Reading "The Economic Weapon" by Nicholas Mulder
Updated: Dec 10, 2022
The Economic Weapon is a fascinating and highly reaable account of the birth of the modern economic sanctions, a tool, short of war yet short of peace, that dominates the geopolitical landscape of today. Indeed, the spring of this year saw the imposition of some of the most severe and comprehensive sanctions in history, by the Western powers against Russia.
Current events have made the author of this book, Cornell history professor Nicholas Mulder, much in demand. Writing for the Economist in March, he warned that "in an already fragile world economy, the unintended political and economic effects of sanctions can quickly spiral out of control". Rather than simply heap punitive sanctions on Russia, the West must also "focus on directly helping the Ukrainians defend their independence" and "promptly outline clear conditions for the removal of sanctions to encourage de-escalation and an end to this catastrophic war". He also cautioned that "if the goal of the West’s economic war is to end Mr Putin’s war of aggression in Ukraine, then historical experience suggests different measures will be needed" since "sanctions alone have a poor record of halting military adventures".
His warnings inevitably stem from the work that features in The Economic Weapon, and in this book, we can find the historical cases that inform both his prescriptions and his characterisation of modern sanctions.
The Western response to Russia's invasion of Ukraine has consisted of a negative element, punitive sanctions on Russia, as well as a positive element, material aid to Ukraine to bolster its defensive capabilities. This distinction between negative and positive action features strongly in the book. Mulder also warned of the "unintended political and economic effects" of sanctions, and indeed, another central theme of the book is the way in which sanctions contributed to the destabilised world situation of the 1930s. Thus another theme in the book is the distinction between effects and efficacy, between what sanctions actually do, and what they are actually intended to do.
The grand arc of the book is as follows: the blockade of the Central Powers by the Entente during World War I led to the idea that sanctions can be used as a disciplinary tool for world order in the aftermath of the war. This economic weapon was baked into the League of Nations Charter as a deterrent to any would-be violators of the territorial integrity of states. There was some successes when the target was a small and weak state; however, against great powers, the economic weapon proved tricky to manage. The first full-scale use of League of Nations sanctions occurred in 1935, against Italy for its invasion of Ethiopia. While sanctions did not save Ethiopia, they did send a message to the revisionist powers of the era: Germany, Japan and Italy itself, that sanctions were a real threat. This pushed the future-Axis powers into a comprehensive effort to secure autarky - raw materials independence - and it was this effort that contributed to war in the 1930s as Germany sought Lebensraum in Eastern Europe and Japan carved out a sphere of influence in East Asia. The positive economic weapon finally emerged in the ensuing conflict, as the United States used its considerable industrial might to bolster the defence of countries facing Axis aggression.
I: Wartime blockade
The use of economic pressure as a tool of war is age-old, with the first documented instance being a commercial ban imposed by Athens on the port city of Megara in 432 BC (p.13). However, Mulder makes a distinction between economic pressure merely as a tool of war, and economic pressure to "enforce visions of international order", the latter of which forms the focus of the book (p.14). In that sense, modern sanctions are deeply intertwined with the internationalist philosophy that underpin the League of Nations.
The formative experience of modern sanctions was World War I, which saw Britain and France impose crushing economic blockade against Germany, Austria-Hungary and the Ottoman empire. Britain was in a favourable position to wage economic war, given its centrality to global trade and finance. In 1912, the City of London financed roughly 60 percent of world trade through bills of exchange. Moreover, at this time British shipping companies carried 55 percent of world seaborne trade. British insurance companies (most prominently Lloyd's of London) also handled two-thirds of global maritime insurance contracts. The British Isles also produced three-quarters of the world supply of coking coal, used by virtually all cargo ships at the time; these would be dispensed from British ports, or from a network of coal depots controlled by Britain in territories "from the Falkland Islands to Gibraltar". Finally, British companies operated 70 percent of lines in the global telegraph cable network. London therefore held immense control over "the lifeblood of globalization - goods, money, energy, and information" (pp.33,34).
