Classics in the Economics and Security Literature: One ...sites.bu.edu/...2...Economics-and-Security-Literature-early-DRAFT.pdf · Classics in the Economics and Security Literature:

Classics in the Economics and Security Literature:

One View of the Landscape

A Very Rough Draft Paper

Circulated at the Political Economy of National Security Workshop

The Annual Meeting of the

International Studies Association

February 18, 2015

New Orleans, LA

William J. Norris, PhD

Assistant Professor

The Bush School of Government and Public Service

Texas A&M University [email protected]

mailto:[email protected]

DRAFT—Please do not Circulate or Cite Norris, Landscape of PE of Security Literature

1

Author’s disclaimer: This is a very early draft of an old working paper I happened to have sitting on my

hard drive. After speaking with Rosella, she seemed to think that it might be interesting grist for the mill

for when we get together in New Orleans. It is by no means exhaustive and is only a preliminary effort to

organize and categorize some of the overlapping literatures that bridge the realm of IPE and Security

Studies. Although its incompleteness (and, for many in this crowd, remedial nature) makes me hesitant to

share, I’ve been persuaded that the potential benefit to our collective endeavor ought to outweigh any

personal embarrassment I suffer from sharing something so inchoate and self-referential. In any event, I

hope it gets some fruitful conversations going.

This paper provides an overview of some of the major works that seek to bridge the subfields of

international political economy and security studies in international relations. My purpose in writing it

was to think synthetically about how the various mini-literatures within economics and security seemed to

fit together. My secondary motivation in writing it was to help me clarify how my own research agenda

fits into the existing body of scholarly work that intersects economics and security. As such, I ought to

apologize in advance for the paper’s frequently annoying self-referential tone. Rest assured, these will be

wrung from a final version, but I did not have the time to purge them before ISA. Lastly, being a rather

old draft, it also does not include many of the more recent works in these areas. As you read, if you

happen to think of pieces that ought to be referenced/discussed that are missing from this draft, please do

let me know (along with any other comments and suggestions for how to improve it).

Overview of the Field & Where My Work Fits In

The literature that seeks to bridge economics and security studies is distributed in three broad

topic areas as depicted in the diagram below. At the intersections of these broad topics, scholars have

also produced more specialized works. The diagram’s central point of intersection identifies the body of

literature that is most germane to my areas of research: namely the scholarship addressing questions about

the nature, causes and exercise of international economic power.1

1Although my own work is most directly located at the central point of intersection, various aspects of my work

broadly touch on each of these areas of inquiry. At the same time, my work seeks to address specific shortcomings

of each of these families of the literature on economics and security.


2

The Landscape of the Economics-

Security Literature

Dia. 1: The Literature on Economics and Security

I begin this review of the literature by focusing first on the three large circles (the areas labeled:

“A,” “B,” and “C”) each of which represents a broad topic concerning the relationship between

economics and security. The upper left circle, which I have labeled “Economic Foundations of Military

Might” encapsulates works that pertain to questions of the war-making potential of states. In the abstract,

Economics &

Likelihood of

Conflict

Economic

Foundations of

Military Might

Political

Economy of

Defense

Mobilization &

Wartime

Economics

Strategic Goods

& Sensitive

Trade Leninist

Imperialism

Nature, Causes &

Exercise of

International

Economic Power

(A) (B)

(C)

(D)

(E)

(F)

(G)


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a nation’s military capabilities are often fundamentally dependent on its economic position.2 This

“Economic Foundations of Military Might” portion of the Venn diagram includes works that address the

relationship between a country’s economic base and its international position.

The study of the economic basis of national power has roots going back to the very foundations

of modern social science. Adam Smith, Alexander Hamilton and Friedrich List were each very conscious

of the security ramifications of a state’s economic orientation.3 Each of these thinkers had a seminal point

of view regarding national security and the proper role of the state vis a vis commerce. Smith articulated

an elegant case for moving away from what was, at that time, the dominant model of mercantilism toward

a liberal economic system in which state power is maximized by allowing free market forces to operate as

extensively as possible.4 This minimally intrusive state is contrasted by List’s mercantilist strategy. List

believed that the state should take on a central role in directing and defending the economy as part of a

larger effort to ensure that economic activities maximally contributed to the state’s strategic objectives.5

Hamilton also believed in using economic policy as an instrument of national power and unification. His

views helped define the terms of debate regarding a government’s appropriate relationship to private

sector actors in matters of strategic significance.6 Domestic business-government dynamics continue to

2 For a good perspective on how states engage in mobilizing domestic resources, refer to Fareed Zakaria, From

Wealth to Power: The Unusual Origins of America’s World Role (Princeton, NJ: Princeton University Press, 1998),

especially Chapter Two. 3 Edward Mead Earle is credited with bringing these thinkers to the attention of modern political science. See his

Chapter 6 entitled “Adam Smith, Alexander Hamilton, Friedrich List: The Economic Foundations of Military

Power,” from Edward Mead Earle, Gordon Alexander Craig, and Felix Gilbert, Makers of Modern Strategy:

Military Thought from Machiavelli to Hitler (Princeton: Princeton university press, 1943) pp.117-154. Earle argues

that each of these authors were quite clear in placing security concerns above mere economic opulence. Moreover

each advocated a more or less nationally-self serving economic strategy that was designed to enhance the security of

his respective homeland: Smith—a system of free trade when Britain enjoyed a hegemonic position that outgrew

more narrow colonial mercantilism; Hamilton—an infant industries argument to spur a nascent American military-

industrial capability that would enable continued independence; List—a unifying system of internal free trade and

external protectionism designed to bring about a greater Germany. 4 Adam Smith and Charles Jesse Bullock, An Inquiry into the Nature and Causes of the Wealth of Nations (New

York: P. F. Collier & sons, 1909); Adam Smith, Ernest Campbell Mossner, and Ian Simpson Ross, The

Correspondence of Adam Smith (Oxford Oxfordshire; New York: Clarendon Press; Oxford University Press, 1977);

Adam Smith, Thomas Wilson, and Andrew S. Skinner, The Market and the State : Essays in Honour of Adam Smith

(Oxford: Clarendon Press, 1976). Whereas Smith is often credited with the birth of liberal economics, other

classical liberals like John Stuart Mill also deserve considerable credit for refining the limited role of the state in the

production of a society’s wealth. Refer to:Philip Ellis Wheelwright et al., eds., Jeremy Bentham: An Introduction to

the Principles of Morals and Legislation; James Mill: Essays on Government, Jurisprudence, Liberty of the Press,

and Law of Nations; John Stuart Mill: On Liberty; Utilitarianism,Anonymous , 1st ed. (Garden City, N.Y.:

Doubleday, Doran & company, inc, 1935) and John Stuart Mill, John Stuart Mill : The Economic, Political, and

Feminist Papers (Woodbridge, CT ; Reading, Berkshire: Research Publications, 1988) 5 Friedrich List et al., National System of Political Economy (Philadelphia: J.B. Lippincott & co., 1856)

6See, for instance, Hamilton’s “Report on Manufactures” that was submitted to Congress on December 5, 1791 in

which Hamilton made the case for protecting American infant industries that had considerable implications for

ongoing American efforts to maintain its independence. Alexander Hamilton and Henry Cabot Lodge, The Works of


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play an important role in determining a state’s ability to use its economic power. These three classic

theorists laid the epistemological foundations that future generations of scholars would build upon when

exploring the relationship between international economics and security. List’s arguments in favor of

economic nationalism continue to inspire notions of “state capitalism,” national champions, and other

economic strategies in which the state provides a heavy guiding hand to the economy. Hamilton’s ideas

of protecting strategic and infant industries helped lay the foundation for many strategic trade and

protectionist-oriented perspectives. Smith, of course, became the intellectual grandfather of a liberal, free

trade-oriented approach to international economic relations that argued that states will stand to benefit

most when allowed to freely engage with each other under conditions of minimal political distortion.

Smith’s view is an argument that states stand to maximize their own individual welfare by

engaging in unfettered commercial interaction—but what if states cared more about their relative welfare

compared to other states rather than their absolute gains? Almost two hundred years later, these ideas

underpinned another important body of literature located in this “Economic Foundations of Military

Might” portion of the diagram. This body of literature addresses whether states are motivated by absolute

or relative gains from trade. Like the works of Smith, Hamilton and List, at its core this debate lay

questions about why states pursue international economic interaction. Was commerce ultimately

designed to fuel national power or simply sought as a goal in itself to improve popular welfare? If states

were primarily concerned with their performance vis a vis other states in the system, it was because the

international environment was anarchic. Scholars like Joseph Grieco, Michael Mastanduno, and James

Morrow argued that under conditions of international anarchy, military power necessarily became the

final arbiter of interstate conflict and thus, states were constantly forced to consider the eventual security

ramifications of economic gains.7 This logic resulted in an emphasis on how much a given state benefitted

from economic interaction relative to other states, since economic performance would provide the

foundation for military might—the “buck” ultimately stops at relative military capabilities.8

Alexander Hamilton (New York and London: G. P. Putnam's sons, 1904) Vol. IV pp. 70-198. Hamilton’s policies on

public debt, the national bank, munitions production, the US Navy, and his military policies all point to his “jealous

regard for the political and economic power of the nation.” From Earle, Craig, and Gilbert, Makers of Modern

Strategy: Military Thought from Machiavelli to Hitler, p.130 7 For more on the security side of the relative gains debate see: Joseph M. Grieco, "Realist Theory and the Problem

of International Cooperation: Analysis with an Amended Prisoner's Dilemma Model," The Journal of Politics 50, no.

3 (1988): 600-624.; Michael Mastanduno, "Do Relative Gains Matter? America's Response to Japanese Industrial

Policy," International Security 16, no. 1 (1991): 73-113; and James D. Morrow, "When do "Relative Gains" Impede

Trade?" The Journal of Conflict Resolution 41, no. 1, New Games: Modeling Domestic-International Linkages

(1997): 12-37. 8 The logic of this position locates the relative gains debate literature squarely in this portion of the Venn diagram.


