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Do high levels of international trade lead to peace? Norman Angell authored the best-selling book on international politics in history, arguing that economic interdependence between Germany and England made any war between the two unthinkable -- an illusion. His book, The Great Illusion, was translated into 17 languages and sold one million copies; Angell himself won the Nobel Peace Prize. Unfortunately, within a few years of publication, Britain and Germany eagerly threw themselves into the abyss of the First World War.
The analytic literature on the Commercial Peace is much less robust than scholarship on the Democratic Peace, the latter positing the improbability of war between democracies. The Commercial Peace literature displays less consistency and theoretical rigor, with precise causes largely untested. Statistical analyses of trade relationships generally find that trade is conducive to peace; however, numerous case studies find that international trade either played no part in particular leaders' decisions about war or prompted them to escalate rather than become dependent on others.
Nonetheless, some patterns emerge. Trade highly concentrated with a single partner correlates with conflict, as does a marked difference in states' respective dependence. At the same time, however, high levels of trade with the aggregate international market correlate with cooperation. The nature of the traded goods matters -- trade in commodities with substantial strategic applications (e.g., oil or high-tech capital equipment) is most conducive to conflict.
Most important, high levels of economic exchange act as an accelerant: extensive trade enhances either cooperation or conflict. The implication is that specific outcomes are contingent on economic interdependence's interaction with some domestic institutional factor: states' strategic response to global market forces will vary according to their internal political-societal composition.
Economic Sectors and Foreign Policy
A growing body of research indicates that the domestic institutions and dominant sectoral coalitions of the trading nations determine the effect of economic interdependence on states' foreign policy. Put simply, international trade has distributional consequences, producing relative winners and losers in each society, affecting these groups' foreign policy preferences. When constituencies advantaged by global markets dominate the political system, national policy will favor conciliation and multilateral cooperation -- including when the median voter is both politically empowered and gains from trade.
On the other hand, when groups uncompetitive in global exchanges have the power to turn their sectoral preferences into the "national interest," the state will likely pursue a foreign policy of confrontation and the unilateral quest for advantage. Imperial Japan, for example, actually had a higher level of economic interdependence than did its 1920s democratic predecessor, but nonetheless embarked on aggressive imperialism.
Two other sectoral characteristics of the dominant political coalition can determine state response to economic interdependence. Sectors have different exposure to parts of the global economy: some sectors' major markets are the core countries of the world economic system (the wealthiest and most powerful states); others, however, are linked tightly to the global economic periphery (the poorer, less stable states); others still depend on the domestic market and have no interest in paying for active foreign policies of any type. Sectors reliant on the core will favor cooperation with other Great Powers to ensure continued access to these rich markets. Those tied to fixed investments or key markets in the roiling periphery will favor aggressive policies to project state power into these zones, creating spheres of influence.
Finally, sectors differ in their benefit from public expenditures on military power: some (the classic "military-industrial complex") can expect lucrative long-term contracts, while others can only expect to foot the fiscal bill.
At any given level of economic interdependence, a state dominated by political affiliates of globally uncompetitive, periphery-linked, security-spending advantaged sectors will pursue a more expansionist and confrontational policy than a state led by actors from globally competitive sectors whose markets are internal or in the core and that make minimal gains from defense spending. Wilhelmine Germany embodied the first type of state due to its notorious coalition of "Iron and Rye" -- the dual dominance of the corporate chieftains of heavy industry and the agrarian Prussian officer-aristocrats. A striking example of the second type of state, led by a political coalition of finance and export-oriented industry, is 1920s Japan, which embraced conciliatory multilateralism. When these sectoral differences coincide with partisan cleavages, struggles over foreign policy can hinge on fundamental strategy, as in the 1930s' debate in the United States over isolationism versus engagement.
All else being equal, cooperative and multilateral security policies will likely encourage peace, while confrontational and unilateral policies are more likely to lead to conflict. Beyond this, globalization influences the ways these policies may interact in specific instances.
See more stories tagged with: international trade, globalization
P. R. Goldstone is a PhD candidate in the Department of Political Science and a member of the Security Studies Program at the Massachusetts Institute of Technology. He is a non-resident research fellow at the Center for Peace and Security Studies, Georgetown University.
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