The Ukraine War’s Surprising Links to the 2008 Financial Crisis – and the Parallels to 1939


The historical parallels are troubling. About ten years after the two most devastating financial crises of modern capitalism, in 1929 and in 2008, a terrible conflict begins in Europe which threatens to spread to the whole world. So far, the war in Ukraine is obviously of a different order from the Second World War, but the clash of ideologies is just as fundamental.

If these parallels haven’t garnered much attention, I suspect it’s because on the surface they don’t make much sense. The key is to realize that major financial crises and wars are both symptomatic of deeper structural problems in societies – underlying tectonic movements that have created these fractures on the surface.

Something important happened to capitalism towards the end of the 19th century. Until then, humanity lived a precarious life. Supply of goods was subject to weather conditions, but demand was generally not an issue. This changed with the scientific method of production in agriculture and manufacturing, which introduced things like fertilizers and powerful machinery. Starting with the United States, which was the pioneer of technology, there were now too many goods that sought too few people who could afford them.

This fundamentally destabilized capitalism, creating situations in which lenders were overburdened while producers who could not find enough customers defaulted on their debts. There were many financial panics in the United States at the end of the 19th century and the beginning of the 20th century – until 1929, then more dramatically. And according to what is called the French theory of regulationan oversupply of goods was the heart of the matter.

We can say that the Second World War was a colossal battle between four industrial models that everyone offered their own solution to this problem. The British solution was to try to recreate the pre-WW1 imperial economy centered on Britain (in which, yes, Ukraine and Russia had played the role of grain producers).

Stalin: “no” to the British imperial model.

In the early 1920s, shortly after the Russian Revolution, the British offered the Soviets the opportunity to re-enter this vision of a mercantile trading system. This was ultimately dismissed in the ensuing debate in Russia.

But the debate partly led to Soviet leader Joseph Stalin’s model of “socialism in one country(as opposed to Karl Marx’s view that communism required world revolution). Stalin’s system was that of a planned economy where the supply and demand for industrial goods would be organized by the state.

While the British pivoted after the 1929 collapse to protect themselves through a trading system that imposed high external tariffs beyond the empire, the German National Socialists had developed a different model. They were considering a semi-planned economy which was essentially capitalist but the key industries were nationalized, as well as the trade unions.

From the USA came yet another variant – the “New contract”. This combined nationalized systems of public services, defence, education and pensions with a planned corporate economy run by large conglomerates, but all built around private property rights. There were many similarities to the German model, although America’s was ultimately built on democracy.

In 1939, these four different systems went to war. The fourth version won. It was adapted somewhat in the years that followed, but we essentially call this victory, globalization. This globalization is contested today, which is at the heart of the equivalent ideological struggle today.

then and now

The crisis of 2008 was not as devastating as that of 1929, but it seriously damaged the dominant model of the capitalist market economy. For decades, this had been sold to voters under the rubric of “freedom,” meaning the primacy of private property combined with freedom of consumer choice. This was closely aligned with a “free market” dominated by multinational conglomerates roaming the world freely while avoiding personal and corporate taxation and liability.

Another form of capitalism emerging from the late 20th century shared only a few of these assumptions. Russia returned to state-dominated capitalism after a ruinous flirtation with neoliberal economics in the 1990s. This “solution” is the basis of Putin’s popularity and power.

China, on the other hand, had been open carefully its economy since the late 1970s as a means of avoiding collapse. Perhaps looking at Russia’s experience in the 1990s, it moved much more tentatively, ensuring that its version of capitalism remained under the leadership of the Communist Party.

In a third variant, the Gulf States encouraged private enterprise and billions of dollars of investment in their countries, but always under the control of a few sheikhs and their ruling families. For them, this authoritarian approach fundamentally reflects who they have always been – and will be for the foreseeable future.

Delegates gather to hear a speech at Expo Dubai 2020.
Arab-style capitalism on display at Expo Dubai.

These versions of capitalism have superficially gained ascendancy during the 2010s, in particular because of the global financial crisis. The crisis has shaken everyone’s belief that markets have the ability to solve problems, while undermining trust in politicians and democracy itself. As the banks were bailed out while the people endured austerity, it was easy to think that China, Russia or some flavor of Western populism might be the future.

Until now, each different branch of authoritarian capitalism seemed to be its own island, only occasionally connecting with another, but today’s war seems to be changing all that. It quickly turns into a proxy war between autocratic and liberal democracy. China, the Gulf states, possibly India – and pro-Trump Republicans in the US – are ambivalent about Russia’s war at best, while the rest of the world is not. .

Who will win? Russia may be fighting militarily in Ukraine, but this proxy battle for the future of capitalism will not be won by Stinger missiles. Curiously, the problem is that the West, led by the US and the EU, managed to ensure that the 2008 crisis was not as devastating as it could have been. They did it with a combination of austerity, zeroing interest rates, and massively increasing the money supply through quantitative easing.

It came with a hefty price tag. Inequality steadily worsens, even before the recent surge in inflation. Again, we have a demand problem: if people cannot afford the goods and services that producers sell, there will be more economic instability. So while authoritarianism may seem less appealing now that Putin is tearing down Ukraine, the conditions that breed populism are only getting stronger.

Unless and until the West truly reinvents capitalism – perhaps with a 2020 version of the New Deal – the 2022 proxy war will likely continue to find new fronts.


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