April 04, 2011

The Economic ends of Empires - Soviet Union, British Empire and the USA

The Brookings Institute published the English translation of "Collapse of an Empire: Lessons for Modern Russia," which was a bestseller in Russia. Written by Yegor Gaidar, an economist who was Russia's acting prime minister between 1991 and 1994, the book uses information from Soviet archives to tell the story of the last few years of the Soviet Union. It tries to shoot down the "myth" held by most Russians that the Soviet Union was "a dynamically developing world superpower until usurpers initiated disastrous reforms." It also warns that Russia should avoid the peril of another collapse in oil prices.

What happened, states Mr. Gaidar, is that Soviet grain production stagnated between 1966 and 1990. Meanwhile, 80 million people moved from farms to cities. New Soviet output of oil and gas was not sufficiently expanded to provide the hard currency needed to buy grain abroad. Eventually, the Soviets had to borrow foreign money to buy grain.

The result was that Moscow could not suppress revolt in its empire – as it had done in earlier years in East Germany, Hungary, and Czechoslovakia – without losing Western loans.

Gaidar argues that if the Soviet military had crushed Solidarity Party demonstrations in Warsaw, "the Soviet Union would not have received the desperately needed $100 billion from the West." Similarly, when the Soviets tried to use force to reestablish control in the Baltic states in January 1991, the reaction from the West, including the United States, was: "You can choose any solution, but please forget about the $100 billion credit." The Soviets backed down.

Oversimplifying history, Gorbachev was perceived as weak for allowing the dissolution of the Russian empire, overthrown in a military coup, and eventually replaced by Boris Yeltsin.

Gaidar's thesis isn't accepted in its entirety by other experts. Leon Aron, a fellow at the AEI and a friend of Gaidar, says glasnost – Gorbachev's effort to bring openness and transparency into the activities of Soviet institutions, with greater freedom of information – opened the USSR to new political, ideological, and spiritual ideas. "The economic side made collapse faster," he says.

Goldman figures that Gorbachev's dismantling of the Soviet military-industrial complex was the main cause of the collapse. The aluminum industry, for example, supplied raw material for military aircraft, the steel industry for the 60,000 tanks facing the West. Afterwards, "there was no longer anything there," he says. At its peak, the military absorbed 30 percent of total Soviet output. Today, Russia spends about 5 percent on its military.

Free Copies of the Book

Scribd has a copy of Collapse of an Empire: Lessons for Modern Russia

The Decline of the British Empire

Though Britain and the Empire emerged victorious from the Second World War, the effects of the conflict were profound, both at home and abroad. Much of Europe, a continent that had dominated the world for several centuries, was in ruins, and host to the armies of the United States and the Soviet Union, to whom the balance of global power had now shifted. Britain was left virtually bankrupt, with insolvency only averted in 1946 after the negotiation of a $3.5 billion loan from the United States, ($39 billion in 2011) the last installment of which was repaid in 2006.

Britain adopted a policy of peaceful disengagement from its colonies once stable, non-Communist governments were available to transfer power to. This was in contrast to other European powers such as France and Portugal, which waged costly and ultimately unsuccessful wars to keep their empires intact. Between 1945 and 1965, the number of people under British rule outside the UK itself fell from 700 million to five million, three million of whom were in Hong Kong

US Finances now
The US is spending 5-10% of GDP on defense depending upon whether items like the Veterans Administration and other items are included.

Defense-related expenditure    2012 Budget Request
DOD spending                   $707.5 billion  Base budget + "Overseas Ops"
FBI counter-terrorism          $2.7 billion  At least one-third FBI budget.
International Affairs          $5.6–$63.0 billion 
Energy Department, defense     $21.8 billion  
Veterans Affairs               $70.0 billion  
Homeland Security              $46.9 billion  
NASA, satellites               $3.5–$8.7 billion 
Veterans pensions              $54.6 billion  
Other defense mandatory        $8.2 billion  
Interest debt from past wars   $109.1–$431.5 billion  
Total Spending                 $1.030–$1.415 trillion

Foreign holders of US Treasuries

As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion. The largest holders were the central banks of China ($1.1 trillion) and Japan ($885 billion). The share held by foreign governments has grown over time, rising from 25% of the public debt in 2007 and 13% in 1988

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