Furthermore, by 1918, the Entente powers (now including the United States) held an advantage in control of critical raw materials, compared to the Central Powers. The former controlled 66 percent of world production of foodstuffs (e.g., wheat, barely, maize and rice), 85 percent of fibre production (e.g., wool, cotton, jute and rubber), 61 percent of mineral production (e.g., iron, copper, nickel and aluminium) and 70 percent of production in combustibles: oil and coal (p.67).
It was the dominant position of Britain in particular in the globalised world of the early twentieth century that allowed it to turn globalisation into a weapon*. Along with France, it instituted a scheme of "contraband control" at the outbreak of war, which entailed enlisting the Royal Navy to intercept ships bound for the enemy and search for prohibited cargo (p.34). In 1916, the "intercept and search" scheme was replaced by an even more sophisticated rationing system that assigned trade quotas to neutral countries in the effort to prevent them from redirecting contraband to the enemy (p.42).
*Decades later, in 1935, Stalin could note that Britain was "a small island" but "a lot depends on it. If this small island tells [Nazi] Germany, 'We will not give you money, raw materials, metal,' peace in Europe would be guaranteed" (p.198).
In time, this system of blockade was augmented by a financial dimension. In August 1914, the British War Trade Department was empowered to confiscate any enemy property and investments across the British Empire. In January 1917, the Treasury even acquired the ability to seize any foreign security held in the City of London (p.37). Eventually, a system was also put in place to surveil and block financial transactions that could be financing the enemy (p.50).
This vast system of sanctions eventually wrought destruction on enemy civilian populations. In Ottoman Greater Syria, an estimated 350,000-500,000 civilians died between 1915 and 1918, largely due to famine. This was caused in part by a locust attack in 1915, as well as the requisitioning of grain and animals by Ottoman army; however, Mulder notes that "it was the blockade that massively compounded the dislocation of regional agriculture, causing a food crisis to tip into starvation and eventually mass deaths", given that the Anglo-French blockade cut off all maritime food supplies to this import-dependent region (p.58).
Central Europe shared a similar fate. An American doctor visiting the region in early 1919 could note that "blockade had done its work. Absolutely nothing left. Every clock in Prague gone, melted for the metals". British journalist Henry Brailsford witnessed in Vienna "children dressed in suits neatly made from sacks. In many hospitals children had to be wrapped in paper, for want to sheets and blankets. Whereas before, Vienna had "lived on the coal of Bohemia, the wheat of Croatia and the meat of Hungary,... now it stands alone". Brailsford concluded that "Austria is doomed to death if the [postwar maintenance of the] blockade continues for many weeks more" (p.88). In Germany, an estimated 300,000 civilians died from the effects of privation due to blockade (p.81).
However, Mulder contends that despite its drastic effects on everyday life in the Central Powers, economic war played "at most a supporting role in the outcome of World War I". He notes that while sanctions were meant to impose grinding punishment on civilian populations that would then exert pressure on their leaders, the opposite in fact happened. After the capitulation of Bulgaria, it was military chief Erich Ludendorff who was "begging the civilian government in Berlin for an armistice", in contrast to politicians at home who were "calling for an all-out war of resistance against the Allies". Thus, it was demoralised troops on the frontline who sought peace, not "ravenous citizens driven to revolt by blockade" (p.80).
The efficacy of blockade measures were in any case limited by the self-sufficiency of the German economy in key areas. For example, Germany was dependent on foreign food imports for only a quarter of its caloric consumption, hence the war affected Germany more negatively by conscripting millions of agricultural workers rather than severing these imports. Germany's food situation actually improved from July to September 1918, due to a good harvest, as well as a new influx of supply from Eastern Europe following the surrender of Russia. Moreover, though Germany's export industries were blocked from selling to world markets, resources were simply diverted to war mobilisation, such that war production in 1918 exceeded that in any preceding year (p.80).
Despite the limited role of blockade in the Entente victory, both the victors and the defeated agreed in believing that economic war was decisive. German and Austro-Hungarian state officials were "keen to blame external forces for internal collapse instead of drawing attention to their own failures in war-economic planning". Moreover, German nationalists began to espouse the "stab-in-the-back" legend, where an undefeated army was brought down by civilian betrayal (p.81).
For the administrators of blockade in the Entente powers, many of whom were internationalists, stressing the power of economic war was politically useful insofar as justified the institution of economic sanctions as a peace-enforcement weapon at the nascent League of Nations (p.81).
