Category: Europe Page 4 of 16

On January 3, 2023

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Some interesting news in the semiconductor wars:

BREAKING: Netherlands firm ASML's stocks have been falling since China's Huawei unveiled a new patent in Extreme Ultraviolet Lithography, confirming the worst fears of the firm's executives who have opposed US restrictions (Motley Fool).

— SGM World News (@SGMWorldnews) December 31, 2022

Now, ASML had indeed opposed US restrictions. They said explicitly that in the case of sanctions, China would learn how to make the machines themselves.

Europe’s technological lead is being destroyed by following US policies. Energy intensive firms are fleeing Europe because US energy prices are much lower (this is due to sanctions on Russia and the sabotage of the Nord Stream pipelines) and following US sanctions on China means that China just learns how to make what Europe supplies them now.

It’s sort of rocket science, actually. As you may remember, the US banned China from the International Space Station, so China just built its own and now looks likely to have a base on the moon before the US.

Woops.

(I am fundraising to determine how much I’ll write next year. If you value my writing and want more of it, please consider donating.)

China, to repeat myself, is the world manufacturing floor. Mercedes moved their auto-design center to China. When the US took the lead over the UK in manufacturing, the UK retained its tech lead for about 20 years, but it did lose it.

Repeated sanctions on any area where the West has the lead, whether space, aerospace, semis or anything else only provide a perfect complete tariff to a country with millions of engineers and scientists and more manufacturing capacity than any other country in the world. They speed up, not slow down, the day when China will both have the tech lead and the manufacturing base.

Back in the late 90s and the early 2000s I warned, repeatedly, against transferring the manufacturing floor to China. That was the decision point, that was when it could have been stopped.

Sanctions against key points only make sense if you’re going to either go to war or move massively back to industrial policy, and the West is not going to do either of those things. I’m not sure a full move to industrial policy would even work, but it’s certainly what should be done. However, it could only be done if you were willing to crash real-estate and securities prices by about two-thirds, because the cost-structure matters.

What Europe should be doing is aligning itself with the rising power, China, or remaining a neutral bloc and negotiation places where they will keep the tech lead with China, as part of specialization. China wants trading partners and they see benefits in not having to rush every tech sector out of fear of sanctions. The US is both going down and fundamentally, at a policy level, willing to feast on Europe to slow its decline. Euro elites though they were part of a trans-Atlantic elite, but they only sort of were. When push comes to shove, American elites will let Euro elites swing. Generations of dominance have created an American elite willing to almost anything, or perhaps even anything, to retain dominance.

Europe has hitched itself to the wrong ship, and trusted the wrong nation, thinking that being a satrapy is the same as being an equal ally, and they have joined a cold war that will hurt them more than help them.

They will pay the price.

The Decline Of the European Garden

On December 6, 2022

A while back EU foreign-policy chief Josep Borrell said “Europe is a garden.” He was fairly widely attacked, but I agree. Some parts are much less of a garden, but Europe is a garden.

However, Europe’s status as a garden is based on factors which are no longer true:

1) Vast military superiority.

2) Vast productive superiority

3) Vast technological superiority at producing and fighting.

This needs some unpacking. Prosperity is just how much goods and services you have. If a society has relatively low inequality, and enough goods and services, almost everyone may share in the prosperity, if not only some part of the society may be prosperous, and those will obviously be the people who have the most power within the society, though that doesn’t mean the richest people are the most powerful—the powerful people may just be prosperous enough. Nancy Pelosi is worth about $120 million. You and I will never see such money, absent hyperinflation, but she isn’t Jeff Bezos rich. Still, she and almost all members of Congress are inside the charmed circle.

To be prosperous, then, you have to create rather a lot of goods and services. If you don’t bother with radical inequality, you may need less of certain kinds and more of other kinds: comparing the 60s to the 2010s is instructive. Not a lot of private jets or mega-yachts and rent and houses were cheap, but there were a lot less luxury condos.

Now roughly speaking, there are three inputs to producing goods and services: labor, capital (meant here as machines and buildings and so on) resources. Any economics 101 textbook will tell you so, and it’s one of the few things in an economics 101 textbook that isn’t wrong.

Europe’s not a large place compared to the rest of the world. For most of its history, certainly after the collapse of the Roman Empire (and really a couple centuries before) it was a primitive and very nasty backwater. But starting in the late 1400s or so the Europeans became very good at warfare and seafaring. Having spent a millenium fighting each like cocks in a pit, they had an advantage over pretty much everyone else (and where they didn’t yet, like China, they walked small.) Along with spreading disease to the New World, killing upwards of 90% of the population) they were able to grab a lot more resources than they had before.

Understand that at this point Europe does not have a productive advantage: China and even India are much more productive. Before the European invasion, India has more industry than England.

But they have a military advantage, multiplied by plague and are able to grab much of two additional contents, the Americas, and then get (thru coercion and commerce, African slaves were mostly sold by their compatriots) slaves and peasants made out of the Americas people to labor for them, while colonizing with Europeans at the same time.

Then, in the 19th century, when England was the first country to properly industrialize, they exploded, conquering or subjugating essentially everyone. Even places which weren’t formally conquered, like Thailand or much of China (the century of humiliation) knew their place.

