistake.

If Russia’s fear of NATO is genuine, Sweden and Finland’s membership applications will expose them to the risk of retaliation before they join, and it is at least debatable as to whether a NATO Article 5 guarantee will offer greater real security than neutrality does. If the Russia-Ukraine war is specific to Russian history, with NATO expansion only an excuse, it cannot be seen as a prelude to unlimited territorial expansion, though Putin’s remarks belittling Kazakhstan’s statehood are worryingly similar to his denials of Ukraine’s right to exist. Either way, the case for Swedish and Finnish NATO membership is not open and shut.

This brings us to the second matter, small countries’ responsibilities for peace. The former European Union diplomat Robert Cooper argues in his book The Ambassadors that “strict realism [is] required by small states with big neighbors.” And it is realism that seems to be lacking in the Swedish and Finnish governments’ current policy thinking. Consider the Swedish foreign and defense ministries’ assertion that “The Russian leadership operates based on … a view of history that differ[s] from th[at] of the West,” including “the aim of creating spheres of influence.”1

Attributing that Russian conception simply to totalitarian thinking amounts to a denial of any special obligation of a state to its people arising from its location in the international system – the reverse of Cooper’s “strict realism.” The doctrine of spheres of influence may be alien to today’s international norms, but not to international practice. No powerful state wants a potential enemy on its doorstep. This was (and remains) the basis of the US Monroe Doctrine vis-à-vis the Western Hemisphere. It is supposedly the basis of Russia’s strategic doctrine, though in practice Russia has preferred to have vassal states on its borders.

To be a realist in international relations is to accept that some states are more sovereign than others. The Finns acknowledged this after World War II. “Strict realism” now requires that Sweden and Finland pause before rushing into NATO’s arms, and that the Alliance take a step back before accepting them. Ukraine, whose brave resistance has set the limits on Russia’s territorial expansion, also must now be willing to negotiate some form of peaceful coexistence with its more powerful neighbor.

Queen’s Speech on Foreign Affairs, Defence and Trade

My Lords, I find myself in profound disagreement with the Government’s war strategy in Ukraine and, in fact, with almost everything that has been said about Ukraine in this debate. I will try to explain why.

British policy aims for a Russian military defeat, which it will help to bring about by economic sanctions and supplying Ukraine with the necessary means of war. Liz Truss said on 27 April:

“We will keep going further and faster to push Russia out of the whole of Ukraine”.

Simon Jenkins has commented:

“She is clearly revelling in her imagined proxy war on the Russian bear and no one in Whitehall appears able to restrain her.”

I wish her proxy war was only imagined but it is actually happening.

It is an open secret that both France and Germany regard our hawkishness as driving up the price of peace and thus making a ceasefire more elusive. So what is the price of peace? For those whose history lessons begin and end with the Munich agreement of 1938, it is obvious; the price of peace is shameful surrender to the limitless ambitions of an evil and possibly mad dictator. I take a different view. I believe that Putin’s war aims, unlike Hitler’s, are limited and therefore that the fashionable domino theory—that if you give way here, then one after another will fall—is wrong.

I want the war to end before the war aims of our Government are achieved, for two reasons. The first is because the prolongation of the war threatens economic catastrophe. One aspect of that, mass starvation, was mentioned by the noble Lord, Lord King, earlier in the debate.

Secondly, there is the consequence of a military disaster. If it happened that Russian conventional forces were actually pushed to defeat, as the Prime Minister and Foreign Secretary want, Russia might well counter with tactical nuclear weapons. These have never been deployed; they abolish the distinction between conventional and nuclear war and thus remove a crucial barrier to uncontrolled escalation. To avoid these huge risks, the military position on the ground has to be such—I know this is an uncomfortable thing to say—that both sides can claim some military success. That means that our Government should take a very hard and accurate look at the scale and type of military help we give to Ukraine.

The peace terms discussed in Ankara in late March called for Ukraine’s neutrality, backed by security guarantees and a timeline to address issues such as the status of Donbass and Crimea. The Ukrainians withdrew from them after reports of the massacre at Bucha surfaced on 1 April. This was a horrible war crime, but it does not follow that because a country’s war methods are brutal its ambitions are genocidal or limitless.

Our Government should be urging a resumption of the Ankara process. I believe that a negotiated peace would be possible along lines which safeguard the independence of Ukraine and satisfy some Russian demands. There are three elements. The first is Ukraine’s neutrality for 20 years in return for international, including Russian, guarantees of Ukraine’s territorial borders before the Russian invasion of 24 February. That is, Russia would need to withdraw its troops from the territories that it has conquered after 24 February. Second is UN-supervised elections to determine the future of Donetsk and Luhansk. Third is acceptance of the transfer of Crimea to Russia in return for compensation. No conceivable independent Russian Government will voluntarily give up Ukraine, but Russia must be made to pay for this.

To prepare the ground for this, our Government need to drop talk of bringing the Putin regime to trial as war criminals, and should promise to de-escalate economic sanctions by stages as the peace accord is implemented. As Liddell Hart wisely said:

“Inflict the least possible permanent injury, for the enemy of to-day is … the ally of the future.”

Times letters: The tough act of following Cressida Dick


Sir, In discussing the possible “Finlandisation” of Ukraine, your leading article (“Kyiv’s Cause”, Feb 11) correctly states that it would unacceptable for great powers to enforce such a policy on Ukraine. In his brilliant book The Ambassadors, Sir Robert Cooper explains that Finland’s neutrality was not “enforced” by great powers but was decided by Finland itself, against the wishes of the Soviet Union, which wanted a military alliance. It was the ability of the two Finnish negotiators, Paasikivi and Mannerheim, plus the respect Finland had earned from Stalin by its brave resistance to the Soviet invasion of 1939, which secured more than “nominal” independence in 1948.

The moral of the tale is that it is up to Ukraine to determine the conditions of its coexistence with Russia. They are the two leading actors in this drama; all the rest are bit players.
Lord Skidelsky

House of Lords

Exchange of the week: Did the West create the monster?

To the Financial Times

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine. That it is worse than a crime is highlighted by your report on Kharkiv, described as “another Stalingrad”. You do not call Ukrainians your brothers then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. This is a dreadful legacy.

However, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato is understandable: one has only to look at the map to understand why. I have never understood why the West – or Ukraine itself – has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given, the dynamics of post- communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post communist PM, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece ignores the argument that Putin’ “the monster” is partly a creation of Western diplomacy.

Robert Skidelsky, House of Lords, London

To the Financial Times

In “Just look at the map to see Moscow’s point of view” Robert Skidelsky asserts that had the West given assurances to Russia that there would be no forward deployment of Nato forces, then Putin would not have needed Ukraine and Belarus to be buffers between Russia and Nato’s “military alliance”. But Nato has never been a “war” alliance; it has always been a ” defence ” alliance, with its member nations acting “collectively” to defend against attacks on any one of its members. Therefore it is disingenuous of Skidelsky to accuse Martin Wolf of ignoring all sense of Russian history. 

Ali M. El-Agraa, emeritus professor of international economic integration, Fukuoka University, Japan

The Future of Work: Is Artificial Intelligence a New Road to Serfdom?

Lecture and Discussion with Lord Robert Skidelsky

Lord Robert Skidelsky has given a lecture at the Institut für die Wissenschaften vom Menschen (IWM) on Tuesday, 15 March 2022, 18:00 CET in Vienna.

In contemporary discussions about the future of artificial intelligence we often lose our heads. While economists offer bleak predictions of mass job losses and a deepening of already widespread precarity, Silicon Valley utopians insist that new technologies are bringing us ever closer together and will one day deliver us from work, disease and poverty. But when human life is reduced to a set of rational processes waiting to be optimized, we risk losing sight of the irreducible quality of human experience. The talk shed new light on the dream of machinery and the entailed  dichotomy of liberation versus control. With his characteristic attention to the subtleties of the human condition, Robert Skidelsky offered a challenging account of what it means to pursue the good life in the age of the machines.

Think Twice Before Sanctioning Russia Further

Despite massive Western economic sanctions against Russia, the chance that they will lead to President Vladimir Putin’s ouster, or even to a drastic change in Russian policy toward Ukraine, is much lower than most people suppose. It is far more likely that punishing will neither stop the war nor secure the peace.

LONDON – The West has imposed massive financial and economic sanctions on Russia in response to its invasion of Ukraine. But are the sanctions supposed to be a way to end the war? Are they a means of punishing Russia for its bad behavior? Or are they simply an expression of moral outrage?

This is the second time in less than a decade that Russia has been sanctioned for violating international law. Following Russia’s 2014 annexation of Crimea and incursion into eastern Ukraine, the United States imposed economic sanctions aimed at “effectively making it a pariah state.” Clearly, this did not have the desired effect of changing the Kremlin’s behavior. Now a new barrage of measures in response to the assault on Ukraine has ramped up sanctions to an unprecedented extent. 1

The current restrictions on Russia include a ban on trade in critical technologies, extensive asset freezes and travel bans, the denial of major Russian banks’ access to international capital markets, travel bans and asset freezes targeting individuals, and the exclusion of Russian aircraft from international airspace. With the sequestration of the Russian central bank’s foreign-exchange reserves and the promised eviction of Russia from the world financial and trading system, oil and gas will remain the country’s lifeline to the global economy.

All of this might seem a necessary moral response to Russia’s lawlessness. But when relatively light-touch sanctions give way to heavy economic bombardment, two key questions should be asked. First, at what point do sanctions become a pathway to war rather than an alternative to it? Second, what are such measures expected to achieve, and how effective are they likely to be? So far, these questions have scarcely been asked, much less answered. 

Governments should consider the first question carefully before imposing sanctions on a great power, particularly one with nuclear weapons. If that power perceives a threat to its means of survival, there is a strong chance that it will fight to overcome the restrictions. 

For example, when the US imposed an embargo on oil and gas exports to Japan in August 1941, following Japan’s seizure of oilfields in Indochina, the Japanese responded by attacking Pearl Harbor. And after OPEC subjected the US to an oil embargo in 1973 in retaliation for American military assistance to Israel during the Yom Kippur War, President Richard Nixon’s administration threatened to invade and occupy OPEC member states’ oil fields. The embargo ended.

The sanctions imposed so far on Russia do not yet threaten the survival of the Russian state. But President Vladimir Putin may regard a Western attempt to cut off the remainder of Russia’s international trade, especially in energy, as an existential threat. 

As for the second question, the objective of economic sanctions is reasonably clear: to prevent or stop war by imposing unacceptable costs on the aggressor state. But while there is no doubt that the Western sanctions on Russia have greatly raised the costs to ordinary Russians of Putin’s war, no one expects that this will end the conflict. 

The West instead hopes that the costs of the sanctions to Russia’s elite will achieve this result. Rather than lose their wealth, the argument goes, the elites may overthrow Putin or force him to end the war. This is the only rationale for the current sanctions that makes sense. 

But the likelihood of Putin’s ouster, or even of a drastic change in Russian policy, is much lower than most people suppose. Essentially, it depends on Russia’s defeat in Ukraine, a prolongation of the conflict without any resolution, or a growing perception among Russia’s military that Putin has failed them. Far more likely is a ceasefire and at least the appearance of a Russian victory. In that case, economic sanctions will have done nothing either to stop the war or secure the peace.

A 2007 UK House of Lords report concluded that, “economic sanctions used in isolation from other policy instruments are extremely unlikely to force a target to make major policy changes.” Even sanctions’ rare success in forcing South Africa to abandon apartheid depended on two special circumstances, neither of which applies to Russia today: worldwide enforcement and South Africa’s inability to retaliate. Turkey, India, and China are the most notable of the states that have not sanctioned Russia, and potential Russian counter-sanctions include cutting off the oil and gas supplies on which most of Europe depends. 

But that is not all. Among the “other policy instruments” mentioned in the House of Lords report, the foremost is the “threatened or actual use of force.” In other words, the inefficacy of economic sanctions on their own to change state behavior implies a high risk that they become part of an escalator to war. That is why Western countries have so far not acceded to Ukraine’s request to impose a no-fly zone. 

Economic sanctions against Russia are supposed to be an alternative to war, but they can reasonably be expected to change the Kremlin’s behavior only by becoming tactical components of the conflict. The sad truth is that Western countries cannot help Ukraine except by threatening to go to war with Russia. But to admit this is to call into question the whole logic of their sanctions policy. 

More generally, economic sanctions have become a greatly overused tool of preventive diplomacy. By cutting off parts of the world from international commerce, they promote the formation of antagonistic blocs, and destroywhatever promise globalization still holds. 

Samuel Johnson famously observed that, “There are few ways in which a man can be more innocently employed than in getting money.” His French contemporary, Montesquieu, spoke of the douceur of commerce. True, a lot of trade is criminal, and much of it benefits corrupt and oppressive governments. But forcing countries back to pre-modern economic conditions is not a formula for improvement.

Ukraine: Refugees – House of Lords Questions

Lord Skidelsky:

My Lords, in addition to the help that the Government are giving to Ukrainians to come to this country, will they consider offering humanitarian visas to those brave Russians—members of the clergy, members of civil society, academics, journalists and ordinary citizens—who face long prison sentences for exercising their democratic right to oppose this war?

Baroness Williams of Trafford:

I am very glad that the noble Lord asked that question because, at this point, we all need to stop and remember all of those Russian people who are so against, or do not even know, what is happening in Ukraine. I do not have many details of that, but it is certainly heartbreaking when you see Russian soldiers fighting in Ukraine who appear not to know what they are doing and why they are doing it.

Letter: Just look at the map to see Moscow’s point of view

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine (Opinion, March 2). That it is worse than a crime is a folly highlighted by your report about Kharkiv, described as “another Stalingrad” (March 3). You do not call Ukrainians your brothers, then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. Belarus will be next on the list for “brotherly” persuasion, once Alexander Lukashenko has gone. This is a dreadful legacy.

However, in our condemnation of Russia’s current actions, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato’s military alliance is understandable and reasonable: one has only to look at the map to understand why. I have never been able to understand why the west — or Ukraine itself — has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given at any time since the fall of communism, the dynamics of post-communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post-communist prime minister, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece completely ignores the argument that Putin “the monster” is partly a creation of appalling western diplomacy.

Wolf also shows an unjustified faith in economic sanctions to secure regime change. What he does show is that the kind of sanctions being imposed on Russia today will be highly damaging to the world economy, not that it will change Russia’s behaviour.

I agree with Mikhail Fridman, one of the sanctioned Russian billionaires, who said this week sanctions “will not have any impact for political decisions in Russia” (Report, March 2) because he, Fridman, has no influence over Putin.

Letters in response to this letter:

Worth heeding Keynes and the German parallels / From William Dixon, London SE18, UK

Why Nato assurances on troops is missing the point / From Ali M El-Agraa, Emeritus Professor of International Economic Integration, Fukuoka University, Japan

A Kyiv refugee’s plea for solidarity in face of attack / From Alex Levak, Refugee from Kyiv, Ukraine

Letter: Just look at the map to see Moscow’s point of view

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine (Opinion, March 2). That it is worse than a crime is a folly highlighted by your report about Kharkiv, described as “another Stalingrad” (March 3). You do not call Ukrainians your brothers, then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. Belarus will be next on the list for “brotherly” persuasion, once Alexander Lukashenko has gone. This is a dreadful legacy.

However, in our condemnation of Russia’s current actions, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato’s military alliance is understandable and reasonable: one has only to look at the map to understand why. I have never been able to understand why the west — or Ukraine itself — has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given at any time since the fall of communism, the dynamics of post-communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post-communist prime minister, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece completely ignores the argument that Putin “the monster” is partly a creation of appalling western diplomacy.

Wolf also shows an unjustified faith in economic sanctions to secure regime change. What he does show is that the kind of sanctions being imposed on Russia today will be highly damaging to the world economy, not that it will change Russia’s behaviour.

I agree with Mikhail Fridman, one of the sanctioned Russian billionaires, who said this week sanctions “will not have any impact for political decisions in Russia” (Report, March 2) because he, Fridman, has no influence over Putin.

Robert Skidelsky House of Lords, London SW1, UK

Economic Recovery in the Age of COVID-19

The COVID-19 pandemic is an invitation to what the economist Joseph Schumpeter called creative destruction: a chance to liquidate obsolete investments and to create something new, better, and, in the jargon, more ‘resilient’ and ‘sustainable’. Schumpeter understood that humankind does not progress in a balanced way, rather it lurches from one extreme to another, each extreme producing its own reaction.

In political economy, the subject of this contribution, the excesses of the Keynesian social democracy in the 1970s brought about the extreme reaction of neo-liberalism. The hubris of neo-liberalism – its failure to guard against the ever present possibility of collapse, its inattention to social justice, its reckless embrace of globalisation, its Faustian pact with consumerism – has in turn bred a reaction, but to what is as yet unclear. Populist forces of Right and Left, made up of fragments of old and new discontents, compete for the succession. The balance remains elusive.

