The Political Economy of Security A Research and Teaching

T he Political E conomy of Security: A Research and Teaching Agenda Introduction The security studies literature is dominated by the traditional realist distinction between "high politics" and "low politics." The former is said to encompass what matters most to states² national sovereignty and security from external attack. All other concerns of state, including its pursuit of economic well-being, are said to be of considerably lesser importance, as befits the designation "low politics." This artificial distinction is considerably overdrawn, even if one uses a narrow definition of security, for several reasons.[1] First, it ignores the material and economic underpinnings of military power and national security that many realists themselves acknowledge as essential components of national power. Second, it takes for granted the independence states have both from the international economy and from domestic political opposition when mobilizing economic resources in support of security objectives. Finally, it glosses over the potential for states to achieve national security objectives in an interdependent world economy by using economic instruments, such as economic sanctions and economic incentives. This article makes the case for treating the political economy of national security as a distinct subfield of security studies for both teaching and research purposes.[2] It identifies a unique set of "political economy" issues that have a direct bearing on national security calculations. It reviews both the classical geopolitics literature and a growing literature by contemporary international relations scholars that address these issues in an effort to bridge the chasm between political economy and security. Finally, it suggests avenues of further research to flesh out the conditions under which domestic and international economic factors affect the pursuit of national security. W ealth and M ilitary Power The first and most fundamental problem with the distinction between high and low politics is that it ignores the well-established economic roots of power. Mercantilists have long asserted that "money is the sinews of war" because wealth translated rather fluidly into military power.[3] In the age of divine right monarchs and mercenary armies, wealthier states could afford larger and better-equipped armies. Following the French Revolution and its introduction of national PLOLWDU\FRQVFULSWLRQWKHVL]HRIDVWDWH¶VPLOLWDU\DSSDUDWXVQRORQJHUGHSHQGHGDVGLUHFWO\RQ 1   national wealth. Nonetheless, as Napoleon observed, "an army marches on its stomach."[4] The ability to feed, clothe, train and equip the armed forces - all of which depend on economic resources - can play a decisive role in combat. Moreover, in the modern era, wealthier nations tend to have more to invest in research and development of weapons technologies, which can afford them a decisive advantage on the battlefield. For these reasons, both realists and geopoliticians have long identified national wealth and industrial capacity as a component of national wealth.[5] Such reasoning also prompts neorealists to fear the security externalities of economic activity and, therefore, to eschew absolute gains in favour of relative gains.[6] ,WLVQRWPHUHO\DJJUHJDWHZHDOWKWKDWDIIHFWVDVWDWH¶VDELOLW\WRVHFXUHLWVHOI$VWDWHPXVWDOVR have access to a wide array of resources (often called "strategic goods") and weapons that can enable it to sustain a war effort.[7] These include, inter alia , foodstuffs, metals and minerals used in weapons production, oil and other fuels, and a host of other materials essential to sustaining agriculture, industry and the military in wartime.[8] Consequently, one of the most important dilemmas of "high politics" that states must face is an economic one: should they attempt to produce as many of these strategic requirements as possible domestically, by striving for autarky, or should they trade for them on the international market? The pursuit of autarky - to the extent that it is possible - entails both economic costs, since it promotes economic inefficiency, and strategic costs, since it requires the state to produce defence goods that it may not be well-suited to produce.[9] (Consider for example, the lower quality synthetic oil that Germany had to produce during World War II, due to its lack of domestic crude oil supplies, or the strategic costs that would accrue to a country like Canada if it produced its own fighter aircraft instead of purchasing state-of-the-art United States-built F-18s.) Trading for defence goods, though more economically efficient, is fraught with risks, since it allows adversaries an opportunity to stop shipments or to interfere with deliveries from other states during wartime. The resource acquisition dilemma is, in fact, part of a broader political economy dilemma with profound security implications: whether to organize the national economy in accordance with the principles of economic nationalism or those of economic liberalism.