Russia And China Channeling Hamilton

Not too long ago I did a post that discussed Alastair Crooke’s most recent essay. Glenn Diesen and Alexander Mercouris (The Duran) got together with Crooke yesterday to discuss that essay. The full Youtube video is here:

Hotel Ukraine - You can never leave w/ Alastair Crooke, Alexander Mercouris and Glenn Diesen

What I’ve done is bit of a transcript of the last third of the video, beginning at about the 59:30 mark. I had to do quite a bit of editing to translate from the oral format to a readable written form—and even so the results were a bit mixed in parts. However, I decided the effort was worthwhile because I found the discussion of economic issues quite interesting. This last third goes far beyond the matters that were previously discussed. I’ve tried to add some value.

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Crooke: What I think people are missing is the second part of this. What was the first line of attack on Russia? it was financial. America launched its financial war and took Russia's banks out of Swift and sanctioned Russia. And the French finance ministers thought, 'We are going to collapse Russia,' and it was one of the greatest intelligence failures [unintelligible]. They told the Europeans, 'It's easy. We'll put the sanctions on Russia and it will collapse and in six months you'll be back to cheap natural gas from Russia. They'll be eating out of your hand and you can take what materials you want. And they believed it. They made a grievous mistake which has put in jeopardy the economic future of Europeans. I think that what people don't understand is that in a way this is the other war that has been going on: the excessive weaponization of the dollar. What happened to Japan, what has happened to Russia, and what is happening now to China. The Chinese understand that it's not the same financial war that was unleashed on Russia, and the one in Japan was quite different--it was an interest rate war--but they are having this rate cut in key materials.

Actually what it's likely to do is drive us into a depression, because if all these States stop functioning economically, if Russia which IS slowing down not because of a property speculative [?] that was so bad, but it is slowing because it doesn't export as much. That's where employment is, that's where ordinary Chinese work, in manufacturing not in speculative Goldman Sachs and discounts. So this is existentially central to Chinese security. So Russian and Chinese security is in flux, in the sense of the financial war as well as the wider security of the real economy and they're trying to build out real corridors, real transport, real manufacturing across Eurasia and Africa and to leave Europe to fester. We still haven't grasped the big geostrategy that is going on here, which is Russia and China see the same problem. India is worried about the same problem. All of these States, even Saudi Arabia and UAE, worry about the same problem in that sort of weaponization of the financial war. So they're all coming together and they are building up secondly a new cultural paradigm on terms not only of self-autonomy and of sovereignty but in the sense of a powerful anti-colonialism backlash in Africa.

So we talk about the closed mind--who was it? Bloom wrote his book about the American closed mind?--actually the problem is in Europe. In America it's the corridor [?] mind. They can't get out of this one corridor way of thinking that they've been in since the Cold War. They can't see we can forget about Mackinder. This is a new edition.

Diesen: I think you're spot on with the the reference to the assumption that we could get back to the deal with cheap Russian energy. In the 90s and early 2000s there was an impression that Russia to some extent used this relationship with the East almost to increase its own market value in its path towards becoming part of this greater Europe. But for me it seems that what the Russians, Chinese and others are working on is similar to what the United States itself did in the early 19th century, when it wanted to become less dependent on Great Britain. Then they had the American system. Again, they had these three pillars. They wanted the manufacturing industry, developed transportation infrastructure, and of course the National Bank. These three pillars. And you see that this is kind of the foundation that the Russians and Chinese are working on, as well as much of Eurasia. They want this first pillar of technological autonomy--this industry is decoupled from the US. They want the second, which is trillions of dollars into this Belt and Road initiative with new transportation corridors not vulnerable to the US, and of course third would be the financial aspect. We see this BRICS Development Bank, the SCO trading in their own currency by de-dollarizing, reducing reliance on Swift. So there's this shift in the economic system. The entire opportunity to reject the hegemonic world order, which has seen us being encapsulated by this rules-based international order, which is to a large extent a challenge to international law. [Russia has made this point, repeatedly, that the US has substituted its own rules for International Law.] I think this is why the Ukraine crisis has become so problematic. It's a symptom of a wider challenge to the entire world order, the geo-economic infrastructure. Again, this is more complex doesn't it ...

