June 13, 2024

Interviews

Market Ideologies

The Soviet Union and the fall of Bretton Woods

The Soviet Union’s construction of pipelines across Western Europe granted the superpower access to European markets—and capital. In his new book, The Soviet Union and the Construction of the Global Market, Oscar Sanchez-Sibony demonstrates how this move challenged American dominance of Bretton Woods institutions, ultimately provoking a broader rethinking of state-market relations. 

The following conversation between Sanchez-Sibony and Jamie Martin unpacks the evolution of global finance, interrogating the making and unmaking of the twentieth-century world order. Sanchez-Sibony is Associate Professor of History at University of Hong Kong. He studies the overlapping infrastructures of global power, placing particular emphasis on how interactions within and between Soviet and Western spheres shaped the modern world. His latest book narrates the dissolution of Bretton Woods institutions through the lens of energy, finance, and great power conflict. Jamie Martin is Assistant Professor of History and of Social Studies at Harvard University. His research scrutinizes the institutional underpinnings of the global political economy, exposing their intricate ties to war, trade, and empire. His most recent book,The Meddlers: Sovereignty, Empire, and the Birth of Global Economic Governance, examines the origins of the World Bank and the International Monetary Fund (IMF). 

Below, Sanchez-Sibony and Martin reflect on the inadvertent consequences of hegemonic struggle between the US and Soviet Union and the relationship between ideology and interest. They reveal the counterintuitive impacts of capital controls, oil markets, and trade liberalization for the global South and beyond.

A conversation with Jamie Martin and Oscar Sanchez-Sibony

Jamie martin: Your new book is quite a bracing and revisionist history of the international political economy of the Cold War from the Soviet point of view. Both here and in your 2014 book, Red Globalization, you offer a distinct view of the Soviet Union as deeply engaged in the world economy. This tells us something key about how the Soviets navigated the global capitalist system, both from within and from without. Your aim seems to be to get us to think anew and more broadly about the nature of the world economy and global capitalism itself.

oscar sanchez-sibony: Definitely. One continuity between the two books is that I highlight the extent of Soviet integration and the ideologies that encouraged this integration. I try to reconsider the categories that we usually use to understand the Soviet Union, which are largely ideological. When we look at the way the Soviet Union acts in the world, it doesn’t align with the image of the Soviet Union we tend to have—as the advocate for state control over markets. 

But you are right, the main aim of the new book is to focus specifically on the transformation of the world at the end of Bretton Woods, not so much to ask questions specific to the Soviet Union, but rather: What is the power that is transforming the world? Bringing the Soviet perspective into our understanding of this period is where I hope the book can make a new intervention. I argue that during this period, the Soviet Union—like many other countries on the periphery—was trying to break down the boundaries that kept it from accessing capital. Under Bretton Woods, this capital was tightly controlled by the United States, which was specifically prohibiting access to the Soviet Union.

In response, the Soviet Union began to trade with European countries that were also trying to break down certain kinds of US monopolies. Through the construction of energy infrastructure, i.e. a series of pipelines, the Soviet Union gained access to capital and promoted the breakdown of all sorts of compartmentalizations that Bretton Woods had imposed. Through pipeline construction, the USSR set up a sort of debt treadmill. 

Ultimately, the book positions capital as an entity that attracts the Soviet Union and the global South into a particular relationship with the West. That relationship turns out to be hierarchical, but it was not forcefully imposed on them. 

Jamie, what sort of dialogue do you see here with your own work?

JM: The Meddlers is both an origin story and a story of continuity. It’s an origin story insofar as it tracks the rise of a new kind of global power: through the emergence of the very first international institutions to exercise muscular powers over economic policymaking concerning the most vital questions of national wealth and security. These were quite distinct from the relatively toothless institutions of international cooperation of the nineteenth century.

