The Economic Weapon

This book could not be more timely. Published one month before Vladimir Putin’s invasion of Ukraine, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War is about the origins, evolution and uses of economic sanctions during the years between the two world wars.

It’s written by Nicholas Mulder, a professor of European and international history at Cornell University.

Cover of The Economic Weapon

The Economic Weapon:
The Rise of Sanctions as a Tool of Modern War
By Nicholas Mulder
Yale University Press, New Haven, 2022

In this review I want to touch on some of the main themes of the book and then try to apply its lessons to the economic sanctions against Russia for its invasion of Ukraine.

Origins

Economic sanctions have been used for about a hundred years. Mulder traces their origins back to World War 1 when Britain and its allies imposed naval blockades against Germany and the Austro-Hungarian Empire. These blockades prevented shipments of metals, minerals, coal, and food from reaching the central European powers. They are considered an important factor in the Allied victory.

An estimated 424,000 Germans died of starvation or diseases related to malnutrition as a result of the blockades.

After the war, liberal internationalists in Britain and France wanted to find ways to prevent future wars. This led to the formation of the League of Nations, the precursor to today’s United Nations. The League needed a mechanism to enforce the rules of international conduct laid out in its Covenant. Building on the success of the blockades, the League chose sanctions, known at the time as “the economic weapon.” This is laid out in Article 16 of the Covenant which says.

“Should any Member of the League resort to war in disregard of its covenants under Articles 12, 13 or 15, it shall ipso facto be deemed to have committed an act of war against all other Members of the League, which hereby undertake immediately to subject it to the severance of all trade or financial relations, the prohibition of all intercourse between their nationals and the nationals of the covenant-breaking State, and the prevention of all financial, commercial or personal intercourse between the nationals of the covenant-breaking State and the nationals of any other State, whether a Member of the League or not.” [Source: https://avalon.law.yale.edu/20th_century/leagcov.asp#art16]

Mulder highlights that sanction were designed “first and foremost, to prevent wars of conquest.” They were not intended to address problems within nation-states such as civil wars, military coups, or ethnic cleansing. Today, of course, we see sanctions applied in many different types of conflict.

There are a few key implications arising from the use of sanctions that Mulder describes. First, they blur the distinction between peacetime and wartime. Sanctions are a weapon of war that are most often used without military conflict. Second, sanctions essentially eliminate the idea of non-combatants. By design, they apply to everyone in the sanctioned country. Finally, they make neutrality virtually impossible. A country must either abide by sanctions or be hit by them.

How Are Sanctions Supposed to Work?

As originally conceived, sanctions are supposed to be a deterrent.

After the horrors of World War 1 and the devastating impact of the blockades on Germany, people believed that even the threat of sanctions would deter acts of war between member states.  Failing deterrence, sanctions are supposed to prevent a war from continuing, or from escalating into a larger conflict.

Faced with the threat of sanction, leaders of member states would back down and seek negotiated settlements of their disputes. And if cooler heads did not prevail among the elites, then the people of those states would demand changes rather than bear the terrible burdens of sanctions. It’s essentially a rational actor theory of political action.

But Mulder notes that people and their leaders often don’t act rationally, and often consider factors beyond just their economic well-being when making decisions.

“Perhaps the most confounding aspect of sanctions is that regardless of their technical sophistication, their outcome is never a matter of economic factors alone. Interwar sanctions assumed state behavior was driven by popular opinion and the material self-interest of populations and elites. But in light of the experiences of World War I, this view was dangerously single-minded. Nationalism, fear-mongering, and violent racism surged. Ideals of cultural unity, historic rights to territory, and promises of self-determination and social transformation mobilized millions of Europeans. Given the power of such ideas to move entire societies, how would economic pressure alone dissuade them from repeating such collective struggle?” [p. 296]

Do Sanctions Actually Work?

Most of the time, sanctions fail.

Mulder cites historical research showing that in the 20th century, sanctions achieved or partially achieved their objectives at most one third of the time. Despite this dismal track record, in the 21st century the use of sanctions has increased dramatically, and they are being applied in a far broader set of circumstances that originally intended.

Yet by 2016 their chances of success had fallen to less than 20%.

There have been some successes. For example, Mulder reviews a 1921 border dispute between Yugoslavia and Albania where the League intervened and threatened sanctions, forcing Yugoslavia to withdraw its troops.

Sanctions are also credited with having had some influence in convincing Iran to negotiate the 2013 nuclear weapons deal.

Mulder says sanctions have a better chance of success when their aims are narrowly defined, and when the sanctioning parties are willing to negotiate and make compromises.

But for the most part, “the history of sanctions is largely a history of disappointment.”

Sometimes they even backfire.

The threat of sanctions can cause belligerent states to develop “blockade phobia,” leading them take actions to insulate themselves. They try to become more self-sufficient. They build up stockpiles of supplies and reserves of foreign currency. And they sometimes conquer territories which can provide them with the resources that sanctions would deprive them of.  Mulder highlights the irony of sanctions provoking exactly the behavior they were designed to prevent.

In the most extreme case, as Mulder and other historians have noted, an oil embargo against Japan in October 1941 was seen as the last straw by hardliners in Tokyo. The Japanese attacked Pearl Harbor a month later, launching a war they knew they could not win but apparently seeing no other alternative.

Are Sanctions Justified?

Sanctions were intended to be an antidote to war. They were justified by the argument that the suffering caused by sanctions was far less than the death and destruction caused by war, especially by the two world wars. 

