Time for the story to continue.
Chapter XI: Post-War Depression, 1985-1986.
In the aftermath of the war, the global economy was hit by the worst depression in recorded history. The disappearance of two of the three largest economies – the United States and the Soviet Union – and of the world’s leading currency, the US dollar, had a devastating impact. Japan, the second largest economy in the world prior to the war, was in survival mode with large scale nationalizations to prevent entire industries from collapsing while food had to be strictly rationed. Countries relying on exports to the former markets of the US, Europe and the USSR were hard hit as they were stuck with surpluses that were nearly unsellable as remaining Latin American, African and Asian countries had little interest. Other countries depended on imports from said economies and faced scarcity in all kinds of sectors, which threatened to collapse. Engaging in debt spending was virtually impossible as there weren’t a whole lot of creditors left to borrow money from (the only upside was that many countries saw their debts evaporate as their creditors no longer existed).
The economic shock of the 1980s Global Depression was unprecedented. The worldwide global domestic product (GDP) fell by 35%. Devastating effects were seen in both rich and poor countries with falling personal income, prices, tax revenues, and profits. International trade fell by more than 75%, unemployment in a number of countries rose as high as 40% and the level of upheaval that that caused was immense, requiring authoritarian steps to maintain order. Cities around the world were hit hard, especially those dependent on any kind of industry aimed at export toward the former Western and Eastern Blocs. Construction was virtually halted in many countries. Farming communities and rural areas suffered because of crop failures or because crops and livestock had to be destroyed because of fallout. Faced with plummeting demand and few job alternatives, all sectors of the economy endured hardship and a number disappeared or transformed.
The economic crisis led to the quick death of neoliberalism, as introduced by Reagan and Thatcher at the beginning of the decade, because stringent government direction of and control over the economy was required to prevent total collapse. In most countries, military and police were made responsible for food distribution to the hundreds of millions of people bereft of essentials like water, food, a roof over their heads and a salary. Healthcare was nationalized in many countries to make sure at least basic medicine remained available. Beyond that, entire industries were nationalized and restructured to meet the needs of the post-war economy. In a number of countries, employees of these state-owned enterprises were paid in food ration cards while the issue of “rent” was taken care of by the nationalization of large amounts of privately owned tenements, turning them into public housing. Energy had to be conserved, so quite a number of countries introduced “rolling blackouts” to reduce the use of oil, natural gas and coal. Oil was expensive anyway as the USSR, one of the largest oil exporters before the war, now no longer exported anything. Many countries had to ration oil for private car owners. Needless to say, it was challenging for democracies to survive, especially in countries without a long established democratic tradition.
In June 1986, a summit took place in the Australian city of Sydney. It was attended by the leaders of the ten largest surviving economies, the so-called G10: Australia, Brazil, China, India, Israel, New Zealand, South Africa, Sweden, Switzerland and Yugoslavia. Yugoslavia had suffered from fallout and food shortages, but the Yugoslav military had maintained order and had fiercely guarded the border against refugees. Defending Yugoslavia against the big bad outside world had actually helped forge some sense of unity among the Slovenes, Croats, Bosnians, Serbs, Montenegrins, Macedonians and Kosovars. It was the same for Switzerland, which had mobilized its army and had built a network of walls and fences to keep people out. Like other surviving European countries, they too had to ration food and medicine (though the mountains luckily shielded them from most of the fallout). Sweden by contrast cooperated with Finland and the Baltic states, trying to offer what little help they could to Norway and Denmark. These countries were the guardians of European civilization and technology.
Australia was chosen because law and order there were still firmly being upheld by largely undamaged military and police forces, enforcing martial law and controlling a “siege economy”. These servicemen enforced curfews wherever order was at risk and quarantined communities if plague or smallpox outbreaks were detected, sometimes going so far as to issue “stay at home” orders. Such “stay at home” orders in “quarantined communities” meant people were only allowed to leave their homes for work, groceries and to walk their dogs whilst barring them from receiving visitors other than first degree relatives and romantic partners not living under the same roof. In these areas a general midnight to six o’clock in the morning curfew was enforced. Australia kept out the epidemics that had such a devastating effect in Eurasia and much of sub-Saharan Africa this way. People proved compliant as they’d been warned of the harmful UV rays resulting from the depletion of the ozone layer and of the dangers of the ongoing epidemics. Horrific images came into Australian living rooms through TV and nobody wanted it to happen here.
