Hassan Malik on Bankers and Bolsheviks

In a year that has seen emerging markets, including Argentina and Turkey, experience major market crashes, Hassan Malik’s Bankers and Bolsheviks is a timely reminder of the long history of emerging market booms and busts. Bankers and Bolsheviks charts the story of the foreign investment surge that made Russia the largest net international borrower in the global bond market, and the collapse which culminated in the largest default in history in the aftermath of the Bolshevik Revolution. Based on research in government and banking archives in four countries and three languages, the story is truly global. It focuses on the leading gatekeepers of international finance in Europe and the United States, showing their thinking about the most significant emerging market of the age through some of the most important events in world history.

Many scholars, writers and filmmakers have engaged with the period you chose to write about. What in particular attracted you to it?

I was always struck by how frequently financial history surveys focus on a few set stories and episodes – the Dutch Tulipmania of the seventeenth century, the hyperinflation in Weimar Germany, or the 1929 stock market crash – but how rarely they mention Russia, especially given the scale of the Russian borrowing binge in the late nineteenth and early twentieth centuries. As a banker living and working in Moscow during mid 2000s, I was constantly walking by pre-revolutionary buildings that had once housed banks. These vestiges of a previous Russian boom piqued my interest in the role of finance during the revolutionary period and inspired me to approach the subject through the archives and writings of key individual players in this drama. The Russian case was particularly interesting given that all the major players in global finance were able to participate in Russian markets. Unlike other emerging markets that were dominated by a single country or bank, the Russian story featured a diverse group of actors, and so provided an ideal vantage point from which to write about global finance during the first modern age of globalization.

What are the parallels with today’s standoff between Ukraine and Russia over sovereign debt?

Central to the book is the notion of “odious debt” – the idea that a population cannot be held liable for the debts contracted on its behalf but without its consent by an illegitimate regime. The Bolshevik default of 1918 was remarkable for reasons other than sheer magnitude. Unlike Argentina in 2001 or Greece in 2012, the Bolsheviks not only defaulted but repudiated the debts contracted by pre-revolutionary governments. It is notable that the Bolsheviks were not outliers in this respect – moderate liberals in Russia also objected to debts the Tsarist government in particular raised in international bond markets.

Fully 100 years on, the Ukrainian government is fighting Russian claims on a similar basis with respect to a bilateral loan structured as a $3bn Eurobond contracted by the government of Viktor Yanukovych in December 2013, shortly before it was overthrown in the 2014 uprising. The Ukrainian government ultimately defaulted on the loan in 2015. Like the Bolsheviks in 1918, the current Ukrainian government claims that Yanukovych was a dictator ruling without the consent of his people, and that therefore, they should not be held accountable for debts contracted by his government. Like the Bolsheviks and liberal opponents to the Tsarist regime in the early twentieth century, the present Ukrainian government is also claiming that the creditor in question actively sought to undermine and control the debtor country.

What lessons does the book hold for investors in emerging market bonds today?

Another of the book’s central messages is that investment in emerging markets does not happen in a vacuum. Politics matter, on several levels. Most obviously, managing and hedging against geopolitical risk remains very important. Global politics also influenced thinking about Russia, even amongst ostensibly clear-eyed investors. Fears of an ascendant Germany during the time period discussed in the book are mirrored in present-day apprehension about the rise of China and relative decline of “the West.” More specifically, such fears can generate biases and influence investment decisions. The strategic decisions of the first National City Bank of New York – one of the largest in the world at the time, and a forerunner to Citigroup – were heavily influenced, for example, by the wartime context, and led to a remarkable expansion of the bank’s operations in Russia on the eve of the Bolshevik revolution.

Politics also operate on a subtler level. The case of Russia, for example, demonstrates how the act of investing itself became a political act–when investors enter an emerging market, they often are aligning themselves with a particular set of political forces. Bankers in Russia at the time failed to appreciate the degree to which they were becoming entwined in domestic politics – and with the Tsarist regime in particular. Today, a similar theme is evident along the New Silk Road that China is developing across Eurasia, Africa, and the Indian Ocean as part of President Xi Jingping’s Belt and Road Initiative.

What are the implications for China’s Belt and Road Initiative?

