Can Putin Survive?
The Lessons of the Soviet Collapse
THE need for more raw materials has been put forward by various powerful governments as a reason for seeking territorial expansion, colonial or otherwise. In the immense literature to which these claims have given rise there is a general tendency -- whether among statesmen, journalists or economists -- to oversimplify the issues.
The political leaders of the claimant countries present the problem as one of mere possession or non-possession. This contrast they dramatize for their peoples by comparing the poverty of the "have-not" nations with the rich resources of the "haves." The journalists have most of them come to regard the issue as a natural cause for conflict between states. The discovery that the distribution of political control over raw material supplies differs from the distribution of population and military power has been accepted by them as at least justifying the inevitability of attempts, even by force, to lessen this discrepancy. Among economists, the question is generally regarded as created almost entirely by political passions without any particular reference to economic welfare or even to considerations of military advantage.
My object here is not to attempt an exhaustive analysis of this much-discussed subject. I shall rather confine myself to pointing out the complex nature of some of the issues involved and the relationships that exist between them.
In the past, governments often sought to extend their control over new territories in order to gain possession of the raw materials they contained. Yet even before the World War there was widespread doubt as to whether the advantages of such acquisitions really outweighed the disadvantages. The liabilities involved in the political control of territories not contiguous to the homeland had already become evident. At the same time, the advantages of unrestricted international trade as a means for each nation to secure raw materials and other products were receiving ever wider recognition. The problem of the availability of raw material supplies for each and every country was therefore coming to be regarded as fundamentally a question of freedom of trade.
The rising curve of international trade in the prewar period was the natural basis of this assumption. The movement of capital from Western Europe was opening up vast new supplies of raw materials; and trade was distributing them throughout the world on a scale hitherto unknown. After the war this process was resumed.
|TREND OF WORLD TRADE (EXPORTS PLUS IMPORTS) 1|
|1901-1913 AND 1921-1936|
|1 Statistisches Jahrbuch für das Deutsche Reich, 1937.|
|TREND OF WORLD TRADE IN CERTAIN FOODSTUFFS AND RAW|
|MATERIALS, 1921-1935 1|
|Pig iron and ferro-alloys||73||86||63|
|1 Figures are for physical quantities. Those for agricultural commodities are based on import statistics; those for rubber and the mineral products are based on export statistics.|
|2 Because of incomplete data and certain statistical difficulties, the figures for petroleum and gasoline, particularly for the first period covered, are necessarily only very rough approximations.|
Even the world depression of the early thirties did not seem to compel any substantial modification of this view. True, trade in general declined enormously; but by the beginning of 1937 it had nearly recovered its pre-depression volume. The decline in the volume of trade in foodstuffs and raw materials was far less than that in finished goods, for the former was favored both by government policy and by low prices. This is illustrated by the following table.
|VOLUME OF WORLD TRADE DURING THE DEPRESSION 1|
|or partly mfd.||100||81.5||87.5||88||91.5||95.5|
|1 League of Nations, Review of World Trade, 1936.|
Such is the record supporting the belief that to a large and increasing extent trade makes adequate raw material supplies available for all countries. Various other important considerations not only support this general view but indicate the possibility that in the future an even greater international distribution of primary products could be effected by ordinary trade processes.
The world's purchasing power and the potential volume of international trade are today greater than ever before. Improved methods of production are increasing the available quantities of virtually all marketable commodities; and the growing variety of useful commodities is constantly expanding international trade despite various counteracting tendencies.
Furthermore, the total potential supplies of almost all raw materials are now greater than ever before, and they are available for the use of all who can pay for them. The producing countries are eager to sell. In fact, during the past decade the producers of raw materials have repeatedly shown that they are ready to offer their supplies in such large quantities that prices have periodically been pushed considerably below the cost of production. Since the war, in consequence, there has been a tendency for the price of raw materials that move in international commerce to decline as compared with the price of manufactured goods. In that sense raw materials have been easier to procure. Further, the development of substitutes for many raw materials has given consumers a flexibility of choice.
