[Note for bibliographic reference: Melberg, Hans O. (1997), Lessons from History, http://www.oocities.org/hmelberg/papers/970818.htm]
[Note: This is a revised version of a lecture I gave at the Red Cross Nordic
United World College, 31. July, 1997. Thus, the papers has a more oral style than I
otherwise would have used if I had been writing this paper for publication. In this
version, I tried to include some of the complexities that I had to leave out in the
original lecture - which was intended for students who had just finished high-school.
However, there are still many arguments which may appear simplistic. For a more in-depth
treatment of the topics, I will refer the reader to my reviews of the books mentioned
towards the end.]
Lessons from History
The collapse of the Soviet Union and the end of the Cold War
by Hans O. Melberg
Introduction
The title of the topic I was given was "EU-Russian relations, the Baltic, China after
Deng, and lessons from history." Obviously, this topic is too large to cover in 45
minutes, so I shall have to focus on some selected issues. I will choose to focus on the
last part of the topic - lessons from history.
To be concrete, what kind of lessons, if any, can we draw from the collapse of
Communism in the Soviet Union, and the following end of the Cold War? In order to answer
this question, I shall use the frame provided by the figure below:
Fig. 1: Can the end of Communism and the Cold War can provide answers
to the four set of questions below?
Economic Political
Domestic What kind of economic system is best? What kind of political system is best
Capitalism vs. Socialism Democracy vs. Authoritarianism
International How to organize international trade? How to organize state-state relations?
Free vs. Managed trade Realpolitik vs. "Idealpolitik"
Before I go on to discuss these four questions, we need to reflect a little on whether
it is possible to learn something from history at all.
Can we learn from history?
When faced with a question like "Should we have free or managed trade?" it seems
obvious that we need to go to history to find answers. By looking at the history of
different countries with different policies (at different times), we can examine whether
free trade created economic growth or not. If we find a historical (positive) correlation
between free trade and economic growth, some might say that history has taught us that
free trade is better than managed trade.
Unfortunately, it is not that easy. In a previous essay, I presented a long list of
problems associated with the use of historical correlations as evidence for or against a
statement (see, Against Correlation). For example, there might be a third variable which
causes free trade and economic growth to be correlated, even if the two are not causally
related. Imagine, for the sake or argument, that free trade really is bad, or neutral, for
economic growth, but that free trade policies are more likely to be implemented by rulers
who otherwise tend to implement good economic policies. This would mean that free trade
and economic growth were positively correlated, but it would be wrong to infer that free
trade causes economic growth. In fact, the opposite would be the case, but this effect is
hidden by the third variable. Because of this, and other problems, we should be careful
with the use of history (in the sense of correlation between variables) to prove
arguments.
Being careful, of course, does not imply that statistical evidence from history is
worthless. It is possible to use more sophisticated statistical techniques to reduce the
danger of ignoring a third variable (for instance, by differencing the data). It is also
possible to conduct experiments to isolate the effects of the different variables. Hence,
we should not arrive at the nihilistic conclusion that quantitative research is worthless,
only that there are degrees of uncertainty attached to all our conclusions.
Are there any alternatives to the use of historical correlations when we want to draw
lessons from history? One alternative to searching for historical correlations to justify
arguments, would be to work deductively to show exactly how two variables are
related - in this case, the mechanisms linking fee trade and economic growth. These are
two very different approaches. The first, which we may call induction, justified an
argument by saying that history showed a pattern - a correlation - between the two
variables. The second approach aims to validate an argument by showing why we find a
relationship between the two variables. However, even the second approach needs history to
furnish some initial premises before the deductive machinery can be put to effect. For
instance, traditional economics often works deductively from the premise that individuals
are rational and selfish. This premise, in turn, must be justified by appealing to
history. Thus, there is an alternative to working only with correlation, but also this
approach requires input from history.
