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Branko Milanović: Cold War economics was an attempt to deny the existence of social classes

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After the 2008 crisis, studies on income inequality gained momentum. Especially with Thomas Piketty’s Capital in the 21st Century, the concept of inequality, which has become popular both in academia and in the general public, seems to be a consequence of the disappearance of ‘middle class prosperity’ with the financial crisis and the austerity policies that followed.

Branko Milanović, for many years chief economist in the research department of the World Bank, now a research professor at the City University of New York, is known for his research on inequality. In his latest book, Visions of Inequality, Milanović takes the thinking on income inequality of six great economists (François Quesnay, Adam Smith, David Ricardo, Karl Marx, Wilfredo Pareto, Simon Kuznets) and examines how ideas on inequality have changed from the birth of capitalism to the Cold War and the present. Milanović believes that both the disappearance of the Soviet Union and the 2008 crisis have profoundly changed our understanding of inequality.

We talked to Milanović about his latest book, how the Cold War made the views of classical economists, also known as liberals, one-sided, and inequality research after the 2008 crisis.

You do mention in your book the lack of income inequality studies in both socialist and capitalist countries, and you mark this approach as ‘Cold War economics.’ I recently read a book from Samuel Moyne and he also called Cold War liberalism during the Cold War era. And he claims that the liberals themselves cut their past, their progressive past during the Cold War. So how did Adam Smith become a champion of free markets in the 20th century, even if he thought that the state administration is never given to the capitalists due to their narrow interest against the public?

I can split this into two questions. So let me do that chronologically. I’ll start with Adam Smith question and then I’ll talk about the lack of work on inequality studies during what they call the Cold War economics, because to some extent actually one really has to look at it chronologically.

My book, just to mention for those who don’t know, deals with the sort of top most important economists and looks at how they have actually looked at inequality. It starts with François Quesnay before the French Revolution, then goes to Adam Smith, David Ricardo, Karl Marx, Wilfredo Pareto and Simon Kuznets. And then in the last chapter, which covers the period that you actually alluded to, from 1960 to 1990, the book ends at the end of the Cold War.

I think what is quite clear if one reads especially The Wealth of Nations is that it is a book written clearly based on the idea of self-interest, whereas the Theory of Moral Sentiments is based on the idea of empathy. People believe that the Theory of Moral Sentiments is pro-left, in the sense because it’s sort of softer.

But in reality, actually when you read the two of them, it is the opposite. It’s actually The Wealth of Nations is an extremely tough book regarding capitalists. It is a tough book regarding any type of organization. And the government is an organization. So obviously Adam Smith, as we all know because that part of another Smith has been propagated, is very hard on government regulation and on government trying to impose the rules that they themselves, people of the government don’t observe like for example corruption. They could be corrupt themselves, but they impose the rules on others that they should not be corrupt. Then it’s very tough on all as a set of associations, including organized religion. And it’s somewhat tough, but not too much, all labor unions, and I will explain later why not so much. But it’s extremely critical of any organized capitalist associations.

And that part of The Wealth of Nations is hardly ever mentioned because it is not something that the Chicago School and then the Wall Street Journal or others want to hear, but it is extremely tough and the reason is the following: He believes that of course capitalists are few in numbers, so they can coordinate much more easily than workers. Workers, thousands of them, millions, are dispersed.

But capitalists of course, are actually very few in numbers. They can coordinate better and they can have much greater influence on government policy because, as he says, they are sophisticated, and whereas workers of course are less educated, and they don’t have that access to power. So specifically, for example, he mentions that there should not be government facilitation of capitalist meetings. And this is so bizarre when you read that during Davos because it is a total reversal of the situation which existed even like 50 years ago that the government would not ostensibly go and show itself having a meeting of capitalist leaders. You know, the government had in those days to keep itself at least formally separate. But nowadays, as you can see, they actually are keen to go there.

So that’s what Adam Smith views in The Wealth of Nations and I would actually really urge people to read The Wealth of Nations, the entire book. It’s a long book, but it’s not a boring book and doesn’t actually go with interpretation, which is based on really selective excerpts from The Wealth of Nations.

But I think it is an important contribution, I believe, with the book to bring Adam Smith in a more truthful way, not only to go with the selected paragraphs.

Then the second question I will brief on that relates to the absence of the studies during the Cold War economics. Now I have to say something that was very interesting that you mention, is that I came up with the name, you know Cold War economics. I had no idea that Samuel Moyn at the same time totally unrelatedly came up with Cold War liberals. And actually I’ve read and learned about the book and I bought the book only after I finished my book. You know, my book I think was already published and I said wow, this is very interesting that we came up with a fairly similar, you know, title for either liberals or the economist.

For economics, my rationale was the following. To say that was only, neoclassical economics, which it was, is to some extent accurate, but it had something else. That’s something else was really a politically motivated attempt to deny the existence of social class. And that goes back to similar denial which existed in socialist countries, because of course they claim to have eliminated the capitalist class and then to have a classless society.

The US as we know was in an ideological and with other competitions; there was an ideological competition with the Soviet Union and also between capitalist and communist countries. So the US essentially claimed, which doesn’t come strangely because the US always claims to some extent to be classless society. But then the economics or the economists started claiming the same because the point was, ‘OK, neoclassical economics says to us that everybody has some type of assets.’ And then of course as you know they started using subscripts. For us, if there is no more capital and labor, they were all hundreds of assets, and they were subscripted.

And thereby the main dividing line, which is a very strong line because obviously to get income from one asset like capital you don’t need to work and to get income from another asset like you do have to work, this is a very strong line. And on top of that because the influence of the two are not the same politically, was that submerged, erased, ignored. So that’s why I believe to call it only neoclassical economics was not sufficient. We have to really put that prefix of neoclassical and Cold War economics. So that was my rationale for the name.

