High Point of Modern International Economic Diplomacy

Ed Conway, The Summit: Bretton Woods 1944,

J.M. Keynes and the Reshaping of the Global Economy 

               During the first three weeks of July 1944, as World War II raged on the far sides of the Atlantic and Pacific oceans, 730 delegates from 44 countries gathered at the Mount Washington Hotel in Northern New Hampshire for what has come to be known as the Bretton Woods conference. The conference’s objective was audacious: create a new and more stable framework for the post-World War II monetary order, with the hope of avoiding future economic upheavals like the Great Depression of the 1930s.   To this end, the delegates reconsidered and in many cases rewrote some of the most basic rules of international finance and global capitalism, such as how money should flow between sovereign states, how exchange rates should interact, and how central banks should set interest rates. The conference took place at the venerable but aging Mount Washington Hotel, in an area informally known as Bretton Woods, not far from Mount Washington itself, Eastern United States’ highest peak.

In The Summit, Bretton Woods, 1944: J.M. Keynes and the Reshaping of the Global Economy, Ed Conway, formerly economics editor for Britain’s Daily Telegraph and Sunday Telegraph and presently economics editor for Sky News, provides new and fascinating detail about the conference. The word “summit” in his title carries a triple sense: it refers to Mount Washington and to the term that came into use in the following decade for a meeting of international leaders. But Conway also contends that the Bretton Woods conference now appears to have been another sort of summit. The conference marked the “only time countries ever came together to remold the world’s monetary system” (p.xx).  It stands in history as the “very highest point of modern international economic diplomacy” (p.xxv).

Conway differentiates his work from others on Bretton Woods by focusing on the interactions among the delegates and the “sheer human drama” (p.xxii) of the event.  As the sub-title indicates, British economist John Maynard Keynes is forefront among these delegates. Conway could have added to his subtitle the lesser-known Harry Dexter White, Chief International Economist at the US Treasury Department and Deputy to Treasury Secretary Henry Morgenthau, the head of the US delegation and formal president of the conference.  White’s name in the subtitle would have underscored that this book is a story about  the relationship between the two men who assumed de facto leadership of the conference. But the book is also a story about the uneasy relationship at Bretton Woods between the United States and the United Kingdom, the conference’s two lead delegations.

Although allies in the fight against Nazi Germany, the two countries were far from allies at Bretton Woods.  Great Britain, one of the world’s most indebted nations, came to the conference unable to pay for its own defense in the war against Nazi Germany and unable to protect and preserve its vast worldwide empire.  It was utterly outmatched at Bretton Woods by an already dominant United States, its principal creditor, which had little interest in providing debt relief to Britain or helping it maintain an empire. Even the force of Keynes’ dominating personality was insufficient to give Britain much more than a supplicant’s role at Bretton Woods.

Conway’s book also constitutes a useful and understandable historical overview of the international monetary order from pre-World War I days up to Bretton Woods and beyond.  The overview revolves around the gold standard as a basis for international currency exchanges and attempts over the years to find workable alternatives. Bretton Woods produced such an alternative, a standard pegged to the United States dollar — which, paradoxically, was itself tied to the price of gold.  Bretton Woods also produced two key institutions, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development, now known as the World Bank, designed to provide stability to the new economic order. But the Bretton Woods dollar standard remained in effect only until 1971, when US President Richard Nixon severed by presidential fiat the link between the dollar and gold, allowing currency values to float, as they had done in the 1930s.  In Conway’s view, the demise of Bretton Woods is to be regretted.

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          Keynes was a legendary figure when he arrived at Bretton Woods in July 1944, a “genuine international celebrity, the only household name at Bretton Woods” (p.xv). Educated at Kings College, Cambridge, a member of the faculty of that august institution, and a peer in Britain’s House of Lords, Keynes was also a highly skilled writer and journalist, as well as a fearsome debater.  As a young man, he  established his reputation  with a famous critique of the 1919 Versailles Treaty, The Economic Consequences of the Peace, a tract that predicted with eerie accuracy the breakdown of the financial order that the post World War I treaty envisioned, based upon imposition of punitive reparations upon Germany. Although Keynes dazzled fellow delegates at Bretton Woods with his rhetorical brilliance, he was given to outlandish and provocative statements that hardly helped the bonhomie of the conference.   He suffered a heart attack toward the end of the conference and died less than two years later.

White was a contrast to Keynes in just about every way. He came from a modest first generation Jewish immigrant family from Boston and had to scramble for his education. Unusual for the time, in his 30s White earned an undergraduate degree from Stanford after having spent the better portion of a decade as a social worker. White had a dour personality, with none of Keynes’ flamboyance. Then there were the physical differences.   Keynes stood about six feet six inches tall (approximately 2.0 meters), whereas White was at least a foot smaller (approximately 1.7 meters). But if Keynes was the marquee star of the Bretton Woods because of his personality and reputation, White was its driving force because he represented the United States, undisputedly the conference’s driving force.

By the time of the Bretton Woods conference, however, White was also unduly familiar with Russian intelligence services. Although Conway hesitates to slap the “spy” label on him, there is little doubt that White provided a hefty amount of information to the Soviets, both at the conference and outside its confines. Of course, much of the “information sharing” took place during World War II, when the Soviet Union was allied with Britain and the United States in the fight against Nazi Germany and such sharing was seen in a different light than in the subsequent Cold War era.  One possibility, Conway speculates, was that White was “merely carrying out his own, personal form of diplomacy – unaware that the Soviets were construing this as espionage” (p.159; the Soviet Union attended the conference but did not join the international mechanisms which the conference established).

The reality, Conway concludes, is that we will “never know for certain whether White knowingly betrayed his country by passing information to the Soviets” (p.362).   Critically, there is “no evidence that White’s Soviet activities undermined the Bretton Woods agreement itself” (p.163;). White died in 1948, four years after the conference, and the FBI’s case against him became moot. From that point onward, the question whether White was a spy for the Soviet Union became one almost exclusively for historians, a question that today remains unresolved (ironically, after White’s death, young Congressman Richard Nixon remained just about the only public official still interested in White’s case; when Nixon became president two decades later, he terminated the Bretton Woods financial standards White had helped create).