These were some theoretical reflections on the possibility of learning from history. In
sum, while I do believe history is important as a source of evidence for or against
theories and arguments, I also believe there often is a great deal of uncertainty attached
to the conclusions when we use historical evidence. There are (often) too many variables
at work, and our statistical tools are not powerful enough to provide the certainty we
desire. However, this does not imply that the study of history is a waste. There are many
reasons to study history, except for the argument that we should "learn" from
history. For instance, historical knowledge is pleasing in itself, in the same way as
listening to music is inherently pleasing. Moreover, studying history may be important for
reasons related to identity - to satisfy a desire to know our roots. Finally, history is
important in that it makes us aware that there is sometimes nothing inherently
"natural", inevitable or unavoidable about certain norms and institutions.
Looking to other historical epochs we learn that situations change (often fast and in
seemingly unpredictable ways), and that people are able to live under a wide range of
norms and arrangements. Thus, knowledge of history often undermines the often used
"this is the way it has always been" as an argument for status quo.
What kind of economic system is best?
Capitalism vs. Socialism
Some, like Francis Fukuyama, argue that the collapse of Communism in the Soviet Union
provided the ultimate answer to what kind of economic system that is best. In short,
capitalism (private ownership and free price setting) won over socialism (public ownership
and central planning). The lesson seems obvious, but as always there are complexities
which should make us less than certain.
To say that "capitalism won" is not a very detailed lesson since there are
many different shades of capitalism. Norway is a capitalist country, as is Hong Kong, but
the degree of state intervention in the economy differs greatly from Norway to Hong Kong.
Hence, to say that Capitalism won does not give us a detailed answer to the correct level
of state intervention in the economy.
More theoretically, the inference from "100% state intervention is bad" to
the argument that "40% state intervention is worse than 30%" is false (because
the relationship is not linear). Or, to use an analogy: Cutting off your head is bad, but
this does not imply that shaving is worse than no shaving. Or: 100% vodka is bad, but this
does not imply that 10% vodka is worse than 5%.
To be a bit more concrete, some kinds of state intervention is necessary to make
capitalism work. Consider, for instance, the Polaroid camera. It took quite a lot of
resources (research) to develop the technology behind these cameras. In an economy with
absolutely no state intervention, another company could simply steal (re-engineering) this
technology, thus avoiding the research costs. If this kind of stealing had been possible,
less resources would be dedicated to research: Why do research when you do not benefit
from them and other companies simply steal your inventions? This, in turn, is not good for
economic efficiency. Hence, the state must intervene - to enforce copyright and patent
rights - in order to make capitalism efficient. This is one kind of "good" state
intervention.
Lastly, some would argue that Capitalism did not win over Socialism in general. Rather,
capitalism won over one particular type of socialism which, moreover, ran into a series of
unfortunate accidents (Stalin, World War II). I disagree with this argument. Maybe there
exists more democratic types of socialism which does not include central planning, but I
remain sceptical (see John Roemer for an argument to this effect, and my review of the
book for some counter-arguments).
To sum up. History has taught us that close to 100% state ownership and central
planning tends to produce inefficiencies. However, this does not imply that there should
be no state intervention, nor does it give us the "correct" level of state
intervention.
What kind of political system is best?
Democracy vs. Authoritarianism
One might argue that this question is a bit obvious. "Of course democracy is
best," most people would respond. Moreover, they would say that history proves this:
If we divide the world into democratic and non-democratic countries we find that
democracies are wealthy, relative stable, and peace loving. Hence, of course democracy is
best!
First, however obvious the issue seems today, the answer was not obvious fifty years
ago. Democracies appeared weak (1930s), while fascism, embodied in Mussolini and Hitler,
was strong. If we today think democracy is obviously superior, this too must count as a
lessons from history - first the defeat of fascism in World War II, and later the collapse
of Communism in the Cold War. Both events discredited non-democratic ways of government,
and made people believe that democracy was the best way of organizing state-individual
relations.