‘ANYONE WITH COMMON SENSE KNOWS THAT THERE IS A DIFFERENCE BETWEEN BILL GATES AND A BEGGAR’

In your opinion, best income distribution studies combine three elements: narrative, theory, and empirics. Your book follows a chronological order and I cannot but think that economics as a scientific discipline in general, and income distribution studies in particular, went through a regression, after Quesnay, Ricardo, Smith and Marx. For instance, mystification of economics was one of the main boarding points of Pareto, and it seems to me that this was coherent with growing nihilistic tendencies in other areas such as philosophy and sociology. Do you agree with that?

That’s an interesting point. Indeed Pareto is very often criticized because of his theory of the elites. As you said, for nihilistic tendencies and even he’s criticized for being at some point close to an ideological supporter or rather ideological progenitor of fascism.

But I have to say that I’m less critical to some extent ideologically of Pareto then on what happened during Cold War economics. Because for Pareto, inequality still was based on a prior distinction between what you call the elite, which nowadays is basically what we call the top 1%, and everybody else. What neoclassical or Cold War economics did was totally obliterate any difference. So the claim is actually more extravagant in the case of neoclassical economics, the claim is that actually we are all the same. The claim is that Bill Gates or Jeff Bezos or Elon Musk and a beggar are technically the same. They are both individuals who are under the conditions of uncertainty, and given the constraints that they have and the endowment they have, they maximize.

Anybody with common sense would say, well, they are not the same. Not only that, their incomes are different and their wealth is different. Time horizons are different, ability to withstand, lack of income is different, ability to influence political decisions is different, perception of them is different from the people, so everything is different.

And of course Pareto would agree with that because he would place one of them in the elite and the other one into the people.

It is true that Pareto by his writings was like philosophers of his time. And actually I am not that familiar with that. But for example, one can maybe take Nietzsche, as that was in some sense very dismissive of any form of democratic organization, believing that all of them are essentially fake. There he says every elite has to justify through.

There are elites who are like lions who justify the rule by force and there are elites which are more sophisticated; they’re like foxes. They justify the rule through creating an ideology.

So yes, I would agree with you, actually an interesting topic may be to study from a more philosophical angle, because Pareto, similar to Marx, has a political side, philosophical side, historical side and economic side. So you can actually study Pareto from different angles, which I think can also be done on Smith by the way.

What I was trying to say is that Pareto mentions the power of myth. This is like, you alluded to fascism, we have fascism to exploit myths and lies. And Pareto also mentions if you have the power you have even if you know you are lying, you have to lie to balance the society. Also he is always dismissive about the so-called proletarian interests as you mentioned in your book. So Wilfred Pareto is a representative of this regression during the 19th, the second part of the 19th century in western world.

Yeah, I agree with that. As I said, I think actually this is something that should be done by others, not by me because of the philosophical topic.

I of course study Pareto much more as an economist and what he says about income distribution. As you know we’re still using the Pareto coefficient and he was the father of the first power law which we still use.

But it is true you mentioned that his view of the world is very much a reaction against Marx and the large workers movement which in his opinion is actually similar to Schumpeter in that he’s very much against it but he thinks that they would win.

So he sees actually the proletarian movement, well organized with people who are actually willing to sacrifice themselves and he makes the analogy between that movement and Christianity because Christianity won eventually because people were ready to be sent to the lions and to be killed and to actually sacrifice a lot.

He thought that bourgeois liberals were lazy persons.

Yes. Bourgeois liberals want to keep the society as it is, but they’re not going to go out in the street demonstrating and fighting the workers. And he saw workers and of course the organized proletariat which actually comes.

These are interesting links which are not explored in the book, but which also comes with Lenin’s idea that you have to have an organized and professional party which basically dedicates itself to the political movement and taking power.

So Pareto sees all of them as basically much stronger in their beliefs and consequently likely to win, but while accepting that he doesn’t like the fact that they would be. In that sense, he’s similar to Schumpeter. If you read Capitalism, Socialism and Democracy, he saw the power of socialism and Schumpeter was of course always an opponent to socialism. In 1942 he essentially says, I think even in the first sentence of the book, socialism has won.

And of course Pareto also likes to shock very much. Maybe that’s another similarity with nihilistic thinkers of the time and maybe with Nietzsche, is that he definitely likes to shock bourgeoisie by making statements like that, that virtually every society in order to survive has to believe in a in a lie, in a big lie. That obviously included religion there as well. He saw religion is essentially a myth which is being created in order to maintain society.

Can we periodize the income inequality studies of economists you mention according to certain stages of capitalist development? I mean, physiocrats broke with tradition and regarded the wealth of the poor classes as the best indicator of wealth, the focus on class differences marked the classical economics, and with neoclassical and marginal revolution period inter-personal income studies arose.

You have summarized it, but let me just repeat that.

When I was writing the book because the choice of people that I took is basically based on my own writing over 40 years. I didn’t have any doubts except for one person and I’ll come to that in a minute. But as I was writing, I saw very clearly how the focus of inequality and actually I have to say that it is to some extent I am imposing sort of a view in the sense that people like Quesnay or even Smith, they didn’t use the word inequality, but I studied, like implicitly, how they view it, because they talk basically about factorial incomes, meaning, income from wages, labor income from interest and profits from capital and rent from landlord.

But the evolution is as follows. You start with Quesnay before the French Revolution, he introduces the idea of class. The classes are basically like the French classes before the Revolution. They were legal estates. So there were close like classes appropriate there which are composed of the clergy, aristocracy and government officials and they are the ones who received the surplus. So that was a totally new approach as if you see it’s very class based but it’s a legally defined class.

Then, as you mentioned, you have this sort of trilogy or three big authors Smith, Ricardo, and Marx that very clearly follow the definition of class which is based on economic ownership of different assets and of course legal equality, because legally of course capitalists have the same legal rights as workers and landlords.

Then we come to Pareto with this distinction between the elite and everybody else. 

And of course we follow the development of capitalism because what the big three offers are actually at the time of classical capitalism. Pareto is already at the time, as we were saying before, overreaction to that and the sort of more evolved capitalism.

