The Economic Instruments of US National Security

LtCol Galin Hernandez

Lesson Objective: Analyze the role that economic objectives and economic instruments play in the planning and execution of US national security policy.

PJELAs: 1c & e—National Security Strategy; 2a—National Planning Systems and Processes; 3b & c—National Military Strategy and Organization

USAF Core Values: Integrity First, Excellence in All We Do

USAF Core Competencies: Information Superiority

2. Analyze the conflict between the call for a global open trade regime and conventional weapons proliferation.

3. Evaluate the impact of economic sanctions against target nations.

1. Why did the role of the economic policy making bureaucracy increase during the Clinton administration?

During Clinton’s campaign for office, (It's the economy, stupid!) he expressed a determination to elevate economics in foreign policy. After election, Clinton promised "to focus like a laser beam on the economy." He named senior economic officials before his foreign policy team. Clinton showed far more interest in economic interests than strategic diplomacy.

Also, there was a 20year trend toward greater priority to economic issues in U.S. international dealings, and greater autonomy for economic goals vis-à-vis traditional foreign policy concerns. National security goals traditionally outweighed foreign economic goals. However, at the end of the cold war, economic goals gained in significance as questioning of national security primacy over economic policy began to grow.

Clinton established a new White House institution, the National Economic Council, to coordinate the economic policy-making process with respect to domestic and international economic issues.

Clinton entered office with a message: international economic policy is important because of its impact on the domestic economy, and aggressive action is necessary to open markets around the world.

2. What steps can the US take to enhance economic development in underdeveloped nations without enhancing those nations’ ability to ultimately compete with US economic interests?

Blinder’s article suggests that reformation of the global financial architecture is necessary to shore up the world financial system that supports the global economy. The present architecture fails to protect underdeveloped nations from extreme hazards associated with speculative investing. Such investing has led to financial crises that afflict literally hundreds of millions of people, their banks and their governments. Blinder suggests eight step to reforms the global financial architecture by focusing on the International Monetary Fund (IMF) and national financial practices. (Blinder: 17)

The first four steps recommend proactive prevention by building financial systems with less vulnerability.

1. Don’t fix exchange rates—Fixed exchange rates provide an unnecessary target for poor speculative investing. With no fixed exchange rate, speculators have anything to shoot at.
2. Borrow less in foreign currency—Borrowing in foreign currency, especially when combined with fixed exchange rates is highly volatile. The borrowers have no controls over fluctuations of borrowed foreign currency.
3. Don’t rush to open capital markets—Nations must find ways to slow down the flow of international hot money. Too many emerging–market countries rush to open up their capital markets before they have proper supervisory structures in place to control them.
4. Follow sound macroeconomic and financial policies—Such policies avoid large current-account imbalances, develop strong and competent financial regulatory and supervisory structures, and adopt various codes of good conduct

The last four steps focus on reactive measures to mitigate affects of a financial crisis.

5. Austerity is not always the right medicine—Imposing fiscal stringency is not always to a panacea. Killing a nation’s economy hardly seems the best way to bolster confidence in currency.
6. Devote more resources to protecting innocent bystanders—Reformed IMF, working with the World Bank and regional development banks should ensure foreign creditors are not bailed out while local populations drown.
7. Agree on some procedures for orderly debt settlement—Many solutions exist to establish an orderly process for resolving conflicting claims
8. Prevention is better than cure—Deterrence through use of sound financial management. (Binder: 18-22)

Implementing such measures ensures a more solid financial architecture that underdeveloped countries can use to build a stable economy without directly influencing economic policies those countries may adopt that compete against US economic interests.

3. How much of a relationship is there between economic growth and political stability? Does economic prosperity make war or civil unrest less likely, or are the conditions that generate war independent of economic conditions?

Based on the readings, one can conclude that it is difficult to obtain sustained economic growth without enjoying political stability. However, the reverse isn’t necessarily true, i.e., political stability doesn’t necessarily mean sustained economic growth. The strategies for economic prosperity listed in the second reading can’t be achieved unless a politically stable government exists that provides legitimacy to those strategies in the form of policy, funding, oversight, etc.

Economic prosperity certainly makes war or civil unrest less likely. History is replete with examples that support this idea. The idea is one of the foundational premises around which our national security strategy is formed. By helping other nations achieve economic prosperity, the likely hood of war or civil unrest decreases. This is not to say, however, that economic prosperity will prevent war. Wars are started for other reasons besides economics (religion, power, control, and resources), though some may argue that at the core, the cause for most war is economically induced.

4. Should the US redesign its foreign aid policies and, if so, how?

YES - The US foreign policies need to be changed and updated based on the "New World Order". This means that the most basic challenge facing the US today is helping to preserve the peace not containing a perceived threat. With the collapse of the Soviet Union the US is left as the only super power in the world. No nation will challenge the US with direct military action, but with alternative military and economic actions. A redesign of foreign aid use as deterrence to these threats will increase with time.

