Recently, the Centre for Business History hosted a seminar within the European UPIER project. Our research director Anders Houltz met with UPIER's project manager, Professor Catherine Schenk from the University of Oxford, for a conversation.
Most of Swedish banking history is found in the archives at the Centre for Business History in Bromma. We were therefore very glad to host a seminar within the framework of the three-year EU-funded research project UPIER, Uses of the Past in International Economic Relations on September 27 and 28, 2018.
I took the opportunity to ask UPIER's project manager Catherine Schenk, who is a professor of economic and social history at St. Hilda’s College at the University of Oxford, about the origin of the project and how far she thinks the project has come so far.
Why a project about how the past can be used in international economics?
The inspiration actually came from what happened during the global financial crisis about a decade ago, when world leaders really studied previous economic crises to better understand how to respond to the current crisis. The chairman of the US central bank, the Federal Reserve Bank, for example, was Ben Bernanke, who is an economic historian focused on the 1930s. I believe his knowledge of the past played an important role in how he and other central bank governors chose to work with, for example, monetary expansion. They didn't want to repeat the mistakes of the Great Depression of the 1930s, mistakes the Federal Reserve had so often been blamed for.
What mistakes?
There is a well-known book by Friedman and Schwartz called A Monetary History of the United States, 1867–1960. It argues that it was the decision by the US central bank not to allow the money supply to increase when the bank crash occurred in 1929 that led the banking crisis to become "The Great Depression" in the US and then also a global crisis. The central bank being so restrictive made the crisis much worse than it otherwise needed to be. So one of the first reactions when Lehman's collapsed, and we faced a global liquidity crisis, was to increase the money supply. That strategy continued until just a few years ago, and it is only now that the US Federal Reserve has completely abandoned it.
So that gave you the idea to study if this was a general phenomenon?
I think so. It made me start looking for other examples where politicians, banks, financial institutions, and other market players used the past — not a specific historical event but rather their view of the past — to handle today's situations when they don't have much information to go on. They have to look back in order to see forward.
UPIER is really an international project. I can see many advantages, but are there disadvantages?
It is a bit complicated. We have our research hubs in Glasgow and Oxford in the UK, in Uppsala, Madrid, and Geneva. Then we also have the researchers' nationalities and their extensive research experiences, with examples from the USA, Mexico, Canada, France, Germany, and many more countries. But I think that ultimately only enriches the project. We look at international markets, so it is complex and it must be that way. I have been overwhelmed by the research group's ability to unite around a theme and connect their own research findings to it in ways that are truly creative.
You are now entering the last year of this three-year project. Have you already identified any general problems in how international actors relate to the past?
We have found situations where they were very selective about which past examples they wanted to use, only using those examples that supported arguments today for specific measures they wanted to take. We also found situations where they had not used examples they probably could or should have used. So we will highlight both what we see as positive use of history and what we see as negative. It has been quite interesting to see the difference, I must say.
On the project's website, you ask "why are investors' memories so short?"
Yes, really, why? Again, the idea for the project comes from what happened during the global financial crisis. Before the crisis hit, everyone thought, "no, there will never be another crisis" and "this time it's different." As historians, we know history does not repeat itself, but there are resonances and rhythms around what happens. And we see that, especially in the government bond market, borrowers often let their loans default without ever repaying them. They "default" on their loans but still get new loans quite soon thereafter. We were interested in why investors and banks seem to have quite short memories when it comes to this. What incentives make them still lend money to countries that repeatedly default on their payments?
What have you found?
It becomes very clear that changes in market structure create incentives to forget. I think this is a very important insight: that changes and innovations in the market made the banks feel they were shedding risk and that it was not as risky as last time because this time they did things differently. That was exactly what happened at the beginning of the global financial crisis in 2007-08: "We have so many new types of securities that we can 'hedge' our risk. It's simply not risky now." They were wrong, but I think this relationship between financial innovation, changes in structures, and the ability to forget is important. Lenders try to get high returns, but the returns are short-term while the risks are long-term. It is that balance that creates a tension.
Can it sometimes be good to forget the past?
You should always be able to let the past inspire you, because it's not all bad news, what happened before! I work a lot with international policymakers, and as a historian, I think it is important not to be trapped by the past, but to look at history primarily to get a clear understanding of how relations have looked, to understand the foundation of what happened earlier. If you can do that, you can then say yes, conditions have changed and therefore I choose this direction, or you can say that even though some things have changed, we recognize aspects and processes in what is happening now. I think there are many ways that decision-makers and market players can use the past without becoming completely trapped by it.
Are these actors curious about what the UPIER project will conclude?
They are. I have really been struck by how interested not only academics are, but also organizations like the International Monetary Fund or the Bank for International Settlements (BIS). I think the challenges in the international monetary system and international finance, especially during the period 2010-2015, were quite similar to the challenges and debates about regulating the global market that we had in the 1960s and 1970s. So when they today come up with certain proposals and learn that similar things were proposed earlier, they naturally want to hear why those proposals did not work so well at that time. It's fun as a historian, for a while, to be lifted out of your academic world and use what we know to give decision-makers better data and background for the contexts in which they make their decisions.
Are they trying to get you to predict the future in such contexts as well?
Always, always. And it is difficult for historians to do, of course. We are not seers. But neither are the political decision-makers. When you use academic research, you must be careful about what you say. People want short, sharp, clear answers—which academics are not so good at, because the world is a complicated place. So it is a kind of translation process that must take place. But I think it's important for historians to work with people making decisions now, whether in business, society, or government. Historians have a task, even if it can be uncomfortable, to convey a more complex picture of history to decision-makers. Those who make decisions must hear the whole story.