[10] An economic nationalist strategy, designed to protect domestic industries through subsidies and various tariff and nontariff barriers to filter out foreign competition, may ensure that a defence industrial base exists to serve the national security effort when needed. It may also promote economic distortions and inefficiencies that reduce national wealth and that can hamper the pursuit of national security. An economic liberal strategy, based on the free market, specialization and comparative advantage, has the advantage of maximizing national wealth and, consequently, the aggregate resources that the state can devote to national defence.[11] Nonetheless, a free market approach has the adverse effect of extinguishing uncompetitive national industries, which means that the state cannot count on them to supply the war effort if it is cut off from international supplies. At the most basic level, therefore, national wealth, resource allocations and the structure of economic activity can have important consequences for national security. Moreover, since no state - not even the United States or the Soviet Union after World War II - possessed all the resources they required within their own borders, no state is completely autonomous of the international market, which, as we will see in the next section, has profound implications for military strategy. 2   T rade Dependence and M ilitary Strategy Because all states depend on foreign trade to at least some degree, economic considerations often play a considerable role in influencing national security policies in preparation for war and wartime military strategies. Much of the business of national security aims to acquire secure access to foreign resources that would not be interrupted in the event of war. Indeed, the primary purpose of colonization was to obtain exclusive ownership and control of overseas resources.[12] Similarly, states can prepare themselves for war by tying the economies of smaller, nearby states to their own in order to secure access to their exports. They can accomplish this by offering them extremely favourable terms of trade that could not be matched on the international market, as Nazi Germany did in Southeastern Europe prior to World War II.[13] Alternatively, as Imperial Japan did in its "Co-Prosperity Sphere" in the 1930s, they could coerce smaller neighbours militarily or conquer them to guarantee access to their exports in the event of a broader war.[14] In a more benign fashion, states could seek military and economic alliances with key suppliers. In wartime, trade dependence and the importance of supplying the war effort encourage military VWUDWHJLVWVWRWDUJHWWKHHQHP\¶VHFRQRPLFEDVHDVDFRPSOHPHQWWR- or perhaps even a replacement for - battle preparations. As Sir B. H. Liddell Hart argued, grand battles pitting the EXONRIWKHFRPEDWDQWV¶IRUFHVDJDLQVWHDFKRWKHUDUHSK\VLFDOO\HFRQRPLFDOO\DQGPRUDOO\ exhausting for both victor and vanquished. An indirect approach, targeting economic targets such as supply lines, fuel depots, shipments of overseas strategic goods, etc. - can overcome both WKHHQHP\¶VZLOODQGWKHFDSDELOLW\WRUHVLVWWKHUHE\DFKLHYLQJYLFWRU\PRUHHIILFLHQWO\[15] Thus, for example, a strategy of naval blockade, that aims to deny the adversary access to critical RYHUVHDVVWUDWHJLFJRRGVVKLSPHQWVFDQSDUDO\]HWKHDGYHUVDU\¶VZDUHIIRUW[16] Indeed, many attribute the Allied victory in World War II to the wide British blockade of the North Sea, which deprived Germany of the food, oil, coal and rubber it needed to continue fighting.[17] Similarly, the Germans nearly knocked the British out of World War II with their sustained submarine commerce-raiding campaign, targeting Allied supply convoys in the North Atlantic.[18] Although it has not been used as effectively in a major war, the strategy of strategic bombing bombing industrial sites, supply depots, infrastructure and population centres behind enemy lines in an attempt to defeat the enemy without a decisive battle on the ground - is the airborne counterpart to naval blockade and commerce raiding.[19] To complement these physical measures to undermine the enHP\¶VVWUDWHJLFUHVRXUFHVHFRQRPLFVWUDWHJLVWVFDQZDJHHFRQRPLF warfare. Economic warfare entails two broad categories of activities. First, national strategists must deny the enemy access to their own strategic resources and manufactures through export embargoes. Second, they must deprive the enemy of imports from important neutral states by using diplomatic and military means to dissuade neutrals from exporting to the enemy, as well as pre-emptive buying to divert supplies from the enemy.[20] Thus, far from being a trivial concern, economic considerations play a significant role in warfighting strategy and doctrine because states are more dependent on the international market than realists conventionally assume. T he Political Economy of W a r Mobilization: Domestic Political Aspects 3   Not only are states not as autonomous from the international market as the distinction between high and low politics implies, they are not as autonomous domestically either. States do not have automatic access to domestic resources; they must mobilize the money, manpower, industrial capacity and materials necessary to sustain a war effort. In so doing, they must ensure that the domestic costs of war mobilization are not too onerous for the population or powerful societal groups, or they will risk a revolution - like those in Germany and Russia as a result of World War I - which will undermine national security goals.