The world’s resources belong to Europe. There was that upstart semi-European colony the US and the peripheral semi-European Russians, but basically Europe, Russia and the US controlled the majority of the world’s resources, even where they didn’t rule. The world sent them raw goods, they sent back manufactured goods and “provided” services like government.

Then the Europeans fought two internal wars, and were divided up by the corner powers: the USSR and America. And yes, that is what happened. European countries in the West and East were (and still are) satrapies. Nominally independent, but not really, and operations like Gladio, which ensured governments wound up in charge that were friendly to the US, or the Red Army crushing Eastern European independence movements make that clear.

The USSR collapse, the Eastern European countries mostly joined the EU, and the EU grew in power, but Europe still remained a satrapy, pointed almost entirely now towards America. From this point of view, the Ukraine war is nothing but a conflict over whether Ukraine will be a Russia or American satrapy, as its desperate desire to join NAT and the EU indicate.

Europe had a window, especially in the 2000s where it could have become truly independent, but it chose not to and during the Ukraine war it has so far, with some grumbles, subjugated itself further to America. No longer willing to buy energy from Russia it has become vastly dependent on the US. Problem is that that Americans charge Europeans four times as much as the Russians did for natural gas. As a consequences, a great deal of industry is planning to move out of Europe, because they aren’t viable. Much of it is going to America, helping America re-industrialize by sucking away industry from its satrapies.

Likewise, as Europe had not built a large army and was dependent on American military manufacturing or military tech and manufacturing licensed from the US, to support Ukraine it needed America assistance. (US whining aside, not having to maintain a large military is one of the primary advantages of being a satrapy, and smart overlords don’t really want their satrapies to be too strong militarily.)

Going back to prosperity, you are prosperous when you have more stuff. Europe’s problem is that it’s gone from controlling the majority of the world’s resources, to having a lot less resources than it needs. It imports more than half of its energy requirements, for example, and it doesn’t have the minerals and rare resources it needs. For a long time, because of a remaining technological need, it was still more productive than most of the rest of the World and that meant nations had to send it their resources and get them back in completed form, and as satrapies of the overlord, they still received preferential access thru the methods of coercion used by the American empire.

And so, because for so long Europe had access to most of the world’s resources at preferential rates (directly, or in the American era because they were the favoured satrapies) and had among the highest tech and thus were highly productive, they were able to create their “garden.” And an amazing and beautiful garden it was, and to some extent remains.

But, now that they are just satrapies, without colonial empires and with limited ability coerce other nations if the US doesn’t help them (France, really, is the only one to still maintain a decent unilateral ability to kick around a few minor African nations), their access to resources is based on the strength and generosity of their satrap.

This worked pretty well for a long time, but then there was the rise of China. China became the world’s foremost manufacturing power, caught up in almost all technologies (chips and aviation are being fought over so fiercely because they are almost the last bastions where China has not caught up), and nations had options: they didn’t have to sell thier raw resources to the US, Europe and to countries hosting outsourced and offshored Western industry. They could go to China. And China offered and offers cheaper loans, cheaper good and builds ports, railroads, hospital, power generators and even entire cities and does it for far less than the West.

The American empire has involved a lot of military coercion, but the primary coercion was economic. Up until the nineties it was usually of the “you can only get it from us” variety, and since the 90s it has been “we’ll lock you out if you don’t cooperate”, but all of it was based on “you have no choice. Only we can really make the things you need, plus you can’t defend yourself against us, and we have so much money we can buy a faction of your elite to coup your government if you don’t cooperate.”

Europe rode piggyback on that, and after some lessons after WWII understood that if they didn’t want to be couped, they would make sure their governments were acceptable the US. Only France ever dared significantly buck the system and even they eventually came back into the fold, albeit muttering curses under their breath.

Now, let’s talk about Europe and Russia. Russia was providing energy cheaper than Europe can get it anywhere else. A lot of it, and had Nord Stream 2 come on line, they would have been able to double it, which would have made Europe’s energy bill even cheaper and most importantly, Germany’s, since Germany is the productive and industrial powerhouse of Europe.

This is why German politicians especially, before the war, resisted US efforts to shut down Nord Stream 1 and 2 and its why the pipelines were sabotaged (probably by the US, though the formal investigations will never say that.)

Even if Europe wanted to remain an American satrapy, and all indications are that current EU elites do want to, they wanted to reduce the cost of important resources and assure access to them because Russia, again, was willing to sell them for a lot less than anyone else and way less than the US was.

This made industry viable. It is no longer a world where people have to buy from the US/Europe/Japan/Taiwan/hangers on because they (we) are the only game in town. They can buy from China, and China is cheaper. To compete, Europe had to keep its costs in control and in some areas offer better quality or some of the few goods that China can’t create (often to China, as it happens.)

Without trade, Europe, which no longer has coercive ability, cannot get what it needs. The Euro is not the dollar. People take it because they expect they can do business with the EU at some point. It’s relatively liquid, but it is only secondarily backed up by the US military.

The European garden was based on having access to more resources and to being more productive than all or most of the rest of the world with those resources. This was based on having a tech and military lead, allowing for coercion. After WWII it was based on “we are the favored satraps of the US empire and still have a tech and productive lead so we have access to the resources.”