II: Sanctions as Enforcer of Peace
In Britain and France, those with direct experience of wielding blockade as a weapon saw it as a potentially useful tool for future global governance. As early as September 1916, British Minister of Blockade Robert Cecil penned a memorandum to War Secretary David Lloyd George speculating that such a tool may be able to defuse crises such as that between Austria-Hungary and Serbia in July 1914, which ignited into the current war.
Cecil noted that not all peaceful options for resolution had been exhausted by the outbreak of war; what was needed was some sort of "great power conference" or arbitration procedure to peacefully settle the crisis. Still, it would be difficult to compel the opposing parties to respect the outcome of such a procedure. "If, however", Cecil notes, "an instrument could be found which would exert considerable pressure on a recalcitrant Power without causing excessive risk to the Powers using it, a solution of the difficulty might perhaps be found. I believe that in blockade as developed in this war such an instrument exists". If overwhelming naval power could be combined with overwhelming financial power, "no modern State could ultimately resist its pressure" (p.46).
This idea also found attraction among French internationalists. In late 1917, Henri Hauser, chief advisor to Minister of Commerce Étienne Clémentel, wrote in a memorandum that blockade served several distinct roles in the present war, including as a "combat weapon" against the enemy and a "measure of persuasion and attraction with regard to neutrals", but also, most significantly, as "one of the foundations and most effective guarantees of the new international order that will have to be founded after this war" (p.48).
The peace-enforcing role of sanctions was also envisioned by journalists and intellectuals outside of government. J.A. Hobson, the famous critic of imperialism, wrote in a 1915 book titled Toward International Government that under threat of being severed from world markets, "every section of the industrial and commercial community would bring organized pressure on its Government to withdraw from so intolerable position and to return to its international allegiance". Hence, the political power of self-aggrandising financial and export-industrial interests, which traditionally pushed governments into imperialist aggression, would now be used to stop aggression (p.74).
The same year, British journalist Normal Angell exhorted his readers to "imagine the position of a civilized country whose ports no ships from another country would enter, whose bills no banker would discount, a country unable to receive a telegram or a letter from the outside world or send one thereto, whose citizens could neither travel in other countries or maintain communication therewith ... We have little conception of the terror which such a policy might constitute to a nation ... But if this machinery of non-intercourse were organized as it might be, there would be virtually no neutrals, and its effect in our world to-day would be positively terrifying" (p.74).
It was precisely this terror that turned economic sanctions into a viable deterrent against aggression. In 1919, journalist Henry Brailsford, who had witnessed the suffering wrought by sanctions in Central Europe, excitedly speculated that since "raw materials, including foodstuffs, have become the pivot of world-politics", a League of Nations that could recruit all other civilised states to stop this flow would have "a sanction at its command which every State must dread". In December 1918, South African Defence Minister Jan Smuts similarly envisioned that aggressor states would "become ipso facto at war with all other members of the League, great and small alike, which will sever all relations of trade and finance with the law-breaker"; sanctions could work as an effective deterrent since "the effect of such a complete automatic trade and financial boycott will necessarily be enormous" (p.79). Such confidence was echoed by others such as British foreign secretary Arthur Balfour, who noted stridently in 1920 that "no nation would destroy itself in these civilized times by inviting such a penalty" (p.111).
Such enthusiasm ensured that sanctions would be baked into the global governance scheme encapsulated in the League of Nations Covenant. Article 16 stipulated that sanctions would be imposed on a state that committed an act of aggression (defined in Article 10 as "armed action" against the "territorial integrity" or "political independence" of a member state). Upon such an act, the League Council could vote to institute sanctions against a member state, following which all member states would take economic countermeasures against the offending state. However, in a true novelty in international relations, it would be possible for a nation to take these measures without entering a state of war; hence despite the offensive nature of sanctions, they would act as a peacetime policing measure (p.118).
So, sanctions were here to stay, but did they actually work to deter aggression? As it turns out, yes but only when they were used by the great powers against much weaker states. In the interwar period, there were two such successful examples: against Yugoslavia and Greece respectively.