This new kind of global power emerged toward the end of the First World War, a war that was itself waged with quite extraordinary new institutions of economic coordination among the major allied powers. And importantly, this is roughly twenty-five years before the conventional starting point of global economic governance, namely the Bretton Woods Conference.

Many of the powers we associate with global economic governance today—making bailout loans, channeling capital into development projects through international organizations, coordinating among independent central banks, commodity governance a la OPEC—emerged in the wake of the First World War, largely among the victorious allied empires.

The political problems they faced in innovating this new kind of power were among the most challenging of modernity itself. How could states achieve international coordination over issues of economic stabilization that implicated domestic policymaking concerning tariffs, public spending, taxation, monetary policy, and so on? Furthermore, how could they do so in a manner that was compatible with new political realities in the era of self-determination and mass politics, that by this point had increasingly come to turn on questions of economic policymaking? By the end of the nineteenth century, one of the most robust demonstrations of sovereignty was being able to exercise autonomy over questions of domestic political economy. 

There were some earlier models for international intervention in such questions, but they were far from ideal. For example, financial stabilization loans made to Central and Eastern European states during the 1920s were modeled after the techniques of semi-colonial debt administrations set up in the nineteenth century by European and US investors and empires in North Africa, the Balkans, and Latin America. There were deep, self evident continuities between these nineteenth century tools of informal financial empire and the new institutions of international economic cooperation established in the interwar period. These continuities persisted through the post-1945 period. It is by focusing on this history that my book retells the coming of Bretton Woods. 

In the aftermath of the Bretton Woods Conference in 1944, there was a quick reversion to this old style of interventionist banker’s diplomacy. The key difference was that this system of global economic governance was now to be superintended by the United States. The number and the kinds of states afforded any kind of autonomy under the system were quite restricted. And many members of the new Bretton Woods institutions faced institutional arrangements that looked quite similar to those of a much earlier period.

This is the story of continuity: What looks like the sudden birth of the Washington Consensus-style IMF in the late-twentieth century is actually something else: a moment of expansion for a set of powers latent in an institution already carrying on this older nineteenth-century-style of banker’s diplomacy.

In short, we both attempt to recast our understanding of the mid-twentieth century and specifically of Bretton Woods. I argue that we shouldn’t see the birth of global economic governance in terms of a triumphalist narrative about the rise of US and New Deal globalism or enlightened liberal internationalism, but rather as a process of institutional ad hoc improvisation. Empires were being forced to improvise rather messy public-private arrangements in the face of new political realities. 

In a sense, I think I’m giving a new way of understanding the path to Bretton Woods, and you’re giving a new way of understanding the path out of Bretton Woods.  

oss: That’s one of the things I like most about your book, and I think we also share a sense that solutions are found in practice rather than out of a blueprint. It’s important to communicate that the Soviets were primarily seeking solutions to specific problems, like the Italians wanting to step away from the monopoly Americans had over their oil industry. The Europeans in general were reaching out to the Soviet Union, trying out new ways to relate to the socialist bloc after being suddenly thrown into competition with one another following the 1957 Treaty of Rome and the establishment of the Economic European Community. The Soviets, in turn, were finding ways to work out their problems of access to capital.

How does your book help us understand neoliberalism as an ideology that long prefigured the 1980s and even the Mont Pelerin society? 

JM: One of the things that our books share is the notion that ideology and material constraints are not in a zero sum competition. I think neither of us would want to fully dismiss the importance of ideology, but we both focus on what people did just as much as on what they said. One of the striking aspects of your work is to see how these Soviet diplomats effectively acted as quite savvy business people. They had a deep intuitive knowledge of how markets worked and they pressed their capitalist counterparts into being better capitalists. 

In my book, most of the protagonists were economic internationalists of a liberal orientation, who wanted to rewire international relations to promote a particular kind of cooperation grounded in Wilsonian ideals. I think these ideals mattered in causal terms. But the effects of liberal internationalist ideology in the face of political and material constraints varied from case to case. In practice, a far more pragmatic, hard-nosed decision-making often prevailed that departed from these professed ideals. And at the end of the day, if there are enough departures from an ideology, it starts to look unconvincing. If you say you’re a liberal internationalist, and you do something that looks like empire, ultimately people are just going to think you’re an empire. And they probably will be right. 

