Aaron L. Friedberg
The Changing Relationship between Economics and National Security
Political Science Quarterly,
Volume 106, Issue 2 (Summer, 1991), 265-276.
The first cluster of concerns has to do with the impact of war - broadly defined in the Hobbesian sense to include both actual fighting and preparations for it - on national economic performance. Since the end of the World War II it is the second part of this problem that has most concerned the two superpowers, locked as they were in an armaments competition of unprecedented scope and seemingly limitless duration. Over the last forty-five years the United States and the Soviet Union have built and discarded generation after generation of new weapons, but
AARON L. FRIEDBERG is assistant professor of politics
and international affairs at
thanks largely to the very destructiveness of those devices, they have never gone to war with one another.
Prior to 1945 the
The correlation between the defense build-up that began
in the late 1970s and peaked in the mid-1980s and the apparent collapse in
American international economic competitiveness that accompanied it caused some
to conclude that these two developments were directly linked. As the decade wore on and the trade and
federal budget deficits grew, there was increasing concern that the
Just how bad, on balance, cold war defense spending was
for the American economy is still open to debate. It is likely, however, that those who
have emphasized military burdens as the prime cause of
If any country became overextended in the course of the cold war, it was not the United States but the Soviet Union, which may actually have been directing over one quarter of its GNP to defense, far more than was generally assumed to be the case and as much as four times more than the burden being borne by the United States. This fact may have escaped the attention of most Western analysts, but it had a powerful impact both on Soviet reality and on the perceptions of a new generation of Soviet leaders. 4
Determining exactly how and to what extent the exertions of their military
1. See, for example, Lester Thurow, “How to Wreck the
Economy,” The New York Review of Books,
2. See David Calleo, Beyond American Hegemony (New York: Basic Books, 1987); also Paul Kennedy, The Rise and Fall of the Great Powers (New York: Random House, 1987). For an elaboration of this argument see Aaron L. Friedberg, “The Political Economy of American Strategy,” World Politics 41 (April 1989): 381—406.
3. See the essays in Henry Rowen and Charles Wolf, eds., The Impoverished Superpower (San Francisco: Institute for Contemporary Studies, 1989).
competition contributed to the respective economic problems of the two superpowers is an important historical question. Nevertheless, in its more immediate and practical form, the overextension debate has now been overtaken by events. With the collapse of Soviet power the question for both sides is no longer, “What are the effects of continued high levels of defense spending?” Rather, “what will be the impact of real and deep defense cuts on long-term economic performance?”
Both superpowers now face the challenge, which is as
much political as it is economic, of redirecting resources freed from defense
into uses that will strengthen productivity and stimulate growth. For the Soviets, who struggle to convert
a heavily militarized, centrally planned economy into a smoothly functioning,
civilian-oriented market system, this is quite literally a matter of life and
death. For the
The answer to this question will depend on where the resources freed by defense cuts go. That, in turn, will depend partly on certain political decisions. 5 Reductions in defense spending could lead to smaller budget deficits, lower interest rates, and increased private investment. But given the politics of the budget process, such savings could also be applied to other uses, such as expanding nondefense government programs. Some of these, like spending for education and infrastructure improvements, could enhance productivity. But others, like more entitlement benefits for the middle and upper classes, would not contribute as much to the nation’s long-term economic well-being.6
Cuts in military spending - including reductions in defense-related research and development (R&D) - could reduce overall demand for skilled scientists and engineers, thereby holding down their wages and making it easier for civilian industry to employ them in conducting commercial R&D. 7 But there may be a variety of reasons why corporations have not been investing more in R&D. Some of them having nothing directly to do with the cost of skilled labor. 8 Merely
5. For a fuller discussion, see Aaron L. Friedberg, “In Search of the Peace Dividend,” The Wilson Quarterly 14 (Autumn 1990): 78-9.