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On the opposite side of this debate were scholars like Duncan Snidal, John Ruggie, and Arthur

Stein who believed that states, in fact, were concerned with the absolute gains that accrue from economic

interaction. Drawing on the assumptions of economics in which actors are motivated by maximizing their

own benefits, these scholars downplayed the intrinsic connection between economic gains and a nation’s

international competitive position. According to the absolute gains view, states were primarily concerned

with gaining wealth as an end in itself (to make their domestic populations better off, to become

economically more advanced, etc.). The logic of this position implies that all states would want to

cooperate and engage in mutually-beneficial economic interaction as long as that interaction made them

better off than they would be without it. Yet, many of these scholars found empirically that international

economic cooperation is by no means automatic—rather states need to overcome certain intrinsic

characteristics of international relations that make economic interaction between states difficult. The

prominent group espousing this position came to be known as the neoliberal institutionalists. Much of the

neoliberal institutionalist works focused on how states solved cooperation and cheating problems endemic

to what is essentially a positive-sum pursuit of wealth.9

This neoliberal institutionalist assumption of absolute gains was challenged most prominently by

Joseph Grieco who argued that gains among competitive states are relative rather than absolute. He

contended that states are more concerned about how much they are benefiting relative to other states and

that states’ considerations of their absolute gains alone will not be enough to determine whether they

cooperate or not.10

In other words, states are not just concerned with how well off they become as a result

9 Neoliberal institutionalists tended to stress the ability of regimes to overcome market failures, uncertainty,

transaction costs and information gaps. See: Robert O. Keohane, International Institutions and State Power

(Boulder, CO: Westview Press, 1989), pp. 2-3; For another perspective on how the interests of non-hegemonic states

can prompt them to prolong a regime even in the absence of a hegemon, see David A. Lake, Power, Protection and

Free Trade: International Sources of U.S. Commercial Strategy, 1887-1939 (Ithaca, NY: Cornell University Press,

1988); Although some like Keohane argued that states seek both wealth and power, [See: Robert O. Keohane, After

Hegemony: Cooperation and Discord in the World Political Economy (Princeton, NJ: Princeton University Press,

1984), pp. 18-22.] most neoliberals tend to emphasize the cooperation and coordination problems states face in their

collective pursuit of wealth. Keohane is correct to note that states can pursue both and that the two are not mutually

exclusive. However, in practice much of the neoliberal research agenda focused on mechanisms designed to enable

states to cooperate to achieve mutual gains. See for example: John Gerard Ruggie, "International Regimes,

Transactions, and Change: Embedded Liberalism in the Postwar Economic Order," International Organization 36,

no. 2, International Regimes (1982): 379-415.; Arthur A. Stein, "Coordination and Collaboration: Regimes in an

Anarchic World," International Organization 36, no. 2, International Regimes (1982): 299-324.; Robert O. Keohane,

"The Demand for International Regimes," International Organization 36, no. 2, International Regimes (1982): 325-

355.; Kenneth W. Abbott and Duncan Snidal, "Why States Act through Formal International Organizations," The

Journal of Conflict Resolution 42, no. 1 (1998): 3-32. 10

See Joseph M. Grieco, “Anarchy and the Limits of Cooperation: A Realist Critique of the Newest Liberal

Institutionalism,” International Organization, 42, 3 Summer 1988, pp.485-508. See also David A. Baldwin (ed.),

Neorealism and Neoliberalism: The Contemporary Debate, (New York, NY: Columbia University Press, 1993)

especially Chapters 11 and 12. Robert Powell replied that neorealists have mistaken effects for causes of


6

of economic interaction, but rather place considerable weight on how well off other states are doing in

relative terms.

The relative versus absolute gains debate was somewhat artificial since the empirical reality is

that states often pursue both relative and absolute gains (just as Carr and Viner had put forward a

generation earlier, states often pursue both power and wealth).11

What is still missing from this field is a

theory that tells us about how states think about an integrated strategy that seeks to maximize both

“power” and “plenty.” This is one of the gaps in the literature that my work on the role of economics in

grand strategy seeks to address.

A third group of scholars working on the topic of “Economic Foundations of Military Might”

have been concerned with the measurement of national economic standing as part of an effort to measure

the relative strength of “great powers.”12

Such works often focus on long-run economic developments,

natural resource endowments, improvements in factor productivity, etc. They tend to emphasize the

fundamental economic building blocks of military power. A good deal of this literature is concerned with

questions of international power dynamics and how macro-economic factors may serve as leading

indicators of future military might. Although these works tend to be empirically detailed, they often

international cooperation when discussing relative gains. He argued that conditions in a state’s “strategic

environment” determine the state’s sensitivity to relative gains. However, the same strategic environmental

conditions also impede cooperation. In other words, concern for relative gains covaries with lack of cooperation but

both are being caused by conditions in the state’s environment. See Robert Powell, “Anarchy in International

Relations Theory: The Neorealist-Neoliberal Debate,” International Organization, 48, 2 Spring 1994, pp.313-344. In

the end, the relative gains debate eventually seemed to inconclusively run out of steam; For more on the debate see

Grieco, Realist Theory and the Problem of International Cooperation: Analysis with an Amended Prisoner's

Dilemma Model,; Mastanduno, Do Relative Gains Matter? America's Response to Japanese Industrial Policy,;

Robert Powell, "Absolute and Relative Gains in International Relations Theory," The American Political Science

Review 85, no. 4 (1991): 1303-1320.; Duncan Snidal, "International Cooperation among Relative Gains

Maximizers," International Studies Quarterly 35, no. 4 (1991): 387-402.; Duncan Snidal, "Relative Gains and the

Pattern of International Cooperation," The American Political Science Review 85, no. 3 (1991): 701-726.; Joseph

Grieco, Robert Powell, and Duncan Snidal, "The Relative-Gains Problem for International Cooperation," The

American Political Science Review 87, no. 3 (1993): 727-743. 11

See Edward Hallett Carr, The Twenty Years' Crisis, 1919-1939; an Introduction to the Study of International

Relations (London: Macmillan and co., limited, 1940) and Jacob Viner, "Power Versus Plenty as Objectives of

Foreign Policy in the Seventeenth and Eighteenth Centuries," World Politics 1, no. 1 (1948): 1-29. In After

Hegemony, Keohane also argues that states seek both wealth and power noting that the two are not mutually

exclusive Robert O. Keohane, After Hegemony : Cooperation and Discord in the World Political Economy

(Princeton, N.J.: Princeton University Press, 1984) Robert Gilpin’s US Power and the Multinational Corporation is

another work with this basic premise. In it, Gilpin claims the following position as a basis for his own study of

commercial actors: “In the short run there may be conflicts between the pursuit of power and the pursuit of wealth;

in the long run the two pursuits are identical.” Robert Gilpin, U.S. Power and the Multinational Corporation : The

Political Economy of Foreign Direct Investment (New York: Basic Books, 1975) p.37. 12

Kennedy, The Rise and Fall of the Great Powers : Economic Change and Military Conflict from 1500 to 2000,;

William C. Wohlforth, "The Perception of Power: Russia in the Pre-1914 Balance," World Politics 39, no. 3 (1987):

353-381.; Stuart J. Kaufman, Richard Little, and William Curti Wohlforth, The Balance of Power in World History

(Basingstoke England ; New York: Palgrave Macmillan, 2007)


7

neglect to give sufficient attention to the idiosyncratic characteristics of a given national economy that

may make specific conversion of economic potential into actual military power more or less efficient; in

other words, the effective conversion exchange rate between economic and military power. For instance,

a largely agrarian economy may be considerably less efficient at converting its economic capabilities into

military might then say an industrial economy; even if both countries have the same size GDP. As we

will see below, these types of questions are treated directly in the literature on mobilization. This

mobilization literature is really a subset of both the literature on economic foundations of military might

(discussed above) and the body of scholarship that addresses topics related to the domestic political

economy of defense—to which we now turn.

If the scholarship located in first large circle focused outward on international military

capabilities and the economic dynamics that underpinned military might, the second major family of

literature focuses inward and examines questions involving the domestic political economy of defense.

Such works focus on explaining economic outcomes in the defense arena like procurement decisions,

bureaucratic politics, the dynamics of the military-industrial complex, and budgetary analysis.13

Scholarship on these topics frequently addresses issues relating to the interaction between business sector

actors and the government. This focus on commercial actors deserves to be highlighted. The important

questions surrounding the role of commercial actors are often neglected in other analytical perspectives

on the exercise of international economic power that treat the state as the exclusive unit of analysis.

Indeed, works in the “Political Economy of Defense” arena seem to suggest that a deeper examination of

the domestic business-government bargaining dynamics may yield important insights regarding the ability

of the state to realize its strategic objectives through the use of its economic power. In particular, I

believe a principal-agent approach provides useful leverage for understanding these types of business-

government interactions.

The last large circle (labeled “C”) encompasses works whose primary concern is the effect of

economics on the likelihood of conflict.14

Whereas the works related to the political economy of defense

13

For example see: Jacob K. Javits, Charles Johnston Hitch, and Arthur F. Burns, The Defense Sector and the

American Economy (New York: New York University Press, 1968); Omer L. Carey, The Military-Industrial

Complex and United States Foreign Policy (Pullman: Washington State University Press, 1969); Morton H.

