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Bill Hartung:
My name is Bill Hartung, and I’m a senior research fellow at the World Policy Institute in New York. As of July 1, I’ll be a senior research fellow at the New America Foundation, so I’m going to have to change my business cards, and all that. I’m not an economist, but sometimes I play one on television, so I’m good at the sound bites. But we have an embarrassment of riches in terms of people who actually know economics.
Our panel includes David Gold, from the graduate program in international affairs at The New School; Jamie Galbraith, chair of EPS and at University of Texas; Jeff Dumas at the University of Texas Dallas; and Herbert Wulff, affiliated with the Bonn International Center for Conversion. So there’s a fair amount of detail in terms of biography in your packets, but I’ll say a few words about each speaker before they come up, or sit down, whichever they decide to do.
David Gold is associate professor in the international affairs program at The New School. He’s a fellow at Economists for Peace and Security. He’s written extensively on issues of economics and military spending. He’s the co-editor of a recent book that came out of a study group run at The New School. The book is called Terrornomics, and it came out just this month—I think it was this month. So I think I’ll leave it at that, and I’ll turn over David.
“Why Doesn’t the United States Spend More on the Military?”
by David Gold:
Thank you, Bill. Since you mentioned it, there’s a flyer about the book in the back. There’s also an invitation to a symposium that we’re holding in New York a week from today. Any of you going to be in New York, take a look. If you want to come, just give us an RSVP so we can count on how many mouths to feed.
BH:
And it’s my birthday, so you should definitely come.
DG:
Yes, he’s going to be there too.
I do have a one-page summary and a couple of charts. By the time I got here, the table was full; but I have them here and you can pick them up.
What I want to talk about, some of you may have seen, there’s an article in Foreign Affairs, not this issue, the issue before this one, March-April I think, by Martin Feldstein. It’s a very short article, but the purpose of the article was to raise the issue and provide an answer expanding what the United States spends on the military. Feldstein’s argument in brief was that U.S. security needs are expanding, that there are a variety of ways to meet them, including, he mentions, intelligence and foreign aid; but that the basic thing that needs to be done is that more resources need to be devoted directly to the military. And he commented that the military share of the economy has been declining. Some of you may have seen it, you’re probably familiar. This is a graph of the military budget as a share of GDP, and you notice that the trend is decidedly down from around 10 percent in the late ‘50s, to a little over 6 percent in the mid-‘80s, to, even after the buildup since 2001, 4 percent of GDP today.
Now keep in mind, this is the military budget. This is the defense function, line 050, for those of you who follow the budget. This does not include what Linda was talking about—veterans affairs—does not include a number of other things, does not include Homeland Security; but my concern here is with the issues that people like Feldstein raise, and also with the trends. And the trends, even if you include the rest, are going to be like this—a long-term decline--long-term meaning half a century—long-term decline in the share of the economy that’s being devoted to funding the military.
Just to show you the other graph, which is the U.S. military budget in real terms, 2000 dollars, and you can see that there is essentially no growth. If you ran a regression against time through that, it would be basically flat.
Now, that’s going to end. This year, in real terms, the military budget is going to rise above the peaks that it reached at Korea, Viet Nam, and in the’80s, all from about $400 to $415 billion in constant dollars. Each peak was about the same. This one is going to shatter that, maybe as we speak or very soon; but it’s still a pattern that’s worth discussing.
Feldstein’s argument is not just that we need to expand the military share, but he puts forward a suggestion of how to do it. He says that the military share declined in part to fund the growth of “social spending”—and I’ll get back to why I put that in symbolic quotes—and that the way to expand the military share—and he doesn’t use this word, but the implication is, relatively painlessly, is to hold the non-military discretionary budget constant in real terms; in other words, allow growth along with inflation, and devote all the increase in federal revenue—this is obviously excluding the entitlements, the Social Security, Medicare, etc.—but devote all other increases in federal revenue solely to the military. And he has some other things he mentions, but he says that by sometime early in the next decade, we should get up to a figure of about 6 percent. And he suggests doing this, and that this will not hurt the non-discretionary by holding them constant in real terms.
Now, I think we can quarrel with some of his arithmetic; but the point I want to make, first of all, is to raise a question. If it is obvious that we need to expand the military budget, and if it is relatively painless to do so, as he suggests, then why haven’t we done it? If it’s so simple and straight-forward and obvious and easy, why isn’t it done? Or, the title chose for this presentation and for the paper I’m writing, “Why Doesn’t the United States Spend More on the Military?”
And what I want to suggest, briefly--which Bill will hold me to--is that there are two broad types of answers, two categories, you might say, of answers to the question of why we don’t spend more on the military. And the first one, which I’ll mention briefly-- and if we want to discuss more about it later--the first answer I have is that we don’t need to; that the problems we have the military are not problems of the amount of resources, but instead, problems about how the resources are used. In economists terms, they’re problems of the allocation of resources. In political terms, they’re problems about how the military is utilized within the range of options available to a government, among the non-military options available to meet any kind of security issue. And the resources are also not necessary to expend. And the problems lie also within the way in which the military itself deploys its resources.
Some examples are pretty clear: We’re still spending tens of billions of dollars a year on Cold War-era weapons that have absolutely nothing to do with the present and likely future security environment—I mean, the F-22, the ballistic missile defense, submarines to hunt ballistic missile submarines. As far as I know, the only country in the world that’s building a new ballistic missile submarine is the U.K. Now maybe we’re concerned that now that Tony is retiring that the U.K. may aim its missiles toward us, but I expect that’s not a consensus even in this present security community. And there are a range of others.
Just to build a little bit on one of the points Linda made in her talk: She mentioned about the redeployment of personnel. The president of the United States has the authority to change the terms of deployment. There’s supposed to be a gap of several years between deployments; but the president has the authority to narrow that gap, and of course they’re using it to send people back. Well, I would propose that why doesn’t the president have the authority to put a hold on procurement; to say, for example, well, we don’t need the F-22 to fight Al Quaida. Let’s just stop building it. Maybe we’ll pick it up later. We’ll redeploy it sometime later, but we don’t need it now, and we’ll take that money and we’ll put it somewhere else.