Crooke: But what BRICS is about is it’s also about neoliberalism. And about the neoliberalism put in place through the Western control of the financial system. That meant that countries couldn't produce what they wanted to do with their own crops and their own agriculture. They were forced into doing export products like [flowers?] to Europe and strawberries for Europe and things like this in order to earn the foreign exchange to buy American grain. Neoliberal structures are part of this [BRICS reaction]. I remember this debate between Xi and Putin. And Putin and Xi said, 'What caused the Soviet Union to collapse? You lost a belief in your own ideas, and the collapse was the consequence.' They've done a wonderful job in actually both melding together elements of the market system with a state strategy, ... And the net outcome of this discussion was that China had understood that in order to survive it needed to be outside the Western financial structures, and that unfortunately Russia had gone the other way to dive into the Western structures. That was brought up, and it was quite interesting. Putin said, 'You are absolutely right.' And the understanding that the problem was actually being within the financial system. I'm not talking about sanctions here, I'm just talking about the Western hyper financialized system which, over time, erodes the real economy that employs people, that gives them decent jobs, and allows them to buy things, in favor of financialized products instead. I mean Friedrich List wrote all about this at the end of the 19th century. This is part of this great move to produce not just a new culture but a new development model for the world that is not the hyper financialized neoliberal model. Because, ultimately, as List said, even in the 19th century, with overemphasis on consumption you end up without the real economy sufficient to support your own population in work and earning.

Mercouris: And of course the interesting thing about List is that he was heavily influenced by what was happening in the United States at that time. We can see that List, who was very much the dominant economic thinker in late 19th century Russia, is now actually coming back. I understand people are actually looking at him again. All that you said about the fact that the Russian financial system essentially became the Western financial system it. I have a very close friend who is a Russian banker and he was making exactly that point to me 15 years ago. And in fact what we have seen, step by step, is Russia steadily moving away from this [neoliberal model]. One of the very first things that happened when [Elvira] Nabiullina took over the Russian Central Bank, which people don't understand, people always think of Nabiullina as being very much an arch liberal connected to the West, but what she actually did was she closed down lots and lots of Russian Banks and the Russian banking system today that's left, is almost entirely State controlled. In that respect it's not very different from the Chinese. It is again a publicly owned banking system. There are still some private banks in Russia, as there are some private banks in China, but they are an insignificant part of the financial system. And you can also see that she took steps with the Ruble. Firstly she made it fully convertible, which was actually a blow at the oligarchic interests in Russia which wanted a ruble pegged to the dollar at a certain rate, because that was very convenient for them to convert money into Dollars whenever they wanted. It was also the same with Western investors as well, who were able to take money out of Russia at a high ruble exchange rate against the dollar. She prevented that, and now she has been steadily introducing exchange controls and capital controls. She's taken that further still, and I suspect that before very long, within the next five years, maybe sooner than that, we're going to go into a system where the ruble will cease to be as simply convertible as it has been, especially with this new BRICS financial structure being constructed, which will effectively mean that you can transfer money and funds around the world without having to make your currency convertible in the same way that it was. And again if you go back to the 19th century, to the United States, you will find that an awful lot of what Russia is doing mirrors what the United States was doing then. So industrial policy in Russia--aircraft construction, railway construction, high technology construction--all of those things with a repatriated and, in effect, nationalized financial system geared once more towards internal economic development, but with Russians, again like the Chinese, operating it within a market system where prices are set by supply and demand, and are not controlled directly by some kind of central institution which fixes prices. But there is a convergence already that's been happening for some time between the Chinese and the Russian economic models, and it is not so different in both cases from what was happening in the United States in the 19th century.

Crooke: I agree. Putin specifically said to Xi, 'You managed that much better than we have and we are following your model now.' So that was an interesting discussion that came out, Why did the Soviet Union collapse? [Unintelligible] I think that we are at a point of inflection both economically as well as with going through an inflection point in terms of geostrategy and and more than that. I keep coming back to this word, I can't exactly define it, but I think there is a change of consciousness taking place. Sometimes suddenly things shift [unintelligible]. The West's narrative is no longer just accepted. It's there until it just isn't.

Diesen: That's why I brought up the American system because it was based on the Hamiltonian economics and Friedrich List obviously built on this as well, but what was interesting is the ideas of Friederich List they were republished in Russia by Sergei Witte in little pamphlets which were handed out, and they kind of followed this at the end of the 19th century.

The Hamiltonian economic program was the set of measures that were proposed by American Founding Father and first Secretary of the Treasury Alexander Hamilton in four notable reports and implemented by the United States Congress during George Washington's first term. They outlined a coherent program of national mercantilism government-assisted economic development.

The American School, also known as the National System, represents three different yet related constructs in politics, policy and philosophy. The policy existed from the 1790s to the 1970s, waxing and waning in actual degrees and details of implementation. Historian Michael Lind describes it as a coherent applied economic philosophy with logical and conceptual relationships with other economic ideas.

It is the macroeconomic philosophy that dominated United States national policies from the time of the American Civil War until the mid-20th century. Closely related to mercantilism, it can be seen as contrary to classical economics. It consisted of these three core policies:

• Protecting industry through selective high tariffs (especially 1861–1932) and through subsidies (especially 1932–1970).

