Download Bang for the Buck: The Real Effects of Military Spending on Security

Bang for the Buck:
The Real Effects of Military Spending on Security
Lloyd J Dumas,
University of Texas at Dallas
(Prepared for the AEA-URPE session, “The Political Economy of Military Spending”,
ASSA Philadelphia: January 8, 2005)
Introduction
Security is not, and never has been, purely a function of military power. The
threat or use of military force is one component --- and arguably not the most important
component --- of physical security, which in turn is only one aspect of security taken as a
whole. Even physical security depends more on the nature of relationships than on the
raw ability to forcefully coerce,1 but any reasonably realistic concept of what it means to
be secure on the personal, national or international level would, at the very least, also
have to include some element of economic well being. While military power is not
wholly irrelevant to the issue of economic security, it is at best a very problematic means
to that end, especially in the long run.
Because economists are accustomed to dealing with complex, interrelated
systems, we know very well that to fully understand the ultimate effects of one variable
on another, it is necessary to consider indirect as well as direct effects, and to allow
enough time for adjustments and other systemic changes to work their way through the
system. As it turns out, the indirect effects of military spending on security are stronger
and more important than its direct effects, and its long run impact more telling than its
short run impact. In the short run, military spending can be a source of both physical
security and economic stimulus; in the long run, it can be counterproductive in terms of
physical security and will be a dead weight on the economy. To understand how and
why, it is useful to begin with a very brief tour through macroeconomic theory.
1
During the Cold War, for example, the U.S. national security establishment spent very little time worrying
about the nuclear arsenals of Britain and France, and a great deal of time worrying about the nuclear arsenal
of the Soviet Union. Yet, while much smaller than the Soviet arsenal, British and French nuclear forces
were also capable of destroying the U.S. as a viable society. Britain and France were not considered a threat
to our security, not because they lacked the capacity to do us horrendous damage, but because of our far
more cordial relationship with them.
A Brief (and Therefore Necessarily Imperfect) Tour of Macroeconomic
Theory
In Principles of Macroeconomics we learn, via the “production possibilities
curve,” that there are inherent tradeoffs in how a society deploys its productive resources.
Which of the possible combinations of goods and services society chooses to produce,
given its resource endowment and level of technological knowledge, is at the center of
our attention, as is the opportunity cost associated with that choice or any variation in that
choice.
By making sufficient simplifying assumptions (particularly that all wages, prices
and interest rates are perfectly flexible), and ignoring information difficulties, barriers to
competition and the uncertainties of life, we arrive at “classical macroeconomics” and its
first cousin “monetarism”, with their unfailing confidence in the ability of all markets to
adjust smoothly to all circumstances. The classical model, and hence monetarism, is a
kind of “faith-based initiative”, to coin a phrase. There is no need to talk about what
goods and services the society’s resources are being used to produce, because perfect
markets will reliably translate individual preferences, whether for particular goods and
services or for leisure, into concrete market results. Here we are assured long run
macroeconomic Nirvana --- or at least full employment without inflation and a utility
maximizing market basket of goods --- as long as the government keeps out of the way.
Aside from unpredictable exogenous shocks, from which the macroeconomy left to its
own devices can easily recover, the only persistent source of trouble in this
macroeconomic paradise is government intervention.
Then, by sufficiently shortening the time horizon and allowing for some
inflexibilities or at least sluggishness, we get to Keynesian theory, where the principle
macroeconomic goal is limited to full employment without inflation. In this short-term
world, we also do not need to pay attention to what goods and services are produced. As
long as there is enough spending so that aggregate demand matches full employment
supply, it doesn’t matter what is being bought --- or by whom. Consumer spending,
business investment and all forms of government spending are essentially fungible. Gone
is the view of government as spoiler, thrower of sand in the gears of an otherwise
smoothly operating economic machine. Like an otherwise fine automobile that has an
irritating tendency to drift to the left or to the right, the market system requires only an
occasional, measured turn of the steering wheel in the form of timely and appropriate
government intervention to keep it on the road to permanent prosperity.
