The Atlantic and Its Enemies (88 page)

Efforts were made to parade the European Union (as it was soon to be called) as an alternative model, of ‘Rhenish’ as distinct from ‘Atlantic’ capitalism. On one level, Europe, or at any rate the Europe of the Single European Act, unquestionably did good, in that it could break into stagnant pools of local protectionism, and for a Spain or a Greece, emerging from stupid military dictatorships, joining Europe was important for morale and in a limited degree finance. The same was, on the whole, true for former Iron Curtain countries, which got German investment and remittances from migrants to the West. But, as generally happens with multinational organizations, Europe was good only at dealing with limited and well-defined problems. Her efforts on the world stage were laughable - never more so than when the then presiding officer, a Luxemburger named Jacques Poos, turned up with two other worthies at the start of the Yugoslav civil wars in 1991 to warn against nationalism - in this case, that of the Slovenes, who were ticked off for thinking that their country (an elephant beside his own) was large enough to indulge in independence. At bottom, Europe was itself in any case an Atlantic creation, and French aspirations to make it independent of the United States very speedily broke down. Lacking armed forces, it had only two lines in foreign affairs: ‘Me, too’ to the Americans, and then ‘Oh, dear’ to the Americans.

Even the ‘Swedish model’, long and finger-waggingly upheld as a sort of ‘third way’, broke down. It had thrived, with a small population sitting on raw materials, had thrived further because it had stayed out of both world wars, had done well out of the export of arms, while its political establishment moralized at the rest of the world. Up until the 1970s, Swedish Lapps had been sterilized in tens of thousands on the grounds that they, stunted in growth and drunken in habits, were not worthy to reproduce themselves. In the 1990s, Swedish delegations were appearing in Turkey to reproach Turkey for her handling of the Kurds, a handling that most certainly did not include sterilization. By 1990 Sweden herself had slipped from being second most prosperous country in the world to being seventeenth, and was overtaken by Finland, a former colony, where affairs were less pretentiously managed. In 1990 the only European of any serious interest in the former Communist bloc was Margaret Thatcher, herself, of course, no great respecter of the European Union.

Great numbers of hungry, intelligent Russians (and others from the old bloc) came west, with a view, often dewy-eyed, to learning what the secret had been. Others did not need any such training. Communism had had, in the form of Alain Besançon’s ‘C’ system, its own hidden, brutal and corrupt form of a market, and vicious figures made enormous fortunes out of the Soviet rubble. Russia then went through a very difficult decade, most Russians becoming disillusioned. The end of the Soviet empire was of course the culminating moment of the eighties, but there was an air of anti-climax to it all, as with most such moments, including Victory Day in 1945. Besides, this particular victory would clearly bring great problems, the worse for having been so widely unforeseen by the bureaucracies that had come into existence in the era of détente in the 1970s. Yugoslavia, the very model of Communism-with-a-human-face brotherhood-of-peoples, exploded, and the unification of Germany brought headaches of unemployment and mass migration to the prosperous places of the West. After a year or two of patriotic euphoria, the European countries of the former bloc were mainly taken over by variants of reformed Communists, now generally learning to talk another wooden language, that of ‘Europe’; their young migrated, their agriculture generally languished, particularly when European regulations were used to suppress the old-fashioned ways with, say, ham or smoked fish or wine that might have let them be competitive. Much effort went into making out that this was all a great success for Europe, and for a brief period there was even a parody of the old Sovietology, in which ‘transition’ from Fascism or Communism was solemnly studied, as if there could be any conceivable comparison between Spain and Russia except at the most superficial level. But the reality after 1990 was, mainly, depressive, and the collapse of population growth almost everywhere demonstrated as much.

However, even the extraordinary showcase boom of the eighties came to an abrupt end, as American and German financial problems introduced a recessionary period. Japan herself, where an asset bubble had enabled the Colombians to sell their Tokyo embassy and pay off the national debt, now stuck and shrank. Ronald Reagan had retired in 1988, succeeded by the much more conventional George Bush I; Margaret Thatcher herself lost office in November 1990, manoeuvred out by her own party and especially by the Europe-minded element. The pound had, despite her misgivings, been put into the emerging European single-currency arrangements. Quite soon, her misgivings were shown to be right, as the strains proved too much: interest rates, set by mainly German needs, rose to such a degree that credit was choked off, recession followed, and the pound was pushed out again, much to the benefit of astute speculators. Reagan was lucky to the end, in that he managed to retire before the bill had to be paid for a piece of extraordinary maladministration.