6. Many early, optimistic estimates of the
macroeconomic impact of defense cuts simply assumed that all such reductions
would be applied to lowering the budget deficit. See “The High Cost of Olive Branches,”
7. See, for example, the discussion in Seymour Melman, The Permanent War Economy: American Capitalism in Decline (New York: Simon and Schuster, 1974).
8. Thus, for example, a recent survey by the National Science Foundation found that corporate spending on R&D had not risen very much during the latter half of the 1980s in part because the large [numbers of firms involved in mergers or acquisitions during that period tended to reduce their research budgets. See “Slow R&D Spending Growth Continues into 1990s,” Science Resources Studies Highlights, National Science Foundation Newsletter 90—307 (March 1990). For further discussion of the impact of mergers and acquisitions on corporate R&D, see Office of Technology Assessment, Making Things Better: Competing in Manufacturing, OTA-ITE-443 (Washington, DC: U.S. Government Printing Office [GPOJ, February 1990), 46-7.] HHC: [bracketed] displayed on p. 268 of original.
cutting back on defense research may not have a very large effect. Other government policies (like changes in the tax laws) could be needed to stimulate commercial R&D. Unless other forms of research activity increase, reductions in defense R&D could lead in the short run to an underemployment of the nation’s human resources and, in the long term, to a smaller pool of highly skilled scientists and engineers.
It is sometimes claimed that if the government had spent less over the years on defense-related R&D, it might have been able to spend more federal money on research with direct commercial applications. 9 The end of the cold war, in this view, provides a unique opportunity for government to shift its priorities and to do more to bolster national competitiveness in a variety of civilian sectors. Whatever the merits of the case may be, this argument overlooks a crucial political fact: throughout the postwar period direct government support for developing civilian technology has been scarce, not because of resources, but because of ideology. As one French observer has explained it, in the United States there has been widespread agreement that, while the federal authorities had a part to play in supporting basic scientific research and funding work of immediate military importance, it was “not the government’s role to become involved with commercial technological development, which [was] a matter for private firms.” 10
Consensus on this issue has now begun to break down, and the question of the state’s proper role in promoting technical development has become an increasingly contentious political issue. For the moment, however, there is little prospect of a substantial shift toward government spending on commercial research, no matter what happens to the size of the defense budget.
The second way in which economics and national security will remain linked is through the effects of global economic change on the power and position of individual states. There are three distinct issues here, the first and most fundamental of which has to do with the implications for international politics of the process of uneven national growth. As some economies expand more rapidly than others, the distribution of wealth among states begins to shift; and with these shifts in wealth come, eventually, changes in the distribution of political power. Such changes are often accompanied by considerable turmoil and some-
9. Melman, Permanent War Economy, 95.
10. Jean-Claude Derian, America’s Struggle for Leadership in Technology (Cambridge, MA: MIT Press, 1990), 104.
times even by war, as rising states begin to throw their weight around and declining ones seek to hold onto their previous privileges. 11
Since the end of World War II the worldwide distribution
of economic resources has changed substantially. Although the
Among its other effects, the end of the cold war will crack the crust that has been holding existing alignments in place and hasten a fundamental restructuring of the international political system. In particular, the implosion of the Soviet empire will, loosen the ties that bind the present Western alliance together and make possible the reemergence after forty-five years of Japan and Germany as major and much more independent world powers. The events of the late 1980s will permit these two countries to step more easily into the political roles to which their economic success has seemed increasingly to entitle them. Often announced and long anticipated, the transition from bipolarity to something more closely approximating true multipolarity seems finally to be at hand. The central political questions of the coming era are whether this transformation can be managed without serious disruptions in relations among the central actors, what the characteristics of the new system will be, and in particular whether it will be as stable as the one it is replacing.