Then there are more modern extensions of macroeconomic theory, such as
“rational expectations”, based on the highly questionable assumption that the public has
sufficient information to instantaneously adjust its behavior to follow the implications of
a shared, unified mental model of how the economy operates (with a degree of
homogeneity and unanimity which has so far eluded macroeconomists). Rational
expectations may be the best example in economics of the proposition that the fast lane to
fame and fortune in any field of social or behavioral science is to develop a theory whose
implications are that those who are rich and powerful should be left alone, and that any
attempt to even partly rebalance the scales and help the losers in the political and
socioeconomic game by conscious social policy is doomed to failure.
Then there are the advanced macroeconomic models that essentially scale up
microeconomic behavior to the national level, thereby simultaneously extending some of
the more unrealistic assumptions that make neoclassical microeconomic theory work, and
largely excluding critical aspects of interactions among people and within particular
institutional frameworks that often cause the behavior of groups to differ so markedly
from the behavior of a similar number of isolated (and insulated) individuals. This view
of group behavior in particular makes our colleagues in sociology and social psychology
cringe.
There is something relevant to the problem at hand to be learned from nearly
every aspect of macroeconomics we have just reviewed. From the classical model and its
cousin monetarism, we learn that government actions can cause serious long-term
problems for the macroeconomy. From Keynesian theory, we learn that active policy
intervention to keep aggregate demand coordinated with full employment supply is
critical to keeping the economy on track and making full use of the nation’s productive
economic resources. From more recent theoretical developments, we learn that it is
important to keep in mind that the macroeconomy is built on microeconomic foundations.
But perhaps the greatest contribution of all to our understanding of the connection
between military spending and security comes from going back to basics, from explicitly
focusing on the question of how a society deploys its productive economic resources, on
what is being produced and not just how much --- an issue that has gotten lost since we
departed from the Principles of Macroeconomics curriculum.
The Theory of Resource Diversion
Apart from the direct effect of military spending on physical security through its
role in creating potent military forces, military spending has strong indirect effects on
both physical and economic security through its impacts on the macroeconomy. Nineteen
years ago, I wrote a book called, The Overburdened Economy (University of California
Press, 1986), in which I laid out in great detail a theory of how the deployment of a
society’s productive resources set it on a long-term course with powerful implications for
the ability of its economy to do what an economy is supposed to do --- provide for the
material well being of the population as a whole.
The essence of what I called the “theory of resource diversion” lies in the division
of all activities involved in the production and distribution of goods and services into
those that further the central purpose of the economy --- to provide material well being --and those that do not. Since consumer goods and services raise the present standard of
living by meeting today’s material needs and wants, while producer goods and services
raise the future standard of living by increasing the economy’s capacity to produce, the
activities involved in providing both are “economically contributive”. But because
material well being is only part of what people need and want, some goods and services
are also created to satisfy our other wants and needs.
Churches are constructed and bibles printed not to provide material well being, but
to help fulfill the human need for spiritual guidance; courthouses and law books are aimed
not at increasing the material wealth of society, but at providing political order and control.
By the same token, battle tanks and missiles do not themselves add to the material standard
of living; they are produced in the belief that they enhance physical security. Though the
purposes these goods serve may be very important, and these goods may be very useful for
the purposes they serve, they do not directly contribute to the central purpose of the
economy and so do not have any economic value. It is logical, then, to classify activities that
result in goods or services that do not have economic value as economically noncontributive."
Thus, the traditional two-way tradeoff in the use of a nation’s productive
resources between consumption and investment is transformed into a three-way tradeoff
among consumption, investment and economically non-contributive activity. From a
purely economic point of view, non-contributive activity is a resource sink, absorbing
valuable economic resources while creating nothing of economic value in return. The real
economic cost of non-contributive activity is, of course, its opportunity cost, measured by
the economic value that could have been created by using the same labor and capital for
consumption, investment or some combination of both. Though it is obvious, it is still worth
emphasizing that that opportunity cost depends not simply on the aggregate amount of
resources diverted, but also on the type. For in the real world, as opposed to the simplified
world of neoclassical microeconomic theory, resources are anything but homogeneous. And
different types of resources can and do serve very different economic functions.
