Prof. ST Hsieh
Director, US-China Energy Industry Forum
October 2, 2022
We have to learn from the past history so that we do not make the same mistakes again. But we also have to be very mindful that history does not repeat itself because the world does move forward, and it does not look back.
In terms of deglobalization and nationalism, the world toady is vastly different from the 1930s. During that “dark ages,” Europe was the absolute power center of the world. Any exchanges between London and Berlin could affect the mood of the entire world. Washington DC, Moscow, and Tokyo were all on the other sides of the world. For example, Tokyo was in the “far east” from London so whatever the Imperial Army of Japan did in China during that time was merely reflected by newspaper reports with some static pictures.
Europe’s major energy crisis now is unprecedented, and its impacts would spill over around the world. But as the military actions of the Ukraine war are limited in Ukraine. A major energy crisis could still be contained in Europe.
USA is the world largest energy producer, the largest energy consumer, but it is also the largest LNG exporter in the world. If US politicians do not fumble with unforced mistakes, we are not going to have a “cold winter” and our economy would not experience energy shortage.
China, the second largest economy in the world behind the US, has enough domestic produced and imported fossil energy for this winter. Russian is a member of OPEC+, high oil prices benefit everyone in OPEC+. But OPEC+ will not be foolishly raising oil price by cutdown productions with the risk of a “demand destruction.”
The world faces many critical challenges including eliminating COVID-19 pandemic and geopolitics, so it is up to Europe to manage this self-made energy crisis. No one in the world, include the US, would be able offer much support. But going back to nationalism or far right fascism would be self-destructive, but do not blame anyone else, including Putin.
Europe’s deglobalization and surging nationalism have echoes of the 1930s. Now it’s heading into a major energy crisis.
Tristan Bove Sun, October 2, 2022 at 3:30 AM
With high inflation, soaring energy prices, and slowing economic growth, many economists have drawn comparisons between today’s European economy and that of the 1970s oil crisis.
But while 1970s-style stagflation concerns loom large, another pivotal decade in the continent’s history may help explain today’s economic and political trends: the 1930s.
The decade leading up to World War II was marked by a general climate of fear and anxiety in the West. Economic crises and mass poverty broadened the appeal of populist right-wing parties, and lasting trauma from World War I, combined with the Great Depression, fueled isolationism and nationalist foreign policies.
Today, after the pandemic and the Ukraine War disrupted global supply chains, countries are turning away from globalization, and looking inward once more. And European populism is having a moment in the sun, as citizens take their resentment over a rising cost of living and a bleak economic outlook to the polls.
“This is one thing that’s kind of worrying and echoes the 1930s. Namely, this widespread disenchantment with what liberal democracies can do,” Cristina Florea, a historian of Central and Eastern Europe at Cornell University, told Fortune.
Europe’s largest democratic institutions have been able to hold firm, but harsher challenges lie ahead as a mounting energy crisis on the continent has sent prices soaring, and discontent has already begun spilling out onto the streets and sowing divisions between European nations.
“Things could be exacerbated this winter by what’s happening in Europe with prices going through the roof and fuel shortages. It will really put Europeans to the test,” Florea said. “What’s coming in the following months will tell us how far we are willing to go to back up this vision of democracy.”
The strongest resemblance between now and Europe’s 1930s economy, experts say, is the transition from a highly globalized world to one that is quickly becoming more regionalist.
“The most important similarity is that these are eras of, to some extent, deglobalization,” Mark Harrison, emeritus professor of economics and an economic historian at the University of Warwick in the U.K., told Fortune.
In the 1930s, the fallout from the Great Depression created an era of protectionism: a retreat from international trade around the world, with countries in Europe, Asia, and the Americas creating their own small trade circles.
“The depression just sent one state after another into an economic abyss,” Florea said. “The lessons that different states took from this was that they need to turn towards economic nationalism. That the solution is autarky and to just break off ties. A turn against globalization or global connections.”
Globalization eventually picked up again after World War II, spearheaded by the U.S. with the creation of international monetary organizations and global trade norms at the Bretton Woods Conference in 1944. But over the past several decades, global trade volume has been declining, and with economic disruptions brought on by the pandemic and the Ukraine War, the world might be reorganizing itself again into a new more isolationist era once more.
Populist governments have argued for protectionist economic policies in the U.S. and Europe, and U.S. tariffs on China that have remained in place since the Trump administration. Putin’s invasion of Ukraine only accelerated the shift to a smaller world, with European dependence on Russian energy becoming a major liability.
The shifts towards more regionalized economic activity has also been spurred on by the COVID-19 pandemic, and the disrupted global supply chains it created.
Plans are now in place in the U.S. and Europe to shore up domestic supply of critical commodities that were mainly imported before the pandemic, including semiconductors chips. And the ongoing lockdown policies in manufacturing hubs like China have popularized so-called “nearshoring,” with many U.S. and European companies bringing production back home to guard against future supply chain disruptions.
A right turn
In the 1920s, European nations had just exited bruised and battered from the World War I—the most expensive war in history at the time.
Many European countries remained deeply distrustful of their neighbors in the interwar years, hindering early attempts to create robust international law and order systems and democratic institutions like the early plans for pan-European political unity and the failed League of Nations, considered a predecessor to the U.N.
Far-right and authoritarian regimes were able to seize on these divisions, and on the disruptions caused by World War I and the Great Depression, to pander to voters unsatisfied with the current order and eager for a change, according to Florea.
Today, after years of a pandemic and a worsening energy crisis and economic outlook in Europe, experts say a similar turn could still happen.
“What we don’t want to see happening once again is people equating economic impotence with democracy, which is just like running into the arms of these right-wing movements,” Florea said.
But aside from the individual policies of its leaders, populism carries a larger threat to European unity as the continent prepares to confront an economic downturn, a refugee crisis, and ongoing pressure from Russia.
“People who live through profound social disruptions look for security, and are likely to turn to parties that say that we’re going to uphold an order that favors ‘ordinary people,’” Harrison said, adding that it is in moments of crisis when populist movements tend to be the most vocal.
A cold winter
While today’s spread of populism during Europe’s moment of economic crisis does have some similarities to the 1930s, it’s not an existential threat to the continent’s democratic institutions just yet.
“Transnational institutions were a lot shallower than they are now,” Harrison said. European democracy in general is much sturdier and more resilient now than it was in the 1930s, and so far, the EU has been able to keep nations united against threats like Putin and the Russian invasion of Ukraine.
“Putin has done a tremendous job in selling the benefits of Western cooperation, NATO security, and economic cooperation. It’s reminded us that values matter,” Harrison said.
But democratic Europe should still be wary that things could get a lot worse. With electricity prices already high, a cold winter may send them over the edge, and several banks have already predicted a major recession in Europe. It could be Putin’s best hope to erode support for Ukraine, and the accompanying economic crisis would be a welcoming opportunity for both incumbent and hopeful populist leaders to make a splash among voters.
European households could see their utility bills increase by as much as 2 trillion euros next year due to the energy crisis, and fuel shortages and rationing measures could see industrial capacity slow down or even shut down entirely in certain sectors. This could lead to a wave of economic slowdown and unemployment, Mauro Chavez, research director of European gas at energy consultancy Wood Mackenzie, told Fortune last week.
Much will depend on how quickly natural gas suppliers other than Russia can ramp up shipments to Europe, but with protests against high living costs already breaking out across the continent, it is very likely that European nations will have to learn to adapt to a new reality soon, according to Harrison.
“At the same time [the energy crisis] provides huge scope for troublemaking and for far-right politicians to play a blame game,” Harrison added.