Increased growth and integration makes armed conflict more likely – also causes overspecialization which leads to financial collapse – prefer robust statistical backingRoyal 11 [Jedidiah, Director of Cooperative Threat Reduction at the U.S. Department of Defense, “Integration, Vulnerability and Risk: A New Framework for Understanding the Economic-Security Nexus,” Idiosyncratic Risk and Mitigation, Chapter 3, pg. 55/AKG]
Here it is worth noting an important thematic divergence in the literature at the covariant and the idiosyncratic levels. As noted, nearly all research theories covered in chapter 2 are based on static ‘snapshots’ of a dyadic relationship. Volume of trade at a point in time tends to be the primary variable used to determine the likelihood of conflict between an integrated dyad. The theories covered in this chapter tend to focus more on transition, acknowledging that levels of integration and total growth change. They express viewpoints on how these transitions either increase or decrease incentives for states to engage in military conflict. As will be discussed in the case studies following, the notion of transition in an important element to a comprehensive view of the economic-security nexus. Theories that Suggest Idiosyncratic Shifts Resulting from Integration Lead to Conflict Our survey here first highlights a Marxist/realist tradition that suggests that as states become wealthier, they will increasingly be likely to translate that wealth into military capacity. Once the state owns a strong military advantage, it is likely to use it. Choucri and North (1975) pioneered this argument, known as ‘lateral pressure theory’, as a means of explaining correlation between growth and conflict. They suggest that ‘the combination of demand and capabilities will create the predisposition to reach beyond national boundaries to satisfy demands’ (Choucri and North 1975, 17). As such, Choucri and North believe that as a country becomes individually wealthier, its willingness to undertake foreign military commitments increases simultaneously. Realists also find a relationship between economic integration and idiosyncratic risk that results in a greater likelihood of conflict. Pollins (2008) argues that economic integration leads to a transnational reorganisation of production and accelerates the transitions between ascending and descending powers. This occurs on a global level with system-wide shifts in the distribution of power, but manifests itself in terms of security conditions primarily at a state level. As new states gain wealth and power, they begin to look outward. This ‘war chest’ theory is similar in character and consequence to ‘lateral pressure theory’, though the motivations differ. According to the former theory, a state becomes more conflict prone because it has the resources to be more successful in military conflict. According to the latter theory, proclivity towards conflict is due to a perceived requirement to fuel a growing economy. Others have argued that absolute, or individual, growth is less important than relative growth. Organski’s (1958) theory of ‘power transition’ relies on this concept. Major wars result from the preponderance of power transitioning from one primary state to another. Werner finds a measure of support for this theory, and concludes that ‘leaders make demands and initiate a process of negotiations that may ultimately result in conflict when they perceive that what they can rationally obtain via the threat of force differs from what they currently have’ (Werner 1999, 723). The creation of wealth winners and losers through integration provides a point of transition where domestic perceptions of the likelihood of victory change. This can reduce the overall potential for a mutually acceptable bargain to be struck prior to the use of military force. The bargaining theory of war suggests that asymmetry provides an obvious outcome that both parties can perceive, which brings the less powerful party to the negotiating table. Instead, parity between powers leads to miscalculation, because those parties are less able to perceive a clear winner. The existence of private information denies either side the ability to fully know the capabilities of the other, resulting in a greater opportunity for conflict. Reaching a negotiated alternative is less likely when miscalculation is more likely.4 Here again, domestic economic growth resulting from economic integration can change a national-level view of the potential for victory. According to this line of thinking, economic integration, specifically the process of economic growth through comparative advantage, redistributes wealth between and among nations. Those winners out of this process develop new needs for resources that naturally expand their interests further afield. Hegre has recently provided some statistical evidence that would appear to support this concept. Using a gravity model to determine how trade volumes between countries impact their absolute or individual level of economic wealth, Hegre finds that growth in power by any one state increases its likelihood to enter into inter-state disputes. He writes, ‘I show that a set of size variables – based on countries’ population and their military capabilities – significantly and strongly increases the probability of militarized dispute between countries’ (Hegre 2008, 586). When applied to the topic of this paper, the main point drawn out by the Choucri and North, Pollins, Organski and Hegre findings is that winners from economic integration are more likely to enter into foreign military disputes. Pollins and Schweller (1999) look specifically at the experience of the United States from 1790-1993, and found support for this conclusion. They find that US power has grown in sync with the extent to which it has integrated its economy within the global economy. This growth, at an individual level, has coincided with increases in US military engagements overseas. They suggest that ‘diversionary theory’, ‘war chest theory’, and ‘lateral pressure’ theory are all potential reasons for why this has occurred, acknowledging that the underlying rationale which may differ between administrations and global power conditions.5 These political science themes are not new to the economic-security nexus debate, yet the attention they have received in the past two decades has paled in comparison to the theories addressed in chapter 2. This lack of attention from the political science community is surprising, as national-level characteristics remain an active theme of political science research in other areas of international relations theory. Even more surprising is that the economic-security nexus debate has not yet considered the impact of economic integration on a state’s domestic economic conditions. Here a great wealth of economic research remains unexploited. One new area that is worthy of consideration within this context pertains to the theme of economic specialisation. The reordering of national economies in accordance with principles of competitive advantage encourages states to develop specialised industries. The process of specialisation is important for nations to obtain the greatest possible efficiency in order to maximise profit. However, it also creates vulnerability through a lack of diversification. For example, as technology advances, states with a particularly heavy reliance on an old technology will become losers in direct contrast to states that introduce the new technology. Specialisation increases any one state’s dependency on the system and on its specific partners. In parallel with realist thinking already highlighted, increased dependency generally leads to insecurity. States relatively less dependent can exploit the situation of states relatively more dependent, leading to increased opportunity for conflict. There is also growing evidence that specialisation is a primary determinant of whether a state is contagious to a broader financial crisis. Gande, et al. (2008) provide evidence to support three relevant conclusions for this paper. First, they conclude that an increase in the level of specialisation leads to an increase in the probability of financial crisis. Indeed, they even suggest that specialisation is the primary root of financial crises. Second, access to external finance decreases this probability, though it also creates incentives for debt induced risk-shifting that can lead to risky overinvestment and minimise the overall palliative effect. Third, government safety nets such as subsidies and bailouts lead to higher debt concentration of bank loans that further increase the likelihood of financial crisis.