There is no question that the production of military goods and services is noncontributive activity. Whatever else may be said for such products, they do not add to the
present standard of living as consumer goods do, or to the economy's capacity to produce
standard-of-living goods and services in the future, as producer goods do. Military-oriented
activity is only one of many forms of non-contributive activity, but today, closing in on two
decades after the Cold War ended, it is still one of the largest and most important in the
world. The voracious appetite of modern military sectors for both capital and engineers and
scientists creates a kind of resource diversion with a particularly high opportunity cost.
Why is the diversion of technologists and capital so damaging?
The majority of the population earns the largest part of its money income in the form
of wages and salaries. Ongoing increases in wages and salaries that outrun inflation are thus
key to producing sustained, broad-based improvement in the standard of living. But since
wages and salaries are the largest part of cost for most producers, increases in labor costs
squeeze profits, creating strong cost-push pressure for price increases. Unless some way is
found to offset this pressure (and similar pressure from rising costs of other inputs),
widespread increases in product prices erode the purchasing power of higher wages,
undermining the rise in living standards. Furthermore, rising prices make domestic
producers less competitive with those foreign producers who are either paying very little for
labor and other resources, or are still able to offset costs. As a result markets are lost, forcing
layoffs and causing rising unemployment.
Now, the ability to offset cost-push pressures depends crucially on the rise of
productivity. Although many things affect the rate of productivity increase, more than
anything else rising productivity depends on improving production technology and
increasing the quantity and quality of capital available to workers. Improvements in the
techniques of production come primarily from research and development aimed at
discovering and applying new economically contributive technology. Regardless of the
amount of money spent, without a great enough quantity and quality of engineers and
scientists available to perform the work, such R&D will not be successful. Money does not
create technological progress, engineers and scientists do. Capital is crucial not only to
providing the required research facilities, but also or to deploying the results of successful
R&D throughout industry.
A persistent, large-scale diversion of engineers and scientists and/or capital to
economically noncontributive military activity unavoidably reduces their availability to
support consumption and contributive investment. The stream of productivity enhancing
technological innovation slows down, causing the long-term rate of productivity growth to
drop. Reduced productivity growth, in turn, undermines the ability of domestic producers to
offset the rising cost of labor and other supply-side inputs. If wages and salaries continue to
rise, the result is cost-push inflation that reduces real wages. If higher prices cannot be
sustained in the face of lower cost foreign competition, either domestic production falls,
with a consequent increase in unemployment, or downward pressure on nominal wages and
salaries reduces the real wage. Protectionist measures cannot effectively address this
problem; if they successfully block lower cost foreign products, they merely shift the burden
of reduced real income from workers in protected industries to consumers of protected
products. In every case, there is a decline in the standard of living --- only the distribution of
the loss and the mechanism by which the decline is transmitted will differ.
In the U.S., during the decades-long Cold War, about thirty percent of the nation's
engineers and scientists (full-time equivalent) were engaged in military R&D. Because pay
was higher and access to state-of-the-art facilities and equipment better in that arena, the
military has tended to attract a disproportionate number of the "best and the brightest"
technologists. Thus, although the quantitative diversion of engineers and scientists is large
enough, adjusted for quality, the "brain drain" is even larger.2 As to capital diversion, as of
1990 --- more or less at the end of the Cold War --- the total book value of physical capital
directly owned by the Department of Defense (including plant equipment, structures,
weapons, and related equipment and supplies) was more than 80% as large as the total book
value of capital equipment and structures in all U.S. manufacturing facilities combined!3
See Dumas, Lloyd J., The Overburdened Economy: Uncovering the Causes of Chronic
Unemployment, Inflation and National Decline,(Berkeley, California: University of
California Press, 1986), pp.209-211.
3
The book value of capital owned by the Department of Defense is from Department of
Defense, Real and Personal Property (September 30, 1990). The book value of capital in
U.S. manufacturing as a whole is from Bureau of Economic Analysis, U.S. Department of
Commerce, Survey of Current Business (January 1992), p.113.
2
Though there is a need for solid empirical research to establish (or refute) the
connection, it is worth noting that the late 1980’s saw substantial military sector layoffs of
engineers and scientists as the Cold War ended, and the first post-Cold War decade of the
1990’s, for all its “irrational exuberance”, saw a real, sustained technology driven boom. If
the theoretical logic we have been following is accurate, the competitiveness problems of
domestically based production in the U.S. should be exacerbated over the next decade or
two, as the enormous military buildup we are now pursuing re-absorbs that technological
talent into noncontributive military activity.