Another feature that made Australia so safe was that, other than Adelaide, none of its major cities had been hit because the Soviets had seen Oceania as a low-priority region for nuclear targets. Some intelligence and joint defence installations had been hit by bombs in the lower hundreds of kilotons range, but that didn’t affect any of the main Australian cities such as Canberra, Melbourne, Sydney and Perth significantly. Additionally, Australia defended its coasts fiercely, enforcing an admittedly xenophobic policy on refugees. Australia, and neighbouring New Zealand, were republics by now as they had quit the Commonwealth.
The G10 Sydney Summit would prove to be the beginning of the emergence of the new early 1990s global economic equilibrium. The major hurdle to economic recovery was that debt spending was extremely difficult as the money that could be borrowed from banks and private actors, great or small, in the southern hemisphere wasn’t going to cut it by a long shot. Based on the controversial doctrine of Modern Monetary Theory these ten countries dictated a transition from a debt economy to a money printing economy (which would’ve resulted in hyperinflation under normal circumstances).
Modern Monetary Theory argues, in short, that a government can finance any budget deficit by de facto monetization and hence have no monetary limits. In the event of a genuine national emergency like nuclear war, the government spends first, the central bank assists, and the mess is sorted out when the emergency is over. The issue of inflation was dealt with through raised interests and higher taxes to reduce the private sector’s ability to spend money. These ten countries had a reduced but still sufficient economic base consisting of enough natural resources, a more than sufficient industrial base and plenty of human capital to internationally enforce their newly minted currencies (and of course military and diplomatic power) in exchange for the goods and services, machinery and talent that was required for development. The G10 agreed to proceed on this course despite the fact that this pissed off many Third World countries who had to accept this devalued money and denounced this practice as “economic imperialism”. It worked though: after almost a decade of depression, the global economy finally stabilized around 1992.
While some countries sought to mitigate the crisis, others sought to benefit from it and Iraq was one of those. Up until 1983, Iraq had been embroiled in the ongoing Iran-Iraq War, which had begun with an opportunistic invasion ordered by Saddam Hussein in the hopes of benefiting from any instability resulting from the Iranian Revolution. The goal was to annex the oil rich and majority Arab province of Khuzestan. This war, however, had initially proven a miscalculation by Saddam because the Iranian people rallied around the flag, organizing such stiff military resistance that that the Iraqis had gotten bogged down and feared they might even be defeated.
After WW III had come and gone, the Iran-Iraq War took a different direction as Iran was flooded by millions of refugees from the former Caucasian and Central Asian Republics of the Soviet Union (they couldn’t go to Afghanistan as the provisional government under Ahmad Shah Massoud, formed after the Soviet Army had left, had nothing to help them with). Fighting the war and seeing to the humanitarian needs of these refugees was practically impossible and there were too many to just force them back, which would’ve required pulling forces from the frontlines that the army couldn’t spare. Moreover, outbreaks of plague erupted in cities in northern Iran as the illness came in with the refugees. Long story short, Iran saw itself forced to end the war with a negotiated peace that saw Iraq annex Khuzestan in 1985.
Rather than being content, Saddam had become much more ambitious and already had a new war in mind. He now intended to benefit from the complete collapse of Soviet oil exports and the resulting high demand by cornering Middle Eastern oil production. He used the failure of negotiations to have Iraqi debts forgiven by Kuwait and Saudi Arabia as a pretext, accusing both countries of betraying their “Arab brethren” who had fought for them to prevent an Iranian hegemony over the Middle East. Over the course of 1986, relations soured as Saddam declared the ambassadors of both countries persona non grata.
In the summer of 1986, rhetoric got even more bellicose when Iraqi Foreign Minister Tariq Aziz issued a statement that Kuwait was historically part of Iraq. The flimsy argumentation was that Kuwait had been part of the Ottoman Basra Vilayet, which had become part of Iraq upon the Ottoman Empire’s disintegration following the First World War. They even pointed out that during the 1930s a popular movement had existed that favoured the reunification of both countries, but of course neglected to mention that fifty years later Kuwaitis had a different opinion of their aggressive, militaristic northern neighbour. Iraq, however, continued to claim Kuwait was nothing but an imperialist British creation. Besides that the issue of Iraqi debts to Kuwait relating to the Iran-Iraq War remained and Iraq now began accusing Kuwait of stealing oil by allegedly slant drilling into the Rumaila Oil Field.