In the years after the end of the war, tensions simmered in the border between Albania and its northern neighbour Yugoslavia, given the "expansionist ambitions" of the latter. Serb forces in Yugoslavia exploited local divisions among northern Albanian clans to secure influence. The conflict escalated in July 1921 when one clan declared an autonomous republic in the country's north, triggering a Yugoslav ground offensive that "endangered Albania's survival as a state" (pp.123,124).
In response, British prime minister David Lloyd George quickly raised the threat of sanctions. Before the House of Commons, he threatened a Royal Navy blockade of the Adriatic and the severance of diplomatic relations unless the "raids and slaughter" stopped at once. These threats were echoed across Europe and the United States, including at a meeting of the League of Nations Council in November. These announcements "bought the time necessary to let diplomacy do its work"; before long, the Albanians and Yugoslavs agreed on a border and hostilities died down (p.124).
Afterward, the League deputy secretary-general Frank Paul Walters wrote that "there can be little doubt that Albania owed her survival as an independent State to the action of the League ... and to the threat of sanctions so unexpectedly sounded forth from London". The Economist similarly claimed that "the mere threat of reference to the League set the dinar falling on the London [money] market, and this is what induced the Jugoslav Government to give way so promptly". Thus, the significance of this episode was that it "vindicated internationalist hopes that the economic weapon had a genuine and powerful effect" (pp.124,125).
The sanctions threat was put to action once again in late 1925 when war erupted between Greece and Bulgaria. In October, an exchange of gunfire occurred between Greek and Bulgarian troops at the border (likely precipitated when a Greek soldier chasing his dog across the border was shot and killed by Bulgarian guards). Within days, several battalions of Greek forces had invaded Bulgarian territory and begun bombarding the town of Petrich. Bulgaria appealed to the League for mediation, and days later, the League Council communicated a "gradated sanctions package" to the Greek government: unless Greek forces withdrew, diplomatic relations would be severed, followed by a naval demonstration, and then a full blockade. The next morning, Athens surrendered (p.154).
In both the Yugoslav and Greek cases, sanctions had worked because the two countries were vulnerable to blockade. Yugoslavia was a "small Balkan state unable to fight the great powers" (p.125). Meanwhile, Greece's dependence on imported food made it highly vulnerable to commercial blockade (p.153). In both cases, notably, sanctions had not been used, it was their mere threat that produced the intended outcome.
However, it was a much greater challenge to threaten and successfully impose sanctions on a medium-sized power, such as Fascist Italy. This was seen in two cases: an Italian-Greek dispute in 1923, then Italy's full-scale invasion of Ethiopia in 1935.
In August 1923, an Italian general was killed by bandits in northwestern Greece; when Mussolini issues a series of demands and these were agreed to only partially by the Greek government, an Italian naval squadron was sent to bombard and occupy the island of Corfu. The British government immediately began to explore the possibility of Article 16 sanctions; however, there were three primary obstacles. First was the challenge of instituting blockade against a state with an economy and navy as strong as that of Italy. The Treasury argued that the "only way of blocking Italian access to international financial markets and commerce would be to reintroduce the system of control and surveillance instituted during the wartime blockade", a tall order especially if Britain was not technically in a state of war. Moreover, the Admiralty contended that an actual blockade would be possible without first neutralising the Italian fleet, an operation that would "entail open war" (p.128).
Second, instituting full blockade would be difficult without US participation, since the Italians would still be able to access world markets unless the Americans joined in the sanctions. The US was not a League member, and even though the US press was "fiercely condemnatory" there was still "little appetite for intervention against Mussolini". Finally, even though the British were keen to press the issue of Italian aggression, the French were not. Earlier that same year, France and Belgium had undertaken a military occupation of the Ruhr region of Germany in order to ensure reparations payments under the Versailles Treaty. Italy had voted to authorise the Ruhr invasion on the Allied Reparations Committee, and in any case the French were keen to avoid "international scrutiny of its own Ruhr occupation". Hence, overall, threatening sanctions to deter aggression, which had been possible against Yugoslavia in 1921, proved "too difficult and risky" against Italy in 1923 (pp.128,129).