Noncontributive activity essentially shrinks the resource base available to support
both consumption and contributive investment. When the ability of the macroeconomy to
deliver ongoing improvements in the material standard of living is severely compromised by
excessive noncontributive activity, the quest for real increases in economic wellbeing turns
into something approaching a zero sum game. In such an environment, the only way for any
significant part of the population to keep increasing their personal standard of living is to
take income and wealth away from others. Economic inequality grows, as elites use their
political and economic position and power to disadvantage the rest of the population, often
mobilizing government for this purpose.
Politically popular across-the-board tax cuts that disproportionately reduce the tax
burden on the upper reaches of the income distribution are one manifestation of this
phenomenon. Such tax cuts are even more inequitable than they look. Rather than paying
taxes, they give the wealthy the opportunity to make money (at very low risk) by buying
government bonds issued to cover the deficit that resulted from the tax cuts. In effect, the
economically privileged can lend what would have been their taxes to the federal
government on the promise (backed by “the full faith and credit of the federal government”)
that they will not only get their money back, but they will get it back with interest!
Elites can also utilize the levers of government to undermine social support systems
put into effect in a more enlightened age. For example, though it is sold on the basis of
increasing freedom of choice, privatizing social security can make huge additional sums of
financial capital available to those who dominate the private sector, while shifting risk to the
public. By removing their guarantee of baseline pension income, their future pension checks
will be subject to the vagaries of the stock market, and the always-reliable behavior of those
who run major corporations like Enron and Worldcom.
Public investment, in such critical elements of the infrastructure as roads, sewage
treatment and water supply, can be cutback in favor of privatization --- ostensibly in the
name of efficiency, but with at least the side effect of the kind of reduced transparency and
accountability that has helped to make our military industrial complex so famously
inefficient in the use of public funds. Public investment in human capital can also be cut
back. Reduced funding of financial aid to college students has the dual “advantages” of
“making government smaller” and making it increasingly difficult for everyone, except the
children of the elite, to have ready access to quality institutions of higher education, further
perpetuating privilege. Government can also be put to use helping to undermine unions and
other sources of countervailing power that make it more difficult to engineer this shift of
income and wealth so that “to them that have, will be given”.
All of this not only accelerates the loss of economic aspect of security for the
broad mass of the population, but also can further reduce economic capability in the long
run, leading to still less economic security. More than that, living in a world where the
only way to improve your own economic wellbeing is to take it away from others
strengthens the mindset of domination.4 A well established, zero-sum mindset of
domination as the path to economic success will not stay wholly within the economic
realm. A nation that is powerful militarily, but less and less competitive economically is
prone to adopt foreign and military policies that rely on forceful domination and threat to
achieve its objectives. As such a nation becomes more belligerent, it is increasingly seen
as a threat by other nations, which may then take measures that they see as protective --deterrent measures such as building up their own military forces, developing weapons of
mass destruction, or aggressive measures such as active covert support for targeted acts
of disruptive terrorism. The result may well be a more dangerous world in which
everyone is less physically, as well as economically, secure.
The indirect, long-term effects of sustained high levels of military spending on
security are overwhelmingly negative. Such spending not only undermines economic
security by, in effect, shrinking the resource base and thus shifting the nation’s
production possibilities curve inward, it also undermines physical security by
encouraging political and military behavior that provokes reactions which undermine
physical security. Yet there is a way to effectively turn the tables --- to use economically
contributive activity not only to enhance economic wellbeing, but also to increase
physical security. It is to that matter that we now turn.
Basic Principles of an International Peacekeeping Economy
In the late 1970s, Kenneth Boulding, former President of the American
Economics Association, put forth what he referred to as the “chalk theory” of war and
peace.5 A piece of chalk breaks when the strain applied to it is greater than its strength,
i.e. its ability to resist that strain. In the same way, war breaks out among (or within)
nations when the strain on the international (or domestic) system exceeds the ability of
that system to withstand the strain. The key to establishing enduring peace is therefore to
find ways of reducing the strain on the system or increasing its strength. Taken together,
the three basic principles presented here are an attempt to do both. I believe they are key
to creating an international peacekeeping economy.