Bu that is going away. The tech lead is almost gone. The productive lead is gone in most industries and the access to resources is declining, because China can now make better offers in most cases. Now add in refusing to buy cheap Russian energy and minerals and replacing them with more expensive substitutes, when substitutes can be found at all, and consider the European future.

Europe doesn’t have enough resources, and doesn’t have a productive or technological advantage significant enough to maintain its “garden” in the face of the rise of China. The trade alliance between Europe/Germany and Russia was an attempt to keep European industry viable by keeping costs down.

At this point, Europe is in a race where they must either be cheaper (by being more productive) or have an absolute advantage (you can’t get this from anyone else, or at least not from China), in order to maintain their industrial base. Without cheap Russian energy and minerals, this is going to be a lot harder.

So then, you may ask, what about moving to renewables.

Well, they will work to some extent but they still require resources, just not as much fuel. Europe recently sanctioned imports from Xinjiang in China for human rights reasons. Turns out most of the silica required for solar panels comes from there. Then, of course, there is the refusal to use nuclear power, which is required to make renewables work by providing baseline power. In the middle of a crisis where German industry is fleeing to the US because of high energy prices, Germany will not turn back on its nuclear reactors for even a few years to transition over.

But bottom line, even with renewables, resources are still needed as inputs for industry in order to produce goods and if you don’t have a lot of military or economic coercive power (like the US had and still has, though it is declining precipitously) that means you wind up losing your prosperity and becoming like all those countries in African, Asia and Latin America who can never seen to get to developed status.

You “un-develop.” My money is on Britain (soon England) to be the world’s first undeveloped nations.

But the smart money is that over the next few decades, that will be true of much of the EU. Perhaps a few countries in Europe will manage to hang on, but not most.

Happens to everyone eventually. All eras come to an end. The job of modern EU politicians was to keep it going and to make it possible for the next generation to keep it going.

Looks to me like they’re failing.

America Defeats Germany Again, Europe Foolishly Helps

On September 30, 2022

There’s a good article in Der Spiegel on the German energy/industrial crisis which is worth your time.

(I’m aware others have made the same US defeats Germany point before this. Just becoming super obvious.)

Basically industries which have high energy costs are being crushed. In particular this means chemical and automotive, both big in Germany, but extends far further.

(Indeed, the chemical industry was essentially invented by Germany in the 19th century, and American industry exists because the patents were broken in WWI and not reinstated after the war.)

This has a lot of knock-on effects, not only in price increases (which are big), but shortages. For example:

The coronavirus pandemic showed how easily modern production processes can get out of sync. Supply chains interlock like the insides of a clock, and if one cog fails, the entire machinery can grind to a halt.

An example is a small company from Lutherstadt Wittenberg, Germany, which has made it onto the prime-time news broadcasts in recent days because its products are needed almost everywhere. “Our production has been halted completely,” says Torsten Klett, the co-managing director of SKW Stickstoffwerke Piesteritz. “And we will only be able to restart if the gas price drops significantly or if politicians provide us with massive support.” The chemical company is one of Germany’s largest producers of fertilizers and AdBlue. Natural gas has also become too expensive for SKW. If political help doesn’t arrive soon, the company could be forced to send its 860 employees into a work furlough program in October.

Few modern diesel engines can be operated without AdBlue – not those of the fire department, not those used in public transportation and, above all, not the 800,000 or so trucks that transport goods of all kinds across Germany’s roads every day. Should companies no longer receive the products they need for their own production, the result wold be devastating, and almost all sectors would be affected.

The national association representing the logistics industry has begun warning of potential bottlenecks, even though AdBlue is also manufactured by BASF and the Norwegian firm Yara. But BASF began cutting back on ammonia production last year due to increased gas prices. The world’s largest chemical company can still compensate for the shortfall by buying on the world market, though the costs continue to rise.

So, logistics crisis intensifies because of lack AdBlue.

Meanwhile increased energy prices are hammering every single business and homeowner just for electricity, heating and cooling, so much so that it’s causing many retailers to become non-viable. Employment is actually tight (whisper after me “Covid deaths and Long Covid”), so there’s pressure on wages, but prices are increasing faster than wages so consumers don’t want to spend.

Industries that Germany has been powerful in for over a century are being hammered.

Now a lot of Europeans hate Germany, and with good reason. The Euro has been less than Germany would have had given its own currency with their level of exports, but higher than it should be for most other European countries, meaning that German industry was subsidized and other nations like Italy and Finland were penalized.

Germany aggressively policed other European countries, making it near impossible for them to protect their industry thru other means like subsidies, generally under the rubric of “fiscal discipline” and when countries were in crisis engaged in a fair bit of looting.

Meanwhile Eastern Europe was never properly integrated into Europe, remaining primarily a source of cheap labour and not properly moving up value chains.

To Eastern Europeans Germany is a traitor who made deals with the evil Russians to keep their energy prices low and didn’t really share the ensuing prosperity. (Germans would mostly disagree, noting the subsidies. But countries want their own prosperity, not welfare.) To Western Europeans Germany has repeatedly abused its economic and political power to keep its industry strong, even as others lost theirs.

So Germany has a lot of power in the EU, but few true friends, and there’s a lot of resentment.

