Can Putin Survive?
The Lessons of the Soviet Collapse
THE failure of the sanctions applied against Italy poses on the one hand the problem of the League of Nations, its structure and its functions. On the other hand it raises an even more important issue: Can the denial of economic facilities, the shutting down of sales and purchases of commodities and services on a sufficiently wide basis, offset military power? What conditions are essential to the success of this policy of economic pressure?
Power and coercion have always been "tripartite"—spiritual, military and economic. When certain groups of men held the keys of heaven, they could exercise spiritual coercion over peoples' minds. Since the weakening of religious tenets, the place of spiritual coercion has been taken by propaganda or terrorism, both closely related to such material factors as physical threats or risk of starvation. Economic power, on the other hand, though never absent, has been increasing in importance. Armies have always marched on their stomachs. The sea Powers, especially England, have systematically used the withholding of trading facilities, either an embargo on national or neutral exports to the enemy, or a prohibition of his export trade, as an accompaniment to actual fighting. But the use of economic pressure has always been accessory to military coercion. Without Aboukir and Trafalgar the British blockade could not have worked.
The growth of industrialism, while widening the scope of economic pressure, has led to violent attacks upon its uses. To the Manchester School war was the arch enemy of the industrial system. It should be limited to professionals and must not encroach upon business. Blockades ought to be prohibited; contraband ought to be limited and rights of search should be restricted. The sea should be as free in time of war as in time of peace. It seemed senseless wickedness to punish the British artisans by a blockade of the cotton states, whose military resistance the Northern armies could not break until Sherman's march through Georgia spread economic devastation.
In the Great War, again, economic measures accompanied but did not displace military action. The success of the blockade of the Central Powers and of the submarine campaign against Allied shipping depended on the application of purely military weapons on sea and on land. In a few isolated cases economic pressure, not accompanied by military measures, has worked. Since the Boston tea-party boycotts were frequently used as a substitute for, and not as a complement to, military action. But here again physical violence was rarely completely absent, and military consequences frequently arose from it.
Nevertheless the conception of using economic force completely disassociated from military measures as a substitute or even as a counterfoil for war has been in the air. The paralysis which overtakes a modern society as a result of a general strike or boycott is evidence of the strength of these economic weapons. To threaten an aggressor with their world-wide application might either deter him from his nefarious plans or, if the threat has to be carried out, deprive him of the fruits of his enterprise.
The first section of Article 16 of the Covenant obliges members of the League immediately to subject the aggressor "to the severance of all trade or financial relations, the prohibition of all intercourse between their nations and the nationals of the Covenant-breaking state, and the prevention of all financial, commercial or personal intercourse between the nationals of the Covenant-breaking state and the nationals of any other state, whether a member of the League or not."
The application of this article against Italy was an experiment attempted under rather favorable circumstances. Economically, Italy is not on a par with the United States, the United Kingdom, France or Germany. Her natural resources are slender, the density of her population (353 per square mile) is great. Her capital wealth and national income are small; the latter was not one quarter of that of Great Britain in 1929. Her vulnerability is great, for she is dependent on the import of foodstuffs and of many raw materials. Most goods needed for war purposes—coal, copper, iron, cotton, lead, wool, oil—come from abroad; she has neither nickel, chrome, platinum, tungsten, tin nor rubber. Her balance of trade has always been unfavorable. Its deficit rose from nearly 1.5 billion lire in the years 1931-33 to 2.4 billion in 1934 and nearly 1.4 billions in the first six months of 1935. The deficit was covered mainly by the tourist trade (1,300 million lire in 1933) and emigrants' remittances (900 million lire in 1932). Italy's geographical position is strategically weak; entrance and exit to the Mediterranean are controlled by Great Britain. Goods crossing the land frontier must pass through League territory. Italy’s immediate small League neighbors, Switzerland and Austria, were unwilling to offend her, but such oversea supplies as they could forward had to pass through either Germany or France. Germany's international economic situation was far too delicate to permit her running risks for the benefit of a Power with which she was not at that time on the best of terms.