Principle I: Establish Balanced Economic Relationships.
Despite Bush administration protestations to the contrary, many still believe that
the real reason the U.S. led a military invasion of Iraq in 2003 was the desire to control
4
A well-established, zero-sum mindset of domination as the route to personal economic success has been
the curse of much of modern day Sub-Saharan Africa, perpetuating violence and undercutting every effort
at economic and political development.
5
Boulding, Kenneth E., Stable Peace (Austin: University of Texas Press, 1978).
oil supplies. There is nothing new in this argument. Over the centuries, many people have
contended that most, if not all wars are caused at least in part by economic factors. Others
claim that economic relationships reduce the prospects for war, because they bind people
together in common interest. In fact, economic ties between nations can both foment war
and worsen structural violence or help to keep the peace. It is the character of economic
relationships that determines which it will be, not their mere existence.
Exploitative relationships, in which the flow of benefit is overwhelmingly in one
direction, tend to provoke hostility and conflict. Even if those being exploited gain
something, the fact that the vast majority of the benefit flows in the other direction is
bound to create or aggravate antagonisms. That is even more true if those being exploited
are suffering a net loss. It is not necessary to look any farther than the revolution that
gave birth to the United States for an example of the power of economic exploitation (or
even the perception of such exploitation) to provoke antagonisms that can lead to war.
Exploitative relationships create incentives for disruption by those being exploited,
who would like to find a way to destroy (or at least radically restructure) the relationship and
perhaps also to take revenge. Since they have little to lose and may actually gain if the
relationship collapses, the exploited may well be ready to raise the intensity of whatever
conflicts might occur, economic or otherwise, even to the point of war. If the exploiters
come under stress from external sources, those being dominated will have a strong incentive
to take advantage of the situation to try to break free. Knowing this will make the exploiters
feel insecure, and lead them to put an inordinate amount of effort and expense into
maintaining control. This is often a much larger drain on the dominant nation and its
economy than most people realize.
In balanced relationships, the flow of benefit is more or less equal in both directions.
Because they are fair and mutually beneficial, balanced relationships do not provoke
antagonism. On the contrary, as each party begins to perceive how much they are gaining,
they start to see the wellbeing of the other party as in their own best interests. The mutual
flow of benefits binds the parties together. Because the relationship benefits all participants
more or less equally, they will all be more likely to look for ways of maintaining or
strengthening it, out of self-interest. When conflicts occur, they will try to avoid disruption
by settling them amicably. If their partners in the relationship come under stress from
external sources, they will have an incentive to help relieve, rather than exacerbate, the
pressure. In this situation, everyone in the relationship will feel more secure, and no one will
feel the need to expend extra effort and expense just to keep it going. Put simply, a
balanced relationship is a more efficient relationship: the benefits are achieved at a much
lower cost.
Adam Smith saw this clearly 230 years ago, though he was not particularly focused
on the implications of balanced vs. exploitative relationships for war and peace. In The
Wealth of Nations, after a lengthy discussion in the context of the British colonial empire,
Smith wrote:
“Under the present system of management…, Great Britain derives nothing but loss
from the dominion which she assumes over her colonies.
… Great Britain should voluntarily give up all authority over her colonies…. [She]
would not only be immediately freed from the whole annual expense of the peace
establishment of the colonies, but might settle with them such a treaty of commerce
as would effectually secure to her a free trade, more advantageous to the great body
of the people [of Britain]… than the monopoly which she at present enjoys.”6
Balanced gain is important, but it is only one dimension of balanced relationships. If
the process involved in making key decisions relative to the relationship is unbalanced,
those with less input and control in the decision process may feel that they are unduly
dependent on the good graces of the others. Even if the gains are currently balanced,
believing that the terms of the relationship are subject to arbitrary, unilateral change creates
insecurity and weakens commitment. When decision-making power is more equally shared,
everyone involved has a feeling of ownership in the relationship. It is their property, not
simply a gift someone has bestowed upon them and can just as easily withdraw. Every
participant will therefore feel a greater sense of responsibility for taking care of the
relationship, for insuring its continuation and success. This cannot help but strengthen the
incentives of all participants to find peaceful ways of settling their conflicts with each other.
