Magazine article The American Conservative

The Debtor's Road to Peace and Prosperity

Magazine article The American Conservative

The Debtor's Road to Peace and Prosperity

Article excerpt

For Peace and Money: French and British Finance in the Service of Tsars and Commissars, Jennifer Siegel, Oxford University Press, 328 pages

Cicero famously described infinite money as the sinews of war. The ability to mobilize greater wealth than ready cash provided gave countries tremendous advantage during the struggles of the early modern era. Britain's capacity to leverage credit backed by profits from growing overseas trade facilitated its rise as a great power after 1688. As well as supporting its own military and naval forces, 18th-century Britain financed allies through wartime subsidies that bought political influence. Wealth backed diplomacy through the long rivalry with France that ended at Waterloo; it also provided influence during the long 19th-century peace that followed until 1914.

Paradoxically, however, borrowing can provide leverage of its own. Benjamin Franklin shrewdly observed that having someone do a favor for you gets him on your side more surely than doing one for him, as now he has a stake in your future. The same principle operates among states. Jennifer Siegels For Peace and Money presents as an example Russia from the start of extensive lending in the 1890s through a 1922 Russian default that devastated creditors. Far from costing the country its independence, she argues persuasively that the relationship strengthened Russia politically. France and Britain needed both to secure investments and keep Russia from aligning with Germany. Debt thus provided Russia with leverage more typically associated with wealth. Siegel, a prize-winning historian whose earlier work explored the geopolitical impact of Anglo-Russian rival in Central Asia, shows the complexities behind the truism that financial power sets the foundation for political strength.

Besides adding to historical scholarship on diplomacy surrounding World War I, Siegel's lucid, well-informed analysis engages questions relevant to today's concerns. Debt crises since the late 1970s have tested the influence of creditors over governments to which they lend. Since the notorious Russian defaults after World War I, wealthy governments have not been able to protect creditors by placing debtor countries into a form of receivership, supervising their internal finances as they did with Egypt and the Ottoman Empire during the 19th century. Finance ministries instead have brokered plans to reschedule payment, in order to ease the burden on debtors while shielding the own countries' banks from the consequence of full default.

While negotiations often impose a haircut on creditors pushed to accept less than full payment, they also involve stipulations on debtor economies. The recent Greek bailout imposed a painful austerity that sparked popular resentment. Italy has faced similar pressure from its European Union partners to restructure public finances and business regulation. The United States pushed hard for market reform in Latin America during the 1980s as a condition of debt relief. Despite resistance, efforts by Secretary of State James Baker and Treasury Secretary Nicholas Brady during the George H.W Bush administration established neoliberal preferences for economic best practices that came to be enshrined during the 1990s as the Washington Consensus. Governments since have evaded or pushed back at such pressure. But the soft power of financial influence proves on closer inspection much softer than has often been assumed: after a certain point, as Siegel demonstrates, debtors become partners with power of their own.

Despite the potential wealth of its natural resources and growing agricultural production, tsarist Russia depended on foreign loans. A British official in 1908 likened the nation to private Russian gentlemen who despite owning immense estates lack the means of turning their possessions to account and have the utmost trouble paying their bills; he also noted a certain fecklessness in spending priorities among wealthy subjects and the state that ruled them. …

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