We have both a short-term and long-term crisis on our hands. In the short term we run the risk of what some analysts are calling the Third Great World Depression. In the long run the risk is of the exhaustion of Nature’s tolerance for our profligate habits. The prize is to enfold our pandemic recovery measures into a long-term strategy for a sustainable way of life – I will not say growth, for growth as we understand it may not be sustainable.

The short-term threat to jobs and livelihoods is clear enough. Much of Europe is on a life-support system. The world economy will have shrunk by about 5% in 2020, and hopes of a V-shaped recovery have been put on hold. This means that unemployment is set to go on rising through 2021. In the UK, we expect an unemployment rate of close to 10%. Everyone is waiting for the end of the coronavirus pandemic so that we can get back to ‘normal’. But the virus is no longer the main problem: it is the scarring of the economy produced by a prolonged and continuous period of non-work which will damage the recovery.

And what about the further future? Suppose by a heroic effort we succeed in reopening economies much as they were before. Can anyone say they were in a healthy or sustainable situation before the pandemic struck? Debt-driven growth models which produced consumption and asset booms followed by financial busts: that was the pre-pandemic normal.

I am often asked, what would British economist John Maynard Keynes have said? I will try to give my answer, though I hasten to add that Keynes, from beyond the grave, has not authorised me to do so. Nor is Keynes the last word on the matters I will deal with.

Then and now

My book Keynes: The Return of the Master (Skidelsky, 2009) was published in the autumn of 2009. It was published the year after the global banking collapse of 2008 and the massive rescue operations undertaken by governments all round the world – not just the bailout of a bankrupt banking system, but also large monetary and fiscal stimulus. This activism was in contrast to the ‘do nothing’ stance of governments following the Wall Street crash of 1929. I believe that it prevented another Great Depression: the fall in output following the 2008 collapse was limited to four quarters, whereas output went on falling for thirteen quarters after the collapse of 1929.

Long before recovery was secure, however, our own stimulus was terminated. Alarmed by the deficits they had incurred, governments started to slash public spending. The ‘return of the master’ proved brief. “I guess everyone is a Keynesian in a foxhole” said Robert Lucas, high priest of Chicago economics. Keynes was for emergencies only.

And we have the same reaction today. Compelled to close down a large fraction of their economies to stop the spread of the coronavirus contagion, governments have spent money freely to keep up the incomes of millions of people prevented from working. But they continue to hope that as the economy reopens, a V-shaped recovery will relieve them of their fiscal burden. The talk is of ‘fiscal sustainability’, the need for consolidation and debt reduction even as the economy is set to shrink.

Many would see this as a reasonable position. Most economists view the market system as fundamentally healthy. It will get sick from time to time and therefore need medication, but it is basically self-healing, like the human body. So treatment should be limited in scope and duration. This is particularly the case given the unreliability of political medicine. Keynes rejected this analogy between the market system and the self-healing body and believed rather that a market system left unattended by the state could never be healthy.

Keynes for beginners

Keynes’s revolutionary insight was that capitalist market economies do not have an automatic tendency towards full employment. This assertion shocked the economists of Keynes’s day, whose models taught them that persisting unemployment was impossible if wages were flexible. Keynes’s Cambridge colleague Arthur Pigou expressed the typical belief of 1933: “With perfectly free competition…there will always be a strong tendency for wage-rates to be so related to demand that everyone is employed” (Pigou, 1933). Based on this argument, unemployed workers must be choosing not to work. Seeing the millions unemployed all around him during the Great Depression, Keynes thought: There is something wrong with your model! These people are not choosing not to work. They cannot find work at any wage.

Keynesian economics starts with this blinding shaft of common sense. People are unemployed when there is no demand for their services. Yet this insight never fully converted the economics profession, who went on cooking up all kinds of fancy reasons to demonstrate that what looked like unwanted unemployment was really a ‘choice for leisure’. Today I would wager that most economists believe, deep down, that most unemployed people could find work if they really wanted to, or if state benefits did not provide them with an alternative income.

But why do economies not quickly bounce back from collapses? Surely, if an employer does not want to employ me at £500 a week, I can always lower my wage requirement till it becomes profitable for him to employ me. By insisting on unrealistic wages, workers are ‘pricing themselves out of employment’. But Keynes gave two reasons why even flexible wages will not maintain or restore full employment.

Wages and demand

Keynes’s first argument was that every producer is also a consumer: my wages are your income, because my wages buy your goods. If my wages go down, your income goes down, too. The general principle is that cuts in production costs (whether by cutting wages or by laying off workers) deepen a slump by simultaneously cutting total demand or spending power. A fall of income in one part of the economy reduces production in another part, and so on, in a downward spiral as unemployment spreads rapidly throughout the economy. Eventually spending power is stabilised at a much lower level as people stop saving. But nothing has happened to stimulate consumption, and therefore to promote a recovery. The weird idea that the way to revive an economy is by getting everyone to stop spending comes only to a well-trained neo-classical economist.

Confidence and money

Keynes’s second argument against the V-shaped recovery model had to do with the behaviour of money. It is characteristic of a slump that instead of investing their money, businesses ‘hoard’ it, or ‘add to their cash reserves’. The greater this ‘liquidity preference’ is, the higher the rate of interest that owners of money will charge to lend it out. But to stimulate production, borrowers need lower rates, not higher rates. So when confidence is low, the higher rates demanded by the banks for loans mean even less investment, less consumption and less employment.

In this way, flexibility of wages and stickiness of interest rates combine to deepen the slump. Contrary to Robert Lucas, without government ‘stimulus’ the economy will remain stuck in the foxhole.

But the mainstream economist has a comeback: depressions or deep recessions are very rare events, like Nassim Taleb’s ‘black swans’ (2008). So it is absurd to organise economic life as if the next slump is just around the corner. Market economies have built-in stability so powerful that slumps will be very rare. This is exactly what Keynes denied: black swans can fly out of a clear blue sky at any time. We have just seen a large flock of them in 2020.

The reason, Keynes said, was that the theory of the ‘self-equilibrating’ market economy depends on the idea that everyone, and particularly investors, can accurately predict the future. If they can accurately calculate what assets they buy today will be worth in ten years time, they would never buy things at the wrong prices. As Keynes (1937) wrote: “The calculus of probability…was supposed to be capable of reducing uncertainty to the same calculable status as certainty itself”. But this was a myth. “Actually…we have as a rule, only the vaguest idea of any but the most direct consequences of our acts” (Keynes, 1936). This was the second huge shaft of commonsense to pierce the mathematical precision of forecasting models.

And a huge consequence followed. Because the future is uncertain, private investment – which depends on the expectation of future yield – will be unsteady. Prosperity will depend on peoples’ ‘animal spirits’. When they are feeling confident, they hire more workers; when they are pessimistic, they hire fewer.

Stabilisation policy

Two conclusions follow from this account of market behaviour: 1) Collapses are always possible because the future is uncertain; and 2) When they happen, there are no ‘automatic’ market mechanisms to ensure a quick bounce back.

That is why governments are indispensable ‘balancers’ of market economies. They add and subtract spending power as and when needed.

This explains why there is no virtue in trying to balance the budget as such. Being Keynesian means having a theory of the economy that justifies the use of the state budget to balance economic activity at an optimal level of output and employment. This can mean either a budget surplus or a budget deficit or a balanced budget, depending on what is happening in the economy. It is the accounts of the economy that it needs to balance. Without this balancing act the economy will have a spontaneous tendency not to full employment but to underemployment.

To maintain economic life on a balanced, even keel, governments need to do two things.

First, they need to steady the rate of investment. They can do this through public investment programmes. Keynes (1936) wrote: “I expect to see the state, which is in a position to [take] long views…taking an ever greater responsibility for directly organising investment”. This happened in the 25 years after World War II, but since the 1980s, the state’s share in total investment has fallen drastically, increasing economic instability. Notice that a large state investment share is not just a policy for the foxhole but a permanent part of economic management.

Secondly, governments should pursue counter-cyclical policy to limit the effect of remaining fluctuations. This means injecting extra spending into the economy when private spending falls and curtailing it when it rises. It can be done on the tax side, or spending side, or both. The ‘multiplier’, based on what is called ‘the marginal propensity to consume’, tells governments what the multiplied effect of any spending they add to or subtract from the economy will be.

The answer to the failures of both old-fashioned Keynesianism and newfangled monetarism is not to abandon the balancing role of the state, but to make it as automatic as possible. The state should commit to two things: a rolling programme of public investment and a public sector job guarantee.

The first would reduce fluctuations in investment to much narrower limits; the second would provide a buffer stock of jobs, which would automatically expand in a downturn and deplete in an upturn.

Public investment does not require public ownership. Much of it could be done by quasi-state institutions like public investment banks or funds or state-holding companies. These would operate under a broad central government mandate or ‘mission’ to use Mariana Mazzucato’s word, that reflects national purpose, but which insulates commercial decisions from political meddling.

The ‘counter-cyclical’ public sector job programme would be centrally financed, but with projects chosen and administered locally. The result of both policies pursued together would be to abolish unwanted unemployment for the first time since the Industrial Revolution.

These two balancing functions, public investment and counter-cyclical policy, are needed to ensure the full employment and stability of capitalist market economies. And the fuller the use of a country’s human resources, the more prosperous the country will be, the greater the social contentment and the less the danger of political extremism. This – in a nutshell – is the message of Keynes for our day.

Three objections

Now let us consider three neoclassical objections to Keynesian theory and policy.

First, as we have seen, economists believe the market economy to be much more naturally stable than Keynes supposed. Hence they view Keynesian demand management as inherently destabilising. History does not support them. The most stable period in modern times, with the fullest employment and fastest growth rate, has been the period from 1950 to1975, when Keynesian theory and policy was in control.

Second, anti-Keynesian economists teach that public investment ‘crowds out’ private investment. This is true if a government adds to public spending when all the economy’s resources are already fully employed. It is a cousin of the idea that public borrowing merely adds to the burdens of future generations. But whenever there is spare capacity, public investment can ‘crowd in’ private investment by increasing total demand for goods and services. Most governments drastically cut public investment after the 1970s. Growth was halved and unemployment rose. Some public investment is bound to be ‘wasted’, but this has to be compared with the waste of unemployment.

Third, monetarist economists – descendants of Milton Friedman – claim that Keynesian counter-cyclical policy is inherently inflationary. Vote-catching will lead Keynesian politicians to print too much money, resulting in creeping and eventually accelerating inflation.

Behind the monetarist argument is the belief that there is only one shock against which policy has to guard: government, which is governments ‘monkeying around’ with money. Instability in the price level can delude people into trading at false prices, disturbing the natural equilibrium of market transactions. If the key to economic stability is a low and constant rate of inflation, then control of the money supply (or equivalently) of interest rates needs to be taken out of the hands of politicians and vested in independent central banks.

History gives only qualified support to the monetarist thesis. Inflation was subdued throughout the 25 years of the Keynesian era and only started to rise at the end of the 1960s, for reasons much more connected with the Vietnam War than with Keynesian economics. As for the inherent stability of an economy with stable money: a decade of low inflation did not prevent the financial collapse of 2008-09.

Nor did quantitative easing – flooding the economy with central bank ‘base money’ or M0 in 2009-12 – bring about a robust recovery after the collapse. The aim of quantitative easing was to lower the cost of borrowing by forcing up the price of bonds. Its fallacy lay in the belief that the ‘money supply’ (which includes ‘broad money’ or bank credit) is directly under the control of the central bank. How much bank credit an expansion of base money brings about depends on Keynes’s ‘animal spirits’. A very high rate of interest can sometimes kill off a boom; but even a negative rate of interest might not produce recovery if expectations of profit from increased investment are zero.

Neoclassical economists are not the only critics of Keynesianism. Marxists would claim that such an updated Keynesian programme is just pie in the sky. A capitalist economy needs a ‘reserve army of the unemployed’ to keep up profits by keeping down wages. Only a fully socialised economy, they say, can abolish unemployment and maintain wage growth. The answer is that between 1950 and 1975, Keynesian-managed capitalist economies averaged unemployment rates of 2% to 3%, half of what they have been since; they had doubled the growth rates we have since had, with rising rather than stagnating wages; and at a cost in inflation only slightly higher than we have experienced under monetarist management.

No system of political economy is perfect. But it should be judged not by comparison with some ideal system, but with the realistic alternatives. Keynes set out to save democracy from the two challengers of his day – fascism and communism. He said that if we continued with laissez-faire in the face of massive unemployment, political freedom would not survive. “But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom” (Keynes, 1936).

I would echo him today. I doubt if western populations will for much longer tolerate a political economy that delivers persisting underemployment, frequent crashes, stagnant wages, and extreme inequalities of wealth and income.

In thinking about our post-COVID-19 world, Keynes is an excellent start, but he did not solve all economic problems. Although he assumed that the desire to consume more would eventually be satiated by abundance, he had no inkling of long-run ecological constraints on growth. Keynes understood that inequality was both an economic and ethical problem, but his theoretical work was directed to overcoming unemployment, the big problem of the day, and he did not link it to the unequal distribution of wealth, which we are much more likely to do today.

European context

Let me conclude by putting what I have just said into a European context. This is a serious question, because while the rules of the European Union prevent member states from pursuing Keynesian policies at the national level, there is no provision for European-wide Keynesianism.

The fundamental design flaw of the eurozone has often been pointed out; it created a monetary union without three crucial tools which are needed to stabilise economies: a budget big enough to act as a balancer, a fiscal transfer capacity to deal with asymmetric shocks and a lender of last resort for the banking system. These were not accidental omissions. The European Economic and Monetary Union was built on the belief that they were unnecessary. The creators of the Union accepted the Friedman monetary doctrine that rule-governed market economies are naturally stable, which was consistent with the long-standing anti-inflationary views of the German Bundesbank. But it was worse than that: the eurozone treaty forbade the use of stabilising tools at the national level. What this meant is that the Union as a whole was badly equipped to deal with the kinds of shocks to which market capitalism is prone.

The conventional, or German, view of the financial crisis of 2008-09 was that it resulted from excessive public debts and fiscal profligacy of the Mediterranean countries. Had these countries balanced their budgets as the rules prescribed, the financial shock could have been avoided. The alternative, and I think correct, view, is that the Union provided no non-deflationary mechanism for adjusting current account imbalances between its members. Keynes’s remark of 1941 applies very accurately to the EU: “The process of adjustment is compulsory for the debtor, and voluntary for the creditor: the debtor must borrow; the creditor is under no such compulsion.” His Clearing Union set out to remedy this design flaw in the global system by providing for creditor adjustment, but no such mechanism was established in Europe. As result, Germany in particular was left free to pile up current account surpluses without limit. The system was maintained by an unstable system of creditor loans which dried up the moment debtors got into trouble.

With the fiscal policy of all member states constrained by balanced buget rules and public debt ceilings, monetary policy – the weaker stabilisation instrument – was the only macro policy available. Mario Draghi, European Central Bank (ECB) president, found a way of bending the rules of the ECB sufficiently to rescue the EU from collapse in 2015. But he recognised the limitations of a purely monetary stimulus. In an interview with Financial Times, Draghi (2019) said:

I [have] talked about fiscal policy as a necessary complement to monetary policy since 2014. Now the need is more urgent than before. Monetary policy will continue to do its job but the negative side effects as you more forward are more and more visible. Monetary pumping worked, but more feebly that fiscal pumping would have.

Draghi proposed a budget for the eurozone large enough to be a stabilising tool: this has not been acted on.

The COVID-19 crisis has brought one promising institutional innovation. In July of this year, the European Commission proposed a €750 billion European Recovery Fund, dubbed Next Generatioan EU. This would authorise the Commission to borrow in the capital markets on the EU’s behalf and disburse the loans raised as grants and loans, split half-and-half to its members.

However, it has two obvious limitations. The European Council called the fund ‘an exceptional response to temporary but extreme circumstances’. In other words, it is not intended to become a permanent part of the EU’s institutional structure, so it is limited in size, scope and duration.

And secondly, it still has to be agreed by all 27 member states. As a result of continuous wrangling, no budgetary allocations have yet been made. What seemed like an imaginative leap forward looks like a quagmire. As one analyst has remarked “a sword of Damocles therefore hangs over the whole plan”.

Many member states are still betting on that V-shaped recovery. Germany and France are planning to cut their deficits next year (Germany from 6.35% to 4.25%) with the ‘peak of the stimulus’ seemingly past. The calls for consolidation are like those leading to self-induced double dip of 2011.


With the world on the brink of yet another steep recession, and with ecological disaster looming, we can no longer afford the luxury of an economic policy which concentrates on the fight against inflation, leaves unemployment to emergency measures, distribution of wealth and income to the market, and ignores ecological challenges.

Overcoming the scourage of unemployment, connecting its treatment to issues of just distribution nationally and globally, and linking both to a Green New Deal: this tripartite task is the biggest politico-economic challenge facing us.

* This article is based on Robert Skidelsky’s keynote speech at the Intereconomics/CEPS online conference “COVID-19: From Lockdown to Recovery”, 27 October 2020.


Draghi, M. (2019, 30 September), Mario Draghi declares victory in battle over the euro, Interview, Financial Times.

Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, Macmillian.

Keynes, J. M. (1937), The General Theory of Employment, The Quarterly Journal of Economics, 51, 212-223.

Pigou, A. C. (1933), The Theory of Unemployment, Macmillian, 252.

Skidelsky, R. (2009), The Return of the Master, Allen Lane.

Taleb, N. N. (2007), The black swan: The impact of the highly improbable, Random House.

Keynes: die erneute Rückkehr des Meisters

In der aktuellen Corona-Krise wiederholen sich die Muster früherer Krisen. Vor dem Hintergrund sinkender Produktion und steigender Arbeitslosigkeit versuchen Notenbanken und Staaten weltweit ihre Ökonomien vor einem größeren Absturz zu bewahren. Die Rezeptur für diese Stabilisierungspolitik basiert auf der Lehre des britischen Ökonomen John Maynard Keynes, die dieser vor dem Hintergrund der Großen Depression im Jahr 1936 in seiner „Allgemeinen Theorie der Beschäftigung, des Zinses und des Geldes“ beschrieb. Doch nicht nur in der Krise, auch darüber hinaus empfehlen sich die wirtschaftspolitischen Ansätze von Keynes für das 21. Jahrhundert.

Mein Buch „Keynes: Die Rückkehr des Meisters“ erschien im Herbst 2009, ein Jahr nach dem globalen Bankenkollaps von 2008 und den massiven Rettungsaktionen, die von Regierungen auf der ganzen Welt unternommen wurden. Damit gingen der Bailout eines bankrotten Bankensystems sowie umfangreiche geld- und fiskalpolitische Konjunkturprogramme einher. Anders als nach dem Wall-Street-Crash 1929 blieben die Regierungen in der Krise 2008/2009 nicht passiv. Ich gehe davon aus, dass durch diese Eingriffe eine weitere Große Depression verhindert werden konnte: Während die Wirtschaftsleistung nach dem Zusammenbruch 1929 über 13 Quartale in der Rezession blieb, beschränkte sich der Produktionsrückgang nach dem Zusammenbruch von 2008 auf vier Quartale.

Mit dem Rücken zur Wand ist jeder ein Keynesianer

Bevor die Wirtschaft sich wirklich erholen konnte, wurden die Maßnahmen infolge der Krise 2008/2009 bereits wieder zurückgefahren. Die Angst vor einer möglichen Überschuldung ließ die Regierungen die öffentlichen Ausgaben kürzen und die „Rückkehr des Meisters“ erwies sich als kurzlebig. „I guess everyone is a Keynesian in a foxhole“, sagte Robert Lucas, der Hohepriester der Chicagoer Wirtschaft. Keynes war offenbar nur für Notfälle gedacht.

Heute ist das Muster ähnlich. Die Regierungen waren gezwungen, einen großen Teil ihrer Volkswirtschaften zu schließen, um die Ausbreitung der Coronavirus-Pandemie zu stoppen, und haben großzügig finanzielle Mittel bereitgestellt, um die Einkommen der Unternehmen und Millionen von arbeitenden Menschen zu sichern. Aber sie hofften, dass der Staatshaushalt bei der Wiedereröffnung der Wirtschaft entlastet wird, wenn der Aufschwung v-förmig verläuft. Damit die Staatsverschuldung nicht außer Kontrolle gerät, wird nun bereits wieder über Steuererhöhungen gesprochen.

Dies scheint vernünftig. Viele Unternehmer und Ökonomen halten das Marktsystem für grundsätzlich gesund. Es wird zwar von Zeit zu Zeit krank und braucht daher Medikamente, aber im Grunde ist es selbstheilend, wie der menschliche Körper. Deshalb sollte die Behandlung in Umfang und Dauer begrenzt sein. Dies gilt insbesondere angesichts der Risiken der politischen Medizin. Der britische Ökonom John Maynard Keynes (1883-1946) lehnte diese Analogie zwischen dem Marktsystem und dem selbstheilenden Körper ab und glaubte stattdessen, dass ein vom Staat unbeaufsichtigt gelassenes Marktsystem niemals gesund sein könne.

Keynes für Anfänger

Die meisten, die vom Keynesianismus gehört haben, glauben, dass diese ökonomische Schule darauf abzielt, Haushaltsdefizite zuzulassen. Das ist falsch. Keynesianismus ist eine Wirtschaftstheorie, die ein ausgeglichenes Produktions- und Beschäftigungsniveau mithilfe des Staatshaushalts ermöglicht. Das kann entweder mit einem Haushaltsüberschuss, einem Haushaltsdefizit oder einem ausgeglichenen Haushalt einhergehen, je nachdem, wie die wirtschaftliche Lage sich gerade darstellt. Es ist nicht von sich aus erstrebenswert, den Staatshaushalt auszugleichen. Vielmehr sollten konjunkturelle Auf- und Abschwünge ausgeglichen werden. Aber warum ist diese Balance so wichtig?

Keynes‘ revolutionäre Einsicht war, dass kapitalistische Marktwirtschaften nicht automatisch zur Vollbeschäftigung tendieren. Ihr Normalzustand tendiert zur Unterbeschäftigung, die sich bei einer ernsthaften Depression verschlimmert. Diese Behauptung schockierte die Ökonomen zur damaligen Zeit, deren Modelle lehrten, dass anhaltende Arbeitslosigkeit bei flexiblen Löhnen unmöglich sei. Keynes‘ Kollege aus Cambridge Arthur Pigou drückte diese Überzeugung so aus: „With perfectly free competition among workpeople and labour perfectly mobile … there will always be at work a strong tendency for wage-rates to be so related to demand that everybody is employed“ (Pigou, 1933). Ausgehend von diesem Argument, müssen sich arbeitslose Arbeitnehmer dafür entscheiden nicht zu arbeiten, indem sie auf Löhne bestehen, die die Arbeitgeber ihnen nicht zahlen können. Als Keynes während der Großen Depression die Millionen von Arbeitslosen um sich herum sah, bemerkte er, dass etwas mit den Modellen nicht stimmen kann! Die Leute wollen nicht arbeitslos sein. Sie finden unabhängig vom Lohn keine Arbeit.


Die keynesianische Ökonomik beginnt mit einem Paradigmenwechsel. Keynes geht davon aus, dass Menschen arbeitslos sind, weil es keine Nachfrage nach Arbeit gibt. Doch diese Überlegung hatte die Wirtschaftswissenschaftler nicht wirklich überzeugt. Sie führten alle möglichen ausgefallenen Gründe an, um darzulegen, dass das, was wie unerwünschte Arbeitslosigkeit aussah, tatsächlich eine „Entscheidung für Freizeit“ war. Noch heute würde ich davon ausgehen, dass die meisten Ökonomen tief im Inneren glauben, dass fast alle Arbeitslosen einen Arbeitsplatz finden könnten, wenn sie es wirklich wollten oder wenn ihnen staatliche Sozialleistungen kein alternatives Einkommen bieten würden.

Aber warum erholen sich Volkswirtschaften nicht schnell von Zusammenbrüchen? Was ist mit der Idee der v-förmigen Erholung? Sicherlich kann ich, wenn ein Arbeitgeber mich nicht mit 500 Pfund pro Woche einstellen will, meine Lohnforderung so lange senken, bis es sich für ihn lohnt, mich einzustellen. Der orthodoxe Wirtschaftswissenschaftler hat eine fertige Antwort parat: Indem Arbeitnehmer auf unrealistische Löhne bestehen, nehmen sie sich selbst die Beschäftigung. Gegen diese Annahme führte Keynes zwei Gründe an, warum selbst flexible Löhne die Vollbeschäftigung nicht aufrechterhalten oder herstellen können.

Kaufkrafttheorie der Löhne

Sein erstes Argument lautete, dass jeder Produzent auch ein Konsument sei: Mein Lohn ist dein Einkommen, denn mit meinem Lohn kaufe ich deine Waren. Wenn mein Lohn sinkt, sinkt dein Einkommen. Eine Senkung der Produktionskosten (sei es durch Lohnkürzungen oder durch Entlassungen von Arbeitnehmern) vertieft also einen Einbruch, in dem gleichzeitig die Kaufkraft und die Gesamtnachfrage verringert wird. Ein Einkommensrückgang in einem Teil der Wirtschaft reduziert die Produktion in einem anderen Teil usw. Es entsteht eine Abwärtsspirale, da sich die Arbeitslosigkeit in der gesamten Wirtschaft rasch ausbreitet. Schließlich wird die Kaufkraft erst auf einem deutlich niedrigeren Niveau stabilisiert, wenn die Menschen aufhören zu sparen. Aber nichts passiert, um den Konsum anzuregen und damit eine Erholung zu fördern. Nur ausgebildete Ökonomen kommen auf die verrückte Idee, dass der Weg in den Wirtschaftsaufschwung darin besteht, dass alle die Ausgaben kürzen.

Vertrauen und Geldhaltung

Keynes‘ zweites Argument gegen die Idee der v-förmigen Erholung hatte mit der Geldhaltung zu tun. Es ist charakteristisch für eine Krise, dass Unternehmen ihr Geld horten bzw. ihre Barreserven aufstocken, statt zu investieren. Je größer diese „Liquiditätspräferenz“, desto höher ist der Zinssatz, den die Kreditgeber verlangen. Um die Produktion anzukurbeln, brauchen Kreditnehmer aber niedrigere, nicht höhere Zinsen. Wenn also das Vertrauen gering ist, bedeuten die höheren Zinssätze, die z. B. von den Banken verlangt werden, noch weniger Investitionen, weniger Konsum und weniger Beschäftigung.

So führen flexible Löhne und unflexible Zinssätze zu einer Vertiefung des Einbruchs. Anders als bei Robert Lucas bleibt die Wirtschaft ohne staatliche „Stimulierung“ in der Rezession. Aber die Mainstream-Ökonomik erlebt ein Comeback: Depressionen oder tiefe Rezessionen sind sehr seltene Ereignisse, wie die „schwarzen Schwäne“ von Nassim Taleb (2008). Es wäre absurd, das Wirtschaftsleben so zu organisieren, als stünde der nächste Einbruch unmittelbar bevor. Marktwirtschaften würden eine innere Stabilität aufweisen, sodass Krisen sehr seltene Ereignisse wären. Das hat Keynes jedoch bestritten: Schwarze Schwäne können jederzeit aus dem Nichts auftauchen.

Der Grund dafür ist laut Keynes, dass die Theorie der „sich selbst ausgleichenden“ Marktwirtschaft von der Vorstellung abhängt, dass jeder, und insbesondere Investoren die Zukunft genau vorhersagen können. Wenn sie den Wert der Vermögenswerte, die sie heute kaufen, in zehn Jahren genau berechnen könnten, würden sie niemals Dinge zu falschen Preisen kaufen. Wie Keynes (1937) schrieb: „The calculus of probability … was supposed to be capable of reducing uncertainty to the same calculable status as that of certainty itself.“ Aber das ist ein Mythos. „Actually, however, we have, as a rule, only the vaguest idea of any but the most direct consequences of our acts“ (Keynes, 1936). Dies ist ein zweiter Paradigmenwechsel, der vielen Ökonomen die Augen öffnete. Dies hatte erhebliche Konsequenzen. Weil die Zukunft ungewiss ist, werden private Investitionen – die von der Erwartung künftiger Erträge abhängen – unstetig sein. Der Wohlstand hängt von den „animal spirits“ der Menschen ab. Wenn sie sich zuversichtlich fühlen, stellen sie mehr Arbeiter ein; wenn sie pessimistisch sind, stellen sie weniger ein.


Aus dieser Darstellung des Marktverhaltens ergeben sich zwei Schlussfolgerungen: Erstens, Zusammenbrüche sind immer möglich, weil die Zukunft ungewiss ist; und zweitens, wenn sie geschehen, gibt es keine „automatischen“ Marktmechanismen, die einen schnellen Aufschwung gewährleisten. Deshalb muss der Staat als „Ausgleichsmechanismus“ in der Marktwirtschaft wirken. Er steigert oder senkt die Nachfrage je nach Bedarf.

Diese zwei Dinge sollten Regierungen tun, und zwar nicht nur im Notfall, sondern dauerhaft:

  1. Sie sollten die Investitionen stabilisieren. Dies können sie durch öffentliche Investitionsprogramme erreichen. Keynes (1936) schrieb: „I expect to see the state, which is in a position to [take] long views … taking an ever greater responsibility for directly organising investment.“ Dies geschah in den 25 Jahren nach dem Zweiten Weltkrieg, doch seit den 1980er Jahren ist der Anteil des Staates an den Gesamtinvestitionen drastisch zurückgegangen, was die Instabilität der Investitionen erhöht.
  2. Die Regierungen sollten eine „antizyklische“ Politik verfolgen, um die Wirkung weiterer Schwankungen zu begrenzen. Das bedeutet, die Wirtschaft mit zusätzlichen Staatsausgaben anzukurbeln, wenn die privaten Ausgaben sinken, und sie zu drosseln, wenn diese steigen. Dies kann auf der Einnahmen- oder auf der Ausgabenseite oder auf beiden Seiten geschehen. Der „Multiplikator“, der auf der „marginalen Konsumneigung“ basiert, zeigt den Regierungen, welchen Gesamteffekt die zusätzliche oder reduzierte Nachfrage auf die Wirtschaft haben wird.

Diese beiden ausgleichenden Funktionen, öffentliche Investitionen und antizyklische Politik, sind notwendig, um Vollbeschäftigung und Stabilität in kapitalistischen Marktwirtschaften zu gewährleisten. Und je mehr Ressourcen kontinuierlich genutzt wurden, desto höher ist die Wachstumsrate und desto größer die soziale Zufriedenheit. Dies war – kurz zusammengefasst – die Botschaft von Keynes.


Lassen Sie uns nun die wesentlichen Einwände gegen die keynesianische Theorie und Politik betrachten. Der erste ist, wie wir gesehen haben, dass Mainstream-Ökonomen glauben, dass Marktwirtschaften eine natürliche Stabilität aufweisen, anders als es Keynes annahm. Aber es gibt auch Argumente gegen einzelne keynesianische Instrumente.

  1. Anti-keynesianische Ökonomen lehren, dass öffentliche Investitionen weniger effizient sind als private. Sie verdrängen (crowd out) sogar private Investitionen. Dies trifft zu, wenn alle Ressourcen der Wirtschaft voll ausgeschöpft werden. Wenn jedoch freie Kapazitäten vorhanden sind, können öffentliche Investitionen private Investitionen steigern (crowd in), indem sie die Gesamtnachfrage nach Gütern und Dienstleistungen erhöhen. Die meisten Regierungen haben die öffentlichen Investitionen nach den 1970er Jahren drastisch gekürzt. Das Wachstum wurde halbiert und die Arbeitslosigkeit stieg an. Tatsächlich wird ein Teil der öffentlichen Investitionen nicht effizient eingesetzt, aber das sollte mit der Ineffizienz von Arbeitslosigkeit abgewogen werden.
  2. Monetaristische Ökonomen – Nachfahren von Milton Friedman – behaupten, dass die keynesianische „antizyklische“ Politik zwangsläufig inflationär sein muss. Regierungen können den Konjunkturzyklus nicht steuern; und selbst wenn sie es könnten, würden sie im Bemühen Wählerstimmen zu gewinnen, so viel Geld drucken, dass es zu einer schleichenden und schließlich beschleunigten Inflation führen würde.

Diese monetaristische Kritik ist teilweise berechtigt. Aber auch hier müssen wir das keynesianische System mit der monetaristischen Alternative vergleichen. Monetaristen behaupten, dass die Märkte „antizyklisch stabil“ seien, wenn es keine „Schocks“ gäbe, da die Menschen rational in die Zukunft vorausschauen können. Der wichtigste „Schock“, gegen den Vorkehrungen getroffen werden müssen, sind unerwartete Änderungen des Preisniveaus. Diese können die Menschen dazu verleiten, zu falschen Preisen zu handeln. Der Schlüssel zur wirtschaftlichen Stabilität ist daher eine niedrige und konstante Inflationsrate. Dies macht es erforderlich, dass die Kontrolle der Geldmenge oder der Zinssätze aus der Verantwortung der Politiker genommen und unabhängigen Zentralbanken übertragen wird. Dieses System wurde in den 2000er Jahren in den meisten Ländern getestet. Es hat 2008 bis 2009 einen wirtschaftlichen Zusammenbruch nicht verhindert.

Selbst die Politik der quantitativen Lockerung – die Überschwemmung der Wirtschaft mit Zentralbankgeld oder M0 in den Jahren 2009 bis 2012 – führte nach dem Zusammenbruch nicht zu einer v-förmigen Erholung. Der Trugschluss der Monetaristen besteht darin, dass die Geldmenge (zu der die erweiterte Geldmenge oder Bankkredite gehören) nicht direkt unter der Kontrolle der Zentralbank steht. Wie viel Bankkredit eine Ausweitung der Geldbasis bewirkt, hängt von Keynes‘ „animal spirits“ ab. Ein sehr hoher Zinssatz kann einen Boom beenden, aber selbst ein negativer Realzinssatz führt möglicherweise nicht zu einer Erholung, wenn die „animal spirits“ sich verdunkeln.