Still, even the seemingly obvious answer "history shows that democracy is better
than authoritarianism" is not very satisfactory. We do not know exactly what
democracy is, and when we try to define it we encounter several problems. A concrete
example may help: Assume that democracy means rule by majority decisions in free
elections. Now, as a though experiment imagine that three persons are going to divide a
cake. It is perfectly possible that a democratic way of dividing this cake would produce
the result that one person gets nothing, while the two others get half each. If people are
selfish, then two people would vote for this alternative (those two who benefit), and this
constitutes a majority [note: there are some problems here relating to the stability of
this solution if we allow several rounds of bargaining before the vote]. This
"democratic" way of dividing the cake does not appear intuitively appealing, and
as such it illustrates a problem with democracies - the tyranny of majorities.
If we make a swift change from the world of cakes, to the real world, we find that the
problem described above is very much alive. Obviously minorities like the Sami and the
Roma people may experience that the majority imposes their own will on them using
"democratic" decisions. Less obviously, groups - such as smokers - may suffer
under the same flaw in democracy when the majority outlaws smoking in private places (like
restaurants).
Are there any solutions to the cake problem? One possible answer, is constitutional
provisions guaranteeing the individual a private sphere which the state - or the majority
- is not allowed to interfere with. Of course, this is not a perfect solution; we might
disagree on what rights to include, on the interpretation of the constitutional articles,
and, lastly, the court does not have an army to protect its ruling against a political
leadership determined to ignore the court. Thus, constitutions may reduce, but not solve
the problem of the tyranny of the majority.
Yet another problem with democracy, concerns who is allowed to vote. In most
democracies the only requirement is age, sanity and citizenship. This may seems perfectly
fair, but consider the situation in Latvia and Estonia. In these two states there are
large Russian minorities which are not citizens of the states - only residents.
Accordingly, the Russians do not have the right to vote in these countries. Is this fair?
Is it democratic? It is easy for foreigners to say that this is unfair discrimination, but
would you give the right to vote to the people from a nation which occupied your country
for fifty years? To be concrete, if you are Norwegian, would you accept that the Germans
who occupied Norway during World War II should be given citizenship and the right to vote
after the war if they wanted to stay? Maybe the situation is somewhat different - the
Russian occupation of the Baltic states lasted longer and many Russians who came were not
occupying soldiers, but regular workers - but the question nevertheless show that the
issue of who should be allowed to vote does not have an obvious solution.
Has history taught us that democracy is better than authoritarianism? Maybe, but
history has not given us detailed lessons in exactly what for of democracy is best, not is
democracy perfect. In the end, I guess, I agree with Churchill that democracy wins because
there are no better alternatives! Certainly not authoritarianism!
How to organize international trade?
Free vs. Managed trade
On the third topic, the organization of international trade, I am of the opinion that both
history and theory shows that free trade is almost always good. Historically it seems true
that free trade has generated economic growth and managed trade has produced lower rates
of economic growth (i.e. a correlation); Witness, for example the failure of those
developing countries which tried to protect their industries in order to increase economic
growth (the infant industry argument). Theoretically, it seems obvious that if each
country produce most of what they are best at, the overall welfare of everybody is
increased. It does not make sense for Norway to be self-sufficient in the production of
bananas!
However, many people continue to be against free trade, and many believe that free
trade decreases their welfare. To explain this, I will use a concrete example:
Agriculture. Assume you live in a country, like Lithuania, with a rather large
agricultural sector. Assume, also, that in order to protect the farmers from cheaper
imported agricultural products, the government has imposed a tariff on foreign foodstuff.
Is this good or bad? The good effects are highly concentrated - the farmers keep their
jobs. However, the bad effects should also be counted. The bad effect of the tariff, is
that many people must pay a little more for the food than they would if they could buy
imported food. Or, to put it in another way, the benefit of free trade would be that a lot
of people would get cheaper food; while the cost is that some farmers would loose their
job or, at least, receive less income. It is important to note that the benefit of free
trade is widely dispersed - a lot of people get a little cheaper food. In contrast, the
cost of free trade is highly visible and concentrated - whole farm communities may go
bankrupt.