The conference itself begins at about the book’s halfway point. Prior to his account of its deliberations, Conway shows how the gold standard operated and the search for workable alternatives. In the period up to World War I, the world’s powers guaranteed that they could redeem their currency for its value in gold. The World War I belligerents went off the gold standard so they could print the currency needed to pay for their war costs, causing hyperinflation, as the supply of money overwhelmed the demand.  In the 1920s, countries gradually resorted back to the gold standard.

But the stock market crash of 1929 and ensuing depression prompted countries to again abandon the gold standard. In the 1930s, what Conway terms a “gold exchange standard” prevailed, in which governments undertook competitive devaluations of their currency. President Franklin Roosevelt, for example, used a “primitive scheme” to set the dollar “where he wanted it – which meant as low against the [British] pound as possible” (p.83).  The competitive devaluations and floating rates of the 1930s led to restrictive trade policies, discouraged trade and investment, and encouraged destabilizing speculation, all of which many economists linked to the devastating war that broke out across the globe at the end of the decade.

Bretton Woods sought to eliminate these disruptions for the post-war world by crafting an international monetary system based upon cooperation among the world’s sovereign states. The conference was preceded by nearly two years of negotiations between the Treasury Departments of Great Britain and the United States — essentially exchanges between Keynes and White, each with a plan on how a new international monetary order should operate. Both were “determined to use the conference to safeguard their own economies” (p.18). Keynes wanted to protect not only the British Empire but also London’s place as the center of international finance. White saw little need to protect the empire and foresaw New York as the world’s new economic hub.  He also wanted to locate the two institutions that Bretton Woods would create, the IMF and World Bank, in the United States, whereas Keynes hoped that at least one would be located either in Britain or on the European continent. White and the Americans would win on these and almost all other points of difference.

But Keynes and White shared a broad general vision that Bretton Woods should produce a system designed to do away with the worst effects of both the gold standard and the interwar years of instability and depression.   There needed to be something in between the rigidity associated with the gold standard on the one hand and free-floating currencies, which were “associated with dangerous flows of ‘hot money’ and inescapable lurches in exchange rates” (p.124), on the other. To White and the American delegation, “Bretton Woods needed to look as similar as possible to the gold standard: politicians’ hands should be tied to prevent them from inflating away their debts. It was essential to avoid the threat of the competitive devaluations that had wreaked such havoc in the 1930s” (p.171).  For Keynes and his colleagues, “Bretton Woods should be about ensuring stable world trade – without the rigidity of the gold standard” (p.171).

The British and American delegations met in Atlantic City in June 1944 in an attempt to narrow their differences before travelling to Northern New Hampshire, where the floor would be opened to the conference’s additional delegations.  Much of what happened at Bretton Woods was confined to the business pages of the newspapers, with attention focused on the war effort and President Roosevelt’s re-election bid for a fourth presidential term.  This suited White, who “wanted the conference to look as uncontroversial, technical and boring as possible” (p.203).  The conference was split into three main parts. White chaired Commission I, dealing with the IMF, while Keynes chaired Commission II, whose focus was the World Bank.  Each commission divided into multiple committees and sub-committees.  Commission III, whose formal title was “Other Means of International Cooperation,” was in Conway’s view essentially a “toxic waste dump into which White and Keynes could jettison some of the summit’s trickier issues” (p.216).

The core principle to emerge from the Bretton Woods deliberations was that the world’s currencies, rather than being tied directly to gold or allowed to float, would be pegged to the US dollar which, in turn, was tied to gold at a value of $35 per ounce. Keynes and White anticipated that fixing currencies against the dollar would ensure that:

international trade was protected for exchange rate risk. Nations would determine their own interest rates for purely domestic economic reasons, whereas under the gold standard, rates had been set primarily in order to keep the country’s gold stocks at an acceptable level. Countries would be allowed to devalue their currency if they became uncompetitive – but they would have to notify the International Monetary Fund in advance: this element of international co-ordination was intended to guard against a repeat of the 1930s spiral of competitive devaluation (p.369).

 

The IMF’s primary purpose under the Bretton Woods framework was to provide relief in balance of payments crises such as those of the 1930s, when countries in deficit were unable to borrow and exporting countries failed to find markets for their goods. “Rather than leaving the market to its own devices – the laissez-faire strategy discredited in the Depression – the Fund would be able to step in and lend countries money, crucially in whichever currency they most needed. So as to avoid the threat of competitive devaluations, the Fund would also arbitrate whether a country could devalue its exchange rate” (p.169).

One of the most sensitive issues in structuring the IMF involved the contributions that each country was required to pay into the Fund, termed “quotas.” When short of reserves, each member state would be entitled to borrow needed foreign currency in amounts determined by the size of its quota.  Most countries wanted to contribute more rather than less, both as a matter of national pride and as a means to gain future leverage with the Fund. Heated quota battles ensued “both publicly in the conference rooms and privately in the hotel corridors, until the very end of the proceedings” (p.222-23), with the United States ultimately determining quota amounts according to a process most delegations considered opaque and secretive.

The World Bank, almost an afterthought at the conference, was to have the power to finance reconstruction in Europe and elsewhere after the war.  But the Marshall Plan, an “extraordinary program of aid devoted to shoring up Europe’s economy” (p.357), upended Bretton Woods’ visions for both institutions for nearly a decade.  It was the Marshall Plan that rebuilt Europe in the post-war years, not the IMF or the World Bank. The Fund’s main role in its initial years, Conway notes, was to funnel money to member countries “as a stop-gap before their Marshall Plan aid arrived” (p.357),

When Harry Truman became President in April 1945 after Roosevelt’s death, he replaced Roosevelt’s Treasury Secretary Henry Morgenthau, White’s boss, with future Supreme Court justice Fred Vinson. Never a fan of White, Vinson diminished his role at Treasury and White left the department in 1947. He died the following year, in August 1948 at age 55.  Although the August 1945 change in British Prime Ministers from Winston Churchill to Clement Atlee did not undermine Keynes to the same extent, his deteriorating health diminished his role after Bretton Woods as well. Keynes died in April 1946 at age 62, shortly after returning to Britain from the inaugural IMF meeting in Savannah, Georgia, his last encounter with White.