Similar issues plagued the use of sanctions against Italy when it launched an invasion of Ethiopia in October 1935. This time, the Article 16 was in fact invoked, as fifty-two League member states imposed an arms embargo on Italy, as well as a financial freeze, an embargo on imports from Italy and restrictions on the export of certain goods to Italy. The assumption here was that Italian forces would not be able to take the Ethiopian capital Addis Ababa for at least another year, and that by then, the embargo on exports coming out of Italy would drain Italian foreign exchange reserves and limit Mussolini's financial ability to prosecute his war*.
*This was the so-called "Treasury theory" of sanctions, which emphasised blocking target country exports in order to drain the foreign exchange reserves needed to purchase imports; as opposed to the "Admiralty theory", which emphasised directly blocking imports through means such as naval interception (p.203).
There were, however, two factors that served to limit the blockade's efficacy: the reluctance of the United States to join an oil embargo, and the reluctance of the Britain and France to take drastic military action that may pull them into war with Italy. The League never instituted an oil embargo on Italy for the simple reason that the United States refused to participate; since American oil companies controlled 60 percent of global oil production, an embargo without US participation would be futile. In fact, in December 1935, US oil shipments to Italy had risen 446 percent compared to a year earlier. Roosevelt called for a "moral embargo" by American business against Italy, but he was hamstrung by the US Neutrality Act of 1935, which prohibited war materiel exports to belligerents, but did not prohibit trade in "civilian goods" such as oil. The law expired in February 1936 but was extended by the Senate until May 1937, ensuring that the US could take no action to jeopardise Italy's oil supply (pp.216-219).
There were, of course, more drastic measures that Britain and France could have taken even in the absence of US participation. The most obvious was to block Italian access to the Suez Canal, which was controlled by Britain and France, and on which Mussolini completely depended as a route from Italy to East Africa. However, Mussolini had repeatedly announced that he would consider such an act "tantamount to a declaration of war", and as such, the British and French ruled it out as an option. A second option was to institute a "water blockade" of Italian forces in East Africa; these forces depended on large freshwater stores kept at the British-controlled ports of Aden, Port Sudan and Mombasa, and with sufficient effort, these stores could have been blocked from Italian access. However, here again, this option was ruled out because it was considered a "military action", rather than a commercial prohibition (p.221).
Mulder perceptively points out the double standard at work: the British and French were loathe to take coercive measures against a "fellow European empire" such as Italy, though it was more than happy to threaten action against weaker Balkan states in 1920s, or indeed against colonial populations, as in 1925 when the British and French instituted a food blockade of Canton in response to a Cantonese boycott of Hong Kong business (pp.148,149). They refused to take drastic action against Italy because it would be too costly to themselves.
However, apart from this reluctance, sanctions against Italy were further undermined by Mussolini's efforts, in the decade prior, to build Italy's autarky, or economic self-sufficiency, a drive that was motivated by the threat of sanctions in the first place.
According to Mulder, Italy's autarchic policies in the 1920s were rooted in the experience of World War I, where delayed deliveries of American grain and British coal had "fanned widespread social unrest". Thus, in 1925, Mussolini launched his "Battle for Grain" campaign, enlisting farmers and industrial corporations in an effort to boost agricultural self-sufficiency. From 1930 to 1933, Italy was able to reduce its imports of cereals by more than a half. By February 1935, the Italian government had also instituted a comprehensive set of administrative controls on trade in an effort to preserve strategic materials and foreign exchange. Hence, by the time the League sanctions were imposed, Italy could survive them due to the existence of this system, which allowed for strict reserve management and severe austerity (pp.233,234).
The Italian regime pursued this effort at full throttle after the imposition of sanctions. Queen Elena and Rachele, Mussolini's wife, inaugurated a new special holiday, the Giornata della Fede, where women would offer their wedding rings and jewellery to the state as a source of precious metals. Young children were recruited to "[roam] the nation's streets, junkyards, and homes to gather cutlery, utensils, broken bicycles and other forms of scrap metal" for recycling (p.235).
Italy's efforts ranged as far as the development of synthetic fibres, such as rayon, and the development of new sources of coal and oil. In 1935, the government began producing coal mines and oil wells in Sardinia and Albania respectively. In Sardinia, the new town of Carbonia (the "city of coal") was built to great fanfare to house migrant workers from Marche, Sicily and Abbruzzo. In Albania, fuel extraction took place at the town of Kuçovë, which Mussolini renamed Petrolia (the "city of oil"); Albania hence became a "petrocolony of the Fascist empire" (pp.239,240).
