Reconceiving U.S. Economic Strategy

Walter M. Hudson

Source Link

Military doctrine often proposes a whole-of-government approach to overcome what could be a fragmented strategic process. But this approach is elusive and ill-defined. Somehow, a lot of people from different government agencies work collaboratively and with single-minded purpose to devise a strategy. Joint Publication 3-08, for example, states that whole of government effort “involves the integration of U.S. Government efforts through interagency planning that set forth detailed concepts and operations.”[1] But it goes little beyond describing planning efforts in abstract terms. And it admits significant difficulties. For example, civilian departments and agencies have “different cultures and capacities,” and many do not even conduct operational planning.[2] These are indeed obstacles.

The utility of a coherent whole-of-government strategic approach is even more questionable when any strategy involves the use of economic statecraft as an instrument of power. For reasons described below, the mental model of a unified government “orchestrating” the economic instrument of power is fundamentally misleading. Rather, the more appropriate “mental model” to describe the milieu of the economic instrument is as a network of a variety of entities, and even more specifically to describe that milieu as a complex adaptive system. Behaviors in such a system are inherently decentering– no single node in the system predominates. Understanding how the economic instrument can operate in this system also requires understanding the rest of the elements and their interconnected interdependencies.

There are three fundamental, structural reasons that make the economic instrument of power different from other instruments and therefore difficult to apply as part of a whole of government strategic approach. The first reason involves an understanding of the government’s provision of services. The U.S. government typically provides two types. One is a “direct” service—a service that the government directly supplies to perform a function. The two exemplary “direct services” that the U.S. government provides are the U.S. postal service and the U.S. military. Both are directed by, and under the control of, the executive branch. Both the postal service and the U.S. military are internally directed by a unified, hierarchical leadership structure within the executive. Far more prevalent in the U.S. government are “indirect” services. These services stabilize, monitor, and overwatch key societal functions, albeit not via direct intervention and action. They are provided via legislation and regulation, and via monitoring and inspecting any number of activities, and they are dispersed across any number of entities. It is evident that it is far easier to “orchestrate” a strategy for something over which one has direct control than for something over which one only has indirect control.[3]

THE U.S. GOVERNMENT SPECIFICALLY CONDUCTS ECONOMIC POLICYMAKING VIA TWO METHODS: VIA FISCAL POLICY, WHICH DEALS WITH THE RAISING OF TAXES AND REVENUES; AND VIA MONETARY POLICY, WHICH INVOLVES THE DISTRIBUTION AND CONTROL OF THE MONETARY SUPPLY.

The second reason that makes the economic instrument of power so different is because the U.S. government specifically conducts economic policymaking via two methods: via fiscal policy, which deals with the raising of taxes and revenues; and via monetary policy, which involves the distribution and control of the monetary supply. Neither of these policymaking approaches are directly controlled by the executive branch. By constitutional separation of powers, the legislative branch has primacy over fiscal methods: it raises taxes and spends provides for the government’s budget. By legislation, the U.S. Federal Reserve is essentially independent of the executive and legislative branches and has primacy over monetary policy. Simply put, the agencies primarily responsible for the two most significant policymaking aspects of the economic instrument are not even in the same branches of government as the military instrument.[4]

The third reason that makes the economic instrument different is that the United States is not only, per constitutional arrangement, purposefully divided as stated above it is, to use the terminology of economic and policy historian Chalmers Johnson, a “market rational” state.[5] As opposed to “plan rational” states such as many East Asian nations, (to include China) the United States Government as a rule avoids overt industrial policy. This includes the avoidance of practices such as picking industrial national champions, aiding or subsidizing wide industrial sectors (though the government makes exceptions for defense and agriculture) or setting broad price and wage controls. Unmistakably, the U.S. government has done these things in the past, though almost always during national emergencies and wartime—and often with significant controversy and resistance (sometimes within the U.S. government itself).[6]

THE ECONOMIC INSTRUMENT WITHIN A NETWORK AND A COMPLEX ADAPTIVE SYSTEM

These reasons render a mental model of the economic instrument of national power being orchestrated collectively with other national power instruments in a unified whole of government approach deeply problematic. The more appropriate model to describe the milieu of the economic instrument is as a network of a variety of entities.

What is a network? A standard dictionary definition of a network is a "large system consisting of many similar parts that are connected together to allow movement or communication between or along the parts, or between the parts and a control centre.”[7] This definition, minus the notion of a “control centre,” aptly describes the overall network within which U.S. governmental economic entities operate. A network is any number of parts, connected, not in command-and-control relationships, but through any number of ties that link them together. The entities are not monolithically unified. They are not under a single conductor that orchestrates them as a U.S. government instrument of power.

OFTEN THE CHANGES CREATED BY THE BEHAVIOR CREATE A TOTAL CHANGE GREATER THAN THE SUM OF CHANGES TO INDIVIDUAL PARTS.

This network contains various U.S. governmental entities—the U.S. Congress (and its committees and subcommittees), the Federal Reserve, and various executive agencies (i.e., Departments of Commerce and Treasury, the U.S. Trade Representative Office, the National Economic Council, and the U.S. Agency for International Development, and numerous others). They exist in this network, along with domestic, international, and supranational entities.