Throughout the 1950s, the US dollar assumed a “new degree of hegemony,” becoming “formally equivalent to gold. So when they sought to bolster their foreign exchange reserves to protect them from future crises, foreign governments built up large reserves of dollars” (p.374). But with more dollars in the world economy, the United States found it increasingly difficult to convert them back into gold at the official exchange rate of $35 per ounce.  When Richard Nixon became president in 1969, the United States held $10.5 billion in gold, but foreign governments had $40 billion in dollar reserves, and foreign investors and corporations held another $30 billion. The world’s monetary system had become, once again, an “inverted pyramid of paper money perched on a static stack of gold” and Bretton Woods was “buckling so badly it seemed almost certain to collapse” (p.377).

In a single secluded weekend in 1971 at the Presidential retreat at Camp David, Maryland, Nixon’s advisors fashioned a plan to “close the gold window”: the United States would no longer provide gold to official foreign holders of dollars and instead would impose “aggressive new surcharges and taxes on imports intended to push other countries into revaluing their own currencies” (p.381).  When Nixon agreed to his advisors’ proposal,  the Bretton Woods system, which had “begun with fanfare, an unprecedented series of conferences and the deepest investigation in history into the state of macro-economics” ended overnight, “without almost anyone realizing it” (p.385). The era of fixed exchange rates was over, with currency values henceforth to be determined by “what traders and investors thought they were worth” (p.392).  Since 1971, the world’s monetary system has operated on what Conway describes as an “ad hoc basis, with no particular sense of the direction in which to follow” (p.401).

* * *

            In his epilogue, Conway cites a 2011 Bank of England study that showed that between 1948 and the early 1970s, the world enjoyed a “period of economic growth and stability that has never been rivaled – before or since” (p.388).  In Bretton Woods member states during this period “life expectancy climbed swiftly higher, inequality fell, and social welfare systems were constructed which, for the time being at least, seemed eminently affordable” (p.388).  The “imperfect” and “short-lived” (p.406) system which Keynes and White fashioned at Bretton Woods may not be the full explanation for these developments but it surely contributed.  In the messy world of international economics, that system has “come to represent something hopeful, something closer to perfection” (p.408).  The two men at the center of this captivating story came to Bretton Woods intent upon repairing the world’s economic system and replacing it with something better — something that might avert future economic depressions and the resort to war to settle differences.  “For a time,” Conway concludes, “they succeeded” (p.408).

Thomas H. Peebles

La Châtaigneraie, France

March 8, 2017

Profoundly Transformative Year

Michael Dobbs, Six Months in 1945: FDR, Stalin, Churchill and Truman: 

From World War to Cold War 

And

Ian Buruma, Year Zero: A History of 1945 

            1945 opened with history’s most horrific war, in which German and Japanese regimes had sought to conquer much of the world by force, still raging. The year closed with a sinister Cold War that divided the world for several decades already well underway. Michael Dobbs’ Six Months in 1945: FDR, Stalin, Churchill and Truman From World War to Cold War and Ian Buruma’s Year Zero: A History of 1945 should be of interest to readers seeking to deepen their understanding of this pivotal year, which I hope would include most of my high school and college classmates — almost all of us were born in 1945, literally our year zero. The two books not only have similar titles, but also a similar look. The paperback editions are the same size and nearly the same length.

          Moreover, Dobbs and Buruma are both top-notch writers of almost the same age, each with a British background and a highly successful career in the United States. Buruma was born in 1951 in The Hague, the Netherlands, to a British mother and Dutch father. Dobbs (not to be confused with the British politician of the same name, who is also author of the political thriller House of Cards) was born in Belfast, Northern Ireland, in 1950. He served as a foreign correspondent for the Washington Post for several years, working in Eastern Europe and Moscow. Buruma is a professor of human rights and journalism at Bard College, where he specializes in Asian Studies, especially Chinese and Japanese history and culture.

           Readers need not worry about repetition in the two books. Although Dobbs and Buruma are both concerned primarily with the aftermath of the war, rather than the final rounds of fighting, they approach their subject matter from entirely different perspectives. As his sub-title indicates, Dobbs concentrates on the American, British and Soviet leaders and their decision-making in the six months he covers, February to August 1945. His work is a classic piece of “top down” historical writing, focused on “great men” — unfortunately, somewhat derisive terms in some contemporary academic circles. Buruma by contrast approaches his subject “from the bottom up.” He writes about life on the ground during the seminal year and how the policies which Roosevelt, Churchill, Stalin, Truman and others fashioned affected average people. Readers willing to take on both books should emerge with a heightened understanding of a profoundly transformative year.

* * *

          The Yalta Conference of February 1945 in the Soviet Crimea, and the Potsdam Conference that took place just outside Berlin from July 17 to August 2 of that year serve as the bookends to Dobbs’ study of the period from February to August 1945. The book is organized in a strict chronological manner. All but the last of Dobbs’ 21 chapters bear both a name and a date. The first three, for example, covering the opening sessions at Yalta, are entitled “Roosevelt February 3”; “Stalin February 4”; and “Churchill February 5.” Not every February day gets an individual chapter, but three additional chapters, roughly one-third of the book, are also devoted to the Yalta conference and its immediate aftermath. Throughout, Dobbs provides intimate, detailed and frequently amusing portraits of the four leaders, describing their work habits, world views, personal peccadilloes and much else, along with rich peeks at their interactions at the two conferences.

            In February 1945, when Roosevelt, Churchill and Stalin convened at Yalta, an Allied victory in Europe appeared inevitable but had not been achieved. Roosevelt in Dobbs’ account was a particularly sad, even inept leader at the conference. He was, of course, a dying man in the last months of his life when he traveled to the Crimea to meet Churchill and Stalin. But even granting him the requisite amount of slack on that account, Roosevelt was abysmally ineffective at Yalta. He ignored briefing papers his subordinates had prepared, and had at best a loose grip on the key facts he needed to match up with Stalin.

           Going into Yalta, Dobbs writes, Roosevelt had decided that the best way of winning over Stalin was “through a mixture of flattery and snide remarks about other allies” (p.31). Roosevelt “preferred to improvise, to try whatever seemed to work” (p.19-20). Substantively, Roosevelt most wanted Stalin’s assent to join the war in Asia, and for the new world organization, the United Nations. But the FDR charm offenses which worked countless times for a healthier Roosevelt in trying to persuade a recalcitrant Senator to support an administration bill were “fatally flawed” when applied to Stalin (p.40). Returning from Yalta, Churchill grumbled that the “Americans had been very weak. The President looked old and ill, had lost his powers of concentration and had been a hopelessly weak chairman” (p.99).

