Does Globalization Cause War?

Scott Malcomson

29/01/2015

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The argument that globalization does not necessarily lead to peace is a pretty easy one to make, the usual example being that German-British trade was going brilliantly right up to World War I. Arguing that globalization leads to war is an altogether different enterprise. In his new book, When Globalization Fails: The End of Pax Americana, James Macdonald comes daringly close to showing that globalization, as a system of interdependence among major states, is an inherently unstable system that breeds insecurity among great powers. The interdependence feeds the insecurity.

"Interdependence feeds the insecurity."

Macdonald squeezes a lot into a book of some 250 pages. He traces, from the 1820s to the present, the pendulum swings between open economies at one end and closed, protected ones at the other. Because mainstream economics today -- with its central tenet of the pursuit of comparative advantage by economic actors such as states -- favors free trade, and because the benefits of free trade over the past 25 years seem so obvious, we see relatively little discussion of the benefits of autarky or of protectionism. Macdonald corrects this. He is by no means against trade or globalization, nor is he arguing for protection. He approaches the topic as a historian, with a dispassion that probably served him well over a long career as an investment banker. (He is the author also of A Free Nation Deep in Debt: The Financial Roots of Democracy, from 2006, which despite its title is about empowerment.) He's simply trying to see the world as it is and to describe it with clarity.

Protection, as a way to ensure self-sufficiency and therefore (as it was thought) national security, was more or less the norm until the 19th century and industrialization. As Macdonald writes:

The Industrial Revolution led to mass migration from the country to the new manufacturing towns. Although industrialization was accompanied by an agricultural revolution that constantly increased food output, there was a growing shortfall between what the countryside could produce and the needs of the growing urban population. At the same time, the factories were turning out a quantity of manufactured goods that was greater than could be easily absorbed within the country and for which overseas markets were required. The solution to both these problems was free trade, which would open Britain to imports of cheap food, and foreign countries to exports of British manufactures.

The connection between this and peace was made by, among others, Richard Cobden, the great advocate of free trade, who sought to break down "the barriers that separate nations. . .behind which nestle the feelings of pride, revenge, hatred, and jealousy, which every now and then burst their bonds, and deluge whole countries with blood; those feelings which nourish the poison of war and conquest, which assert that without conquest we can have no trade, which foster that lust for conquest and dominion which sends forth your warrior chiefs to sanction devastation through other lands."

Cobden saw trade as the solution to chronic early-modern warring over territory, including imperial expansion. This bright geopolitical possibility merged powerfully with the economic reality that, in most cases, industrialization without trade -- or without dependence on other powers -- was difficult, and even impossible.

The key destabilizers in this system have been the questions of precedence and of raw materials. Being early to some particular industrial advance such as steam-powered mills had great advantages; indeed it might be said to create a comparative advantage where one had not existed before. For a nation coming a bit later to the game, the emotions Cobden identified -- pride, revenge, hatred and jealousy -- might arise even in a situation of free trade, as the latecomer sensed that it might find itself at a serious, even permanent, disadvantage. For nations wishing to catch up, one common recourse was to discourage manufactured imports until nascent industries could grow strong enough to face competition from producers based in nations that had had a head start. This could of course be done in any number of ways, whether the blindly murderous (Soviet collectivization of agriculture and forced industrialization) or the merely authoritarian (South Korea in the 1960s), and could be variously financed through foreign investment (the United States after the Civil War), currency manipulation (China in the 1990s) or expropriation.

In a few cases, the other central question -- access to raw materials -- could be avoided through sheer good fortune. The United States has had a great deal of that. Whenever industrial advance required a new input, whether timber, coal, iron ore, oil, gas or water, the U.S. always seemed to have enough already on hand. (An exception is the rare earths needed for today's electronics.) Russia has had similar luck, and so did China in the 1990s, with ample coal and (for a time) oil. Britain's coal and iron ore supplies were likewise crucial to its early industrial expansion.

Most nations weren't so fortunate. Macdonald is really excellent on describing the ups and downs of Franco-German competition over iron and coal, which was in many ways the crux of Europe's bloody confrontation with itself from the mid-19th century through World War II. He does the same for Japan, with its longing for the resources of Manchuria (iron ore and coal; conquest came in 1931) and the East Indies and Malaya (oil, rubber, tin; 1942). Again, as in industrialization, early movers like Britain and France, to the degree that their imperial expansions in the 19th-century scrambles for Africa and Asia improved access to raw materials, had created advantages for themselves. Ambitious industrial powers like Japan, Italy and Germany came to the imperial game late but fiercely in the hope of erasing the precedential advantages of Britain, France and the U.S.

"We are nonetheless entering dangerous times."

