[Clips] The Economics of the Rise of Ahmadinejad
R.A. Hettinga
rah at shipwright.com
Sun Feb 25 10:26:44 PST 2007
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<http://article.nationalreview.com/print/?q=ZjgxM2YwMTMzNzk3ODU4YzM4NWE3MDU3NTBjMWE4ZjQ=>
The National Review
December 19, 2006, 8:42 a.m.
The Economics of the Rise of Ahmadinejad
Capital markets (or their absence) are central to the emergence of evil and
the one-party state.
By Reuven Brenner
When Iranian President Mahmoud Ahmadinejad visited the U.S. recently, he
didn't say explicitly that the Holocaust was a myth. Instead he asked why
so much emphasis is put on the 6 million Jews who died during WWII rather
than the 60 million people who perished during the conflict. Then, at a
Tehran conference where Holocaust deniers congregated with Orthodox rabbis
who apparently believe the state of Israel should not exist, Ahmadinejad
offered a message satisfying each camp. He told the delegates that the
Holocaust should be questioned and that Israel's days are numbered.
One wonders, with the terrible lessons of 20th century totalitarianism
still so ripe, how history could repeat itself so blatantly and so soon. I
hold that the answer lies in just how one-party states such as modern Iran
emerge, and of what happens when the access to capital is limited within
societies.
Of course, the systematic extermination of the Jews started in the early
1930s. By then, Germany had rebuilt itself from the ruins of WWI and the
devastating hyperinflation of the 1920s into a powerful, educated,
industrialized nation, where science and technology thrived. True, all this
occurred within a one-party state. Yet, if such apparent prosperity can
lead to murderous instincts not being suppressed, where is the advantage of
Western Civilization, which is built on the concept of prosperity? In a
recent op-ed in the Wall Street Journal, Mark Bowen asked, Why is the
Holocaust haunting the collective memory of the West? Bowen concluded,
"what the Holocaust demonstrates is the danger of a one-party state."
This conclusion is partially correct, but it begs the question: How did
Germany get from the Weimar Republic, a democracy, to the one-party state?
And why did the Germans tolerate such a state and accept its murderous
ideology? Whether the Germans agreed deep down with Hitler & Co. is
irrelevant. Actions - or, in this case, the lack of actions - matter.
During the 1920s, Germany, Austria, Hungary, Poland, and Russia each
printed money with abandon. This brought about hyperinflation, which
weakened or destroyed the capital markets in these countries. Banks failed,
markets crashed, unemployment rose, and the middle classes lost their
lifetime savings.
People want to live first and philosophize a bit later. With their savings
gone, these Europeans turned to two other ways of accessing capital:
government and crime. Predictably, each of these countries moved toward
centralization - that is, government become the main financial intermediary.
When the citizens of these countries looked abroad, there was little to
admire. England and the U.S. were each suffering through depressions (in
the U.S., due to mistaken fiscal and monetary policies). These governments
too moved toward centralization, though to a much different degree. Up
sprung the jargon of "public works" and, eventually, the Keynesian term
"aggregate demand." Here the governments also would become intermediaries,
charged with raising and then allocating capital. Importantly, however,
this was done without England or the U.S. ever becoming one-party states.
Power is dispersed within democracies, and democracies are always weakened
when more money flows through government hands. This is true even when the
facade of democracy persists. When more capital sifts through the
government, more groups depend on government handouts and have less access
to sources of capital that are independent from the ruling political
parties. But the U.K. and the U.S. retained many more independent sources
of capital than did Germany, Austria, Hungary, or Russia during the 1930s.
The dangers come when a country either does not develop its capital markets
or destroys them on purpose or inadvertently. When this is the case, the
chances of one party taking power and imposing its ideology increase.
Conversely, when capital markets are opened, the risk that one-party states
will emerge diminishes. As independent sources of capital surface,
political power is dispersed and lasting prosperity follows. Thus, it is a
mistake to promote democracy without first establishing the ground for
letting people have access to capital and collateral - or at least
coordinating such access with political change. After all, prosperity is
the result of matching people with capital, while holding both sides
accountable.
What happens when societies either do not have or destroy their financial
markets? Even today very few societies have developed the institutions that
can enable the development of deep financial markets - a solid legal
infrastructure and free media among them. In this scenario, most people
wanting access to capital have no other option but to turn to government,
which will raise the money - either through taxes or borrowing - and then
distribute it.
That's how one-party states such as Ahmadinejad's Iran emerge: People bet
on crazy ideologies when their customary ways of living suddenly crumble
and capital markets close. Capital markets are the unique feature of the
West, and their democratization is the key to the civilizing process and
the best insurance against the emergence of one-party states. Indeed,
that's what the U.S. should have been "exporting" all along in the Middle
East, coordinating the promotion of capital markets with the necessary
political changes in Iraq.
- Reuven Brenner holds the Repap chair at Desautels' Faculty of Management,
and is partner in Match Strategic Partners. The article draws on his books
Force of Finance (2002) and History: The Human Gamble (1983).
--
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
--- end forwarded text
--
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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