The investment wave Russia witnessed during the first modern age of globalization was inextricably intertwined with contemporary geopolitics. While notionally private French, British, and American banks were key gatekeepers channeling capital into Russia, they did so in a particular geopolitical context. The French and Russian authorities in particular cooperated to a significant degree in channeling French savings to Russian markets. The French, however, frequently failed to persuade Russia to direct industrial orders to French firms, which often lost out to their German rivals.

In this respect, China’s Belt and Road Initiative is markedly different from the Franco-Russian financial ties of the Belle Époque. Under the BRI, China extends loans largely to developing countries for infrastructure projects built primarily by Chinese workers employed by Chinese engineering firms, using mainly Chinese equipment and materials. At a time when Chinese economic growth is slowing and there are signs of excess capacity in areas such as the construction industry, the BRI holds significant promise for China, not least since it diversifies the country’s trade routes away from contested territory such as the South China Sea. The benefit to countries receiving BRI funds is less clear. While there is little doubt that infrastructure is being built, the utility of some projects is arguable; and crucially, there is little transparency with regard to the commercial terms of the deals, to say nothing of contracting processes.

Several cases of questionable China-related deals are already evident. Before the formal launch of the BRI in 2013, Sri Lanka infamously signed a deal for a Chinese port of dubious feasibility and under terms that saw Sri Lanka’s debt balloon. When a new government faced difficulties in making payments, the Chinese ultimately took control of the strategic asset via a 99-year lease. More recently, erstwhile Malaysian premier Najib Razak signed major Chinese investment deals under the BRI. His successor has attacked the deals as shady and wasteful, and has already announced their cancellation in the amount of at least $22bn.

As the Malaysian case shows, the Chinese government – like foreign investors in Tsarist Russia – is willing to sign deals with leaders of contested legitimacy. The latter, in turn, are incentivized to seek BRI funding given the relatively higher degree of scrutiny and conditionality imposed by more traditional lenders such as the World Bank or individual developed countries. As both the Malaysian and Russian cases show, however, such an approach carries the risk that new regimes – whether they arrive through revolution or the ballot box – can question, push to renegotiate, or outright repudiate debts contracted by their predecessors.

Have emerging markets evolved, or have they repeated cycles of boom and bust that are fundamentally the same, with only superficial changes in context? Are the mistakes of the past vis-à-vis emerging markets destined to be repeated?

It would be simplistic to say that history repeats itself in emerging markets, but at the same time, financial history can be useful in thinking about historical analogs to current market conditions and potential future scenarios. Of course, government and businesses in emerging markets have evolved both over the centuries, as well as in the last several decades that witnessed the growth of “emerging markets” as a specific institutional asset class. For instance, macroeconomic management has shifted dramatically over the last 20 years in markets from Argentina to Russia, not least through the abandonment of fixed exchange rate regimes that contributed to past crises. At the same time, macroeconomic prescriptions directed at emerging markets from institutions such as the IMF, academia, and the investment community have themselves changed as investors and economists learn and re-learn lessons from the major EM crises of recent years.

Emerging markets have changed in other respects, too. Tsarist Russia attracted investors in part due to its relatively large population and resource base. Today, Russia’s demographics are seen as a handicap by investors, as is the economy’s dependence on commodity exports. Of course, even high-growth Asian economies have become victims of their success, with improvements in living standards and life expectancies contributing to ageing populations in major emerging markets such as China and India.

Nevertheless, there are strong continuities. The political dimension in particular remains very real in emerging markets, as seen in the major market moves surrounding regime changes in places such as Argentina, Brazil, India, and Malaysia in recent years. In this respect, there are strong parallels between emerging markets today and in the past.

Hassan Malik is an investment strategist and financial historian. He earned a PhD at Harvard University and was a postdoctoral fellow at the European University Institute in Florence and the Institute for Advanced Study in Toulouse. He lives and works in London.

 

 

Yuri Slezkine’s author tour in the UK

PUP Publicity Assistant Amy Stewart attended The House of Government author Yuri Slezkine’s event at the Blenheim Palace Festival of Literature, Film & Music in the UK. Read on to find out more about Slezkine’s talk and his other European events. 