On the other hand, neither the United States nor Japan nor Brazil were members of the League. Japan’s economic attitude was of no great importance; she could scarcely afford to provide Italy with commodities of which she herself is in want. The United States could have satisfied most of Italy’s needs—with a few exceptions—if it had insisted on exercising its unhampered rights as a neutral. It could even have reëxported rubber and nickel, which it did not itself produce.[i] Great Britain would not have stopped American supplies at Gibraltar, even when acting as mandatory of the League. But this situation need never have arisen. Public opinion in the United States sided strongly against Italy. A new conception of neutrality was formulated. The export of armaments was stopped. The maximum Italy could hope for was a continuation of supplies on a prewar scale. And it was quite possible that the definition of war material might have been stretched had the League Powers been willing to undergo heavy sacrifices in the interest of collective security.
The main factor in Italy's favor was the comparatively small scale of the war. As Ethiopia had no mechanical equipment, Italy's needs were limited; she had accumulated considerable stocks during the months of preparation when she was inconvenienced by her own financial weakness but not by foreign intervention. And she could replenish these stocks with comparatively slender imports. Italy never experienced the same need for imports that would have been involved in fighting a first-class Power.
Moreover, the glut prevailing in most markets made producers eager to sell, even though payments were not assured; their governments were loath to add new contractions to the shrinking world trade. Italy's imports had fallen from 21.6 billion lira (1929) to 7.4 billions (1933). Of these imports, 14.6 percent came from Germany, 15 percent from the United States, 9.8 percent from England and 5.5 percent from France. This drop was due to her strict quota system and her inability to pay her commercial debts. She owed large sums on clearing agreements.
One object of economic pressure—or frequently described as such—the prevention of war through fear of a League boycott, could not be accomplished.[ii] This fear was non-existent on Italy's side; and events showed that her attitude was fully justified. She may have relied on the League's repeating its purely negative behavior in the Manchurian affair; she may have assumed that a colonial war against a half civilized people would not be considered an attack on collective security. Great Britain's reticence at Stresa and her subsequent failure to draw attention to her probable course of action in case of an attack may well have appeared to Italy as a kind of silent connivance. The strong and clear words which no longer admitted of any doubts were not heard until September 11, when for a brief spell British statesmanship seemed to have reached a high level of moral achievement. The fact that during the period of conciliation Great Britain scrupulously maintained an arms embargo against both sides might easily be taken as a sign of acquiescence in the planned aggression. For Italy had prepared herself; by May 1935 the East African expedition had already cost 620 million lire;[iii] she could easily manufacture her own armaments if raw materials were freely admitted, while Abyssinia had neither the cash nor the credit to buy them, nor the skill for making them. The pressure on Mr. Rickett to hand back his oil concession (August 1-September 3), which could have provided the Negus with some badly needed cash, might appear as a distinct favor to Italy. And, last but not least, the Italian Government knew very well that the French Government, if not French public opinion, was willing to accept an Italian protectorate in Ethiopia in return for an Italian protectorate over Austria.
Economic sanctions have not failed as a measure for preventing war; they were not tried for that purpose. Nobody ever threatened Italy with expulsion from the League if she violated the Covenant, as laid down in Article XVI, Section 4. And she rightly assumed that the several governments concerned would not recommend to the Council, as in duty bound under Section 2 of the same article, "what effective military, naval or air force the members of the League shall severally contribute to the armed forces to be used to protect the Covenant of the League."
