The U.S. Army War College put out a Key Strategic Issues List last sum- mer that pulled together research topics from a variety of military commands and organizations. It was intended to stimulate interest among both civilian and military thinkers about topics "of particular interest to the Department of the Army." Among the long list of sub- jects presented on behalf of the Army's Special Operations Command (SO- COM) was one that may have seemed out of place: "How high will fuel costs have to be and/or how low will fuel supplies have to be before the low costs of foreign labor are offset and produc- tion of goods made in the United States (clothes and electronics, for example) becomes economically feasible again? In other words, when will the costs and availability of transportation begin to work against a global economy and for a regional economy, and push the United States toward an isolationist policy?"
Since July 2008, the international economy has suffered hits far heavier than rising fuel costs. The financial crisis that started in the United States and spread to cripple banking throughout the Western system has now plunged the global economy into a recession. Ironically, the downturn in economic activity has reduced fuel costs. The real issue behind the SOCOM question is broader than the cost of oil or other commodities. The true questions are: To what extent does economics drive international relations, and what is the impact of trade on the risks of conflict?
The end of the Cold War inspired the notion that a new world was dawning, one built on international cooperation for material progress. Many thought that the triumph of capitalism over communism would open the door to global commerce and peace. This idea was based on the theories of classical liberalism, which emerged in the wake of another long conflict, the Napoleonic Wars.
The period of relative peace in the early 1800s following decades of war brought forth many idealists. The British activist Richard Cobden claimed that commerce was "the grand panacea" and that under its influence "the motive for large and mighty empires, for gigantic armies and great fleets would die away." The French economist Frédéric Bastiat asserted that "free trade means harmony of interests and peace between nations." Jeremy Bentham argued for the replacement of "offensive and defensive treaties of alliance" with "treaties of commerce and amity." Thomas Paine, believing that "man is not the enemy of man," proposed that all warships be converted into merchant vessels.
History was not kind to these proposals. The century following Cobden's claim that the days of empires, armies and fleets were over saw two world wars, a number of smaller conflicts within Europe and Asia, and nearly constant colonial wars as empires expanded throughout the world. Great Britain was home to the most prominent classical liberal thinkers. During the long reign of Queen Victoria (1837-1901), however, not a single year passed without British troops engaging in combat somewhere.
Paul Bairoch, the 20th-century postwar economic historian, found that economic growth was stimulated when the states of Continental Europe shifted back to protectionism from their flirtation with free trade in the early 1800s. During the era when protectionism was being restored (18771913), industry on the Continent grew at nearly triple the pace compared to the period when Continental growth was being suppressed by exports from a more advanced England. This European movement was supported by the same political alliance of "iron and wheat" now seen in India and China, Japan and South Korea, Brazil and South Africa. Trade in the aggregate continued to expand right up to the outbreak of World War I, but most governments understood it was a competitive world in which policy needed to shape economic flows in the national interest. None of them became isolationist-just the opposite, in fact.
Wars have always been limited by the resources that could be mobilized to sustain military operations. As the wealth of nations grew, so did ambition. In his book The Wealth and Poverty of Nations, economic historian David S. Landes wrote of this period: "Europe consisted of states big and small, each steered by the pride and interest of the ruler, but increasingly by self-aware nationalism. All vied. All knew the significance of money for standing and power." If a nation's merchants and industrialists were productive and able to dominate large markets, then its government had a strong material base to support its positions by diplomacy and, if need be, by war.
Unfortunately, in the 1990s the illusions of the earlier postwar period returned. There was a flood of predictions that the nation-state would evaporate by the turn of the century, superceded by global institutions and disintegrating as divergent groups pursued their own private interests. Corporations and banks maneuvered to fill both roles as private actors on a global stage. In 1992, Ricardo Petrella, director of science and technology forecasting for the then-European Economic Community, claimed: "The real decisionmaking powers of the future . . . will be transnational companies in alliance with city-regional governments."