SlezkineFor a book which is framed so significantly by the architecture of a vast Moscow apartment block, what better place for Yuri Slezkine to complete his time in the UK than inside Blenheim Palace for the Blenheim Palace Festival of Literature, Film, & Music just across the road from our European office in Woodstock? Slezkine spent an hour in conversation with BBC Media Correspondent Nick Higham about his extensive book The House of Government, which Higham praised as ‘quite a remarkable book’ and one of the longest he has read for a while.

Slezkine’s event at Blenheim focused on the nature of his research and the tension between academic nonfiction and fiction within his new book. Slezkine stressed that, although his book has a distinctive narrative that could be likened to fiction, the book is founded on the extensive research he has been conducting over the past twenty years. Slezkine allowed his audience an insight into his research by detailing some of his interviews with residents who had spent some of their childhood in the Moscow apartment block. Many of Slezkine’s sources arose from these interviews where he was given previously unseen photographs and letters from the residents’ years in the House of Government.

A final point of interest from Slezkine’s event at Blenheim Palace was his position as a historian: whether he judges Slezkinehis characters himself or simply lays them out for his reader to come to their own conclusions about real historical events. Slezkine swayed towards the latter which seems to further highlight this book’s uniqueness.

Prior to this event, Slezkine had a jam-packed week in the UK with sold-out events in London, Cheltenham, and Oxford. Starting with full events at the Kings Russia Institute and the LRB Bookshop, Slezkine also appeared at the Cheltenham Literary Festival then ventured over to Oxford for a packed event in Blackwell’s, followed by his event at Blenheim Palace which the whole office went over to see.

Overall, a very exciting week for the European Office!

A. James McAdams on Vanguard of the Revolution

Vanguard of the Revolution is a sweeping history of one of the most significant political institutions of the modern world. The communist party was a revolutionary idea long before its supporters came to power. A. James McAdams argues that the rise and fall of communism can be understood only by taking into account the origins and evolution of this compelling idea. He shows how the leaders of parties in countries as diverse as the Soviet Union, China, Germany, Yugoslavia, Cuba, and North Korea adapted the original ideas of revolutionaries like Karl Marx and Vladimir Lenin to profoundly different social and cultural settings. The first comprehensive political history of the communist party, Vanguard of the Revolution is essential reading for anyone seeking to understand world communism and the captivating idea that gave it life. Read on to learn more about the origins and evolution of the communist party in Russia.

What led you to write a book about the communist party?

My initial motivation was that I couldn’t find any systematic political histories of the party. I felt that scholars and other interested readers would benefit from a broad comparative study that accounted for both this institution’s tremendous staying-power over the past century and then its swift collapse by the early 1990s. The communist party was more than a fleeting political organization. It was the principal rival to the other, prevailing form of party rule in modern times—liberal democracy. During the past century, over a billion and a half people were ruled by communist parties, roughly 38 percent of the world’s population.

I was also motivated by a factor that was missing in my discipline. Political scientists have written an impressive number of books on party behavior in both developing and advanced democracies. But they have generally neglected the communist party. This may be due to the assumption that that all communist parties have adhered to a stereotyped definition of “Leninism,” i.e., an organization characterized by dictatorial practices, rigid hierarchies, and rampant brutality. Yet, as I show in my book, the communist party took multiple forms over its long history, just like liberal-democratic parties did in the West. Although all communist parties had certain features in common—especially the conviction that the progressive march of history was on their side—they also differed in significant ways. Just look at the variation in the former Soviet Union, China, and Cuba. This was not only true of dictatorships. There were notable differences among the communist parties that competed in national and local elections in the West, such as the French and Italian communist parties.

Communist parties also assumed different identities over time. Lenin’s Bolsheviks were vastly different from what the communist party became under Joseph Stalin. Likewise, Nikita Khrushchev’s and Leonid Brezhnev’s conceptions of party leadership were different as well. One of the most important things Mikhail Gorbachev did when he came to power was to attempt to transform the party according to a highly idealized vision of Leninist rule. Yet, his efforts to reform the idea of the party inadvertently resulted in the institution’s total loss of legitimacy.

What do you mean by referring to “the global idea” of the party in the subtitle of Vanguard of the Revolution?