And then we come to Kuznets in the US, where capitalism is sort of ignored this class aspect. He brings in the distinction between agricultural and manufacturing workers and rural and urban areas. So it’s an entirely different distinction.

Then we finally come to no distinction at all. So this is really the evolution. We really go from legally defined classes to economically defined classes, to the elite to the classes defined by essentially the type of work they perform and the place where they perform it.

I think that the last one of the evolution was really politically motivated for the reasons that I mentioned before. But they do correspond to the movement of capitalism.

SAMIR AMIN AND THE CONTRIBUTION OF NEOMARXISTS

I will mention only one person about whom I had doubts. I wanted to include him and I included him a little bit but not as a full profile, he was Samir Amin.

The reason was that neo-Marxists and Samir Amin brought a new look at inequality domestically as being influenced by external forces. And nobody that I mentioned before had this view until neo-Marxist economists because inequality is the result of internal forces.

But then, with Samir Amin, inequality, for example, in Egypt is the result of foreign forces favoring a given type of inequality domestically and that type is then maintained because it is actually good for whatever the capitalist global order. So that was an entirely new view that Samir Amin brought. I was considering having this number seven, but for many reasons, actually I did not. But he’s still in the book.

What can those six economists say about today’s inequality studies? For example, is Adam Smith the moralist, who denounces and reprimands the moral deficiencies of the rich but never questions their right to be on top, or Adam Smith the scientist, who openly criticizes the rich and how they acquire their wealth, suitable for post-neoliberal inequality studies? Recently, I read an article about the resurrection of elites against elites, rich anti-woke figures against rich woke figures in New Yorker (which also mentions your book). Does that mean Pareto is more relevant than the others? Or let’s talk about Kuznets and his thesis about the rapid increase in inequalities with industrialization and today’s ‘re-industrialization’ or ‘green transformation’ debates.

Well, that’s a very good question. I actually think all of them are relevant in some way.

Let me start with Kuznets. When Kuznets defined his famous inverted U-shaped curve, he obviously knew only the situation up to 1955, or actually 1960s, because he still continued writing. But you can apply the same logic of the industrial revolution or technological revolution to the later revolutions, including today’s. You could actually argue that we are now going through the upward cycle of the new Kuznets wave, which is not dissimilar from the upward cycle of the previous Kuznets wave.

But clearly Kuznets, having seen only one revolution, did not expand that to two or three or five. But we have seen two or three. So I think we can use Kuznets to actually claim that similar developments can be seen in the future as well. What I want to say simply is that if you see one phenomenon once, it’s very, very difficult to generalize that. But if you see the same phenomenon twice, from number 2 to number 3 is not a big jump. So I think he’s also relevant.

I believe as you mentioned Pareto as well, because of the book that you alluded to. I think it’s the End Times by Peter Turchin, which actually talks about the conflict of the elites within the elites. Pareto has actually two different elites. Turchin also has two, but it’s a little bit different.

It’s an interesting comparison, but let me go back to Adam Smith because I’m giving the Adam Smith lecture pretty soon and I really would like to emphasize this. Very important points from Adam Smith are: number 1 is that the welfare of the largest group is the objective economic policy and that was new at that time. Secondly, all organized associations have to be looked at with a skeptical eye. And third, capitalists should not rule economic policy because their interests very often go against the public. I think these are really very important messages from The Wealth of Nations.

And when you speak of Adam Smith the Moralist, I really have come to think of all the Theory of Moral Sentiments as a job market paper that Adam Smith did. Because it actually pushes all the right tones for somebody who is a professor of basically jurisprudence and who actually himself is divided on the organized. He’s against organized religion, but his religious feelings can not be fully expressed. As we know, he really remained very ambivalent, at least in public. And so it is a book, a paper that shows him as a theistic philosopher who is actually a moral philosopher, and does all the things that are expected from him to defend in a very sophisticated way. But in The Wealth of Nations, he doesn’t. He’s no longer writing a job market paper. He’s writing really what he believes and what is actually the result of having observed the world for you know, at that time he was more than 50. And so I think it is a very different view of the world.

I would actually really tend to see The Wealth of Nations as a significant, much more superior book to than to the Theory of Moral Sentiments. Because I think just the last point, he was young, rapidly young and he needed to show that he would actually follow the conventions. Young people when they write the job market paper they don’t go into the area which is really going to shock somebody. They used methodology and the topics that are very standard.

‘WITH THE 2008 CRISIS, THE MIDDLE CLASSES REALIZED THEIR ILLUSIONS’

One of the most interesting parts of your book is that when you mention geopolitics of the Cold War era, the turn taken in economics towards obstruction and the funding of research by the rich. It is a little bit surprising when one reads that the idol of liberalism, Adam Smith, thought that the rich people come together from time to time to force their interest over the society. You write that the right-wing financial operatives have established an ‘integrated system of knowledge creation’ during the Cold War. What about now? In ‘Epilogue’, you imply that the rearise of inequality studies is related to the middle classes’ dire situation after the financial crisis. What are real economical and political motives behind this phenomena?

I actually think that the current situation is quite different from this Cold War economics. And I think it’s different for two reasons.

First of all, the end of communism in the Soviet Union. There was no longer the need on the capitalist or the US side to insist so much on the classless aspect of their society because the other side simply disappeared. So that gives you much greater freedom politically to actually go in the directions that politically were difficult before.

Secondly, I think that as always they are important political or economic turning points that make a difference. The 2008 crisis was important for the study of inequality because it brought realization to the mass of people, to the middle class people, that what they believed, increasing standard of living, was to some extent an illusion built particularly in the United States, on the ability to borrow.

As you know, the household loans were actually more than 100% of the GDP and people could borrow very easily. George W. Bush actually started saying that everybody should borrow to have a house. And people who had no jobs or kind of random jobs and no incomes were actually also able to borrow, which of course was also propagated by the rich people and the banking system. Practically everybody participated in that.

