70 Finance & economics The Economist February 19th 2022
Thewonks’weapons
J
ust afterthe end of the first world war and the dissolution of
AustriaHungary, one observer noted that “every clock in Prague
[was] gone, melted for the metals.” Another, in Vienna, saw chil
dren“wrapped in paper, for want of sheets and blankets”. At the
time much of Europe was under strict economic sanctions, as
western powers tried to hold the postwar peace and restrain
communism. It was the first time that the “economic weapon”, the
title of Nicholas Mulder’s new book, had been used, but by no
means the last. By the 2010s a third of the world’s population lived
under sanctions. Prominent among the current targets is Russia,
which will face further sanctions if it invades Ukraine. Mr Mulder,
of Cornell University, looks at sanctions over the three decades
after the first world war—and reaches unsettling conclusions.
Economic war against civilians is a centuriesold phenome
non. During the Hundred Years’ War English troops launched
countless brutal sieges against French garrisons, often starving
them into submission. Blockades were an important part of the
toolkit of the naval wars of the 18th century. Sanctions were and
are different. Rather than being imposed by one country on anoth
er, they often involved groups of countries coming together to
punish rogue states. The formation of the League of Nations in
191920 made coordinated action easier. And rather than being
seen as an act of war, sanctions were often supposed to prevent it.
Sanctions were also the product of the first great wave of glo
balisation. In the 70 years to 1914 trade flows rose from 5% of global
gdp to 14%, then an alltime high. With economies ever more in
tegrated, likeminded governments had many points of leverage
over renegades, whether by denying them the supply of crucial
raw materials or by refusing to buy their goods.
The role of finance truly distinguished sanctions from previ
ous economic warfare. In 18701914 annual capital flows averaged
4% of global gdp. The Allied powers controlled the world’s main
financial centres. Economists, as well as traditional military
types, thus helped design sanctions. They aimed to hit aggressor
states where they were weakest: in their financing requirements.
Mr Mulder’s book is filled with anecdotes of how sanctions
worked in practice. As signs of impending war grew in 1935, Italian
companies such as Pirelli (tyres), Fiat (cars) and Montecatini(chemicals) were denied financing for their import needs by the
Bank of England. By August 1941 expansionist Japan was cut off
from the rest of the world economy, having lost 90% of its foreign
oil supply and 70% of its trade revenues. Enforcing sanctions re
quired a great deal of effort in a world of increasing financial inge
nuity. In the late 1910s Banco Holandés de la América del Sud, a
Buenos Aires subsidiary of a Dutch bank, used five different
names to undertake transactions for various Latin American sub
sidiaries of German banks.
William ArnoldForster, a British administrator, argued that
sanctions could “make our enemies unwilling that their children
should be born”. Indeed, they could have horrific effects. Of the
three main weapons targeting civilians during the period—air
power, gas warfare and economic blockade—blockade was by far
the deadliest, Mr Mulder argues. “Pens seem so much cleaner in
struments than bayonets,” ArnoldForster wryly noted.
Whether sanctions achieved their objectives was another mat
ter. Small countries could be bullied into obedience, such as on
two occasions in the 1920s, when the threat of sanctions stopped
skirmishes in the Balkans from escalating into wider war. Bigger
powers were tougher nuts to crack. Overall, “most economic sanc
tions have not worked”—the first lesson of Mr Mulder’s book.
Most significantly, they did not stop Germany from choosing war.
Sanctions sometimes failed because of insufficient political
will. For a long time American opinion had it that sanctions were
fundamentally unAmerican, an anachronistic form of European
style imperialism. In other cases financial globalisation con
strained, rather than widened, sanctioners’ room for manoeuvre.
Britain refrained from imposing a severe financial blockade of Na
zi Germany in the mid1930s in part because British banks held
huge amounts of German debt. In the event of sanctions the Reich
would stop servicing this debt, and British financiers worried that
the City would face a solvency crisis.
The second lesson of Mr Mulder’s book is that sanctions can
have unintended consequences. By the 1930s global politics and
economics had radically changed from the 1920s. The Great De
pression had sent many governments down a protectionist route.
Global trade was in a long slump. Fascism was on the march.Doom loop
Sanctions, Mr Mulder shows, added fuel to the fire. Governments
that believed themselves vulnerable to sanctions withdrew even
further from the global economy, in order to secure strategic inde
pendence. In the 1930s Japan sought to develop a “yen bloc”, an
economic zone including Korea and Taiwan, so as to reduce de
pendence on the Allied powers. In the mid1930s Germany gunned
for “rawmaterials freedom”, in part via the construction of mas
sive capacity for the synthetic production of oil. (Anyone witness
ing Russia’s efforts in recent years to wean itself off Western fi
nance may conclude that nothing much has changed.) It also ne
cessitated conquest. “I need Ukraine”, said Adolf Hitler in 1939, “so
that they cannot again starve us out like in the last war.”
In that sense the international search for effective sanctions
and the ultranationalist search for autarky “became locked in an
escalatory spiral”. Sanctions did not work in a deglobalising world,
and contributed to its continued fracturing, in turn setting the
stage for the second world war. Mr Mulder is too careful a histori
an to labour the parallels between what happenedintheinterwar
period and today, when geopolitics is once again fractiousand glo
balisation is in retreat. But the lessons are sobering.nFree exchange
A new history of sanctions has unsettling lessons for today