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Even as a Soviet patrol plane flew over one of our warships, which was searching for debris of the downed South Korean airliner, it was clear that this most heinous action by the Soviets would not cause us to reinstate a grain embargo. Such an act would be a declaration of economic war which we seem unable to do for a host of reasons—no matter what the provocation.
Economic force may be the most effective instrument of power the United States has in the competition among nations. However, except in conjunction with military hostilities, it has never been used within a comprehensive national strategy. When it has been used, it has been on an ad hoc basis; it has paid few dividends; and it has often been counterproductive.
Why this seeming impotence on the part of the United States? There are at least two explanations: first, economic force may have no usefulness in international competition or only with difficulty; second, the use of economic force may not be sufficiently understood to permit the development of effective policy, strategy, and tactics.1
The use of economic force is not understood well enough to answer questions concerning its usefulness. Therefore, we will concentrate on the problems of achieving a better understanding of the use of economic force where that understanding appears to be most deficient, i.e., in terms of basic principles.
There is a definite poverty of thought on the applicability of economic force. In 1979, the academic Martin Shubik wrote: “It is surprising how small the literature is on economic warfare of any sort, involving hot or cold wars. One is hard put to find twenty books. Many of them are of the era of World War II.”2 In 1960, Robert Loving Allen wrote that there is “no satisfactory definition which exists” for economic warfare.3
This lack of appreciation for the use of economic force in international relations is partly the result of a skepticism of our capability to use this power. The skepticism is fed by confusion and indecision: recall the indecisiveness over whether or not to impose sanctions against the Soviet Union and Poland in retribution for the Soviet role in the imposition of martial law in Poland; the lack of certitude in taking economic measures against the Soviets for their invasion of Afghanistan; the ambivalence toward economic relations with a hostile Iran and Libya; and the uncertainties about using economic force in retaliation against the Soviets for their August 1983 destruction of the South Korean 747 jumbo jet with 269 passengers on board. There have been some successes—notably, the trade ban against Uganda’s Idi Amin. But the lessons to be learned from that success have neither been carefully examined nor exploited.
The problem of the role of economic force in the pursuit of national security objectives is not simple. The contemporary architects of U. S. national economic policies face problems that are becoming increasingly complex. The continually evolving dependence on vast, sophisticated communications and information management systems makes it difficult to isolate economic rewards and punishments to a single nation. Large, multinational organizations possess immense wealth and influence which tends to obscure the definitions of national boundaries. The day may be near when primary allegiance will be to the multinational conglomerate rather than to the nation-state. Economic interests may contrast sharply with other national security objectives.
The role of economic force in the relations between nations may possibly be increasing in importance as the
use of military force becomes relatively less important Kjell Goldman of the University of Stockholm has writ ten, “military capability used to be decisive, but no^a days, in a different kind of international system, econonW structures determine the distribution of power.” Go man may be overstating the case; yet, there does seem be a consensus among those who have written on the ana omy of national power that there has been, and will con tinue to be, a shift in the relative values of the componen.^ of such power with the economic instrument increasing importance. The United States has been slow to accept^ shift because our failures in economic warfare are vivi J recalled and poorly understood. Economic warfare has ^ supporting advocate in the decision-making hierarchy ( the government to offset the ideological and political re sistance it faces. We have been unable to rationalize 0 actions to ourselves, or our allies, in a coherent mannef-
Yet, it is especially crucial for the United States to ree^ ognize the growing importance of economic warfare m period in which the nation is at a disadvantage in ma / other ways. The current administration has repeate ; emphasized its interest in pitting strength against wea ness in horizontal escalation to meet the challenges ot Soviets and others. The United States has the capability wield the global weapons of economic warfare effective r if it is properly prepared and organized.