Italy was declared the aggressor on October 9, 1935, and economic sanctions were adopted on October 19, but they were not enforced until November 18. They were not applied immediately, nor did they extend to all trade or financial relations between the League members and the Covenant-breaking state.[iv]
On October 14, 1935, the Coördination Committee of the League proposed the prohibition of all financial operations in favor of Italy. Government loans by subscription as well as government banking or commercial credits were forbidden; and so were all other loan operations—the issue of shares and bonds as well as banking or commercial credits in favor of public or private corporations or of private persons. This financial boycott was very stringent; but though it imposed a good deal of inconvenience on commercial life its practical importance was very small. For Italy's finances were on the down-grade (which may have been one of the motives driving her into the Ethiopian adventure). Her foreign indebtedness was slight, not sufficient to inconvenience her or to make repudiation an instrument of retaliation. Neither the public nor the mercantile interests anywhere were inclined to lend money to Italy.[v] Foreign exporters experienced great difficulties—on account of exchange control—in getting payments for their goods. By August 1935 very nearly £2,000,000 were owed to British importers. The financial boycott did not imply a much more than moral sanctification of a prudent business-like attitude.
On October 19 it was proposed to prohibit the importation of goods grown or produced in Italy, goods en route or previously contracted for being excepted. Fifty governments acceded to this proposal, some with slight reservations. Their trade covered the bulk of Italy's exports to foreign countries.[vi] Exports had averaged about $20,000,000[vii] in each of the three months December 1934 to February 1935; they fell to $12,000,000 in the corresponding period 1935-36; the decline after December was from $19,000,000 to $8,500,000. In other words, Italy's purchasing power was reduced by two-fifths. A further decline might have been expected, but the March figures furnished by only 38 countries (the former figures comprise over 60 countries) showed a recovery to $9,250,000. A complete trade paralysis might have resulted from this import embargo. Imports to the United Kingdom fell from nearly $2,000,000 (January 1935) to $9,000 (March 1936); those to France from a similar level to $157,000. But the United States bought as much in March 1936 as in January 1935 (about $1,600,000). Germany's purchases declined a little from their maximum, but surpassed the $3,500,000 of March 1935 by over a million. Switzerland nearly halved her purchases; Austria and particularly Hungary raised or maintained theirs. Owing to exchange control, money owed to Italy in Germany, Austria and Hungary was not available for purchases elsewhere.
Italy produces hardly any goods which cannot be obtained from other sources. No danger of scarcity would exist if she were eliminated. But it was hard on her trade creditors, whose claims had to be settled by payments in Italian goods. The prohibition of imports from Italy in fact gave her a kind of moratorium.[viii]
Even a complete embargo on exports could not have fully paralyzed Italy's purchasing power. Gold or silver bullion and coin were expressly exempted from the prohibition. Though their export constituted a heavy drain on Italy's resources, it enabled her to buy goods. The gold reserves of the Bank of Italy had fallen from about $370,000,000 in January 1934 to not quite $270,000,000 in August 1934. The gold drain continued, though statements are no longer published by the Bank.[ix] From November 1935 to March 1936, Italy lost $87,000,000 million, a sum sufficient to make up for the loss of 30-odd million dollars purchasing power due to the reduction of her exports. The Italian Government had commandeered (1934 and 1935) the foreign securities belonging to its subjects and exchanged them for five percent Italian bonds which were not quoted on the market. In previous years bond issues totalling $250,000,000 had been floated on the New York market. It is assumed that by this operation the Italian Government acquired from its citizens bonds worth $200,000,000. The government was in no way prevented from reselling them abroad and using the proceeds for purchases. The contraction imposed on Italy's purchasing power was thus rather slight—for the time being at least.
Exports to Italy were not stopped immediately and completely, apart from armaments, gas and explosives (October 11).[x] Later on, the prohibited list included transport animals, rubber, bauxite, aluminium, iron ore and scrap iron, nickel and various ores used for steel-making, tin and tin ores. Prohibition extended to contracts in course of execution, but not to goods en route. These measures reduced Italian imports considerably. Imports (from 38 main countries) had averaged $25,600,000 a month for the five months November 1934 to March 1935, and reached a maximum of $28,000,000 just before the blockade became effective in November. They fell to $13,900,000 in January 1936, but rose again to $15,600,000 in March. The average for the three blockade months (from 62 countries) was just $18,000,000 million each as against $32,000,000 in November.