Still, whatever the causes, Germany is the industrial powerhouse of Europe and Europeans who are laughing at Germany’s loss of industry during this energy crisis are being foolish, because what’s happening is that Europe as a whole is becoming weaker.

But the beautiful icing on the cake (if you’re an American oligarch) is:

A big winner from the energy crisis in Europe: the U.S. economy.

Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what some economists warn could be a new era of deindustrialization, Washington has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, executives say, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.

“It’s a no-brainer to go and do that in the United States,” said Ahmed El-Hoshy, chief executive of Amsterdam-based chemical firm OCI NV, which this month announced an expansion of an ammonia plant in Texas.

…

Some economists have warned that natural-gas producers from Canada to the U.S. and Qatar may struggle to fully replace Russia as a supplier for Europe in the medium term. If so, the continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent.

It’s not other Europeans who are going to win out of this, everyone’s being hurt to some degree and any gains are relative, not absolute. “Well this hurts the Germans so much more than us” is only a relative win. But it weakens Europe overall: the production mostly isn’t moving to other European countries This is the wrong way to deal with a real problem, in other words, and the right way was political and a rejection of neo-liberalism. But since neo-liberalism is religion to Eurocrats, that wasn’t possible. Dealing with Germany couldn’t be done rationally and sensibly, so instead it has been done stupidly and harmfully, so that no one benefits except the US.

As I have said since the start, anti-Russia sanctions primarily hurt Europe and help America. They make Europe weaker and re-enforce the European political position as American satrapies. Since they do very little harm to Russia, the rational course would have been to continue to buy Russian oil while only putting on targeted sanctions (no military or dual use sales), and spend the next 2-4 years gracefully moving to alternatives in a way that would not deeply damage Germany and Europe’s industrial base and wouldn’t cause a general economic crisis in Europe.

Longer term, my forecast is that Europe as a whole will move to second world status. Their decisions around Ukraine have made that a certainty, since they make it a virtual certainty they will also wind up going along with the US in the cold-war against China. Europe has less and less tech and industry that the world must have: there are other consumers available and they no longer have a military worth worrying about.

Europe’s massive living standard was based technological, industrial and military superiority which is going away. The rise of China ends that: there are now 4+ major industrial/technological powers and Europe isn’t needed. As China climbs the tech chain, there will soon be nothing significant they, or anybody else, must get from Europe (jets may be the last holdout, but even that will not last.)

Mishandling of Ukraine, the war and sanctions is Europe’s decision to go ugly into its twilight.

The European Position at the End of the Unipolar World

On July 21, 2022

It’s hard to remember now, but in the early 2000s, the EU appeared to be the onrushing power. It was gaining new members, who clamored to join, both its economy and the Euro were strong, and it had avoided entanglement in Iraq. Its prestige was high (having nations begging you to let them in their club tends to do that).

What I suggested the Europeans do, at the time, was try and make the Euro into an alternate reserve currency. They also should have increased their military, making them non-reliant on the US in the guise of NATO. Within the EU, steps needed to be taken to stop the abuse of the Euro by Germany as a subsidy for its manufacturing (because the Euro was lower than a pure-German currency would have been) and to allow genuine subsidies in other countries to make up for the disadvantages they would incur as a result of using a Euro — which was priced too high. Aggressive moves towards energy independence would also be necessary, as Europe was –and is — obviously resource deficient.

None of this was done. It appears that EU leaders were comfortable being US subjects, or at least, they didn’t want to challenge it. Germany’s policy towards Russia was trade, sold on the assumption that trade alone would make them good little Europeans, without offering them a path into either NATO or the EU, and with the added insult of allowing and participating in the looting of Russia during the 90s.

As for economic policies like subsidies and some counterweight to German exports, well, that would contravene the neoliberal, technocratic ideology that very much rules Eurocrat elites: the rules are the rules and if your economy gets trashed by them, as Finland and Italy, among others, found out.

In 2008, the Europeans followed the Fed (and, admittedly, everyone else) into a gigantic bank bailout, then spent most of their time since printing money for rich people (a reasonable description of central bank special operations during that era).

Meanwhile, anti-Russia sanctions proliferated, Russia-EU/US relations deteriorated (especially due to to the fight for influence over Ukraine — but that was definitely not the reason), and it all flared into crisis when Russia invaded Ukraine after years of Ukrainian military operations in the Donetsk and Luhansk Republics.

That led to sanctions, which have so far hurt Europe worse than Russia, as the European (and especially German) power grid needs Russia natural gas and coal which they can’t easily obtain elsewhere. Damage to industry has also occurred, and some observers expect it to cost entire German industries and millions of jobs; nor is the rest of Europe unaffected.

The problem now is that a fast move away from natural gas, oil, and coal isn’t possible. Heat exchangers work, but there aren’t enough available. Renewables are great, but transitioning takes time and anti-Xinjiang sanctions mean that 50 percent of the world’s silica supply, along with much of its solar panels, are no longer available.

Meanwhile there’s a heat wave, Europeans don’t have air-conditioning, and live in buildings largely designed for cold weather (with some southern exceptions), and, as everyone loves to say, “Winter is coming.”

Transition is not impossible, but it will take time. It is going to require restarting any nuclear plants which can still work (the numbers do not work without it) and probably building some new nuclear reactors, along with a buildout of various forms of renewable energy. Even moving to imported, and more expensive, US natural gas is not as easy as it seems: it requires infrastructure which does not exist.