Halperin, J. A. Stockfisch, and Murray L. Weidenbaum, The Political Economy of the Military-Industrial Complex

(Berkeley: Institute of Business and Economic Research, University of California, 1973); Alan S. Milward, War,

Economy, and Society, 1939-1945 (Berkeley: University of California Press, 1977); Jacques S. Gansler, The Defense

Industry (Cambridge, Mass.: MIT Press, 1980); Paul A. C. Koistinen, The Military-Industrial Complex : A

Historical Perspective (New York: Praeger, 1980). 14

For a typical example of this literature see Solomon W. Polachek, “Conflict and Trade,” Journal of Conflict

Resolution, vol. 24, no. 1, March, 1980 pp. 57-78. Other works include: William K. Domke, War and the Changing

Global System (New Haven: Yale University Press 1988); Mark Gasiorowski, ‘Economic Interdependence and


8

tend to be domestically-oriented, scholarship in this third large circle tends to focus on interstate

dynamics and the extent to which economic relations may be related to conflict. Many of the scholars

that are currently doing work at the intersection of economics and security studies today focus their

efforts on the relationship between economic interaction and the likelihood of war (or peace). Being

mainly concerned with the relationship between economics and conflict, almost all of this literature is

largely outside the scope of my areas of research. That said, this corner of the international relations

literature does occasionally touch on areas that are germane to my focus on how states use economic

power. For example, when states seek to use economics as an alternative lever of power (thus avoiding

military conflict), they are engaging in behavior that is of interest to my work.15

Specifically, some

strands of the economics and conflict literature argue that economic developments in the international

system have mitigated the likelihood of conflict. For instance, Richard Rosecrance contends that trade is

simply a more efficient mechanism than military conquest for acquiring material benefits like new

markets and cheaper resources. Rosecrance added that as trade in the international open system became

more and more wide-spread, war has become an increasingly costly method for pursuing national

interests.16

Stephen Brooks also attempted to highlight the role of multinational corporations and the

impact of globalization on "the changing calculus of conflict" in his 2005 Producing Security.17

Brooks

argues that globalization--specifically the disaggregated supply chains that characterize production

networks--has made conflict less likely. However, I would argue that globalization is not necessarily

predisposed to be an unqualified force for peace, rather globalized economic interaction merely provides

an alternative channel of international power projection. The activities of multinational corporations can

be used by states to further their strategic objectives. Others on the topic of globalization and its impact

on conflict like Carl Kaysen and John Mueller also explore the use of economics as an alternative to

International Conflict: Some Cross-National Evidence,” International Studies Quarterly vol. 30, no. 1, March, 1986

pp 23-28; S. Brock Blomberg and Gregory D. Hess, "The Temporal Links between Conflict and Economic

Activity," The Journal of Conflict Resolution 46, no. 1, Understanding Civil War (2002): 74-90.; Solomon W.

Polachek and Judith McDonald, “Strategic trade and the Incentive for Cooperation,” in Manas Chatterji & Linda

Forcey (eds.) Disarmament, Economic Conversion and Peace Management (New York: Prager 1992) pp. 273-284;

and Dale Copeland, “Economic Interdependence and War: A Theory of Trade Expectations,” International Security,

vol. 20, no. 4, 1996 pp. 5-41. Some would also include the scholarship that reverses the causal arrow and examines

the effect of conflict on economic interaction. See Katherine Barbieri & Jack S. Levy, “Sleeping with the Enemy:

The Impact of War on Trade” Journal of Peace Research vol. 36, 1999 pp. 463-479. 15

As mentioned below, works located in this area of the Economics and Conflict literature would be reflected in the

section of the diagram labeled “G.” 16

See Richard Rosecrance, The Rise of the trading State: Commerce and Conquest in the Modern World (New

York: Basic Books 1986). 17

Stephen G. Brooks, Producing Security : Multinational Corporations, Globalization, and the Changing Calculus

of Conflict (Princeton, N.J.: Princeton University Press, 2005).


9

military power.18

One need not agree that economic conflict has superseded military conflict as the

dominant means of international competition or that a high degree of economic interaction has made war

obsolete to recognize that states have a range of tools for pursuing their strategic interests. Economic

levers of power are certainly one of those. Understanding exactly how such levers of power are exercised

is a key element of this literature that deserves deeper exploration.

It should be noted that such works that explore economics as an alternative tool of national power

are not the norm in this family of literature. Indeed, most work located in this prolific literature on

economics and conflict takes economic interaction as being exogenous and focuses its attention on the

statistical correlation between economic interaction (or lack thereof) and the onset of war.19

Broadly

speaking, this literature can be organized into four causal arguments: 1.) “Economic interaction causes

peace,” 2.) “Economic interaction does not cause peace,” 3.) “Economic interaction does not cause war,”

and 4.) “Economic interaction causes war.”

On this first proposition—that economics causes peace—there exist a number of different

rationales of why economics might bring about peace. The most common variant of why trade fosters

peace is that states are unwilling to jeopardize the stable benefits they enjoy from continued economic

interaction. Conflict would run the risk of destroying the economic links that are beneficial—and in some

cases, crucial—to the nation’s continued progress and prosperity. Most variants of this theory trace their

roots to Cobden.20

He argued that trade promoted peace by fostering economic dependence between

nations. States would then come to realize that their own continued prosperity depended on the well-

being of their trading partners and the continued maintenance of strong economic links between them.

Norman Angell carried Cobden’s theory into the modern era and argued that the use of military means

18

See Carl Kaysen, “Is War Obsolete? A Review Essay,” International Security, vol. 14, no. 4, 1990. and John E.

Mueller, Retreat from Doomsday : The Obsolescence of Major War (New York: Basic Books, 1989). Edward

Luttwak is also known for his views on globalization and conflict: "Patient investment capital is replacing firepower,

the development of civilian products is displacing military innovation and the penetration of markets is displacing

military garrisons on foreign soil." Edward N. Luttwak, "America's Setting Sun," New York Times September 28,

1991 p. 17. 19

For a very good critique of this literature see: Mansfield and Pollins, The Study of Interdependence and Conflict:

Recent Advances, Open Questions, and Directions for Future Research, 20

Richard Cobden, Political Writings (London; New York: W. Ridgway; D. Appleton & co., 1867) and Richard

Cobden and Richard Cobden, England, Ireland, and America (London: J. Ridgway and Sons, 1835) This body of

literature has also often been linked to the democratic peace literature that often views Kant as its philosophical

genesis: A. C. Armstrong, "Kant's Philosophy of Peace and War," The Journal of Philosophy 28, no. 8 (1931): 197-

204.; Michael W. Doyle, "Kant, Liberal Legacies, and Foreign Affairs," Philosophy and Public Affairs 12, no. 3

(1983): 205-235.; Michael W. Doyle, "Kant, Liberal Legacies, and Foreign Affairs, Part 2," Philosophy and Public

Affairs 12, no. 4 (1983): 323-353.; Michael W. Doyle, "Liberalism and World Politics," The American Political

Science Review 80, no. 4 (1986): 1151-1169.


10

will not improve the conqueror’s wealth.21

As such, conquest had been replaced as a mechanism for

wealth-building by the more efficient wealth-building tools of international economic trading ties.

Solomon Polachek is generally credited with formalizing this view.22

Polachek’s work touched

off a vigorous debate that continues today. Polachek’s utility model posits that the primary cost of

conflict is the lost potential welfare gains from trade.23

If the system is peaceful and trade is flourishing,

Polachek concludes, all countries will be benefiting and none will have the incentive to jeopardize the

system by initiating conflict. He later elaborated this point and demonstrated that even if a complete

severing of trade relations did not result, conflict would lead to less favorable terms of trade. In his 1992

article, Polachek showed that the more interdependent two countries are, the less likely they are to fight

each other.24

Unfortunately, Polachek does not control for other causes of war in his models. Some of

these strategic factors may account for his results. Oneal & Russett did include controls for geographic

contiguity, relative economic growth, each of the dyad’s members’ relative military capabilities, and

whether they were allies.25

Dale Copeland and Paul Papayaonou produced some of the most thought-

provoking work to grow out of the Polachek scholarship. Copeland developed a theory that stresses the

actor’s perceptions of future likelihood of free trade.26

Copeland’s synthesis incorporates elements of

both liberal and realist views producing a more compelling theory than most of the work in this area.

Papayaonou posited that concern for jeopardizing economic benefits would manifest itself differently

depending on the nature of domestic institutions.27

Papayaonou’s work extends Arad and Hirsch who

21

Norman Angell, The Great Illusion (New York: G. P. Putnam’s Sons 1908—reprinted 1933). 22

Solomon W. Polachek, “Conflict and Trade,” Journal of Conflict Resolution, vol. 24, no. 1, March, 1980 pp. 57-

78 and Solomon W. Polachek and Judith McDonald, “Strategic trade and the Incentive for Cooperation,” in Manas

Chatterji & Linda Forcey (eds.) Disarmament, Economic Conversion and Peace Management (New York: Prager

1992) pp. 273-284. 23

Solomon W. Polachek, “Conflict and Trade,” Journal of Conflict Resolution, vol. 24, no. 1, March, 1980 pp. 57-

78. Polachek is often considered to be the seminal formal work on this perspective. 24

Solomon W. Polachek and Judith McDonald, “Strategic trade and the Incentive for Cooperation,” in Manas

Chatterji & Linda Forcey (eds.) Disarmament, Economic Conversion and Peace Management (New York: Prager

1992) pp. 273-284. This work examined the actor’s elasticity of import demand and export supply toward the target

country and found that the more inelastic this demand and supply was—i.e. the less easily the country could switch

to substitute goods—the less likely the country would become involved in conflict with the target country. 25

John R. Oneal and Bruce M. Russett, "The Classical Liberals were Right: Democracy, Interdependence, and

Conflict, 1950-1985," International Studies Quarterly 41, no. 2 (1997): 267-293.There is a large body of literature

on this topic. Here, I only present a sample of this body of work to provide context for my main focus: the exercise

of economic statecraft. For a good resource on the various debates over the relationship between economic

interaction and conflict see: Edward D. Mansfield and Brian Pollins, Economic Interdependence and International

Conflict : New Perspectives on an Enduring Debate (Ann Arbor: University of Michigan Press, 2003). 26

Dale Copeland, “Economic Interdependence and War: A Theory of Trade Expectations,” International Security,

vol. 20, no. 4, 1996 pp. 5-41. 27

See Paul A. Papayaonou “Interdependence, Institutions and the Balance of Power,” International Security, vol. 20,

no. 4, 1996 pp. 42-76. For additional historical evidence that includes the turn of the century Franco-Russian

alliance, Pre-WWI and Pre-WWII decision-making and early cold war economic containment strategy, see Paul A.


11

examined the effect of trade on domestic economic actors and concluded that enhanced trade generated

incentives for consumers, producers, exporters and importers to lobby for continuation and expansion of

healthy trading relationships.28

Using a similar line of reasoning, functionalists like Haas, Deutsch and

Mitrany also claim that economic interaction causes peace. This school of thought claims that economic

interaction causes additional economic and non-economic linkages to form between societies.29

For these

theorists, economic interaction promotes better communication, reduced misunderstanding through

greater cultural familiarity and fosters institutions that help diffuse conflicts before they can escalate.