Improvements in the technique of mineral exploration and exploitation and in scientific plant and animal breeding, plus the extensive outward movement of capital of the twenties, have together brought about an increase in the number of sources from which materials can be obtained. This development is of considerable importance, for it gives those countries which must import much of their raw material supplies a better chance to bargain and to adjust their trade relations.
Nor is the significance of these developments greatly lessened by the restrictions which governments have placed on production or export. In time of peace such restrictions have not seriously interfered with the acquisition of desired primary materials. Most of such national restrictions now in force have been placed on commodities of which the producing countries do not have large surpluses for export. Of greater consequence are international combinations -- private, semi-private or intergovernmental -- by which the production of such articles as tin and rubber is restricted. For short periods, at any rate, some of these international combinations have succeeded in lifting the price of particular raw materials above that justified by efficient production methods. In most cases, however, this artificially stimulated price increase has been imposed on all consumers, including those in the producing country; in only rare instances has restriction been discriminatory in its effect.[i]
These restrictions are of some, but not great, economic importance; nor have they complicated problems of military preparation to any significant degree. Nevertheless, it is highly desirable that they be reduced to a minimum, for they create a sense of unfair treatment and of dependence upon the arbitrary decisions of others.
Such, then, are the bases for the belief that nations can with reasonable confidence expect international trade to provide most of the raw materials they need. But this belief obviously rests on the expectation that international trade can take place. According to the logic of economic interdependence, each country has a legitimate right to expect that other countries will not unduly hinder it in satisfying its raw material needs through trade. But that logic does not confer on a deficient country the right to demand political control over territories in which are situated resources which it may need.
It does not follow from these premises that every country can expect under all circumstances to secure through trade all the supplies of all the raw materials which it could possibly utilize. Each country's ability to acquire raw materials from abroad through trade will be limited by its capacity to produce and sell abroad sufficient quantities of goods to provide the necessary purchasing power. A nation poor in resources, and in skill and organizing ability -- that is, poor in total production -- will be able to acquire only limited supplies of primary products through trade.
It must be clearly understood that a declaration of "need" is of variable meaning, determined not only by the physical resources of the country in question, but also by the nature of its economic and military activities. Changes in international trade are necessarily gradual, since there must be a constant accommodation between it and the domestic economic structure of each country. If -- because of a vastly expanded armament program or for any other reason -- a particular country or group of countries suddenly desires immensely enlarged supplies of particular raw materials, trade cannot be expected to adapt itself to that demand as immediately as an army can be recruited or plans made on paper for ships or planes. To satisfy a rapid increase in demand through trade, a country must make a decided effort to direct its policies along lines which favor trade.
During the past ten years there has been a marked rise in the demand for primary products on the part of three leading countries. This has resulted from their increasing industrial production, the development of new fields of production, and the use of more elaborate machinery. And on top of everything else has come rearmament, in which field there seems to be no point of satiation as long as the arms competition continues.
Since special interest attaches to Germany, Japan and Italy, I have compiled a table (shown on the following page) giving their imports of some of the principal raw materials during recent years. It will be seen that in most groups the volume
|IMPORTS INTO GERMANY, ITALY AND JAPAN OF CERTAIN FOODSTUFFS AND RAW MATERIALS|
|GERMANY||(in thousand metric tons)|
|Meat, meat products and fish||473||263||285||358||339|
|Butter, lard and fats||231||104||102||107||121|
|Wheat, barley, corn, oats||4,641||1,634||780||309||3,485|
|Oil fruits and seeds||2,461||2,214||1,334||1,661||1,670|
|Timber and lumber||4,905||2,547||2,845||2,576||2,624|
|Meat, poultry, game and fish||157||145||116||73||135|
|Cereals, including rice||3,133||884||1,095||840||1,997|
|Iron and steel, raw and scrap||1,184||954||1,280||514||713|
|Copper, brass, bronze||65||66||93||86||80|
|Other common metals||47||19||48||22||21|
|Mineral oils and products||1,332||1,915||2,193||1,878||2,326|
|Coal and coke||13,4251||12,734||14,590||9,265||12,823|
|JAPAN||(in thousand piculs, unless otherwise noted) 2|
|Rice and paddy||3,598||116||655||923||558|
|Beans and peas||10,656||11,222||11,454||12,445||12,321|
|Hides, skins and leather||279||429||522||526||701|
|Mineral oils, reported by volume 5||479||918||1,111||1,237||8343|
|Wool, raw and tops||854||1,373||1,841||1,641||1,954|
|Other vegetable fibers||1,384||1,848||1,995||2,158||1,867|
|1 Includes coal and coke received on account of War Reparations.|
|2 One picul equals 132.28 lbs.|
|3 First seven months only. Quantities of metals and petroleum not reported after July 1937. It is possible that the figures for some of the German and Italian imports are also incomplete.|
|4 Pig iron, etc., bars, rods, plates, etc., and scrap iron.|
|5 Million American gallons.|
|6 Thousand long tons.|
has recovered substantially from depression levels and that in the case of some raw materials, particularly minerals, it exceeds the amounts imported even during the previous period of prosperity. On the other hand, the importation of most foodstuffs continues to be curtailed.