             Churchill was only marginally more effective than Roosevelt at Yalta. He knew his facts in a way that Roosevelt did not, but was given to long-winded speeches that the other leaders largely ignored. His points, as recounted by Dobbs, were often mawkish and sentimental, as if he understood that time was running out on the British Empire. Moreover, Clement Atlee, although not worthy of mention in Dobbs’ sub-title, replaced Churchill at the mid-point of the Potsdam Conference after Atlee’s Labor Party defeated Churchill’s Conservatives in July 1945 Parliamentary elections.

          The star of the show at both Yalta and Potsdam in Dobbs’ account was Joseph Stalin, the Man of Steel, or the vozhad, as Dobbs refers to him throughout most of this book, utilizing the Russian term for supreme leader. Stalin was wily, soft spoken, polite, jocular when the need arose, and thoroughly in control of the necessary facts, with a “talent for exposing any contradictions in the hypocrisy of the Western position” (p.171). He seemed to have a plausible, sometimes powerful, rejoinder to every point made by the American and British leaders. When the Americans argued that the post-War order should not be predicated upon spheres of influence, they “made exceptions for the Western Hemisphere when they talked about the Monroe Doctrine. The British excluded their colonies. Whenever Churchill or Roosevelt tried to carve out a sphere of influence for themselves, they strengthened Stalin’s case for a Russian sphere of influence in Eastern Europe” (p.82). Stalin impressed a Churchill advisor as “much the most impressive” (p.65) negotiator of the Big Three at Yalta. Only the neophyte Harry Truman, who assumed the Presidency after Roosevelt’s death in April 1945, proved to be much of a match for the vozhad at the Potsdam conference.

             How Poland would be governed was a principal item on the Yalta agenda, and remained the most contentious of the many issues that divided the Western Allies from their Soviet counterparts during the following months. In addition to being thoroughly in control of the facts, Stalin had an even more critical advantage in his discussions with Roosevelt and Stalin on the fate of Poland: his Red Army was already thoroughly in control of the territory. In this sense, the middling performance of the Western leaders was irrelevant. Two Polish governments claimed to represent Poland: a government-in-exile, based in London and supported by the United States and Great Britain; and a government established in the eastern Polish city of Lublin, supported by the Red Army and the Soviet Union, with effective control of the country.

            The agreement worked out at Yalta had the effect of recognizing the Lublin government as the core of the new Polish state, calling for this government to be “reorganized on a broader democratic basis with the inclusion of democratic leaders from Poland itself and from Poles abroad” (p.84), a concession to the London Poles. A “Polish Provisional Government of National Unity” would be recognized, “pledged to the holding of free and unfettered elections as soon as possible on the basis of universal suffrage and secret ballots,” with all “democratic and anti-Nazi parties” having the right to take part in the elections (p.84-85). When Roosevelt asked Stalin how long it would take to hold elections in Poland, the vozhad replied, “About one month. Unless there is some kind of catastrophe on the front and the Germans defeat us . . . I do not think that will happen” (p.71). The parties agreed that Stalin’s Foreign Secretary Vyacheslav Molotov would meet subsequently with his Western counterparts to nail down the details.

            When an advisor pointed out to Roosevelt that Yalta’s arrangements on Poland favored the Soviets, Roosevelt responded that it was the “best I can do for Poland at this time” (p.85; “The Best I Can Do” is Dobbs’ title to the entire section on Yalta). Roosevelt left Yalta satisfied that he had obtained Russian support for the war in the Pacific against Japan, in exchange for the island of Sakhalin and control over Manchurian ports in the Russian Far East, and for Russian participation in the United Nations. Critically, a “façade of unity” had been preserved on Yalta’s most divisive issues, with the differences between the allies reduced to questions of drafting and “etymology – finding the right words” (p.86), which Roosevelt considered the job of diplomats, not presidents. But, as Dobbs points out, a “heavy price” would be paid for “papering over the most difficult problems at Yalta. . . The misunderstandings would grow and fester, with each side accusing the other of bad faith and breaking solemn agreements. The words that temporarily united the World War II victors would return to divide them” (p.87).

            One of Dobbs’ main contributions is to demonstrate how ideological differences over the meaning of key words not only divided the Soviets from their Western allies but also precluded any meaningful diplomatic solution to the issues left open by Yalta. Words like “democracy,” “independence,” “fascism,” and “freedom” had entirely different meanings for the two sides. Molotov insisted that the enlarged membership of the new Polish government be restricted to the “’real democratic leaders’ of Poland, a euphemism for the Communists and their allies” (p.133). To the Soviets, all anti-Communists were presumptively “Fascist.” With the Soviet Union reserving the right to define who was “Fascist” and who was “democratic,” Stalin was able to do “pretty much as he pleased” in his interactions with the American and British leaders (p.230). But, as Dobbs points out more than once, the Americans were “at least as ideological” as their Soviet counterparts. They “behaved as if their amalgam of free peoples, free markets and free speech should be adopted by every country in the world” (p.359). What the Americans saw as “benign internationalism” the Soviets regarded as an “insidious form of imperialism” (p.87).

           Initial reaction to Yalta in Britain and America, was upbeat – or, as one British diplomat noted, “almost hysterically enthusiastic” (p.94). But both Roosevelt and Churchill had to persuade their legislatures and fellow citizens that their trust in Stalin had not been misplaced. Churchill went out of his way to refute any comparison between Yalta 1945 and Munich 1938. But the parallels were unsettling. When Roosevelt headed to Warm Springs, Georgia for a long-awaited break in early April, he was beginning to see the vozhad as an adversary. Stalin had taken the position that the Western Allies would not be allowed into Poland until they recognized the Lublin government and, to make matters worse, had sent Roosevelt an “insulting telegram” accusing the Western Allies of “striking a secret deal with the Germans” (p.153). “We can’t do business with Stalin,” Dobbs quotes Roosevelt telling a friend, as he thumped his fists against his wheelchair. “He has broken every one of the promises he made at Yalta” (p.153).