As we actually know that quite well, the banks were interested in packaging the loans and getting the fees and the rich people had access to monetary balances which they had to pay somewhere. But then the whole thing crashed in 2008, and it could be much worse, obviously, were it not for the ability of the government to print money and to basically bail the banks out.

But for the middle class, it was a big awakening because the top 1% actually did pretty well. And then came also the issue of China outsourcing of jobs and so forth. So, that economic shock was something that opened the gates to the study of income distribution.

And of course [Thomas] Piketty’s book was a big contributor. But one should not forget this: Like everything, every time in history, a certain ideological trend is successful when it comes on the terrain, which is ready for it.

If Piketty’s book was written in 2005, the terrain was not ready, it would be there and maybe some people would read it, some people would not. But there would be nothing similar to what’s happening in 2013.

And the third one is the ideological, new ideological view of income distribution.

You did your Ph.D. at the University of Belgrade in 1987 on economic inequality in Yugoslavia. According to your own experience, do you think that Marx or Pareto was right regarding socialist countries?

The question is very difficult. To some extent socialist countries did replicate two things that Marx did not believe they would actually have.

The first one, they did create a new, different but new class society where it was not access to capital which mattered because the capital was nationalized, but access to the bureaucratic hierarchy that was to some extent like a new class.

Secondly, but on that I’m less convinced, there was of course income inequality in socialist countries. But it is true that that inequality was less than in the equivalent capitalist countries. So yes, they have reduced inequality, they have not reduced it to a minimum.

But on that part, I think it’s difficult to say, because Marx believed that once the underlying institutions are right, which means the underlying institutions do not have private ownership of capital, that income distribution would become an important topic. But that inherently it could not be high because you don’t have private capital, because everybody has access to schooling, because manual labour would be sort of more valued relative to the intellectual labour. In some sense he was right there.

But I think Pareto was right that there was a new class being created. 

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INTERVIEW

“The current interests of German capital coincide with the CDU-SPD coalition”

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9 hours ago

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14/11/2024

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Germany’s long-swinging SPD-Greens-FDP coalition government (“traffic light”) has collapsed. The collapse seems to have started when the FDP raised the flag to its coalition partners over the budget and the constitutional debt brake. But the German economy’s problems, which began before the Ukraine war and the anti-Russian sanctions, combined with high inflation, energy costs and a declining export market in China, have once again led to Europe’s largest economy being labeled a “sick man”.

Arnold Schölzel, a member of the editorial board of Junge Welt, Germany’s daily left-wing newspaper, argues that Germany’s growth, the war in Ukraine and the simultaneous financing of social expenditures have come to an end and that the FDP’s demand for sharp social cuts is in fact the program of the next federal government.

Schölzel points out that the CDU/CSU, which seems to be opposed to loosening the constitutional debt brake, is preparing to back down in a new government. Schölzel believes that there are still nuances between the parties and that this will be one of the issues of the upcoming election campaign.

Noting that German capital has interests in Eastern Europe and Ukraine, the journalist reminds that Eastern Europe in particular is a “reserve of cheap labor” for German industry and underlines that capital supports pro-war policies. Therefore, it is highly likely that the German economy will go along with the militarization of society from now on.

Schölzel sees the Alternative for Germany (AfD) as a “continuation of the CDU/CSU” and believes that the interests of German capital lie in a CDU-SPD coalition.

‘FDP ANNOUNCES PROGRAM FOR THE NEXT GOVERNMENT’

As it turns out, the collapse of the traffic light coalition in Germany was in fact long overdue. An economic crisis “invented” by the Ukraine war and anti-Russian sanctions, and defeats in this year’s European Parliament and East German state elections, had shown that the government’s time had come. Does the collapse lie simply in the difference in economic programs between the FDP and the SPD-Greens? How far do the parliamentary parties differ in their proposed solutions to the economic and political crisis in Germany?

This government was a wartime government from the start. It entered the USA’s proxy war in Ukraine with considerable financial resources and waged an economic war against Russia – with devastating consequences not for Russia, but for German industry. She accepted the blowing up of the Nord Stream 2 Baltic Sea pipeline, presumably  by the US-government. As a result, the German economy has been in recession for two years and is at the bottom of the list in terms of growth among the industrialized countries. This pushed the state budget to its limits. The simultaneous financing of growth impulses, war and social benefits is no longer possible. The FDP wanted sharp social cuts. In doing so, it announces the policies of the next federal government.

‘EASTERN EUROPEAN COUNTRIES A RESERVE OF CHEAP LABOR FOR GERMAN INDUSTRY’

The reactions to Chancellor Scholz and his government from the German business community are also striking. All the spokespeople of capital, especially the industrialists, align themselves with the CDU/CSU and demand immediate elections, citing the return of Donald Trump and the Ukrainian War as justification. But when it comes to the debate on the constitutional debt brake, there seems to be no unity. Is the debt brake really that important? Is it possible to support Ukraine, fight against Trump’s potential tariffs and at the same time reduce the German national debt?

The German capital was and is in agreement with Scholz’s war course. It has sharply reduced economic ties with Russia and also supports a hostile policy towards China, albeit more cautiously. Both industry and the CDU/CSU have now declared their willingness to reform the debt brake. They demand subsidies for industry and arms deliveries to Ukraine. The German economy has long-term interests there – as in all of Eastern Europe. The Eastern European countries serve as a workbench for German industry and as a reservoir for cheap labor. German industry sees it as Germany’s backyard. There are still differences on the question of how deep the social cuts should be. This will probably be the focus of the election campaign.

Does the German state see the economic restructuring program and the militarization of the state, the economy and society as one and the same? The new conscription law, the debate on conscription and the modernization of the Bundeswehr seem to be propagandized as a way out of the crisis. Parliamentary Commissioner for the Armed Forces Eva Högl said last summer that young people learn “structure, comradeship, a sense of duty” in the Bundeswehr, “all qualities from which the economy also benefits”. Are we facing a plan to militarize the economy?