As Macdonald shows, ambitious nations that did not already have what they needed to feel that their own industrialization was secure -- that is, roughly speaking, every nation except the U.S. and, but for a warm-water port, Russia -- would become aggressive out of fear. This was close enough to a zero-sum game to make any multipolar system inherently unstable. The shifting dynamics of industrial inputs combined with their finite nature (as in China's once-ample oil supplies, or the new industrial need for rare earths) ensures that any settlement of this problem is permanently subject to random shifts in its basic conditions. Macdonald writes:

In a competitive multipolar world governments were dealing with a 'prisoner's dilemma' of whether they should cooperate or compete. It may have been fine for small countries to rely on the protection of the Royal Navy for their international trade. But was that a safe bet for countries like Germany that were large enough to pose an economic and therefore geopolitical threat to Britain? Given its circumstances, it was logical for Germany to compete for colonies and to build up a navy. Yet the attempt to carve out safety for one country was potentially threatening for others, leading to a self-fulfilling prophecy.... [T]he search for self-sufficiency tended to make war more rather than less likely.

Even in the extravagant case of the U.S., self-sufficiency had destabilizing effects. Nations dependent on U.S. exports (particularly of food, though also of capital) felt a vulnerability to U.S. power. Debates today on whether to export U.S. natural gas and oil (or the recurring debates on ensuring "food security," or indeed the question of Internet governance) suggest a potential American isolation that is rife with strategic implications for other powers. The U.S. is far too big to ever imagine it is making decisions only for itself; even when Americans believe it, no one else does.

It is said that America's return to energy independence is also changing the geopolitical outlook. It will not only ease pressures on global supplies of oil and gas but will also mean that there is less reason for the United States to get involved in the dangerous competition for oil from the Middle East or the ex-Soviet states in Central Asia. ... Underlying this line of argument is a twenty-first-century revival of the theory, so prevalent in the 1930s, that self-sufficiency is a route to peace. The problem, of course, is that America was self-sufficient in oil in the 1930s, but this did not in any way save the world from war.

Where does this leave us? Macdonald has the courage to follow his own evidence and logic wherever they lead, but the destination is pretty bleak. He notes that American policy currently amounts to containment of Russia and China, and advocates bringing both further into Western security arrangements. He also pushes for some agreed regional sharing of China Sea natural resources. Both are good ideas but not new onesand feel somewhat tacked on.

Toward the end Macdonald wonders whether "the biggest threat to free trade could paradoxically turn out to be the globalization that the West did so much to foster. The inevitable result of this process was the incorporation into the global economy of billions of low-paid workers from the third world, which has led to a protracted squeeze, first on working-class and subsequently on middle-class incomes in developed countries." This is worth pursuing. Most developed countries are democracies and the people hit by that wage squeeze vote. European politics is animated by anti-elite, often nativist parties getting 10, 20, 30 percent and more of national votes, as seen most recently in Greece.

Economic stagnation and a nationalist revival have coincided in Japan as well. In the U.S., President Obama's State of the Union speech last week aimed directly at the wage-squeeze demographic. The political dynamic in developed countries is increasingly focused on what might be called the mild anti-globalization mainstream, with a worldview colored by an often amorphous national-cultural identity.

There is another middle class that has been affected by globalization, namely the one it has helped create in the past 25 years in China, India and elsewhere. The expectations of this sprawling, new and insecure demographic seem to be fairly consistent: they want to feel and assert national pride, and they do not want to lose what they have so recently acquired. Their elected (Narendra Modi) and unelected (Xi Jinping) leaders find it valuable to emphasize national identity in strengthening and defending their own power. Russia, as ever a bit between geopolitical stools, is also experiencing a resurgence of national feeling, with a strong imperial element.

Wobbly nationalistic middle classes are not to be underestimated as political forces. They tend to have a stronger sense of their own importance than lower social classes, which explains why the spectacular global growth in incomes of the bottom 50 percent seems to have so little direct political valence, however huge it is in terms of how well humanity lives. Middle classes in more authoritarian states like China might indeed make even stronger demands, as a class, than in democracies, since their ascendance under "state capitalism" could lead to greater expectations of the state. One can imagine income inequality becoming a genuinely strategic question.

If our multipolar world is going the way of Macdonald's analysis, we would expect to see greater regionalization under the direction of one or another regional hegemon -- and that does appear to be the case, despite important countervailing trends such as improving U.S.-India relations, which have rescued the World Trade Organization. In Central Asia, Russia's Eurasian Economic Union and China's New Silk Road confront each other as opposing regional power plays. Asia's export-led economies are alsobecoming more regional: Asian exports are increasingly purchased within Asia itself as demand from advanced economies remains weak. And regardless of the degree to which "re-shoring" exists, the desirability of siting production in closer physical proximity has captured Western political imaginations. Meanwhile all the major powers are focused on strengthening regional security arrangements, and all the major emerging powers are building their defenses, including the blue-water navieswhose major "defensive" purpose is to defend raw-material supply routes.

There are huge differences between today and earlier eras when the dynamics of globalization led to large-scale conflict. Nuclear weaponry is one; the lack of demographic-growth pressures in advanced economies is another. But we are nonetheless entering dangerous times.