So I think there are many ways that you can look at the resources that we need for the military as being sufficient to meet the security threats. And as I say, another part of it, of course, is that, as many of you know, the United States now spends about half of the world’s military spending and about two-thirds to 70 percent of the world’s military R&D. That’s the entire world. So we spend more than the rest of the world combined on the military.
Now, people would argue, well, we have more commitments. We can debate some of that; but the point is that the resource base available to the military is sufficient. Another point is that the U.S. military has--again, since this is a gathering of people interested in economics, you’ll pardon the jargon--but if you were to confront a military production function, the total factor of productivity growth of the U.S. military would be quite impressive; that is, the skill level of the people, and the quality of the equipment, and the technology deployed has been rising very rapidly. So in other words, in terms simply of military resources, and in terms of the narrowly defined mission of the military, which is to deter combat or to fight and win in combat, the U.S. military is far superior to any other military in the world. The problem emerges because the U.S. military is used in ways that are ill-defined politically, ill-defined strategically, and excessive in relation to other elements of foreign policy—political, intelligence, diplomacy, foreign aid, so on and so forth.
That’s one issue. My other argument is that over time, the decision-making mechanisms in the United States have recognized. That is in fact the way in which defense budgets have been put through in relation to other kinds of decisions does suggest that that’s recognized, because defense budgets, as we’ve shown, are a declining share of the economy and a declining share of federal government revenues—with cyclical ups and downs. But the point of this other chart, of course, is that so far, every cyclical increase has been followed by a decrease, so that the trend is flat. So far. We may be entering a new world here.
The other set of arguments that I would use goes back to when I said “social spending” in quotes. The traditional way of looking at the military is to talk about a tradeoff between guns and butter, to talk about military spending when it increases as coming at the expense of consumption spending. And the use of the term “social,” which is common in discussions about what has happened over the last 30, 40, 50 years—the implication, I think, is that social spending is a form of consumption, and consumption is much more readily postpone-able than investment, because investment is the core of economic growth, increases in productive capacity, increases in productivity. Consumption, on the other hand, well, we can always tighten belts, we can always do without butter; but we can’t do without investment goods, we can’t do without new technology for new productivity.
So the notion that declining military budgets as a share of the economy have been used to fund social spending is easily reversible. And of course Feldstein’s suggestion that we simply hold that share of the budget constant in real terms ignores the fact that it has been growing both in real terms, as a share of the economy, and in per capita terms; has been growing for the last half-century, even longer if you go back to the New Deal.
And there are reasons it has been growing. Again, politically, the reasons are that the American political system has demanded that it grow, and the pressure has come from below and from above. Are there any economic reasons why it’s growing? I think there’s a very very powerful economic reason. Anyone here who’s taken an economics course, or some of us who teach it, one of the concepts that we increasingly use is the concept of human capital. Human capital largely—there’s an expert in the field sitting right here, so I have to be careful about what I say—but human capital is basically investment in the productive ability of human beings, primarily education, including the whole scope of training and retraining, and skill transmission, so on and so forth, and health. A healthier population is a more productive population.
Well, what are the items of “social spending” that have been growing the fastest? Health and education. In fact, if I were to graph health spending onto this graph, it would be the mirror image. It would grow as military spending is declining. Now is that because all these people are demanding more consumption expenditures? I would suggest that’s part of it.
But I would suggest there’s another explanation. And I wanted to cite quickly some research that was done by economists named Kevin Murphy and Robert Topol, both from the University of Chicago. In two papers that were written in the late ‘90s, they did estimates of the benefits to the economy of investment in medical technology, and particularly, they attempted to quantify in dollar terms the benefits to the economy of one result of the investment in medical technology, namely longer life spans--now again, I’m sure everyone in this room knows some of the basic data about how life expectancy rates have been climbing--and they came up with the conclusion: “We estimate that improvements in life expectance alone added about $2.8 trillion per year, in 1992 dollars, to national wealth between 1970 and 1990.” For purposes of comparison, note that America’s gross domestic product in 1980, which was the midpoint of the period they’re looking at, was about $4.6 trillion in 1992 dollars. So their estimate is that the quantification of one benefit from health expenditures is equal to more than half of the average level of GDP during this period from 1970 to 1990. They estimate that the ratio of the monetary return to the investment, the ratio was 24:1. Imagine what Wall Street would do with that! An investment of one dollar yielded $24 in present-value terms over time.
What I think this illustrates, and I think you can find similar types of numbers—maybe not the same size—Oh, the other point I wanted to add in is that approximately 40 percent of all medical research is funded by the government.
And one other point: This is a Business Week column, 1999, by Gary Becker. This is when we were debating what to do with all that surplus. Remember those days? This column was suggesting, imploring us not to cut medical research by the government. Why? Because of the tremendous economic benefits.
Now, I think you could expand that and include lots of other elements of spending on health and education and other items—infrastructure, basic research and development, endogenous growth theory, all is built on the notion of the public goods aspects of knowledge. Many of these are coming from the government, many of these are part of what we call “social spending.”
So, as Bill has told me my time is almost up, my final point—I’m treating this as a research issue in terms of looking at why the patterns we have observed, and I’m hoping to do some writing and to do a book on this, looking at the entire postwar period. But in terms of how to translate this into something we can use directly, my suggestion is we stop talking about guns versus butter. What we’re talking about is guns versus future living standards. What we’re talking about is guns versus future welfare. Because if in fact we follow the advice of people like Feldstein, increase the military budget, and even if, as he says, hold real spending constant, we’re denying the role that that spending plays in growth, and therefore we are denying what is the economists fundamental mantra, namely, Growth at all costs. Now we’ve seen that one of the costs of increasing military spending may be an attack on growth, not through the investment channel, but through the “social spending channel.” Thank you.