This may seem more like psychology than economics, but in fact it is a central tenet
of free market economics. It is precisely the reason so much emphasis is placed on the
institution of private property. Because property can provide continuing economic benefits,
the owner of private property has a strong personal incentive to maximize the flow of those
benefits by caring for it properly and using it efficiently. This incentive would be
dramatically weakened if the property were subject to sudden confiscation as a result of
decisions made arbitrarily in a process over which the person using the property had no
meaningful control.
The effectiveness of mutually beneficial, balanced economic relationships in
keeping the peace is illustrated by the development and growth of the European
Economic Community (EEC), forerunner of the European Union. Formed in 1957, by the
early 1970s, the collection of nations that belonged to the EEC included Belgium, France,
Germany, Great Britain, Italy, the Netherlands, Portugal and Spain. These nations had not
only fought countless wars with each other over the centuries (including World Wars I
and II), they were major colonial powers that dominated and exploited the rest of the
world. Yet today, if you were to ask the citizens of any of these countries the odds of
their countries fighting a war with each other over the next fifty years, they wouldn’t
even consider it a sensible question.
It is not as if these nations no longer have conflicts with each other. In the last few
years alone, there were serious disagreements over the banning of British beef by other
EU member states as a result of the outbreak of “mad cow” disease in Britain; ongoing
squabbles over the adoption of the single European currency (the Euro); and a sharp split
over the 2003 war in Iraq (with Britain and Spain strongly in support and France and
Smith, Adam, The Wealth of Nations (New York: The Modern Library,
Random House, 1937), pp.581-582.
6
Germany strongly opposed). But they all understand that they have too much to lose to let
their disagreements get out of control. So they debate, they argue, they shout at each
other, but they don't start shooting.
Since trade and investment are two of the most important economic relationships
among countries, it is logical that the expansion of international trade and foreign
investment has the potential for being a powerful force for keeping the peace. Both have
been key elements of globalization. Is a policy of embracing globalization then a path
toward peace?
It could be, but only if the relationships established in the globalization process
were balanced and mutually beneficial. Unfortunately, the process, as shaped by key
institutions like the World Trade Organization (WTO), has fallen short in two ways. First,
because developing countries have been pressured to lower their trade (and investment)
barriers, while more developed countries have continued to protect their agricultural
sectors against competition from developing country produce, it has not reduced and has
probably exacerbated the imbalance of relationships between the more developed and
less developed countries. Second, with a history of protected, closed door meetings and
secret negotiations, the WTO in particular has established decision making procedures
that are not inclusive enough to allow all major stakeholders to be party to the decision
process --- or even to know what is happening.
As Joe Stiglitz, Nobel Laureate and former chief economist at the World Bank,
has written:
“…to many in the developing world, globalization has not brought the promised
economic benefits…. Despite repeated promises of poverty reduction made over the
last decade of the twentieth century, the actual number of people living in poverty
has actually increased by over 100 million…. [N]either has it succeeded in insuring
stability. Crises in Asia and Latin America have threatened the economies and the
stability of all developing countries.”7
Stiglitz goes on to argue,
“Globalization can be reshaped, and when it is, when it is properly, fairly run, with
all countries having a voice in policies affecting them, there is a possibility that it
will help create a new global economy in which growth is not only more sustainable
and less volatile but the fruits of this growth are more equitably shared.”8
I could not agree more. There are great potential benefits to reshaping globalization
along lines that will democratize its decision making processes and institutions, and at the
same time create much more balance in the gains of trade. But the benefits of this kind of
restructured globalization are not confined to gains in economic equity and stability, as
Stiglitz, Joseph E., Globalization and Its Discontents (New York:
Norton, 2002), pp.5-6.
7
8
Ibid., p.22.
important as these matters are. More balanced trade, in the sense of both more equitable
decision-making and more equal gain, is also a powerful force for peace.
Principle II: Emphasize Development.
The poverty and frustration of so many of the world's people is a fertile breeding
ground for violent conflict. There have been well more than 120 wars since the end of
World War II, taking more than twenty million human lives. Nearly all of them have
been fought in developing countries.