Die Antwort auf das Scheitern sowohl des altmodischen Keynesianismus als auch des neumodischen Monetarismus besteht nicht darin, die ausgleichende Rolle des Staates aufzugeben, sondern sie so automatisch wie möglich zu gestalten. Der Staat sollte sich zu zwei Dingen verpflichten: zu einem öffentlichen Investitionsprogramm und zu einer Arbeitsplatzgarantie im öffentlichen Sektor.

Das erste würde die Investitionsschwankungen enger begrenzen; die zweite würde einen Puffer an Arbeitsplätzen schaffen, der sich in einem Abschwung automatisch ausweiten und in einem Aufschwung reduzieren würde. Öffentliche Investitionen bedeuten nicht zwingend öffentliches Eigentum. Ein Teil davon könnte durch quasi-staatliche Institutionen wie öffentliche Investitionsbanken oder Unternehmen mit staatlicher Beteiligung getragen werden. Diese würden unter einem weit gefassten zentralstaatlichen Mandat stehen und damit nationale Ziele widerspiegeln, aber unternehmerische von politischen Entscheidungen trennen. Die öffentliche Arbeitsplatzgarantie würde zentral finanziert, aber mit Projekten, die lokal ausgewählt und verwaltet werden. Das Ergebnis beider Politiken gemeinsam wäre, dass zum ersten Mal seit der industriellen Revolution unerwünschte Arbeitslosigkeit abgeschafft würde.

Marxisten würden behaupten, dass ein solches aktualisiertes keynesianisches Programm nur ein Wunschtraum ist. Eine kapitalistische Wirtschaft braucht eine „Reservearmee der Arbeitslosen“, um die Profite zu erhöhen und die Löhne zu senken. Nur eine vollständig sozialisierte Wirtschaft, so sagen sie, kann die Arbeitslosigkeit abschaffen und das Lohnwachstum aufrechterhalten. Tatsächlich wiesen die keynesianisch geführten kapitalistischen Volkswirtschaften von 1950 bis 1975 eine durchschnittliche Arbeitslosenquote von 2 % bis 3 % auf, halb so hoch wie seither, mit steigenden statt stagnierenden Löhnen, und die Inflation war nur geringfügig höher als während monetaristischer Führung.

Kein System der politischen Ökonomie ist vollkommen. Aber es sollte nicht im Vergleich mit einem idealen System beurteilt werden, sondern mit den realen Alternativen. Keynes machte sich daran, die Demokratie vor den beiden Herausforderern seiner Zeit – Faschismus und Kommunismus – zu retten. Er sagte, wenn wir angesichts der Massenarbeitslosigkeit mit der Laissez-faire-Politik fortfahren würden, würde die politische Freiheit nicht überleben. Wird das Problem aber richtig analysiert, könnte es möglich sein, die Krankheit zu heilen und gleichzeitig Effizienz und Freiheit zu bewahren.

Diese Überlegungen sind auch heute aktuell. Ich bezweifle, dass die westliche Bevölkerung über längere Zeit eine politische Ökonomie tolerieren wird, die dauerhafte Arbeitslosigkeit, häufige ökonomische Abstürze, stagnierende Löhne und extreme Ungleichheiten bei Vermögen und Einkommen mit sich bringt. Der Keynesianismus löst nicht alle wirtschaftlichen Probleme. Keynes (1936) schrieb, die beiden großen Fehler der kapitalistischen Gesellschaften seien das Versagen, Vollbeschäftigung zu schaffen, und seine arbiträre und ungleiche Verteilung von Einkommen und Vermögen. Er machte sich daran, den ersten Fehler zu überwinden, was das große Problem der damaligen Zeit war. Diese beiden Therapien mit dem Green New Deal zu verbinden, bleibt die größte wirtschaftliche Herausforderung unserer Zeit.


Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, Macmillian.

Keynes, J. M. (1937), The General Theory of Employment, The Quarterly Journal of Economics, 51, 212-223.

Pigou, A. C. (1933), The Theory of Unemployment, Macmillian.

Taleb, N. (2008), Der schwarze Schwan: Die Macht höchst unwahrscheinlicher Ereignisse, Hanser.

Joseph Schumpeter

The theorist of “creative destruction,” one of the greatest economists of the 20th century, was no stranger to violent disruption in his personal life, as a new biography reveals

Joseph Alois Schumpeter (1883-1950) was one of the greatest economists of the 20th century—commonly bracketed with such giants as Keynes, Hayek and Friedman. He is best known for his theory of “creative destruction”—the view that the capitalist system progresses by constantly revolutionising its economic structure. New firms, new products, new technologies continually replace old ones. Since innovation comes in fits and starts, the capitalist economy is naturally, and healthily, subject to cycles of boom and bust. The agent of this revolutionary process is the heroic entrepreneur: the individual owner in the 19th century, big business in the 20th. Innovation needs its reward, hence a dynamic economy is one which allows the innovator huge profits. Temporary monopoly is nature’s way of allowing innovators to gain from their inventions. Short-run inequity is the price of long-run progress.

Along with Schumpeter’s positive contribution went a persisting critique of conventional economics, whose concern with static problems of allocation in perfectly competitive markets rules out change and the role of the entrepreneur. But Schumpeter’s speculations ranged far beyond this, into the question of the durability of a civilisation which lives by continually destroying what it has created—a line of thought which went back to Marx in his Communist Manifesto. It may well be that Schumpeter has more to tell us about the nature of capitalism than the new breed of market idealists spawned by globalisation or by such 20th-century apostles of stabilisation as Keynes.

At least, that is the argument of Thomas K McCraw in Prophet of Innovation, his new biography of the great Austrian economist. It is a fine book, well paced and readable. There are plenty of good photographs, of Schumpeter himself and of the important people and places in his life. The theme of creative destruction appears against the background of Schumpeter’s own family uprooting, the dissolution of the Austro-Hungarian empire, the turmoil of the interwar years, and the restless, and tragic, circumstances of his adult personal life. McCraw puts it like this: “Over the years he reinvented himself many times…Thinking not of where he started but of how he might move forward, he was well suited to grasp the mindset of the entrepreneur… [In Vienna] he learned that one’s identity in a rapidly changing world might come more from innovation than inheritance; that exchanging security for opportunity could bring great rewards; and that for someone with his gifts almost anything was possible.”

A thinker’s background cannot tell us everything about his thought, but it can tell us a great deal, and McCraw exploits his opportunities with great skill, while also giving the reader a lucid, non-technical account of Schumpeter’s ideas. His main insight concerns the effect on Schumpeter’s thinking of the impact of capitalist business on the still largely feudal order of central and eastern Europe. It was the speed of the transformation, and extent of the ensuing dislocation, which led him to reject the static equilibrium models of British economics, derived from a society where economic change was evolutionary and institutions very stable. Unlike his exact contemporary Keynes, Schumpeter always saw economics from the standpoint of the innovative businessman, not of the treasury or central bank.

One of McCraw’s failings is that he does not give a sufficiently concrete account of Schumpeter’s first 30 years. He bursts on the intellectual scene already a celebrity. The steps by which he reached his eminence are largely missing. Unlike Keynes, who never strayed far from Cambridge, Schumpeter was uprooted from his ancestral home. His family origins were solid Catholic German bourgeoisie, long settled in a couple of small towns in Moravia, now part of the Czech Republic. But when he was four, his father, who owned a textile business, died in a hunting accident. His mother Johanna, determined to secure a larger stage for herself and her son, moved to the provincial capital Graz, remarried a general, and, with her elderly aristocratic husband, shifted to Vienna where the 11-year-old Schumpeter was enrolled in a top gymnasium, Theresianum, proceeding from there to the University of Vienna, where he graduated in Roman and canonical law in 1906.

This double transplantation cost Schumpeter his roots, but fed his ambition. Johanna was one of those mothers who invested all her energies in the creation of a star. Schumpeter shared his mother’s ambition for him to succeed socially as well as intellectually. Outside the study, Schumpeter was an almost invented character. He started mixing with Austria’s aristocracy—as a young man he even fought a duel. He became a compelling conversationalist. He impressed old professors and dazzled young students, but he had no close male friends of his own age. The hour in the morning Keynes devoted to his investments, Schumpeter was reputed to spend on his toilette. “The new graduate,” McCraw writes, “dressed like a dandy, spent money freely, and carried on frequent liaisons with willing women.” He used to say that his three ambitions were to become the greatest economist, the greatest horseman and the greatest lover in the world, and only the decline of the cavalry had thwarted the fulfilment of all three.

McCraw could have made more of the mystery of Schumpeter’s appearance. It had more of the Levant than of Europe. Many people assumed he was Jewish, but there is no evidence of this, nor, as McCraw rightly emphasises, of any expressions of antisemitism. But Schumpeter made his strange looks a compelling feature of his personality. “He held his head high and tilted slightly backward, acccentuating his prominent chin and making his 5’8′ 145-pound frame look a little bigger than it was.”

Schumpeter possessed a prodigious capacity for work, but one would like to know more about his work habits and what he worked on. There is nothing about his eight years at Theresianum except that he emerged fluent in six languages. At the University of Vienna “it did not take Schumpeter long to find that he had a special gift for economics,” but apart from a single reference to his attendance at Bohm-Bawerk’s seminar on Marx, we learn little about what he actually studied, or the quality of his degree. He had no “special gift” for mathematics—but how much maths could he do? Two years after his graduation—aged 25—he published a 600-page book on economic method, and three years later a slenderer volume, The Theory of Economic Development (1911), which “launched his rise to stardom” from a temporary teaching job in a provincial Austrian university. On a visit to England in 1907, which confirmed a lifelong Anglophilia, the great lover unexpectedly acquired a well-connected English wife, Gladys Seaver, 12 years older than himself, with whom he was not “madly” in love. “Perhaps,” McCraw speculates not unreasonably, “it was again an issue of identity, of trying to reinvent himself as a continental aristocrat and an English gentleman.”

The Theory of Economic Development is Schumpeter’s first statement of the crucial role that entrepreneurs play in breaking up old and creating new structures and stimulating new wants, and the role of bank credit in financing innovation—themes he was to pursue for the rest of his life. It also established what was to become the main line of his defence of capitalism—that its destructiveness was inseparable from its creativity. Schumpeter was not a complete non-interventionist like his fellow members of the Austrian school, Ludwig Mises and Friedrich Hayek, but he was to come out decisively against the systematic stabilisation policy recommended by Keynes for fear it would end progress prematurely.

A surprising omission in McCraw’s account is any discussion of Schumpeter’s little book, Imperialism and Social Classes (1919), which tried to explain the the collapse of the Austro-Hungarian empire after the first world war. Bourgeois societies, Schumpeter argued, are by nature peaceful, but German and Austro-Hungarian politics had been dominated by a military aristocracy: “a machine of warriors, created by the wars that required it, which now creates the wars it requires.” Like Keynes, Schumpeter had vainly advocated a negotiated peace to save the European civilisation he loved. In 1919, he briefly became minister of finance in the rump Austrian state, but his stabilisation plan was powerless against hyperinflation. Here again McCraw lets down the reader: he tells us that Schumpeter’s ministerial career lasted six months, but nothing about how it ended.

Two devastating blows in short succession brought a “belated onset of… maturity.” His attempt to make money as a banker foundered in 1924 with the collapse of a bogus glassmaking company whose loans he had guaranteed. An adverse legal judgment, while exonerating him from wrongdoing, left him debts which took years to pay off and a blemished reputation. He wrote: “The promises of wealth and the threats of destitution that [capitalism] holds out, it redeems with ruthless promptitude.” Meanwhile, Schumpeter had fallen desperately in love with Annie Reisinger, 20 years his junior, the beautiful daughter of the concierge of the apartment building in which he had grown up. Inventing a middle-class background for her, and ignoring the inconvenient fact that he was still married to Gladys Seaver, Schumpeter rushed her to the altar in November 1925. A few months later came the death of his adored mother and, in August 1926, of Annie herself in childbirth. Schumpeter never fully recovered from this shattering of his hopes for wealth and personal happiness. “Everything now hangs on my ability to work,” he wrote to a friend. “If so, the engine will keep running, even if my personal life is over.” His celebrity lectures would pay off his debts; his serious work would be monuments to his Hasen—his mother and Annie.

The rest of his life was devoted to teaching, thinking and writing. He moved from a chair in Bonn in 1925 to one at Harvard in 1932, where he remained till his death in 1950. On the way, he acquired two devoted helpmates, Mia Stöckel, who managed his personal business in Bonn, and Elizabeth Boody, whom he married in 1937. At Harvard, he became a campus celebrity, holding court each afternoon in a coffee shop by the Widener Library. He was devoted to his students, and generous with his attention. Although Schumpeter insisted that “scientific” work must be kept free from the policy taint, he could not avoid politics completely in the 1930s and 1940s. Elizabeth had a soft spot for Japan, and Joseph regarded Soviet Russia as a greater danger than Nazi Germany—views which brought the couple to the attention of the FBI in the war.

McCraw provides excellent accounts of the three big books Schumpeter wrote at Harvard—Business Cycles (1939), Capitalism, Socialism and Democracy (1942) and his superb History of Economic Analysis, published after his death in 1954. Capitalism, Socialism, and Democracy sums up most of what Schumpeter had been thinking for the previous 30 years. It was also one of the most influential books of the 20th century. It transferred the defence of capitalism from the ground of the superiority of markets over central planning to that of the superiority of capitalism over socialism as an engine of technological progress, but one inseparable from huge costs in terms of disruption and inequity, and because of that, inherently fragile. Capitalism’s fatal flaw is exactly what Marx discerned in the Communist Manifesto: it creates a vested interest in social unrest by undermining the traditional ruling class without being able to create a ruling class of its own. To his own question “Can capitalism survive?” Schumpeter answered “No, I do not think that it can.” As JK Galbraith remarked, “Men of property and high corporate position do not rally to such friends.”

Unlike Hayek, Schumpeter defends the theoretic viability of socialism, but argues that the conditions of its arrival (except possibly in Britain) will be such as to make it intolerably oppressive. McCraw rightly points out the irony in Schumpeter’s treatment of socialism—which led some reviewers to believe that he was advocating it—but somehow misses the tragic implications of the thesis: capitalist civilisation is doomed, but its alternative, socialism, is appalling. He also, it seems to me, underestimates the huge importance Schumpeter’s discussion of democracy has had on the development of modern political science, particularly in the two propositions that politicians are entrepreneurs in votes, and that the true function of democracy is to choose leaders, not policies. What Schumpeter was arguing was that elitist democracy, or oligarchy, could give societies the advantages of dictatorship plus liberty. He saw Britain as the epitome of such a system. But in general he doubted the ability of contemporary democracies to exercise the required self-restraint.

Schumpeter was one of the dazzling minds of the 20th century, but was he a great economist? Unlike Smith, Ricardo and Keynes, he created no new theory, founded no new school. At Harvard, he taught many brilliant graduate students, some of them future Nobel laureates, but they went to his seminars more to dispute than to learn. He could certainly “do” economics, and indeed his erudition in the history of the discipline was unparalleled, but he viewed it largely from outside—that is, sociologically and historically. His major contributions to our understanding of the capitalist system stand outside the main development of the discipline, which has been towards increasing mathematical precision in stating the conditions for market equilibrium. As McGraw rightly emphasises, entrepreneurship can’t be fitted into formal models; we can’t predict the future because we can’t predict the appearance of exceptional individuals. Or as Schumpeter himself wrote: “We do not know enough in order to form valid generalisations or even enough to be sure whether there are any generalisations to form.”

Given the magnitude of Schumpeter’s achievement outside economics, this reader is left with a question: does economics, as taught and practised in the economics departments of top universities and published in top journals, rather than as Schumpeter understood it, have anything of importance to tell us about the conditions of contemporary economic and political life? Or is it, like the glass-bead game in Herman Hesse’s novel Magister Ludi, a kind of intellectual chess played by an elite of secular priests?

Letter: Remember Kissinger’s advice to the Ukrainians

Nato governments have rightly said they are willing to address Russia’s security concerns, but then say in the same breath that Russia has no legitimate security concerns because Nato is a purely defensive alliance. Whether we like it or not, a Nato that now borders Russia and could in future border even more of Russia is seen by Russia as a security concern.

In 2014 Henry Kissinger wrote in the Washington Post that “internationally [Ukraine] should pursue a posture comparable to that of Finland. That nation leaves no doubt about its fierce independence, co-operates with the west in most fields, but carefully avoids institutional hostility to Russia.”

A permanent “Finlandisation” of Ukraine would be unrealistic. But it should be possible for Nato, in close association with Ukraine, to put forward detailed proposals to negotiate a new treaty with Russia that engenders no institutional hostility. This would cover: the verifiable withdrawal of nuclear-capable missiles; detailed military confidence-building measures limiting numbers and demarcating deployment; and international agreement on presently contested borders between Russia and Ukraine.