BH:
Thank you, David. That’s the advantage of having real economists on the panel. We’re going to hear now from Jamie Galbraith, who, as I mentioned, is the chairman of the board of this organization. He’s also affiliated with the Levy Institute, where we’re holding this event. So essentially he’s the Big Man on Campus in terms of this panel. He’s the Lloyd M. Benson Junior Chair in Government Business Relations and he’s professor of government at the Lyndon B. Johnson School of Public Affairs at the University of Texas in Austin. I wanted to see if I could say that without breathing. He’s been executive director of the Joint Economic Committee of the Congress, he’s written economics textbooks, he’s had a long history of looking at these issues, and if you want to know more, it’s here in the bio in the packet. Without further do, let’s here from Jamie Galbraith.
“Equality and War: An Empirical Investigation”
by James Galbraith:
Thanks, Bill, and it’s good to be here.
What I want to do today to take advantage of my position as it was just described to you, to indulge in an analysis that’s substantially more speculative than the ones that you have heard earlier today. It’s a slightly revised version of a paper that was presented last year at the EPS Conference in Thessaloniki, and is forthcoming in Defense and Peace Economics. It was done in conjunction with a couple of very talented graduate students. It addresses a question which is not a question about the causes of war, nor is it a question about the costs of war; but it is rather on the topic of interest for some other reasons, namely the question of whether there are fundamental determinants of who prevails in war. And I would suggest that this is an issue of some interest to us generally speaking as opponents of war, because if it turns out that there are reasonable inferences that can draw on this matter, it might have a bearing on the strategic decision to go to war. In other words, you might be able to persuade people, even if you can’t persuade them that it’s too costly, you might be able to persuade them that it’s not prudent because they’re not likely to win.
And there is in relevant branches of political science a modest literature on this topic and a modest division of opinion, which I will characterize one major camp as consisting of realists of two types: one of them being power realists associated with a friend of mine who teaches at Texas A&M University, Michael [Desh?], which basically holds that one can judge in advance which of two contestants is more powerful on a composite index of some kind—and there is a composite index of national capabilities that’s been used for this purpose—and make the prediction that the more powerful country is going to win. In my view, it’s something of a circular argument, but however it may be, if you look at a sample of modern wars—we take 31 of them—it turns out that this index doesn’t do a terribly good job of predicting. It gets it right in about 18 cases, a statistically insignificant proportion.
There is, within also the realist camp, a narrower group who take an economic view of the matter. And again, when I presented this at A&M, I heard vigorously from the economists in the room, that simply the right predictor was the question of which country had the larger, stronger economy.
But again, when you look at that from an empirical point of view—and again, the sample is quite limited, and the results might be contestable—it turns out there are multiple measures of economic strength. In particular, one can choose the country with the larger economy, gross economic capacity, GDP, or one can one choose the country with the richer country, GDP per capita, and both of these turn out to be pretty good predictors, getting it right about two-thirds of the time; but it turns out it’s not the same two-thirds, and they actually conflict in a fair number of cases, where you’ll have a richer country which has not got a larger GDP, or a smaller country which does. So that leaves, again, some question about whether you have this as the most effective single variable.
On the other side is a group I’ll call the romantics, who hold that there are other important considerations which really determine whether a country wins. And there is in the political science literature an important argument that’s been made. The most prominent argument along these lines holds that democracy tends to give you military advantages, particularly when the democracy chooses to fight. And a book by Riter and Stamm has gone through about 34 cases, of which, in 15, democracies were held to initiate the war and engage in wars essentially of choice, and in 14 cases they prevailed. And the underlying argument is that democracies, unlike, perhaps, other forms of government, have rational decision structures--obviously the book was written before the Bush administration—and therefore can choose their fights in circumstances in which they’re likely to prevail.
What’s intriguing about that is not that it’s persuasive—I think there are lots of ways to poke holes in it—but that it is a one-variable predictor of another phenomenon. And then got me to thinking, as I listened to a seminar by Michael Desh basically deconstructing this hypothesis very effectively, that maybe, if that’s not a terribly good one-variable predictor, there might be a better one, and maybe I knew something about it. And my research program at the University of Texas over the last decade or so has been largely concerned with the measurement of economic inequality across countries and through time. And I began to wonder whether this as an alternative, in a sense, single-variable model might not have some bearing on the outcome of wars.
The hypothesis, leaving aside whether it has any plausibility at all, has numerous advantages from the standpoint of an empirical research strategy. First of all, most wars are not fought between democracies; but all wars are fought in principle between countries, one of which (all wars which are fought between two countries) is more egalitarian, and the other, less so. Conceptually, it’s a universal criterion.
And secondly, there is no need to distinguish between initiators and targets. One can in fact assess the state of relative equality at the end of the war, and simply ask whether the more egalitarian country at the moment of military decision prevailed, in which case, as I say, this distinction, which is extremely contentious and problematic as a matter of historical record, disappears from the research agenda.
So that being so, it seems like an appealing idea. The question is, does it have any a priori plausibility. I can give you three reasons why it might be the case that the more egalitarian country has a military advantage: One is the solidarity of the soldiers. Soldiers fight for each other. They tend to be more coherent if they feel they’re coming from the same group. The second might be the configuration of the army, that in very inegalitarian countries, the military forces are geared toward internal control, not external struggle, and don’t have the comparative advantage in fighting outside adversaries. And third and perhaps most important is the problem of fifth columns. When two countries which have the same average economic level go to war, if one of them is substantially more egalitarian than the other, the one that suffers from a higher degree of inequality will have a lower class which plausibly stands to gain from the other side’s victory, and may view the other side as the liberator.
I asked a student of mine from India what she thought about the Mogul invasions, and she said, Oh, it’s very simple. The Hindus had the caste system. So the lower castes converted to Islam—the Moguls were Islamic, the lower castes converted—and the military advantage shifted decisively in their favor. You can multiply examples of that. But we’ll come to the cases of communist countries fighting non-communist countries, where I think we’d be hard-pressed to find a case where the communist country was defeated.
