Text: Global Peace Has Its Roots in Economic Security

BG9541E | Date: 1995-12-14

Introduction

It is a critical moment in our nations' history. Americans are weary after a long period of conflict. Increasingly, they are preoccupied by problems at home, not abroad, and wish to withdraw from foreign entanglements. The United States rejects leadership in multilateral organizations. We have no serious rival. There is no longer an axis of conflict.

Our elected leaders vow to shrink government. Companies are increasingly successful, but workers are fearful for security. Concerns rise about immigration. There are calls for protectionism. It is the best of times for some, and the worst of times for others.

I suppose I could be describing 1995. I am actually describing 1925. America had then made and was continuing to make a series of catastrophic economic and foreign policy errors. These fueled a process that sent the world shuttling toward what were perhaps the darkest years in human history.

The lessons of the 1920s are sobering. They speak to the dangers of complacency and contentment even in the absence of proximate military threats. I believe that they provide importance guidance for American security policy in today's multipolar world.

This evening I would like to speak about the economic component of our national security. I will argue that the case for internationalist, as opposed to isolationist or passive economic policy, has never been stronger.

There is a familiar, almost cliched case for economic internationalism. It holds that exports have never been more important for our economy that export jobs are better even for unskilled workers, and that the United States is uniquely positioned to trade in every direction. It asserts that the spur of global competition is crucial to productivity growth. It concludes that the United States, more than any other nation, gains from trade agreements because our markets are already so open, and that we can continue to prosper only if we can continue to sell into expanding markets worldwide.

All of this is true, and all of this is important. Its importance is probably sufficient to justify an internationalist economic policy. Such a policy does mean better jobs on main street, and better results on Wall Street. But just as important for America and Americans is what such policies mean for our national security. It is this idea -- the connection between our internationalist economic policy and our security -- that I want to discuss tonight with you.

What Economic Security Is Not

What is that link? There is a popular notion of economic security that emphasizes the so-called threat posed by economic competition from other countries.

I believe that to conceptualize economic security in terms of containment of other countries' economic power is profoundly misguided. It is misguided, because it ignores the central thesis of market-based economics -- that prosperity can be shared. It is misguided, because it tempts us into mercantilist patterns that have been so disastrous for global security in the past.

Even if containment made sense, there is no country in today's world which needs containing. America today remains the wealthiest, most competitive, and most productive nation on Earth. As Europe struggles with high unemployment and corporate lethargy, our economy has created 7.5 million new jobs over the past two and a half years. Our corporations, fresh from a remarkable re-engineering, have seen profits rise, as other nations' flag. Japan is wrestling with a profound financial and economic crisis -- one with deep structural roots. It is clear that our standard of living, and our levels of productivity, remain on the order of 30 percent higher than Japans. After four decades of convergence between other industrialized economies and our own, the United States is once again pulling away.

The Link Between Economic and National Security

The crucial link between economics and national security is this. We are much less likely as a nation to be drawn into conflict if nations of the world are prosperous, and are forging ever closer connections, than if they are stagnant, and apart. Prosperity, and with it the simultaneous enhancement of social cohesion and dispersal of political power, seem to lead to democracy, and more often than not, to peace.

There are many ways to make this point. Perhaps the strongest, clearest lesson results from the European experience following 1945. Western Europeans fought at least a half-dozen wars in the hundred years before the end of World War II -- civil war in France in 1848, the Franco-Prussian War in 1871, German wars of unification, the Crimean War, World War I, and then the Second World War. What changed after 1945? Some believe the horror of the final war was too great to allow repetition. That may be true. However, I believe that the stability we have witnessed has had much to do with the economic vision shown by a few on both sides of the Atlantic after the war. It was a vision that supported rapid rebuilding as essential for normalization and prosperity. It advanced economic integration, as essential to ensuring that people stood to gain more in shared peace, than in divisive conflict. And it was a vision that hinged on American leadership.

That same lesson stands out in the regions that represent our greatest security problems today. Haiti was among our hemisphere's important exporters of agricultural products when it attained independence in 1804. But it was the cruelty with which France and other colonial powers shut-down Haiti's access to key markets that sent the island nation spinning into economic and political decline.

The Bosnian conflict has its roots in the chaotic hyperinflation of 1989 and failure of the West to offer debt relief to support a stabilization effort. That encouraged Slovenia, the wealthiest republic, to secede, setting in motion the chain events leading to dissolution of the Yugoslav state.

The fact that economic expansion in Asia over the last half of the 20th century has been relatively free from bloodshed, in comparison with the first, must in part be the result of the steady progress that Asian states have made toward market-based development, greater economic openness, and ultimately I believe, toward greater democracy.

It has been increasingly remarked in recent years that our security threats do not always involve conflict among nations, but also transnational problems, such as drug trafficking, or terrorism. There is every reason to think that prospering nations whose institutions strengthen as they become more democratic are more likely to cooperate with us effectively in combatting these problems.

If prosperity and integration have been so central to what has been a remarkably successful 50 years of security policy, what are the tools with which we can promote them in the future? I believe that three kinds of lessons follow from the disastrous experience we had following World War I.

