Friday, June 20, 2008

The Last Thousand Days of the British Empire

The Last Thousand Days of the British Empire
By Peter Clarke
(Bloomsbury, 559 pages, $35)

The sun did set on the British Empire, after all, roughly 60 years ago, when Britain gave up the Indian Raj and of its Mandate over Palestine. Most histories of this seismic shift in world affairs focus on personalities – no surprise, given the outsize figures of the time: Churchill, Gandhi, Mountbatten, Truman, Weizmann, Ben-Gurion. But even the great are driven forward, in part, by forces larger than themselves.
[Losing Hope, Glory and Assets]

The supreme virtue of Peter Clarke's detailed account of Britain's last imperial days is his effort to describe those forces and register their effect. It is a complicated story – involving economic imperatives, political obstacles and social demands – but Mr. Clarke makes it all clear and captivating. He is maddeningly tendentious: He shows an obvious partiality to Britain, an outright hostility to Zionism, and a not-so-subtle distaste for the U.S. and its postwar rise. But it is not necessary to share Mr. Clarke's prejudices to value "The Last Thousand Days of the British Empire."

Mr. Clarke makes much of Winston Churchill's famous November 1942 vow that he had "not become the King's first minister to preside over the liquidation of the British Empire." Defeat at the polls in 1945 saved him from the personal ignominy of such a task, but Mr. Clarke argues that the prime minister's decisions, however arguably justified they were, sealed the empire's fate. Mr. Clarke's grand theme is that "Britain's postwar problems were rooted in precisely those wartime commitments that had brought victory. If Churchill was the architect of victory, he was also surely to this extent also the author of Britain's postwar distress."

Mr. Clarke is very hard on Churchill, citing many unflattering comments about him and failing to appreciate his optimism and gallantry in the face of difficult circumstances and the pragmatism that was as essential a part of him as his Tory romanticism. After pithily observing that, by 1947, "the British Empire was now in the hands of the liquidators," Mr. Clarke grotesquely adds: "Churchill's thousand-year Reich had barely outlasted Hitler's."

Still, it is not wrong for Mr. Clarke to assign the blame for imperial collapse to wartime commitments. And money had a great deal to do with it. The war, Mr. Clarke notes, "left India a creditor on a vast scale, with Britain owing it huge sums in the form of the sterling balances." This fact meant that London actually owed New Delhi some £1.3 billion pounds (or $5.2 billion in 1945 dollars). The empire had conferred many benefits on Britain, but by the 1940s its administration and defense were a net drain on London.

And Britain owed a lot to the U.S. as well. Britain's postwar economic weakness became inevitable as soon as it accepted Lend-Lease, the program that allowed Britain to receive from America, during the war, billions of dollars of materiel and supplies. Hailed by Churchill as the "most unsordid act in history" – a phrase calculated to nourish alliances – Lend-Lease in fact exacted from the British draconian sacrifices. Britain transferred across the Atlantic all its dollars and capital assets outside the sterling area; and it sent every scrap of its overseas investments to the U.S. to pay for materiel and other aid, along with cash to the tune of a billion pounds. In 1940, when Britain balked at surrendering nearly everything, Roosevelt summarily dispatched an American warship to Cape Town, South Africa, to collect Britain's remaining gold reserves there.

Europe's gross national product plunged 25% during World War II, Mr. Clarke reminds us, while America's increased 50%. This dramatic shift in relative prosperity provided a solid economic underpinning for the postwar Pax Americana, built on open skies and open seas and the free trade to which empires, with their tariffs and other mercantile policies, are inimical.

By 1946 Britain had no choice but to send its pre-eminent (and dying) economist, John Maynard Keynes, to negotiate a loan from the U.S. to keep Britain afloat. But, as we learn from Mr. Clarke, even this generous act carried seeds of further economic trouble for Britain. A condition of the $5 billion loan was that Britain make sterling fully convertible into dollars. When the premature convertibility came about on July 15, 1947, it was untenable, given the immediate run on the pound, and was abandoned on Aug. 20.

This monetary crisis took place against a background of violence in both the Indian subcontinent, where huge numbers were dying in sectarian killings, and in Palestine, where Jewish terrorists hanged two British sergeants and booby-trapped their bodies to kill those cutting them down. Convertibility ceased five days after partition created the independent states of India and Pakistan, and within weeks Britain handed the fate of Palestine over to the United Nations.

Little wonder. Burdened by its great-power status, which involved the expensive occupation of a large section of northwest Germany with the responsibility to feed Germany's starving population, Britain could not even adequately feed its own people (who faced more draconian rationing in the late 1940s than during the war). Still less could it afford the cost of large troop deployments and the other costs of governing India and Palestine.

The manner in which Britain gave up its responsibilities in these two regions has been the subject of much debate and criticism. It will continue to be. What Mr. Clarke has demonstrated beyond question is that its retreat had long been inevitable, determined by decisions taken earlier in the decade. And who can doubt that Churchill, with his abiding commitment to Anglo-American unity, would have embraced a full Pax Americana no matter what its cost to him and to Britain?

