Economic Power and International Security.

• Author: Atesoglu, H. Sonmez

Introduction (1)

International security theories generally identify economic power as a key determinant of military power, and thereby of security but there is usually not much explanation about the determinants of economic power. (2) In this paper, a simple yet comprehensive model of economic power is introduced and integrated with an international security model. The economic power model is unique to this article although it was influenced by well-known theories of economic growth that emphasize the role of exports and technical progress. The international security model is a Realist-type model based on the assumption of states functioning in an anarchic world order. The integrated security model explains how the determinants of economic power affect international security. The integrated model yields policy implications for security and suggests policies for enhancing the international security of a regional or of a major power.

International security theories are in general conceived and articulated for explaining and predicting the behavior of major powers. (3) However, there are key states, with significant economic and military power in important regions of the world, whose behavior have a significant impact on the political fortune of these regions if not on the world. This article provides a discussion of the determinants of economic power and international security applicable to both major and regional powers. (4)

The objective of this paper is to present a straightforward theoretical framework, a model, which can be used to explain and predict the impact of developments in economic power on the security of a major or regional power. (5) In the following section, characteristics of major and regional powers are discussed. In the next section a detailed discussion of the determinants of economic power is presented. This is followed with an identification of the international political system in which states function. The international system is presumed to be anarchic and, accordingly, regional and major powers concerned about their security are motivated to maximize their military power. The determinants of military power are discussed next. The following section contains policy implications of this approach to international security. The final section includes concluding remarks.

Major and Regional Powers

Major powers possess substantial economic and military power and are capable of employing military power and inflicting substantial damage on another major power or a group of other states in their region. Major powers are self-sufficient in producing most of their weapons and have a capability of projecting appreciable military force in areas beyond their regions. (6) Regional powers possess significant economic and military power and are capable of employing military power and inflicting limited damage to other states in their region. Moreover, they are able to produce some of their weapons, however, cannot project significant military force in areas beyond their regions.

Identification of major and regional powers consistent with the above descriptions is not straightforward in concrete terms. However, such a concrete classification is useful for identifying key states involved in a regional security competition or a conflict and provides an empirical example of the regional and major power definitions introduced. While recognizing the limitations, the following concrete classifications can be made for various countries. (7)

In Europe, the UK, Germany, France, and Russia are major powers, while Spain, Italy and Poland are regional powers. In Eastern Asia, in addition to major powers Russia, Japan and China, there are two regional powers, North and South Korea, while India and Pakistan are the regional powers in Southern Asia. The regional powers in the Middle East are Turkey, Iran, Israel, Egypt, and Saudi Arabia. In Eastern Europe, the regional powers are Poland and Ukraine, with the two major powers being Germany and Russia. In the western hemisphere there is one major power, the U.S., with regional powers: Canada, Brazil, and Argentina.

A region can be considered to be a geographical entity or a political set of states. A state can be in more than one region; Turkey is in the Middle East but it is also part of the Black Sea region with other states like Ukraine and Russia. At times a state may be able to project effective force into a region although it is not a member of that region. The Russian military intervention in the Syrian Civil War is an example. In such cases that state can be considered as a de facto member of the region.

A major power, completely self-sufficient in producing the most advanced weapons, may have so much economic and military power that it can readily deploy a substantial and a decisive force in any part of the globe to achieve its security objectives. Such a state, a superpower, can be considered a de facto member of all regions in the world. The only state that has such a global reach is the U.S. Accordingly the U.S. should be considered a member of any region, such as, Eastern Europe or the Middle East or East Asia.

A Model of Economic Power

Economic Theories of Growth

There are no well-known theories of economic power in the conventional economics literature. However, there are renowned theories of economic growth that have implications for constructing a theory, a model of economic power. There are two basic approaches to economic growth: export-led growth models and neoclassical growth theories. In export-led growth models, the main driver of the economy is exports, while in neoclassical theory technical progress is the key determinant of growth. (8)

In a fully developed export-led growth model such as the Kaldor version, exports are determined by world demand and the price of exports relative to the domestic price level. The domestic price level is in turn set by wages relative to productivity. This type of a model suggests that a rise in productivity would result in a rise in exports, assuming that wages remain the same. (9)

In the Kaldor export-led growth model productivity is postulated to be a positive function of aggregate output. Higher output, through its effect on the scale of production, lowers costs and increases productivity. This feature of the model, by making productivity a function of output, makes the export-led model a virtuous circle where a rise in exports leads to a rise in productivity and a further rise in exports and output. This model, describing a virtuous circle, suggests that once set in motion the economic growth would continue.

The neoclassical growth theory has three determinants: labor, capital, and technical progress. Labor and capital are the basic factors of production. Land is not included as a factor of production since land is no longer an important determinant of economic growth as it was before the 1800s. In this model, a rise in factors of production and of technical progress results in a higher aggregate output and economic growth. (10)

In the neoclassical model diminishing returns to aggregate output is assumed with respect to a rise in factors of production, labor and capital. However, technical progress allows for accelerating expansion in output by raising the productivity of the economy. Identification and emphasis on technical progress make the neoclassical model consistent with the rapid expansion of growth and productivity observed starting in the 1800s.

Economic Power and Its Determinants

Economic power is a frequently used but rarely defined and problematic term to measure. It has no place in conventional economic theory but is used frequently in political science. It has to be a stock rather than a flow variable, although in practice it gets measured by GDP, a flow variable. Measuring a stock variable with a flow variable can lead to misleading and erroneous results. A comprehensive economics concept, wealth, a stock variable, is a more suitable proxy variable for economic power, but it is not readily available and difficult to measure. The following definition introduced is a definition emphasizing the stock aspect by identifying the elements of economic power at a certain time. There is no empirical measure readily available that is consistent with this definition, but a rough measure can be made by considering a set of empirical variables that map with the elements of the definition below.

Economic power can be defined as the inclusion of all varieties of the means of production (capital stock), size of the labor force, education and health of labor, management and organizational skills, technical capability, financial wealth, and non-reproducible natural resources like oil reserves of a state. (11) Financial wealth is primarily international foreign exchange assets including reserve assets.

Fundamental determinants, factors that have a long-lasting effect on the economic power of a regional or major power over time, are investments, exports, population, technical progress, and the health and education of the population. Investments are additions to the stock of capital. Exports include both goods and services. Services include such items as medical services and tourism. Technical progress includes all innovations that improve productivity. Health and education of the population likewise affect the productivity of a nation. These determinants are also valid for the determination of the economic power of enemies of a state.

Trade with its enemies could improve the economic power of a regional or major power, but trade is also likely to be beneficial to its enemies. Trade with potential enemies is risky and if not necessary should be avoided as trade may improve the economic power of its enemies more than that of the state and thereby result in a decline in its relative economic and military power and thereby in its security. It may be possible that the extensive trade and financial...