In its commercial aspect, then, the raw materials question is obviously one of purchasing power, that is, purchasing power in foreign currencies. To state the problem in terms of an asserted need for the possession of sources of supply within the national currency area is merely another way of expressing a desire to be able to insure adequate supplies without reference to the requirements of international trade. Or, to put it differently, this formulation of the problem merely restates a wish to have the raw materials so located that they can be directed, if necessary, by the power of the state.
This is merely one of the reasons cited for dissatisfaction with the trade solution. Among the others, the most important -- and certainly the one most emphasized in public discussion -- is the complaint that international trade is hindered by burdensome restrictions of all kinds. It is pointed out that the capacity of a given country to buy raw materials from abroad is restricted by the willingness of other countries to purchase its goods in return. Furthermore, it is pointed out, some of these restrictions weigh unequally -- as for example the extensive systems of tariff preferences between mother countries on the one hand and colonies and dominions on the other. These intra-empire preferences naturally make it more difficult for other countries to sell their goods in these areas and thereby to acquire raw material supplies from them by return purchase.
These considerations are of real importance. The chance to trade on satisfactory terms is a reasonable right -- even a vital one -- for each country which is prepared to accord reciprocal opportunity and conduct itself as a member of a peaceful international group. This right must be recognized by other countries, and its denial or frustration gives rise to just grievance.
I believe there is a growing readiness on the part of most liberal governments to accept this view -- but after, alas, what prolonged inertia! I believe that now they are ready to give effect to those declarations of principle which have formed the closing theme of so many international conferences: not, probably, by simultaneous and widespread action, but by a multitude of exchanged concessions and agreements, mainly bilateral.
However, the countries that have raised the question appear to have lost interest and faith in any program of this sort. Their assertions that the solution of the raw materials problem through trade is unsatisfactory have tended to grow in vigor as their emphasis upon the need for independence of supply has increased.
In part, perhaps, this arises from the nature of the "trade solution" itself. If a country desires, for its own general advantage, to have a large trade with the rest of the world, it must fulfil the terms on which this is possible. If it relies largely on outside sources for adequate supplies of raw materials, it will be called upon to observe various rules of international intercourse on a basis of reciprocity with other countries pursuing the same rules. It must enter into trade-liberalizing agreements with other countries. In the negotiation of such agreements, the other countries will naturally enough seek to obtain opportunities for selling not only the raw materials which the purchasing country urgently wants, but other goods for which the other countries require markets. The terms of such trade agreements naturally cannot respond wholly to the desires of either party to the negotiation. Each country must show a willingness to afford a place in its domestic market, both for certain competitive goods and for commodities less indispensable to the national economy than raw materials. Countries are obliged by the exigencies of international trade to suffer competition at some points where it is not welcome. Furthermore, they are called upon to entertain foreign competition or to accept foreign goods in amounts and varieties which may make the task of "directed national planning" more difficult.