American Leadership to Promote Economic Reform

The first, is that American leadership and support are necessary to promote economic reform and to guide nations in transition along the way toward market-based development.

Consider this. When historians look back on our era, it may not be the end of the struggle between two power groups that they see as the most salient event. Rather, the unprecedented embrace of market-based economics in so many countries may seem the more seismic shift. That is a movement that has put some two to three billion people -- in Asia, Eastern Europe, Latin America, and Africa -- on a rapid escalator to prosperity.

Some believe that the United States need do nothing to encourage this movement. They are convinced that the power of free markets -- and free-markets alone -- can do the work. I believe that is far too optimistic. As business people who participate in the global economy, you know that the path from socialism to the market, from protectionism to free-trade, is not a straight one from darkness to light. Market forces alone may not help countries overcome the tremendous social and economic shocks that can erupt along the way, and can indeed exacerbate tensions in the short-run. Both public and market involvement are needed to redesign a tax-code, or build bridges, or finance any of the enormous variety of public goods that provide the foundation required for capitalism to flourish.

That is why we assumed the leadership role in the rebuilding of Europe following World War II. It explains why we are providing finance, and underwriting reform today in Russia, the Ukraine, and the other Communist lands now in transition. It is an effort we carry out bilaterally, and something we do through the multilateral-development banks, including the World Bank, the European Bank for Reconstruction and Development, and other regional development banks. That is why in many ways, those institutions are to the new, post-Cold War world what the security institutions were to the earlier one.

The voices which call for United States withdrawal from these institutions, and which seek to block Americas ability to meet its contributions -- are terribly short-sighted. Think of the role that the World Bank, the IMF, and the other multilateral bodies have played in nearly every economic success story -- South Korea, Chile, Indonesia, and over a dozen more. Since the early 1980s, India, Mexico, Poland, and a long list of other countries that are revolutionizing their economies have received some $35 billion in World Bank loans directly conditioned on trade and investment liberalization.

The proposed Middle East Development Bank will carry in the work of ensuring that infrastructure and investment facilities exist to cement prosperity and peace in that region.

George Bush once said that we have more will than wallet. I believe that is precisely backward. The truth is, we have far more wallet than will. Our annual gross domestic product looks poised to be roughly $500 billion higher this year than it was in 1992, in real terms. That translates into nearly $2000 per American. If we were to spend the same proportion of our national income on defense as we did in the mid 1980s, we would be spending some $175 billion more each year.

Surely it is right to devote some 1 percent of that savings to global economic objectives that accomplish our most profound security and humanitarian aims. And yet that is not today assured in the appropriations measures now being considered by Congress. These would leave us more than $900 million in arrears to the International Development Association, the World Banks concessional loan window for the worlds poorest nations, and some $1.5 billion in arrears to all the multilateral development banks.

Your organization has focussed on ways to rationalize spending on national security. I am sure that you can appreciate the value of accomplishing many of our foreign economic policy objectives through multilateral institutions which lever our resources, and which can therefore provide roughly four times more support than the United States does alone. Our largest impact in global economic support comes through these institutions. As their largest shareholder, we are well-positioned to insure that our values are reflected in their policies.

Protecting Against Economic Shock

Let me draw a second lesson from the post-war experience. We live in a world in which international markets have grown and accelerated at a blistering pace. Some trillion dollars coarse through exchange markets daily. Funds for investment today can reach many previously inaccessible corners of the globe.

For all the opportunities this affords, the new global finance also raises dangers. As we saw this past year in Mexico, and as both industrialized and developing countries have experienced in recent years, markets can be imperfect. There are shocks along the way. Mexico was only the most recent crisis. There will be others.

The visionaries who founded the International Monetary Fund and other Bretton Woods institutions after World War II understood that. They created these institutions, in part, to protect the global financial system in times of crises. They understood the self-fulfilling nature of such crises. They remembered that the failure of lenders of last resort to act had a great deal to do with why the good news of the 1920s spilled over into the bad news of the 1930s. Just as when a run on a bank occurs here at home, it is vitally important for our own and the global economy to ensure that capacity exists to provide liquidity when crises erupt in strategic and financially important regions.

The IMF and other international financial institutions must remain the focal point of such emergency response systems, if the United States is not to bear the burden alone. That is why, in Mexico's wake, President Clinton led the G-7 leaders at Halifax to press for revisions in the international financial architecture. One very important initiative is the establishment of an emergency financing mechanism operated out of the IMF. Such a mechanism would build on enhanced surveillance and transparency, as the bases of efforts to prevent crises before they occur.

We must also retain some unilateral capacity, in instances when only American interests are at stake. Short-term political machinations should not lead to a crippling of the Executive branch's recourse to the Exchange Stabilization Fund -- used this year to assist Mexico, as it has been used in the past for Great Britain, and so many other countries.

Make no mistake. Preventing financial crises is not just a matter that is in Wall Street's interest or main street's interest. It is of vital importance to our national security, in order to prevent key regions from lapsing into the totalitarianism that can follow in the wake of crisis, or worse, economic and political chaos.