The network itself is a complex adaptive system. A complex adaptive system is a network whose behavior is non-linear, emergent, and unpredictable. Non-linear behavior moves in multiple directions at once. Such behavior is variable. Often the changes created by the behavior create a total change greater than the sum of changes to individual parts. Emergence indicates that the system exhibits large-scale patterns that are not found in individual parts and that can lead to new, unpredictable patterns and behaviors.[8] Economic systems are frequently described as complex adaptive systems, as are “living organisms, immune systems, ecologies, societies, … political systems, communications networks (including their users’ behaviors), military organizations, and war itself.”[9]

THE IDEA THAT U.S. ECONOMIC ENTITIES EXIST IN A COMPLEX ADAPTIVE SYSTEM IS ESPECIALLY IMPORTANT TO POLICYMAKERS. GIVEN THE UNPREDICTABILITY IN THE SYSTEM, IT BECOMES APPARENT THAT EFFORTS AT MASTERY OR CONTROL ARE ILLUSORY.

Crucial to understanding complex adaptive systems are the concepts of positive and negative feedback. Certain feedback stabilizes the system and brings it toward equilibrium or homeostasis. Positive feedback, on the other hand, takes a system away from its “desired equilibrium” and creates “runaway processes of change.”[10] Given the nature of a complex adaptive system, positive feedback is a very real and oft-occurring phenomenon, and it is this feedback that generates disproportionately influential outcomes.

The idea that U.S. economic entities exist in a complex adaptive system is especially important to policymakers. Given the unpredictability in the system, it becomes apparent that efforts at mastery or control are illusory. The very nature of this environment obviously constrains action: realizing one operates in such a system may mitigate the temptation to commit grandiose error. At the same time, understanding this system reveals possibilities, because unpredictability cuts two ways. It could also present opportunities that allow for a competitor or adversary to make mistakes.[11]

MAPPING THE SYSTEM

An interpretation of the system can be visualized by mapping it, though there should be full recognition that a full and complete mapping of such an open-ended system is not achievable, but always a work in progress.[12] Examples abound of networks that consist of nodes, clusters of nodes, and connecting linkages. This process involves identifying U.S. governmental entities, understanding their functions, and then mapping their connections to other entities throughout the system, domestically and internationally. Collectively, they illustrate many facets of the system.

STRATAGEMS OVER STRATEGY

Mapping the system is a necessary step, but calling and depicting something a network or a complex adaptive system, as Richard Rumelt points out, does nothing, because doing so is not strategy, but simply model creation.[13] Nonetheless, viewing U.S. economic entities as operating in a complex adaptive system provides for the possibility not necessarily of grandiose strategies, but of stratagems—smaller scale actions that take advantage of understanding the system and where negative and positive feedback generates effects.

THE CHINESE BELT AND ROAD INITIATIVE (BRI) IS A VERSION OF A COMPLEX ADAPTIVE SYSTEM.

In their recent book, Danger Zone: The Coming Conflict with China, Hal Brands and Michael Beckley propose efforts that the United States could undertake while competing with China. They include “[b]ait-and bleed strategies that “don’t risk war but do trigger the type of blustery overreaction through which Beijing isolates itself” and they call for a “network based structure that allows members [of a US-led economic alliance] to create flexible, issue-based partnerships.”[14] Such ideas can be further developed by being mapped out within an economic complex adaptive system to reveal nodes and connections and relationships between various entities.

The Chinese Belt and Road Initiative (BRI) is a version of a complex adaptive system. It spans a myriad of Chinese government agencies, state-owned enterprises, and provincial and national banks—not to mention the innumerable public and private entities in the 165 countries where the BRI is extant.

More effective than a grandiose and infeasible counterstrategy to offer some large-scale BRI alternative, understanding and mapping the BRI as a complex adaptive system—to include the relationship of U.S. governmental entities within that system—could be far more effective. Some of this work is currently being done. The William and Mary University affiliated research lab AidData is tracking the BRI and its various feedbacks. For example, it denotes resultant environmental degradation and native health problems that have occurred because of certain BRI projects. Tracking that “feedback” -- and then taking calibrated, appropriate actions by U.S. entities—highlighting bad results of BRI projects, and, conversely, possibly collaborating multilaterally in possibly good results—could have cascading effects far more consequential than larger strategic efforts.[15]

A New Way of Economic Strategic Thinking

Reframing U.S. economic statecraft as operating a complex adaptive system does not mean ending efforts to work with other U.S. governmental instruments of power. To do so would be absurd: economic actions often are taken to achieve non-economic (e.g., diplomatic or even military) ends.[16] But it reconfigures strategic thinking in two ways. First, it shows that the capacity of the U.S. government’s economic instrument of power is structurally limited. Secondly, it shows that operating within a complex adaptive system opens unnoticed possibilities that could further U.S. interests. Indeed, within such a system, because it is non-linear, emergent, and unpredictable, those possibilities are endlessly varied.