            Roosevelt died during that visit to Georgia. Harry S. Truman replaced Roosevelt as president after serving 82 days as Roosevelt’s vice-president, during which he had had almost no contact with the President and no engagement on issues related to the war. The United Nations held its initial meeting in San Francisco at the end of April (which Buruma covers in greater detail than Dobbs). At the conference, Molotov startled his Western counterparts by announcing that sixteen Polish underground anti-Nazi activists who had disappeared in March while on their way to meet with the Red Army had been arrested for anti-Soviet activity. Up to this point, Molotov had said repeatedly that he had no knowledge of the whereabouts of the sixteen activists. Dobbs notes that the rift between the Soviet Union and the Western Allies, “papered over at Yalta” (p.178), became clear to the public after the San Francisco conference.

            But at almost the same time, the Red Army and Western forces met at the Elbe in Germany, giving rise to further euphoria. Hitler took his life a few days later, the Red Army entered Berlin, the Allies liberated Nazi death camps and, on May 8th, “VE Day,” the Nazis capitulated. During the ten weeks between VE day and the start of the Potsdam conference on July 17th, Russia tightened its grip over territories it controlled in Eastern Europe, especially Romania. In July, the British and American governments severed their ties with the government-in-exile in London and recognized the Lublin government, now based in Warsaw. Churchill became particularly despondent about the rift in Europe and at one point had his military advisors draw up a plan for a preemptive military strike against the Russians, appropriately named “Operation UNTHINKABLE.” Meanwhile, the war continued in Asia, the Americans’ work on the atomic bomb neared fruition, and the points of disaccord between the Western Allies and the Soviet Union seemed to be growing daily.

             The Potsdam conference took place from July 17 to August 2, 1945, at Cecilienhof, located not far from the rubble of Berlin. Mid-way through the conference, Churchill suffered a crushing defeat in Parliamentary elections, sending Clement Atlee to represent Great Britain, and thereby reducing the “Big 3” to the “Big 2 ½,” as one British wit put it (p.342). We get little sense of Atlee’s performance at Potsdam. Truman, however, although a novice on the world stage, was conspicuously less deferential to Stalin than his predecessor had been. Truman wrote that Stalin “seems to like it when I hit him on the head with a hammer” (p.328). One historian noted that Truman at Potsdam “sounded more like a teacher reminding a forgetful pupil [Stalin] of his chores” (p.343).

            The final arrangement at Potsdam was, Dobbs writes, “as clear as it was cynical. All three parties would hold on to what they already had, making only token concessions to grand but nebulous concepts such as ‘Allied cooperation,’ a ‘united German,’ and the ‘spirit of Yalta’” (p.340). Potsdam resulted in Germany’s eastern border being shifted westward, as Stalin had insisted since a conference in Teheran in 1943, reducing Germany in size by approximately 25% compared to its 1937 borders. The western Allies dropped their insistence on elections in Poland. Stalin quite plainly “would not permit Poland to slip from his grasp” (p. 331) but, in a concession to the Western Allies, allowed the inclusion of a few London Poles into the Communist-dominated government. In what the Russians considered a retraction of Roosevelt’s commitment to Stalin at Yalta, Truman firmly opposed general German reparations to the Soviet Union. Any German reparations to the Soviets would come only from Soviet controlled zones. Although the conference preserved the fiction of a unified German state, the Allies reaffirmed their commitment to divide Germany into four administrative zones, and similarly divide Berlin, its capital, into four zones, leading “inexorably to the division of the country into two rival entities – guided by competing ideologies, geopolitical ties, and economic and political systems” (p.344).

           Neither Dobbs nor Buruma dwells upon the devastation which the atomic bomb wreaked on two Japanese cities, Hiroshima on August 6 and Nagasaki on August 9, although both note that Truman justified the attack by considering both cities military rather than civilian targets, far from the case. Stalin delivered on his promise to support the war in Asia, sending 1.5 million soldiers across the Chinese border into Manchuria on August 9, the same day as the bombing of Nagasaki. Dobbs closes his narrative by noting that the “race to deliver a final knockout punch to Japan – pitting Russian land power against American airpower – had concluded with a virtual dead heat” (p.354).

* * *

              Buruma opens his narrative with an affecting story of his Dutch father’s experience in the war. A law student during the German occupation of the Netherlands, his father refused to sign a loyalty oath to the Third Reich. He ended up spending several months working in a factory in Berlin. He was able, sometimes only barely, to avoid Allied bombing of the city and its conquest by the Red Army in April 1945, and return safely home to the Netherlands where he sought to reestablish something akin to normality in his life. His father’s quest for normality after his harrowing but relatively mild war experience prompted Buruma to inquire about the effects of the devastating war. “How did the world emerge from the wreckage? What happens when millions are starving, or bent upon bloody revenge? How are societies . . . put together again?” (p.7). These questions frame Buruma’s look at the year 1945.

             Year Zero does not purport to be chronological. After the anecdote involving his father, Buruma begins with VE Day in Europe in May 1945, and ends with the San Francisco United Nations conference which had taken place the previous month. The book is divided into three general sections, “Liberation Complex,” “Clearing the Rubble,” and “Never Again,” each with three chapters. Buruma treats a wide range of critical subject-matters across the three sections, such as vengeance, collaboration, justice, displacement, and the administration of Germany and Japan. Buruma’s narrative brings in the often overlooked perspective of the Netherlands, a natural perspective for him, without neglecting Great Britain, France, Germany, Poland, and the Soviet Union in Europe, and Japan, China, Indonesia, the Philippines, Korea and Vietnam in Asia. Buruma’s approach is thus topical and anecdotal. He ranges more broadly than Dobbs, but probes less deeply.

             Noting that the desire for revenge is “as human as the need for sex or food” (p.75), Buruma devotes much attention throughout to how women became victims when the desire for revege and sex merged. Stalin had notoriously observed that his soldiers who had crossed through miles of blood and fire were “entitled to ‘have some fun with women’” (p.39). Contemporary accounts and comments in the press from 1945 give the impression that the “summer of ’45 was one long orgy indulged by foreign servicemen and local women, out of greed, or lust or loneliness” (p.28). The raping of German women continued in Russian-controlled zones through the summer of 1945, but subsided by the end of the year.

