Speech on “Ukraine: Tactical Nuclear Weapons”

2 December, 2022 ~ Robert Skidelsky

My Lords, I am grateful, as we all are, to the noble and right reverend Lord, Lord Harries, for initiating this debate and for drawing attention to the real danger of nuclear escalation.

I am in profound disagreement with the Government’s policy on Ukraine—I have said it before in this House and I shall say it again. This disagreement can be stated in one sentence: the Government’s policy is a war policy; I support a peace policy. I shall try to justify that.

The then Foreign Secretary, Liz Truss, stated on 27 April:

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

This policy has been repeatedly restated by government spokesmen. It is supported by the Opposition and echoed by the media.

In calling for peace, I may be an isolated voice in Britain, but not in the world. Everyone outside the NATO world is calling for negotiations and some within it—I draw attention to President Macron in particular. Let me try to be logical. The Government’s policy makes sense on one assumption: that Ukraine, with NATO military support and economic sanctions on Russia, will soon complete the reconquest of Ukraine, including Crimea. In this case, there will be nothing to negotiate; the deed will have been done—it will have been accomplished.

I am not privy to secret military intelligence, but such evidence as I have, plus a dose of common sense, suggests that neither Russia nor Ukraine can achieve their war aims at the present level of hostilities, so the pursuit of victory is bound to bring escalation on both sides. Russia will intensify its air war, and NATO will provide Ukraine with more weapons to shoot down Russian aircraft. At what point such escalation leads to the accidental or deliberate deployment of tactical nuclear weapons is anyone’s guess, but the danger must be there, as the noble and right reverend Lord, Lord Harries, pointed out. That is why the war should be ended as soon as possible, and that can be done only by negotiations based on a ceasefire.

I utterly reject the premise underlying the Government’s policy that it is up to Ukraine to decide if and when it wants to end the war. President Zelensky’s policy is to get his “land back entirely”. Of course, it is up to Ukraine to decide what to do, but we cannot give Ukraine carte blanche to determine its war policy when we are in fact providing it with the weaponry to continue the war at considerable sacrifice to our own people. The decisions for peace and war, and on what terms to end the war, must be taken by Ukraine and NATO jointly.

I have reached one conclusion which is more compatible with government thinking: that no meaningful negotiations are possible as long as President Putin remains in office and, more importantly, in power. It is not only that his personal prestige is too heavily implicated in an impossible object but that his attempt to achieve it is leading his country to disaster. His invasion of Ukraine has galvanised Ukrainian nationalism, expanded NATO, shifted the balance of power in Europe to its most anti-Russian eastern states, exposed hitherto hidden Russian military and technical weaknesses, subjected Russia to the most sweeping economic sanctions ever imposed, and provoked the emigration of many of the most talented Russian scientists, technicians, thinkers and artists. In sum, he has erected a new monument to imperfect and incompetent statesmanship.

Any settlement of the war which can inspire confidence in the future will require Mr Putin’s departure from the scene. I do not know how this is to come about; it is beyond our control. However, we can offer an incentive: our Government can say that they would be willing to join our partners in serious negotiations to end the war with a new Russian Government. This negotiation would include the future status of Crimea and the dropping of sanctions. It would encourage forces within the Russian state to implement a change of government. This is a tough but constructive policy that I would understand and support; I do not understand the present policy in intellectual terms. It might not succeed, but it is infinitely better than the dangerous bellicosity we seem to be trapped in.

Too Poor for War

9 November, 2022 ~ Robert Skidelsky

Nov 8, 2022 ROBERT SKIDELSKY and PHILIP PILKINGTON

Decades of deindustrialization have hollowed out the UK economy and made it woefully ill-prepared for wartime disruptions. As the financial speculators who funded its current-account deficits turn against the pound, policymakers should consider Keynesian taxes and increasing public investment.

LONDON – A wartime economy is inherently a shortage economy: because the government needs to direct resources toward manufacturing guns, less butter is produced. Because butter must be rationed to make more guns, a war economy may lead to an inflationary surge that requires policymakers to cut civilian consumption to reduce excess demand.

In his 1940 pamphlet “How to Pay for the War,” John Maynard Keynes famously called for fiscal rebalancing, rather than budgetary expansion, to accommodate the growing needs of the United Kingdom’s World War II mobilization effort. To reduce consumption without driving up inflation, Keynes contended, the government had to raise taxes on incomes, profits, and wages. “The importance of a war budget is social,” he asserted. Its purpose is not only to “prevent the social evils of inflation,” but to do so “in a way which satisfies the popular sense of social justice whilst maintaining adequate incentives to work and economy.”