For well-intended reasons, Americans had been encouraged to buy houses on mortgage in the 1930s through federal-regulated institutions, Savings and Loans (as happened with the building societies in England). The interest paid by buyers was fixed, which made sense when there was not much inflation, as, until the 1960s, was mainly the case. However, these institutions, borrowing money, had to pay the going interest rate, which in the 1970s became double that of the interest rate that could be charged from their own borrowers. Money went elsewhere. In 1980, with Paul Volcker’s 20 per cent rate, the Savings and Loans were in trouble, and bankruptcy threatened. If Reagan had adhered to his own announced principles, the hundreds of insolvent institutions would have been allowed to collapse, but in the depression of the early 1980s he shrank from this, and in any case the troubles in the end were not of his making. The government insured deposits up to a value of $100,000. With this collateral, the institutions could borrow a great deal more. In 1985 they could have been shut down for a comparatively modest sum, but the Reagan administration itself encouraged easy credit - deregulation and an Act of 1982 allowed the Savings and Loans to move, beyond simple mortgages, into the world of speculation, and a further move abolished the rule that there had to be at least 400 shareholders: from then on, they could be owned by a single man, thereby empowered to borrow huge amounts of money on the basis of deposits guaranteed by the US government. On top of this, the amount of his own capital that he had to put in was decreased to 3 per cent of the money out on loan. The problem was further put off by accounting rules that allowed losses to be unreported for ten years, during which the institution might go on as before. So the more buccaneering of these institutions went on, especially in Texas, vastly over-building office blocks and the like; by 1990, of the 2,500 that survived, only half could be considered healthy. Some 750 Savings and Loans then went bankrupt, costing $160bn dollars and causing damage to house-building: depression then followed, in 1990, as the bill came in, and it wrecked the presidential career of Reagan’s successor.

The heart of the problem was Reagan’s unwillingness to apply free-market principles to residential housing: nearly 40 per cent of mortgages were guaranteed, whereas in 1970 almost none had been. In 1988 the failure was evident, and, with the deficits, even the tax cuts were reversed, partly formally, but mainly by stealth, as social security contributions went up and up. Federal spending rose by nearly 3 per cent per annum and income by 2.5 per cent: this made for a large deficit, overall of nearly $1.5tn. Defence spending had been part of the story, but only part, and in any case as the arms competition with the USSR ended, it in effect paid for itself in the end. In fact by 1986, to offset the deficit, taxes were raised, and endlessly rising social security taxes nullified the Kemp-Roth tax cut of 1981 for most people. In other words, the Reagan Revolution was something of an illusion, and the same might be said of the Thatcher Revolution. In England, too, taxes were if anything higher and the size of the State had hardly been diminished at all.

Besides, as the economic tide went out, various grasping monsters were beached, as indeed had happened in 1930, and that again gave ‘the eighties’ a bad name. In 1934 the Stavisky scandal had almost destroyed republican, democratic France, since government ministers and parliamentary deputies had been found to be involved in an upended credit pyramid, the apex of which stood in the municipal pawn-shop of Bayonne; the Madoff running it was found dead in mysterious circumstances. Now, in New York, life imitated art, in this case Tom Wolfe’s
Bonfire of the Vanities
and Oliver Stone’s
Wall Street
: the makers of ‘junk bonds’ vanished into prison as recession pricked their bubbles. In London the empire of Robert Maxwell collapsed. He (repulsively: the baseball cap making it worse), larger than life, was a lie from the start. He was not, as he claimed, a Czech and therefore a gallant ally. He was born in an eastern part of Czechoslovakia which had been part of Hungary, and where the local (Hassidic) Jews all spoke Hungarian. His name was the Germanic ‘Hoch’, the Hungarian for which is ‘Magas’, no doubt the inspiration for his Anglicized or Scotticized ‘Maxwell’, to which was attached the army rank of ‘Captain’, when he became a Labour MP. His money came from Soviet connections: he had bought up the patents of German scientific magazines for a song in Soviet Berlin, and he performed useful services for the Soviet Communist Party, which probably paid him by letting him know in advance when they would be selling gold or timber, so that he could one-way-bet-ly speculate accordingly. When the Soviet Union collapsed, Maxwell stole his pensioners’ money and then fell overboard from his yacht, in mysterious circumstances. His US equivalent, Armand Hammer, was not caught, though upon his death he was found to have left, net, very little money. Both Hammer and Maxwell used a small orchestra of lawyers to silence enquirers.