Russia, meanwhile, as we’ve discussed before, is restricting natural gas supplies and threatening cutoffs. They can’t buy European goods, and they need the money less than Europe needs gas, coal, and minerals. They are diversifying to the East and South as fast as they can. Add to that to their position as one of the world’s largest grain producers is serendipitous at a time grain production comes under pressure from climate change, and consider that they are capturing a fair bit of Ukraine’s farmland, some of the most productive in the world.

Then there is China. Europe does a lot of business with China and there are massive trade ties. But Europe continues its anti-China rhetoric and keeps putting on additional sanctions against China. China wants the European market, and there are still some advanced items they need to buy from Europe, but political considerations, especially with regards to Taiwan and Xinjiang, may trump such considerations. In particular, it is not in China’s interest for Russia to be defeated or broken up as so many in Europe want, as Russia is a key supplier without which China cannot resist a US naval blockade.

Europe finds itself in a position where it’s scared of Russia and outraged. Eastern Europeans in particular want a complete hardline because they genuinely fear conquest or Finlandization. Without reliable access to Russian resource, Europe is forced to rely on the US and various unpleasant Middle Eastern states and to pay higher prices.

And meanwhile, the simple fact is that transitioning to energy and resources without Russia is hard and will take years. I’d think a full transition, even if done competently, will take a decade or so. Combined with the need for the US in order to stand up to Russia (EU militaries are a joke, Ukraine actually had the largest one), and the Europeans find themselves completely back in US satrapy mode. The US is sending more troops and building bases and that’s how it has to be, if hostility to Russia remains.

Which means that the EU has another task: it has to build its own military, capable of standing up to Russia. This is by no means impossible: Europe is technologically advanced and still has the necessary industry, including world leading aviation, but right now all that is happening is buying more US made weapons and hosting more US troops.

If Europe wants to be anything but a satrapy, it has to fix it energy and resource issues; it has to build a military and it needs to do something even harder—it needs to rethink its ideology, and allow proper industrial policy internally. This is hard to do when it’s dependent on outside resources from a hegemonic power, but if it refuses to do so, it will remain an American satrapy.

How much of this will be done is unclear. Exchanging reliance on Russia for the US may seem like an improvement, but it is still dependence and if Chinese relations sour, the Europeans become “locked in”, with few options.

It’s hard to imagine the current generation of European leadership managing this well, but perhaps they will surprise or, more hopefully, perhaps they will be replaced by more competent politicians.

But overall, it looks like Europe is slowly marching towards its historical norm, less and less important and powerful on the global stage.

A lot, of course, will depend on climate change and who gets hit the worst and handle it the best, but right now Europe looks to be in decline, with an opportunity, if they take it, to use this crisis to come out stronger and less dependent on outsiders.

I hope they take the opportunity.

Germany Is Being Crushed By “Anti-Russia” Sanctions

On July 6, 2022

One does have to wonder who anti-Russian sanctions are actually designed to hurt.

German producer price inflation in May.

German trade balance:

Hey, the first negative trade balance in 30 years. Of course, it’s not very negative yet, but wow, that’s a decline.

Meanwhile:

Top German industries could face collapse because of cuts in the supplies of Russian natural gas, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz starting Monday.

“Because of the gas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry,” said Yasmin Fahimi, the head of the German Federation of Trade Unions (DGB), in an interview with the newspaper Bild am Sonntag. “Such a collapse would have massive consequences for the entire economy and jobs in Germany.”

The German economy is essentially mercantalist. The Euro, because it includes countries which are net importers, has been undervalued. The Germans bought cheap materials, made them into high value goods and got pretty rich.

Now the Euro collapsing (it’s almost down to even with the dollar), but it’s not collapsing enough and in any case there’s a problem, one which has been forgotten in the global order.

Physical objects, like natural gas and aluminum and oil and so on are dug up in certain places, refined in other places and shipped thru specific pipelines or on specific trucks over specific roads, or specific trains over specific railroads. They cannot be magically replaced if you cut off a large supplier, and even when they can be replaced they may cost a lot more money and the replacement isn’t instant, as with buying US natural gas.

The PPI increase is “if you can even get it.”

Germany is a manufacturing state which does not have a lot of natural resources in its own borders. It must be a trading state, and Russia was the cheapest place to get a lot of what it needed, plus there isn’t enough excess on the global market to make every good and even when there is it requires logistical solutions (ports, ships, rail lines, refineries, etc…) which are not in place.

Meanwhile the EU has sanctioned goods coming from the Chinese province of Xinjiang. It turns out that Xinjiang produces about half of the world’s supply of polysilicon, which is the primary ingredient in solar panels.

It is to laugh.

Germany is committing economic suicide over Ukraine, and Germany is the industrial heartland of the EU.

Some bottlenecks just aren’t going to be broken without some sort of deal or cut-out, the supply isn’t there.

Others can be dealt with by paying more, some will require money and time measured in years. Europe is going to wind up going nuclear, there’s no other way to make the numbers work. (So will Japan and many other nations.)

But overall the people saying that the EU was hurt more by Russian sanctions are correct.