People in desperate economic straits tend to reach for extreme solutions. They are
much more easily manipulated by demagogues and seem easy prey to aggressors. People in
good economic condition are much less likely to want to tear things up. Violent disruption is
much more threatening to them because they have a lot more to lose. Therefore,
emphasizing inclusive and widespread development is important to inhibiting both interstate
and intrastate war. But it is also a very useful counter-terrorist strategy.
All but the craziest, most isolated terrorists (such as Ted Kacszinzki, the
Unabomber) are to some degree dependent on and trying to build support, at least for
their cause if not their tactics. Most terrorists do not have the benefit of a wealthy patron
such as Usama Bin Laden or the active support of a state, but even those that do must still
recruit operatives. They also have to be able to move around, coordinate activities, take
care of logistics, and find secure places to store materiel and to do whatever training or
preparation is necessary without being detected by those who are trying to stop them. All
of this is much, much easier to do the wider their base of support.
To recruit reliable operatives and build the support networks they need, terrorist
groups must have a cause that can convince “normal” people to engage in and actively or
tacitly support acts of horrific violence they would not otherwise condone. This does not
require that either the terrorists or their supporters be economically destitute. In fact, the
group must have access to financial means and to people of some skill. But they need a
powerful rallying cry to enable the group to recruit people who may not themselves be in
desperate straights, and motivate them sufficiently to get them to take extreme, perhaps
terminal risks.
Unfortunately, there seem to be a number of causes and circumstances that work
well enough in practice. Most, if not all, involve calls to the service of some
disadvantaged group or to some force greater than the individuals being recruited or
solicited for support. As perverted as this may be, it is at base an appeal to heroism. If the
individuals involved can be made to feel that by engaging in (or supporting) terrorism
they become the avengers of a great wrong done to “their people”, that they are the right
hand of God fighting for the weak and downtrodden, they can be made not only ready but
eager to perpetrate or support horrific acts of violence against innocent people who have
never directly done them any harm.
By raising the economic well being and political status of the larger group of
which the terrorists and their supporters feel part, development makes it substantially
harder for terrorists to recruit operatives, while at the same time weakening support
among others who feel connected to that same larger group. It is not just that those who
are part of a people in better economic and political condition are less marginalized and
not so aggrieved, it is also that they have much stronger incentives to look for --- and
greater capability to find --- less violent and more effective means of addressing whatever
grievances they may have. Development can thus help dry up both the pool of potential
terrorists and the wider support for terrorist groups critical to their continued operation.
The best way to deal with terrorism in the short run, and the only way to deal with
the terrorism that arises from individual mental illness or group psychosis, is through
first-rate intelligence and police work. But in the long run, economic and political
development is the most effective way to undermine crucial elements of terrorist support
systems. In fact, it is the only counter-terrorist strategy that directly addresses the
marginalization, frustration and humiliation of peoples that breed terrorism as well as
many other forms of violence and inhumanity. It is not the whole answer to terrorism, but
it is a very important part.
Unless real progress is achieved in generating sustained improvement in the material
conditions of life for the vast majority of people in the developing countries, the prognosis
for preventing war is poor. But with such progress, it is possible both to undermine terrorism
and strengthen incentives to avoid war.
Principle III: Minimize Ecological Stress
Competition for depletable resources generates conflict. The desire to gain (and if
possible monopolize) access to raw materials was one of the driving forces behind the
colonization of much of the world by the more economically and militarily advanced
nations in centuries past. This competition continues to bring nations, and sometimes subnational groups, into conflicts of the most dangerous kind --- those in which at least one
party believes that the continued economic wellbeing, political sovereignty or even survival
of its people is at stake.
There is little doubt that conflicts in the Middle East would be much less likely to
lead to military action by the major powers if it were not for Middle East oil. The
considerable difference among the reactions of those powers to slaughter in Rwanda,
aggression in Bosnia, hostility in Iraq and brutal war in Liberia may have a variety of
causes, but the presence or absence of substantial oil reserves is certainly one of them.