Yes, those in power are concerned with the militarization of society as a whole. They say this quite openly: The Bundeswehr should advertise in schools – there is a new law for this in Bavaria. The healthcare system is gearing up to treat large numbers of injured people. The German War Minister Boris Pistorius (SPD) summarized this in the term “war capability”. It would have to be produced in four to five years because Russia would then probably attack NATO. Overall, it is a reactionary-militaristic restructuring of the state in which, above all, civil rights are restricted.

‘FASCISM IN GERMANY WAS REHABILITATED BY THE UKRAINE WAR’

When it comes to the Israeli aggression in Gaza, the AfD and the Greens support the same parliamentary bill. Similarly, when it comes to the “fight against irregular migration”, the CDU/CSU almost matches the AfD. Although all parties refuse to cooperate with the AfD, is it possible to say that AfD policies have already become “mainstream” in German politics? In any case, the AfD is likely to play a role in Germany’s future.

The AfD is a continuation of the politics of the CDU/CSU. The difference: It allows open fascists in the party. The CDU and CSU have been fighting racist incitement against migrants and asylum seekers for 40 years. The AfD has taken this over and expanded it: it has increased racism and consciously encourages violence. The AfD has always been on Israel’s side because of the oppression and murder of Muslims. This has increased further with the current genocide in Gaza. The Greens are the most bellicose German party today. They use racist clichés against Russia in the Ukraine war and completely agree with the racist position of the Netanyahu government. The Greens denounce any criticism of Israel’s policies as anti-Semitism and are successful in doing so. Because of the fascists in the AfD, there are still reservations among other parties at the federal level about working with the AfD. Things are different at the state level; cooperation works in the municipalities. Since fascism there was rehabilitated in Germany, particularly with the war in Ukraine, it may well be that the AfD will also be accepted at the federal level in a few years. As long as it still pretends to strive for peace with Russia, this is unlikely.

‘CONDITIONS ARE BEING CREATED FOR GREATER INDEPENDENCE FOR GERMAN IMPERIALISM’

It can also be linked to the question above: The cry for a “strong and decisive government” has an important place among the voices rising from within the ruling class. The polls indicate that the CDU/CSU would be the winning party in a possible federal snap election. Can the CDU/CSU alone meet this demand for a “strong and stable government”? Will German politics be forced to turn to “non-political” actors or institutions?

The date of the next federal election was negotiated between the CDU/CSU and SPD. This is symptomatic: they communicate despite all the rhetoric. As things currently stand, only a coalition of both parties can form the next government. In my opinion, this also corresponds to the current interests of the German capital. The ruling class is not yet committed to an authoritarian regime domestically, but is preparing the conditions for it. In terms of foreign policy, it cannot yet break away from the USA, but is striving for a stronger leadership role in the EU and perhaps in NATO. This also creates the conditions for greater independence for German imperialism in the future.

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INTERVIEW

‘Turkic world is preparing for economic integration’

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2 weeks ago

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28/10/2024

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The Turkic Investment Fund, the first international financial institution of the Turkic world, is preparing to announce its policy document on January 1, 2025. Ambassador Baghdad Amreyev, President of the Turkic Investment Fund answered our questions.

You are quite new to the financial international cooperation institution. And you had your first Board of Directors meeting in May. Could you tell us what the outcomes of that meeting were, and what is the roadmap for implementing the strategies and resolutions that were discussed there?

As you know, the decision to establish the Turkic Investment Fund was made by the leaders of the Turkic world at their summit in Samarkand in 2022. In November 2022, they signed a special agreement for the establishment of the Turkic Investment Fund, which is the first financial mechanism and institution of the Turkic world. I was appointed as the founding president there.

We then began preparing the establishment agreement, and in a very short period of time, we finalized the agreement. On March 16, 2023, during an extraordinary summit of Turkic leaders in Ankara, the finance and economy ministers of our countries signed this establishment agreement in the presence of our leaders. It was a truly historic moment.

By the end of 2023, the ratification process was completed in our parliament, and as per the agreement, the Fund officially came into force on February 24, 2024. This is what we consider the “birthday” of the Fund.

A lot of organizational work has been completed since then. On May 18, as the President of the Turkic Investment Fund, I convened the inaugural meeting of the Board of Governors, which is the highest governing body of the Fund.

Cevdet Yılmaz, The Vice President of Türkiye also participated in that meeting, right?

Yes, The Vice President of Türkiye, His Excellency Mr. Cevdet Yılmaz, also participated in and chaired this meeting. It was a great honor for us.

The meeting was highly successful, and the Governors made several key decisions, including the completion of the institutionalization of the Fund. They also established the Board of Directors and gave them instructions to prepare key procedural documents and other necessary actions.

Since then, in June and August, I convened two meetings with the Board of Directors, during which we made crucial decisions for the commencement of the Fund’s operational activities. Establishing the operational structure and preparing the investment policy are ongoing tasks.

Our investment policy, in particular, is still being drafted.

The investment policy is still underway, then.

Yes, it is still underway. This is an essential document, as it will outline the priorities of the Fund, specify which projects we will focus on, and what our role will be.

During the first meeting of the Board of Governors, Mr. Ramil Babayev from Azerbaijan was appointed as Director General of the Turkic Investment Fund, responsible for managing the Fund’s operations.

Once the investment policy is finalized and the management structure is fully in place, we will be ready to commence operational activities.

I understand that your policy preparations are still in progress, but can you give us a sense of which key sectors or industries the Turkic Investment Fund will support?

Yes, our priorities are quite clear, and I have spoken about them on many occasions. First of all, it’s important to note that the Turkic Investment Fund serves multiple purposes. If we only needed to finance projects within our own countries, there would have been no need to establish a new fund. We already have numerous funds and banks for that.

However, the Turkic Investment Fund was established not only for financing projects within our countries but also to contribute to the economic integration of our nations. The Fund’s main focus will be to finance joint projects that promote integration and cooperation among our countries. This is vital for the unity and economic strength of the Turkic world.