The Organization of Petroleum Exporting Counts (OPEC), with its demi-monopoly of oil, is only one var>a
ble that has made economics more significant in equal of national power. Current worldwide inflation is symptom of a wide range of economic ills that have
tions
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fallen the West, and which may be described as ~ ^ consumption of vital resources. The partial monopoly energy by the OPEC states is leading to a partial monop0 of wealth which promotes inordinate political leverage_
OPEC states have acquired economic vulnerability5
well as strengths in relations with other nations
While
they may control a commodity, they do not control ^
important financial and information systems that can termine the value of their holdings. The wealth of M'0 Eastern states makes them and the United States vulncfJ
and
ble to a whole gambit of aggressive ploys by our--^ their—adversaries that stop short of the use of mil'ta ' force. The cause, consequence, and even the principal 1 struments of these crises will undoubtedly be econom The United States will obviously be a combatant in the^ economic conflicts. If we are to take Nikita Khrushchev ■ statements seriously—and we should— we have been state of economic war with the Soviet Union at least sin his 1957 statement, “We declare war on you in the peat ful field of trade.”5 The United States should anticipate.^ series of crises short of military war soon which will str its economic system. The crises will require an appreC tion for economic conflict in both defensive and offenSl modes with both limited and broad objectives. n
The military component of national power has oC studied by countless practitioners and scholars over years. Yet the study of the remaining instruments of n ^ tional power has been neglected. Of concern is the lack
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nient CWPr^ ^or study and use of the economic instru- ^ jn t e pursuit of national security objectives.
econonC^artment defense (DoD) publication defines rncans 'C war*are as the “aggressive use of economic thatth' h "j.C^’evc national objectives.”6 It is important ernplo'S ,et’nition describes the subject in terms of means in term6 a'ternat've is to define economic warfare
"ends”S- €nC^S achieved. In the not uncommon
duded ' a^ilroac*1, all instruments of force would be in- °findi ln.ac^eving economic objectives (e.g., bombing ate than “ Centersi- “Purposeful” seems more appropri- warfar • a®§ressive” in the definition since economic gcoe Can waged defensively as well as offensively, force tn°m’c warfare implies the application of economic cal adv-aC”leVe a su^stantial economic, military, or politi- trade aaata£e beyond the routine, quiescent, competitive in dV mar^et'ng between friendly nations.
°f ident f11'*11^ eC°n0m'C war^are’ there are also problems '“""wdc , ' immediate and remote national objectives as
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well as primary and secondary instruments of national power. For example, the primary instrument in an economic conflict could be the embargo of certain commodities to an adversary, which is an economic means to an end. The secondary instrument could be the naval force used to enforce a blockade, which is a military means. Both economic and conflict theories are relevant in the application of economic force. The former implies theory on making the international and national economic systems work while the latter implies their subversion.
Following is a list of the principles of economic warfare developed after a review of the pertinent literature and discussions with scholars and officials with experience in international economic relations. These fundamentals of economic warfare are believed to be universal, having application to large as well as small, rich as well as poor, and status quo as well as expansionist nations.
Diversity: While the fundamentals of economic war are universal, the objectives and instruments are diverse. The economic strategist must take advantage of all available options. The adoption of one option may preclude or reinforce another. Where more than one form of economic force is used, coordination of the separate actions will be required, and separate approaches should be integrated into an overall plan.
In offensive economic war, the objectives can extend from the political disintegration of the adversary, to the symbolic communication of tension and hostility in a pattern of deliberate escalation. In defensive economic war, the range of objectives extends from protection of competitive markets through the limiting of technology transfer to the stockpiling of strategic materials.
Economic objectives may be domestic and political to demonstrate the resolve and initiative of the leadership to its constituency. The instruments for this form of war include the following:
► Trade: favored nation status, reciprocity, boycott, sanctions, blacklisting, export licensing, international law, embargo, arms sales, tariffs, and preclusive buying
► Finance: aid, loans, credits, guarantees, insurance, grants, and defaults, indebtedness, and attachment of foreign assets
► Resource management: stockpiling, autarky, limited extraction, and technology transfer
► Unconventional: industrial espionage, disinformation, inciting work stoppages, immigration control, smuggling, currency subversion, and credit system subversion
There is a diversity of approaches to bringing economic force to bear. The positive, or carrot, approach involves the awarding of economic benefits. The negative, or stick,
The frantic activity on the floor of the New York Stock Exchange resembles a military command post or a war room as, indeed, it is and has been since at least 1957 when Nikita Khrushchev stated: “We declare war on you in the peaceful field of trade.”
