Conquest was the old way for countries to acquire resources, but trading is much cheaper.


Listener: 12 July, 2014.


Keywords: Globalisation & Trade; Political Economy & History;


Over the next few years, as we think back to the Great War a century ago, we will be reminded of politics and bungling, heroism and tragedy, deadlock broken by technol­ogy. But there is also an economic lesson we can learn.


In the run-up to 1914, the German economy had been growing rapidly. When the nation was formed in 1871, Germany’s GDP was about the same size as France’s and 30% smaller than the UK’s. By 1914 it was 50% bigger than France’s and only 10% smaller than the UK’s.


This is no excuse for going to war, but Germany felt economically hemmed in within Europe; precipitating the Great War could be seen as a way to resolve the claustrophobia.


But at what cost. Germany’s defeat meant there was no resolution. In 1919, the French exacted revenge for losing the 1870-71 Franco-Prussian war. Indeed, the reparations imposed by the Allies on Germany led to World War II.


Although the British and US economies were of a similar size in 1871, by 1914 the US economy was about double the size of the UK’s. A war for dominance in Europe became a world war; its outcome was American hegemony. The post-World War II economic success of losers such as Germany and Japan simply reflected what was going to happen anyway.


Of course, the economic story is more complicated than a column can encapsulate, but what is instructive is that the great Western powers responded differently after World War II. The all-powerful US instituted the Marshall Plan aid initiative to lessen the privations of Europe’s postwar reconstruction. Two French politicians, Jean Monnet and Robert Schuman, were even more prescient: they proposed the European Coal and Steel Community (ECSC), established in 1951.


They reasoned that if the steel and coal industries of France and Germany (and four other European countries), which provided “the sinews of war”, could be sufficiently integrated, the countries could never again fight each other. They have not.


But this was still driven by the last war, about the need to curtail military might. It did not address the economic jostling within Europe. The establishment of the European Economic Community in 1957 – with which the ECSC was to merge – began that process. It is now the European Union of 28 sovereign states, none of which has fought (militarily) another since joining. If this seems trite, it is almost 70 years since the end of World War II – the longest period of peace for that part of Europe (although outside its bor­ders there has been war).


In part this peace is because they have found a different way of resolving economic tensions. Once, a country acquired the resources it needed by conquest. Today, the resources can be acquired by trade. That is cheaper than conquest, and the costs of not succeeding are far less damaging.


Thus the world trading and investment regime has become an alternative to warfare, especially in Europe. But the regime still com­promises the sovereignty of those involved in the economic transactions, just as conquest does, although not as extensively.


This tension exists as long as we retain some notion of a national community. It also occurs within countries. A New Zealand region may resent a business transferring jobs to another part of the country – but probably not as much when they move offshore.


So should we abandon the nation state and just get on with economic intercourse with whoever is willing? Markets still need a legal and policy framework. More fundamentally, as long as we have a sense of belonging to a community, abandonment seems unlikely.


Three generations after the end of World War II, it doesn’t appear that individual Europeans are markedly less nationalistic than their fore­fathers. Fortunately, they are happier to express their feelings by contesting the European Cup or the Eurovision Song Contest. Less damaging, less tragic and more fun than repeating the Great War we are remembering.