In the end, though Italy took remarkable steps to increase its self-sufficiency, its endemic lack of raw materials ensured it would remain dependant to a significant extent on imports. Nevertheless, the larger point here is that sanctions, or the threat thereof, played a considerable role in driving Italy's search for autarky. Even though sanctions had failed at halting Italy's invasion of Ethiopia, they were able to impose significant damage on the Italian economy, and this motivated a search for autarky not only in Fascist Italy, but also in Nazi Germany and Imperial Japan. The imposition of sanctions on Italy in 1935-36 "accelerated the search for a very specific form of economic autarky: resilience against sanctions or blockade that cut off imports of raw materials" in these revisionist powers. Given that all three were not self-sufficient in raw materials, the ever-present threat of sanctions drove them into a quest for territorial expansion: for Germany, in Eastern Europe, for Japan, in East Asia (p.227).
Hitler himself spelt out this logic to French ambassador André François-Poncet in November 1935, noting that "if economic compulsion were employed to achieve political ends, the result would be that every State would try even harder than before to make itself economically independent of other States". He warned that Germany itself would "draw the logical consequences from the repressive measures decided by the League of Nations" (p.243).
Hence, the Four-Year Plan that emerged in the summer of 1936 reflected the Nazi regime's desire to achieve "blockade resilience" (Blockadefestigkeit). Noting that a "67-million-strong people cannot be dependent on the mercy of its neighbors", the document asserted the need for fuel independence by March 1938 and "readiness to wage war" by September 1940 (supposedly, war under the condition of sanctions) (p.245).
In this endeavour, the Germans placed an emphasis on Eastern and Southeastern Europe; since trade in this area could not be easily severed by the Western powers, it "fit snugly into the strategy to attain blockade resilience" (p.246). After all, in World War I, the surrender of the Russian empire and Romania had significantly improved the Central Powers' raw materials situation by granting them access to Ukrainian grain, oil from Romania and ore and oil from the Caucasus (p.65). Now, Yugoslavia could offer the Germans a source of iron ore, cooper and tin, while Hungary supplied bauxite, livestock and wheat. Romania could supply grain and oil, and so could the enormous Soviet Union to the East. It was this calculus that drove Hitler to annex Austria and the Sudetenland of Czechoslovakia.
However, German blockade-phobia eventually "drove the regime to such extremes that blockade resilience was undermined", as the Americans imposed a retaliatory tariff on Germany for its occupation of Czechoslovakia. However, instead of surrendering under the pressure of sanctions, Hitler's stance hardened and his ambitions increased. Preparing for full-scale war against the West, he resolved to secure as much territory as possible, informing a League high commissioner in August 1939 that "I need Ukraine, so that they cannot starve us out like in the last war" (p.249)*.
*The economic logic that drove Nazi Germany to an aggressive war of conquest is described in close detail in Adam Tooze's book The Wages of Destruction, my review of which can be found here.
The risk of these adverse, unintended consequences of economic sanctions had been perceived before. In 1915, J.A. Hobson warned that "the extreme pressure of the boycott might lead to forcible reprisals by the boycotted State, which would, in fact, precipitate war". Similarly, Norman Angell recognised that organised economic coercion could destabilise the interconnected currents of the world and "there might result between nations a sort of competition for self-sufficingness which, ill directed, might conceivably end in buttressing that immoral nationalism that was one of the causes of the [Great] war" (p.75).
Similarly, in response to the French-Belgian occupation of the Ruhr, the Economist lamented the limitations, and potential adverse effects, of economic pressure, noting that "the hedonistic calculus is not the whole of human nature. If Germany were entirely cool-blooded and cool-headed, she might lie down under this treatment for fear of worse. But all news that comes from Germany points to a closing of ranks, and a rapidly rising temper, and history shows that whenever a community is driven beyond a certain extremity it fights without counting the cost" (p.127). Alas, human beings are not simply machines programmed to maximise material profit.