In the past, changes in the distribution of wealth have
always been accompanied by shifts in the distribution of military capabilities,
because it is largely through the possession of such capabilities that states
have secured their interests and exerted political power. At present there is a sharp discontinuity
between the economic stature of two of the major powers
11. See Robert Gilpin, War and Change in World Politics (New York: Cambridge University Press, 1981).
Economic forces are changing not only the structure of the international system, but the manner in which it functions. In recent years, analysts have noted a marked tendency toward what has come to be referred to as globalization. As a result of improvements in transportation and communication, countries at all levels of development are becoming increasingly tightly interconnected - not only through the traditional ties of trade; but also by vast and rapid financial flows, exchanges of information, people, and technology; increases in all forms of foreign investment; the worldwide dispersal of production facilities by large corporations; and the formation of business alliances across national boundaries. The possible impact of these trends on the security of individual states has already begun to be felt in two related areas.
At one time only a handful of countries were capable of
developing and producing the most sophisticated forms of military hardware; but
as demonstrated recently and dramatically by
The diffusion of military capabilities brought about by
globalization will make certain
12. Between 1965 and 1984 there was a considerable increase in the number of Third World countries capable of building fighter aircraft (from one to eight), helicopters (from one to six), and tanks (from one to six). See Future Security Environment Working Group, The Future Security Environment (Washington, DC: Commission on Integrated Long-Term Strategy, October 1988), 49. On the proliferation of ballistic missile technology, see W. Seth Carus, Missiles in the Middle East: A New Threat to Stability (Washington, DC: The Washington Institute for Near-East Policy, June 1988).
13. See W. Seth Carus, Chemical Weapons in the
14. On the growing access to overhead reconnaissance information, see Ann M. Florini, “The Opening Skies: Third-Party Satellites and U.S. Security,” International Security 13 (Fall 1988): 81-123.
devastating forms of attack. The course of events in the
At the same time as globalization is reducing the military dependence of some less developed countries, it will pose serious challenges to the continued strategic independence of the more advanced nations. With the dispersion of centers of production and technological development and the increased sophistication and expense of modern weaponry, fewer and fewer states will be able at acceptable cost to provide entirely for their own defense. Whatever their initial preferences, the major European powers have been driven increasingly into cooperative, multinational ventures in order to be able to afford to develop and produce modern weapons systems. 15
For both the United States and its traditional allies, resisting the tendency toward globalization could have considerable and perhaps unbearable costs, especially in a period in which defense budgets are likely to be declining rapidly. On the other hand, acquiescing to the forces of economic change will leave countries less fully in control of their own defense and hence of their security than they have been accustomed to be in the past. 17
Even in a world of much lower levels of military tension and a much higher degree of economic integration and interdependence, politics is not going to cease and neither is political conflict. States are going to continue to have differences, and they are going to continue to try to impose their will on one another. In the past, nations have often used economic instruments as a way of attempting to
15. See Andrew Moravcsik, “Defense Co-Operation: The European Armaments Industry at the Crossroads,” Survival 32 (January.February 1990): 65-85; also see Martyn Bittleston, Co-operation or Competition? Defence Procurement Options for the 1990s, Adeiphi Paper 250 (London: Institute for Strategic Studies, 1990).
16. For two expressions of this concern, see Under Secretary of Defense (Acquisition), Bolstering Defense Industrial Competitiveness (Washington, DC: Department of Defense, July 1988); also Defense Science Board, The Defense Industrial and Technology Base (Washington, DC: Department of Defense, October 1988).
17. For more on this issue, see Ethan B. Kapstein, “Losing Control - National Security and the Global Economy,” The National Interest 18 (Winter 1989-90): 85-90; also Theodore H. Moran, “The Globalization of American Defense Industries,” International Security 15 (Summer 1990): 57-99; and Moran, “International Economics and Security,” Foreign Affairs 69 (Winter 1990-91): 80-82.
influence the political behavior of their rivals (and sometimes their friends as well). 18 Such practices could become more common in the years ahead, as interdependence intensifies, political relationships shift, and the utility of military power in most situations remains relatively low. National security policy may, therefore, come to encompass measures designed to reduce a country’s vulnerability to economic influence attempts (and, perhaps, to enhance its capacity for exploiting the vulnerabilities of others), as well as the more traditional forms of preparation for military defense.