Furthermore, in wholly directed economies there is a need for close control of both imports and exports. This type of control is not easily adjusted to trade arrangements which permit all countries freedom of competition in the market of the nation with the directed economy; or, in other words, it does not allow trade to operate on the most-favored-nation principle. Trade is therefore kept under the restraint of special agreements, and this somewhat limits commercial expansion. In this connection it must also be kept in mind that much of the trade which in the past has furnished one country with the purchasing power necessary to buy goods from another has been so-called "triangular trade" -- trade which is dependent on the free exchange of goods between more than two countries. But the commercial policies best adapted to planned economies restrict the possibilities of triangular trade, for they operate on the principle of balancing sales and purchases between particular countries. This tends to limit the amount of raw materials which may be acquired to what can be paid for by direct bilateral trade.
Comparatively speaking, the greater a country's demand for raw materials, the greater the extent to which it must shape its economic policies, both internal and external, to permit the conduct of a large volume of trade. For a country to satisfy its needs for extensive imports, it must adjust its economic arrangements to take account of the world trade outlook. Such arrangements have been judged at times by the countries which have emphasized their lack of raw materials as out of accord with major national policies -- for example, the search for self-sufficiency in commodities of military importance. At times, even the effort to increase military establishments rapidly has actually meant the imposition of handicaps upon the export industries, the production of which might yield the purchasing power necessary for acquiring raw materials.
And lastly, when grave fears of war exist, trade does not flourish. Credits are restricted, long term development projects lapse and even current trade is easily disturbed. In short, when peace is seriously jeopardized, trade will lag behind its possibilities, and the ability of all countries to purchase abroad will suffer. The hope of enlarging trade needs the encouragement of peaceful intentions.
There is a rather curious identity between one of the aspects of socialist theory and some of the arguments recently advanced in support of the demand for direct political control over areas producing raw materials. According to Marxist doctrine, the capitalist state, unable to provide steady work for its people at home, will seek in expansion a means of employing them, either through the activities involved in the war itself or through the subsequent exploitation of the new resources which it hopes to acquire. Similarly, much of the literature defending pleas for territorial control emphasizes the need for additional raw material supplies in order to give work to rapidly growing populations.
This is too large a subject to deal with in a few sentences, but both logic and experience seem to indicate that neither the competitive capitalist state nor the controlled state can permanently assure steady employment to its citizens merely by acquiring territories containing raw material supplies. True, unless a densely populated industrial country can acquire raw materials through trade or otherwise, its standard of living will be low. True also, the acquisition of a thinly populated territory well endowed with raw materials may for a considerable time relieve unemployment in a densely populated industrial country, especially if the newly acquired area is contiguous, or roughly similar in environmental conditions, to the home country. True further, new capital investment is likely to be stimulated as a result of such territorial expansion, both in the newly obtained territory and in the home country, while the volume of bank credit or money will be increased. However, once the initial impetus generated by the expansion has run its course, the problem of unemployment will again arise.
But this fact has not yet become generally recognized. In the minds of most people, particularly the masses, the possession of raw material supplies seems to provide a hopeful answer to the haunting fear of unemployment and low wages. All of which only goes to show how necessary it is to distribute those supplies as widely as possible through the ordinary channels of trade, if we are to avoid the very economic difficulties and sufferings which lead some peoples to challenge the possessions of others.
The preceding analysis concerns only the procurement of adequate raw materials to fulfill the normal needs of peace. When a government is preparing for war, other considerations naturally arise.
In time of war, a country can obviously count only on the supplies within the area under its military control. Distant sources will be available only to those able to dominate the sea and the air. Nevertheless, the political control of far-off resources is useful to the possessing country, even though those resources are located where they might be cut off by hostilities, because they permit the accumulation of stocks during the period of intensive preparation that usually precedes a war. This is certainly true if the country in question is willing to exploit those resources regardless of the cost or the effect upon its regular trade relations.
Large government subsidies are also used to stimulate production in the colonial areas beyond any capacity that could be attained by unaided enterprise. This policy is the same in its cost and results as that of subsidizing domestic production, of which the current British, German and Italian efforts to produce motor fuel from local resources are examples.