Neoliberalism matters as an ideology and it obviously matters in the realm of politics. But my intervention in these debates is twofold. One is, as you said, to point out how the practices we associate with the IMF did not appear overnight in the late twentieth century. You didn’t need an ideological shift to get financial actors to seek clearances for what they wanted to do. If we look not at intellectuals or technocratic policymakers, but at actors trying to turn profits and guarantee market share, we find a different periodization and a different causal story about the rise of neoliberalism. Much of what we associate with neoliberalism emerged out of an earlier milieu of private entities acting in the world and navigating their relationships with states, breaking down barriers to their freedom, removing economic decision making from democratic contestation, turning questions of governance into issues to be solved by prices and markets, and so on. One of the things that neoliberalism offered was a new intellectual framing and legitimation for older practices. In a sense, the abeyance of these practices after the Great Depression is just as interesting a story as their return. 

My second intervention is to say that the much-discussed turn away from neoliberalism in an intellectual capacity today doesn’t necessarily imply a transformation in how institutions actually act in the world. Today, we have an ideological shift, but the IMF still basically does what it’s always done. So if we’ve entered a post-neoliberal era, it remains to be seen what this will actually mean for, say, the politics of global debt. Is China a neoliberal lender? Probably not, but will it be a less demanding creditor among low income and emerging market economies? 

What is neoliberalism in your book? One possible misreading might say that the Soviets wanted something that looked like a neoliberal world order, but I understand you to be saying that this was an unintended consequence of the constraints faced by a Soviet Union starved for dollars. 

What is the power of ideology in your story? At what point does the ideology of the actors you narrate become unconvincing to them or to others in the Soviet policymaking apparatus?

OSS: One of the things I try to do is work out which ideas were relevant to Soviet action—outside the spectrum of left and right, Marxist and non-Marxist, which becomes a bit useless in practice. In my work, ideas about markets are very important. The use of a market discourse became a very important tool for the Soviets to maneuver and find purchase in the world economy. They were going to different entities—bankers, state officials, corporate heads—and telling them: if you don’t sell this to me, I will get it in another country. 

The reason they did this is because international markets were not institutionalized at this moment of Bretton Woods. For example, while in the early 1930s the West was organizing the production and control of tin, in 1928 the heads of different oil corporations (the so-called Big Sisters) formed a cartel to forestall the market and make oil profitable. That’s a prelude to what OPEC will do thirty years later. I conceive of markets and capitalist practices as arenas of power, with different entities trying to develop forms of power and influence to achieve specific aims, rather than, say, ideological aims. 

When it comes to Soviet ideology, what I see is an abiding respect for market discourse and for markets themselves. The Soviets didn’t really think they could control markets, but they did want to participate in them and use them as a tool in their own policymaking. They engaged in practices similar to countries everywhere in a capitalist system. This forces us out of the binary between a command economy and free markets. In practice, you find the opposite of that binary; Soviet ideology is not antithetical to markets and in fact, Soviets sought to generate markets, and US practice very often forestalled them. That this respect for the authority of markets appeared across the political spectrum is the element of neoliberalism we need to contend with. It wasn’t just imposed by figures like Thatcher and Reagan—the Soviet Union’s attraction to it is testament to its practical and ideological pull. 

JM: One way to think about it would be to say that few people really want markets for their own sake. The use of pro-market discourse was often quite useful for achieving particular aims. But this discourse could be discarded when it was no longer useful. Energy and primary commodities demonstrate this clearly—these businesses were often very eager to disrupt market logic completely in order to guarantee profits and market share. Planning wasn’t just the preserve of the left. 