Now, the question was whether the government should continue to impose a tariff on
imported foodstuff. It can be proved mathematically that the total amount of money gained
by free trade is larger than the total sum lost by the farmers, but in itself this does
not prove that free trade is best (to do so we also need to engage in inter-personal
comparison of utility.). However, one should not one thing: I said that one cost of free
trade was that some farmers would loose their jobs. However, what if these farmers could
get new jobs? If so, it seems that the cost of free trade disappear, and there are
(almost) only benefits (almost because the adjustment period may be painful). How can I be
so confident that the farmers will get new jobs? Remember that free trade implied that a
lot of people would get cheaper food. Hence, when they have to spend less of their income
on food, they can spend more on other things. And, when people spend more on other
products, new jobs are created in these sectors. In short, the cost of free trade is
mainly temporary: People will, over time, get new jobs!
Of course, I do not know how long the adjustment period is - and this is a problem. You
simply cannot take a Polish farmer and turn him into a computer programmer. However, it is
possible that the son of the farmer can become a computer-programmer. So, in some
instances the transition period might be relatively long, and the social costs are quite
high. And, even temporary costs are real costs!
Lastly, I have encountered one counter-argument to the discussions above: What if the
increased real income generated by free trade is used on imported goods. If so, then it
will not generate jobs in your country. The money is spent on foreign goods, produced by
foreign workers. Is this argument sound?
No! It is a myth that import is "bad", and that export" is good. What
could be better than receiving real goods in exchange for paper-money (i.e. import)!
Remember, in itself the paper is not valuable! The paper is only valuable since it can buy
goods, and your currency can only buy goods in your country. [The belief that money in
itself is valuable could be explained by cognitive mechanisms, a mechanism which in turn
would explain why people think that "import" is bad and "export" is
good.] Of course, it is not only a piece of a paper, but consider what the foreigners can
do with the money they receive. They can either spend the money in your own country or
exchange the money into some other currency (ignoring the "doing nothing" option
which is unlikely). If they spend the money on goods in your country, the
"return" the profit they "stole", and you are no worse off - in fact,
you are better off: more employment is generated. What happens if the firms exchange the
money - are you worse off? No, in this case the money is also "returned" to the
home-economy. (True, in this case you pay to get the currency back [which in itself is no
goal], but the very fact that the exchange is voluntary indicate that it benefits both
parties - both the seller and the buyer of the currencies). In short, buying imported
goods does not imply that your country "loose" - the money is not worth anything
in itself, and will in any case be "returned" to your economy - either directly
(foreigners buying goods) or indirectly (exchange).
It is time to end this section. I started by arguing that free trade is almost always
good. I hope to have showed that this argument is justified, both by looking at historical
evidence, and by more theoretical considerations. True, there are some exceptions, but
these are not important enough to make a general argument against free trade (for more on
this - both the benefits of free trade and the exceptions, see Krugman).
How to organize state-state relations?
Realpolitik vs. "Idealpolitik"
If you were the foreign minister of your country, what kind of principles would you use to
formulate a foreign policy? Does history teach us what kind of foreign policy that is
best? To make the choice more stark, I shall consider two such principles - what one might
call "realpolitik" (pursuing national interests) vs. "idealpolitik"
(pursuing ideals like justice). As an illustration of the two, remember the difference in
the US reaction in Kuwait and Bosnia. Kuwait had oil, which in turn meant that large US
interests were at stake. Bosnia had no oil, which implied that the interests of the US
were less clear. Hence, realpolitik dictated that Kuwait should be saved, but not Bosnia.
[To be sure, there were other differences too, such as the terrain: A large scale invasion
to save Bosnia would be a nightmare because of the mountains, unlike the flat desert in
Kuwait].
What does history teach us about the choice between realpolitik and idealpolitik? Let
me first point to a few lessons that I think history provides, before I return to the
question of realpolitik vs. idealpolitik. First, I think history shows that
"vacuums" tend to create conflict. In a world of competition for influence, the
blocks will compete for the countries that are outside - and this competition generates
tension. Second, history shows that tension can arise out of misunderstandings, and that
good lines of communication is one way of preventing this. For example, The Economist
recently reported that Argentina and Chile had agreed to standardize the rules concerning
defense expenditure accounting. Previously, none of the countries knew how much the other
was spending on defense since many of the costs were hidden outside the defense budget.