Could you elaborate on the concept of economic integration for the Turkic world?

 

Any political or economic block has its final causes. Our goal is to bring together our economies to unite the potential to serve the Turkic world. Economic integration means working together to strengthen our economies and unite our economic potential. We are seven countries. By encouraging trade, facilitating investments, and supporting joint ventures in areas such as infrastructure, energy, and transportation, we aim to build a stronger and more united Turkic world.

What do you mean by “economic integration”? Are you talking about a common Turkic currency or infrastructure as part of this integration?

Economic integration doesn’t necessarily mean having a single currency or unified infrastructure, at least not initially. It’s more about deeper engagement in each other’s economies through joint projects, especially in key sectors such as energy, transportation, and small and medium-sized enterprises (SMEs).

Our goal is to create an economic and political bloc that can work towards common objectives, much like the European Union or other regional groups. We need to support each other’s economies and collaborate on joint projects that benefit all our countries. This is a key condition for the unity of the Turkic world.

I understand the Fund was the missing part in the Turkic world. Now, you believe that you filled this gap.

The Turkic unity has been very fresh. The Organization of Turkic States and other related cooperation organizations were established 10-15 years ago only. It is very short period. Of course, we need time. I am sure the Turkic Investment Fund will accelerate this process.

We need to work together to make our economies more competitive and resilient. Over time, the Turkic Investment Fund aims to become the primary financial tool for promoting economic integration within the Turkic world.

One of the Fund’s key priorities is to attract foreign investments into our countries. There are two ways to do this: First, by supporting national projects and encouraging foreign partners to participate, and second, by collaborating with other international financial institutions, such as the European Bank for Reconstruction and Development, Asian Development Bank, and Islamic Development Bank, among others.

Of course, we are not able to finance ourselves for huge projects but those financial institutions are so eager to contribute to our projects.

Well, Ambassador Amreyev, I understand that you have a positive cooperative perspective regarding other powers in Asia in terms of both institutions and countries. But at the same time, they bring some kind of geopolitical challenges. China, Russia, some other neighbouring European countries… How would Turkic Investment Fund navigate these geopolitical challenges? Following this, another question could be that: If the Turkic block rising as a global power and Turkic Investment Fund wants to be an active player in finance sector, how would you sustain your strategies given those facts?

The investment fund is a financial institution, not a political organization. This is why the Turkic Investment Fund is not involved in the geopolitical competition or challenges of today’s troubled world. Yes, we recognize the dramatic challenges facing the global community, but addressing those is the job of politicians. As financiers, our role is to contribute to cooperation rather than competition. By focusing on cooperation, we can help mitigate some of these global challenges and reduce the intensity of international competition.

Our role, therefore, is a positive one, working with other economic and financial institutions. Through constructive cooperation and joint projects, we aim to support and promote collaborative efforts in our complex world.

On the other hand, we also recognize that globalization has significantly increased competition worldwide. Consequently, our countries face challenges in attracting investments. This competition is real, and our goal is to help our countries navigate these challenges and become more competitive. By successfully supporting the growth of our economies, we can play a crucial role in enhancing the competitiveness of our nations.

Currently, six countries are full members of the Turkic Investment Fund—Türkiye, Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, and Hungary. We also expect that Turkmenistan will join as the seventh full member soon. Additionally, the Turkic Investment Fund is open to cooperation with non-member institutions. Our establishment agreement allows other countries to join if they meet the required conditions and agree to the terms. This allows for constructive cooperation with external partners as well.

Regarding international financial institutions, we are open to working with all of them. We are already in negotiations and have observed a growing interest from various financial institutions in collaborating with us. By working with large financial funds, banks, and institutions, we can participate in significant development and infrastructure projects within our member countries.

These large financial institutions recognize the need for cooperation, and this implies substantial investments in major infrastructure projects. For example, there is growing interest in expanding energy infrastructure in Kazakhstan and Turkmenistan, particularly in light of the Russia-Ukraine war, which has increased the importance of the Turkic world for Europe. We know that the European Union plans to invest billions of euros in energy projects within the Turkic region. Can you give more information about the projects?

Large infrastructure projects are costly and require the participation of multiple financial institutions. As I mentioned, the European Bank for Reconstruction and Development, as well as several Asian banks, are keen on establishing such cooperation. We already have several projects in the pipeline, particularly in the energy sector to be financed. While Kazakhstan, Turkmenistan, and Azerbaijan are oil and gas producers, what we need now is more cross-border energy infrastructure such as pipelines and powerlines to transport these resources efficiently.

Building the transportation network is important, not just for production but also for consumers. That’s why we see growing interest from other international financial institutions. Our national governments have plans, and I know Kazakhstan, Turkmenistan, and Azerbaijan are involved in initiatives to build gas pipelines from Turkmenistan to Azerbaijan, Türkiye, and Europe. Our countries and our European partners are paying great attention to these projects.

There are also other energy projects in the Turkic world. For example, there are major plans to build an energy plant in Kyrgyzstan that will serve Uzbekistan and Kazakhstan. These huge infrastructure projects are already being studied by various financial institutions, and there are numerous areas for cooperation. Of course, we are closely working with our governments, monitoring their priorities, plans, and programs. We also consider the decisions made by national governments and at our summits and intergovernmental commissions, ensuring that we align with the priorities of our member states, which are our shareholders.

We know that Hungary, for example, has been highly appreciated by the Organization of Turkic States (OTS) for its contributions, especially during its EU presidency. Hungary’s role in connecting Europe and the Turkic world is considered very important. At the same time, Hungary has officially stated that it is contributing a significant amount of money to the Turkic Investment Fund. Can you give more information on this?

Yes, this is not a secret. The fund was initially established by five member states, and then Hungary joined with an equal share. Each country contributed $100 million, making the initial capital of the fund $600 million. As I’ve mentioned, this starting capital will be significantly increased in the coming years to make the fund more competitive and attractive for cooperation with other international financial institutions.