Energy is really important to your story. The deepening European dependence on Russian oil during this period is, in a certain sense, what facilitates the Soviet strategy. I think you convincingly argue that this should force us to rethink Soviet economics. 

oss: Any study of the postwar capitalist economy and the evolution of global finance needs to integrate energy. Matthew Huber wrote an incredible article in which he argues that the organization of the oil industry is a precondition for the evolution of Fordism in the rich world. That settlement took place through a violent process of cartelization. In the 1930s, the world’s largest oil producer was the United States. The Texas Railroad Commission was set up to manage pricing and distribution domestically. This was done with a fair bit of violence against oil workers across Arkansas and Texas. That built the solid ground to contain inflation, upon which the Bretton Woods era was constructed: the Marshall Plan, the IMF, and the World Bank. The disruption to pricing and global distribution ultimately brought down the Bretton Woods system in the early seventies. 

The second piece of the puzzle, especially concerning the Soviet Union, is the Marshall plan. The dominant story of the Plan is that it was a general kind of development aid to reconstruct the European economy in a new, more cooperative way. That’s a great story. But David Painter’s work shows us that a significant portion of the Marshall Plan was actually about building the infrastructure for an oil economy in Europe. So much so that 10 percent of the Marshall Plan just comes right back to the US in the form of oil purchases. 

The petrochemical industry in Italy became very important because it was the fulcrum that opened up a new relationship with the Soviet Union for all Europeans. The entire Italian petrochemical industry was built with Marshall Plan money, and the Italians innovated the oil for pipe exchange, which became a vector for opening up capital markets for the Soviets.

The US government built the oil economy in Europe that in time would have the effect of inviting the Soviets into Europe. The contradictions posed by these arrangements generated the instabilities of the 1960s and eventually brought into question the foundations of Bretton Woods, including capital controls. The Soviet Union wasn’t interested in dismantling Bretton Woods as a whole—they were specifically opposed to the capital controls that prevented them from engaging in liberalized trade in Western Europe.

JM: Your book is an excellent demonstration of the power of capital controls under the Bretton Woods system. What’s so fascinating about your story, though, is that it wasn’t just Wall Street fighting against capital controls but also Soviet diplomats. In our effort to demythologize Bretton Woods, it’s worth thinking about the extent to which it mattered as an international structuring system. Could we go so far as to say that Bretton Woods mattered for a brief period of time mostly insofar as it instantiated a broad acceptance of the use of capital controls?

oss: What’s interesting in thinking about the Soviet trajectory through Bretton Woods is the extent to which the Soviets really just wanted to get back where they seemed to be getting to by the late 1920s. In the aftermath of World War One, there was no capital, the Soviets had just been invaded by three different Western powers, and then they were ostracized for refusing to pay the tsarist debt. They were desperate for capital, and it’s only after the Dawes Plan began to circulate capital around Western Europe that the Soviets were able to find deals. 

Germany offered a major loan. This made the Americans mad as hell, because the US just gave the Germans loans that the Germans then offered to the Soviets. But by the early 1930s, the US got on board because the Soviet Union was the one country still constructing things. In 1933 under Roosevelt, the US opened up diplomatic relations. But then of course the Great Depression happened, and capital circulation died. One way to think of Bretton Woods is as a managed recovery of liberalization, capital liberalization being an outcome that a lot of different social groups and national leaderships favored.

It’s interesting to look at small countries like Austria. Austria did not desire liberalization. There’s a moment in the book where the Soviets are arguing that both they and the IMF are asking the Austrians to liberalize. Of course, Austria didn’t want to liberalize, because, as is, they could exchange shoes for oil. If they traded in marks or dollars, the Soviets could take their money and buy things in Germany. What do you think, how should we think of Bretton Woods?

jm: One of the things I argued in my book was that the idea of embedded liberalism, as an actual organizing principle of the world economy, figured very little into many of the decisions of the Bretton Woods institutions.