So do we have data? The answer is, we do have data, whether I can get it with this device. Let’s see. Yes. And I won’t go into the data in great detail. This is a map of the relative inequality of the countries in our sample using light and dark blues to indicate high-inequality countries, reds and oranges to indicate low-inequality countries, greens are in the middle. The Russian data is post-Soviet. So you can see—and I’ll just go through it very quickly—that Northern and Western Europe are relatively egalitarian; Central Africa, highly inegalitarian; Latin America, somewhere in the middle; Asia, very heterogeneous, with some very high-inequality and some very low-inequality countries for most of this period; and in North America and Central America you have some high- inequality areas.
The data, it turns out, also permit us to inspect what happens in particular countries at particular moments. This is Iran and Iraq just at the moment of the Iranian Revolution and the Iran-Iraq War. And you can see that both countries not only pursued, but maintained, relatively low-inequality measures throughout the length of the war. They only relaxed and allowed their countries to become more unequal once the war ended in 1991. So the data are sensitive--and this is not by any means the only example—to passages from peace to war and back again.
Here’s a case of the southern cone of Latin America, where you can see the effect of the military coup in Chile. It’s not exactly a war, but it just tells you that political events in Chile and Argentina—Argentina’s in green there—prove to be turning points in the inequality measures. It turned out, when the Falklands War occurred, the inequality in Argentina actually declined in 1982. So again, I’m not going to go into that in detail, there isn’t time; but it does appear to be sensitive measures.
It’s also the case that within countries—this is Western Russia—as time goes on through the transition period, you have a falling relative status of the regions inside the country, which are most heavily effected by the conflicts. And that’s obviously a bi-causal phenomenon, at least; but nevertheless, the method, in other words, does appear to be reflective of a pattern of effect of conflict on the inequality measures in many cases.
Okay, what do we find? We’re able, first of all, to directly compare 34 cases in the period for which contemporaneous measures. Twenty-four of them give the correct prediction; only three are incorrect, and only one of those is a major struggle. So it’s a substantially powerful indicator of who prevails in the period from the 1960s to the late 1990s, for which we have direct measures.
We’re also able—I mean there are a number of cases for which we have—these are the cases of the most successful and unsuccessful predictions. We also have a list of conflict pairs with missing data, and in some of them one can make reasonable inferences; for example, the two at the bottom, North and South Viet Nam. And some of the others, we simply don’t know what the inequality status is or who the victor—in some cases not even who the victor was. But, for example, for the Viet Nam War, it’s reasonably clear.
Let’s go back. What we were then able to do in the paper was to back in time using a variety of extrapolations which have progressively weaker justification. Initially and for the immediate recent period, one can reasonably say, for example, that if a country was substantially more egalitarian than another country, a neighboring country, in 1960, the same relation probably prevailed in, say, 1930, or there might have been a war. And so one can go back and deal with things like the Choco Wars in South America on this basis.
The second thing one can do is look at political systems, since our data set has fairly clearly calibrated standards of equality, in the sense that the communist countries come at the bottom, social democracies somewhat more unequal, corporatist democracies more unequal, and non-democracies still more unequal. One can apply that classification scheme going back to previous periods.
And thirdly, one can take advantage of a clear-cut Kuznetz relationship, which emerges in our data between inequality and measures of relative income, and use that in some sense to help project backwards to make some judgments about what the conditions were in past wars.
Finally, one can, and we did, extensively mine the historical literature, which, it turns out, often comments on precisely this phenomenon.
So I’ll just give you the results very quickly: For 1816 to 1962, we reviewed 80 conflicts, and in 64, my judgment and that of my co-authors was that the more egalitarian country prevailed. Going back another century to 1716, we came up with 26 conflicts, for which had 24 favorable judgments. One can go into those in detail. The paper discusses a number of them as case studies. We look at, for example, revolutionary and then Napoleonic France and Europe in the early 19th century; we look at the North and the South in the U.S. Civil War, in which the North was an agrarian society with an emerging free-labor middle class, whereas the South was a slave oligarchy; we look at the Crimean War; we look at the First and the Second World Wars on a front-by-front basis, making what we think are very plausible judgments. We look at the Korean War, which is an interesting case in which a country was divided in two, and one can argue that both sides had comparable inequality measures; and the war, perhaps not surprisingly, was fought to a draw. And we look at Viet Nam, where the U.S., both militarily and economically far more powerful, was defeated by an agrarian but determined and highly solidaristic communist country.
One can finally go back and look at classical cases. The literature is replete with them. And I’ll just read you a brief excerpt from, let’s see, The History of the Peloponnesian Wars, Herodotus, who writes:
It is not in respect of one thing, but of everything that equality and free speech are clearly good. Take the case of Athens, which under the rule of princes, proved to be no better in war than any of her neighbors; but once rid of those princes, was far the first of all.
Or one can look at what Procopius of Cesaria had to say about the sack of Rome in A.D. 410, in which what Alaric did was to take advantage of the class system of the Roman Empire by taking 300 of his best young men and making them serve as servants, delivering them as servants to the patricians in Rome. And once, of course, they got inside, they took advantage of the situation, opened the gates, and let the attacking army in to complete the sack of Rome.
So, I have one minute to go, and that’s all I need. I hope I have suggested, without necessarily having attempted in the time I have to persuade you, that there might be something to this hypothesis and that it might be worthy of far more thorough treatment than we’ve yet been able to give it, or have been able to give it here. But it also might have some implications for our present situation; because after all, we are in an environment where we live under a neo-conservative project which has two major elements, one of which is the projection of military power overseas, and the other of which is the perpetuation of a strictly free-market economy with whatever balance of economic outcomes internally that that market economy might deliver. And I would ask you in very broad and philosophical terms if it isn’t possible that those two are in strict contradiction with each other; that as we allow the neo-conservative project to prevail in domestic economics, that we become progressively less effective militarily, and that other countries which follow the same routine also suffer the same fate.
