The Bear’s Lair: The case for isolationism

Saudi Arabia and Iran lurched into a dangerous situation last week, with Saudi Arabia executing a Shia cleric and Iranian militants the attacking the Saudi embassy, which has now been closed. The United States is inevitably involved, with troops in Syria, Iraq and Afghanistan. Yet it’s difficult to see what vital U.S. interests are at stake, now that fracking has made the country more or less independent of the Middle East as a source of energy. Isolationism is used as a term of abuse in U.S. politics, but may well represent the best way of protecting U.S. interests in a difficult world.

The term “isolationism” got a bad reputation in U.S. politics in 1939-41, when those fearing another world war failed to take a stand against the threats of Nazi Germany and Imperial Japan. Once war came, the isolationists’ reputation was destroyed, as was that of the British “appeasers” who had similarly attempted to keep the country out of the coming inferno in 1936-39. Yet the stance of both isolationists and appeasers was at least arguable, and the mess of the late 1930s was a unique one, caused by huge policy errors in previous decades.

The century of Pax Britannica showed examples in both directions on the question of isolationism. At one extreme, Robert, Lord Salisbury, late in the century, coined the term “splendid isolation” and used it to describe a policy in which Britain had no strong attachments on the Continent of Europe, and acted purely defensively to defend its gigantic empire. Since the country also pursued a policy of unilateral free trade, its isolationism was at the same time internationalist; there were no tariff or other barriers cutting off Imperial markets from foreign competition, or favoring British goods.

Britain’s abandonment of Salisbury’s isolation proved fatal. Kaiser Wilhelm II of Germany, quite strongly pro-British but an unstable personality, feared above all else the encirclement of Germany by her enemies. The 1907 Triple Entente, by which Britain aligned with France and Russia and held secret (from the British Cabinet, but not from the Kaiser, whose spies were typically efficient) military conversations on how to resist a German attack on France, convinced the Kaiser and the belligerent German military brass that encirclement was happening and that Germany should act before Russian strength was built up. Hence the disaster of 1914.

At the other extreme, Henry, Lord Palmerston in 1850 propounded the principle of “Civis Romanus sum” by which “As the Roman, in days of old, held himself free from indignity, when he could say “Civis Romanus sum,” so also a British subject, in whatever land he may be, shall feel confident that the watchful eye and the strong arm of England will protect him from injustice and wrong.” In practice, the manic interventionism to which this policy would have led was rejected by the House of Lords at the time and was scaled back by Palmerston himself in 1863-64, when he failed to protect Denmark’s Schleswig-Holstein against the advances of the powerful Prussia.

The originators of the two streams of British 19th Century foreign policy were Robert, Lord Castlereagh and George Canning, in the years after 1815. Castlereagh sought to preserve good relations with the major powers and to intervene only on a multilateral basis, when the good order of Europe was threatened, and then only to prop up existing regimes (under the principles of the 1820 Troppau Protocol.) Canning went to the other extreme; he dissolved Castlereagh’s relations with the major “autocratic” powers of Europe and meddled in liberation movements in South America and Greece, seeking to impose British ideas of free institutions on polities that lacked the preconditions for them.

Turning from this discussion of the 19th century to the problems of the 21st, it is immediately clear that the United States is not currently in anything like as strong an economic, political or moral position as was Palmerston’s Britain for a few short years around 1850. In the 1990s, when the U.S. economy was at its peak of innovation and success, it enjoyed the same global position as did Britain’s economy in the peak years of the Industrial Revolution around 1850, when its industrial output, built up by innovation and successful policies in the years since 1815, was many times that of its competitors. Morally also, the U.S. in the 1990s like Britain in 1850 enjoyed the prestige of victory in a global war (albeit a “cold” one). Further, as with Britain in 1850 it appeared that rival powers were both generally friendly and much more limited than itself in geopolitical potential.