Lord Owen
UK Foreign Secretary 1977-79

Lord Skidelsky
Historian, Fellow of British Academy

Sir Anthony Brenton
British Ambassador to Russia 2004-08

Christopher Granville
Former British Diplomat

Nina Krushcheva
Professor of International Affairs, The New School, New York, US

Letter in response to this letter:

Sovereignty also means freedom to change policy / From Helge Vindenes, Former Norwegian Diplomat (1958-1999), Padstow, Cornwall, UK

Requiem for an Empire


Since World War II, Britain’s influence in the world has relied on its “special relationship” with the United States, its position as head of the Commonwealth (the British Empire’s successor), and its position in Europe. The Americans are still there, but Europe isn’t, and now the head of the Commonwealth isn’t, either.

LONDON – Amid the many, and deserved, tributes to Queen Elizabeth II, one aspect of her 70-year reign remained in the background: her role as monarch of 15 realms, including Australia, New Zealand, and Canada. She was also the head of the Commonwealth, a grouping of 56 countries, mainly republics.

This community of independent states, nearly all of them former territories of the British Empire, has been crucial in conserving a “British connection” around the world in the post-imperial age. Whether this link is simply a historical reminiscence, whether it stands for something substantial in world affairs, and whether and for how long it can survive the Queen’s passing, have become matters of great interest, especially in light of Britain’s withdrawal from the European Union.

In the nineteenth-century era of Pax Britannica, Britain exercised global power on its own. The sun never set on the British Empire: the British navy ruled the waves, British finance dominated world markets, and Britain maintained the European balance of power. This era of “splendid isolation” – never as splendid or isolated as history textbooks used to suggest – ended with World War I, which gravely wounded Britain’s status as a world power and correspondingly strengthened other claimants to that role.

As the results of WWI were confirmed by World War II, British foreign policy came to center on the doctrine of the “three circles.” Britain’s influence in the world would rely on its “special relationship” with the United States, its position as head of the Commonwealth (the empire’s successor), and its position in Europe. By its membership of these overlapping and mutually reinforcing circles, Britain might hope to maximize its hard and soft power and mitigate the effects of its military and economic “dwarfing.”

Different British governments attached different weights to the three roles in which Britain was cast. The most continuously important was the relationship with the US, which dates from WWII, when the Americans underwrote Britain’s military and economic survival. The lesson was never forgotten. Britain would be the faithful partner of the US in all its global enterprises; in return, Britain could draw on an American surplus of goodwill possessed by no other foreign country. For all the pragmatic sense it made, one cannot conceive of such a connection forged or enduring without a common language and a shared imperial history.

Imperial history was also central to the second circle. The British Empire of 1914 became the British Commonwealth in 1931, and finally just The Commonwealth, with the Queen as its titular head. Its influence lay in its global reach. Following the contours of the British Empire, it was the only world organization (apart from the United Nations and its agencies) which spanned every continent.

The Commonwealth conserved the British connection in two main ways. First, it functioned as an economic bloc through the imperial preference system of 1932 and the sterling area that was formalized in 1939, both of which survived into the 1970s. Second, and possibly more durably, its explicitly multiracial character, so ardently supported by the Queen, served to soften both global tensions arising from ethnic nationalism, and ethnic chauvinism in the “mother country.” Multicultural Britain is a logical expression of the old multicultural empire.

The European link was the weakest and was the first to snap. This was because Britain’s historic role in Europe was negative: to prevent things from happening there which might endanger its military security and economic livelihood. To this end, it opposed all attempts to create a continental power capable of bridging the Channel. Europe was just 20 miles away, and British policy needed to be ever watchful that nasty things did not happen “over there.”

John Maynard Keynes expressed this permanent sense of British estrangement from the Continent. “England still stands outside Europe,” he wrote in 1919. “Europe’s voiceless tremors do not reach her: Europe is apart and England is not of her flesh and body.” The Labour leader, Hugh Gaitskell, famously evoked this sense of separation when he played the Commonwealth card in 1962, urging his party not to abandon “a thousand years of history” by joining the European Economic Community.

Britain’s policy towards Europe has always been to prevent the emergence of a Third Force independent of US-led NATO. Charles de Gaulle saw this clearly, vetoing Britain’s first application to join the EEC in 1963 in order to prevent an American “Trojan Horse” in Europe.

Although Prime Minister Tony Blair wanted Britain to be at “the heart” of Europe, Britain pursued the same game inside the EU from 1974 until 2021. The only really European-minded prime minister in this period was Edward Heath. Otherwise, British governments have sought to maximize the benefits to Britain of trade and tourism, while minimizing the dangers of political contamination. Today, it is not surprising that Britain joins the US to project NATO power in Eastern Europe over the stricken torso of the EU itself.

So, Britain is left with just two circles. In the wake of Brexit, the Queen’s legacy is clear. Through her official position and personal qualities, she preserved the Commonwealth as a possible vehicle for projecting what remains of Britain’s hard power, such as military alliances in the South Pacific. And whatever one may think of Britain’s hard power, its soft power – reflecting its trading relationships, its cultural prestige in Asia and Africa, and its multicultural ideal – is a global public good in an age of growing ethnic, religious, and geopolitical conflict.

I doubt whether the two remaining circles can compensate for Britain’s absence from the third. The question that remains to be answered is how much the Commonwealth’s durability depended on the sheer longevity of the late monarch, and how much of it can be preserved by her successor.

Mind the Policy Gaps


The widening gaps in policy formation nowadays reflect the division of labor and increasing specialization that has taken us from the sixteenth-century ideal of the Renaissance man. And today’s biggest policymaking gap has grown so large that it threatens global catastrophe.

LONDON – Just as the insistent demand for more “transparency” is a sure sign of increasing opacity, the current clamor for “joined-up thinking” indicates that the need for it far outstrips the supply. With its recent report on energy security, the UK House of Lords Economic Affairs Committee has added its voice to the chorus.

The report’s language is restrained, but its message is clear: Without a “joined-up” energy policy, the United Kingdom’s transition to net zero by 2050 will be “disorderly” (read: “will not happen”). For example, the policy aimed at improving home insulation is at odds with local authorities’ listed-building regulations.

In April, the government called on the Bank of England and financial regulators to “have regard to” energy security. What does this mean? Which institution is responsible for which bits of energy security? How does energy security relate to the net-zero goal? Never mind gaps in the data: The real problem is yawning chasms in thinking.

In a masterly understatement, the committee’s report says that “The Russian invasion of Ukraine has created global energy supply issues.” In fact, economic sanctions against the invader have contributed significantly to a massive energy and food crisis that threatens the sanctioning countries with stagflation and many people in developing economies with starvation.1

China provides key minerals for renewable-energy technologies, including wind turbines and solar cells, and supplies 66% of finished lithium-ion batteries. The report concludes that the UK must “not become reliant on strategic competitors, notably China, for critical minerals and components.” Moreover, the government “will need to ensure that its foreign and trade policies […] and its policy on net zero are aligned.” Quite a bit more joining up to do, then.

The widening gaps in policy formation reflect the increasing division of labor resulting from the relentless march of complexity. Today’s policymakers and their advisers know more and more about less and less, recalling Adam Smith’s description in The Wealth of Nations of a pin factory worker:

“The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.”

No one in Smith’s factory would need to know how to make a pin, or even what the purpose of producing one was. They would know only how to make a part of a pin. Likewise, the world is becoming full of “experts” who know only little bits of their subject.

The ideal of the “Renaissance man,” who could do a lot of joined-up thinking, did not survive the growing division of labor. By the eighteenth century, knowledge was being split up into “disciplines.” Now, subdisciplines sprout uncontrollably, and communication of their findings to the public is left to journalists who know almost nothing about everything.

Today’s biggest gap, one so large that it threatens catastrophe, is between geopolitics and economics. Foreign ministries and Treasuries no longer talk to each other. They inhabit different worlds, use different conceptual languages, and think about different problems.

The geopolitical world is divided up into “strategic partners” and “strategic rivals.” Borders are alive and well. States have conflicting national interests and pursue national-security policies. Economics, in contrast, is the science of a single market: Its ideal is economic integration across frontiers and a global price mechanism that automatically harmonizes conflicting preferences. Economics also tells us that commerce softens the asperities of politics, creating over time a single community of learning and culture.

The eighteenth-century English historian Edward Gibbon described history as “little more than the register of the crimes, follies, and misfortunes of mankind.” But the end of the Cold War led to hopes that the world was at last growing up; in 1989, the American academic Francis Fukuyama proclaimed the “end of history.”

Today, however, geopolitics is back in the saddle. The West regards Russia as a pariah because of its invasion of Ukraine; China, if not yet quite meriting that status, is a strategic rival with which trade in many areas should be shunned. At the same time, Western governments also insist on the need for global cooperation to tackle potentially lethal climate change and other existential dangers like nuclear proliferation and pandemics.

In 2012, for example, the University of Cambridge established the Centre for the Study of Existential Risk to help mitigate threats that could lead to humanity’s extinction. Sixty-five years earlier, atomic scientists from the Manhattan Project founded a bulletin to warn humanity of the possible negative consequences arising from accelerating technological advances. They started a Doomsday Clock, the time of which is announced each January. In 1947, the clock was set at seven minutes to midnight. Since January 2020, it has stood at 100 seconds to midnight, marking the closest humanity has come to Armageddon in 75 years.

The danger of nuclear proliferation, which prompted the clock’s creation, is still very much with us. As the bulletin points out, “Development of hypersonic glide vehicles, ballistic missile defenses, and weapons-delivery systems that can flexibly use conventional or nuclear warheads may raise the probability of miscalculation in times of tension.” Do those who urge the expulsion of Russian forces from Ukraine, by economic or military means, consider this risk? Or is this another “gap” in their knowledge of the world?

It is a tragedy that the economic basis of today’s world order, such as it is, is now being put at risk. That risk is the result of actions for which all the great powers share responsibility. The ironically named United Nations, which exists to achieve planetary security, is completely marginalized. Its virtual absence from the big scenes of international conflict is the biggest gap of all, and one which jeopardizes our common future.

Boris Johnson’s Fall – and Ours


Although words like “unprincipled,” “amoral,” and “serial liar” seem to describe the outgoing British prime minister accurately, they accurately describe more successful political leaders as well. To explain Johnson’s fall, we need to consider two factors specific to our times.

LONDON – Nearly all political careers end in failure, but Boris Johnson is the first British prime minister to be toppled for scandalous behavior. That should worry us.

The three most notable downfalls of twentieth-century British leaders were caused by political factors. Neville Chamberlain was undone by his failed appeasement policy. The Suez fiasco forced Anthony Eden to resign in 1957. And Margaret Thatcher fell in 1990 because popular resistance to the poll tax persuaded Tory MPs that they could not win again with her as leader. 

True, Harold Macmillan was undone in 1963 by the Profumo sex scandal, but this involved a secretary of state for war and possible breaches of national security. Election defeats following economic failure brought down Edward Heath and James Callaghan in the 1970s. Tony Blair was forced to resign by the Iraq debacle and Gordon Brown’s impatience to succeed him. David Cameron was skewered by Brexit, and Theresa May by her failure to deliver Brexit. 

No such events explain Johnson’s fall. 

David Lloyd George, a much greater leader than Johnson, is his only serious rival in sleaze. But though the sale of seats in the House of Lords, slipshod administrative methods, and dishonesty had weakened Lloyd George, the immediate cause of his fall (exactly a century ago) was his mishandling of the Chanak crisis, which brought Britain and Turkey to the brink of war. 

The more familiar comparison is with US President Richard Nixon. Every Johnson misdemeanor is routinely labeled “gate” after the Watergate break-in that ended Nixon.

John Maynard Keynes called Lloyd George a “crook”; Nixon famously denied that he was one. Neither they nor Johnson were crooks in the technical sense (of being convicted of crimes), but Nixon would have been impeached in 1974 had he not resigned, and Johnson was fined £50 for breaking lockdown rules. Moreover, all three showed contempt for the laws they were elected to uphold, and for the norms of conduct expected from public officials. 

We struggle to describe their character flaws: “unprincipled,” “amoral,” and “serial liar” seem to capture Johnson. But they describe more successful political leaders as well. To explain his fall, we need to consider two factors specific to our times. 

The first is that we no longer distinguish personal qualities from political qualities. Nowadays, the personal really ispolitical: personal failings are ipso facto political failings. Gone is the distinction between the private and the public, between subjective feeling and objective reality, and between moral and religious matters and those that government must address. 

Politics has crossed into the realm previously occupied by psychiatry. This was bound to happen once affluence undermined the old class basis of politics. Questions of personal identity arising from race, gender, sexual preference, and so on now dominate the spaces vacated by the politics of distribution. Redressing discrimination, not addressing inequality, became the task of politics. 

Johnson is both a creature and a victim of identity politics. His rhetoric was about “leveling up” and “our National Health Service.” But, in practice, he made his personality the content of his politics. No previous British leaders would have squandered their moral capital on trivial misdemeanors and attempted cover-ups, because they knew that it had to be kept in reserve for momentous events. But momentous events are now about oneself, so when a personality is seen as flawed, there is no other story to tell. 

Johnson’s personality-as-politics was also the creation of the media. In the past, newspapers, by and large, reported the news; now, focusing on personalities, they create it. This change has given rise to a corrupt relationship: personalities use the media to promote themselves, and the media expose their frailties to sell copy. 

There has always been a large market for sexual and financial gossip. But even in the old “yellow press,” there was a recognized sphere of public events that took priority. Now the gossip stories are the public events. 

This development has radically transformed public perceptions about the qualities a political leader should have. Previous generations of political leaders were by no means all prudes. They lied, drank, fornicated, and took bribes. But everyone concerned with politics recognized that it was important to protect the public sphere. Leaders’ moral failings were largely shielded from scrutiny, unless they became egregious. And even when the public became aware of them, they were forgiven, provided the leaders delivered the goods politically. 

Most of the offenses that led to Johnson’s resignation would never have been reported in the past. But today the doctrine of personal accountability justifies stripping political leaders naked. Every peccadillo, every lapse from correct expression, becomes a credibility-destroying “disgrace” or “shame.” People’s ability to operate in the public sphere depends on privacy. Once that is gone, their ability to act effectively when they need to vanishes. 

The other new factor is that politics is no longer viewed as a vocation so much as a stepping stone to money. Media obsession with what a political career is worth, rather than whether politicians are worthy of their jobs, is bound to affect what politically ambitious people expect to achieve and the public’s view of what to expect from them. Blair is reported to have amassed millions in speaking engagements and consultancies since leaving office. In keeping with the times, The Times has estimated how much money Johnson could earn from speaking fees and book deals, and how much more he is worth than May. 

In his resignation speech, Johnson sought to defend the “best job in the world” in traditional terms, while criticizing the “eccentricity” of being removed in mid-delivery of his promises. But this defense of his premiership sounded insincere, because his career was not a testimony to his words. The cause of his fall was not just his perceived lack of morality, but also his perceived lack of a political compass. For Johnson, the personal simply exposed the hollowness of the political.

Russia’s Path to Premodernity


The Stalinist retreat from science and logic persisted following the Soviet Union’s collapse and is now the main tendency of Russian President Vladimir Putin’s rule. With his faith-based mythology, warping of history, and denial of facts, Putin’s withdrawal from contemporary Europe could not be starker.

LONDON – The Russian writer Pyotr Chaadayev said of his country that “we have never advanced along with other people; we are not related to any of the great human families; we belong neither to the West nor to the East, and we possess the traditions of neither. Placed, as it were, outside of the times,” he wrote, “we have not been affected by the universal education of mankind.”

That was in 1829. The “riddle, wrapped in a mystery, inside an enigma,” as Winston Churchill described Russia more than a century later, is no closer to being solved today. The philosopher John Gray recently wrote that Russian President Vladimir Putin “is the face of a world the contemporary Western mind does not comprehend. In this world, war remains a permanent part of human experience; lethal struggles over territory and resources can erupt at any time; human beings kill and die for the sake of mystical visions.” That is why Western commentators and liberal Russians are baffled by Putin’s so-called “special military operation” in Ukraine.

Personality-based explanations for Putin’s actions are the easiest to advance – and the most facile. Putin is neither acting like an expert chess player, calculating every move, nor like a ruler unhinged by power or steroids.

Rather, Putin has a distorted, or at least one-sided, view of Russian history, and of what constitutes Russia’s special virtue. But this does not explain the widespread popular and intellectual support in Russia for his justificatory narrative regarding Ukraine. We are all to some extent captives of our national myths. It is just that Russian mythology is out of step with “the universal education of mankind.”

We expect Russia to behave more or less like a modern, or even postmodern, European nation-state, but forget that it missed out on three crucial ingredients of European modernization. First, as Yuri Senokosov has written, Russia never went through the Reformation or had its age of Enlightenment. This, Senokosov argues, is because “serfdom was abolished only in 1861 and the system of Russian autocracy collapsed only in 1917 […] It was then swiftly restored.” As a result, Russia never experienced the period of bourgeois civilization which, in Europe, established the outlines of the constitutional state.