Hobson and Angell's warnings were finally realised in the case of Germany, and so it was with Japan. Studying World War I, Japanese leaders felt that "the fate suffered by imperial Germany ... at the hands of the Allied blockade had grave implications for their own country". The Japanese home islands were notoriously deficient in raw materials, and so the military sought to establish a sphere of influence in East Asia. In September 1931, Japanese officers launched an invasion of the northeastern Chinese region of Manchuria, setting up the puppet state of Manchukuo, in which they sought to create a "resource-intensive industrial base" (p.249).
According to Mulder, these plans were largely derailed by the outbreak of full-scale war with China, controlled by the Nationalists under Chiang Kai-Shek, in July 1937. One consequence of the military entanglement was to increase Japan's dependence on the Western powers and their empires for raw materials, at the same time as they were growing increasingly antagonistic to Japan. The United States for its part began to crack down increasingly on its trade with Japan, culminating in a crushing oil embargo in August 1941 in response to Japan's invasion of Indochina.
However, a year earlier, the historian Elizabeth Boody Schumpeter was able to warn that "we cannot assume as so many people do ... that an embargo or some other form of economic pressure will so discourage the Japanese army that it will pack up and leave China, or that it will cause the Japanese nation quite suddenly to stop supporting its army. Human nature does not react in that way unless on the point of exhaustion" (p.257). Indeed, as early as 1932, amid discussions on whether to impose sanctions on Japan for its invasion of Manchuria, American economist George Soule had contended that it was likely that "a proud people like the Japanese, opposed by the hostility of the world, would believe that they must now make themselves impregnable by consolidating a great Eastern empire or [else] sink to an ignominious existence as a disgraced and second-rate power" (p.184). In light of history, their warnings look remarkably prescient.
IV: The positive economic weapon
The deterrent potential of economic sanctions thus co-existed with a marked tendency to produce unintended, destabilising effects, seen especially in the cases of Fascist Italy, Nazi Germany and Imperial Japan. Each sought to carve out self-sufficient economic spaces through aggression in order to remedy their ever-present vulnerability to blockade by the Western powers. Thus, their gambits for autarky were driven by the desire to avoid the crippling effects of offensive sanctions.
However, Mulder contends that the use of sanctions as a tool for global governance could have been made less de-stabilising by augmenting offensive blockade with the defensive procedure of offering material aid to states that fall victim to aggression. In this scheme, the focus is less on the punitive and 'terrifying' aspects of sanctions - crippling the economies of aggressor states - and more on the defence of victim state sovereignty by ensuring their supply of the means to prosecute their defence.
By the outbreak of World War II, this was not a new idea. In 1924, French foreign minister Aristide Briand had suggested that the League's economic measures would carry more heft "in the form of mutual assistance than in the form of [offensive] sanctions". This "positive weapon" presented several advantages. It negated the need to intercept American shipping and trigger disputes with Washington; rather, it "roused the commercial instincts of U.S. export firms", except this time it could channel them toward states under attack. Finally, mutual aid presented less risk than offensive sanctions of getting embroiled in conflict with the aggressor (p.136).
Despite further proposals by France, Finland and Poland over the years, positive sanctions were never instituted as part of the League's sanctions mechanism (pp.159-162). As late as 1935, an attacked state could attempt and fail to secure material assistance from the League, as Ethiopia did under Italian attack. This was despite the insistence of John Maynard Keynes that guaranteed loans to Ethiopia would "revolutionize the effectiveness of Ethiopian defense" (p.223).
The positive weapon would not emerge in any significant form until the United States unleashed vast amounts of assistance to Britain, China and the Soviet Union as Lend-Lease aid from 1941-45. This was the beginning of an era of massive economic assistance by the United States to warring parties all over the world; whether they be France in Indochina in the 1950s, the Mujahideen in Afghanistan in the 1980s, or Ukraine in 2022.
The interwar period saw a revolution in concepts of war and world order. Whereas previously, non-warring states had obeyed neutrality and traded according to commercial principles, now, neutrality was a thing of the past, and upon an act of aggression, all states would be enlisted to punish the aggressor. Whereas before, economic blockade was an act of war and required a state of belligerency, now, states can apply sanctions as they wish without incurring the costs of military conflict. The immensely globalised world of the late nineteenth and early twentieth century lent much power to the threat of economic sanctions, especially when wielded by such integral states as Britain and France, a privilege enjoyed by the United States today.