Now don’t think this is anti-democratic: polls show that most Europeans want to cut off trade ties with Russia.

But we’ll see how they feel as they take the hits required to do so.

The EU As The Epitome Of the Iron Cage of Bureaucracy

On June 3, 2022

A couple years ago I read “The Dawn of Eurasia” by Bruno Macaes. Macaes was a member of Portuguese government, very neoliberal and fairly awful while in office, but his book proved quite insightful in most areas outside of Russia, where what seems to be fear and contempt for Russia distorts his vision. (I thought this when I read it before the Ukraine invasion.)

He’s most worth reading about Europe and the EU, and one example and one passage particularly struck me at the time.

This is the formula for accepting immigrants during the refugee crisis.

Macaes writes:

I was reading the account of the meeting in my office when it suddenly hit me. The European Union is not meant to make political decisions. What it tries to do is develop a system of rules to be applied more or less autonomously to a highly complex political and social reality. Once in place, these rules can be left to operate without human intervention. Of course, the system will need regular and periodic maintenance, much like a robot needs repair, but the point is to create a system of rules that can work on their own. We have entered the end of history in the sense that the repetitive and routine application of a system of rules will have replaced human decision.

Maçães, Bruno. The Dawn of Eurasia (p. 228). Penguin Books Ltd. Kindle Edition.

Weber famously called bureaucratization an iron cage: rule by rules and not people, everyone in the same circumstance was supposed to be treated the same, and who the bureaucrat was didn’t matter: once the rules (in modern terms, the algo) had been set up, the human was just a piece of machinery.

It’s for this reason that technocrats love computers and algorithms so much; they make it almost impossible for ordinary humans to override the rules.

Many years ago I moved from Ontario to BC. My Ontario health care coverage was ended. I applied for BC coverage, but then, unexpectedly, I returned to Ontario. I had no coverage. I went to the provincial health office in person, told the person at the desk, they summoned their boss and it was explained to me that there was a six month wait, but they would fix it.

How? The only way was to finangle the system so it thought I had never stopped having Ontario coverage. There was no human discretion, just a flaw in the system which allowed them to do something they really shouldn’t have done. (This is over 30 years ago now, which is why I feel free to mention it.)

If they hadn’t, I’d have had no coverage anywhere in Canada and I was extremely sick and needed health care right away. (Which is probably why they did jiggle the system.)

The idea of bureaucratization was a good one: previous to that offices had been filled by people with a great deal of latitude, which many of them abused to help their friends and family and to enrich themselves. Even when they didn’t abuse the office, they were inconsistent, and no one knew what the rules really were and thus couldn’t plan. As Weber points out repeatedly, you need calculable law and administration to allow modern capitalism. Decisions don’t necessarily have to be good, but they do have to be consistent, or you can’t plan and one unexpected decision can destroy your business.

We moderns will note that the promise of bureaucratization hasn’t really worked out: it’s been subverted. The rules are made and somehow they always favor the rich.

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

—Anatole France

Now, the law has always favored the rich, but the idea of bureaucracy combined with democracy was that it would do less of that. In some time periods it did, and does, but in most all it did was change the type of rich it favored, moving from aristocrats and clergy, to oligarchs.

The EU, however, firmly believes in bureaucratization, as Macaes notes. It is what is good. The rules exist, they are followed, humans intervene only to set up the rules and occasionally tweak them, but otherwise it’s a big machine algo, and it runs like that. If it hurts or harms someone, so be it, it is fair, because the rules are being followed.

Macaes has a lovely little anecdote about Brexit and immigration which highlights the issues:

I particularly remember a conversation in Manchester with Ed Llewellyn, David Cameron’s chief of staff, where we tested different ways to reduce immigration numbers, some of them quite feasible. This was during the renegotiation process leading up to the referendum. Llewellyn seemed hopeful for a moment, but then shook his head: ‘These are ways to reduce the numbers. What we need are ways to increase the feeling of control.’

Maçães, Bruno. The Dawn of Eurasia (pp. 231-232). Penguin Books Ltd. Kindle Edition.

What the Brits wanted, in other words, was to have humans regularly making decisions, rather than one algo set up by a committee making the decisions, even if the algo was more favorable to them. Basically, can the Prime Minister or the Home Secretary decide how many immigrants come in? No? Then forget it.

It seems to me that the algo-ing of government, the bureaucratization, is a good thing up to a point: people should be treated about the same in the same circumstances. But as a practical matter, bureaucratization, the iron cage, is used to elude responsibility. “The algo did it!” or, “That’s what the law says!”

Every algo was created by people, and while there are sometimes unforseen effects, what the algo does is the responsibility of people. If it is producing injustice, or poverty, or massive inequality those who created it, or those who are letting it run are responsible.

The more you hard-code an algo, and take people out of its implementation, or create systems which force people to become machines unable to make exceptions, the more the dead hand of the past rules the future, and the more that the few people at the top rule everyone else. When middle and low level bureaucrats can’t actually make decisions, injustice inevitably occurs because virtually ever law or algo has blind spots: events and circumstances it did not and cannot deal with.

The evil of three strikes laws and mandatory sentencing, for example, was meant to prevent the evil of judges using their judgment to let people people off if there were mitigating circumstances. Sometimes that discretion was misused, and it would be a big story, but even more often there would be a case of someone’s third crime being stealing a bicycle or a banana.

