Oil, Finance, and the End of the Cold War A

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Oil, Finance, and the End of the Cold War A The Triumph of Broken Promises: Oil, Finance, and the End of the Cold War A Dissertation Presented to the Faculty of the Graduate School of Cornell University in Partial Fulfillment of the Requirements for the Degree of Doctorate of Philosophy by Michael Frederic Bartel August 2017 © 2017 Michael Frederic Bartel 2 Abstract The Triumph of Broken Promises: Oil, Finance, and the End of the Cold War Michael Frederic Bartel, Ph.D. August 2017 This dissertation puts forth a new interpretation of the collapse of communism and the end of the Cold War by examining the energy and financial markets that developed in the wake of the 1973-74 oil crisis. Drawing on newly released archival documents from both public and private archives throughout Europe and North America, it places the history of communist and capitalist states in the 1970s and 1980s in comparative perspective. The intertwined histories of oil, sovereign debt, and austerity touched every society on both sides of the Iron Curtain after the oil crisis. Energy and financial markets forced governments to impose economic and social restraint on their own societies, so the survival of political regimes and governing ideologies in both East and West came to depend on governments’ ability to impose discipline. Governments that could successfully impose discipline without inviting a destabilizing social backlash survived; those that could not, collapsed. Thus, this dissertation proposes that the end of the Cold War was fundamentally different from its beginning. The competition between democratic capitalist states and state socialist regimes began as a race to expand the social contracts that prevailed in their societies, but it ended as a competition to discipline their respective social contracts. The Cold War, in other words, began as a race to make promises, but it ended as a race to break promises. Explaining the peaceful and abrupt end of the Cold War has long been a significant challenge for historians. Some have focused their explanations on the unique role played by 3 Soviet General Secretary Mikhail Gorbachev and, to a lesser extent, U.S. President Ronald Reagan. Others have focused on the role of civil society and non-violent protest in spurring the revolutions of 1989. In contrast, this dissertation contends that the peaceful end of the Cold War was primarily the product of socialist states’ desire to gain political legitimacy through democratic elections in order to implement economic and social discipline. Through detailed case studies of the collapse of the communist regimes in the Soviet Union, Poland, Hungary, and East Germany, this work demonstrates that the pressure to implement austerity in communist states significantly explains why communism collapsed and the Cold War ended peacefully. 4 Biographical Sketch Michael Frederic “Fritz” Bartel was born and raised in Milwaukee, Wisconsin. He attended the University of Toronto, and graduated in 2010 with a Honours Bachelor of Arts Degree with High Distinction in History and International Relations. He enrolled in Cornell University as a graduate student in the History Department in 2011, and he defended his dissertation in May 2017. He will graduate with a Doctorate of Philosophy from Cornell in August 2017. 5 Table of Contents Biographical Sketch 5 Acknowledgements 7 Introduction: Making and Breaking Promises 11 Chapter 1: Years of Reckoning and Illusion: The Oil Crisis in East and West 50 Chapter 2: Oil, Interest Rates, and the Search for Politics to Support Austerity 98 Chapter 3: Fugitive Leverage: Sovereign Debt and the Polish Crisis 148 Chapter 4: Inverting Foreign Aid: The Reagan Financial Buildup 179 Chapter 5: Bystanders to Revolution: The Collapse of the Soviet Empire 198 Chapter 6: The Economic History of a Political Revolution: The Polish Roundtable 272 Chapter 7: The Coercion of Creditworthiness: Hungary’s Road to Democracy 333 Chapter 8: In the Shadow of Austerity: The Collapse of East Germany 395 Conclusion: The Triumph of Breaking Promises 466 Bibliography 477 6 Acknowledgements Over the course of writing this dissertation, I have accrued as many debts as the governments I have studied. Much as they did, I have told myself (and those to whom I became indebted) that I was putting the borrowed time, money, or expertise toward enlightened ends. Unlike the subjects of my study, I hope that I have actually done so, and my creditors can see in the document that follows a handsome return on their investment. I could not have asked for a better group of teachers and scholars to form my dissertation committee. Each member added unique and important insights to my own thinking as it rapidly evolved over the course of the project. I have viewed Fred Logevall as an exemplary scholar and writer since I was an undergraduate, and to have him as my doctoral advisor was the height of good fortune. Where