I am a big believer in the role of ideas in driving human behavior. You can’t understand the communist party’s lasting appeal unless you recognize that the party was an idea before it took the form of a fully fleshed-out organization. When Karl Marx wrote the Communist Manifesto in 1848, he did not trouble himself with the issue of party organization. He was so convinced about the immediacy of the proletarian revolution that he assumed that the party would simply materialize as the prophetic voice of the working class. Over the following century, his ideas about the struggle between the oppressed and the oppressed and the inevitable victory of good over evil galvanized the emotions of revolutionaries in as disparate locations as Hungary, the United States, Poland, Yugoslavia, and China. Although the conditions these radicals faced were very different from those that Marx encountered in England and Germany, his and his successors’ ideas gave them the confidence that they, too, would be victorious.

Of course, I don’t mean to attribute the longevity of communist parties to ideas alone. As I emphasize in Vanguard of the Revolution, a political order based solely on the idea of constantly revolutionizing society would explode. At one point or another, all communist leaders recognized that their movements would not survive without effective organizations. Yet these parties would not have lasted if they had lacked the ideas to motivate their followers. It’s when you put ideas and organizations together that you get a viable institution, one that lasts a long time.

What is so exciting about the communist party is that it was a truly global institution. Long before the advent of the internet and social media, a combination of factors—advances in communications media, repeated military conflicts, and social upheaval—made it possible for communists and other sympathetic radicals to bring the idea of an international revolution to life. These revolutionaries were not only focused on their own countries, they drew upon a vast network of personal ties to spread the good word about communism around the world.

Why were so many party members willing to sacrifice their lives—or the lives of others, including comrades and family members—in defense of their cause?

This question haunts everyone who seeks to make sense of the history of world communism.  Certainly one motivating factor was fear. During Stalin’s Terror or Mao’s Great Proletarian Cultural Revolution, if you failed to denounce someone who was accused of being a “counterrevolutionary,” you would be accused of the same crime. Another factor was opportunism. For many party cadres, these times presented opportunities for moving up the social and political ladder.

But the factor I consider the most important—and disturbing—was the rigid psychology of many of the true-believers. As writers like Arthur Koestler, Wolfgang Leonhard, and George Orwell, have beautifully captured in their accounts, there was an intoxicating element of messianism in these movements. Party cadres were prepared to do normally unthinkable things to others because they truly believed that they were on the right side of history. As we know about all messianic movements, the more deeply such believers are immersed in their cause, the more they are inclined to engage in cognitive denial. In the face of all contradictory evidence, they can be convinced that people they have known their entire lives are spies, saboteurs, and “wreckers.”

Your book covers an extraordinary number of communist parties over long periods. How did you become interested in the study of communism?

Well, I began with East Germany. I was studying German at the Free University in West Berlin in 1973, and went to East Berlin on a regular basis. Crossing through the Berlin Wall was always an adventure. When I stepped into the Eastern side of the city, I couldn’t help but wonder what it was like to live under communism. As I passed people on the street, they would invariably look at my shoes and my jeans—both signs of capitalist affluence. Clearly, they were wondering what it was like to live in the West.

Once I had become familiar with one communist country, I couldn’t resist the temptation to visit all of them! Everywhere I went, whether to Cuba, Poland, or China, I found intriguing similarities and differences among their regimes. One of my goals in writing Vanguard of the Revolution was to account for some of these differences.

What is the most unusual communist country you’ve visited?

It would have to be North Korea, although strictly speaking, its government no longer has the formal attributes of a communist regime. When one sees pictures of North Korea, it looks like a very strange place. But when you get there, the country seems even more unfathomable. There are statues of the “eternal leader” Kim Il-sung everywhere, colorful mosaics of the “dear son,” Kim Jong-il, and endless monuments to heroic military battles. When I was there in 2006, I witnessed tens of thousands of parading students, jubilantly preparing for mass games to celebrate their leaders’ achievements. The word “bizarre” does not begin to capture the fervor you experience.

In building this anti-Disneyland, the North Korean government has been remarkably successful in blocking the flow of information into and out of the country. The first thing the police take from you when you arrive at Pyongyang International Airport is your cell phone. As a result of this enforced isolation, the country’s citizens have an almost childlike understanding of the outside world. They also know next to nothing about conditions in their own country. Our tour guide practically fell over from disbelief when I told her that Kim Jong-il had three sons. Now that one of those sons, Kim Jong-un, holds the reins of power, she undoubtedly reveres him as a divine presence who will safeguard her needs.