approach uses the denial of economic benefits. The 1982 controversy over economic measures to be taken against Poland and the Soviet Union provides an example of the carrot-stick choice. Reportedly, some members of the Reagan Administration were in favor of the stick approach and wanted to declare Poland in default on the $3 billion it owed the United States and the $10.6 billion it owed West Germany, France, and Austria. Others who favored the carrot approach won out, and the United States paid $71 million to the U. S. banks in lieu of Poland’s interest payments on loans guaranteed by the United States. The rationale behind the U. S. decision was complex, since it involved concern for the stability of key West European banks, which would be badly shaken by a Polish default, as well as proffering the carrot to the Poles.
In the August-September 1983 discussions about the appropriate response to the Soviet destruction of the Korean airliner, the alternatives were stick-oriented. In the 12 September 1983 Newsweek, columnist George Will reintroduced the option of putting the economic squeeze on the Soviet Union through the forced bankruptcy of Poland. Citing investment banker Felix Rohatyn as the architect of the suggestion, he proposed that the Western governments buy up the loans of Western banks at a discount and foreclose on Poland, thereby punishing the Soviets and their satellites. Will takes the position that “credit is a strategic weapon.” In response to the same event, Secretary of the Treasury Donald Regan hinted on national television that economic pressure could be brought to bear against the Soviets after the first wave of responses, but he declined to discuss the option. The Canadians invoked a two-month ban on Soviet Aeroflot flights, and the United States reaffirmed its December 1981 ban on such flights. However, the U. S. response was mainly political.
Objective: A clearly defined objective is a prerequisite for coordinating economic initiatives with allies and within the national security establishment. The objective must be well defined, tenaciously pursued within capabilities, consistent with other national security objectives, and supportive of the application of other forms of force. During President Ronald Reagan’s June 1982 visit to Europe, he proposed to NATO allies that they coordinate efforts to use trade and financial measures to seriously undermine Soviet determination and strength. The administration did not appear to have clearly defined objectives that were compatible with and in support of the NATO strategy prior to making the proposal for a consortium to prosecute an economic war.
Concentration: The application of economic force should be focused on a specific area or areas of an adversary’s economic vulnerabilities. Failure to do so will not only create the risk of wasting assets but will also diminish the nation’s credibility and the use of its economic power.
Flexibility: Adopting a plan that is so rigid that it cannot be changed could squander unforeseen opportunities. The Reagan Administration has argued that withholding the use of economic coercion is one form of retaining flexibility. On the question of declaring Poland’s debts in default, R. T. McNamara, Deputy Secretary of the Treasury, wrote:
“By not declaring a default we preserve our options. . . Not declaring default now . . . preserves the bility to lighten credit and foreign exchange pressure future Polish and Soviet responses warrant.” Magnitude of the Effort: The magnitude of the f°rce employed must be sufficient to accomplish the objective- The nation which is to exert economic pressure must have good intelligence and understanding of the strength ot opposing nation’s capabilities. It requires an apprecia110” of the target economy’s compressibility, or the enemy vulnerability may be grossly overestimated. The niag11^ tude of the effort required must be estimated in terms time as well as resources. A careful estimate of cost m be balanced against advantages expected. If the magnitu of the effort required to achieve the objective is disprop^ tionately costly, other alternatives or objectives should considered. The costs to the United States should be c°|\. sidered as well. For example, John R. Block, Secretary Agriculture, estimates that every $1 billion in farm exp sales that the United States withholds from the S°vi® Union costs the nation 35,000 jobs plus another $1-5 1 lion in related transactions.
