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Tuesday, 02 September 2014

Ending entente

The chilling echoes of 1914, a century on

A rerun of 1914’s descent into global war is really rather unlikely. But some of the danger of a hundred years ago is present today.

The years before 1914 saw the formation of trade blocs separated by high tariff barriers. Back then, the world was dominated by several roughly equivalent powers, albeit with different strengths and weaknesses. Today, the world is similarly multi-polar. The United States is in a position of clear leadership, but China is coming up fast. Europe is weaker than it was, but is still a force to be reckoned with. Japan, Russia, Brazil, India are also too powerful to ignore.

A hundred years ago, big international infrastructure projects such as the Berlin-Baghdad Railway, and before it the Suez Canal, were built to protect favored trading. Today’s equivalent may be the bilateral mining partnerships forged between, for instance, China and mineral-rich African states. Today, the World Trade Organization offers some defence against tariffs. But protectionism could be become entrenched if prolonged economic stagnation leads countries to pursue their own narrow interests.

Germany, Austria, Russia and France lost between 20 and 35 percent of national output between 1913 and 1918, according to Angus Maddison’s data used in Stephen Broadberry’s “The Economics of World War One: A Comparative Analysis”. British GDP declined in 1914 and 1915, but grew 15 percent over the four years, as did the U.S. economy. The 37 million military and civilian casualties may tell a more accurate story but if history were to repeat itself, the global conflict could be both more universal and more destructive. Nuclear weapons proliferate. Warped diplomatic anger could lead to the deployment of chemical and biological devices. Electromagnetic pulses could wipe out our fragile electronic networks.

Like the assassination of Archduke Ferdinand that sparked World War One, the catalyst for cataclysm might be something quite surprising. A global run on bank and other investment assets or an outbreak of hyperinflation, maybe? These threats get more serious the more policymakers pump up equity, bond, property and banking bubbles. If global wealth evaporates, or is proven to be an illusion, today’s largely cordial global entente could be smashed with precipitous speed.

 

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The British-led free trade movement, which after the 1846 Repeal of the Corn Laws, had spread to other countries through the Cobden Treaty of 1860 with France, the German Zollverein and the low-tariff U.S. legislation of the pre-Civil War period, stalled after 1860. The United States passed the protectionist Morrill Tariff in 1862 and the more protectionist McKinley Tariff in 1890, France passed the protectionist Méline tariff in 1892 and the newly united Germany passed a highly protectionist tariff in 1879.

The Austro-Hungarian archduke Franz Ferdinand was assassinated in Sarajevo on June 28, 1914.

World War One broke out with the German invasion of Belgium on Aug. 4. It lasted more than four years, caused 37 million civilian and military casualties and led to a second destructive conflict in 1939 to 1945.

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