Thursday, June 19, 2008

Ronald Reagan's warnings in the 1980s, about the political dangers of Western Europe's dependence on Soviet gas, now seem prescient.

By Marshall Goldman
(Oxford, 244 pages, $27.95)

Natural gas is a monopolistic business: Building even one pipeline is expensive; building another makes no commercial sense. Russia, with its huge natural-gas reserves, uses its monopoly on east-west pipelines to promote Russia's political interests -- and reacts toughly when challenged. Marshall Goldman sets out these disturbing truths in "Petrostate," a bleak and yet spirited account of Russia's energy politics. The West, Mr. Goldman makes clear, should be wincing at its own vulnerability.
[The Future Is in the Pipeline]

The story, as Mr. Goldman tells it, starts with the first oil boom in the czarist era, when Russia and America together produced 97% of the world's oil. Foreign companies were booted out of the Soviet Union by Lenin and Stalin, only to be invited back in again (on different terms) when their technological expertise was missed. After the fall of communism there was a reverse involvement: Foreigners rushed into Russia to help set up a post-communist economy, only to retreat a few years later.

In between came the era of Soviet go-it-alone energy policy, when oil and gas revenues became the vital prop for Leonid Brezhnev's ailing planned economy. As in so many other parts of the Soviet system, ingenuity battled with incompetence, and incompetence won. The Central Intelligence Agency may have helped matters along by encouraging the Saudis to crash the oil price in the 1980s -- Mr. Goldman suggests as much -- but in the end, he argues, it was the Kremlin's mismanagement of its energy reserves that doomed the Soviet system.

Such incompetence lingers. The greedy and shortsighted engineering practices of the past all but ruined many Russian oil fields: It was routine to pump water in to get oil out, regardless of the consequences. The challenge for current Russian engineers is to coax Russia's shattered geology to cough up more oil -- for example, by drilling horizontally, not vertically. That's a tricky technical challenge. Arguing over the best approach to oil-extraction is at the root of the current row between BP and its Russian partners. The Russians want a dash for cash, while BP is seeking careful, long-term management of the oil fields.

Russia shows more savvy when it comes to selling natural gas abroad, where it has used its pipelines to skewer Europe, striking bilateral deals that might make short-term sense for individual countries but that undermine the leverage and bargaining power of the continent as a whole. Europe is three times bigger than Russia by population and about 10 times bigger in economic terms, yet the eagerness of individual countries for Russia's terms makes Europe politically vulnerable to Moscow's divide-and-prosper strategy. As Russia builds relationships with energy companies that might have been in a position to seek other sources of gas, Europe's ability to diversify its suppliers diminishes -- and becomes a prohibitively costly proposition.

Standing in the nerve center of Gazprom's Moscow headquarters -- staring at a 100-foot wall that electronically displays the spiderweb of natural-gas pipelines spreading across Europe from Russia -- Mr. Goldman marvels: "What an empowering feeling! Should they choose to, those Gazprom functionaries could not only cut off natural gas from the furnaces and stoves of 40 percent of Germany's homes but also the natural gas that many German factories need for manufacturing."

In other words, Ronald Reagan's warnings in the 1980s, about the political dangers of Western Europe's dependence on Soviet gas, now seem prescient. Today Western Europe relies on Russia for half of its natural-gas imports.

It is sometimes argued that Russia's increasing energy consumption and its stagnant production -- its output of natural gas has been virtually flat for the past four years -- will lead to gas shortages in Europe. (They are already biting hard in Russia.) Mr. Goldman dismisses such fears, though much too briefly to be convincing. He also sees no danger of an international natural-gas cartel forming along the lines of the Organization of Petroleum Exporting Countries, one that would presumably include Turkmenistan, Venezuela and Trinidad.

Russia would never let its decision-making be affected by others, Mr. Goldman says. That may be true in the case of price-setting (where the economics are quite different from the oil market, because oil is traded on the spot market, whereas the international gas business is mainly based on long-term contracts). But a possible Organization of Gas Exporting Countries could still help bolster Russia's position by consolidating producer power in exploration, pipeline routes and the market for liquefied natural gas.

The biggest hole in "Petrostate" is its skimpy treatment of the European Union. An important question facing the EU now, for instance, is whether its energy liberalization policy -- unbundling the wholesale and retail businesses in gas and electricity -- will help or hinder the Kremlin. A fragmented market may be even easier to manipulate. Mr. Goldman's sharp mind would be well-suited to untangling such intricacies.

The unanswerable question is whether the Kremlin -- or more precisely, Vladimir Putin -- will use gas as a weapon to gain international political influence. The optimistic view is that business normalizes politics -- in this case, that Russia's need to be a dependable partner will require it to soften its political edge and conform to international standards of behavior. Pessimists fear that gas dependency will lead to the Finlandization of Europe. On the evidence so far, the pessimists have the better chance of being right.