Security: Measures must be taken to ensure the pr°te^ tion of the nation’s economic system from an adversary use of economic force. However, he who tries to prot. everything and is unwilling to chance progressive in'11!1 tives ultimately protects nothing. Economic secur ; measures include stockpiling, securing lines of commun1 cation for trade, international alliances and agreements- and tariff regulation. A classic contemporary problem security of economic interests is the West’s oil h‘e11 from the Middle East. The Soviet threat to the economy well-being of the United States and its partners is ^ merely military but political and psychological as 'V The U. S. counters to the Soviet threat are to use thre instruments of national power: the economic, thr°u& loans, guarantees, and arms sales; the military, principal with the Sixth Fleet and Rapid Deployment Force; and 1 political, through continuing diplomatic discussions- Timeliness: Time impacts on the application of CL’ nomic force in several ways. Short-range tactical ec^ nomic measures are less likely to be effective than l°n^ term strategies, although effectiveness is also a function the magnitude of the force brought to bear. The timing the application of economic force is important. Good ti ing is often dependent on the cyclic nature of an ad sary’s vulnerability (e.g., the cyclic periods of harv and weather). Responsiveness to the conditions which a ^ eliciting the use of economic force is a function of g°( timing.
In times of crisis, there is a tendency to overvalue c ^ nomic force and to undervalue it in times of quiescence a component of a long-term national strategy. Both 1° and short-term effects of applying force must be cons ered. Finally, the value of economic force changes ° time and is a function of the nature of the state, inter tional relations, and environments.
Unity: If there is to be a successful application ofeC nomic force, national resources must be effectively c° dinated, controlled, and concentrated upon the objecti
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moreS ^aV° centralized, controlled economies may traliz^fS1]empl0y t^le‘r economic strength against decen- directed'. Im*tec^ controlled economies. Alliances that are ea«ii, C.L ^ strongest power may reach decisions more
Inte d ^ th°Se th3t are collegial action r epenc*ence °f national economies requires unity of
Pnrpos^u!^ nat*on'states that are allied or have common cise ofGS economies are so integrated that the exer-
°Wn econornic force will usually impinge upon one’s economy, the economy of one’s allies, and the i
econ-
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Th° rtat'0ns ot^er than the target nation, econo 6 ^ect*veness °f an initiative in the application of 0r sun*1110 ^°rce *s opten contingent upon the cooperation nimit °iu'n^ act'ons °f other parties to achieve some una- goes ^ • °St °f)V*ous arc initiatives that involve embar- 1982 Sanct'ons’ and boycotts. President Reagan’s June Union^r0posa' t0 use economic force against the Soviet and whWUS SCt French President Frangois Mitter-
°f Wa Cn ^ Statecp 1 'We are not going to wage any kind Seriour a^a'nst the Russians. . . . You have to be very econoS U °Ut SUC^ a course- ft could lead to a real war. If cau2hfmiC ernf)arg° is a first act of war, it risks being While th*5 a secon(f' No, it is not the right move.”8 tion wh C ^n'te<f States was given assurances of coopera- hargo Cn ^resi<fent Jimmy Carter imposed a grain em- the s °n ^oviets, Australia tripled its grain exports to PeanCp 161 f^11*011 and Canada doubled its, while the Euro- tural e 0rnrnon Market tripled its volume of total agricul- memb Xports t0 the Soviet Union. Policies and positions of ances e[ States *n even the most formal and structured alli- ealtie^, an§e over time and by issue, increasing the diffi- anti^ ass°ciated with securing a consensus and unity of
Unit3"10"8 nations'
ful °f Pfrpose cannot ignore the existence of power- subv CCS ln t*le Pr*vate sector which may either support or ec0no a nat*°nal policy or initiative for the application of initiatini,c.f°rce. ^*e effectiveness °f a coercive economic tj°n QfVe ls often contingent upon the coordinated applica- Polif ,0t^er forms of national power (i.e., the military,
Starr psych°logical, technological, and cultural). *°ng-te Uy: ^on8~term national stability is required for cal Coerm econ°mic programs. States with rigid ideologi- Wei] p CCpts anc^ mfmquent changes in their leadership are and n !ppe(f to form and prosecute long-term strategies P°lym° l^Zat'on °f resources. States that are ideologically ship a°I|phous and subject to periodic changes in leader- tionaian *n concePts of the nation’s role in the intema- are not as well equipped.