There was never a period of time in which South American states, for example, weren’t faced with pressure to adjust from Bretton Woods institutions in order to access resources. By the end of the 1940s and early 1950s, Latin American states were effectively told to pursue anti-inflationary policies and fiscal discipline if they wanted to draw on IMF resources. There’s not much evidence to say that the IMF was guided by some Keynesian or New Deal respect for autonomy, when it came to all of its member states.

If we think of embedded liberalism as a kind of guiding normative ideal, we are primarily talking about Europe and North America. Keynes himself said that Bretton Woods was not going to work as he wanted it to, even in the more limited form that he’d agreed to after his original demands were discarded under American pressure. He died quite unsatisfied with this system, recognizing that it was going to be dominated by the Americans, and more specifically, that given the lack of guardrails over what the IMF could do, that it would be hard to prevent it from evolving into the kind of conditionality machine that it did indeed become.

Your story shows how powerful capital controls under Bretton Woods were, but also how they didn’t always achieve the kind of normative aims we might associate with them. If embedded liberalism was supposed to afford states a kind of autonomy to experiment with national political economy, the most experimental state of all—the Soviet Union—didn’t want it! The Soviets sought to remove the capital controls that were constraining their ability to achieve certain goals.

In a certain sense, I think you can combine our stories to say that I see embedded liberalism as something that, if it existed, was quite geographically and temporally constrained. And you see it as something that did exist, but which, at least in this case, had the opposite political effects of what we might assume.

This brings us back to the beginning of our conversation—capital is not lording over the Soviet Union, but attracting it. I want to offer two misreadings of your argument, and I want to see how you respond to them. One would be to say something like, the Soviet Union learns to use the tools of the capitalist West in a way that is ultimately  designed to augment Soviet power so that it can somehow undo the bounds of capitalism altogether. That is to say, that the Soviets sought to operate within the bounds of the power structure they were trying to undo. Second would be to actually hand your book over to a hardcore Cold Warrior liberal hawk like Francis Fukuyama, who would say that this book is an incredible demonstration of the inevitability of global capitalism’s victory. What is at least conventionally understood to be the greatest challenge to global capitalism in the form of a state itself became very adept at operating according to the logic of capitalism.

oss: They are both very good misreadings. They go back to what we said earlier about how capitalism develops in practice, and that practice is a struggle for power. I think Fukuyama, liberal that he is, should be very careful, because part of the reason why these very autocratic actors are attracted to these systems of capital circulation and commodity exchange is because they allow for that kind of autocratic power. These systems were attractive not just to the Soviet Union. There is a section of the book in which I document the moment in which certain Latin American countries began, often through British banks, to approach Soviet trade and aid. This included Brazil, which at that time was governed by a Fascist military junta presumably inimical to the Soviets. When the Soviets did enter into relations with Brazil, the Cubans screamed bloody murder. But that didn’t deter the Soviets at all.

British banking relations in Latin America dating back hundreds of years were displaced by the Americans between the 1930s and the 1950s, leading British banks to team up with the Soviets. What made the Soviet Union slightly different from the global South is that it had things to sell in a competitive way. They weren’t competing in the chemical industry, but they could build a dam as well as anybody else. 

So that’s what they did in Latin America. They capitalized these kinds of projects and formed a sort of alliance with British bankers. When Brazil entered a debt trap with European banks, that was in part thanks to the Soviets aiding in the financing and construction of the infrastructure for which these loans were issued. With respect to Brazil, Quinn Slobodian has described American bankers lamenting just what you pointed to: It’s the 1970s, and this steep hierarchy that came along with embedded liberalism has disintegrated. In the 1950s, they could tell Brazil what to do; by the 1970s, Brazil could borrow all the money it wanted without following American command. 

Of course, this criticism comes with all kinds of racist language, that the borrowers in the South are irresponsible children and so on. It’s uncanny the extent to which imperialism and the cultural constructs that come with it just never die. The finance and the culture are of a piece.


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