Perhaps the most interesting point I gleaned from this book was that sanctions, or the threat thereof, were employed as an enforcement mechanism by the League of Nations. The League is often cast as an ineffectual actor, lacking "teeth", and allowing the revisionist powers of the 1930s to plunge the world into war. This book reveals that in fact, coercion stood at the heart of the League; it is just that the sanctions prescribed were economic, not military (notwithstanding early French proposals to institute something like a League standing army).
Furthermore, Mulder is at pains to emphasise that sanctions in this period, and up to today, are powerful instruments; however, they do not always produce the outcomes intended. They were powerful enough to inflict a sufficient blow on the Italian economy to drive Nazi Germany and Imperial Japan to scramble for autarky, a gamble which proved disastrous for both. UN sanctions also inflicted immense suffering on the population of Iraq in the 1990s, taking hundreds of thousands of lives and "damag[ing] the country's economic and social fabric"; however, as a tool of regime change they proved "grievously counterproductive" (p.293). Indeed, Mulder notes in his Economist article that out of nineteen uses of sanctions to prevent or end war in the twentieth century, only three have succeeded: the Yugoslavia/Albania and Greece/Bulgaria cases cited earlier, as well as the economic measures taken by the United States to force a British and French retreat from Egypt in 1956. Thus, sanctions are powerful yet inherently unpredictable.
I read this book after having just read Tomorrow, the World by Stephen Wertheim, which traces the roots of US global military supremacy in World War II. Wertheim's argument was that prior to the war, the United States sought to stay clear of the "entangling alliances" of great power politics, preferring instead to enjoy the liberal intercourse of a globalised world. Nazi domination of Europe ushered the end of that kind of world, and demonstrated that "pacific forms of engagement ... would extend only as far as military force permitted" (p.49, Tomorrow).
Throughout the interwar period, the use of sanctions to enforce a liberal world order was consistently undermined by the neutralist position of the United States. This was most evident during the Ethiopia crisis of 1935, when the US refused to institute an oil embargo, and American oil companies in fact boosted their shipments to Italy. After the breakdown of international order in the 1930s and early 40s, the US inserted itself right into the centre of the picture as the predominant agent of world order. It played a large role not only in winning World War II for the Allies, but in crafting the United Nations Organisation that would come after (whose headquarters ended up in New York, unlike the League, which was based in Geneva).
Combining the two books, one could speculate that the US turn to global hegemony was in some way a reaction to the failure of the League to produce and maintain world order. The League was meant as an un-defeatable police organisation that could hold all states accountable; however, states could leave whenever they wanted, and in any case the League's primary enforcement mechanism was riddled with weaknesses, foremost being the discretionary nature of the sanctions and the non-participation of the United States. Time and again, League sanctions were undermined by the reluctance of Britain and France to stomach the risk of war incurred by blockading a country such as Italy, especially without US support. The agent of world order in the post-war era would have to be even stronger and more reliable, and conveniently the United States fit the bill. Of course, however, there is little penalty for when the ordering agent itself violates global norms and international law.
Now, the United States and its allies throw around sanctions with much greater frequency and enthusiasm than ever before. However, the long-term effects of sanctions on the globalised state of the world are unpredictable. As Mulder notes in the aforementioned Economist article, sanctions are "no longer scalpel-like instruments than exploit globalisation", rather they are a "tempest that will change the nature of globalisation itself in major ways". This is because sanctions can have a "chilling effect that will persist in private-sector decision-making". In other words, sanctions can produce and lock-in drastic realignments of global trade and investment, such as those we have seen since the start of the current Russian invasion.
Such developments would undermine the potential of sanctions to help end conflict in Eastern Europe; how can they be used as an effective bargaining tool against Russia when world trade and business has already found a new equilibrium? However, the more profound effect may be in creating a world where globalisation and liberal intercourse are replaced by politico-economic blocs facing each other in a state of "warlike peace". Such a collapse of globalisation occurred in the 1930s. It could also happen now.