Second, Russia was always an empire, never a nation-state. Autocracy is its natural form of rule. To its current czar, the disintegration of the Soviet Union in 1991 was a violation of Russian history.

The third missing ingredient, related to the absence of the first two, was liberal capitalism, of which Russia had only brief and limited experience. Marx insisted that the capitalist phase of economic development had to precede socialism, because any attempt to build an industrial economy on the archaic soil of peasant primitivism was bound to lead to despotism.

Yet, this is exactly what Lenin’s revolutionary formula of “Soviet power plus the electrification of the whole country” amounted to. Lenin, a brilliant opportunist, was following in the tradition of the great reforming czars who tried to westernize Russian society from the top. Peter the Great demanded that Russian men shave their beards and instructed his boyars: “Don’t gorge like a pig; don’t clean your teeth with a knife; don’t hold bread to your chest while cutting it.”

In the nineteenth century, Russia’s relationship with Europe took on a new dimension with the idea of the New Man – a Western type inextricably linked to Enlightenment philosophy and enthusiastic about science, positivism, and rationality. He appears as Stoltz in Ivan Goncharov’s 1859 novel Oblomov. In Ivan Turgenev’s Fathers and Sons (1862), he is the nihilist “son” Bazarov, who champions science and rails against his family’s irrational traditions. Nikolai Chernyshevsky’s novel What Is to Be Done? (1863), which strongly influenced Lenin, imagines a society of glass and steel built on scientific reason.

Because of their shallow roots in Russian culture, these futuristic projections incited a literary peasants’ revolt. Fyodor Dostoevsky’s Notes from the Underground, published in 1864, not only became one of the canonical texts of Christian Slavophilia, but also raised profound questions about modernity itself.

The Bolsheviks made the greatest collective attempt to bring the New Man out of literature and into the world. They, like Peter the Great, understood that transforming a society required transforming the people in it. They launched a concerted effort, with the participation of the foremost avant-garde artists of the time, to modernize people’s mindsets and nurture their revolutionary consciousness. Russians would become the scientifically and collectively minded New Men who would help build the Communist Utopia.

This was perhaps the biggest failure of all. With Stalin deeming socialism achieved in 1936, and state-mandated socialist realist literature and art exalting mysticism over science, Soviet dreams of a New Man remained just that. The retreat from science and logic survived the Soviet Union’s collapse and now is the animating tendency of Putin’s rule. His own faith-based mythology, unusual symbiotic relationship with the Orthodox Patriarch Kirill of Moscow, warping of history, and denial of facts, underscore the extent of Russia’s withdrawal from contemporary Europe.

In his 2003 book The Breaking of Nations, the former European Union diplomat Robert Cooper thought Russia’s future was still open. The signing of the Conventional Armed Forces in Europe Treaty and later Russian moves to join NATO indicated that “postmodern elements” were “trying to get out.” Whether the rapprochement was foiled by Western arrogance or Russian incompatibility will long be debated. By 2004, Putin had shed most of his liberalizing tendencies and began embracing traditionalism. In Cooper’s classification, Russia is a modern pre-modern state.

Following the Soviet Union’s 1968 invasion of Czechoslovakia, the Czech writer Milan Kundera refused to adapt Dostoevsky’s The Idiot for the stage. “Dostoevsky’s universe of overblown gestures, murky depths, and aggressive sentimentality repelled me,” Kundera said. It is in these murky depths, behind the rational façade, that we can glimpse Putin’s war.

The False Promise of Democratic Peace

Clinging to the assumption that only dictatorships start military conflicts, proponents of democratization believed that the global success of their project would usher in a world without war. But this theory lacks a sound foundation and has produced one disaster after another when put into practice.

LONDON – Through persuasion, exhortation, legal processes, economic pressure, and sometimes military force, American foreign policy asserts the United States’ view about how the world should be run. Only two countries in recent history have had such world-transforming ambitions: Britain and the US. In the last 150 years, these are the only two countries whose power – hard and soft, formal and informal – has extended to all parts of the world, allowing them plausibly to aspire to the mantle of Rome.

When the US inherited Britain’s global position after 1945, it also inherited Britain’s sense of responsibility for the future of the international order. Embracing that role, America has been an evangelist of democracy, and a central US foreign-policy objective since the fall of communism has been to promote its spread – sometimes by regime change, when that is deemed necessary.

In fact, this playbook dates back to US President Woodrow Wilson’s time. As historian Nicholas Mulder writes in The Economic Weapon: The Rise of Sanctions as a Tool of Modern War, “Wilson was the first statesman to cast the economic weapon as an instrument of democratization. He thereby added an internal political rationale for economic sanctions – spreading democracy – to the external political goal that…European advocates of sanctions have aimed at: inter-state peace.” The implication is that, where the opportunity offers, military and non-military measures should be used to topple “malign” regimes.

According to democratic peace theory, democracies do not start wars; only dictatorships do. A wholly democratic world thus would be a world without war. This was the hope that emerged in the 1990s. With the end of communism, the expectation, famously expressed by Francis Fukuyama’s 1989 article, “The End of History?,” was that the most important parts of the world would become democratic.2

US supremacy was supposed to ensure that democracy became the universal political norm. But Russia and China, the leading communist states of the Cold War era, have not embraced it; nor have many other centers of world affairs, especially in the Middle East. Hence, Fukuyama has recently acknowledged that if Russia and China were driven together, “then you would really be living in a world that was being dominated by these non-democratic powers…[which] really is the end of the end of history.”

The argument that democracy is inherently “peaceful,” and dictatorship or autocracy “warlike,” is intuitively attractive. It does not deny that states pursue their own interests; but it assumes that the interests of democratic states will reflect common values like human rights, and that those interests will be pursued in a less bellicose manner (since democratic processes require negotiation of differences). Democratic governments are accountable to their people, and the people have an interest in peace, not war.

By contrast, according to this view, rulers and elites in dictatorships are illegitimate and therefore insecure, which leads them to seek popular support by whipping up animosity toward foreigners. If democracy replaced dictatorship everywhere, world peace would follow automatically.

This belief rests on two propositions that have been extremely influential in international relations theory, even though they are poorly grounded theoretically and empirically. The first is the notion that a state’s external behavior is determined by its domestic constitution – a view that ignores the influence the international system can have on a country’s domestic politics. As the American political scientist Kenneth N. Waltz argued in his 1979 book, The Theory of International Politics, “international anarchy” conditions the behavior of states more than the behavior of states creates international anarchy.

Waltz’s “world-systems theory” perspective is particularly useful in an age of globalization. One must look to the structure of the international system to “predict” how individual states will behave, regardless of their domestic constitutions. “If each state, being stable, strove only for security, and had no designs on its neighbors, all states would nevertheless remain insecure,” he observed, “for the means of security for one state are, in their very existence, the means by which other states are threatened.”

Waltz offered a bracing antidote to the facile assumption that democratic habits are easily transferable from one location to another. Rather than trying to spread democracy, he suggested that it would be better to try to reduce global insecurity.

Though there is undeniably some correlation between democratic institutions and peaceful habits, the direction of causation is disputable. Was it democracy that made Europe peaceful after 1945? Or did the US nuclear umbrella, the fixing of borders by the victors, and Marshall Plan-fueled economic growth finally make it possible for non-communist Europe to accept democracy as its political norm? The political scientist Mark E. Pietrzyk contends that, “Only states which are relatively secure – politically, militarily, economically – can afford to have free, pluralistic societies; in the absence of this security, states are much more likely to adopt, maintain, or revert to centralized, coercive authority structures.”

The second proposition is that democracy is the natural form of the state, which people everywhere will spontaneously adopt if allowed to. This dubious assumption makes regime change seem easy, because the sanctioning powers can rely on the welcoming support of those whose freedom has been repressed and whose rights have been trampled underfoot.

By drawing superficial comparisons with postwar Germany and Japan, the apostles of democratization grossly underestimate the difficulties of installing democracies in societies that lack Western constitutional traditions. The results of their handiwork can be seen in Iraq, Afghanistan, Libya, Syria, and many African countries.

Democratic peace theory is, above all, lazy. It provides an easy explanation for “warlike” behavior without considering the location and history of the states involved. This shallowness lends itself to overconfidence that a quick dose of economic sanctions or bombing is all that is needed to cure a dictatorship of its unfortunate affliction.

In short, the idea that democracy is “portable” leads to a gross underestimation of the military, economic, and humanitarian costs of trying to spread democracy to troubled parts of the world. The West has paid a terrible price for such thinking – and it may be about to pay again.

Economic Sanctions: A Weapon out of Control?

Economic Sanctions: A Weapon out of Control?


Robert Skidelsky 

Centre For Global Studies, April 2022

Copyright: Centre for Global Studies. 

The Centre for Global Studies is a London-based think-tank that aims to improve public understanding of economics and global policy. The Centre is a registered charity and a company limited by guarantee. It is independent of any political party or group and is financed by voluntary donations and the sale of publications.


Printers: CPI Antony Rowe Ltd. Registered Office: 110 Beddington Lane, Croydon, Surrey, CR0 4TD. Registered in England and Wales (number 2823354)

Robert Skidelsky is chairman of the Centre for Global Studies. He is a member of the House of Lords. He was Professor of International Studies at the University of Warwick from 1978-1990 and Professor of Political Economy at the University of Warwick from 1990-2007. He is best known for his three volume biography of the economist John Maynard Keynes. He was Non-Executive Director of Janus Capital from 2001-2011 and Non-Executive Director of Russneft from 2016-2021.


I would like to thank Avis Bohlen, Christopher Granville, and Alan Moses for incisive comments on an earlier draft of this essay. I am grateful to Jess Tomlinson for research assistance and to Erik Schurkus for help in arranging printing, presentation, and distribution. The opinions expressed are those of the author, not of the Centre.

Economic Sanctions: A Weapon out of Control?

I. Introduction

‘A weapon out of control’ is how two legal scholars have accurately described the growing use of economic sanctions as a tool of foreign policy. Originally designed to curb aggressive state behaviour, economic sanctions are now routinely used by the United States and its allies to punish any state, entity, regime, or individual which offends them, wherever located. They have become a knee-jerk reaction by Western nations to anything going on in the world of which they disapprove, actions which satisfy our desire to ‘do something’ and make clear our moral outrage in the face of abuses of one kind or another. Far from making the interstate system less warlike, they make it more warlike, by hardening divisions, and avoiding the need to negotiate differences. This is particularly so if the sanctions are directed at one of the leading nations in the world system. It is the lack of focus of the current sanctions system, its tendency to expand, its blindness to further consequence, its denial of natural justice to individuals, and its intellectual and moral laziness that has prompted me to write this essay.

There is no doubt in my mind that a tough response was called for to Russia’s invasion of Ukraine, and the West certainly has a legitimate interest in its outcome. But it must also be recognized that the economic sanctions imposed on Russia since 2014 are the consequences of a massive failure of policy–a failure to achieve, or even attempt, a negotiated settlement of the differences between Ukraine, Russia, and NATO. 

The question is often asked: what was the alternative? Perhaps economic sanctions had become the West’s only safe response to what Russia was doing in Ukraine. But as T.S. Eliot reminds us, the present is a mixture of what was past and what might have been. ‘Footfalls echo in the memory, Down the passage which we did not take’. The path not taken was alert, continuous, and strenuous negotiations to overcome the potentially malign effects of the dissolution of the Soviet Union. Specifically, the American push to enlarge the borders of NATO eastward–condemned as folly by both George Kennan and Henry Kissinger–helped create Putin ‘the monster’. There is no plausible end game. Even if sanctions unseat President Putin, they will not solve the problems which produced the explosion: the unsettled borders between Russia and Ukraine, Ukrainian treatment of Russians within its borders, the role of NATO in a collective security system. The alternatives are victory in war or negotiation.

II. Current Sanctions on Russia 

The sanctions imposed on Russia both before and following its invasion of Ukraine on 24 February 2022 are the most extensive ‘punishment’ ever meted out to a Great Power short of war. Since the annexation of Crimea in February 2014, the West, led by the world’s dollar hegemon, the US, has imposed an increasingly strict programme of economic sanctions on Russia, its oligarchs, and entities connected to it. US sanctions began on 3rd March 2014, when America suspended trade and investment talks with Russia as well as all military co-operation. On 17th March 2014, the US and EU began sanctioning individuals and their families connected with Crimea. Under the (mild) 2014 Russia sanctions regime, 183 individuals and 53 entities were subject to UK financial sanctions. 

None of this deterred Putin from further ‘destabilising’ Ukraine. Prior to Russia’s invasion on the 24th February 2022, the UK announced a first tranche of sanctions designed to forestall the anticipated Russian action. The Foreign Secretary told the House of Commons on 31 January:

We will be able to target any company that is linked to the Russian state, engages in business of economic significance to the Russian state, or operates in a sector of strategic significance to the Russian state. Not only will we be able to target these entities, we will also be able to go after those who own or control them. This will be the toughest sanctions regime against Russia we have ever had, and it is the most radical departure in approach since leaving the European Union. Those in and around the Kremlin will have nowhere to hide.

When this, and similar warnings from President Biden, failed to deter the Russian invasion, Western sanctions were ratcheted up in stages. At their heart was the identification and targeting of areas of ‘strategic significance’ including the ‘chemical, defence, energy, extractives, electronics, ICT and financial services sectors’. The US has banned the import of Russian gas, exports of technology to Russia, and investment by American firms in Russia. The USA and Britain have taken the lead in denying Russian banks access to the SWIFT system of international payments, and denying Russia’s central bank access to its foreign exchange reserves. Steps are under way to cripple Russia’s membership of the World Trade Organization by denying it Most Favoured Nation treatment. Britain has increased tariffs on Russian imports by 35%, banned Russian aircraft from British airspace and stopped Russian-owned or flagged vessels from entering British ports. The media clamour for more action against a ‘hit list’ of Russian oligarchs. So far there is no UK or European ban on Russian oil and gas exports, on which Germany depends, though payment facilities are restricted. ‘If it would stop the war, then we would do it immediately’, said the German Foreign Minister Annalena Baerbock. There are, as of 7 April, 978 individuals and 98 entities sanctioned under the UK’s Russia sanctions regime. 

The question naturally arises: what is this economic artillery designed to achieve? They have not caused Putin to stop the war, nor have they forced him from power. Any change of Russian tactics in Ukraine has been caused by successful Ukrainian military opposition. The most coherent exposition of the case for sanctions comes from the White House. According to White House press secretary Ms. Psaki, the sanctions are designed to ‘degrade all key instruments of Russian power’, impose ‘acute and immediate economic harm on Russia’, and push Russia ‘further down the road of economic, financial, and technological isolation’. An unnamed State Department official was quoted as saying ‘At this rate [Russia] will go back to Soviet style living standards…’ In other words, the purpose of the economic sanctions is to reform Russia by punishing it. However, the punitive theory of reform assumes that the criminal is unarmed – a point which seems to have escaped the champions of punitive sanctions. 

 III. The Classic Sanctions Regime 

States have always used economic blockade as a tool of war. The nineteenth century, when international economics was largely separated from international politics, was a brief exception to this rule: Russia even raised a loan on the London market during the Crimean War. During the first world war economic and financial blockades were imposed on Germany by Britain and (after 1917) the USA as ancillary measures, enforced by Britain’s naval supremacy. 

The fact that economic sanctions started as tools of war have rendered their subsequent purposes and consequences opaque. What later came to be understood as methods of war prevention started life in conjunction with military and other measures. So the question of whether economic sanctions are to be thought of as tools of war or tools of war avoidance has never been properly faced.What is clear is that economic blockades and embargoes require a view of the sanctioned entity as an ‘enemy’, which is indistinguishable from a war mentality. With this goes an inability to see any virtue in the other’s behaviour or truth in its story. The rhetoric used against Russia, especially by the United States and Britain, is identical to that used by belligerents in ‘killing’ wars.

Economic sanctions only emerged as a tool of preventive diplomacy after the first world war, their purpose being to prevent, contain, or eliminate wars and peace-threatening behaviour by making it too costly for states to indulge in such behaviour. Their ambitious aim was to remove war itself from the repertoire of international relations by establishing a collective security system to render war impossible or unthinkable.

What was classic sanctionable behaviour?

Article 10 of the 1920 League of Nations Covenant pledged the members of the League ‘to respect and preserve against external aggression the territorial integrity and existing political independence of all members of the League’. Article 11 states that ‘any war or threat of war is hereby declared a matter of concern to the whole League, and the League shall take any action that may be deemed wise and effectual to safeguard the peace nations’. Article 16 states 

Should any Member of the League resort to war in disregard of its covenants….it shall ipso facto be deemed to have committed an act of war against all other Members of the League, which hereby undertake immediately to subject it to the severance of all trade or financial relations, the prohibition of all intercourse between their nationals and the nations of the covenant-breaking state, and the prevention of all financial, commercial, or personal intercourse between the nationals of the covenant-breaking state and the national of any other State, whether Member of the League or not. […] The Members of the League agree, further, that they will mutually support one another in the financial and economic measures which are taken under this Article. 