The air and the water do not recognize the artificial lines that we have drawn on the
earth to separate ourselves from each other. Environmental damage knows no national
boundaries, and can also be an important source of international conflict. That is clearly
illustrated both by acute environmental disasters such as the nuclear power accident at
Chernobyl and such chronic problems as acid rain. Trans-border pollution itself may not
lead to war, but it has already generated considerable conflict and has the prospect of
generating a great deal more. Widespread international hostility to the recently reaffirmed
U.S. decision to abandon the Kyoto accords, for example, is in no small measure due to the
dramatic effect that continued trans-boundary pollution by “greenhouse gases” is likely to
have on climate change, with the consequence of imposing potentially enormous long run
costs on the world economy. Every additional source of tension contributes to the strain on
the international system and therefore to the likelihood that other sources of conflict will
lead to the eruption of violence. Put simply, the greater the load on the camel’s back, the
more likely the next straw will break it.
Some have argued that the expansion of economic activity itself is inconsistent with
maintaining environmental quality, that modern production techniques and consumption
activities generate an unavoidable degree of ecological stress. There is an element of truth in
this. Still, the levels of economic wellbeing to which the people of the more developed
countries have become accustomed can be maintained, improved and extended to the people
of the less developed nations without even generating current levels of environmental
damage. Accomplishing this feat requires: 1) a great deal more attention than is currently
being paid to the efficient use of natural resources; 2) the development and extensive use of
pollution-abating technologies and procedures; and 3) a substantial shift toward qualitative,
rather than quantitative economic growth, particularly on the part of the more developed
countries.
The efficient use of natural resources involves more intensive and widespread
recycling of nonrenewable materials, efficiency improvements in the design and operation
of energy-using systems, and greater use of ecologically benign, renewable energy and
material resources. Recycling of nonrenewable materials dramatically reduces the rate of
their depletion, transforms solid wastes into useful material, and saves energy, thus reducing
both the rate of depletion of nonrenewable energy resources and the pollution associated
with their use. Three decades ago, I estimated that a combination of improved design and
changes in the operation of energy-using systems could reduce energy consumption in the
U.S. by 30%-50% without sacrificing living standards.9 Of course, the further development
of ecologically benign renewable resources will provide supplies of energy and materials
that can sustain economic activity indefinitely.
The development and use of pollution-abating technologies and procedures is twosided. It involves better filtration, waste treatment and other after-the-fact cleanup. But it
also involves the development and use of less environmentally damaging production and
consumption technologies, ultimately working toward mimicking natural ecological systems
in which the waste of one process becomes the feedstock of the next in an endless cycle.
Finally, to conceive of economic growth mainly in quantitative terms is foolish and
unnecessary. Standards of living are also raised, sometimes more effectively, by
improvements in the quality of goods and services. Shifting attention to qualitative growth
will allow the more developed nations to reduce their insatiable appetite for nonrenewable
resources, making their continued economic growth indefinitely sustainable. It will also
reduce environmental pollution and create space for the quantitative expansion of goods and
services still required in many less developed nations.
9
Dumas, Lloyd J., The Conservation Response: Strategies for the Design and Operation of Energy-Using
Systems (Lexington, MA: D.C. Heath, 1976).
If we follow strategies such as maximizing energy efficiency, developing renewable,
ecologically benign energy and material resources and conserving depletable minerals by
recycling, we will not only improve the quality of the environment, but also reduce these
sources of international conflict and strain on our ability to keep the peace.
Conclusion
Military spending is an economic dead end. High levels of military spending impose
a serious opportunity cost even in the short run. In the long run, they undermine the ability
of the economy to function efficiently; causing a general decline in economic wellbeing that
is exacerbated for most of the population by the determination of the economically
privileged and politically powerful to continue to improve their personal economic growth
rates in the face of general decline. As militarily powerful but economically deteriorating
nations increasingly rely on their military prowess to further their national interests, they
provoke reactions by other nations that are likely to reduce physical security as well. In the
twenty-first century world, the attempt to achieve security by military means is ultimately
counterproductive.
At the beginning of the twenty-first century, we find ourselves in the midst of a
dramatic, decades long reshaping of the international economic and political landscape. By
learning to put aside the idea that force and threat of force is the most effective means
affecting international behavior and adopting instead the economist’s perspective that
behavior is best influenced through incentives and creating opportunities for mutual gain,
we can guide the change that is swirling all around us in much more constructive directions.
We can create a web of international economic relationships that not only serves our
material needs, but also provides strong positive incentives to make and keep the peace. And
rather than a world of growing insecurity and deepening inequality, we can build a world
that is at once more equitable, more prosperous and more secure.