Patrick McDonald focused his domestic-oriented rationale for how economics causes peace on the

proliferation of a particular institution: private property rights.30

Each of these theorists struggle with

understanding the causal mechanisms that are operating to generate the outcomes they observe. However,

statistical correlation is a notoriously difficult tool to use to establish specific causality.31

For

understanding exactly how economic interaction generates externalities related to a nation’s security, I

would suggest that we need to look at in-depth case studies that reveal causal relationships between a

given type of economic interaction and the security effects of that interaction.

The second causal argument of this literature—that economics does not cause peace—grew up

mainly in opposition to the affirmative positions just discussed. For the most part, theories in this

category tend to stop short of claiming that economic relationships necessarily result in war. Rather,

these authors argue that economic interaction tends to sow the seeds for conflict more than economic

interaction tends to bolster peace. Since these theories offer more mitigated support for the answer that

economic interaction causes war, I have categorized them as ‘not causing peace’ rather than ‘causing war’

per se.32

Because of its historical breadth, one of the more interesting theories in this area is put forward

by Katherine Barbieri. Barbieri examined an extensive set of state dyads dating from 1870-1938, finding

Papayaonou, Power Ties: Economic Interdependence, Balancing and War, (Ann Arbor: University of Michigan

Press 1999). 28

Ruth W. Arad and Seev Hirsch, “Peacemaking and Vested Interests: International Economic Transactions,”

International Studies Quarterly, vol. 25, 1981 pp. 439-468. 29

Some samples of these ‘spillover’ concepts may be found in Ernst B. Haas, Beyond the Nation-State (Stanford:

Stanford University Press 1964) and in David Mitrany, A Working Peace System (Chicago: Quadrangle 1964) as

well as in Karl Deutsch’s Political Community and the North Atlantic Area: International Organization in the Light

of Historical Experience (Princeton: Princeton University Press 1957). 30

Patrick J. McDonald, "The Purse Strings of Peace," American Journal of Political Science 51, no. 3 (2007): 569-

582. 31

Mansfield and Pollins, The Study of Interdependence and Conflict: Recent Advances, Open Questions, and

Directions for Future Research 32

Two other leading authors who would fit into this category would be Richard Cooper and Mark Gasiorowski. See

Richard N. Cooper, The Economics of Interdependence: Economic Policy in the Atlantic Community (New York:

McGraw Hill 1968) and Mark Gasiorowski, ‘Economic Interdependence and International Conflict: Some Cross-

National Evidence,” International Studies Quarterly vol. 30, no. 1, March, 1986 pp 23-28.


12

“little empirical support for the liberal proposition that trade provides a path to interstate peace.”33

Instead, she found that increased trade interaction frequently corresponded with militarized conflict. To

explain why increasing economic links tend to foster conflict, she speculates that the benefits of trade

may be subject to diminishing returns while the costs or risks associated with increased economic links

may grow exponentially as countries become more and more dependent.

As Hirschman illustrates, this sort of dependency can be leveraged to impose political control

over the dominated states. This sort of policy was Germany’s strategy toward the states of Eastern

Europe. In his 1945 work, Hirschman documented how Germany developed a conscious national strategy

for making the states of Eastern Europe economically dependent on Germany. The intention was to have

Germany manipulate this dependence to force political and further economic concessions from the

dependent states.34

Carried to its logical extension, such dependence can create tensions between the

trading partners when the target state perceives the dependency as threatening its sovereignty.35

The third proposition—that economics does not cause war—is largely a group of authors that

argue against the significance of economic interaction as a cause of conflict. In this category are those

theorists who contend any independent impact that trade may have on the likelihood of war is

overshadowed by more germane strategic factors that account for why a state becomes involved in a

war.36

Neorealists generally relegate economic interaction to the status of “low politics” and are skeptical

that any economic considerations might play a significant role in determining whether a state decides to

go to war.37

However, classical realists do tend to allow for trade to be used as a tool for the state to

exercise its influence and extend its power.38

In this perspective, trade is seen as largely instrumental and

subservient to the larger pursuit of power. It is to be preserved only as long as it increases a country’s

power position but if war is a more effective method for increasing that country’s position then war ought

to be pursued. Authors like the classical realists who largely argue for the primacy of non-economic

causes as the root of war, also nonetheless recognize that economic interaction can be usefully used by

33

Katherine Barbieri, “Economic Interdependence: A Path to Peace of a Source of Interstate Conflict?” Journal of

Peace Research vol. 33, 1996, pp 29-49. 34

Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California

Press 1945 [1980—reprint]). 35

See Hirschman above. For more on the costs associated with any sort of economic relationship, see Cooper

above. 36

For a good example of this perspective see Barry Buzan, “Economic structure and International Security: the

Limits of the Liberal Case,” International Organization, vol. 38, no. 4 1984 pp. 597-624. 37

See Kenneth N. Waltz, “The Myth of National Interdependence,” in Charles P. Kindleberger (ed.) The

Multinational Corporation (Cambridge: MIT Press 1970) for the primacy of non-economic strategic factors in the

causation of war. See also Waltz, Theory of International Politics, (Reading, MA: Addison-Wesley 1979). 38

Hans Morganthau, Politics Among Nations (New York: Alfred A. Knopf 1953).


13

states in their pursuit of strategic goals.39

This group of theorists may be summarized as believing that

strategic interests are the primary cause of war and that economic interests will be sacrificed to security

interests if a serious conflict should develop.40

While this group of theorists may be correct in asserting

the ultimate primacy of a state’s strategic interests, this position begs the question of how states may

nonetheless pursue their interests through economic rather than military means. Precisely how states

exercise such power in a contemporary international environment deserves to be better understood.

The final causal argument in this economics and conflict body of literature states that economic

interaction is a cause of war rather than peace. This theoretical perspective traces its roots to Rousseau

who argued that “interdependence breeds not accommodation and harmony, but suspicion and

incompatibility.”41

Rousseau believed that interaction generated inequality and made states conscious of

that inequality and that, in turn, bred discontent and insecurity both of which fostered conflict. For

Rousseau, greater economic interaction simply offers more opportunity for conflicts to arise. Later

authors elaborated on Rousseau’s theoretical proposition by seeking to identify specific mechanisms and

proximate economic causes for conflict.

In fact, as it often the case with cumulative bodies of scholarship that build on earlier works, the

search for specifying economic causes of conflict has produced a distinct subset of the economics and

security literature: those works that address strategic goods and issues of sensitive trade. This subset of

the literature deals with the economic activity related to resources, technologies, knowledge or other

assets that carry significant implications for a nation’s military power. These works both borrow from

and trace their intellectual heritage to the conceptual overlap between the literature on economics and

conflict and the literature on the economic foundations of military might.42

Bridging families of work

(like the “Strategic Goods and Sensitive Trade” literature) are subsets of the three large families of

literature on economics and security that have been discussed up to this point. As such, they are situated

at the areas of overlap between the three large circles on the diagram.

39

See Arnold Wolfers, Discord and Collaboration; Essays on International Politics (Baltimore: Johns Hopkins

Press, 1962); Hans J. Morgenthau, Politics among Nations; the Struggle for Power and Peace, 2d , rev. and enl ed.

(New York: Knopf, 1954) pp.38-40. 40

See Kal J. Holsti, “Politics in Command: Foreign Trade as National Security Policy,” International Organization

vol. 40, pp. 643-671. 41

As quoted on page 319 in Stanley Hoffman’s, “Rousseau on War and Peace,” American Political Science Review

vol. 57, 1963, pp 317-333. 42

For example, the “Strategic Goods and Sensitive Trade” literature portion of the diagram shaded with green wavy

lines (labeled “D”) is formed at the juncture of the “Economic Foundations of Military Might” and the “Economics

& the Likelihood of Conflict” circles. This area of intersection reflects the intellectual overlap that is inherent in the

strategic trade literature. Trade in strategic goods or sensitive technologies is a form of economic interaction that

often directly carries implications for a nation’s military capabilities. At the same time, competition over strategic

natural resources or vital supplies may constitute a cause of conflict.


14

Anne Uchitel provides a good illustration of this sort of “bridging” work. Her argument that the

nature of certain assets makes them more or less strategically significant places her squarely into the

“Strategic Goods & Sensitive Trade” literature—labeled “D” in the diagram.43

At the same time, she

argues that economic interaction (specifically transactions in, or competitions for, such goods) may be a

cause of war rather than peace. She contends that countries that are dependent on imports of strategic

goods will be forced to “adopt expansionist policies and offensive military strategies.” 44

For Uchitel, it is

not so much the need for markets as the need for a reliable supply of strategic material that is likely to

cause a state to go to war. Framed in this light, her work may be thought of as reflective of the economics

and conflict literature. At the same time, Uchitel is implicitly noting that states require certain critical

goods if they are to be able to develop military capabilities—an important theme in the economic

foundations of military might family of literature. For these reasons, Uchitel and the rest of the “Strategic

Goods and Sensitive Trade” literature may be conceptually located at the intersection of the “Economic

Foundations of Military Might” literature and the “Economics and Conflict” literatures.

Although there was a considerable amount of scholarly work done on “strategic trade” in the

1980s, much of what constituted this “strategic trade literature,” (despite its name) had very little to do

with grand strategy.45

Rather, such works typically focused instead on the relative merits of protectionism.