Members were expected, that is, not just to cooperate with each other in applying sanctions but to share the costs of applying them. ‘The provision of supplies to allies was indissolubly linked to the interdiction of supplies to the enemy’. 

The context of the League’s foundation is important. It was a product of one circumstance and of one belief. The circumstance was the dissolution of the German, Austrian-Hungarian, Russian, and Ottoman Empires in the First World War. The belief was in the Wilsonian principle of ‘national self-determination’ as the foundation of an inherently peaceful international order. The founders of the League saw economic sanctions against an aggressor as a way of giving some assurance to the newly independent states of Europe against any revanchist ambitions of their former imperial masters.

Three further points are worth making. First, the sole ground for sanctions was the ‘external aggression, or threat of aggression’ of any state against a member state: the internal policy of states was not on the agenda. Second, the United States did not join the League, so did not accept the obligations of the Covenant. This meant it preserved for itself the right to enforce the Monroe Doctrine in the Americas. Third, the colonies of the imperial powers like Britain, France, and the Netherlands, not being members of the League, did not come under League protection, though the ‘white Dominions’ and India, being founder members of the League, did. Thus the League started with only 42 members (this had grown to 58 by 1935), that is, states recognized as being ‘independent’. 

The system of collective security started with one objective–to prevent or halt war–and a package of tools of which economic sanctions were just one. The question of whether sanctions themselves could stop wars, was fudged. The League’s most notable effort of collective security was to impose economic sanctions on Italy in 1935, when Mussolini’s forces invaded Abyssinia, the one independent state in Africa. They failed, because the USA and others refused to impose an oil embargo against Italy.

The UN Charter aimed to improve on the laissez-faire evolution of the League’s sanctions system. There were three main differences from the sanctions regime of the League. First, the UN (now 193 members) had many more members than the League,reflecting widespread de-colonisation, particularly in Africa. Second, the United States, the world’s leading economic and military power, was a founding-member. Third, determination of breaches of the peace and appropriate responses to them were centralised in the Security Council, though subject to a veto by any of the five permanent members–the United States, Soviet Union, Britain, France, and China. These were the ‘Great Power’ victors of the Second World War, and it was to the continuation of their wartime alliance that the founders of the UN looked to secure Kant’s ‘perpetual peace’. 

Chapter 7 of the 1946 UN Charter was headed ‘Action with Respect to Threats to the Peace, Breaches of the Peace, and Acts of Aggression’. It was for the Security Council alone to ‘determine the existence’ of any such threat, breach, or act of aggression’ (Article 39), to recommend measures to prevent an ‘aggravation of the situation (Article 40), and decide on measures, not involving the use of armed force, including ‘complete or partial interruption’ of economic relations, diplomatic relations, and communications (Articles 41-2). Article 43 gave the Security Council power to authorise military measures. The sanctions thus imposed were mandatory–binding on all UN members. According to the initial design, there would have been a UN Army, under the direct operational command of the Council, to execute any military sanctions determined by the Council under Article 43.

The existence of empires and spheres of influence was initially accepted as a fact of life: the veto in the Security Council was designed mainly to put such locations beyond the scrutiny of the UN. The veto power thus blurred the line between foreign and domestic affairs. What it enshrined was the view that it was up to the Great Powers to keep the peace of the world. Since being a Great Power meant having colonies or spheres of influence, domestic affairs necessarily included such spheres. The principle that what states did within their own ‘spheres’ was their own concern only slowly yielded to recognition that the domestic behaviour of states might constitute a ‘threat to peace’. For example, oppression of minority groups within a state or national groups within a ‘sphere’ might trigger ‘third-party’ effects such as a refugee crisis which could be construed as a threat to peace.

Neither the League nor the UN Charter used the word ‘sanctions’; the preferred word was ‘measures’. This was to avoid the implication of ‘punishing’ the offending state, and to keep open the path of preventive diplomacy. Once punishment is threatened or imposed, the incentive for a powerful state to negotiate is weakened. 

UN mandatory sanctions have occasionally been successful in changing state behaviour, generally in conjunction with other measures. Examples are the sanctions imposed between 1945 and 1990 on Southern Rhodesia in 1966 and South Africa in 1977. Sanctions are generally thought to have been a major factor in bringing Iran to the JCPOA (Joint Comprehensive Plan of Action) for control of its nuclear programme. One crucial condition of success was that all the Great Powers signed up to them. 

The Cold War crippled the use of Chapter 7, as the Great Powers routinely resorted to vetoes against the application of sanctions and war measures against themselves. The UN’s standing army was never created. The Soviet Union was not sanctioned for its invasions of its satellites Hungary in 1956 and Czechoslovakia in 1968, though both were members of the United Nations. Britain and France used their veto to block the threat of UN sanctions when they invaded Egypt, a UN member, in 1956, to reclaim ownership of the Suez Canal. The United States has exercised frequent vetoes to prevent UN sanctions against Israel. Russia has used its veto 143 times, the USA 83 times, the UK 32 times, France 18 times and China 16 times, mostly in the Cold War period. The UN was marginalised.

Scholars have talked of the emergence of a ‘hybrid’ model of ‘permissive enforcement’ of the collective purpose by individual countries in face of Great Power vetoes. In ordinary language western states have imposed sanctions unilaterally, ostensibly on behalf of the ‘international community’. However, western sanctions philosophy has not been uniform. The EU has been the most reluctant sanctioner, because EU sanctions are imposed by the Council and require the agreement of all its members. The United States and UK (UK since Brexit) have been the most enthusiastic, because they have the sovereign power to act on their own.

The US has always used economic sanctions to enforce its own foreign policy aims, especially in the Americas, the main example being the 1962 economic blockade of Cuba, which continues to this day. This was imposed under the Trading with the Enemy Act of 1917. The use of these powers suggests that US sanctioning policy has by no means been in harmony with the purposes of League and UN sanctions. Whereas UN sanctions derive from a collective decision by the Security Council on behalf of all its members, unilateral sanctions depend solely on the sanctioning state’s ‘views and interpretation of the foreign situation to which it reacts and which it seeks to influence’. 

The collapse of Communism and disintegration of the Soviet Union in 1991 promised to restore the use of mandatory UN sanctions to repress conflict in the warlike parts of the world. Today there are 14 ongoing UN sanctions ‘regimes’ against Somalia, ISIL ,Al-Qaida, Iraq, Democratic Republic of Congo, Sudan,North Korea, Libya, Taliban, Guinea Bissau, Central African Republic, Yemen, South Sudan and Mali, all of which can plausibly be held to ‘threaten the peace’ either by developing nuclear weapons (North Korea), terrorist activities, or through endemic civil war spilling over into humanitarian and refugee crises. There was no Great Power disagreement that these particular entities should be sanctioned.

The ‘new’ post-Cold War ‘norms of decolonization, non-discrimination and human rights’ were seen as the successors of the shattered Great Power consensus of 1945. But these new norms proved far from universal. The ‘United Nations’ were still disunited about what constituted a threat to peace, and with Russia and China using or threatening their vetoes in the Security Council to protect themselves and their allies, the UN was once more marginalised as a sanctioning authority.

Today the chief sanctioners are the USA, the UK and the EU. They impose sanctions in support of their ‘norms’ without recourse to the UN, claiming that they are enforcing international law on behalf of the paralysed Security Council. Examples are the NATO bombing of Serbia in 1999, and the American-led invasion of Iraq in 2003, both of which followed the failure of economic sanctions to effect regime change or change regime behaviour. It is striking that in the Ukraine crises of 2014 and 2022, the UN has been almost wholly inactive, because of the Russian veto. One important consequence is that the current sanctions against Belarus and Russia are not mandatory on UN members, and countries like China, India, and Turkey have disregarded them, while Brazil has criticised their ‘indiscriminate’ nature.

IV. Sanctions Creep 

The four important developments in sanctions practice since the Cold War have been the growing use of sanctions in the name of democracy and human rights, the sanctioning of sub-states, the sanctioning of individuals, and ‘extraterritorial’ or ‘indirect’ sanctions. 

The first development moves from the idea that the purpose of sanctions is to prevent or halt wars between states to the idea of stopping or preventing abuses of human rights, whether or not they carry a threat of war. A good starting point is the Universal Declaration of Human Rights adopted by the General Assembly of the UN in 1948, a non-binding instrument. Abuse of human rights can be interpreted, on a liberal reading, as ‘acts of war’ against individuals or minorities. 

A more substantial statement was the Helsinki Final Act of 1975, which committed its signatories to respect a subset of human rights (freedom to travel, freedom of information, and freedom of the press) which undermined the mechanisms on which the communist governments relied to control their societies, and set up a monitoring system to identify human rights’ violations and hold the violators accountable. The USSR swallowed the human rights clause (Article VII) in return for what it thought was the much greater prize of recognition by the United States of the ‘inviolability’ of its own borders, including the Baltic states which were annexed in 1940.  

It was obvious to many at the time that the principle of humanitarian intervention was incompatible with the doctrine of national sovereignty which the UN had been formed to uphold. Western accusations that domestic policies in the Soviet Union were in breach of the USSR’s human rights’ commitments under the Helsinki Final Act were met by the reply that these were purely internal matters. 

However, the Helsinki Accord did not make violation of human rights sanctionable under international law. For one thing, the Helsinki commitments were non-binding. Secondly, the signatories were limited to 35 European countries, including the United States and Canada; Asian countries, notably India and China, were not invited to sign the Final Act: rather it was portrayed by the American president as ‘part of the great heritage of European civilization, which we hold in trust for all mankind’. In short, the commitment to democracy and human rights was principally a western commitment, which it was hoped would become, in time, genuine universal norms.

Traditionally, it had been supposed that the primary condition of inter-state peace was security of states against external attack. The Rwandan genocide of 1994 showed that minority groups might be genocidally assaulted within states. Kofi Annan, secretary general of the UN, spearheaded the attempt to enlarge the mandate of the UN to the ‘protection of the innocent’. This might provide the juridical basis of a new international law in which national sovereignty was qualified by a ‘behavioural test’.

From the Annan initiative grew the practice of holding sub-state groups accountable for acts of war. This was partly a response to the growing privatisation of violence, with ‘state failure’ increasingly common in the post-colonial era. Mary Kaldor has highlighted the emergence of ‘new wars’ which blur the lines between violence between states, terrorist violence, organized crime, and human rights’ violations.

The traditional view that sanctions were properly directed exclusively at states suffered another damaging blow following the coordinated attacks by the militant Islamist network al-Qaida against the USA on 11 September 2001. It was not just ‘rogue’ state sponsors of terrorism which needed to be sanctioned but political-criminal groups operating in ‘failed’ states. Following 9/11, a combination of presidential decrees and provisions of the Patriot Act gave the US Administration sweeping powers to impose economic sanctions on state sponsors and sub-state perpetrators of terrorism, together with their financial backers. 

These powers were justifiably taken in self-defence: they were initially directed at al-Qaida, which claimed responsibility for the 9/11 attack. However, the American Administration has not hesitated to use economic sanctions in response to what it deems to be terrorist activity of any kind, and has also resorted to wars of ‘self-defence’ in several global locations, notably Afghanistan. For the United States, economic sanctions have never been seen primarily as acts of war avoidance, but rather as steps on an escalating ladder of tightening pressure culminating in war.

Sanctioning of sub-state entities went hand in hand with the third development, the use of ‘smart sanctions’, which aimed to punish the officials of targeted states, eg. by preventing their travel or blocking their foreign bank accounts. Advocates of such ‘smart’ sanctions have argued that they deter officials from serving malign governments while avoiding ‘punishing’ whole populations for the sins of their rulers. Current sanctions against Russia target not only President Putin and his family, but all the high officials of his court, and the 350 Russian Duma deputies who voted for recognizing the independence of Donetsk and Luhansk. 

The best-known ‘smart’ sanctions are the Magnitsky sanctions, named after the Russian lawyer Sergei Magnitsky, who fronted a whistleblowing campaign that exposed a $230 million tax fraud perpetrated by Russian tax enforcement officials. Magnitsky was arrested and charged with tax evasion and died in Moscow’s Matrosskaya Tishina prison in 2009, after allegedly being beaten by the police.

The US passed the Magnitsky Act in 2012 with the intention of punishing the Russian officials responsible for Magnitsky’s death. The broader 2016 Global Magnitsky Human Rights Accountability Act ‘authorizes the president to impose economic sanctions and deny entry into the United States to any foreign person identified as engaging in human-rights abuse or corruption’. Other Western powers – including the United Kingdom (2017-18), Canada (2017), and the EU (2020) – have since passed Magnitsky legislation.

Following the West’s sanctioning of Russian officials for alleged human rights abuses in Chechnya, the US, Canada, the EU, and the UK imposed asset freezes and travel bans on mainland Chinese officials involved in the mistreatment of Uyghurs in Xinjiang. Russia and China have joined together in condemning the West for starting a new ‘cold war’, and both countries have imposed counter-sanctions. 

The final, and most egregious development has been the growing use of indirect or extra-territorial sanctions. They operate in two ways. First, they sanction individuals and firms for their ‘association’ with sanctioned states or sub-state groups. Second, they prosecute banks which do business with such individuals, the US having asserted ‘that it is illegal for anyone, anywhere, to deal with countries or entities it has placed under sanctions’. As a result ‘almost no bank will now go anywhere near someone who might be on the list.’ The numbers of these ‘specially designated’ nationals and ‘blocked persons’, often listed by a Congress even more addicted to moral posturing and showy punitive action than the US Administration, now run into tens of thousands. Almost anyone who has had any dealings in the past with a sanctioned entity is liable to have their bank accounts frozen.

What makes this type of smart sanction possible is the globalisation of finance together with enhanced technology of surveillance. Moreover, because of the opaque and complex structure of ownership of assets and bank deposits, the principle of ‘association’ is a catch-all which can be used to block the accounts of almost anyone engaged in international commerce. 

Cross-border payments between individuals and businesses have come to depend on a critical piece of infrastructure: SWIFT [Society for World-Wide Interbank Financial Telecommunication], which is linked to 11,000 global banks. Most of the world’s trade is invoiced in dollars, and most of it is paid for through SWIFT. Although SWIFT is officially non-political, it normally accedes to the wishes of the US. For example, the US forced SWIFT to block financial transactions with Iran in 2012, resulting in the loss of half of Iran’s oil export revenues and 30% of its foreign trade. With the help of the UK, the US has blocked Russian banks’ access to SWIFT following Russia’s invasion of Ukraine, disrupting payments for Russia’s energy and agricultural products. As a recent report put it, denial of access to SWIFT is to ‘sever contact [of the sanctioned entity] with the international financial system’. 

SWIFT provides the US Treasury with financial information, which allows the US Government to prosecute banks for ‘money laundering’. ‘Large international banks including Lloyds TSB, Credit Suisse, Standard Chartered, HSBC, RBS, BNP Paribas, Commerzbank and ING have all paid fines for violating American sanctions, as have Bank of Brazil, Bank of Tokyo Mitsubishi and Bank of China. The fines sometimes run into hundreds of millions of dollars.’ One in five employees of the Dutch bank ABN AMRO is now employed in monitoring ‘financial crime’ following a €480m fine in 2021.

 As a result, banks and other financial institutions are extremely risk averse and use all kinds of excuses to close or freeze bank accounts and assets of entities and individuals that may potentially be implicated or sanctioned in the future. Thus, the collateral damage is high, with lives and business of many innocent parties affected. For banks, the potential downside from freezing innocent accounts is a lot lower than potential punishment for not freezing sanctioned assets (which are often hard to identify).

A good example of extraterritorial or indirect sanctioning is furnished by Belarus. Belarus was first sanctioned in 2020 for human rights violations, when 88 Belarussian officials and 7 Belarussian companies were ‘designated’ for ‘violence, repression, and election fraud’ in connection with Presidential elections of 9 August 2020 which returned Lukashenko to power with an 80% majority.

An international incident in 2021 led to the widening of the sanctions net. On 23 May 2021, Ryanair passenger flight FR 4978 on a non-stop flight from Athens to Vilnius was diverted to Minsk Airport after a bomb scare. Two passengers, opposition journalist Roman Protasevich and his partner Sofia Sapaga, were detained, before the flight was allowed to continue to Vilnius. No bomb had been found. The US accused Belarus of ‘air piracy’, the general (though unproved) assumption being that it was officials of the Belarus government itself who had engineered the scare, seeing their chance to arrest two opposition figures. 

Following the aeroplane diversion, the UK froze the assets of, and imposed travel bans on, an additional 20 individuals who were deemed to have ‘undermined democracy and the rule of law’ in Belarus. Included in this list were non-Belarussian individuals said to be ‘associated with’ the Lukashenko regime.