[21] Nonetheless, they must ensure that they obtain sufficient resources to wage war. National security establishments therefore face two political economy dilemmas of utmost importance. The first involves financing the war effort. The most reliable means of raising revenue is direct taxation, which can provide needed revenue without creating a burden of indebtedness. As the tax burden begins to bite, however, it can lead to domestic political opposition to the war effort and to the government, thereby undermining the military effort. Conversely, debt financing, using both domestic and foreign debt instruments, offers the advantage of tapping into voluntary suppliers of capital. The disadvantage of debt financing, though, is that, in the eYHQWRIDORQJDQGFRVWO\ZDUWKHVWDWH¶VLQGHEWHGQHVVLVERXQGWRJURZWR the point that it threatens its future power.[22] This is an important reason for the British and French decline after the two World Wars, when they became mired in debt to the United States. Indeed, the financial dilemmas of defence mobilization have given rise to the field of defence economics.[23] The second dilemma involves raising the manpower, material and industrial contribution to fuel the security apparatus. It can do so within the context of existing state-society relations, by using its existing power resources and policy instruments to levy what it can for the war effort. Such an "accommodational strategy" entails the fewest political costs for the state but, as Michael Barnett observes, it is frequently unable to satisfy all of the VWDWH¶VQDWLRQDOVHFXULW\UHTXLUHPHQWVGXULQJ a severe crisis. Thus, states are frequently compelled to pursue "restructural strategies" that aim to alter state-society relations in order to generate a greater societal contribution to national defence. Either the state can coercively increase its power vis-à-vis society in order to extract a greater contribution, or it can negotiate further limits on state power in exchange for the even larger voluntary contribution it can obtain through liberalization. Coercion, of course, is risky, since it can inspire both domestic resistance and inefficiency. To the extent that the state must bargain with the public and societal interest groups, liberalization constrains its power to mobilize for war in the future. Thus, Barnett observes that state power over the national security realm in both Egypt and Israel weakened as a result of the domestic political bargains they struck between the 1967 and 1973 Arab-Israeli wars.[24] Thus war mobilization - the quintessential exercise of "high politics" - is fundamentally dependent on matters of political economy that the security studies literature wishes to consign to the category of "low politics." Economic Inte rdependence, Economic Statecraft and International Conflict 4   The reliance of states on both domestic support and international sources of supply in order to meet their security needs not only complicates war mobilization and military strategy, it also affords opportunities for states to achieve their strategic goals through economic means rather than military force. If states can effectively manipulate economic interdependence by deepening international economic ties, imposing economic sanctions or offering economic inducements, they can create incentives for others to behave consistently with their security objectives. Interdependence and International Conflict Commercial liberals maintain that when economic interdependence is high between states, the likelihood that states will resort to war to settle their differences declines.[25] Their argument is that, when trade and investment flow freely across national boundaries, the opportunity costs of war in terms of economic exchange are so high as to make the use of force an unattractive option.[26] Furthermore, trade is more efficient than force as a means of extracting resources and wealth from territory, especially since nationalism and modern technology make conquest unprofitable in the contemporary era.[27] Thus, they conclude that liberal states can achieve their national security objectives economically rather than militarily, by erecting a liberal international trading regime. Although there has been a spate of recent tests of the commercial liberal claim, there is still insufficient empirical evidence either to support or refute it. Some quantitative studies have indeed shown a powerful link between interdependence and reduced international conflict.[28] Other empirical studies - both quantitative and qualitative - however, show either no clear relationship between interdependence and conflict[29] or even some support for the neorealist counter-proposition that interdependence can actually inspire interstate conflict.