And when you think about the contest that we’re currently engaged in in Iraq, one way of interpreting it, it seems to me, quite simply is to say that we invaded an extremely inegalitarian country, strictly divided between a small Sunni overlord group and a large Shiite sub-class which was extremely unwilling to die in the defense of the Saddam Hussein regime, and in fact put up no very serious resistance to our initial invasion. But by the act of carrying out that invasion, we dissolved that country and we face instead a small statelet in the Sunni homeland, which is by comparison with the original Iraq, substantially more egalitarian, much more solidaristic, and militarily much more effective; so that while we could in fact very easily defeat the original country, we find we cannot defeat the remnant forces of the Sunni Arabs in their own heartland. And that being so, it seems to me that, to the extent that one is interested in broad empirical generalizations—and there is, as I say, as I pointed out earlier, a literature that takes an interest in those generalizations—it seems to me that this one is worth at least considering and putting into the dialogue, because it has some very disturbing and sharp implications for the kind of policy choices that are presently being made. Thanks very much.
BH:
We may end up being a little tight, since we started 15, 20 minutes late; but I think it’s important to hear what the panel has to say. So we’ll see how we do. We’re going to hear from Jeff Dumas, who’s a professor of political economy, economics, and public policy at University of Texas at Dallas. He’s a bit of a renaissance man. He’s an engineer, he’s an economist, he writes on issues, not only international security, but terrorism, technological disaster, environmental and global climate change, economic transition and development. He’s written numerous books and articles. My own probably most important biographical note about Jeff is that he was at Columbia when I was an undergraduate. I had the pleasure of having some lectures from him, along with the late Seymour Mellman, which is one of the things that got me into this mess in the first place.
So anyway, let’s hear from Jeff.
“Why Bombs Fall and Fail”
by Jeff Dumas:
The answers to the questions implied by the title of my paper, why bombs fall and why bombs fail, is on the one hand very simple, and yet at the same time, underlain with layers of complexity.
Bombs fall because, despite all of our technological prowess and intellectual achievements, we still have a lot to learn about getting along with each other. But they also fall because, especially when it comes to matters of security, we are stuck on the idea that argument, persuasion, and negotiation have their place; but violence is ultimately decisive.
Bombs fail because this idea is dead wrong. Security is not now and never has been primarily a matter of weapons and violence; and violence is rarely more than temporarily decisive. Security is primarily a matter of relationships.
The proposition that security depends primarily on relationships, not on weaponry, is easy enough to illustrate. During most of the Cold War, the Soviet Union was not the only nation with sufficient nuclear weaponry and delivery systems to launch a devastating nuclear attack on the United States. Britain and France also had that capability; but I doubt that we spent ten minutes worrying about a British or French strike, because they were our allies, they were our friends. And in the late 1980s, when our relationship with first the Soviet Union and later on Russia began to warm, even The Bulletin of the Atomic Scientists moved their doomsday clock farther from midnight. The weaponry there, and it was still ready to go; but we all felt more secure, and we were more secure, because the relationship had changed profoundly for the better.
I think economists are especially well-positioned to understand and explore this question of security because at its most fundamental economics is not really about money, it’s not about statistical analysis or mathematical or game theoretic models; it’s about relationships. That’s why we use the model; that’s why we use the analysis. Economists are not simply technicians; we are students of human behavior. The focus of economics is on behavior and the relationships that lie within the systems people have created to satisfy material wants and needs; but in that process we learn a lot about how relationships work that is applicable elsewhere.
In the market economists’ paradigm, behavior is most effectively influenced not by the threat or use of force, but by incentives. There’s no reason to believe that this insight into human behavior does not also have some currency in the pursuit of security, even in the most narrow, traditional sense of preventing the bombs from falling.
There are many motivations that lead to war, civil as well as international. Some of these are economic—seizing assets controlled by others, or trying to maintain control of assets others are trying to seize from us. Other motivations have nothing much to do with economics. It’s surely a mistake to believe that potential combatants can always be bought off with economic incentives; but it’s even a bigger mistake to believe that economic relationships do not play a critical role in creating the conditions that can either lead to explosions of violence, or prevent them.
So let’s look now on the question of whether economic relationships can prevent bombs from falling.
Many have argued that ongoing economic relationships create conflicts that can and often do grow into even the point of war within or among states. Often enough, economic relationships that emerge from conflicts sow the seeds of future wars, as those who find themselves disadvantaged at the end of the last war sooner or later once again seek to gain the upper hand. Others argue that economic relationships tend to reduce the likelihood of war. While interdependence does not prevent conflicts, it does create strong incentives to settle whatever conflicts arise as amicably as possible. Because ongoing economic relationships imply continued personal contact and interaction, they also tend to break down national and ethnic stereotypes that lower the threshold of violent conflict by picturing the people of some nations or ethnic groups as strange, untrustworthy, maybe even less than fully human. From this perspective the strengthening and expansion of economic relationships on a global scale may be the single most important force for world peace.
I believe that economic relationships can make war either more or less likely, which they actually do. It depends crucially not on the existence of the relationships, but on their character; not just on their size, but on their character. Unbalanced, exploitative relationships tend to increase the number and severity of conflicts; while balanced, mutually beneficial relationships tend to reduce the likelihood and intensity of conflict. Unbalanced economic relationships are those in which the flow of benefit is overwhelmingly in one direction and doesn’t correspond to the relative value of what each party has contributed to the relationship. Balanced, mutually beneficial relationships are those in which benefit flows in all directions.
A balance of trade in the more conventional sense—that is, exports and imports--is also relevant to issues of war and peace. If, for example, one nation is asymmetrically dependent on another, the less dependent nation will have a degree of economic leverage over its more dependent trading partner; and in reaction, the dependent nation may attempt to bring other—[end Side A] –as well as balanced in the sense of benefit relative to contribution is therefore more likely to prevent war than trade that is balanced in only one of these senses.