This situation led to a spiral of increasing expenditure (justified by the argument that
"they might be spending more than us ...), and mutual suspicion. With clear lines of
communication - the standardized accounting rules - this source of tension is reduced.
Third, history shows that over-extension is a constant danger. By over-extension I mean a
country trying to pursue too many goals compared to the resources they are willing to
spend (or have!) to achieve these goals.
Let me now use these "lessons" in the choice between realpolitik and
idealpolitik, and - once again - for sake of argument I want to use NATO expansion as an
example.
The idealist position is that every country has the right to determine whatever
alliances they want to belong to. On this view it is not Russia's objections to NATO
expansion should not be given much weight, and the Baltic countries should be admitted.
The problem with this point of view, is that it might lead to over-extension. There are
simply too many countries that needs to be rescued compared to the resources we have, or
the resources we are willing to spend. Consider, for example, the bloody experience of
Somalia, in which US and Western troops intervened mainly for "ideal" reasons
[to restore order and protect the aid], but it turned out that they were not willing to
let their own soldiers die for this cause.
Does this mean that "realpolitik" is a better option? Let us examine what
adherents of "realpolitik" would say about NATO expansion. Some might argue that
vacuums are bad, so NATO should expand, also into the Baltic states. However, some might
worry about this leading to over-extension. Others, in turn, might be willing to sacrifice
the rights of some countries, to please Russia, thus admitting some countries into NATO,
while agreeing with Russia that some countries - like the Baltic countries - should not be
allowed into NATO. This position may seem cynical - and it is - but this is the kind of
foreign policy you get when you try to balance the god and bad consequences, not taking
the idealist position that actions should be guided by "right and wrong"
regardless of consequences.
I cannot say that I have a clear-cut answer to the choice between realpolitik and
idealpolitik. In fact, I think the difference is exaggerated. Even an
"ideal-politician" might agree that we should avoid over-extension, but still
pursue as many ideals as we can within these limits - such as trying to promote democracy
in non-democratic states. Also, even "real-politicians" have ideals - the policy
of containment against Communism (Keenan) was based on the idea that "our"
system (democracy, capitalism) was better than "theirs" (communism, central
planning).
Linking the four questions
So far I have treated the four questions as isolated issues, but clearly the choice of
economic system is related to the choice of political system - there are few dictatorships
that practice free trade and a free market economy! Hence, before I end I want to discuss
a few of the possible linkages between the four choices.
Consider first how intervention in free-trade might affect the political system.
Assume, for instance, that the government introduces a tariff on cigarettes. This, in
turn, will most probably lead to smuggling. Increased smuggling might lead to calls for a
strengthening of the powers of the police to catch the smugglers. This leads to a slippery
slope in which the private sphere is gradually decreased as the state tries to combat
smuggling i.e. intervention in trade leads to a more authoritarian political system. Of
course, this trend should not be exaggerated - there are also many other causal variables
at work preventing the slide into totalitarianism even if you introduce a tariff on
cigarettes. My point, however, was to simply give one example of how the answer to the
trade question affects the choice between political systems.
A better example, maybe, of a link is the choice between the economic and the political
system within a country. If you choose capitalism, history shows that it seems difficult
to prevent the desire for democracy (see, for example, South Korea, China and other
countries in Asia). In a free economy, the government cannot prevent the sale of
photocopiers, computers, television, phones and other equipment which makes the
organization of an opposition easier. Moreover, with increasing levels of education,
people are not as easily fooled into servility. Educated people will demand a say in
policy-formation, and they will not be silenced by the argument that "you stupid
peasants know nothing about how to govern a country". Thus, free markets tend to
develop demands for democracy.