Mineral sanctions of the type chosen are sure to be effective in a long-drawn-out war, provided they are complete and accompanied by prohibition of semi-manufactured goods. Italy's normal production of iron ore (700,000 tons) is not sufficient; her regular imports amounted to about 200,000 tons.[xi] An iron ore embargo would have seriously inconvenienced her in a long-drawn-out war, especially as chromium, manganese, tungsten and a good many ferro-alloys were included, for which she is more or less dependent on imports. She regularly imported 850,000 tons of pig iron, ferro-alloys, scrap steel, etc. But the war was not a big war, in which accumulated stocks quickly melt; and she could replenish them by importing semi-manufactured goods. Pig iron was admitted and so were bars. The monthly total of all mineral ores fell from 78,000 tons (December 1934) to 18,000 tons (January 1936) and 26,000 tons (March). Imports of iron and steel goods declined from 73,000 tons (January 1935) to 15,000 tons (January 1936) and 22,000 tons (March). Prohibited steel goods came from Germany, Austria and the United States; non-prohibited goods from Russia (pig iron) and France (bars). By March the import situation had improved for Italy—to the benefit of non-sanctionist Powers.
Coal, oil and copper were not prohibited. Italy did reduce her imports of coal considerably. From a monthly maximum of about 1,100,000 tons in December 1934 and January 1935, to 617,000 tons in March 1936. Most of the loss was borne by the United Kingdom, whose exports fell from over 420,000 tons to nought, and by Poland; while Germany, Belgium-Luxembourg and the United States improved their positions.[xii]
Oil imports from sanctionist countries, though not prohibited, fell considerably:
Crude oil. 8,941 tons (December 1934) to 3,030 tons (February 1936) and 6,703 (March).
Motor spirits. 23,680 tons (March 1935) to 3,774 tons (February 1936) and 9,223 tons (March).
Gas oil and fuel. 99,615 tons (December 1934) to 121,124 tons (January 1936) and 41,583 tons (March 1936).
Lubricating oils. 26,867 tons (December 1934) to 999 tons (March 1936).
Italy had laid in large stocks before sanctions became effective. She shifted part of her oil purchases to the United States, who had contributed only 6½ percent of her supply between 1931 and 1934. For the full year 1935 the American proportion of Italy's oil purchases rose to 12½ percent, and during the three war months of this year (October-December) it was 17.8 percent. The German coal deliveries enabled Italy to punish Great Britain; the American oil deliveries made it possible for her to retaliate in part on Rumania and Russia. Rumania exported 25,000 tons of gas and fuel oil to Italy in January 1936 and 11,600 tons in March. But exports of petroleum products from the United States in March 1936 were less than a third of those in December 1935. Russia's share had fallen from 20,000 tons in January to 5,200 in March. Copper imports from sanctionist countries fluctuated considerably. The main increase in the supply came from the United States, whose sales rose from $1,329,000 for the period November 1934-March 1935 to $2,201,000 for the same months in 1935-36. The existence of these free markets was the main economic argument against including coal, copper and oil in the sanctions.
The United States Government did not stop the exportation of oil to Italy. It was by no means certain, however, that the term "implements of war" the export of which was prohibited under the Neutrality Act could not have been stretched to include fuel for bombers. It may not have been possible for the League Powers to proceed from a passive policy of sanctions to an active policy, by which the participants in the boycott would have stopped imports from non-participating countries to Italy by intercepting them at Gibraltar or at Suez. American public opinion might not have stood for it, since the new conception of neutrality, which aimed at keeping the United States out of war by stressing the duties rather than the rights of neutrals, was not yet generally accepted. But the application of economic sanctions presupposed a state of war, on which the aggressor had entered "against all other members of the League" (Article 16). An economic war of defense in the interests of international order was justified by international law and by American public opinion. It might have been possible to induce the United States to prohibit the exports of goods which otherwise might embroil them in the war, without causing unpleasant friction. The attitude of the American Government was by no means averse to such coöperation as was possible under American laws and in existing political conditions. Business interests, eager for profits, might have objected, especially when there was a chance of gaining permanent markets for American oil. Their opposition might have been squared by an offer to take over the normal oil supply sent to Italy by American companies—an item of not quite $200,000 in February 1935. The monopolistic organization of the oil industry would have made such an arrangement easy enough. And it might have been possible to request the American Government to restrain the reëxportation of rubber and nickel. Economic sanctions applied under Article 16 created a state of economic war; economic war cannot be waged efficiently without going to the limit of economic pressure. The attitude of the American Government was never properly tested. Would it really have insisted on America's selling oil and copper and reëxporting nickel and rubber had it clearly been shown that a state of war existed, not only between Italy and Abyssinia, but between Italy and the League?