There are basically three different kinds of situations in which economic state-craft could play a central role. The first are those in which relatively weak states seek to use their control over scarce resources to influence the policies of the comparatively strong and wealthy. This, of course, is what the Arab oil-producing countries sought to accomplish in the 1970s and in part what Saddam Hussein hoped to achieve in 1990. With no one state able to exert control over a decisive fraction of world reserves, the diversity of suppliers’ difficulties of coordinating their policies and the dependence of many on their customers for protection will continue to limit the oil weapon utility in achieving specific strategic objectives. As in the past, what is true of oil will be even more the case for other, less critical commodities.
A second form of economic statecraft would involve
attempts by strong states to use trade and financial assistance to shape the
political preferences of the weak. Sanctions are the most familiar
instrument for this purpose, although their successful application usually
requires the cooperation of a large number of states. It is also possible that under certain
conditions, individual countries might try to build blocs or spheres around
A large country’s willingness to direct private investment and governmental assistance on especially generous terms toward its smaller neighbors could help to make them more sensitive to its wishes. If they found their exports to other parts of the world blocked by rising tariffs, smaller countries could become dependent on a larger one that was willing to grant them continued access to its domestic markets. The price extracted by the bloc leader might be primarily economic - preferred treatment for its own exporters and investors. But its demands could also come to have a political component - support for its positions in international organizations, mutual security arrangements, access to military facilities, or simply the denial of such access to third parties.
The final and in many ways most dangerous possibility is
that strong countries could begin with increasing frequency to use economic
instruments against one another. As
the extent to which the
18. See David A. Baldwin, Economic Statecraft (Princeton, NJ: Princeton University Press, 1985); also Klaus Knorr, The Power of Nations (New York: Basic Books, 1975).
19. For the classic account of German policies, see Albert 0. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1945).
especially Japanese) investors to finance its budget
deficit became clear during the 1980s, there were growing fears that the United
States might be becoming, as one writer put it, a “prisoner of foreign capital.”
Japanese investors were ever to hold back from buying U.S. Treasury securities,
it was claimed, the results could include rapidly rising interest rates (which
would lead to slower U.S. economic growth) and a drastic decline in the value of
the dollar (which would promote inflation). The mere threat of such action could
conceivably be sufficient to force American compliance with
Similar concerns have arisen as a result of the growing
Putting aside the question of whether governments would
have sufficient control over private actors to put their plans into effect, the
principal and powerful objection to all such scenarios is that relations between
big and wealthy states typically involves a considerable degree of mutual
dependence. This means that it
would be very difficult, for example, for Japan to do serious economic harm to
the United States without causing grievous injury to itself and vice versa.
Thus, if the Japanese government
were to take steps that resulted in an American recession and a collapsing
dollar, they would in the process hurt their own exporters and diminish the
value of the many dollar-denominated assets held by their investors. Similarly, if in an effort to punish
20. Felix Rohatyn, “Restoring American
21. For an attempt to sketch out such a scenairo, see Daniel Burstein, Yen! (New York: Ballantine Books, 1990), 13-20.
22. See Defense Science Board, Report of the Task Force on Defense Semiconductor Dependency (Washington, DC: Defense Science Board, February 1987).
23. All of this assumes that a single foreign
government would have both the willingness and the ability to halt the flow of
critical components into the
Japanese-made semiconductors, one of the main effects would be to drive up the price of the many American products into which those components are now built.
That any attempt by one big power to use economic instruments against another would be costly and risky does not, of course, render it unthinkable. Indeed, the very existence of mutual risk could encourage both sides to regard exercises in economic statecraft as tests of strength and will from which it might be very difficult for them to back away. 24 Moreover, the fact that a particular course of action would be harmful to a nation’s economic well-being cannot be said to rule it out as a real possibility, especially in situations where there would be other important values at stake.
If there is at present a strong trend toward greater
international economic integration, there is also, as Robert Gilpin has pointed
out, a powerful countervailing tendency towards “benign mercantilism,” an
approach to national economic policy that is designed to enable a society to
“retain domestic autonomy and possess valued industries in a world characterized
by the internationalization of production, global integration of financial
markets, and the diminution of national control.” 25 In the
At one level, appeals to this new concept are related to
the fairly familiar problems of maintaining an adequate defense industrial base.