Conclusion
I have touched on a large number of topics - the choice of political system, economic
system, foreign policy, and international trade. In all these areas, I believe history
provides us with broad lessons, but once we enter into the details history seldom gives us
precise answers. For instance, the collapse of the Soviet Union demonstrated the
inefficiency of 100% state intervention, but it does not give us the answer to the
question of exactly what level of state-intervention is optimal. Maybe, as I tried to say
in the introduction, there are simply too many variables at work to ever find reliable and
detailed answers to all out question. If so, we must base the choice of policies not so
much on "lessons from history" as out moral intuition of what is right and wrong
(See Jon Elster's article The Possibility of Rational Politics for more on this).
Here is a copy of the hand-out I gave to the participants, including a list of sources
used in the preparation of this lecture
Lessons from the end of the Cold War
for the current situation
by Hans O. Melberg (http://www.oocities.org/hmelberg/index.htm)
* Structure:
The question is whether the end of Cold War can provide answers to the four set of questions below.
Economic Political
Domestic What kind of economic system is best? What kind of political system is best
Capitalism vs. Socialism Democracy vs. Authoritarianism
International How to organize international trade? How to organize state-state relations?
Free vs. Managed trade Realpolitik vs. "Idealpolitik"
* Some notes that will make sense after the lecture!
1. Socialism vs. Capitalism
- Even if 100% vodka is bad, this does not imply that 10% vodka is worse than 5% vodka!
- Polaroid cameras, patent rights and state intervention
2. Democracy vs. Authoritarianism
- What is the democratic way of dividing a cake?
- Tyranny of the majority against the minority (Baltics?, or?)
3. Free vs. Managed trade
- Why free trade is almost always good and why governments almost never follow
free trade policies (Benefits of managed reade are concentrated, costs are dispersed)
- Links between (not) free trade and authoritarianism/democracy (example: China)
4. Realpolitik vs. Idealpolitik
- Kuwait vs. Bosnia (Somalia?)
- NATO expansion? EU expansion? OSCE? Russia-Europe
* Some sources (selcted, not comprehensive)
* The main source of this lecture is my articles and reviews available on the Internet
(http://www.oocities.org/hmelberg/papers/papers.htm). You will find book reviews of all the books
mentioned below on that page. Comments and criticism are welcome! My ideas are also
greatly inspired by Jon Elster (see http://www.oocities.org/hmelberg/elster.htm).
* On the difference between the principles governing Western and Eastern (China, Russia)
foreign policy, see: Michael Mandelbaum (1997), Westernizing Russia and China, Foreign
Affairs, vol. 76, no. 3, pp. 81-95
* About the situation of the Russians in the Baltic states: Pål Kolstø, (ed.) (1997), Integration
and nation-building, forthcoming book (maybe under another title). Also, Richard Rose (1997
- winter), Rights and Obligations of Individuals in the Baltic States, East European
Constitutional Review, pp. 35-43
* About NATO expansion: Several articles in ACE (Analysis of Current Events), vol. 9, no. 5,
1997. See also, The Economist (July 12th-18th) and the next issue (July 19th-25th) for EU
expansion).
* More generally about the lessons from the collapse of Communism:
- Four "conservative" and controversial books: Zbigniew Brzezinski (1989) The Grand
Failure: The Birth and Decay of Communism in the Twentieth Century, New York: Charles
Schribner's Sons; Martin Malia (1994), The Soviet Tragedy: A History of Socialism in Russia,
1917-1991, New York, The Free Press (long, more than 500 pages - but comprehensive);
Richard Pipes (1994, reprinted 1995), Communism: The Vanished Specter, Oslo:
Scandinavian University Press (very controversial, lists several "lessons" from the collapse);
Robert Skidelsky (1995), The World After Communism, London: Macmillan (A mix of
economic and political lessons. Main topic: State intervention)
- One "left-wing" book dealing mainly with the economic lessons from the collapse of
Communism: John Roemer (1994), A Future for Socialism, Cambridge, Mass.: Harvard
University Press
* On free trade (and many other economic issues), see Paul Krugman (1994), Peddling
Prosperity: Economic sense and nonsense ..., London: W.W. Norton (enjoyable!)
[Note for bibliographic reference: Melberg, Hans O. (1997), Lessons from History, http://www.oocities.org/hmelberg/papers/970818.htm]