• Government investments in infrastructure creating targeted internal improvements (especially in transportation).

• A national bank with policies that promote the growth of productive enterprises rather than speculation.

The problem was then you had Communism and after that you had the 90s where they had this Liberal view where only the Western-centric Liberal View [was accepted]. And you were right, these days they've rediscovered Sergei Witte, but of course in a Eurasian context they see the Chinese and it's as if they're reading the same book of Hamilton and Friederich List simply because the core of it was largely to extend economics as an anti-hegemonic instrument. The idea would be interdependence have to be measured by the symmetry of interdependence--you don't want to be more dependent on the adversary than they are on you. But a way to shift the symmetry of dependence would first be strategic autonomy but also to diversify economic Partnerships. And I think this is where the West's opportunity is, because Russia's interest is really to diversify--it doesn't want to be too reliant on China. China is Russia's most important partner, so it wouldn't go against China, but it doesn't want to put all its eggs in one basket. That's why it has to reach out to the Arab states, to India, but also it would have ideally had the West as a partner. Now that this is closed off it looks like politics--and of course the military conflict--now is getting in the way of this geoeconomic rebalancing in which both Russia and the Europeans especially would have greater economic benefits from working together to avoid excessive dependence on either America or on Asia. That's very different from making the Russians abandon this greater Eurasian project and instead come back in into the Western financial system because that's simply not going to happen. It's a bit extraordinary to listen to politicians in the U.S these days actually suggest we'll promise to take the Russians in if they just turn their backs on China. They don't seem to appreciate the huge shifts that are happening.

Crooke: The structural contradictions in the Western financial systems have now been allowed to get so great that there's no easy solution. We will first of all have to go through some form of financial crisis as a catharsis. ... Individualism had its points, but it could be taken too far and I think much of the world is moving in that direction [away from Neoliberalism] and it will affect us. You even had a bit of this, amazingly, under Boris Johnson when he was talking about some sort of strategic and plan for the economy.

Mercouris: I'm glad you brought up Boris Johnson. It's perhaps not important in terms of the world but I live in Britain. I'm British. Alastair is British, too. I think one country that is going to have to make some very serious and important decisions about its role is going to be Britain, specifically. In fact, I think we're coming very close in Britain to a second End of Empire moment. I feel that one of the reasons for the extraordinary vehemence of British policy about Ukraine, its over commitment to supporting Ukraine, is ultimately that it's a device for keeping the Americans in Europe, still pushing this policy of using the Americans, keeping them in Europe. That makes us important, because we're able to move along on America's coattails. Now, somehow or other, despite all the enormous problems of understanding that you spoke about in the United States--about which I completely agree--the Americans are going to go. They're not going to go completely, but they're not going to be this enormous power that they were. This policy which we've followed--actually quite successfully in Britain ever since the Second World War--of remaining meaningful by being part of the American train, I think that's coming to its end, and we need to start thinking beyond that. We still need to start thinking beyond that in terms of how we structure our own economy and our own society, but also about how we conduct our foreign relations. Not just about Europe, which is of course important, but also globally as well. And I think that is going to be a very traumatic and very difficult experience--one which our political class in Britain is completely unprepared for. Anyway, that's just a very little rant. I don't know what you think about that Alastair.

Crooke: I understand. I agree with what you're suggesting. By investing so heavily in the Ukraine project for the reasons you've said, we've mortgaged our future, our economic future, Europe's economic future, and I think this is going to become much more apparent as the recession comes into being, and inflation continues to rise. It's obvious here, naturally, in Britain. I mean the social stresses and the political stresses from this. They mortgaged things by sanctioning Russia, thinking that they could live without Russian gas and that it would be fine to buy LNG at seven times the cost of the pipeline gas, and that wouldn't affect their economy. I don't think they really thought any of this through, and now look at us. We are de-industrializing, and that's the one thing that kept 60 percent of the population at a reasonable income. That's what they bet in order to try and keep on side with the United States. That is fate. What will be the political consequences I can't foresee, but the will be consequences, for sure. I mean, Europe has really just mortgaged our future.

Diesen: We always seem to finish off here on the pessimistic note. But any final comments, Alexander, before we ..

Mercouris: I accept there's going to be a period of extreme turmoil, a very difficult period, but we also need to understand, and our leaders perhaps need to understand, that the system that we are trying to sustain is ultimately unsustainable. Once it's gone, if it's handled properly, if the we come out of it in an intelligent way, it could actually be a liberating moment. We can start doing things which we are preventing ourselves from doing in a way that could actually enhance our prosperity and our security. What it needs is imagination and planning, but there's very little of either at the moment. ...