To sum up: the current sanctions regime has been extended beyond the original objective of sanctioning states for breaching or threatening to breach the peace to (a) sanctioning terrorist groups and their supporters operating in or out of ‘rogue’ or ‘failed’ states, (b) sanctioning officials of states for breaches of human rights, (c) sanctioning third parties associated with such states or sub-state entities. At present the vast majority of sanctions in force are imposed not by the United Nations, but by the US and its allies. Such sanctions have been made feasible by digital technology and the financialisation of the global economic system. 

While supposedly based on universally accepted values such as keeping the peace, much sanctioning reflects the values of only one segment of the international community. Specifically, while there is universal agreement that states attacking others or being torn apart by civil wars are a threat to world peace, there is no universal agreement about which stable states are good or bad.

V. The Democratic Peace Theory 

The current sanctions regime asserts the view of the West about how the world should be run, and seeks to impose that view by punishing all those who disagree with it. An implicit aim of economic sanctions since the fall of communism has been regime change. This goes all the way back to Woodrow Wilson. As Mulder writes: ‘Wilson was the first statesman to cast the economic weapon as an instrument of democratization. He thereby added an internal political rationale for economic sanctions – spreading democracy – to the external political goal that […] European advocates of sanctions have aimed at: inter-state peace’. Thus when UK Prime Minister Tony Blair argued in a 1999 speech in Chicago that “the spread of our values makes us safer,” he was not introducing a new principle of policy to his American audience. Where the opportunity offers, military and non-military measures should be used to topple ‘malign’ regimes. The underlying belief of democratic peace theory is that democracies do not start wars; only dictatorships do. Therefore a wholly democratic world will be a world without war. Removing Iraqi President Saddam Hussein from power was thus the undeclared purpose of maintaining economic sanctions on Iraq after the 1991 Gulf War. According to Americans, dictators are by definition malign: “For God’s sake, this man cannot remain in power!” was the politest thing President Biden has said about Putin.

A key expectation of the 1990s was that, with the end of communism, the most important parts of the world would become democratic. This was the premise of Francis Fukuyama’s article ‘The End of History?’. Its implicit assumption was that US supremacy would ensure that democracy became the universal political norm. This has been shown to be false. Russia and China, the two most important communist states of the Cold War era, have not embraced democracy; other centres of world affairs, especially in the Middle East, are not democracies in any form western countries would recognise: Farid Zakaria has spoken of the rise of ‘illiberal’ democracies like Iran, captured by nationalism or religious fanaticism. Fukuyama has recently acknowledged that if Russia and China were driven together, that really would be the ‘end of the end of history’. 

The argument that democracy is the ‘peaceful’ form of the state, and dictatorship or autocracy its ‘warlike’ form, and that therefore a wholly democratic world would be a peaceful one, is intuitively attractive. It does not deny that states pursue their own interests, but claims that the interests of democratic states are likely to be defined in terms of acceptable common values like human rights, and are far less likely to be pursued in a bellicose manner, since democratic habits require the negotiation of differences. Ultimately, the argument boils down to the claim that in democracies governments are accountable to their people, and that the people’s interest is in peace, not war. By contrast, in dictatorships or autocracies, rulers and elites are illegitimate, and to that extent insecure, and consequently seek legitimacy by whipping up popular feeling against foreigners. Thus the solution to the problem of war is to establish democracies all over the world, and peace will follow without the need for extensive international organisations to ‘keep the peace’. However, Rousseau, from whom this idea ultimately stems, thought it ‘not impossible, that a Republic, though in itself well-governed, should enter upon an unjust war’. 

Underlying the belief that the world would be peaceful if only all, or at least the important, countries were democratic are two propositions that, while extremely influential in international relations theory, are poorly grounded both theoretically and empirically. The first is that the external behaviour of states is determined by their domestic constitutions. This ignores the influence of a country’s location in the international system on its domestic political organisation; a point to which Kenneth Waltz, in particular, has drawn attention. His contention is that the ‘international anarchy’ conditions the behaviour of states more than the behaviour of states creates the international anarchy. This ‘world system theory’ approach to international relations is particularly useful in the period of globalisation, which can be defined in terms of the growing impact of the whole on the parts. 

Waltz’s argument, in a nutshell, is that you need to look to the whole system of inter-state relations to ‘predict’ how individual states will behave, regardless of their domestic constitutions. The structure of the international system affects the characteristics of states which comprise it –their aspirations, their choice of means, their forms of government. ‘If each state, being stable, strove only for security, and had no designs on its neighbours, all states would nevertheless remain insecure; for the means of security for one state are, in their very existence, the means by which other states are threatened’. It is the ‘enduring anarchic character of international politics [which] accounts for the striking [frequency of war in] international life through the millenia’, despite the huge variety of domestic political regimes. Waltz offers a bracing antidote to the easy assumption that democratic habits are easily transferable from one state location to another.

That there is some correlation between democratic institutions and peaceful habits is undeniable. But the causation is disputable. Was it democracy which has made Europe peaceful since 1945? Or did the US nuclear guarantee, the fixing of borders by the war victors, and Marshall-Aid fuelled economic growth after 1945 make it finally possible for non-communist Europe to accept democracy as its political norm? One analyst suggests that ‘Only states which are relatively secure–politically, militarily, economically–can afford to have free, pluralistic societies; in the absence of this security, states are much more likely to adopt, maintain, or even revert to centralized, coercive authority structures’. 

The second proposition is that democracy is the natural form of the state, the form a people will spontaneously adopt if allowed to. This serves to make regime change seem easy, because the sanctioning powers can rely on a welcoming support from those whose freedom has been repressed and whose rights have been trampled underfoot. Because of the misconception that western democracy is the ‘natural’ form of government, and through drawing superficial comparisons with the success of enforced democratisation in post-war Germany and Japan, the apostles of democratisation grossly underestimate the difficulties of installing democracies in societies which lack western constitutional traditions. The results of their handiwork can be seen in Iraq, Afghanistan, Libya, Syria and many states in Africa.

Democratic peace theory is above all lazy theory. It provides an easy explanation–dictatorship–for ‘warlike’ behaviour, without considering the location and history of states. Its very shallowness feeds the confidence that some mix of economic sanctions and ‘special operations’ is  all that is required to turn dictatorships into democracies.. The idea that democracy is ‘portable’ leads to a gross underestimation of the military, economic, and humanitarian costs of trying to establish democracies in troubled areas of the world.

VI. The Question of Efficacy 

Economic sanctions are a means to an end. What is the end? If the end is punishment, they have had considerable success in inflicting harm on the populations of the sanctioned states.If their purpose is to change state behaviour, their success has been minimal. A recent article in Foreign Affairs noted that: 

The United States has imposed decades-long sanctions on Belarus, Cuba, Russia, Syria, and Zimbabwe with little to show in the way of tangible results. The Trump administration ratcheted up U.S. economic pressure against Iran, North Korea, and Venezuela as part of its “maximum pressure” campaigns to block even minor evasions of economic restrictions. The efforts also relied on what are known as “secondary sanctions,” whereby third-party countries and companies are threatened with economic coercion if they do not agree to participate in sanctioning the initial target. In every case, the target suffered severe economic costs yet made no concessions. 

One obvious reason for this lack of success is that sanctions have not turned the people of sanctioned states against their rulers. Rather they blame the sanctioners for their hardships, not their governments. This is true in Russia today. 

More ominously, the gap between the promise of economic sanctions and their results carries a clear risk that they will escalate into war. President Zelensky has appealed repeatedly for weapons from NATO countries. The UK has sent Ukraine anti-tank and anti-aircraft missiles. Calling for even more military assistance, The Times declared that ‘the best way of defeating [the bully Vladimir Putin] is to confront him with force’. Boris Johnson now promises Ukraine tanks. It is almost inconceivable that the authors of this editorial did not realise that they were calling for a NATO war against Russia.

It is not surprising to find thoughtful analysts questioning sanctions creep. For example, the US Treasury’s recent Sanctions Review challenges their efficacy as a national security tool. Technological innovation: e.g. ‘digital currencies, alternative payment platforms, and new ways of hiding cross-border transactions’ give ‘malign actors’ the opportunity to ‘bypass’ the current dollar-based financial framework in holding or transferring funds’. This has started to happen as China and others have started to set up payment alternatives to the SWIFT system. A new framework, argued the Treasury, was needed that asks whether a sanctions action ’supports a clear policy objective’, whether it ‘has been assessed to be the right tool for the circumstances’, whether their ‘costs fall on intended targets’, whether they are part of a ‘multilateral coordination and engagement strategy’, and whether they will be ‘easily understood, enforceable, and, where possible reversible’. 

In its 2007 report on sanctions, the Economic Affairs Committee of the House of Lords concluded that ‘economic sanctions used in isolation from other policy instruments are extremely unlikely to force a target to make major policy changes, especially where relations between the states involved are hostile more generally’. It is the very inefficacy of economic sanctions on their own which carries the risk of their escalation into open war. The conclusion of the EAC Report is worth quoting:

Even when economic sanctions are combined effectively with other foreign policy instruments, on most occasions they play a subordinate role to those other instruments. Economic sanctions can be counter-productive in a variety of ways, including when more vigorous coercion in the form of force is needed but is forestalled by those making inflated claims for the value of sanctions as an alternative. Sanctions may also be counter-productive when what is required is a much greater emphasis on economic, diplomatic and security incentives. When the Government’s goal is to symbolise disapproval, measures other than economic sanctions should be used wherever possible. Furthermore, when the use of economic sanctions for this purpose is proposed, serious consideration should be given to the possibility that their overall effect will be counter-productive, even in symbolic terms.

To summarise: current sanctions policy is a mess. First, the fact that sanctions, once imposed are rarely reversed, only intensified, undermines their purported value as ‘leverage’ for changed behaviour by the target. Second, the behavioural changes required are rarely specified with adequate precision to create an incentive. For example, the sanctions imposed on Russia by the Trump administration in April 2018 cited as a reason Russia’s generally ‘malign behaviour’. Russian and (Chinese) officials naturally concluded that their real ‘crime’ was simply to exist as powers capable of promoting agendas that the US disliked. Third, the lack of ‘clear policy objectives’ makes it impossible to assess the success or failure of any sanctions policy. At what point is the economy of the sanctioned entity sufficiently ‘degraded’ for sanctions to be called off? The answer seems to be when regime change occurs and democracy is installed. But such benign outcomes have resulted in the past only from occupying utterly defeated powers like Germany and Japan and then supporting them. Fourth, continuing sanctions indefinitely without a clearly defined object wrecks the chance of a compromise settlement even if the military belligerents are inclined to call off the war. Fifth, by cutting off parts of the world from international commerce, economic sanctions promote the formation of antagonistic economic and cultural blocs, and contradict the liberal policy goal of a single world polity and a single trading and payments system. Finally, aiming to inflict non-lethal pain on a lethally-armed adversary risks a lethal response. 

VII. The Question of Justice

While economic embargoes on states inevitably impose collateral damage on individuals and businesses in those states, it is a different matter when the prime targets of economic measures are individuals and companies whose only offence is to be ‘deemed’, often on the basis of newspaper reports, to have been doing business with sanctioned entities. Such sanctions seem to be targeted and specific with wording like ‘Nine names were added to the sanctions list’. In reality, there are hundreds or thousands of people affected by ‘association’, whose accounts or assets get blocked. There are cases of totally random people being affected who have the misfortune to have similar sounding names to those of sanctioned persons. Many such designations are automatic effects of electronic algorithms, as few organisations have sufficient personnel to undertake due diligence before blocking accounts. 

No international legal authority exists for imposing such punishments, they are arbitrary acts of state. Challenges against freezing orders in UK domestic courts are possible, but it is far from clear that a decision of the courts in favour of the sanctioned person (i.e. to release funds or pay costs) can be enforced while he or she remains sanctioned by the government. The question, therefore, is whether the practice of punishing individuals purely on the grounds of their business or cultural association with undemocratic systems does not amount to a denial of natural justice.

VIII. Conclusion

This survey of the history, philosophy, and practice of sanctions leads me to the conclusion that one should never be trigger-happy with economic sanctions. They have uncontrollable consequences. They should come into play only after diplomacy has been exhausted, never as an alternative to it. This has not been the case in the present conflict. Early in 2015 a conflict resolution process (the Minsk agreement settling the Donbas conflict) was agreed by Russia and Ukraine, and endorsed by the Security Council. Ukraine failed to implement it, but not only were the 2014 sanctions against Russia not removed, but no further diplomacy was attempted before the Russian invasion. 

Some ancillary conclusions follow.

1. Economic sanctions regimes should be strictly time-limited. This is possible only if they support clear policy objectives, whose success or failure can be properly assessed. 

2. These policy objectives should be no broader than diplomacy might hope to achieve. Punitive objectives exclude negotiation and can only be imposed by force.

3. Economic sanctions should always have in mind the importance of preserving economic and cultural links between different parts of the world and the danger of splitting the world into autarkic blocs.

4. Economic sanctions should be recognised as possible precursors to war between the sanctioner and the sanctioned. This is because they are the measure nearest to actual war. In particular, they excite war fever, leading to a distorted impression of the ‘enemy’. Western media reporting of the Russia-Ukraine war reads like press briefings from the Ukrainian government. It is a short step from killing an adversary in the mind to killing them on the ground. 

5. Heavy economic sanctions against heavily-armed states should be eschewed, because ultimately a state in a position to will go to war with the sanctioner rather than have its means of life cut off. When the US imposed an embargo on oil and gas exports to Japan in August 1941, following Japan’s seizure of oilfields in Indochina, the Japanese responded with their suicidal attack on Pearl Harbor. And after OPEC subjected the US to an oil embargo in 1973 in retaliation for American military assistance to Israel during the Yom Kippur War, President Richard Nixon’s administration threatened to invade and occupy OPEC member states’ oil fields. The embargo ended.

6. Unilateral (ie non-UN-mandated) economic sanctions are acts of state policy. They do not implement ‘international law’ , breaches of which can only be determined by the Security Council of the United Nations. Nor do they implement the ‘will of the international’ community, but only part of it. 

7. Moral repugnance alone should never be the basis of state policy in an international system bristling with lethal weapons. 

8. Economic sanctions should exclude the ‘guilt by association’ fallacy–that of assuming that those who do business with sanctioned entities share their aims. Only those ‘controlled by’ the sanctioned entity should themselves be sanctioned. Extraterritorial sanctions against individuals and entities on grounds of ‘reasonable suspicion’ of their ‘association’ with sanctioned states or sub-states are particularly egregious, because they can destroy thousands of businesses and livelihoods on the whim of governments. Nor is there any real redress. Provided the sanctioning state can claim justification and proportionality in the sanction taken and the target has the opportunity to challenge, the European Court of Human Rights would not uphold a challenge under the Convention nor would national courts. So there is in practice no redress and no compensation for loss. 

These propositions stem from my belief that there is no universally agreed set of values to justify the expansion of the sanctions system to its present extent; and that there is too much planetary business to attend to ostracise states of whose governments we disapprove. 


In December 2021, well before the outbreak of the Ukraine war, Suzanna receives a dividend from her company and signs a contract to buy a house. She pays a substantial deposit. The completion is agreed for March 2022. 

Suzanna is a British subject of Central Asian origin. She is not Russian and has never lived or worked in Russia. She has three children with Alex, who is of Russian origin but is a British citizen. 

On a Friday in mid-March Suzanna goes to a grocery store and discovers that her bank cards are not working. She goes to the nearest bank branch to report the fault only to be asked “are you sure that there are no criminal cases against you?” and overhears references to “Russian money”. She is told to go to a nearby court and is provided with an address. She calls Alex who checks his cards and none are working. Alex’s father, who is travelling abroad, soon calls to say that he is having troubles as none of his cards are operational. Alex’s company accounts also get frozen the same day. 

Suzanna and Alex borrow some cash from friends to survive the weekend. On Monday Suzanna hires a well-known (and expensive) law firm, which does a search and finds no publicly visible court orders. It urgently files an application with the court to check if there are any open cases. The law firm also writes to the banks, to the central bank and to various authorities. The court replies a few days later to say that there are no proceedings. Nobody else replies. The banks stop communicating. 

For almost two weeks Suzanna is totally in the dark. Nobody is communicating with her or her lawyers. Then, by a stroke of luck, her lawyers find a court that may have issued the freezing order and find a reference number. The lawyers confirm that a case exists and concerns “illegal funds” on the accounts. There is no other information as the order is under “judicial secrecy” while an investigation is going on. Suzanna writes to the court via her lawyers to say that she, Alex and her father-in-law are all ready to cooperate and provide any required information but that her family does not have access to funds to cover basic living expenses and that she is at risk of losing a substantial deposit she paid for the house if she does not complete in time. She is yet to receive any answer. In the meantime, direct debits keep bouncing off and medical insurance gets cancelled, fines for non-payment start coming in, the landlord starts chasing for the rent, and the school starts sending reminders that invoices for the children need to be urgently paid… 

Thus, the life of a British citizen who is not sanctioned and is not “Russian” gets turned upside down, her basic right to an adequate standard of living (using her own funds) is violated and she risks losing a large chunk of her capital. Instead of moving into a new house, she faces a possibility of being evicted from her rented accommodation and may never be able to afford to buy a house again. 


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