There is a further important element in the military calculations of the colonial Powers. If a country with overseas possessions can retain its military control over them in time of war, then it can exploit their resources regardless of whether or not the country's external purchasing power has been exhausted. And, within its own economy it can effect that wartime exploitation irrespective of cost. The military value of such supplies would naturally depend upon how indispensable they were and how great a military effort was required to retain them. In this latter regard, it should be remembered that the problem of protecting the wartime transport of goods from distant points, whether colonial or otherwise, is becoming increasingly more difficult. On the one hand, airplanes, submarines and other devices make it easy to interrupt commerce; while on the other, the actual volume of raw materials needed to conduct a protracted, large-scale war is greater today than ever before. Stomachs -- on which armies used to travel -- are more easily filled nowadays than are gas tanks and ammunition racks.
As a matter of fact, colonies produce but a small part of the world's raw material supplies. In the report of the Raw Materials Committee of the League of Nations it is estimated "that, including production both for domestic consumption and for export, the total present production of all commercially important raw materials in all colonial territories (excluding dominions and other self-governing territories) is no more than about 3 percent of world production."
Hence the question of raw materials must in the main be regarded as a separate and larger question than that of the distribution of colonies. The additional supplies of primary products that might be acquired by such colonial transfers as have recently been under discussion would in reality satisfy only a minor fraction of the total raw material requirements of any one of the principal industrial countries. This remains true even if we allow for the fact that colonies can create foreign exchange resources with which to purchase raw materials from other countries.
However, it must be remembered that the amount of raw materials any given area will yield depends in no small degree on the way it is governed. The method of exploitation is also an important factor. In the past, production has usually been determined by the calculations of private enterprise, operating with independent labor and with an eye on production costs and financial return. But should any country decide to pay no attention to such considerations, it might increase the production of its colonial resources by using regimented labor, working for low wages under virtual military rule. Under such circumstances, the state can turn the productive energy of its people to the development of these supplies regardless of the effect on the standard of living. Raw materials, especially those used for armament, may be produced even though other goods are gone without. Difficult as this process may seem, an authoritarian state possibly would find it easier to carry out than to return to a dependence on international trade. Nevertheless, any country which adopts such an "autarchic" policy will, by curtailing its purchases from abroad, inevitably tend to reduce its own sales to other countries and will thereby, to some extent at least, offset any advantage which it may have gained by acquiring new productive areas.
Even if it were possible, it would be a waste of time to try to define in precise terms what is meant by "equality" in regard to the possession of raw materials. But this much is plain. There will always be great inequalities between countries in respect to the extent to which each must secure its raw material supplies by exchange with the rest of the world rather than by producing them within its own political boundaries. Whether any particular territorial transfer would increase or lessen the present inequalities would, of course, depend entirely upon the specific case. What will remain constantly true is that most countries must continue to rely on the international exchange of goods for the acquisition of much of the raw material supplies which they want.
For a country to obtain these supplies on terms favorable to both its living standards and its economic development, two conditions are necessary: (1), its internal economic set-up and its external commercial relationships must be so shaped as to permit the conduct of a large volume of trade; and (2), it must have a reasonable assurance that no other country will undertake aggressive war against it. These are the conditions necessary for creating those trade arrangements which alone can make adequate supplies of raw materials available to all countries on equally favorable terms. The only alternative is to continue the present wrangle over the raw materials question, with all the diplomatic, commercial and military manœuvring that it involves.
One last remark. I have spoken of adequate supplies. But there are no supplies -- underground, in the stalks of plants or in the chemists' laboratories -- adequate to sustain indefinitely an expansion of the armaments race. Or rather, the labor of man will not be enough to wrest them out of nature's storehouse. The greater the amounts that are mined and smelted and moulded into cannon and bombs, the greater the next demand will be. Men and women will labor and strain, great machines will drill ever nearer the core of the earth, and the night will be loud with engines and bright with searchlights. There will be rice and dried beans to eat, khaki to wear, and barracks to sleep in. And as the parades grow longer, the poverty will become deeper. The world, using more and more of its raw materials for such purposes, will march to war arguing that it is those raw materials which are lacking.
[i] In a few cases, such as the export tax on tin ore levied in the Federated Malay States, the effect is discriminatory. The purpose of this discriminatory tax has been to prevent the growth of a smelting industry in countries outside the British Empire rather than to restrict the supply of the processed commodity. It has been defended as an offset to the tariff legislation of other countries under which the raw material is admitted with no duty, or only a small one, while the processed article is subject to a high duty, in order to force the development of a processing industry.