A refreshing exception is Marc Busch’s, Trade Warriors: States, Firms, and Strategic Policy in High

Technology, which provides useful insight about how well states can internalize and capitalize on the

43

Uchitel’s emphasis on the nature of the goods being traded is an interesting insight and deserves to receive

additional attention. 44

See Anne Uchitel’s chapter, “Interdependence and Instability,” in Jack Synder and Robert Jervis (eds.), Coping

with Complexity in the International System (Boulder: Westview Press 1993). Quote is from p. 243. She presents

Nazi Germany, Imperial Japan, and Great Britain in the interwar period as evidence of her theory. Whereas

Germany and Japan had to adopt offensive strategies to secure their strategic materials, Great Britain could afford to

rely on a more defensive strategy that ensured its continued access to colonial supplies. 45

A typical example of such work is Paul R. Krugman, Strategic Trade Policy and the New International

Economics (Cambridge, Mass.: MIT Press, 1986). Although this edited volume does a fine job presenting various

perspectives on “strategic trade,” there is very little discussion of grand strategy and the role of economics in

pursuing national strategic interests. For the most part, these are treated as exogenous factors. For instance, James

Brander’s chapter provides a seminal essay in favor of strategic trade. His case is one made explicitly on

exclusively economic grounds. See James A. Brander’s Chapter 2 “Rationales for Strategic Trade and Industrial

Policy,” in ibid. pp. 23-46. “This paper is concerned exclusively with the economic rationale for certain trade

policies; economic objectives are the only objectives considered. This is not to deny that there are legitimate

noneconomic grounds for trade policy. Export subsidies, for example, might well have a role in helping to provide

key exports to countries with friendly governments, whereas export restraints might be used to inhibit technology

transfer to unfriendly countries. Such policies are undoubtedly important, but they are not taken up here.” ibid. p.

24. Unfortunately, such sentiments reflect the relatively narrowly economic scope that colors much of the strategic

trade literature.


15

beneficial externalities associated with particular patterns of trade.46

Unfortunately, even his work largely

neglects questions of grand strategy and the various techniques and tools that states use to manipulate

their commercial actors. In fact, remarkably little empirical work has been done that explicitly examines

the specific causal mechanisms by which countries use economic interaction to further their larger

strategic goals.47

In his work on strategic goods Robert Gilpin pointed out that economic nationalists fear

interdependence because it is likely to lead to greater uncertainty about the continued supply of strategic

goods which would then be a cause for insecurity that would increase the likelihood that conflict would

result.48

Although Gilpin posits the more traditional causality: that countries may directly clash with

other countries in a competition to secure strategic goods, he and Uchitel share a common view that

economic interaction need not necessarily always lead to peace. In fact, in areas of strategic significance,

economic interaction (whether trade or investment) is often fraught with national security complications.

The competitive dynamics that are an undercurrent in Gilpin’s “economic nationalism” logic also

seem to underpin the causal links between economic interaction and conflict for the “Leninist

Imperialism” literature. However, both Gilpin and Uchitel offer a rationale that differs substantially from

the well-known Marxist-Leninist views of capitalist imperialism that believe states compete for access to

ever decreasing new markets. 49

Such competition sows the seeds for eventual imperialism and military

conflict as states intervene on behalf of their commercial interests.50

Just as the “Strategic Goods & Sensitive Trade” literature can be thought of as a subset of the

“Economics and War” literature that argues that economics may be a cause of war, so too can we

46

Marc L. Busch, Trade Warriors : States, Firms, and Strategic Policy in High Technology (Cambridge England ;

New York: Cambridge University Press, 1999). 47

Many strategically-focused works have often neglected the role of commercial actors, while works that examine

commercial actors tend not to consider their behavior in a strategic international context. See: Karen M. Sutter,

"Business Dynamism Across the Taiwan Strait," Asian Survey 42, no. 3 (May/Jun, 2002), 522. A notable exception

is Rich Nation, Strong Army (Ithaca: Cornell University Press, 1996) in which Richard Samuels outlines how Japan

has pursued technological advancement to further its national interest. 48

See Robert Gilpin’s chapter, “Economic Interdependence and National Security in Historical Perspective,” in

Klaus Knorr and Frank Trager (eds.), Economic Issues and National Security (Lawrence: Regents Press of Kansas

1977) pp. 39-42. Like Uchitel, this piece of Gilpin’s work is most appropriately placed in the “Strategic Goods &

Sensitive Trade” area of the diagram. 49

Vladimir Ilyich Lenin, Imperialism, the Highest Stage of Capitalism (New York: International publishers, 1933). 50

Choucri & North offer a related logic of how trade causes war with a greater emphasis on the Malthusian (rather

than class) impetus. See Nazli Choucri & Robert C. North, “Lateral Pressure in International Relations: Concept

and Theory,” in Manus I. Midlarsky (ed.), Handbook of War Studies (Boston: Unwin Hyman 1989) pp. 289-326. In

their view, the finite resources available make states increasingly competitive in their drive to secure access to cheap

resources. As trade expands, greater and greater amounts of resources must be found to fuel growing populations.

These pressures cause states to go to war to guarantee their access to resources.


16

conceive of the “Leninist Imperialism” literature (labeled “F” in the diagram) as another argument of how

economics may cause war rather than peace. Due to its emphasis on conflict, the “Leninist Imperialism”

literature may be categorized as a subset of the larger “Economics and Conflict” literature. Whereas the

“Strategic Goods & Sensitive Trade” literature drew on elements of both the “Economic Foundations of

Military Might” and the “Economics & the Likelihood of Conflict” literatures, theories of Leninist

imperialism combine domestically-oriented political economy aspects found in the “Political Economy of

Defense” literature with the internationally-oriented interstate dynamics characteristic of “Economics &

the Likelihood of Conflict” literature.

Theories of Leninist imperialism frequently point to capitalist expansionary tendencies as a root

cause of war. This literature often argues that commercial (capitalist) actors enjoy such extreme levels of

agency that they influence and even direct the behavior of the state.51

Much of this literature argues that

commercial actors must be the unit of analysis since the state is little more than a puppet of the capitalist

class that is constantly searching for new markets. This quest often places states in conflict with other

states who are competing for the same markets and/or resources. While this focus on the commercial

actor is a helpful contribution to scholarship on economics and security, the majority of this literature

overstates the agency that commercial actors enjoy in foreign policy. In addition, a considerable portion

of this literature is prone to conspiratorial biases that undermine the reliability of its findings.

If the Leninist imperialism literature views commercial actors as using states to pursue their

capitalist interests, the literature on economic mobilization flips this causality and examines states’ efforts

to harness the capabilities of commercial actors and direct those efforts toward war. This “Mobilization

and Wartime Economics” literature lies at the intersection of a country’s domestic political economy and

its latent economic power base (labeled “E” in the diagram).52

It focuses on a narrow subset of the more

general defense problems of organization and structural architecture found in the political economy of

51

For the classic statement of capitalist imperialism see: Lenin, Imperialism, the Highest Stage of Capitalism.

Other works in this tradition include: Lionel Robbins, The Economic Causes of War, (New York: Macmillan, 1940);

H. C. Engelbrecht and Frank Cleary Hanighen , Merchants of Death; a Study of the International Armament

Industry, (New York: Dodd, Mead & Co., 1934); Victor Perlo, American Imperialism (New York: International

Publishers, 1951); Victor Perlo, Militarism and Industry; Arms Profiteering in the Missile Age (New York:

International Publishers, 1963); Michael Barratt Brown, After Imperialism (London: Heinemann, 1963); Michael

Barratt Brown, Essays on Imperialism (Nottingham: Bertrand Russell Peace Foundation, 1972); Michael Barratt

Brown, The Economics of Imperialism (Harmondsworth: Penguin Education, 1974); James Adams , Engines of War

: Merchants of Death and the New Arms Race (New York: Atlantic Monthly Press, 1990); Stephen C. Schlesinger

and Stephen Kinzer, Bitter Fruit : The Story of the American Coup in Guatemala, Rev. and expand , 2nd David

Rockefeller Center for Latin American Studies ed. (Cambridge, Mass.: Harvard University, David Rockefeller

Center for Latin American Studies, 2005). 52

This body of literature is indicated by the red, brick-like pattern reflecting the overlap between the “Economic

Foundations of Military Might” and the “Political Economy of Defense” circles.


17

defense literature. The mobilization literature can also be considered a specific component of the

“Economic Foundations of Military Might” literature since the “Mobilization and Wartime Economics”

literature explicitly concerns itself with how those basic economic building blocks are actually translated

into war fighting capabilities (usually under wartime conditions). Such works are concerned with the

process of wartime industrial mobilization—or how states practically convert their potential war fighting

capability into actual military power.53

The works found in both the “Economic Foundations of Military Might” and “Mobilization and

Wartime Economics” segments have been primarily concerned with understanding phenomena related to

an economy’s ability to fuel a country’s military power. Although useful for calling attention to the

economic dimension of national power, these literatures tend to omit the non-military applications of

economic power that can be just as important in realizing a country’s strategic objectives. In other words,

issues surrounding a country’s application of its direct economic power (rather than having to convert it to

military power first) are largely unaddressed in this area of the literature.54

Developing a better

understanding of how states go about such exercising of direct economic power is a key contribution of

my first book (forthcoming, Cornell UP).

Up to this point, we have discussed the three large families of literature pertaining to the

relationship between economics and security; namely: A.) the economic foundations of a nation’s

outward-oriented military might, B.) the inward-oriented questions of domestic political economy of

defense, and C.) the inter-state dynamics that involve economics and conflict. We have also adjusted our

aperture and explored the three bodies of what I have called “bridging scholarship” that conceptually

53

Horst Mendershausen, The Economics of War, Rev. ed. (New York: Prentice-Hall, inc., 1943); Klaus Eugen

Knorr, The War Potential of Nations (Princeton: Princeton University Press, 1956); Hardy L. Merritt, Luther F.

Carter, and National Defense University. Mobilization Concepts Development Center, Mobilization and the

National Defense (Washington, D.C.: National Defense University Press : Supt. of Docs., U.S. G.P.O., distributor,

1985); Martin L. Van Creveld, Supplying War : Logistics from Wallenstein to Patton, 2nd ed. (Cambridge ; New

York: Cambridge University Press, 2004). This body of literature includes much of the work that economists have

done in the arena of security studies. See for example: Charles Hitch, "National Security Policy as a Field for

Economics Research," World Politics 12, no. 3 (1960): 434-452. and John J. Clark, The New Economics of National

Defense (New York: Random House, 1966). A significant portion of the economics component of the curriculum

that is taught at China’s National Defense University is also focused on this type of work. See for example: 国防经

济学 (National Defense Economics) edited by 库桂生 (Ku Guisheng) and 沈志华 (Shen Zhihua), (Beijing: National

Defense University Press, 2007); 中国国民经济应变力研究 (their trans: Emergency Capability of National

Economic Mobilization of China) by 朱庆林(Zhu Qinglin), (Beijing: Military Science Press, 2007) and 国民经济动

员学教程，第二版 (National Economy Mobilization Course, 2nd ed.) by 朱庆林(Zhu Qinglin), (Beijing: Military

Science Press, 2007) among others.

