Real Issues No. 287 - Globalisation, free trade and international security

Maxim Institute - real issues - No. 287 7 February 2008

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Globalisation, free trade and international security

IN THE NEWS Pragmatism wins out The 'best and the brightest brains'

Globalisation, Free Trade And International Security

With the news that the United States has begun investigating the possibility of a free trade deal with what is being called the P4 group (New Zealand, Singapore, Brunei and Chile) and the forthcoming free trade deal with China, the merits of free trade and globalisation are certain to be discussed at dinner tables, work places and in bars around the country over the coming months.

The costs and benefits of globalisation, specifically economic globalisation, have been the subject of juicy debate in recent years. Economic globalisation is essentially the integration of financial markets and the increasing dispersion of production capital. This is seen in increased international flows of goods, services and capital. Proponents of globalisation often point to its material benefits showing that the marketplace is the best way of meeting people's material needs, and expanding this marketplace means people can better provide for themselves and their families. This is because free trade tends to be a better allocator of resources and can therefore provide a higher standard of living. Some counter that globalisation can lead to job losses, environmental degradation and cultural homogenisation. But, in these debates the relationship between globalisation and international security is often overlooked.

The belief that free trade will lead to cooperation and peace between states is an old one; political theorist Adam Smith believed that free trade would create a more peaceful international environment, with the positive benefits of specialisation and trade decreasing the use of military force. Indeed, reducing the risk of armed conflict may be among the most important benefits of globalisation. This idea has received the attention of some influential commentators, such as New York Times columnist Thomas Friedman.

Growth in economic globalisation has, in recent years, been accompanied by a decline in both international and civil war. Evidence for this can be seen in the Human Security Centre report War and Peace in the 21st Century which shows a steady decline in conflict since the end of the Cold War. While other variables are important in explaining this decline, economic globalisation has certainly played a role.

Globalisation and growth change the nature of economies, decreasing scarcity, increasing living standards and changing the structure of industry. Financial and intellectual capital becomes more easily traded than conquered and most importantly globalisation creates interdependence between states.

Interdependence refers to situations characterised by reciprocal effects among countries or among actors in different countries which means they come to depend on each other. These effects tend to raise the cost of conflict as the lost trade caused by warfare becomes an opportunity cost of conflict. Friedman argues that states that join the global division of labour 'tacitly agree to certain rules that restrict the capacity for war making' by increasing the cost of conflict.

The nature of the international environment is changing due to globalisation. This can best be explained with reference to game theory. Free trade changes the payoff structure of relations between states from a zero-sum one to a positive-sum one. This is because every state can benefit from free trade through the theory of comparative advantage. In zero-sum games, the fortunes of players are inversely related as one player's win is the others' loss. However, in positive-sum games, one player's gain need not be bad news for the others as the economic pie can be made bigger through specialisation and trade. Thus states can benefit through cooperation. Globalisation can basically be viewed as the extension of the amity enjoyed at the domestic level due to specialisation. This win-win situation creates what is referred to in game theory as 'harmony,' where the outcome of relations is cooperative.

If you are reliant on your neighbour, say the green grocer, for vegetables and he is reliant on you, the accountant to do his GST, then the cost of conflict between the two of you rises. It is this simple analogy at the international level that creates a strong incentive for peace.

Richard Cobden, a British Manufacturer and Statesmen (1804-1865) is reported to have said:

'I see in the free trade principle that which will act on the moral world as the principle of gravitation in the universe -- drawing men together, thrusting aside the antagonisms of race, and creeds and language, and uniting us in the bonds of eternal peace ... I believe the desire and the motive for large and mighty empires and gigantic armies and great navies .. will die away ... when man becomes one family, and freely exchanges the fruits of his labour with his brother man.'

In many ways his prediction was accurate, the nineteenth century saw the longest period of peace in modern European history from the end of the Napoleonic Wars in 1815 to 1914, although optimism for peace through trade was dashed by the bellicosity of much of the first half of the twentieth century.

Many states at the time acted to discourage free trade and while Britain may have followed liberal economic policies prior to the war, Germany certainly did not. The closing of the world economy in the 1930s removed an important mitigating force to interstate conflict.

So while the predictions of the likes of Cobden were dashed in 1914, these events do not make his underlying reasoning wrong, perhaps just premature. Globalisation has today created a far more intricate web of global interdependence than ever before. As Thomas Friedman argues, globalisation has made for a much stronger web of constraints on warfare than in any previous era of history.

This is not to claim that globalisation and free trade will create a utopian world free of war. There are many states that for various reasons remain outside the global economy and its conflict mitigating effects. Political and cultural considerations will remain important even in economically integrated states; however, these will be tempered by the increased costs of using force.

There are of course other factors that can contribute to a more peaceful international environment -- for example democracy and international institutions. The concept of a 'democratic peace' is well known and has been used as a justification for American foreign policy in recent years. This policy is predicated on the idea that spreading democracy will discourage war. Research suggests that the positive effects of economic integration could make the promotion of free trade even more crucial than democracy. Eric Gartzke, a political scientist at Columbia University, has suggested that in relation to interstate conflict 'democracy does not have a measurable impact, while nations with very low levels of economic freedom are 14 times more prone to conflict than those with very high levels.' Gartzke argues that much of what has been attributed to the democratic peace can in fact be explained by freedom to trade -- this is because both usually occur simultaneously.

Other studies suggest that these variables work together creating a more peaceful world. What is clear, however, is the important role that globalisation and free trade can play in promoting world peace. The search for peace is often inspired by the lofty ideals of altruism and humanity. However, even self-interest -- the underlying drive in modern economics -- can result in a more pacific world. To alter the behaviour of states, the incentives for the use of force must change. Globalisation alters these incentives making warfare relatively more costly. Adam Smith had an insight over two hundred years ago that self-interest directed by an 'invisible hand' could promote socially desirable outcomes. Peace between states can be seen as another socially desirable outcome of specialisation and trade at the international level.

PRAGMATISM WINS OUT

Newcastle University presented unpublished research results at a Medical Research Council conference in London held at the beginning of this month, detailing their experiments to produce children with effectively three parents. The procedure creates an embryo, combining the nuclear DNA from the fertilised egg of two donor parents with the egg of a second woman; this could help prevent the development of babies with some hereditary diseases.

Thus far the experiments have been conducted using the surplus embryos from fertility treatments, which has been one of the major rationalisations used by scientists involved and by supporters of the research. However, this does not remove the ethical problems with destroying embryos or the complications of bringing embryos with three parents to full-term. The New Zealand media has been surprisingly reticent over the ethical implications of the research reporting only the possible benefits and not even alluding to the issues surrounding destroying embryos.

THE 'BEST AND THE BRIGHTEST BRAINS'

Australian Prime Minister, Kevin Rudd, has announced that a two-day conference called the Australia 2020 summit will be held in April. The summit will attended by 1,000 of Australia's 'best and brightest brains,' who will be split into ten groups to deal with the ten areas that Rudd's government considers will be the most important issues for Australia between now and 2020. These issues include the arts, health policy, climate change and economic infrastructure. The aim of the summit is to glean suggestions that can be turned into 'concrete policy actions.' It will be interesting for New Zealand to watch what comes out of the symposium and see whether any of the policies would be helpful in meeting some of our major challenges.

TALKING POINT

'By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?'

Adam Smith (1723 - 1790) The Wealth of Nations

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