Since everyone gains benefit at least equal to their contribution to the relationship they have established, out of pure self-interest no one will want to see such a relationship disrupted. Furthermore, when the gains are equitably divided—and this may have some relationship to what Jamie was just talking about—the economic growth and development of all parties to the relationship is stimulated. Resources are more effectively used, producers become more productive, the size of the market grows. As a result, they have more to offer each other as time goes by, both as sources of products and as sources of profits. The advantage of balanced relationships therefore tends to grow over time. As a result, when relationships are balanced, current gains and the prospect of still greater gains in the future create strong-interested incentives to settle the conflicts that inevitably arise in any relationships more amicably. As those conflicts are successfully resolved time after time, the idea of allowing them to fester to the point of desperate confrontation comes to seem more and more absurd. The thought of brandishing the threat of war against valued economic partners recedes, and war itself ultimately comes to be seen as unnecessary, undesirable, and inherently counterproductive.
It’s easy to see why people being exploited in a relationship would be better off if the relationship were to become more balanced. It’s harder to see that even those doing the exploiting would also gain from greater balance, especially over the long term. The discontent of those exploited motivates them to resist control and to try to force a greater degree of balance in the relationship, or even reverse the direction of domination. Knowing this makes exploiters insecure, leading them into a high-pressure state of constant vigilance and requiring they put an inordinate amount of effort and expense into maintaining control. This is more of a drain than is ordinarily supposed. As it turns out, even studies of non-human primate society have found that the alpha males at the top of the social pyramid suffer physically and perhaps in other ways as a result of the high stress that comes from having to constantly struggle to maintain control; but when relationships are balanced, there isn’t any need to expend extra effort to keep them going, because balanced relationships don’t generate hostility precisely because they are more equitable and more mutually beneficial.
Put simply, a balanced relationship is more efficient. The benefits are achieved at lower cost. This is not a new argument to me. The Wealth of Nations, which you might have heard of, written by Adam Smith a few hundred years ago, talked about Britain’s exploitative trade monopolies during the Age of Empire, and said, “Under the present system of management,”--that is, the colonial system—“Great Britain derives nothing but loss from the dominion which she assumes over her colonies.” It had to do with expending resources to keep everybody under the British thumb.
When it comes right down to it, threat of force, or the use of force, is actually much less effective and a higher-cost way of getting others to do what you want them to do than building positive, cordial relationships. It’s an obvious lesson of everyday life that we fail to apply in the realm of international relations. Political scientist Joseph Nye’s concept of soft power is relevant here. In the international arena, soft power is the power to attract and persuade, to get others to do what you want them to do because they admire your values, they admire your culture, your economic achievements, the political nature of your society. Soft power reduces the need to rely on hard power, that is military force.
Nye’s concept of building soft power is not quite the same as the idea of fostering mutually beneficial relationships, but it is similar. It’s possible to have a degree of soft power without having a particularly warm, mutually beneficial relationship; but it’s not possible to have much soft power in the face of hostility. Nye argues, “Soft power rises from our values. These values are expressed in our culture, in the policies we follow inside our country, in the way we handle ourselves internationally.” Our culture and the policies that we follow inside our country may have something to do with our ability to build friendly relationships with the governments and the peoples of other countries; but “the way we handle ourselves internationally” is absolutely critical. Nye also argues economic powers become more important than in the past because of the relative increase in the costliness of force and economic objectives loom large in the values of post-industrial societies.
Putting all this together: If economic power is increasingly important, if economic achievements are the source of soft power, if soft power is an effective way to get others to do what you want them to do without coercion, and if soft power derives from the way we handle ourselves internationally, then it’s logical that establishing a network of balanced, mutually beneficial economic relationships should be an effective way to build soft power, and therefore to reduce reliance on the threat or use of military force.
There’s also an issue of whether decision power in the relationship is balanced. It’s another dimension of balance that’s very important. I don’t have much time to talk about that, but let me just say that when decision making power is more equally shared, everyone in the relationship feels greater ownership, something we learned for psychologists and sociologists.
Well, that sounds more like sociology and psychology than economics, but if you think about it, the reason economists spend so much time talking about private property is exactly the same. When you own an asset that can give you benefits, you take care of it, you make sure it works well, you nurture it. The same is true of relationships. If a relationship is giving you great long-term benefits, and short-term benefits as well, you take care of it more if you feel that it’s your relationship too. If you feel that it’s just been bestowed upon you as a gift by someone who could easily withdraw it, you’re not as committed to putting in the time and energy to maintain the relationship.
I’m almost out of time, so let me just say that I think the EU is one of the best examples in the current world of an organization that demonstrates some of what I’m talking about. After all, this group of nations consists of countries that have fought countless wars with each other over centuries, that were the major colonial powers dominating the world. When you look at how they interact with each other now, they have plenty of conflicts; but they don’t even think about shooting at each other anymore—not at each other. They haven’t become pacifists. They engage in other wars; but they don’t shoot at each other, and there’s something to be learned from that situation.
Let me then skip to my conclusions. There are really three aspects of balance in economic relationships that help to prevent bombs from falling: First, the balance of benefits; secondly, the balance of decision power; and thirdly, the balance of trade volume. Balance of benefits relative to contributions is probably the most important. Balance of decision power is probably the next most important. Increasing the volume and importance of trade and investment among countries and among regions within countries should allow economic relationships to play a more powerful role in peacekeeping.
So is globalization a force for keeping peace? Well, it is if you do it right, which we’re not necessarily doing. Joe Stiglitz has written, and I quote: “Globalization can be reshaped, and when it is, when it is properly and fairly run, with all countries having a voice in policies effecting them, there’s a possibility that it will help create a new global economy in which growth is not only more sustainable and less volatile, but also the fruits of this growth are more equitably shared.”
Well, that’s right, but the benefits of this kind of restructured globalization go beyond gains in economic equity and stability, as important as those matters are. A greater balance in economic relationships and a sense of both more equitable decision making and more equal gain is also a powerful force for peace. It can deliver both prosperity and real security, succeeding where bombs are bound to fail. Thank you.