Will the shares always remain equal?

Not necessarily. The initial capital was contributed in equal shares, but additional capital may be decided later and won’t necessarily follow the same distribution. As for Hungary, it has joined as a full member with the same share as other members. I must say that Hungary has played a very constructive role in Turkic cooperation since they joined the Organization of Turkic States in 2018. Hungary actively participates in all cooperation mechanisms alongside other OTS member states. Recently, I was in Budapest, where we finalized Hungary’s accession to the fund, making them a full member. Hungary truly plays an indispensable role in connecting the Turkic world to Europe, and between the European Union and the Organization of Turkic States. We appreciate Hungary’s role, and I believe it will continue to grow in the future, contributing not only to the integration of the Turkic world but also to its global integration into the world economy through closer cooperation with the EU.

Just to clarify about the contributions to the fund—how much will be each country paying? For instance, in Türkiye, there is discussion about whether Türkiye is contributing state funds for projects like energy infrastructure and pipelines in Kazakhstan and Turkmenistan. People are curious about the exact figures to be transferred from treasury to the investments in other countries.

As with any international financial institution, all decisions regarding project financing and prioritization will be made by the Board of Directors. The interests and contributions of each country will be considered, and there won’t be any “losers”—only winners.

Thank you very much for this great interview, Ambassador. It sounds like many things are still in progress, but can you give us one headline for now? Which region of the world is most likely to cooperate with you on large-scale projects in the near future? Will it be Europe, Asia, Russia, or the Gulf countries? What will be the biggest surprise regarding Turkic Investment Fund cooperation?

First of all, the Turkic Investment Fund is a newly established financial institution, and we will commence our operational activities on January 1, 2025. We are in close contact and negotiations with financial institutions in Europe, Asia, the Islamic world, and the Arab world. We see strong interest from their side, and we are equally eager to develop relationships with them.

I think the biggest surprise will be our success in the Turkic region, within our member states. We are seriously committed to contributing to the economic development of our countries and supporting entrepreneurs who are working together on joint projects. We are here to support them and encourage more joint ventures among the Turkic countries and their companies.

As I mentioned, the ultimate goal is to contribute to greater economic integration among the Turkic countries, which will serve as the foundation for a more united Turkic world. This is our main purpose.

Thank you, Ambassador Baghdad Amreyev, for this diplomatic interview. We look forward to hearing more after January 1, when the policies, investments, and projects of the Turkic Investment Fund are officially launched.

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INTERVIEW

We asked experts about BRICS – 3: What are the challenges facing the member countries?

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2 weeks ago

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28/10/2024

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As the fallout from the BRICS Summit in Kazan, the capital of the Republic of Tatarstan in the Russian Federation, continues, we put questions about the agenda to Dr. Nina Ladygina-Glazounova, the General director of the BRICS & SCO Innovative Diplomacy Centre.

Ilber Vasfi Sel: Mrs Nina, you also attended the summit in Kazan. You are already continuing your work as a “professional “bricsologist” in the institution of which you are the General director and co-founder. For Vladimir Putin, the President of the Russian Federation, the summit is seen as both symbolic and practical. What do you think? How do you assess the significance of this summit for Russia? How will this summit affect Russia’s global agenda? There are also competing countries within BRICS. Given the rivalries and conflicts among the member countries, how do you see the BRICS goal of deepening cooperation in various fields?

Nina Ladygina-Glazounova: The significance of the BRICS Summit in Kazan for Russia lies primarily in the complete failure of the West’s policy of isolating Russia, demonstrating recognition of Russia’s long-term importance on the world stage, despite the general tensions. The BRICS Summit in Kazan has become the event of the century, bringing together heads of delegation’s from Azerbaijan, Armenia, Bahrain, Bangladesh, Belarus, Bolivia, Congo, Cuba, Indonesia, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Mauritania, Mongolia, Nicaragua, Palestine, Serbia, Sri Lanka, Tajikistan, Thailand, Turkey, Turkmenistan, Uzbekistan, Venezuela, Vietnam and Republika Srpska (an entity of Bosnia and Herzegovina).23 of them were at the level of Heads of State and Government not only from the BRICS member countries (Russia, Brazil, United Arab Emirates, China, Egypt, Ethiopia, India, Iran, South Africa and Saudi Arabia as an invited country), but also from the countries of the Global South, which showed great interest in the Summit, as well as the heads of five international organisation’s: the United Nations (Secretary-General – Antonio Guterres), the Eurasian Economic Commission (Chairman – Bakytjan Abdiruli Sagittayev), the Commonwealth of Independent States (Secretary General – Sergei Lebedev), the State of the Union of Russia and Belarus (State Secretary – Dmitry Mezentsev), the Shanghai Cooperation Organisation (Secretary General – Zhang Ming) and the BRICS New Development Bank (Bank President – Dilma Rousseff).

We asked experts about BRICS – 1: Can the independent BRICS payment system succeed?

The declaration issued on the 23 of October, after the meetings of the Sherpas and heads of delegations of the BRICS countries, the way to promote the institutional development of BRICS adopted by consensus, and for the first time in history of BRICS, the countries included in the union are not specified in the first paragraph of the declaration.

What could this mean?

It can be assumed that the main reason is primarily due to the expansion and uncertain status of Saudi Arabia, which is still in the process of accepting its status as a full member, although it participated as an equal in most BRICS formats and meetings.

Particular attention was also paid to the media, ICT and the dangers of fake news and the dissemination of unverified information about our countries.

Thanks to the summit and the whole range of horizontal formats of this year, Russia was able to expand its opportunities to enter new markets during its year of its Chairmanship in the BRICS, which is certainly a positive moment, and the country should have followed this direction from the very beginning, from the moment of its formation, and not look only at Western countries as the main direction. Now, if we look at it as a “puzzle”, the process of diversifying the economy and moving away from production focused exclusively on components from abroad has begun, and the influence of foreign component manufacturers on us has gradually diminished. Russia has agreed to sign a comprehensive strategic partnership agreement with Iran.