degre *Ience: Nations have distinct characteristics and ience S C)f compressibility within their economies. Resiles pr°v'des stamina to the target nation to withstand the P^rnd"!!" pressure brought to bear. Resilience may also the c nat'on employing economic force to minimize otny S, *ts initiatives. The resilience of a nation’s econ- geog1113^.1^6811'1 as much from sociological, psychological, that ,dpaic’ and institutional idiosyncracies as from those
e economic.
guidon of the resilience in national economies n0ni- a§ainst undue expectations of the impact of eco- lc coercion. As Henry Kissinger stated, “Some opponents of East-West Trade seem to hope that a total denial of economic benefits would force the collapse of the Soviet system. This theory is disproved by history.”9
Resilience means that a nation is willing to accept economic and associated casualties in this form of conflict. Nations expect casualties in conventional military conflict. There seems to be a reluctance to accept casualties in economic conflict. This unwillingness to pay the price for the use of economic force could be the chief source of vacillation, lack of stamina, and the controversy that surrounds the use of economic force by the United States.
Responsibility for developing a national strategy for the application of economic force should be shared by government and private enterprise. In the final analysis, it is the government that must set national policy, mobilize resources, organize, secure requisite intelligence, and exercise leadership if the United States is to make use of its economic power. The private sector must be prepared to cooperate and to participate in the formation of policy and the prosecution of strategies.
The search for a better appreciation for the limits of economic power in the pursuit of national security objectives is an important responsibility of our national security establishment that has been sorely neglected. Few priorities should be higher on our national agenda. Immense advantages could accrue to the nation that first harnesses the full potentials of economic power.
Is anybody out there concerned?
‘According to Henry Kissinger, there is another explanation. He wrote: "It is unthinkable that the West should continue to use its overwhelming share of the world’s economic power so frivolously. We are on the defensive not because we lack resources but because we have failed to muster the will or the leadership to organize a coherent response.” Henry A. Kissinger, "Trading With Russia—I." Baltimore Sun, 16 May 1982, p. 11.
“Martin Shubik, "Unconventional Methods of Economic Warfare," Conflict 1(3) (1979), pp. 211-229.
“Robert Loving Allen. Soviet Economic Warfare (Washington. DC: Public Affairs Press, 1960), p. 1.
4Kjell Goldman and Gunner Sjostedt, Power. Capabilities. Interdependence (Beverly Hills. CA: Sage Publications, 1979), p. 1.
“Allen, Soviet Economic Warfare, p. 1.
“Joint Chiefs of Staff Pub 1, "Directory of Military Terms."
7Washington Post, 10 June 1982, p. A-17.
8Washington Post. 15 June 1982, p. A-l.
“Kissinger, “Trading With Russia,” p. 11.
Colonel Scharfen received a bachelor of arts degree from Stanford University and a master’s degree in international relations from Georgetown University. He was a member of the Secretary of the Navy’s special study panel on progress of the war in Southeast Asia; a lecturer on Pacific strategy; general war planner for Europe on the staff of U. S. Commander in Chief, Europe; and a lecturer at the U. S. Joint Staff College. He is currently a senior scientist at Analytical Technology Applications Corporation in Arlington, Virginia.
Colonel Ball was graduated from the Naval Academy in 1955. His career in the Marine Corps included duties as a battalion commander, regimental commander, joint planner, and Director of the Marine Corps Command and Staff College. He is a foreign area specialist in Russian studies and holds master’s degrees from Boston University and George Washington University. Colonel Ball is also an honor graduate of the Industrial College of the Armed Forces. He is now president of Oppenheimer Industries, Inc.