That same year, Walter B. Wriston, chairman of the Citicorp banking enterprise, stated in his provocatively titled book The Twilight of Sovereignty: "When a system of national economies linked by government-regulated trade is replaced - at least in part - by an increasingly integrated global economy beyond the reach of much national regulation, power changes hands." The world now knows what happens when the banking system tries to operate beyond the reach of regulation. In November 2008, the U.S. govern- ment announced a $20 billion capital injection into Citigroup and agreed to shoulder most of the company's losses on a $306 billion portfolio of potentially troubled assets. In exchange, the government received preferred shares and warrants that partially nationalized the firm. The fresh capital came after a $25 billion injection the previous month. Corporations have proven to be far more fragile than nationstates, which, in the end, retain their power and the need to use it.
The idea of a global economy is not new. Two years before Adam Smith's The Wealth of Nations appeared in 1776, the German philosopher Johann Gottfried von Herder asked: "When has the entire earth ever been so closely joined together by so few threads? Who has ever had more power and more machines, such that with a single impulse, with a single movement of a finger, entire nations are shaken?" It is how the international economy is orchestrated that matters, and the defining characteristic of international economics is the same as that of international politics: competition.
At the July 2008 meeting of the major national economies in Geneva, Switzerland, the rising states successfully resisted pressure from the United States and the European Union to open their markets. The developing countries were always going to be allowed to keep higher-than-average tariffs, but they wanted the right to protect strategic sectors with "safeguards." The current global recession will only intensify rivalries and lead to more safeguards. The aim will be to force rivals to adjust to the down market, while domestic firms survive to fight another day when growth resumes. In this effort, they are not just protecting themselves from the developed countries, but from each other.
Ebrahim Patel, a South African labor leader, was critical of Western pressure to limit his country's ability to shelter sectors like textiles, automobiles and electronics. He said his country's electronic sector had been "virtually wiped out because of China, China, China."
The National Intelligence Council (NIC), which serves the Director of National Intelligence, released its report Global Trends 2025: A Transformed World in November 2008. It found that "China is poised to have more impact on the world over the next 20 years than any other country. If current trends persist, by 2025 China will have the world's second largest economy and will be a leading military power." The report also states: "U.S. security and economic interests could face new challenges if China becomes a peer competitor that is militarily strong as well as economically dynamic and energy hungry." The NIC warns that "China's international standing is based partly on foreigners' calculations that it is 'the country of the future.'" Beijing's rapid economic growth has given the world this impression. China today can be compared to Germany at the end of the 19th century - an authoritarian state with a capitalist economy. Like that of the Kaiser's regime, Beijing's legitimacy is based on nationalism and the drive to become the most powerful nation in its region. Behind China are other developing states (and in the case of Russia, a resurgent state) with grand ambitions.
The lead developing countries today are in the same position as the Continental European powers in the late 19th century. They reject their assigned place as "customers" or lowend producers in a static division of labor. They aspire to create the advanced capabilities that will make them firstclass players in world affairs. Their high savings and investment rates and their limits on competing imports are reminiscent of French economist Charles Ganilh's words from 200 years ago: "To judge the wealth of a nation, a measurement of the goods that are consumed should not be taken, rather a measurement of the ability of the nation to produce these goods."
The NIC report states: "We anticipate that arms races, territorial expansion and military rivalries that characterized late 19th century multipolarity will be less significant in the emerging one, but we cannot rule out such possibilities. For most countries, strategic rivalries are likely to revolve around trade, investment, technology innovation and acquisition. However, increasing worries about resources such as energy or even water - could easily put the focus back on territorial disputes or unresolved border issues." The NIC left out that access to markets on preferential trade terms is often a consequence of diplomatic alignment or regime change. The report also predicted that "by 2025, the international system will be a global multipolar one with gaps in national power continuing to narrow between developed and developing countries" as the result of the spread of industrialization and technology. Special Operations Command is wrong to cast a more regional (or national) trade policy as "isolationist" if the objective is for the United States to better marshal its strength to project power in the world arena.
These are the kinds of international economic changes that the Army needs to think about because the military will have to deal with the results.
WILLIAM R. HAWKINS is a consultant specializing in international trade and national security issues.…