other advisors surely would have resisted my attempts to roam expansively (and often confusedly) over diverse subjects, geographies, and time periods in search of this dissertation, he welcomed it. I thank him for his confidence in me and his expert guidance of the project. Holly Case has a uniquely powerful and creative mind, and I was privileged to learn from her on countless occasions over the course of this project. Holly was always generous with her time, insightful in her commentary, and keen to push the boundaries of my thinking in new and fascinating ways. This dissertation is certainly bigger in scope and more in interesting in content because of her manifold contributions to it. For much of my time working on this project, I felt (as many other scholars have) that I was merely catching up on things Peter Katzenstein had long since learned. It quickly became clear to me that such a position was an excellent one for a young scholar to be in. Whatever precision and insight the argument of this 7 dissertation holds, much of it is a product of Peter’s consistent request (no, demand) that I be more clear about what, exactly, I was trying to say among the crowded field of scholars who had come before me. Finally, Louis Hyman enthusiastically welcomed me into the History of Capitalism community, and connected me early and often with key resources in financial history. Though this dissertation does not meet Louis’s pioneering vision of writing “history from the bottom up, all the way to the top,” it is much better for having been subjected to his unique critique. Numerous organizations provided financial support to make the research required for this project possible. The Marion and Frank Long Fellowship from Cornell University’s Reppy Institute for Peace and Conflict Studies supported a year of research in Washington, D.C., during which I stumbled upon the documents in the International Monetary Fund’s archive that set this project in motion. The German Academic Exchange Service (DAAD) supported a very pleasant and productive year of research in Germany, where I found the East German archival records that form the basis of this dissertation’s commentary on the Eastern Bloc. My host professor at the Goethe-Universität Frankfurt am Main, Werner Plumpe, enthusiastically supported this project and introduced me to an important community of German scholars from whom I have learned a great deal. The National Fellowship at the University of Virginia’s Miller Center supported the final year of research and writing that brought this dissertation to completion. Daniel Sargent, my “dream mentor” during that wonderful program, not only inspired this project through his own research on the history of international economics and politics in the 1970s, but also provided expert commentary on the entire dissertation once it was completed. Lastly, there has always been my family. My mom and dad, Ellen and Mike Bartel, have supported me through thick and thin, and there was plenty of both on the long road through 8 graduate school. Their love sustained me during these years, as it has during all the years of my life. My dad deserves special gratitude for editing every word of every chapter in this dissertation before it was submitted. Over a lifetime of friendship, my brother, Mitch, has influenced me in ways that go far beyond this dissertation, but he supported and influenced this effort too. Most important, however, has been my wife, Amanda. If, for some very strange reason, a future historian wanted to write a history of this history – the story of how this dissertation was written – he or she would not have to search very hard to find the thesis: Fritz met Amanda, and everything else – from the first vague inklings of what this project could be to the last lines of this dissertation’s conclusion - started falling into place. Through her love, commitment, editing, and contributions to endless hours of discussion about Cold War politics and economics, Amanda added more to this project than I can ever fully know or say. Lucky for me, this stage of this project has come to an end, but our lives together are only just beginning. 9 “Individuals can be expected to restrain the exercise of their individual power in the interest of protecting the fabric of their society if, but only if, they believe the society as a whole to be a just one.” - Fred Hirsch1 1 Fred Hirsch, The Social Limits of Growth ((Cambridge, MA, 1976), p. 152. 10 Introduction: Making and Breaking Promises As Christmas came to Eastern Europe in 1989, those who had long lived under the yoke of communism had many reasons to celebrate. In quick and unexpected succession, the authoritarian governments that had ruled over the region since shortly after the Second World War had peacefully collapsed. Dignified citizens who had resisted communism’s countless injustices had begun to take their place in the governing chambers of Warsaw, Budapest, and Prague.
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