The ultimate problem is that there’s no getting away from the fact that humans have to make decisions about humans lives. Even if we wound up in a Wall-E world, served by machines, those machines’ initial programing would have been created by humans.

The principles that exceptions need to be made and that humans need to have some control, and that over-bureaucratization removes low and middle level control don’t change the idea that people should be treated equally in the same circumstances. Provincial laws didn’t intend for any Canadian to not be covered by some provincial health care plan; the algo; the rules, had a gap, and a low level bureaucrat could make it work, at least back in the early 90s (today, who knows?)

The same is true at higher levels. There is no escape from human judgment. Attempts to bind everyone with trade deals which are immune to popular sovereignty; with treaties, and to have secret courts and central banks and so on, are all ways to try to avoid responsibility for results.

The problem with our societies is that elites aren’t held responsible for the harm they cause, nor, by and large for any good they do. We have elections without being democratic, because the feedback systems are broken.

All that has happened with bureaucratization, is that the rich still get taken care of, and the poor still get fucked, and it’s done in a way that seems “fair”.

“The algo said” is just a modern version of the “the law says” and it’s just a way to disempower almost everyone while making sure power and money are concentrated at the top.

Any algo or law which doesn’t allow for human discretion to override the algo, with a review mechanism for people who do it often, will do more evil and prove more anti-democratic than even venal spoils systems, which at least don’t pretend that office-holders and other powerful people don’t make decisions and aren’t responsible for their results.

Who Wins and Loses Because of the Ukraine War?

On May 16, 2022

I’m basing this on current trends and what I see as the most likely outcome.

Russia will take about 30% to 40% of Ukraine: the East and the coast along the Black Sea, areas that are generally Russian ethnic or speaking. While they were pushed back from Kharkiv, I think they’ll take the Oblast by the end of the war. Basically, see where Russians are the majority and that’s the land that Russia will feel it can keep and not fight an endless guerilla war.

They make have to take more land than that to force a peace on terms they can stand, but they won’t want to keep it because everyone knows the West is trying to draw them into a long term guerilla war. (Such a war could be won in Ukraine because of the terrain, but doing so would require a lot of killing, deportatons and camps and many years. It’s not worth it for Russia.)

The Russians original goals will not be met, and Finland and Sweden will joint NATO (although they were already quite integrated), so in one sense it can be said that Russia has “lost”. In certain other senses it can be said to win.

But let’s look at the major players, one by one.

Ukraine: the big loser. Unless this war goes far different than I expect (possible and I’ll admit it if it does) they’re going to come out of it a smaller country with no coast, who has lost their industrial heartland and even if the gas is turned back on, they will lose most of the transit fees in a couple years max as the EU transitions away. They will find that the “rebuilding” they were promised is IMF style neoliberalism and the average person will wind up worse off.

Verdict: Disastrous Loss.

The EU: In the win column, the EU should have built up a larger military long ago and will now do so. They will be more unified, at least initially, feeling they have all supported a war and with fear of Russia acting as unifying glue.

In the lost column they have firmly moved into the US satrapy column. In order to move out they would have to create their own army that is not dependent on US built military equipment and that’s the opposite of what they’re doing. (Foolish, because the US is losing its ability to build either ships or combat planes. The F-35 was a boondogle, Boeing has lost its engineering chops, and they recently decided to decommission built ships because they are so bad.)

The increase in price of fuel (US gas is about 50% more expensive than Russian), commodities and food as well as the general inflation shock from the Ukraine war will lead to a poorer Europe. Spending more money on the military will make ordinary people feel worse off and so will inflation. Industry will be badly damaged by increased fuel and mineral prices. All of this will lead to increased political instability and is likely to help the fascist right and possible the more radical left (if the left ever gets its act together.)

Joining the US in such huge sanctions and seizing Russia’s reserves (“frozen”) means that they are choosing to join the US side of the new cold war world rather than being a third pole, and this will eventually limit their trade options, as they, like the US, cannot be trusted with money.

The EU is, overall, likely to come out of this war poorer, more isolated and with increased political instability, but with a much larger military and feeling more unified at the elite and country to country level (at least until and if political instability changes that.)

Veridict: Slight Loss.

The US: The US has gotten Europe firmly back as a satrapy. NATO expands, the Europeans will spend more more on US military goods and buy expensive US gas and oil. The possibility of Europe becoming independent and forming a third pole in the upcoming cold war between the US and China is now minimal, and essentially zero for at least a decade or two.

On the negative side, Russia is now firmly in the Chinese sphere. Because the US’s strategy in the case of a war with China would be to strangle China with a military enforced trade embargo, this is a big problem. Russia can supply China with massive amounts of food, fuel and commodities, making the “choke them out” strategy against China unlikely to succeed. Likewise a friendly Russia means China has a relatively secure flank to the Northwest. There are even signs of Chinese-Indian rapprochement, and though I’ll believe it when I see it, India not joining against China would be a huge boon to China.

Since China is the “real” threat, not Russia, the one country that can replace the US as the world’s most powerful nation, strengthening China’s position is a loss.