BH:
Thanks very much. We have our final panelist, Herbert Wulff. He was founding director of the Bonn International Center for Conversion, he was a senior researcher at the Stockholm International Peace Research Institute, and he’s written and worked on a broad range of security and military issues. He’s going to talk today about the renewed growth of privatized military companies.
“Privatizing War: The Renewed Rise of Private Military Companies”
by Herbert Wulff:
Thank you very much, Bill.
I will argue that the privatization of force that we are experiencing, or more specifically, the activities of private military companies pose a very fundamental challenge to the legitimate state monopoly of force. That’s of course a concept, a very political concept; and the main thrust of my paper is rather political, although I’m also using some economic arguments in it.
Now privatization of force--that’s my hypothesis—calls into question the very basis of the nation-state monopoly of force. And I would like to put that in the context of two other trends, namely the internationalization of military functions--the military is carrying out more and more international functions, especially UN peacekeeping operations; and secondly, the generally trend of globalization, which has an effect on the nation-state.
Let me first say something about privatizing of force. I distinguish between two different types of privatization, which could be called privatization bottom-up basically done by warlords, by militias, by rebels, paramilitary groups, by organized crime; and the second one is top-down privatization through outsourcing of traditional military and police functions to the private sector, purposely undertaken by a number of governments, especially here in the United States, but also in Britain and in other countries.
This privatization of force really reverses a trend which we have experienced over the last 300 years, namely that private armies more and more have been dissolved; private citizens had to give up their weapons, maybe with an important exception here in this country; but basically the general trend of the state monopoly of force was that the state is the only legitimate actor in applying force.
Now of course in many developing countries the police and military force are too weak, or too corrupt, or too inefficient to act as a legitimate force; and in those situations a number of non-state actors take their weapons, try to secure themselves. Especially people that can afford it hire companies; so you get into this spiral of insecurity, which is being tried to overcome by privatizing military and police force. And those zones of asymmetric security emerge, zones where people that can afford it, or companies, or governments try to secure themselves with the help of the private sector. And those people that cannot afford that have to live with the situation or try to make a living out of engaging in these security activities.
Now in this situation, numerous new companies have emerged which offer military and security services. The order books of these companies are full, and they are still growing, and of course the Iraq War and Afghanistan has a lot to do with that. Many of these companies face serious recruiting problems today since not enough specialists that do have experience in this are available. And this has effects on the quality and training of contract personnel. To profit from the growing market, companies regularly hire personnel who are not up to the task, or have a dubious service history.
The causes and the motives for this privatization—and I’m talking now especially about the top-down privatization, which is purposely done by governments—are manifold; and I have extracted from the literature and from empirical research at least eight different military-economic-political-ideological reasons for this type of privatization that can be identified:
First, the over-capacities of the armed forces after the end of the Cold War, which led to demobilization of millions of soldiers, and these soldiers were looking for job opportunities, and they formed companies and offered their services;
The flip side of this demobilization was a shortage of specialized troops in the various international interventions of the armed forces; so the armed forces are asking for the contractors to try to fill the bottlenecks;
Then third, the changes in war fighting and the use of evermore modern equipment, which the armed forces are not able to handle anymore themselves, and they need the backup services of those companies to run this modern equipment;
Then demand for security services by weak or besieged governments in many of the Third World countries;
Demand for protection by agencies engaged in international interventions and in emergency aid;
Intensified demand for the war against error;
Then public critique of employing troops far away. Especially when the casualty rates go up, it’s easier to send contractors, rather than sending your own troops;
And finally, the economic concept of the lean state that aims to curtain many state activities, including sensitive areas of military and police functions.
Private firms, or the private sector in general, are seen by the promoters of this modern privatization effort as an alternative. Military and police skills are now offered on a contract basis on the global market. Experts for almost any military or police job can be contracted, and hence economic power can now be more quickly transformed into military power.
But in defending or promoting outsourcing of military functions, the most common argument used is economic. Basically the economic theory that promotes privatization says the private sector can do it better. And I’ve looked into the private sector in the United States and in Britain and come to the conclusion that the private military companies still have to produce the evidence that they really can do it more effectively than the military. There are many [?] reports here in United States that put a big question mark to this claim that the private sector can do it better. Actually, the evidence of the experience shows that often more gains in efficiency are promised, or hoped for, than are actually delivered.
So to be quite, the delegation of traditional state functions to non-state actors to me is not per se problematic. The crux of the issue is not who exercises the force—and I’m quoting here Jurgen Brauer from an article, and I fully agree with him—but the question is how the application of force is organized; in other words, if these private actors are really regulated and controlled. And I’ve come to the conclusion that’s not the case. They are operating in a gray area, and they are not regulated, and the government hardly knows what they’re doing, and parliaments don’t know anything about what’s happening.
Now let me briefly bring in the international dimension. More and more military functions are internationalized, especially through U.N. peacekeeping operations; but the control of the military has not developed in parallel. The international control of the military, the parliamentary control of the military, which is a key issue in the concept of the modern nation-state, has not developed in parallel. The military is still controlled, if at all, at the national level, but not at the international level. We have a highly politicized body, namely the U.N. Security Council, deciding about the deployment of the troops, but once the troops are being deployed, there’s no control over them by the United Nations, but rather by the nation-states, and there are a lot of nation-states that are neither democratic, nor are they controlled by parliaments—and I should add that the military is the sector that is least controlled in most countries. But the international decision-making about war and peace and engagement in conflicts is taken away from the nation-state, is brought into the international sphere, without having the proper mechanism applied there. The same is true, of course, for globalization. Globalization takes away national decision-making power, and in that context we have now a move for privatization.