54 The area that has given more attention to international economic power is that literature found at the heart of the

diagram—namely the literature on the nature, causes and use of international economic power. This literature is the

focus of the next section.


18

emanate from the areas of overlap between these three families; namely: D.) strategic goods and sensitive

trade, E.) mobilization and wartime economics and F.) Leninist imperialism.

In the literature review thus far, I have cast the net wide and offered a (necessarily shallow) tour

of the full range of the bodies of literature that seek to address aspects of the relationship between

economics and national security. This effort was partly to situate my own work in the context of the

larger bodies of economics and security literature. I have borrowed from and been inspired by various

elements found across these literatures. At the same time, my critiques of these efforts, my perceptions of

gaps and overlaps in the literatures as well as areas of their underdevelopment have helped guide the

focus of my own research agenda.

Although aspects of each of these six bodies of literature speak to my research focus, none are as

directly germane as the body of literature found at the core of the diagram in the region labeled “G.” This

body of literature specifically seeks to explore the nature, causes and exercise of international economic

power. This literature is located at the center of the Venn diagram, reflecting the intellectual intersection

of a part of each of the literatures discussed above. Questions relating to international economic power

synthesize elements of a nation’s economic foundation, its domestic strategic political economy and the

competitive struggle for power in the international arena. In addition, the best work examining the nature,

causes and exercise of international economic power often incorporate both elements of the principal-

agent dynamics that lay at the heart of the mobilization and Leninist literatures as well as the

consideration of security externalities that drive much of the strategic goods literature. My own work

seeks to extend the literature at the intersection of these intellectual currents. Let us therefore turn to the

extant scholarship found at this core: the literature on “Economic Statecraft.”

Evolution of the Study of Economic Statecraft

A good deal of the scholarship from the World War II era that laid the foundations for modern

political science also recognized the importance of understanding the relationship between economics and

security.55

One of the best known, early efforts to examine how states could use their economic relations

to pursue security goals is Albert Hirschman’s study of Germany’s trade relations with its weaker Eastern

55

Much of the mobilization and political economy of defense works discussed above date to the World War II or to

the post-War era.


19

European neighbors.56

Hirschman depicted the German state policies designed to establish, deepen and

exploit asymmetric structural economic dependence on the part of Eastern European states on Germany

before World War II. By the time that Hirschman wrote his well-known book, Herbert Feis had already

discussed how pre-World War I powers used investment and finance to facilitate their own security

policies.57

Both of these works helped to frame how states could use various types of economic

interaction to pursue their strategic goals. Eugene Staley premised his 1935 work, War and the Private

Investor, on the notion that the economic behavior of private sector actors cannot be fully understood

without also considering the political and military contexts that frequently influenced ultimate economic

outcomes.58

His work drove home the importance of considering the commercial actors when examining

how states wield their international economic power. In particular, Staley’s framing of his cases reflected

the heart of the principal-agent challenge inherent in economic statecraft: namely whether the commercial

actor or the state is ultimately driving the strategic outcome. The classical realist E.H. Carr also made a

seminal contribution to our understanding of economic power when he stated that ‘‘the military and

economic weapons are merely different instruments of power.’’59

This critical insight provides the basis

for my assumptions that economic power may be studied in much the same way that the field of security

studies examines the nature and application of military power. Jacob Viner elaborated on the relationship

between wealth and power in his 1948 piece, “Power Versus Plenty as Objectives of Foreign Policy in the

Seventeenth and Eighteenth Centuries.”60

Viner argued that wealth and power are not mutually exclusive

goals for states to pursue. Rather, Viner believed that power is complementary to wealth and vice versa.

While I do not directly disagree with Viner, I offer a slightly different approach more in line with Carr’s

perspective. I would argue that the pursuit of wealth is really little more than the national pursuit of

power by other means.

56

Albert O. Hirschman, National Power and the Structure of Foreign Trade (Berkeley and Los Angeles: University

of California press, 1945). 57

See: Herbert Feis, Europe the World's Banker, 1870-1914 (New Haven; London: Yale university press; H.

Milford, Oxford university press, 1931). Feis would later also document the American and British efforts to support

China’s currency against Japanese attempts to undermine the currency as part of Japan’s strategy to fracture China

into more easily conquered autonomous regions. Herbert Feis, The Road to Pearl Harbor; the Coming of the War

between the United States and Japan (Princeton: Princeton University Press, 1950). 58

Eugene Staley, War and the Private Investor; a Study in the Relations of International Politics and International

Private Investment (Garden City, N.Y.: Doubleday, Doran & Co., inc., 1935). This work was an early attempt to

systematically examine cases in which commercial actors behaved in ways that were conducive to states’ strategic

objectives. Staley was also keen to note that his research often found governments doing the bidding of their

commercial actors as well. 59

Carr, The Twenty Years' Crisis, 1919-1939; an Introduction to the Study of International Relations, pp. 117-120. 60

See Jacob Viner, “Power Versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth

Centuries” World Politics 1,1 pp.1-29. Viner examines evidence primarily from British and French Mercantilists

showing that rather than claim power is more important than wealth, states sought both.


20

Although some of these early works in the field of economics and security examined ways states

may seek to further their strategic goals through private sector or quasi-private sector actors,61

most of this

literature is largely framed in mercantilistic terms that do not account for the complex relations between

the state and the firm in a more modern, liberalized economic context. Although the broad, general

concepts pertaining to the role of the state in managing its economic affairs may still provide insightful

conceptual leverage, much of the specific empirical relevance of these early works are naturally rather

limited in a contemporary Twenty-First Century context.

Later works did seek to explore how states could use economic power to achieve their interests in

a more modern, globalized and interdependent environment. Authors in this spirit include Klaus Knorr,

Robert Gilpin, Robert O. Keohane, and Joseph S. Nye whose work on the nature and exercise of modern

transnational economic power was both insightful and path breaking.62

Knorr’s work carried Carr’s initial

insight—that economic power and military power are merely two sides of the same coin—into a more

modern multinational context. Knorr sought to provide a theoretical framework for understanding how

modern states harness, aggregate and utilize the economic tool in international relations. Knorr applied

economic concepts and principles to parse out the nature, mechanics and consequences of economic

power.63

In many respects, my work is an extension of Knorr’s efforts to analyze the economic

dimensions of the strategic international power dynamics between states in the international system.

Although Knorr provided an intriguing foundation for the study of economic power, his enumeration of

the various uses of economic leverage lacked a unifying logic as well as a mutually exclusive and

collectively exhaustive categorization. By building a framework based on understanding the relationship

between economics and security to be one of “security externalities,” I bring a unifying conceptual

organization to many of the “uses” of economic power that Knorr first itemized.

While Knorr’s work is an important contribution, he focused on the macro-level strategic aspects

of economic power: “Our focus on government policy excludes from major consideration those kinds of

61

See especially Staley’s War and the Private Investor and Hirschman p. 170. 62

See Klaus Eugen Knorr, Power and Wealth; the Political Economy of International Power (New York: Basic

Books, 1973), Knorr, The Power of Nations : The Political Economy of International Relations, Klaus Eugen Knorr

and Frank N. Trager, Economic Issues and National Security, Vol. 7 (Lawrence: Published for the National Security

Education Program by the Regents Press of Kansas, 1977). Also see Robert Gilpin, U.S. Power and the

Multinational Corporation : The Political Economy of Foreign Direct Investment (New York: Basic Books, 1975);

Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, NJ:

Princeton University Press, 1984); and Robert O. Keohane and Joseph S. Nye, Power and Interdependence: World

Politics in Transition (Boston: Little, Brown, 1977). 63

See especially Chapter 4 “International Economic Leverage and Its Uses,” of Knorr and Trager, Economic Issues

and National Security, and Chapter I “International Power and Influence” of Knorr, The Power of Nations : The

Political Economy of International Relations,.


21

international relations that occur between private groups and individuals across national boundaries.”64

As a result, he was not able to fully explore the tactical dimensions of the actual exercise of economic

power. One area in particular that seems to be lacking in Knorr’s work is the role of commercial actors.65

Even though “many of these interactions are fostered by governments (e.g., international trade conducted

by private business), and their regulation often raises issues of foreign policy” Knorr was not able to go

into any significant level of detail regarding the operational role of commercial actors in the exercise of

economic statecraft.66

By developing a commercial actor-based approach to economic power, I extend

some of Knorr’s principles and examine how they actually play out in modern practice.

Other important authors that contributed to the development of this economic power literature,

while providing important theoretical insights, likewise tended to lose sight of the commercial actors.

Susan Strange made a significant contribution with her depiction of the structural dimension of economic

power.67

Although mainly concerned with national macroeconomic goals, Richard Cooper was among

the first to elucidate the constraining nature of modern interdependence on states’ use of economic tools

to achieve their objectives in the international system.68

Keohane and Nye explicitly sought to examine

the various ways in which states were made vulnerable to economic pressures from other states in this

interdependent world.69

Their notions of asymmetry and dependence exploitation inform many of the

concepts and ideas put forward in my work. Although these works blazed important new paths in the

study of international economic power, they often sacrificed specificity in their efforts to build a general

theoretical foundation for the exercise of economic power.