Using foreign aid to assist other nations in correcting their problems will help us avoid direct involvement. This also increases the aided nation's stake in the actions taken and their sense of accomplishment. This lowers resentment towards the US and diminishes the perception of an imperialistic money nation. Overall foreign aid for national infrastructure development will diminish as humanitarian aid increases. Private sector financing will increase and become the main method used to assist developing nations. Foreign aid support for development will not disappear, but will no longer be a major part of foreign aid packages. The use of non-governmental organizations will increase as a method of funneling foreign aid abroad. This will include private and public corporations as well as agencies. The overall policies will change as future challenges and situations evolve.

 

For DLO 2:

5. How can the US achieve a balance between global open trade and the spread of military technology into rogue or hostile nations?

According to the readings, The only way to address transnational security concerns is with transnational regulation. A transnational defense-industrial base policy would mirror security cooperation and bilateral agreements with a transparent system that documents, guides, and right-sizes the industry to achieve efficiency, preserves a modicum of competition, and keeps the lid on arms proliferation. Policy architects first need to determine standards of burden sharing in defense and military interventions. These common security values combined with cooperative conventional-weapons deterrence, a commitment to sharing the costs of military-industrial downsizing, and effective arms export controls are imperative.

6. What factors/events changed the global arms trade in the 90s?

The collapse of the Soviet Union, the Persian Gulf war and the UN intervention in Somalia.

7. Why might some see US policy for arms sales as inconsistent with US national security goals?

As arms exporters "scout" for customers, these actions contradict proclaimed national foreign policy. The US arms export program undermines the current US policy priority of promoting democracy because no less than one-third (eighteen) of the recipients of US arms exports were non-democratic governments, which purchased $13.25 billion (41 percent) of the total US arms sold in 1993.

For DLO 3:

8. What has been the impact of economic sanctions against Iraq? How have they been successful? How have they failed?

Hussein himself declared that the sanctions have been counterproductive, boasting that the boycott to become more self-sufficient. "The embargo has provided us with an opportunity to organize the economy, define emergency plans and harness available resources without relying solely on the wealth of oil." In essence they diversified their portfolio.

The sanctions used against Iraq included a blockade of most exports, with the exceptions of those items that could be designated humanitarian shipments. This action was supposed to reduce Iraq’s ability to wage war, but given its level of development and experience with producing spare parts substitutes for imported weapons developed during the Iraq-Iran war, it should have been obvious that this action would prompt import substitution.

One element of UN mandated sanctions should have had increasingly devastating effects over time: the ban on Iraqi oil sales. These import sanctions attacked the source of the overwhelming majority of Iraq’s export earnings. If sanctions could truly prevent Iraq from selling its oil on the world market, its foreign reserves would be rapidly depleted, prompting an economic crisis that could in fact bring about Iraqi compliance with UN resolutions. "Tracking and enforcing an embargo should not be a problem," said Henry Schuller of the Center for International and Strategic Affairs. "The problem will be sustaining compliance."

A decreasing level of international cooperation allowed Iraq to slip enough oil through to mitigate the effects of this economic warfare. Iraq did produce spare parts and found ways to extend the life of existing equipment.

It appears that sanctions were highly effective in wreaking havoc of the Iraqi economy. In essence, the sanctions were effective economically but not politically.

9. How can sanctions be used effectively to further US national interests?

Although each episode is different, there are some clear lessons, which emerge, and clear questions policy makers should ask before resorting to sanctions.

1. Is there a clear and realistic goal? Broad sweeping goals that threaten a regime’s survival are not likely to be achieved. When forced to choose between political survival an economic deprivation that can usually be mitigated, few governments are likely to give into sanctions. In cases where there is a clear quid pro quo, success has been reached, for example to resolve expropriation issues and persuade others to cancel arms sales.
2. Are the sanctions carefully targeted? Sanctions are often said to be a blunt instrument, but they can be sharpened through careful consideration of the clear and realistic goals.
3. Does international cooperation exist? There are very few areas where the US can impose meaningful unilateral sanctions, but even limited international cooperation in high-tech and financial services can be effective against many countries.
4. What are the costs of the sanctions? In many cases sanctions inflict more pain on Americans than their intended target. Bottom line: If we are one of the few potential suppliers, then sanctions can bite. If we are easily replaced with alternative suppliers at minimal cost, we will harm no one but ourselves
5. When do the sanctions end? There should always be a trigger for ending sanctions, and if it is not reached in a given timeframe, we should reconsider our methods. Given the potential costs of leaving sanctions in place indefinitely, we must be willing to periodically reassess their utility in specific cases.