Nothing less than America's national security was at stake in Mexico's difficulties this past year. That is why the President acted -- to protect American jobs, to protect the security of our borders, and to protect the key emerging markets which could have been dragged down had Mexico spiralled out of control. The President's actions are working. Mexico's short-term liquidity difficulties have all but been eliminated. Market confidence is returning, and Mexico is forging ahead with economic reform and stabilization. Private economic forecasts suggest that growth should return soon. Most important, Mexico's remarkable turn to market-based development has been protected. Our essential economic and security interests have been safeguarded.

Opening Markets

Let me turn to a third historical lesson. The history of the past 100 years offers many tragic examples of the kinds of policy errors which have thrown nations into war or civil strife. None is more tragic and self-defeating than protectionism.

I mentioned the example of what protectionism did to Haiti. Think of how different our century might have looked had the United States not thrown up barriers to trade during the 1920s and 30s, helping to send the world into a spiral of mercantilism. Think of how many lives might have been saved had Japan and her future enemies been bound together in commerce, rather than separated by economic walls. Think of how the seeds of economic integration planted in Europe 50 years ago, beginning with coal and steel, blossomed into the single European market of 1992, and may move toward deeper economic and political ties.

Industrialized nations have voiced fine sentiments in recent years about the need to ensure transition to prosperity and democracy in the former Soviet Union, in South America, in Africa, and in other key parts of the world. Unfortunately, actions too often diverge from these sentiments. All too often we preach economic reform, they follow our message, and then we pull back when we too must experience short-term change.

If we want other nations to open their markets, we must open our own. If we want sensitive regions to stabilize, we must allow them to enter world trade. Aside the economic harm we do to ourselves when we retreat behind barriers, it is tragically short-sighted -- when ensuring development in the former Soviet Union is so very important for our security, when Eastern Asia remains precariously balanced between democracy and authoritarianism, when fundamentalism remains a threat in Turkey, Egypt, and elsewhere -- for industrialized countries to jeopardize these regions' chances of integration and prosperity by throwing hurdles to trade in their path.

Make no mistake. The United States is the most open market in the world. I am not arguing that it is not right for the United States to selectively open or tighten its own market in response to others' refusal to dismantle barriers. Trade diplomacy is a valid tool, so long as market opening is the ultimate goal. It is not valid, however, when protectionism is the aim, and when it damages essential national security objectives.

Regional and Multilateral Integration

In recent years, the United States has begun to move regional integration to the center of its geo-political approach. We are attempting to plant seeds similar to those planted in Western Europe 50 years ago.

Along the Pacific, a whole new galaxy of industrializing nations is coming to the fore. Their economies and societies can move toward liberalism, integration, and democracy, or they can slip over into conflict, authoritarianism, and regional or national protectionism. That is why we have set the stage for integration through the APEC forum. The Bogor Declaration adopted by the leaders last November commits the industrialized APEC countries to removing all barriers to trade and investment by 2010, with all APEC countries doing so by 2020.

That same philosophy holds to our south. Latin America and the Caribbean have revolutionized their economies over the past decade. Integration in our hemisphere is the best way to lock in that revolution and with it, political and economic stability.

NAFTA was, of course, premised on that vision. Some argue that Mexico's difficulties prove that NAFTA was wrong. Make no mistake. NAFTA has proved its worth. NAFTA is why Mexico did not retreat on economic liberalization in the face of this year's shock. NAFTA is why Mexico has continued to lower tariffs on United States products, in accordance with NAFTA's provisions. At the depths of Mexico's difficulties over the first half of this year, American exports to Mexico were still 2.5 percent higher than they were over the first half of 1993, before NAFTA was enacted, even accounting for inflation. The U.S. share of Mexico's imports is higher than it was before NAFTA's adoption. Most important, NAFTA has been a source for what the Mexican government and people have needed most over the past few months: confidence.

It is enormously important that Chile's accession to NAFTA be as quickly as possible, to hold out the hope of joining NAFTA to all who follow appropriate economic policies. That accession must be anchored within regional integration. Last year, the Summit of the Americas led to a commitment to create a Free Trade Area of the Americas no later than 2005.

Conclusion

Why, looking at how we failed after World War I, and how we succeeded after World War II, is it so difficult to generate support for the kind of internationalist policies that I have advocated? Perhaps the American people never learned the right lessons from the experience of the 1920s. They were led to pursue internationalist policies not by the desire to avoid another conflict in Europe or Asia, or to avoid being drawn into small regional conflicts, but by a desire to fight communism. That threat and that glue are gone. Nonetheless, as President Clinton has said, the world remains a dangerous place. I believe the people in this room can make a big difference, by carrying this message. There is probably nothing more important for the future of our country and the future of the world.

It cost trillions of dollars and hundreds of thousands of lives to win the Cold War. Winning the peace by reinforcing in every way we can the trend toward a world of market-based, integrating democracies, is incredibly cheap by comparison. It is a choice we must make. I believe that the right choice is clear.

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