One portion of the literature that has sought to lend precision to the discussion of the tools of

economic statecraft is the literature on sanctions. Unfortunately, much of this prolific body of literature

64

Knorr, The Power of Nations : The Political Economy of International Relations, p. 28. 65

In The Power of Nations, Knorr discusses multinational corporations chiefly in the context of a brief refutation of

neo-Marxism. See: Chapter IX “Imperialism and Neocolonialism,” in ibid. pp. 239-309. 66

ibid. p. 28. 67

Susan Strange, States and Markets (London: Pinter Publishers, 1988). Although the systemic architectural

designs of the international regime do clearly confer a significant source of power to the hegemon, like other works

in the hegemonic theory literature, Strange’s focus on the third level of analysis prevents her from directly engaging

the role of commercial actors. Cheryl Christensen also discusses the importance of structural power in the context of

economics and security in her Chapter 5 “Structural Power and National Security,” in Knorr and Trager, Economic

Issues and National Security, pp. 127-159. 68

See Richard N. Cooper and Council on Foreign Relations, The Economics of Interdependence; Economic Policy

in the Atlantic Community, 1st ed. (New York: Published for the Council on Foreign Relations by McGraw-Hill,

1968) especially Chapter 6 “National Economic Policy in an Interdependent World.” 69

Robert O. Keohane and Joseph S. Nye, Power and Interdependence : World Politics in Transition (Boston: Little,

Brown, 1977).


22

focuses rather narrowly on the effectiveness of sanctions.70

The quantitative nature of much of this work

makes it difficult to gain insight into the actual causal mechanisms behind states’ use of economics in

pursuit of their objectives. Like the economics and conflict literature discussed above, the quantitative

approach used by a good deal of the sanctions literature precludes a deep exploration of the causal logics

underpinning the contending schools of thought. In addition, as is often the case in social science

research, much of this work tends to focus rather narrowly on a phenomenon that is relatively easily

measured, namely sanctions imposed by states or other intergovernmental bodies. By not paying

sufficient attention to other (albeit perhaps less easily measured) causal mechanisms, this narrow

approach focused on sanctions may be missing a wide range of security consequences associated with

various other more subtle mechanisms of economic statecraft like foreign aid policy. Finally, almost all

of these works have been limited to trade sanctions—thus missing the empirical richness of the full

panoply of economic interaction and the security externalities related to non-trade based economic

interaction like financial and monetary relations.71

70

See: T. Clifton Morgan, Navin Bapat, and Valentin Krustev. "The Threat and Imposition of Economic Sanctions,

1971—2000*." Conflict Management and Peace Science 26, no. 1 (2009) pp. 92-110 for the TIES Dataset on

sanctions that has spurred a new round of sanction research. Morgan et al were building on earlier work of Gary

Clyde Hufbauer, Jeffrey J. Schott and Kimberly Ann Elliott, Economic Sanctions in Support of Foreign Policy

Goals, Vol. 6 (Washington, DC; Cambridge: Institute for International Economics; Distributed by MIT Press, 1983);

Lisa L. Martin, Coercive Cooperation : Explaining Multilateral Economic Sanctions (Princeton, N.J.: Princeton

University Press, 1992); David Cortright and George A. Lopez, Economic Sanctions : Panacea Or Peacebuilding in

a Post-Cold War World? (Boulder: Westview Press, 1995); Richard N. Haass, "Sanctioning Madness," Foreign

Affairs 76, no. 6 (11//Nov/Dec97, 1997), 74-85; Richard Haass and Council on Foreign Relations, Economic

Sanctions and American Diplomacy (New York: Council on Foreign Relations, 1998); Daniel W. Drezner, The

Sanctions Paradox : Economic Statecraft and International Relations (Cambridge England ; New York: Cambridge

University Press, 1999); Richard Haass and Meghan L. O'Sullivan, Honey and Vinegar : Incentives, Sanctions, and

Foreign Policy (Washington, D.C.: Brookings Institution Press, 2000); David Cortright et al., Sanctions and the

Search for Security : Challenges to UN Action (Boulder: L. Rienner Publishers, 2002); Gary Clyde Hufbauer,

Economic Sanctions Reconsidered, 3rd , Expand ed. (Washington, DC: Peterson Institute for International

Economics, 2007) and for work on smart sanctions see: David Cortright and George A. Lopez, Smart Sanctions :

Targeting Economic Statecraft (Lanham, Md.: Rowman & Littlefield Publishers, 2002). 71

See for example David A. Baldwin, Economic Statecraft (Princeton, N.J.: Princeton University Press, 1985);

Hufbauer, Economic Sanctions Reconsidered,K. Barbieri and G. Schneider, "Globalization and Peace: Assessing

New Directions in the Study of Trade and Conflict," Journal of Peace Research 36, no. 4 (1999) 387-404.

Frequently, the most readily available data is trade data. Partly as a result, foreign direct investment and cross-

border capital flows as well as monetary interaction have received far less attention in the literature. Important

exceptions are Janet Kelly’s Chapter 9 “International Monetary Systems and National Security,” in Knorr and

Trager, Economic Issues and National Security,; Jonathan Kirshner, Currency and Coercion : The Political

Economy of International Monetary Power (Princeton, N.J.: Princeton University Press, 1995); Erik Gartzke and

others, "Investing in the Peace: Economic Interdependence and International Conflict," International Organization

55, no. 2 (2001), 391-438; Rosecrance and Thompson, "Trade, Foreign Investment and Security,” Annual Review of

Political Science 6, no. 1 (2003) 377-398; Benn Steil and Robert E. Litan, Financial Statecraft : The Role of

Financial Markets in American Foreign Policy (New Haven: Yale University Press, 2006) and Andrews,

International Monetary Power.


23

David Baldwin’s Economic Statecraft is one of the best efforts to provide order to the myriad

tools states could call upon to achieve their national interests.72

Baldwin’s work made a number of

important contributions that I seek to build upon. Like Baldwin, my work also builds on Lasswell’s four-

part classification scheme of national power73

in seeking to develop and expound the economic set of

tools available to states to pursue their national objectives. I also share Baldwin’s assumption that

“foreign policy is generally viewed as purposive behavior, i.e., activity oriented toward some end, goal,

objective, or aim.”74

Baldwin also seeks to illuminate both “positive” and “negative” consequences from

economic statecraft—he points out that scholarship on economic statecraft often fails to adequately

appreciate the strategically beneficial aspects of economic interaction.

One area of Baldwin’s work that I seek to improve on is his definition of “economic statecraft.”

In particular, Baldwin’s concept is poorly specified to develop a deeper understanding of how states

actually exercise their economic power. Baldwin focuses his scholarship on the phenomenon of

“economic statecraft” which he defines as “influence attempts relying primarily on resources that have a

reasonable semblance of a market price in terms of money.”75

Essentially, Baldwin’s definition begins by

saying that statecraft defines the range of tools, policies, etc. that a state has at its disposal to pursue its

interests in the international system.76

This definition is straightforward. He goes on to define economic

as those transactions, goods, etc. which can be measured and priced in terms of money.77

This logic leads

Baldwin to conclude that economic statecraft defines the activities, policies, etc. of a state that rely on

resources that have a price tag. His purpose in constructing such a definition seems to be to emphasize

that the term “economic” merely defines the means employed (rather than the end-state goals that are

sought—which may be purely political). I do agree with this perspective and in the practice of

international relations, states do seem to frequently seek to achieve non-economic ends by way of using

economic means. However, this does not seem to be a particularly innovative nor analytically helpful

insight. It would be more interesting if we could say something about exactly how it is that states use

such tools. What is different about state use of economic tools as opposed to other means of international

influence? What are their limits? Are there any patterns that we can explore regarding conditions that are

likely to result in “success?” If so what are those conditions? Exactly in what manner do state

72

Baldwin, Economic Statecraft. 73

Harold D. Lasswell, Politics: Who Gets what, when how. with Postscript (1958) (New York: Meridian Books,

1958) Lasswell’s postscript suggests that states can exercise their power across four dimensions: information,

diplomacy, economics and force. My work, like Baldwin’s, is concerned with the economic tools of statecraft. 74

Baldwin, Economic Statecraft,p. 16. 75

ibid. p. 30. Baldwin actually introduces this definition on page 13-14 of Chapter 2, but develops it more fully in

his Chapter 3 “What is Economic Statecraft?”. 76

See ibid. pp. 8-9 in which he borrows from Harold and Margaret Sprout and K.J. Holsti. 77

ibid. pp. 31-32.


24

applications of economic instruments produce the strategic consequences that states seek? Baldwin’s

definition of economic statecraft is too vague to provide useful analytical leverage on such questions. In

my own work, I offer a more specific, analytically precise definition of economic statecraft that moves

away from Baldwin’s “intentionally broad” definition in favor of an understanding of economic statecraft

that frames the strategic outcomes as security externalities that result as a consequence of the economic

activities of commercial actors. Defining economic statecraft in this way allows us to be more precise

about the conditions under which and the manner in which states seek to use economic interaction to

promote their strategic goals.

By focusing the analytical lens on the consequences of various patterns of economic interaction,

my work is also able to move beyond another limitation of Baldwin’s formulation: namely, that specific

policy tools are categorized simply as “positive” or “negative.” On pages 41 and 42, he provides a table

of policy tools that states may use to pursue their national objectives. These tools are categorized as

either “negative” (having a harmful effect on the target) or “positive” (having a beneficial effect on the

target) and as having to do with either “trade” or “capital” (by which he means financial flows). His

definition of economic statecraft as essentially the economic means to realize foreign policy objectives

may be partly responsible for this narrow, binomial categorization. The outcome of economic statecraft

(i.e. the end it is designed to achieve) is largely exogenous for Baldwin. He is primarily concerned with

identifying the economic set of tools that states can use to pursue a range of foreign policy goals.78

By

framing economic statecraft as an issue of security externalities, my approach focuses on the security

effects of economic interaction and thus is better able to illuminate and distinguish the specific types of

security concerns arising out of various patterns of economic interaction. Rather than merely categorizing

the various policy tools that states can use to engage in economic statecraft (which, as Baldwin admits,

may be an almost infinite list of policy tools), I organize the space differently.79

I put forward a

comprehensive typology that distinguishes the specific security effects that state policies may seek to

bring about. By framing the conceptual space in this way, I am better able to distinguish and specify the

causal pathways that link the economic behavior of commercial actors to the ultimate security

consequences for states. This approach provides a much clearer view of the inner workings of economic

statecraft—exactly how states use economics to pursue their foreign policy objectives. This higher

78

On pp. 40-41 he provides a long list of the “wide variety of foreign policy goals.”ibid. 79

“These tables are intended to illustrate the wide variety of economic techniques and do not purport to be

exhaustive.” ibid. p. 40. One can imagine a dizzying array of policy options available for the state to influence

economic conduct: laws, conditionalities, regulations, tariffs, taxes, licensing, quotas, bilateral and multilateral

regimes, fiscal measures, subsidies, etc.