Anxious experts point out that
globalization is eroding traditional
Although there are undoubtedly real problems, and while some of the concern expressed over them is certainly sincere, it is also true that economic security has become a rallying cry for special interests. Representatives for industries as diverse as semiconductors and textiles have proclaimed their essential importance to the nation’s defense and have called upon the federal government to protect
24. The analogy here may be to situations of mutual nuclear deterrence in which each side has the capacity to do terrible damage to the other, but in which one or the other or both may be willing to manipulate the risk of such a catastrophe in order to achieve its objectives. The nature of this relationship between debtor and creditor is suggested in C. Fred Bergsten, “Economic Imbalances and World Politics,” Foreign Affairs 65 (Spring 1987): 784.
25. Robert Gilpin, The Political Economy of International Relations (Princeton, NJ: Princeton University Press, 1987), 404.
them against intense foreign competition. 26 Some of these claims are clearly more serious than others. Likewise, while there may be legitimate reasons to worry about specific instances of foreign direct investment, much of the fear expressed over alien intrusions into the American economy is driven more by xenophobia than by analysis. 27
Beyond any direct connection to defense, real or alleged, there is another, less clearly defined conception of economic security that has begun to gain attention in recent years. To an ever great degree, the wealth of nations has come to depend on their ability to engage successfully in international economic competition. Doing well requires staying at the forefront of developing and commercializing new technologies and maintaining a capacity to manufacture and market the products of scientific progress.
On these points there is little debate. Where disagreement does arise, at
least in the
This issue is at the heart of an emerging debate, the fourth in the last one hundred years over the proper economic role of the American state. The first, at the turn of the century, resulted in an expanded federal role in regulating private industry. The second, in the 1930s and 1940s, led to the government assuming an increased responsibility for stabilizing the nation’s economy, using fiscal and monetary tools to limit excesses of unemployment or inflation. The
26. See, for example, Hearings Before the Investigations Subcommittee of the House Armed Services Committee, Mobilization Requirements of the Domestic Textile Industry, 99th Congress, 2nd sess. (Washington, DC: U.S. GPO, 1986); and Hearings Before the Subcommitee on Technology and Law of the Senate Judiciary Committee, Issues Confronting the Semiconductor Industry, 100th Congress, 1st sess. (Washington, DC: U.S. GPO, 1987).
27. For a dispassionate discussion of the national security raised by foreign direct investment, see Edward M. Graham and Paul R. Krugman, Foreign Direct Investment in the United States (Washington, DC: Institute for International Economics, 1989), 73-93.
28. Whether these efforts have been successful and, indeed, whether it is even theoretically possible for them to have been so is the issue at stake in discussions of industrial policy and, more recently, strategic trade policy. On the latter, see the essays in Paul R. Krugman, ed., Strategic Trade Policy and the New International Economics (Cambridge, MA: MIT Press, 1986); also Paul R. Krugman, “Strategic Sectors and International Competition” in Robert M. Stern, ed., U.S. Trade Policies in a Changing World Economy (Cambridge, MA: MIT Press, 1987), 207-232; Klaus Stegemann, “Models of Strategic Trade Policy, International Organization 43 (Winter 1989): 73-100; and J. David Richardson, “Strategic Trade Policy,” International Organization 44 (Winter 1990): 107-135.
third, which also began during the Depression and has continued down to the present, centers on the question of how far the state should go in ensuring the economic welfare of individual citizens. The fourth debate, in the closing decade of this century, will be over what part government should take in deliberately promoting the international competitiveness of the U.S economy, thereby presumably enhancing the nation’s relative wealth, its power, and thus its “security,” by some definition of that notoriously slippery and expansible term.*
* An earlier version of this paper was presented to a
conference on integrating economics and national security sponsored by the Pew