The League's policy was never complete. Not only were certain war materials, such as oil, left untouched, but shipping, the tourist trade and emigrants' remittances were not interfered with. The Italian attitude was simple and clear. "We shall stand all sanctions which do not seriously hamper us; if they do more than inconvenience us, we shall fight." The League had the choice either of accepting this challenge and imposing such sanctions as would make war hopeless for Italy; or of acknowledging that the independence of Abyssinia was not worth a world war. Quite possibly such a war would never have come; but this cannot be known for certain. It cannot be said that sanctions failed. For pressure which has not been exercised cannot have failed. Nor is it proven that the exercise of pressure must have led to war, nor that it must under all circumstances lead to war. If a realistic and rational policy was expected from the Italian Government, war against the League would scarcely have been the appropriate method for winning the war in Abyssinia. If, on the other hand, its policy was due to irrational motives, if it was directed by a madman, who, driven to despair, might be willing to smash the world, overwhelming military pressure should have been in evidence from the beginning.
To brand Italy as the aggressor at a meeting of the League for having broken a solemn Covenant, and to implore this moral offender at the same time to remain within the League, whose statutes he had violated deliberately, was so incongruous that moral failure was inevitable even if material failure had not taken place. There might be reasons for maintaining diplomatic relations with Italy—they exist with non-members of the League, regardless of the moral principle which their governments represent. But to let Italy remain a member of the League Council, entitled to all its privileges, while at the same time breaking its fundamental law, was a mockery which Italy could not but look upon as an encouragement to go to the limit.
Sanctions inconvenienced Italy considerably: her imports of essential foodstuffs and raw materials declined from $48,500,000 for the period from December 1934 to March 1935 to $26,000,000 for the corresponding period of the next year. However, their pressure might have increased in severity. The exhaustion of the gold supply and the foreign exchange obtainable by the disposal of foreign securities might have brought about real scarcity. But in the meantime stocks on hand, the practice of economies, the development of substitutes, and the purchase of goods with gold, foreign securities, emigrants' remittances and tourists' disbursements kept the country going without too severe a strain. The fear of increasing pressure nevertheless existed; it may have been responsible for the decision to resort to poison gas warfare and to break another solemn engagement.
With the improvement in world trade, the total volume of trade of some countries did not suffer much as a result of the imposition of sanctions. Exports from the United Kingdom to all countries except Italy rose from $118,000,000 in December 1935 to $124,000,000 in March 1936; exports to Italy declined from around $3,000,000 before the embargo to a paltry hundred thousand; thus the loss in Italian markets was made good elsewhere. Other countries, however, were less fortunate. Italian imports from France fell from $1,700,000 in March 1935 to $350,000 in March 1936; France's other exports declined in the same period from $50,000,000 to $49,000,000. Rumania's total monthly trade, March 1935 to March 1936, declined from $5,200,000 to $4,800,000, and her trade with Italy from $830,000 to $219,000.[xiii]
Arrangements were devised for the mutual support of states, in accordance with which damages resulting from the application of the most favored nation clause, from scarcity due to the absence of Italian goods or to the loss of Italian markets, were to be offset by particular concessions from other sanctionist countries.[xiv] The proposal for creating a mutual support fund was not accepted. But measures were taken for the shifting of some goods and for the granting of some compensation quota. As an unequal incidence of losses was inevitable, a certain amount of recrimination between various nations followed. This may account for the decline of pressure which the March statistics seem to reveal.