          Buruma also addresses the fate of women, particularly in France and Holland, deemed to have collaborated by befriending German soldiers during their countries’ occupation — what the French term “horizontal collaboration.” Sleeping with the enemy was not treason in the legal sense, but the French in 1944 passed a law punishing “national unworthiness,” indignité nationale in French. Those found guilty were stripped of their civil rights. Popular wrath aimed at many forms of collaboration, but “fell disproportionally, and most publicly” on women accused of horizontal collaboration (p.84-85). But after a period of wild reprisals in France, the Gaullist government sought to close the fissures in society “by acting as if most citizens had stood up bravely to the German foe” (p.137).

           Buruma uses Holland as an example of the fate of Jewish citizens who had somehow escaped the Nazis, only to return home to Holland to something less than an open-arms welcome. He quotes a shocking newspaper article in a Dutch resistance paper of July 2, 1945, lecturing Dutch Jews returning from captivity to their home country on proper post-war comportment:

There can be no doubt that the Jews, specifically because of German persecution, were able to enjoy great sympathy from the Dutch people. Now it is appropriate for the Jews to restrain themselves and avoid excesses; they should be constantly mindful of their duty to be grateful and that this gratitude should be primarily expressed by redressing that which can be redressed for those who fell victim on the Jews’ behalf. They can thank God that they came out alive. It is also possible to squander this sympathy [from the Dutch people] . . . The [Jews] are truly not the only ones who suffered (p.135)

This article, Buruma indicates, demonstrates that in Holland, as in much of Europe, “Jewish survivors were an embarrassment” (p.136). In Poland as well, the small number of Christians who had helped Jews survive were suspected of profiting financially from their assistance. Buruma also addresses the forced ethnic repatriation of Germans back to Germany, referred to at Potsdam as an “orderly and humane” repatriation, which had few indicia of being either orderly or humane. He further provides a glimpse of civil wars unfolding in Greece, and incipient liberation movements in Indonesia and Vietnam.

             “Clearing the Rubble” deals with the issue of how Germany and Japan should be governed. Buruma’s chapter on the division of Germany into separate administrative zones, “Draining the Poison,” and how each of the Allies administered its zone, covers ground similar to Frederick Taylor’s book Exorcising Hitler: The Occupation and Denazification of Germany, reviewed here in December 2012. In both countries, the Allies faced the delicate and difficult task of determining who were war criminals and what sort of legal process, if any, such persons should have. The dilemma, Buruma says, “was the same in all zones [of Germany]. You couldn’t really gut the German elites, however distasteful they may have been, and hope to rebuild the country at the same time, no matter whether that country was to be a communist or a capitalist one. Very quickly the Allies saw economic recovery as a more important aim than restoring a sense of justice” (p.181).

              The Nuremberg trials began in November 1945. Like Hannah Arendt on Eichmann, Buruma notes how ordinary the Nazis leaders looked, “pale, tired figures in their ragged suits” (p.231). The court had to give an appearance of providing a fair hearing with due process accorded, while working inevitably toward “victors’ justice.” Buruma’s bottom line is that justice was not done at Nurenberg. “Punishment of the guilty had to be balanced by other interests. Too much zeal would have made the rebuilding of societies impossible. Too little effort to call the worst criminals to account would undermine any sense of decency. It was a delicate calibration that would inevitably be flawed” (p.235).

            The administration of Japan is in large measure a study of the outsized personality of General Douglas MacArthur, the American viceroy in Japan. MacArthur, a deeply religious man who thought that the best long-term solution to rebuilding Japan was to have it convert to Christianity, entertained “remarkably crude” theories about the “Oriental mind” as being “childlike and brutal” (p.296). The Japanese blamed their catastrophic defeat on “militarists” and anyone associated with the armed forces, a view which MacArthur encouraged. Although “not inclined to help Japanese industry back to its feet,” MacArthur was convinced that punitive policies and forced starvation would render the Japanese an “easy prey to any ideology that brings with it life-sustaining food” (p.66).

            Buruma provides high marks to the initial intentions of the Allied occupations of Germany and Japan, describing them as “unique in their earnest endeavors not to exact revenge, but to reeducate, civilize, change hearts and minds, and turn dictatorships into peaceful democracies so that they would never we wreak destruction on the world again” (p.276). Whether Buruma includes the Soviet occupation of Germany within this observation is not clear, and some historians might take issue with his upbeat assessment.

* * *

            Buruma and Dobbs close their books with related questions. Buruma asks whether World War II really ended in 1945. Dobbs inquires when the Cold War actually started. No single event defined the start of the Cold War in the way that the fall of the Berlin Wall, on November 9, 1989, came to symbolize its end, Dobbs writes. Dobbs suggests several possibilities: Churchill’s 1946 “Iron Curtain” speech at Fulton, Missouri (Dobbs demonstrates that this term was widely in use well before Churchill’s speech); the Communist takeover of Czechoslovakia in early 1948 or the Berlin Airlift later that year; even the formation of two Germanys and NATO the following year. All these are plausible candidates. But Dobbs’ fine book shows that lines for a new ideological clash, although “papered over” at Yalta, were in place even prior to the end of the hostilities against the Axis powers.

             Buruma suggests that 1989 might be considered the year that World War II hostilities came to a close, when the Eastern European Soviet bloc was “released from communist rule” (p.335). This suggestion is a device which allows Buruma to close with another anecdote involving his father in Berlin. Buruma, his sisters and his father spent a joyous New Year’s Eve 1989 in the newly-liberated city, where the wall had fallen a few weeks earlier. But if Buruma’s contrived answer to the question he poses is a little off key, his description of December 1945 could serve as a fitting conclusion to either book:

By the time autumn turned to winter, the high hopes of the spring of ’45 were already fading. There would be no world government, let alone a world democracy; there would not even be four or five world policeman. What powers were still left to the two European countries represented in the Security Council [France and Great Britain] would soon be further depleted by the bloody demise of their empires. The Soviets and the United States were drifting into open animosity. And China, a gravely wounded country after Japanese occupation, was itself divided into two blocs, with corrupt and demoralized Nationalists holding out in major cities south of Manchuria, and the Communists dominating the countryside and much of the north. (p.329-30).

Taking different paths through 1945, both writers show that, as the year wound down, the yearning for a return to normalcy after history’s most devastating war needed to be tempered by disturbing signs that seemed to be pointing toward still another world conflict.