If you could go back in time, what aspect of the communist party’s history would you like to experience?

I would like to have been a “fly on the wall” during the early battles among Leftist radicals that led to the formation of communist parties, such as the founding congress of the International Workingmen’s Association (the so-called First International) in 1864 or the French socialists’ Congress of Tours in 1920. These were fantastically dramatic events. Both the passions and the animosities that they generated contributed substantially to the character of communist parties in subsequent decades. They also played a huge role in the terrible tragedies that were to come to the movement in later years.

Did writing Vanguard of the Revolution present any special challenges?

The biggest challenge was to get inside the heads of the people I was describing. Why were so many party members willing to sacrifice their lives—or the lives of others, their comrades-in-battle, and family members—in defense of their cause?

During my travels to Eastern Europe, the Soviet Union, and Asia, this was the first question I posed to long-time communists, people who had become disaffected with liberal democracy and capitalism at an early age and had experienced the tumult of war and other upheavals. Invariably, they convinced me that they were not opportunists; they sincerely believed that they were building a better world.

My challenge was to imagine what these and other communists were thinking and feeling as they lived their lives forward. To satisfy my curiosity, I not only familiarized with the relevant secondary literature.  I also read a lot of biographies, interviews, and even popular literature. These revolutionaries’ ideas directly reflected the cultures of which they were a part.

You call your study of the communist party a post-mortem. Why should we care today about the life and death of this particular institution?

If we interpret the party’s history in the right way, we can gain insight into the vitality of our own political system. The communist parties that ruled countries like the Soviet Union and East Germany didn’t come out of the blue. They were the product of the distinct political and social conditions of the twentieth century—war, economic collapse, and revolution. Strictly speaking, we will never again see this specific type of party. Even the few parties that are still labelled as communist, such as those in China, North Korea, Vietnam, and Cuba, long ago shed the features that identified them with the Leninist tradition. However, this does not mean that we won’t encounter other militant parties that are equally opposed to liberal democracy. It all depends on having sufficiently turbulent conditions that allow incipient rabble-rousers and demagogues to convince their followers that the prevailing order should be replaced. We see signs of the potential for such extremist movements in the rise of right-wing populism in Europe today. Vladimir Putin’s perversion of Russian democracy is a good example of this trend.  Alas, even parties in the US are not immune to this authoritarian temptation.

McAdamsA. James McAdams is the William M. Scholl Professor of International Affairs and director of the Nanovic Institute for European Studies at the University of Notre Dame. His many books include Judging the Past in Unified Germany and Germany Divided: From the Wall to Reunification (Princeton). He lives in South Bend, Indiana.

Yuri Slezkine on The House of Government

Slezkine The House of Government is unlike any other book about the Russian Revolution and the Soviet experiment. Yuri Slezkine’s gripping narrative tells the true story of the residents of an enormous Moscow apartment building where top Communist officials and their families lived before they were destroyed in Stalin’s purges. A vivid account of the personal and public lives of Bolshevik true believers, the book begins with their conversion to Communism and ends with their children’s loss of faith and the fall of the Soviet Union. The result is an unforgettable human saga of a building that, like the Soviet Union itself, became a haunted house, forever disturbed by the ghosts of the disappeared. Read on to learn more about the House, the book, and why the Bolsheviks can be considered a millenarian sect.

What gave you the idea to write this book?

YS: I grew up in Moscow, in a communal apartment (an apartment that contained several unrelated families, each occupying one room and sharing a kitchen, bathroom, and hallway). About twenty years ago, it occurred to me that it would be interesting to write a history of the Soviet Union through the history of one such apartment. Tracking down different families and their archives proved difficult, however, and I kept moving from one building to the next until I ended up in the largest and most famous of them all, the House of Government.

What was the House of Government?

YS: It was the apartment building where most top members of the Soviet Government lived in the 1930s. It was located in a low-lying area called “the Swamp,” across the Moskva River from the Kremlin. The largest residential building in Europe and a model of socialist domesticity, it combined 550 fully furnished family apartments with public spaces including a cafeteria, grocery store, walk-in clinic, child-care center, hairdresser’s salon, post office, telegraph, bank, gym, laundry, library, theater, movie theater, tennis court, and several dozen rooms for various activities (from billiards and target shooting to painting and orchestra rehearsals). It is still there today, next to Swamp Square and across the river from the Kremlin—still a house, but no longer “of government.” Most Muscovites know it as a huge, sinister gray building—the last address of the founders of the Soviet state and the subject of Yuri Trifonov’s wonderful novella, The House on the Embankment.