Evidently it was very difficult for League members to have a uniform economic policy against a recalcitrant state, while their normal economic relations with each other were antagonistic. Collective security in the political field cannot be achieved when aggressive anarchy prevails in economic affairs.
Dissatisfaction was naturally expressed by interested groups which lost trade. Hitherto, foreign wars had offered excellent opportunities for making good profits; sanctions not only prevented such profits, but were bound to inflict losses on certain industries. Some of these losses may have been imaginary; it was easy enough to sell goods to the Italian Government; it might not have been quite so easy to collect for them. Sanctions made safe such trade as remained, by restricting its amount and by putting it on a cash basis. Unfortunately the sanctionist governments refused to pay compensation for loss of trade to their nationals; and indeed the settling of claims of that nature would have been anything but easy. But there is no reason why the burden of economic warfare should be borne by a particular group of people—why, for example, British coal-owners should suffer loss while British oil interests make profits. Had the principle been accepted from the beginning that the nation—not certain groups—should bear the cost of economic warfare, opposition would have been reduced considerably. Moreover, the aggressor should have been told that he would be expected to make good the damage he had done to trade. The payment of a war indemnity is frequently an immoral imposition; too often the victor constitutes himself into a kind of court and assesses damages to himself. But the members of the League, the rules of which had been broken by an aggressor who was a fellow member, would have been entitled to claim compensation.
Though sanctions were not as efficient as they might have been made, they were the only weapon the League held against Italy. To let it slip before the conclusion of peace between the League and the nation which had violated its Covenant was evident proof of the fact that those in positions of responsibility either did not know how to handle the economic weapon, or did not dare to use it properly, or both.
[i] Nickel exports from the United States to Italy between December 1935 and March 1936 amounted to about $120,000 (gold) and crude rubber exports to $460,000 (gold). For figures on the exports of the United States for the period just prior to the Ethiopian War see Dulles and Armstrong, "Can We Be Neutral?," Appendix 13.
[ii] Article XVI does not deal with prevention, but with pressure.
[iii] Royal Institute of International Affairs, "Italy and Abyssinia," London, 1935, p. 33.
[iv] It might have impressed Italy had the League immediately adopted the proposal made by Finland in 1926, e.g. to provide for an issue of bonds, guaranteed by the members of the League, in support of a victim of aggression who was financially weak. After the Abyssinian collapse, the Abyssinian representative at Geneva asked for a League loan of £10,000,000—with no response.
[v] On October 5 the American Import and Export Bank refused further credits for Italian trade.
[vi] Between 95.5 and 96.5 percent of Italian exports had normally gone to the countries reporting to the League for December 1935 to February 1936.
[vii] Gold dollars throughout. These figures are taken from "Statistics of Trade with Italy and Italian Colonies," III. December 1935-March 1936. Coördination Committee 125. League of Nations Publications, General. 1936. 4.
[viii] Italy is trying to punish them now. She has intimated her intention of paying post-sanction creditors before pre-sanction creditors.
[ix] The profits on Italy's gold holdings by the 40 percent devaluation have been calculated at 657 million lire, bringing the value of the remaining gold reserve to about 1,640 million lire.
[x] The Resolutions concerning the economic weapon adopted by the Assembly on October 4, 1921, made such hesitancy permissible.
[xi] Sir Thomas Holland, "The Mineral Sanction," Edinburgh, 1935, p. 52-3.
[xii] Coke imports from France increased from 7,400 tons (February 1935) to 17,000 (February 1936).
[xiii] German exports to Italy rose from a minimum of $3,300,000 (February 1935) to $6,000,000 (December 1935); they declined by March 1936 to about $3,600,000. The minimum of the United States (December 1934) was not quite $3,000,000; it rose to $4,700,000 (December 1935) and remained above $4,000,000 in February and March after declining to $3,200,000 in January. Austria's minimum was $636,000 (January 1935), and her maximum was $1,700,000 (March 1936).
[xiv] Proposal V of the Coördination Committee, October 19, 1935.