Today, the U.S. economic, political and military position is much closer to the declining and threatened global position that Britain occupied in the 1890s under Salisbury. Industrial supremacy, so effortless in the U.S. in 1999 and in Britain in 1850, has been threatened by poor subsequent policies (unilateral free trade in Victorian Britain, over-regulation and both monetary and fiscal folly in today’s U.S.) New economic and geopolitical rivals have sprung up or turned more hostile: Germany, Russia and the United States for 1890s Britain; China, Russia, India and ISIS for today’s U.S.

Just as Palmerston himself discovered after 1860 that unlimited interventionism was too expensive and indeed reckless a strategy for the no longer invincible Britain to follow, so today the United States is reassessing its foreign policy in the light of new threats and diminished power. It is no longer possible to follow the “Civis Romanus Sum” approach, in which like George Canning’s Britain and George W. Bush’s U.S., the country plunged into difficult situations worldwide under the naïve belief that insults to British/U.S. interests should always be avenged, while British or U.S. values and political structures could easily be imposed on different cultures.

Instead an approach like Salisbury’s is much more appropriate. Under this approach, the U.S. would remain in isolation, splendid or otherwise, avoiding as far as possible all military entanglements and with no permanent friends and no permanent enemies, preserving its moderate strength and economic power while other countries perhaps dissipate theirs in fruitless adventures. The difficulty in Salisbury’s isolation is that it was not permanent and it gave Britain a false sense of security while the country persisted with unilateral free trade and its power, economic and otherwise, steadily diminished even as events like the Diamond Jubilee regatta proclaimed its supremacy to the world. Eventually, when Britain was faced with its first real military test in the Boer War, its decline became evident to its competitors. British policymakers’ chosen solution to this problem, the Triple Entente, was disastrous, but after the Boer War even if Salisbury had lived Britain would have been very vulnerable to an attack by a combination of its competitors.

For Britain, the correct policy after Salisbury came to power in 1885 would have been that proposed by Joseph Chamberlain in 1903 and finally implemented by his son Neville in 1932: one of Imperial Preference, in which a modest common tariff among Britain’s Empire and Dominions would have provided a modest blockade against tariff-protected foreign imports and a large enough market for British heavy industry to achieve economies of scale to achieve optimal economies of scale. By such a means, Britain’s relative industrial decline could have been reversed and its strength preserved for the challenges of the 20th Century.

Similarly for the United States today a policy of isolation must thus be combined with a rectification of the economic mistakes that have caused U.S. economic power to diminish so sadly since the 1990s. The jungle of over-regulation, which has reduced U.S. productivity growth from 2.8% per annum in 1948-73 to 0.6% in 2011-15, must be slashed back with the most draconian of machetes, or preferably torched. The fiscal deficits must be eliminated; they have caused U.S. public debt to soar and its financial position to become vulnerable to any rise in interest rates. Immigration, both legal and illegal, must be reduced to a level which the economy can easily absorb, and skewed towards the higher-skill labor that adds value to the economy. Above all, the insane policy of negative real interest rates must be reversed, so that U.S. savings can once again recover, the country’s elderly have a sufficiency to retire on, its young people be weaned off state welfare and loan schemes, and its small businesses capitalized as they should be with accumulated private savings.

Salisbury recognized in 1885 that Britain’s relative power had diminished sufficiently so that, while the country’s military strength should be rebuilt after the depredations of Gladstonian economy, it could no longer afford to intervene, whether to promote British values or otherwise. Had he possessed the political power to rebuild Britain’s economic strength at the same time (he was dependent on the free-trading votes of the Liberal Unionists), his successors might not have felt forced to enter into fatally entangling alliances with other powers.

Similarly, a wise U.S. administration will disentangle itself from the Middle East (in which the energy self-sufficient U.S. has no vital interests) and will rectify its economic errors to rebuild its power. Otherwise, within the next decade or so it will find itself so economically and militarily enfeebled that it will feel forced to enter into an entangling alliance – at which point a new and even more devastating 1914 will most likely be only a few years away.

Isolation may not be splendid, but it is sometimes necessary. The U.S. no longer has the strength to pursue an interventionist policy effectively, and should learn from its own 21st Century follies and Britain’s 19th Century mistakes that intervention’s costs normally far exceed any possible benefits.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)