By 1991, therefore, the critics of the eighties appeared to be justified. The notable books on the subsequent period - for instance, Joseph Stiglitz’s
Roaring Nineties
or even Edward Luttwak’s
Turbo-Capitalism
- rather shook their heads. Later booms and busts (most recently the crash of 2008) caused a veritable vibration of heads, and the ‘decade of greed’, as the eighties had been called, once more came in for condemnation. It is of course legitimate to ask what went wrong, and when. However, in this, the critics of the eighties were misleading. The great weakness in books of the Stiglitz type, knowledgeable and well-intended as they unquestionably were and are, was to suffer a strange nostalgia for the seventies; in fact one very good reason for the triumphs of ‘Reagan-and-Thatcher’ was that their critics were not only very wide of the mark, but disagreed badly among themselves, and were themselves products of the seventies, when their orthodoxies had indeed proven calamitously wrong. The record of development economics, for instance, is unimpressive; countries such as Tanzania, spoiled with World Bank largesse, spiralled down in planning, whereas South Koreas and Taiwans, with hardly any help at all, shot up. This phenomenon made the reputation of the economist Peter (Lord) Bauer, also of Hungarian origin (and also Jewish, but he was educated in Budapest at the grand and otherwise anti-semitic Piarist School, since his father, a bookmaker, had agreed to put a red line through the debts of the chairman of governors, a Count Sigray). His observations did not earn him a Nobel Prize, but, nowadays, the critical literature of the 1980s can mainly only be read as a sort of archaeology, turning up the urn burial practices of some once great tribe, the terror of its neighbours. This irrelevance applied still more when it came to the artistic artefacts of the anti-eighties. British film had a wonderful tradition to it, classics such as
The Third Man
still watched. In the 1960s, the film schools had been sixtified, in the sense that their students were supposed to develop an updated version of 1930s social realism, allied with hyper-active (or hyper-passive, in the German case) camerawork. Public subsidy was then showered upon films that would otherwise have been utter financial flops, the beneficiaries afterwards rounding upon the subsidy-givers to complain at their parsimony. In the opera, one
Fidelio
after another evoked Pinochet and the SS; you would hardly have been surprised to find the Dove in
Parsifal
represented by a B-52 bomber over Vietnam. There was a characteristic episode, in the context of President Mitterrand’s celebrations of the bicentenary of the French Revolution. The Bastille: ideal place for a popular opera, ran the thinking. The episode was chronicled by Maryvonne de Saint-Pulgent in her
Syndrome of the Opera
(1991) - vastly over-budget, vastly late, strikes at the opening, peacock-screeching between major participants, flouncings-out. Opponents of the eighties very frequently missed the entire point, and only really showed how accurate had been their own critics of the later seventies. However, it was true that the decade had not ended as these selfsame critics had wanted. What had gone wrong, and where?

It is curious to see that, in 1986, there was some crisis, in itself insignificant but generating headlines, that seems to have marked a caesura on the Right. Ronald Reagan’s administration was lamed by ‘Irangate’. After Vietnam, Congress had found ways to stop intervention abroad by the CIA, regardless of any national interests that might be involved. Nicaragua had undergone a revolution in 1979, and the ‘Sandinistas’ who took charge talked Cuban language; Central America was full of combustible material, and American interests were at stake. The CIA wanted to keep a counter-revolutionary movement (the ‘Contras’) going and found a complicated way round the congressional prohibition: through Israeli mediation, a deal was done with Iran for the release of hostages, some of the proceeds going under the cover to the Contras. Nothing much about the affair was quite what it purported to be but the Washington media were only too happy to have another Watergate, and though Reagan always protested innocence, some of his senior staff suffered. This coincided with the much larger failure, in 1986, to clean up the overall mess that had become of the budget - an objective that had been stated in the first Inaugural. ‘Irangate’ was a symbol that the Reagan Revolution had failed, at least in its own terms. By 1993 the tax take was almost where it had stood in 1980.