25

resolution on the actual conduct of economic statecraft permits a richer categorization of the conceptual

domain of economic statecraft than Baldwin’s positive/negative framework.

Although Baldwin set out to cast a wide net encompassing all the various positive and negative

mechanisms states could pursue across all types of economic interaction—trade as well as financial

relations—in the end, most of his book focused on sanctions. However, ten years later, Jonathan

Kirshner’s Currency and Coercion would help address the lack of systemic scholarship on the use of

monetary tools of economic statecraft.80

Each of these works made important contributions to the study

of economic statecraft, but in seeking to develop the theoretical context for the exercise of contemporary

economic power, these works tended to focus almost exclusively on the state and drifted away from the

commercial actor-driven approach that characterized the earlier generation of scholarship (e.g. Staley).

One notable exception is Robert Gilpin’s US Power and the Multinational Corporation. Gilpin

argued that multinational corporations thrive because the international system’s hegemon creates and

maintains an international environment in which private sector actors can benefit and thrive.81

At the

abstract level, Gilpin’s work seeks to directly account for the role of commercial actors in international

strategic relations. However, Gilpin was mainly motivated by an effort to explain the long-term rise and

decline of hegemons in the international system. The field is still lacking a middle-range theory that

bridges the levels of abstract theory and the more concrete applications of exactly how commercial actors

do the strategic bidding of the hegemon.

Although Gilpin’s work is largely compatible with the theory put forward in my first book, there

are inevitably, some areas of friction: First, Gilpin’s book emphasized the unique role of the hegemon in

the international system and the benefits accruing to the hegemon’s multinational corporations (MNCs).

This perspective stands in contrast to my work that argues that any state is more or less theoretically

capable of using its commercial actors to further its national strategic interests. Moreover, there does not

seem to be any a priori reason to assume that the MNCs of non-hegemonic states would not also accrue

benefits in a modern, liberalized global regime (e.g. WTO). Second, Gilpin’s normative position

highlighting the danger of national over-reliance on investment returns also seems not to have been borne

out by the facts in the American case as it has developed since the time of his writing.

80

See Jonathan Kirshner, Currency and Coercion : The Political Economy of International Monetary Power

(Princeton, N.J.: Princeton University Press, 1995). In 2006, David Andrews edited a very good volume that builds

on earlier work relating to the use of monetary power: Andrews, International Monetary Power. 81

“…[T]his book argues that the international political order created by dominant powers primarily in their security

interests has provided the favorable environment for economic interdependence and corporate expansionism.”

Gilpin, U.S. Power and the Multinational Corporation : The Political Economy of Foreign Direct Investment,p. 19.


26

Finally, Gilpin’s work left many questions unanswered—is it only the hegemon’s corporations

who can benefit or can all commercial actors? If all commercial actors benefit, then can other non-

hegemonic states also pursue their strategic goals through the use of commercial actors? How? What are

the processes through which such strategic alignment of interests between the commercial actors and the

national strategic interests actually take place? To what degree can states shape and influence the

behavior of their multinational firms? In what way does the behavior of MNCs affect national security?

Gilpin’s work was an important step forward in considering the inter-relationship of modern multinational

corporations and US national interests. His book frames a discussion of how the behavior of MNCs

served that interest. As with Knorr, my work attempts to build on elements of Gilpin’s theoretical

foundation and examine the resulting theory in the empirical context of contemporary Chinese interests.

Many of the other works in the literature on globalization that sought to explore the role of

commercial actors tended to overstate the autonomy of multinational corporations and the erosion of the

nation state as the dominant actor in international relations.82

My own work demonstrates that even if the

direct, classical mercantilist power of the state to dictate policy to its private sector actors has diminished

under a more liberalized system, sufficient power remains for the state to influence and generate

incentives for the private sector to behave in ways that are conducive to state interests. Although many of

the exaggerated claims of a “vanishing state”83

have since been largely corrected,84

the field has yet to

develop a middle range theory that would connect the micro-level behavior of commercial actors who

possess some degree of autonomous agency to the macro-level strategic outcome of how modern

sovereign states actually mobilize their economic interaction to further national security goals. It is not

82

Examples of works making the case for a significantly diminished national state in the era of globalization

abound. See for instance: The Retreat of the State: The Diffusion of Power in the World Economy by Susan Strange

(Cambridge University Press, 1996); Global Order and Global Disorder: Globalization and the Nation-State by

Keith Suter (Praeger, 2003); Martin Wolf, “Will the Nation State Survive Globalization?” Foreign Affairs January-

February 2001; Twilight of Soveriengty: How the Information Revolution is Transforming Our World by Walter B.

Wriston (Scribner Book Company, 1992). In response to a frequent assumption in this literature on globalization

that the state has become irrelevant in the face of multinational corporations, my work argues that the mechanisms

of state influence may have changed over time, but states remain powerful international actors. For a somewhat

similar theoretical perspective see: Sean Kay, "Globalization, Power, and Security," Security Dialogue 35, no. 1

(2004): 9-25. Contemporary conditions of complex, interdependent global economic interaction require that we

understand the ways in which states continue to exert their influence. 83

Richard N. Rosecrance, The Rise of the Trading State : Commerce and Conquest in the Modern World (New

York: Basic Books, 1986). 84

See for example: Suzanne Berger and Ronald Philip Dore, National Diversity and Global Capitalism (Ithaca,

N.Y.: Cornell University Press, 1996); Maria Gritsch, "The Nation-State and Economic Globalization: Soft Geo-

Politics and Increased State Autonomy?" Review of International Political Economy 12, no. 1 (2005): 1-25; and

Peter Evans, "The Eclipse of the State? Reflections on Stateness in an Era of Globalization," World Politics 50, no.

1, Fiftieth Anniversary Special Issue (1997): 62-87.


27

enough to simply “bring the state back in” to our analyses—as scholars, we should also illuminate how

states interact with their commercial actors in a strategic context.

Summary

In summary, there is a long tradition of scholarly work that has sought to understand how states

use economic power. As reflected in the Venn diagram, this body of literature incorporates elements of

several different types of works that have sought to bridge the economics and security studies fields. A

comprehensive approach to understanding the exercise of economic statecraft synthesizes elements of a

nation’s basic economic foundation, its domestic strategic political economy and the competitive struggle

for power in the international arena. Moreover, a complete analysis should include both elements of the

principal-agent dynamics that pervade the business-government relations at the heart of the mobilization

and Leninist literatures as well as a deeper understanding of security externalities that drive much of the

strategic goods literature.

Inspired by the early Twentieth Century classical realists who emphasized the importance of both

national strategic goals and the role of commercial actors in pursuing those goals, my work seeks to

address a number of gaps in the literature. My own work seeks to extend and tactically operationalize

some of the earlier work done on the nature of economic power and how states actually mobilize

commercial actors to pursue national strategic interests in a contemporary context. Specifically, my first

book tries to answer the following questions: In what manner do states seek to use economic interaction

to further their larger strategic goals? What is the role of commercial actors in states’ strategic efforts to

wield economic power? Why do these efforts succeed or fail? What factors facilitate or hinder effective

economic statecraft?

When attempting to answer such questions, the existing literature has tended to take too narrow of

an approach. In particular, existing efforts to explore this topic have generally fallen victim to some

combination of three limitations. First, existing literature has focused mainly on the most readily

observable form of economic interaction: a statistical examination of trade—thus missing the empirical

richness of the full panoply of economic interaction and the security externalities related to non-trade

based economic interaction like financial and monetary relations.

Second, much of the work that has been done on the issue of using economic interaction to pursue

larger strategic goals has been framed in the context of sanctions, missing the wide range of security


28

consequences associated with various other mechanisms of economic statecraft. Framing the issue

through this sanctions lens may omit more subtle mechanisms that seek not only compliance, but a deeper

transformation of interests themselves. Starting from this standpoint, the field ought to embrace a

theoretical approach and research agenda that is not narrowly limited to sanctions, but rather encompasses

a broad range of economic activities like aid, investment flows, etc. and their concomitant security effects.

Finally, much of the literature dealing with the use of economics to pursue strategic goals tends to

traditionally take a state-centric approach. By focusing predominantly on states as the unit of analysis,

these perspectives give relatively little consideration to a rigorous treatment of the role of commercial

actors—the agents actually responsible for conducting most of the economic activities of the modern

state.85

The behavior of these commercial actors plays a crucial role in determining economic interaction,

and ultimately, how states may use that economic interaction to pursue their strategic interests more or

less effectively. In my own work, I adopt a principal-agent framework that facilitates a meaningful

exploration of the business-government dynamics that are so important for understanding how states use

economic interaction to further their strategic interests.

Although economics and its relationship to security has been a long time topic in the international

relations literature, the field continues to lack an integrated theory that links microeconomic, firm-level

behavior with the macro-level grand strategy of states. As a result, we have little sense of the micro-

foundations of economic statecraft as practiced in grand strategy. My first book provides an account of

how aggregate economic agents’ micro-level incentives and consequent behavior generate national

security outcomes at the level of state grand strategy. Commercial actors, acting on their own interests,

engage in various forms of cross-border economic interaction.86

This interaction often generates security

externalities.87

Moreover, even in a modern, liberal economic system in which states themselves are not

directly responsible for conducting the majority of economic interaction, states can create incentives for

commercial actors to behave in ways that encourage the creation of security externalities that are

conducive to a state’s strategic interests. Thus, states can pursue strategies that seek to manipulate these

externalities by structuring the incentives of the commercial actors involved. I define such manipulation

as economic statecraft.

85

Karen M. Sutter, "Business Dynamism Across the Taiwan Strait," Asian Survey 42, no. 3 (May/Jun, 2002), 522. 86

In a modern, liberal economic system, most of the economic interaction that takes place is conducted by

commercial actors. These commercial actors engage in economically rational decisions which result in international

economic interaction. 87

States in highly charged security environments are particularly likely to be sensitive to such security externalities.

These externalities may be usefully distinguished from one another by their security effects and the manner in which

these effects are generated.

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