The US also will suffer due to inflation from knock on effects of the Ukraine war, and that will cause increased domestic instability. Elites continue to funnel massive money to the domestic security apparatus (police of various varieties, spies who target US residents), however, and elites feel fairly secure, though I think they’re wrong as they’re funneling resources to police who stand a good chance of joining a right wing uprising.

The final major effect for the US is that freezing Russian reserves and encouraging the massive level of sanctions, is seen by most of the world as evidence it’s not safe to keep money in the US lead banking system, or even to trade with them. This has accelerated de-dollarization and I suspect will be seen as the precipitating event of losing reserve status for the American dollar. The world will split into two financial blocs, one centered around China-Russia, the other around the US-EU. The US receives huge benefits from reserve status and from being at the center of the world financial system, and as with Britain after WWI, it will suffer mightily when it loses this position.

My evaluation is that what the US will likely gain from the Ukraine war is less than it has or will lose: dollar hegemony and being the financial center of the world are a big deal, and confirming Russia as a junior Chinese ally makes their main geopolitical rival far stronger.

Verdict: Loss

Russia: Russia has weathered the initial economic storm well, but most EU countries will move off Russian gas and oil. Some of that gas and oil cannot be brought to market anywhere else for a few years (probably 3) until new pipelines are built and while there are customers, they will pay less than the Europeans did.

Sanctions will not cripple Russia, but there are goods like advanced semiconductors and, more importantly, some tech needed for gas and oil extraction, that they will be cut off from. China cannot immediately replace those oil and gas related goods, and they are at least ten years behind in semiconductors (and themselves cut off from some key capital equipment they can’t yet build). That said the oil and gas tech is probably within quicker reach, and Russia doesn’t need the most advanced semiconductors in large quantities so far as I know.

In most economic terms Russia will be OK: they have a big food surplus; they have more than enough fuel, of course, and they can buy almost everything they don’t make from China, who is not going to cut them off; indeed, rather the reverse. India is also rushing to cut deals with Russian businesses. Sanctions will force more import substitution and help overcome the “resource curse”, making it cost-effective to make more things in Russia (if they aren’t overwhelmed by cheap Chinese goods.)

Sanctions will not cripple Russia the way they have many other countries, though they will be felt. Nor will they cause a revolution and if there is a coup it will be because Putin is old now and may be ill with Parkinsons or something else.

In territorial terms Russia likely to wind up larger. They get the industrial part of Ukraine and the coast, they can send water to Crimea (which has been cut off from years, and whose agriculture was devastated as a result) and while many will say they didn’t win the war, etc… people who want to stand up to them will not be keen on “winning and losing 30% of our country.” If that’s victory, it looks pretty bad.

A unified Europe with more countries in NATO and a bigger military is a loss for Russia, and one can expect that NATO will move more missiles and ABMS close to the Russian border, including hypersonic missiles as soon as they have them. In that sense the war is a clear loss: Russia wanted those weapons removed from near its border, and there will probably be even more of them.

In the end Russia will be able to credibly claim it won the war as a war: it took territory and kept it and it’s hard to say that a country which took its enemy’s territory lost a war. That said, there will be a case that it is a Pyrrhic victory, in that there is an economic hit, NATO has expanded, Europe will have a bigger military and so on.

The counter-case is simple: Ukraine was talking about getting nukes and had started shelling Donetsk in what looked like a prelude to invasion. Russia didn’t get its maximal goals, but it did gut Ukraine as a threat and did secure Ukrainian land in what is likely to be a semi-permanent fashion absent an all out NATO/Russia war.

The maximal goals didn’t happen, but in a bad situation Russia may reasonably claim it got quite a bit. As for sanctions, every year there had been more of them, none had ever been rescinded and all the war did was move them up.

Verdict: Marginal victory.

China: Yes, strictly speaking China isn’t involved in the war, but the war affects China greatly. China needs about 10 years to get to a reasonable parity with the US in semiconductors and aviation, the golden technologies of US hegemonic rule. The Ukraine war has made it clear they probably have less time than that, and that the world economic order is likely to split sooner because China is stuck between US demands to support sanctions and its own strategic needs, which require Russia as an ally, or at least a reliable supplier. Russia being decisively defeated or economically crushed would be catastrophic for China, so they must keep it alive and viable.

Still, all in all having Russia unable to sell to or buy from the West is unbelievably good for China: there is no alternative for Russia. If they can’t go to the West they must go to China. India may be willing to trade, but India’s economy is tiny compared to China’s and its industry scarce. China can make almost everything Russia needs and everything it can’t make it’s working on learning how to make. And, as previously discussed, Russia as an ally makes it impossible for the US to choke China out in a war.

Verdict: Victory

Concluding Remarks: Of course all of this based on a model of how they war will go which may not be the case. Perhaps the maximalists in the West are right, and the Russian military is fundamentally incompetent, can’t do logistics to a disastrous degree, and is on the verge of collapse. If you think Russia can’t even win the conventional war, all of this is is nonsense because a definite loss is likely to lead to regime change and possibly even collapse.

Likewise if you think that sanctions will have much more effect than I do, or that China will not integrate with Russia economically, then this is all wrong.

But overall, this war looks like a case where Russia gets a marginal victory; the US and the EU get some wins but their victories are effectively Pyrrhic, and China is the big winner.