[30] Still others maintain that intervening variables, such as future trade expectations, the domestic regime type of states or the existence of preferential trading institutions determine the effect that interdependence has on conflict.[31] These discrepant findings may be explained by the lack of consistency with which these studies operationalize the variable "economic interdependence".[32] According to Robert O. Keohane and Joseph S. Nye, interdependence is characterized not merely by economic interconnectedness, but by economic relations that are mutually costly to break. States are said to be vulnerable if they would suffer significant long-term costs if normal economic relations were to be disrupted, but only sensitive if policy options are available to them that would mitigate long-term costs.[33] In other words, economic interdependence refers to the importance of economic relations to national economies and the magnitude of costs that would accrue in the event of their termination. Most of the empirical tests of commercial liberalism, however, use different measures of either sensitivity or mere interconnectedness - including trade as a percentage of GDP, aggregate bilateral trade, foreign investment as a percentage of national income, and the VKDUHRIIRUHLJQFXUUHQFLHVDVDSHUFHQWDJHRIDVWDWH¶VWRWDOUHVHUYHV[34] - that are not materially equivalent , nor do they fully capture the essence of economic interdependence.[35] Others include measures of the strategically more significant vulnerability interdependence.[36] It is difficult to reconcile the results obtained using these very different independent variables and, 5   clearly, more carefully co-ordinated research is needed. Nonetheless, it remains plausible that international economic exchange may have some effect on national security decisions. Economic Sanctions A second opportunity that economic interdependence affords national security executives is the ability to threaten or impose economic sanctions on another state in order to alter its security policies. Economic sanctions entail a disruption of ordinary economic relations - such as the imposition of measures such as a reduction in financial aid or loans, restrictions on foreign trade or investment, and the seizure of assets - in order to compel a target state to comply with political demands. Sanctions are designed to operate in two ways. First, they impose economic costs on the target state, thereby creating international economic incentives to modify their policies. Second, they cause domestic economic deprivation in the target state, thereby generating GRPHVWLFSROLWLFDOSUHVVXUHIRUWKHWDUJHWJRYHUQPHQWWRFRPSO\ZLWKWKHVDQFWLRQHU¶VGHPDQGV or perhaps domestic efforts to overthrow the existing government and replace it with one that will comply.[37] Once again, empirical tests have yielded conflicting conclusions about the efficacy of economic sanctions. Some researchers, such as Gary Clyde Hufbauer, Jeffrey J. Schott and Kimberly Ann Elliott, conclude that sanctions can achieve their stated purposes as frequently as 35% of the time.[38] Moreover, as David A. Baldwin argues, sanctions can achieve important political objectives - such as deterring third parties from taking unwelcome actions - even if they fail to achieve their stated purposes.[39] Conversely, studies by Robert A. Pape and others maintain that economic sanctions are rarely effective at achieving important security objectives; when they do appear to "succeed", it is usually an artifact of either military or political pressure or the insignificance of the demands made.[40] A third group of scholars occupies the middle ground, arguing that sanctions succeed only when the right international and domestic political conditions are present[41] or when the sanctioner possesses enough economic power to impose heavy economic costs on the target state.[42] Despite this muddled empirical record, the increasing use of economic sanctions by the United States and the international community - both in place of, and in tandem with, traditional military and political instruments - indicates that the realms of economics and security are integrally linked. Economic Incentives In addition to coercive economic sanctions, the need for states to reach beyond their borders to finance and supply war also presents an opportunity for national security establishments to purchase security with economic incentives and foreign aid. These incentives can take two forms. Short term trade, and financial or technology transfers, can be exchanged for immediate and limited policy changes in a sort of quid pro quo with the target government.[43] Alternatively, longer-term preferential trading arrangements can be extended in the hope of LQIOXHQFLQJWKHWDUJHWVWDWH¶VSROLFLHVLQWKHPHGLXP- to long-term. In the latter case, the "influence effect" occurs over time, as domestic groups in the target state develop vested 6   interests in continuing the economic relationship and pressure the government to avoid policies that endanger it.