Is The House of Government a history of that building?

YS: It is a history of the building and of the men, women, and children who lived there. It begins with the Old Bolsheviks’ conversion to communism, culminates in their execution for treason, and ends with their children’s loss of faith and the fall of the Soviet Union. It is a history of the Russian Revolution through the story of the original revolutionaries and their families.

 In what sense is it a “saga?”

YS: It is an epic prose narrative with multiple heroic characters and, at the same time, a history of particular families over several generations. The reason an apartment building is a perfect subject for a book about the revolution is that all radical attempts to transform human life are ultimately assaults on the family (the oldest and most conservative of human institutions). Family apartments were places where Bolsheviks came home and the revolution came to die. Revolutions do not devour their children; revolutions, like all millenarian experiments, are devoured by the children of the revolutionaries. My book is about how and why that happened.

Why millenarian?

YS: Because, in my view, the Bolsheviks were a millenarian sect. They believed in Providence (which they called History), the fatal corruption of the world (which they called “the last stage of capitalism”), the approaching apocalypse (which they called Revolution) and the more or less immediate—”in this generation”—collective salvation leading to the Millennium (which they called Communism).

Their prophecy was analogous to those of Zoroastrianism, Christianity, Mormonism, Nazism, Rastafarianism, and the Branch Davidians, among many others, but the Bolsheviks were more successful than most because they took over Babylon while still expecting the disappearance of the old world in their lifetimes (Christianity did not become the empire’s official faith until the wait for the Last Days had become routinized). It is as if the Fifth Monarchists, the most radical of the nonconformist dissenters, had won the English Civil War and formed a Puritan International. Or as if Jim Jones had installed himself in the White House, renamed the United States the People’s Temple, and won the civil war he had done so much to bring about.

The Bolsheviks succeeded in casting out the moneychangers and collectivizing most worldly possessions, but they failed the test of disappointment. All end-of-the-world prophecies have so far proven false. Some millenarian sects have managed to cross the succession threshold, institutionalize themselves as churches with hereditary membership, and turn the revelation into an allegory and the promise of “till Kingdom come” into a synonym of “till the cows come home.” Others—the overwhelming majority—have disappeared, more or less violently, along with the first generation of believers.

The Bolsheviks’ failure was almost as spectacular as their success. They built a great empire but never figured out how to penetrate the home and reform the family. Their faith remained silent on the mysteries of birth, marriage, and death, and the Babylon they conquered proved more durable than they did. A hundred years after the fall of the Winter Palace, Russia is back, and the Bolsheviks are all gone.

Yuri Slezkine is the Jane K. Sather Professor of History at the University of California, Berkeley. His books includeThe Jewish Century (Princeton), which won the National Jewish Book Award. He is the author of The House of Government: A Saga of the Russian Revolution.

A peek inside The House of Government

The House of Government by Yuri Slezkine is unlike any other book about the Russian Revolution and the Soviet experiment. Written in the tradition of Tolstoy’s War and Peace, Grossman’s Life and Fate, and Solzhenitsyn’s The Gulag Archipelago, Slezkine’s gripping narrative tells the true story of the residents of an enormous Moscow apartment building where top Communist officials and their families lived before they were destroyed in Stalin’s purges. A vivid account of the personal and public lives of Bolshevik true believers, the book begins with their conversion to Communism and ends with their children’s loss of faith and the fall of the Soviet Union. Drawing on letters, diaries, and interviews, and featuring hundreds of rare photographs, The House of Government weaves together biography, literary criticism, architectural history, and fascinating new theories of revolutions, millennial prophecies, and reigns of terror. The result is an unforgettable human saga of a building that, like the Soviet Union itself, became a haunted house, forever disturbed by the ghosts of the disappeared. Take a peek at what’s in store.

 

 

Yuri Slezkine is the Jane K. Sather Professor of History at the University of California, Berkeley. His books include The Jewish Century, which won the National Jewish Book Award.