Joseph E. Stiglitz recently applied this approach to the Ukraine crisis. To ensure the fair distribution of sacrifice, he argues, governments must impose a windfall-profit tax on domestic energy suppliers (“war profiteers”). Stiglitz proposes a “non-linear” energy-pricing system whereby households and companies could buy 90% of the previous year’s supply at last year’s price. In addition, he advocates import-substituting policies such as increasing domestic food production and greater use of renewables.

Stiglitz’s proposals may work for the United States, which is far less vulnerable to external disruption than European countries. With a quarter of the global GDP, 14% of world trade, and 60% of the world’s currency reserves, the US can afford belligerence. But the European Union cannot, and the UK even less so.

While the UK has been almost as aggressive as the US in its response to Russia’s actions, Britain is far less prepared to manage a war economy than it was in 1940: it makes fewer things, grows less food, and is more dependent on imports. The UK is more vulnerable to external shocks than any major Western power, owing to decades of deindustrialization that have shrunk its manufacturing sector from 23% of gross value added in 1980 to roughly 10% today. While the UK produced 78% of the food it consumed in 1984, this figure had fallen to 64% by 2019. The British economy’s growing reliance on imported energy has made it even less self-sufficient.

For decades, the financial sector propped up the UK’s hollowed-out economy. Financial flows into the City of London allowed the country to neglect trade and artificially maintain higher living standards than its export capacity warranted. Britain’s current-account deficit is now 7% of GDP, compared to a current-account surplus of 1.3% of GDP in 1980. Until recently, the British formula had been to finance its external deficit by attracting speculative capital into London via the financial industry, which had been deregulated by the “big bang” of 1986.

This was brilliant but unstable financial engineering: foreigners sent the UK goods that it otherwise could not afford, Britain sent them sterling in return, and foreigners used the pound to buy British-domiciled assets. But this was a short-term fix for the long-term decline of manufacturing, enabling the UK to live beyond its means without improving its productivity.

In his 1930 Treatise on Money, Keynes distinguishes between “financial circulation” and “industrial circulation.” The former is mainly speculative in purpose. But an economy that depends on speculative inflows experiences financial booms and busts without any improvement to its underlying growth potential. The UK’s strategy echoed this observation: it did little to develop exportable goods that could improve the current-account balance, and its success depended on foreigners not dumping the pound.

But the speculator’s logic, as George Soros explains, is to make a quick buck and get out before the crash. Relying on speculators is like a narcotics addiction: a temporary high becomes a necessary crutch. The energy crisis brought on by the Russia-Ukraine war was the equivalent of cold-turkey withdrawal, blowing an even larger hole in the UK’s trade balance. The current-account deficit is expected to increase to 10% of GDP by the end of 2023, providing short-term investors with a strong incentive to sell their sterling-denominated bonds.

The pound’s ongoing decline will make UK imports more expensive. And since import prices will likely rise faster than export values, the decline in the sterling’s exchange rate will probably widen the current-account deficit, not least because the country’s diminished manufacturing sector depends heavily on imported inputs. As the pound depreciates, the price of these imports will increase, resulting in even greater erosion of living standards.

This leaves policymakers with few good options. The Bank of England has already raised interest rates to maintain inflows of foreign capital, but high interest rates will likely crash housing and other asset markets that have become addicted to rock-bottom rates over the past 15 years. Taking steps to balance the budget may temporarily calm markets, but such measures would not address the British economy’s underlying weakness. Moreover, there is no evidence that fiscal consolidation leads to economic growth.

One possible remedy would be to revive government investment. UK public investment fell from an average of 47.3% of total investments between 1948 and 1976 to 18.4% between 1977 and 2007, leaving overall investment dependent on volatile short-term expectations.

The only way the UK could “pay for the war” is to implement an industrial strategy that aims to increase self-sufficiency in energy, raw materials, and food production. But such a policy will take years to bear fruit.

All European countries, not just Britain, face an energy crisis as a result of the disruption of oil and gas supplies from Russia, and policymakers are eager to increase energy inflows. But any deal with Russia as it wages its war on Ukraine with apparent disregard for human life would carry enormous moral and political costs.

One possible way forward may be to reach an agreement to ease economic sanctions in exchange for a resumption of gas flows. Given its special economic vulnerability, and following Brexit, Britain is well placed to explore this idea on behalf of – but independently from – the EU.

A limited agreement could ease Europe’s energy crisis while allowing continued military support for Ukraine. But it should be conditional on Russia reducing the intensity of its horrific “special military operation.” Negotiation of a limited energy-sanctions deal could, perhaps, open the door to a wider negotiation aimed at ending the war before it engulfs Europe.

As for the UK, in the short term it will remain dependent on City-generated financial inflows to prevent a catastrophic near-term collapse of the pound, forcing the new British Chancellor, Jeremy Hunt, to scramble to “restore confidence” in the British economy. In lieu of Keynesian taxes or public investment, that will most likely mean drinking more of the austerity poison that caused Britain’s current malady.