Thomas H. Peebles

Cotonou, Benin (West Africa)

April 11, 2015

Middle Eastern Rationalist

Christopher de Bellaigue, Patriot of Persia: Muhammad Mossadegh
and a Tragic Anglo-American Coup

         In this crisply-written biography, Christopher de Bellaigue provides an in-depth portrait of Muhammed Mossadegh, the leader of Iran at the time of a joint American-British covert operation in 1953 that deposed Mossadegh and gave new impetus to the regime of Shah Mohammed Raza Pahlavi.  De Bellaigue terms the coup tragic and makes a strong case that this is precisely the right term.  The coup was tragic for the ancient land of Persia, now called Iran, setting it off on a course that led to the Islamic revolution of 1979, and the taking of hostages from the American Embassy in Teheran later that year.  But it was also tragic for Great Britain, the United States, and the West generally, converting Iran, potentially an ally and a stabilizing force in the Middle East, into a seemingly implacable enemy of the West.  With discussions over Iran’s nuclear ambitions still tenuously underway, and a regime of stringent sanctions still paralyzing the country, Iran seems as far from becoming a stabilizing force in the Middle East as it did in 1979.

 

          But while Mossadegh served as Iran’s democratically-chosen Prime Minister from 1951to 1953, the country held much promise as a moderate partner of the West in a turbulent region.  Mossadegh emerges in this portrait as an irascible, mercurial hypochondriac, given to fainting spells at opportune times.  Behind these personal qualities, however, was a “rationalist who hated obscurantism and believed in the primacy of law” (p.3).  At the time of the coup, the country was on a course toward modernization that “would have brought Iran substantially closer to a secular, constitutional regime” (p.207), de Bellaigue argues.  As a result of his “long immersion in the ideas of the West,” Mossadegh combined an understanding of independence and democracy with an “even more profound identification with his own society and people” (p.273).  To de Bellaigue, Mossadegh was the  “first to try to build a modern Middle Eastern State on basis of collective and individual liberty” (p.273).

 

* * *

 

          Mossadegh was born in Tehran in 1882, the son of elite parents.  His mother lived into her nineties and was herself an activist for a pluralist Iran almost to her final days.  Mossadegh  spent time in Paris and other parts of Western Europe as a young man, and earned a Doctor of Law degree at the University of Neuchâtel in Switzerland.  He was of a generation of western-educated Middle Eastern and Asian leaders animated by the nationalism and anti-colonial outlook that gained impetus after World War I.  His view of leadership was colored by his Muslim faith: the community chooses the best person and follows him wherever he chooses to lead.  In 1906, he was elected to a new parliament, the Majlis, at the age of 24.  By the time he turned 40, he had served as Iran’s minister of justice, finance minister and governor of two provinces.  He left politics in 1925 when the Majlis, over Mossadegh’s objection, deposed the ruling Quajar Shah and installed Reza Khan Pahlavi as the new monarch, the first Shah of the Pahlavi dynasty (Shah is the Persian word for king).

 

          Unlike much of the non-European world in the latter portion of the 19^th century, Iran was never formally taken over by European powers.  Yet, Russia and Great Britain competed for interest in Iran, “constrained by mutual wariness from trying to swallow the country whole” (p. 10).  Much of Iranian history in the first half of the 20^th century revolved around the question of oil and Iran’s relationship to the Anglo-Iranian Oil Company (AIOC, now British Petroleum or BP) and to AIOC’s dominant shareholder, the government of Great Britain.  AIOC had been in Iran since 1913.  In 1933, the Shah signed an oil agreement with Britain that was decidedly not favorable to Iran.  AIOC refused to agree to a 50%-50% profit sharing arrangement, allocating a mere 16% of annual company profits to Iran and employing few Iranians in skilled-worker or management positions.  Mossadegh became an uncompromising proponent of nationalization of Iran’s oil reserves, incurring the wrath of both the British and the Shah.

 

          After the Nazis invaded the Soviet Union in August 1941, Britain and the Soviet Union, now allies, jointly occupied Iran.  Later that year, Britain forced the Shah, who leaned toward the Axis powers, to abdicate in favor of his 22 year old son, Mohammed Raza Pahlavi.  When World War II ended, Iran was “rich [in oil], potentially unstable, and susceptible to interference — qualities that guaranteed the close attention of the powers as they gathered their forces for the new Cold War” (p.112).  Although highly suspicious of the Soviet Union, Iran reserved its most unfettered hostility for Great Britain.  As de Bellaigue notes, Iranian “fear and hatred of the British . . . [assumed] proportions rarely seen in the formal empire” (p.54). Mistrust between Great Britain and Iran “became a pathology” (p.134).   Both “felt wronged and expected redress, but neither understood the grievance nursed by the other – or else they dismissed it as humbug.  .  . Both were surprised by the other’s intransigence” (p.165).

 

          In the post-World War II era, Iranian secular nationalists battled religious nationalists, with oil usually providing the backdrop.  An indication of Mossadegh’s political dexterity is that he had good relations with both groups.  Mossadegh became Prime Minister in 1951 when Prime Minister Haj Ali Razmara, an opponent of naturalization and a close ally of the Shah, was assassinated by hard line Islamists.  In the aftermath of Razmara’s assassination, Parliament officially nationalized Iranian oil reserves, a measure strongly supported by both secular and religious nationalists.  25% of oil profits were to be set aside for AIOC’s claims of compensation.  For Mossadegh, Iranian oil “represented life, hope, freedom. . . Mossadegh did not see why the British could not accept their new, lower status.  After all, they would be amply compensated for nationalization and retain full access to Iran’s oil” (p.165).   Mossadegh said he was more interested in what he termed the “moral” rather than “economic” aspect of oil nationalization.  The Western powers saw only “hysteria, irrationality and caprice” in such remarks, failing to recognize that Mossadegh’s words represented a voice for an “authentic movement of national independence” (p.144).

 

         In Britain’s view, nationalization meant quite simply that Mossedegh needed to be deposed by any means available.  Britain imposed a boycott on Iranian oil, and Iran proved wanting in the technical expertise required to operate its oil fields successfully.  This precipitated a serious national crisis, with oil income reduced to near zero, hampering Mossadegh from implementing the reforms he sought.  During the nationalization crisis, Mossadegh formed an alliance of convenience with the Communist Tudeh Party (“Tudeh” means “the masses” in Persian).  After much distance and distrust between Mosadegh and the Tudeh, by 1953, the Tudeh was at least nominally in Mossadegh’s camp, a fact that did not go unnoticed in Washington and London.