[44] Very little empirical testing has been conducted on the efficacy of economic incentives.[45] The little research that has been done, however, demonstrates that it is much more difficult to achieve important political objectives with incentives than it is with coercive economic and political instruments.[46] Two recent episodes - the American and Japanese use of financial and technological incentives to forestall the construction of a weapons-grade nuclear facility by the government of North Korea and the inclusion of economic incentives to cement the Bosnian peace accord - however, indicate that economic inducements may, indeed, serve national security purposes.[47] T ransnationalism and National Security A final set of issues that fall under the rubric of the political economy of security pertain to the effects of the increasingly transnational organization of economic activity in the contemporary era on national sovereignty and national security policy. While much has been written on transnatLRQDOLVP¶VDVVDXOWRQVRYHUHLJQW\DQGQDWLRQDODXWRQRP\LQWKHHFRQRPLFUHDOPYHU\ little research has been done to date on its implications for national security.[48] It stands to reason, however, that as corporate investment, decision making, production, marketing and sales take place across national borders and involve shareholders, managers and labourers from multiple countries, the ability of states to pursue the economic nationalist/autarkical security policies discussed above erodes. After all, what constitutes a national defence company that should be cultivated and protected to ensure an adequate national defence supply base in case of war: one that operates on national territory, even if it is largely foreign-owned, or one that is nationally-owned, but operates abroad with foreign managers and labourers?[49] Furthermore, the growing dependence of the military and the civilian economy on computer technology and the increasing speed with which people, goods, services and information cross borders create a host of new national security concerns with which states must deal.[50] These include enhanced risks of terrorism, electronic sabotage and large-scale illegal immigration. Clearly, the organization of economic activity can have profound implications for the pursuit of national security. Conclusion: A Resea rch and Teaching Agenda Even with a minimalist, traditional definition of national security, the distinction between national security as "high politics" and economic affairs as "low politics" - popularized and perpetuated during the Cold War, largely as a result of neorealist scholarship[51] - is artificial and inappropriate. States are not as autonomous from either the international market or the domestic political economy as they would have to be for this distinction to be useful. They are dependent on the international market for resources and weapons systems, as well as much of the financial resources needed to safeguard national security. They also cannot take domestic resources for granted when mobilizing for defence, lest they engender a domestic revolt that could undermine national security to a greater degree. Consequently, the political economy of 7   defence mobilization is of utmost importance to national security policy. Furthermore, national dependence on international sources of supply and the domestic political economy creates the potential to achieve security goals through economic means, such as economic sanctions, incentives or the deepening of international trade. Finally, the current trend of transnationalism complicates the tasks of security establishments and creates a host of new security concerns. Two recommendations follow from this analysis. First, there is a dearth of research on the political economy of national security. While researchers have recently devoted a lot of attention to economic sanctions and the effect of interdependence on international conflict, we still have little cumulative knowledge in those areas, nor do we have a clear understanding of the conditions under which economic statecraft can achieve security objectives. Moreover, the other areas of intersection between security studies and political economy identified here have been largely ignored by contemporary researchers. Political scientists, economists and historians must make an effort to fill this gap or we will perpetuate an incomplete understanding of the forces that drive national security policy. Second, it is not logical to teach national security policy as if it were divorced from economic concerns. Instead, greater attention should be paid to the economic underpinnings of national security policy in security studies courses. Furthermore, given the broad range of security issues identified here that pertain exclusively to the political economy of national security, it would be fruitful for political science departments and international security institutes to teach graduate and senior undergraduate seminars on this important subset of both security studies and international political economy.