I conclude from this that at least in three areas we have to look at alternatives to this very fundamental assault on the nation-state system and to privatization. First of all, I think it is essential that these private companies get regulated, and there are many means to do that. At the moment they are not. There are no international laws. The conventions against mercenarism [don’t] apply to these companies. I don’t have the time to go into that here, but those international laws simply do not apply for the private companies. So I would look at national regulations, especially in those countries that have the majority of these military companies.
Secondly, I think there is a need to continue to develop international norm when to intervene and when not.
And thirdly, I think it is necessary to reform the nation-state system of the monopoly of force, and think about a much more global system in which the application of force is applied.
Thank you very much.
BH:
So we can take some questions, ideally quick. If you have something longer, maybe we can talk afterwards.
Q (Maeve Powlick):
This is a quick question for the last speaker. I was wondering to what extent would you say that some conflicts of interest are common among the private security companies you were talking about? I know, for example, that Executive Outcomes has links to the Branch Mining Corporation, which has links to DeBeers; And Executive Outcomes was also used to provide security for mineral deposits. So I was wondering to what extent are that type of conflict of interest between security interests and economic interests and financial interests, to what extent is that common?
HW:
Well, I think you’ll have experience of both that private companies can be interested in expanding a conflict, because that’s the profit motive for them to continue so they will have additional [?]; but you have also the opposite. Let me give you an example: In the war between Eretreia and Ethiopia at the end of the 1990s, Ethiopia had hired a Soviet , at that time Russian, company, and they leased a modern air force from that company. And Eretreia had done the same from the Ukraine. And those two companies were not interested in engaging in any conflict, these two air forces hardly had any role, because they were afraid of losing their assets. And therefore you cannot just say these companies have an interest in extending the conflict [or] they are the promoters of this conflict. But it’s rather a question of the different situations they are in. So you can have a conflict of interest.
But in general terms I would say security is a public good, and you have to have very strict controls if you have private operators to try to supply this public good. Then you have to have certain and tight controls over that.
Q:
This question is for Herbert, but for the panel as a whole actually. You know, the first Nobel Prize in economics was shared by Frisch and Tinbergen. Tinbergen’s last book, which he wrote with our former colleague, Dietrich Fischer, talked about the United Nations, [drew] a very interesting analogy between the United Nations system and governments, national governments. He said if you look, there’s some parallels between the national government and the U.N., Ministry of Health, World Health Organization—a lot of parallels like that.
But there are two missing pieces. One is a treasury. There’s no way the U.N. can raise money, unlike a national government. The other is military, ministry of defense. And the suggestion was, maybe we should rethink that whole system and build some kind of a finance system, a treasury for the U.N., and similarly a ministry of defense, the U.N. [would] have funding and troops to deal with emergent situations as an alternative to mercenaries and other ways we deal with these suggestions. I wonder how you and the panel react to that suggestion.
If I may start, I would agree with one point, the second one: The U.N. doesn’t have a military. It’s actually foreseen in the Charter of the United Nations; but the member states have taken the privilege of not fulfilling that obligation. So I would be very much for that.
But I think there is a third element that’s missing, which is to me very worrying, and I just hinted in one sentence to that: But the United Nations is not a democratic system. The United Nations is an intergovernmental body that’s not controlled by any parliament. And I don’t know how to rectify that, but to me it’s rather difficult to accept that, as I said, this very biased, this very selective body of the U.N. Security Council, which represents maybe the power relations of 1945, is still the decisive body to decide whether to engage in Kosovo or not, in Darfur or not; so in East Timor but why not in Darfur. And we all know because there’s big power politics involved. So I would argue very strongly for a democratization of the United Nations.
Q:
And the addition of a treasury and a ministry of defense to democratize the U.N. system.
HW:
The ministry of defense basically with a military committee that is foreseen in the Charter. We have it there so let’s install it, let’s ask for the member states to do that. And of course the treasury—that has often been suggested that the United Nations should not depend on the secretary general going around collecting with his hat contributions when the occasion occurs. So I’m very much for that, yes.
BH:
Yes, last question.
Q:
How does the trend in increased regionalization of the response to conflicts, how would that effect your analysis; for example, having the African Union provide more of the troops in peacekeeping operations in Africa?
And one other quick one for David: David, what does Mr. Feldstein mention as the benefits to increased expenditures on the military? I think we should know about that for balance, a kind of balance in the discussion.
DG:
Well, his initial point was that security needs had expanded, both in terms of the types of threats and in the geographical scope of the threats. This is a very short article, and he didn’t go into detail what he meant by that. But the benefit would be easing ability to meet the obviously growing, in his view, security threats. And he did mention in the article that there were other means of doing so, such as intelligence, and he did mention foreign aid, although the foreign aid that he mentioned was designed to fight terrorism, so it was Pakistan basically that he was thinking of. But the focus was, in the article, on the need for more resources on the military side, the hard power side, not the soft power side. So the benefit, in his view, was enhanced security, so the public good […?]
HW:
On your question of the role of regional organizations, again, the U.N. Charter really has provisions for that, and I think it’s about time to get regional organizations that take over these responsibilities. I do see some progress with regard to the African Union and also the European Union who have taken on this issue. I don’t see any progress whatsoever in Asia, for example. There is not a single regional organization in Asia where all the states of the region are members. So how can you expect such an organization that doesn’t even exist to play a role in peacekeeping operations. But I’m very much for that, and I think a reform of the United Nations—and again, it has been often suggested—would have a much stronger role for regional organizations than it has now.
Q:
I’d like to make just a quick comment on the first part of that. I haven’t read the Feldstein article, so I can’t say directly; but there’s a tacit assumption that’s made that more resources into the military equal more security. It’s that kind of assumption that I was talking about. I don’t think it’s true. First of all, I don’t even think necessarily that more resources into the military makes the military fight better; but I certainly don’t think it’s true that that’s the most cost-effective way to achieve security. So I think the whole thing is based on a fundamentally false premise.
BH:
Well, I’m going to thank our panelists for a rich array of ideas, great papers. I take personally responsibility for blowing past our deadline. What should we do in terms of the break? So no break, great.
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