 

          However fervently Britain desired to depose Mossadegh, it was incapable of engineering a coup by itself and turned to the United States for assistance.  The United States was slightly more sympathetic to Mossadegh and nationalization than Great Britain.  President Harry Truman didn’t care nearly as much about Mossadegh or AIOC as he cared about stopping communism. Like many others in Washington at the time, Truman saw the Soviet Union as primed to take over Iran.  Truman nonetheless resisted a coup to depose Mossadegh, as did Britain’s Prime Minister Clement Atlee.  But Winston Churchill returned to power as Prime Minister in 1951, and Dwight Eisenhower replaced Truman as President in January 1953.

 

         Churchill viewed a firm stand against nationalization as necessary to preserving Britain’s waning prestige and power in the post-war world, as well as a source of desperately needed revenue.  In what de Bellagiue characterizes as a “remarkable cable,” Dean Acheson, Truman’s Secretary of State, wrote that in his view nationalization of AIOC, would “destroy the last vestige of confidence in British power and the pound. . . [T]he cardinal purpose of  British policy is not to prevent Iran  from going Commie; the cardinal point is to preserve what they believe to be the last remaining bulwark of British solvency; that is, their overseas investment and property position” (p.184-85).

 

          American support for the British position in the Eisenhower administration was driven by the anti-communist fervor that was sweeping the country.  This was the McCarthy era, after all, and two anti-communist warriors named Dulles were in positions of immense authority in the young Eisenhower administration: Allen, running the CIA and brother John Foster, Eisenhower’s Secretary of State.  The brothers Dulles were quick to see the Soviet Union as poised to step into and take over Iran should Western resolve falter.  Although skeptical of the communist menace in Iran, Churchill was able to convince Eisenhower that a coup that would replace Mossadegh would serve as a critical check upon Soviet interests in Iran.  The “British obsession with lost prestige and the American obsession with communism” thus brought the two allies together in common cause against Mossadegh’s government (p.207).

 

          The CIA plan, Operation Ajax — its first exercise in regime change — was hatched in early 1953 with assistance from the British M16.  The plan envisioned a pro-Shah military coup to depose Mossadegh, even though the Shah initially opposed the British-American plot.  In the summer of 1953, the CIA launched a propaganda campaign against Mossadegh’s government, with Kermit Roosevelt, Theodore Roosevelt’s grandson, serving as the CIA field commander.  The campaign precipitated large scale protests between pro and anti-Mossadegh factions, with the CIA apparently encouraging both sides in the hope that the protests would turn violent.  They did.  Meanwhile, as many as 30 members of Parliament, bankrolled by the CIA, “plotted murders and kidnapping whilst hiding behind their parliamentary immunity” (p.228).

 

         A failed coup took place on August 15-16, 1953.  The Shah panicked and left for Rome.  Mossadegh ordered security forces to round up the coup plotters, and dozens were imprisoned.  Believing that he had beaten back a Shah-led coup, Mossadegh asked his supporters to return to their homes.  This was a serious miscalculation.  The plotters regrouped and, on August 19, 1953, succeeded in toppling the Mossadegh government. In a “remarkable reversal in fortune,” Roosevelt and his co-conspirators had “turned defeat into triumph and their methods would enter the training manuals” (p.235).  There is “no glossing” of the ruthlessness of the Anglo-American intervention, de Ballaigue asserts, which subjected Mossadegh’s government to “pitiless acts of war by two hostile powers,” including not only a “bombardment of misinformation” but also “conspiracies to riot, murder and abduct”   (p.228).

 

          De Bellaigue portrays Mossadegh during the coup as a Hamlet-like figure, vacillating between “inertia and unfounded optimism” (p.242-43).  Although Mossadegh almost certainly had advance knowledge of the coup, he failed to react to its warning signs, remaining too favorably disposed to individual liberties to protect his own interests.  Absorbed in legal niceties as the “ground was laid for his overthrow” (p.236), Mossadegh refused to use the popular support available to him and did not take the threat sufficiently seriously until it was too late.  Unaware until almost the very end that the United States was behind the coup, Mossadegh was guided by his desire “not to isolate himself completely from the Eisenhower administration.  He only had one foreign policy, to lean on the United States, and even [at the time of the coup]. . . he hoped to preserve it”  (p.236).

 

          Mossadegh was arrested, tried and convicted of treason in a military court.  He was initially sentenced to death but, after the Shah commuted his sentence, Mossadegh was placed under house arrest.  Many of his political associates were executed.  General Fazlloh Zahedi, formerly Minister of Interior in Mossadegh’s cabinet and the CIA’s choice as Prime Minister, led the new government.  Zahedi quickly reached agreement with AIOC to restore the flow of Iranian oil, with the United States and Britain receiving the largest share.  In return, the United States massively funded the Shah’s government, including his army and secret police, the SAVAK, turning Iran into a “vulgar tyranny” (p.273) until the Shah’s overthrow in 1979.  Mossadegh lived the rest of his life under house arrest.  He died in 1967, having seen his ideals “submerged in a tide of petro-dollars” (p.271).

 

* * *

 

          “Few foreign interventions in the Middle East have been as ignoble as the coup of 1953,” de Bellaigue concludes, and “few Middle Eastern leaders have less deserved our hostility than Muhammed Mossadegh” (p.273).  Among the policies which were reversed by the coup, de Bellaigue cites land reforms, social security and rent controls to help the rural and urban poor.  Mossadegh also envisioned a military under civil control and “modestly enhanced rights for women in the face of clerical unease” (p.207).  Had these reforms survived, “Mossadegh would now be remembered as an agent of extraordinary change” (p.207).   But Iran never regained the path toward a stable, pluralist and secular constitutional monarchy of the type that Mossadegh sought to put into place.  De Bellaigue demonstrates convincingly in this penetrating study that upending Mossadegh’s government was a tragic miscalculation for the United States and Great Britain, a miscalculation that continues to reverberate today.

 

Thomas H. Peebles

Cotonou, Benin (West Africa)

September 28, 2014