Also, thanks to the summit, Russia was able to once again to discuss the main points and reach an agreement with Iran on signing a comprehensive strategic partnership agreement.

Today we can confidently say that the most powerful BRICS countries are Russia, China, India and Iran. In other words, countries that have become the antipode of the unipolar Western world… We can talk about a global union of BRICS countries that surpasses the G7 in its parameters, and this is about the economic future of our planet.

Despite their common objectives and their focus on a multipolar world, and despite the preservation of their own identities, the BRICS countries face various forms of competition and territorial challenges, especially with their neighbours.

China and India are both large emerging economies competing for the influence in global markets and the developing world, and have territorial disputes with each other. At the same time, India and China announced progress in resolving long-standing border issues with the help of Russia’s diplomatic efforts, and this was a significant achievement at the summit. We see geopolitical tensions between Russia and South Africa have emerged since the start of the special military operation. Russia and China are close partners in all areas, but there are areas in the individual political agendas of both countries where they may clash, such as in Central Asian countries like Kazakhstan.

During the summit, BRICS countries and their future partners drew attention to Palestine and the Middle East region as a whole, while nearly two billion Muslims around the world watched the events in Kazan. Many heads of delegation’s declared their position in support of Palestine, a very sensitive and fragile region that requires rapid peaceful coexistence and compliance with UN conventions. Accordingly, the Summit adopted a strong final declaration that underlined the importance of the Palestinian issue for the world Muslim community.

We see how Brazil is not very happy with Venezuela’s rapprochement with the BRICS and this is one of the main reasons why we do not see it in the list of partner countries (13 countries have been granted BRICS partner country status: Turkey, Kazakhstan, Uzbekistan, Algeria, Belarus, Bolivia, Cuba, Indonesia, Malaysia, Nigeria, Thailand, Uganda and Vietnam), like Pakistan is not on the list because of the position of India. But BRICS will not be a platform for confrontation in relation to the G7 due to different ideas about the world order in different states and civilizations. We have Narendra Modi, who builds his policy on resolving all conflicts in the world peacefully and through negotiations, but he very rarely touches on issues related to Pakistan… Because there has been a conflict between them for many years and at the same time we see how China and Russia are promoting Pakistan as a BRICS partner now.

Therefore, I believe that BRICS should promote mutually beneficial areas of cooperation, such as increasing trade turnover, mutual investment to avoid conflicts, it is necessary to resolve issues of demarcation of spheres of influence in certain regions “on the shore”, socio-humanitarian exchanges to allow us to get to know each other better and perhaps “bury the hatche” in the case of some countries, as well as regulate possible interventions in cultural expansion, like the Republic of Turkey is doing through “soft power”.

On the other hand, we have South America, that is very unstable in every sense, socially, politically, economically, and under the strong influence of the United States. But it is important to remember that when you come to the BRICS as a platform, you have to forget all this (competition and territorial challenges), because you have to think about the big picture and the global agenda. And the Kazan Summit, which can be called truly peaceful, was the event that brought together some of the participants in the BRICS+ format, for example, Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev, to discuss advancing the bilateral peace agenda, including a peace treaty, border demarcation and other issues of mutual interest, and encouraged them to negotiate to resolve mutual issues that had previously stalled.

Summit declaration also describes the mechanisms already in place for foreign exchange reserves in national currencies. Although they are not yet as large and comprehensive as existing institutions such as the IMF and the World Bank, but they already pose a serious threat to them. The BRICS Pay mechanism has also been launched – a payment system project similar to the Chinese CIPS system and the international SWIFT system, to which you can link international payment cards Visa and Mastercard or national bank cards such as MIR, RuPay, China UnionPay and use it in the BRICS+ countries. A direct, clear and effective way to find collective solutions with the participation of developing countries is de-dollarization through the ever-wider use of national currencies and it is time for us to have what we call a new reserve currency.

The convergence of representatives of numerous civilisations and cultures, who unconsciously want to promote their own agendas for the good of their own countries, makes it difficult to take decisions towards something united on issues that are only open to the countries of the Global South, such as the reform of the UN Security Council or climate change (recall that Vladimir Putin also carefully hinted at this in his statement about using the green agenda to harm society).

It is clear that the role of the BRICS will increase, and the BRICS countries are already driving global economic growth, shifting the geopolitical landscape towards Eurasia and the South as a whole. According to the results of the current year, the average economic growth rate of the BRICS is estimated at 4 per cent. This is higher than the G7’s rate of just 1.7 per cent. With such a difference in economic growth rates, most of the increase in global GDP in the foreseeable future will be generated in the BRICS. OPEC Plus is actually part of the BRICS, and Russia and Saudi Arabia are actually the leaders there. They set global oil prices. But it is worth remembering that most of the trading platforms are owned by Western companies that lobby their interests to fight this, and it is necessary to unite for a common and prosperous future.

BRICS is different from the UN in that everyone sits at the same table and has an equal voice with a more equitable representation of member states. Perhaps BRICS can be an alternative to the UN in the future, the reform of which is advocated by all BRICS countries. But it will be a long process.

Aware of their problems and territorial disputes, the BRICS countries want to focus on a common agenda of global cooperation. From 1 January 2024, with the accession of new countries to the Union, strong ties and dialogue should be established in the name of a common goal, not just “a priori”, since such a format should not be based as an association on the Anglo-Saxon ideology with the primacy of the United States and European colonial powers. The Union has enormous potential to promote common interests and to foster multipolar global governance based on equality and respect.

BRICS as an association has enormous potential to advance common interests and promote multipolar global governance based on equality and respect. Consensus is also, on the one hand, a guarantee that the national interests of any participant are guaranteed, but also a factor that does not simplify the introduction of negotiations.

Ilber Vasfi Sel: Dr. Ladygina-Glazounova, Harici thank you for your comprehensive and insightful responses.

We asked experts about BRICS – 2: Can Türkiye join BRICS?

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