But with such a low success rate, how can we justify sanctions today when they mostly inflict pain and suffering on the people least responsible and least able to cause a change in state policy? 

There doesn’t seem to be an answer other than sanctions are preferrable to all-out war on one hand, and doing nothing on the other.

Mulder doesn’t address this question directly, but I infer that he’s pretty skeptical about sanctions at least as they’re applied today.

However, he does point to an alternative.

The Positive Economic Weapon

Sanctions were only one side of the League of Nations’ Article 16. Another clause of that same article reads,

“The Members of the League agree, further, that they will mutually support one another in the financial and economic measures which are taken under this Article, in order to minimise the loss and inconvenience resulting from the above measures, and that they will mutually support one another in resisting any special measures aimed at one of their number by the covenant-breaking State, and that they will take the necessary steps to afford passage through their territory to the forces of any of the Members of the League which are co-operating to protect the covenants of the League” [Source: https://avalon.law.yale.edu/20th_century/leagcov.asp#art16]

This mutual aid provision – the carrot to sanctions’ stick – didn’t get much attention during the interwar years, Mulder says.

It wasn’t until the United States launched the Lend-Lease program during World War 2 that the world saw how providing resources could be so effective in both building alliances and defeating an enemy. Under Lend-Lease, the US supplied food, oil and weapons to its allies including Britain, France, and the Soviet Union. Canada ran a smaller scale program called Mutual Aid.

“In the history of collective security and economic sanctions, Lend-Lease implemented the positive economic weapon of Article 16 on a vast scale. … One out of every six dollars Washington spent on the war went to this program; put simply, Lend-Lease was the most significant economic scheme against aggression ever created.” [p. 274]

Will Sanctions Work Against Putin?

Make no mistake, we are at war with Russia. As The Economic Weapon makes clear, sanctions are a weapon of war. Will they work against Putin?

Caveat: in this section I’m speculating.

I also recognize that I’m very privileged to be able to treat this question as an intellectual exercise. My country has not been invaded, my city is not being shelled, I am not living in a bomb shelter, my family and friends are not being killed. I am truly fortunate.

The Economic Weapon was published before Putin’s invasion of Ukraine, but in an interview on The Ezra Klein Show podcast (see Related Links below), Mulder discusses the situation. He calls it a watershed moment in the history of sanctions because it’s the first time they’ve been applied to a country with an economy as large as Russia’s.

The invasion of Ukraine is exactly the kind of situation sanctions were originally designed to deter or prevent. Still, many of the signs pointing to the failure of sanctions that Mulder warns about in the book are apparent in this situation.

He notes that the aim of sanctions against Russia is actually not clear. Are they aimed only at stopping Putin’s invasion of Ukraine? In other words, would they be lifted in the event of a peace treaty and the withdrawal of Russian troops from Ukrainian territory? Or are they aimed at regime change?

Sanctions against Russia do not include oil and gas exports, leaving Putin with the financial resources to somewhat offset the severe economic shock that sanctions have caused.

Still, Mulder says that the Russian economy is likely to shrink by a minimum of 15% this year, and that sanctions will “crater” Russia’s long run prospects for economic growth.

Putin doesn’t appear to care about this, nor about the impact it will have on the Russian people.

In the interview Mulder notes that the “oligarchs,” basically Russian billionaires, don’t actually have any political power. Their hold on wealth is entirely dependent on Putin’s whim.

I would add that Putin’s crackdown on independent media means that many Russians don’t have easy access to information about what their government is actually doing in Ukraine. And while there have been some popular protests against the invasion in some Russian cities, they don’t appear to have enough momentum to cause an end to the war, let alone a change in regime.

For these reasons, it seems to me unlikely that sanctions will generate enough pressure to cause either the elites or a popular uprising to force Putin from power anytime soon.

Yet Putin’s invasion of Ukraine also illustrates the other side of sanctions, the provision of aid. Here, NATO supplies of military, logistical, intelligence and humanitarian aid to Ukraine are proving critical to the amazing resistance of the Ukrainian people. My guess is that this positive economic weapon is likely to have a more significant impact on the outcome of the war than sanctions.

* * *

The Economic War is an academic work, meticulously researched and minutely detailed. The writing is dense and heavy going in places, but I learned a lot, not just about sanctions themselves but also about the history of the interwar years.  

Despite its focus on those interwar years, the book is incredibly relevant to our time.

It’s also deeply sobering. Sanctions have a poor track record of preventing war or achieving other foreign policy goals. That means we still don’t have the right set of tools to effectively manage, let alone eliminate, international conflict.

Thanks for reading.

Related Links

Sanctions Against Russia Are a Form of War. It’s Time We Recognize That
Transcript of an interview with Nicholas Mulder on The Ezra Klein Show podcast on April 1, 2022

This entry was posted in Books, History, Politics and tagged , , , , , , . Bookmark the permalink.

4 Responses to The Economic Weapon

  1. A very timely book indeed! Thanks for sharing your take on this. I would have had no idea on the mostly unsuccessful effect of sanctions. Here’s hoping they work better right now. I’m glad the provision of aid does seem to be helping some.

    Liked by 1 person

  2. I don’t know much about modern warfare or sanctions, so I have been wondering what impact the current sanctions against Russia might have. I have learnt a lot from this post! Thanks for sharing your review and thoughts.

    Liked by 1 person

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