Global Policy Forum

By Daniel Altman

The headline popped up on an inside page of The New York Times: "Nation can feed itself; trade inquiry, however, shows our dependence in manufactures." The article appeared on Dec. 10, 1916. Since then, the United States has added foreign oil and foreign capital to its addictions - and the United States is not alone. But are these economic entanglements, which seem to exist in almost every country, signs of progress or harbingers of doom?

As the global economy becomes more integrated, the opportunities for economic dependence grow. When it's easier to get money, raw materials, goods, services or labor from abroad, it's more tempting to erode your own supply. As far as the productive capacity of your economy goes, there's nothing wrong with that erosion; you're simply using all the resources available to you, and more resources mean more output.

Yet these days, politicians, pundits and even some economists are decrying American dependence on foreign oil and European dependence on Russian gas. They blast American dependence on foreign capital and Asian dependence on American consumer markets. At times, they base their arguments on national security: for example, the notion that China could destroy the American economy by pulling all its money out of dollar-denominated investments. At other times, the tone is simply protectionist. A few years ago, for instance, James Woolsey, former CIA chief, joined Amory Lovins and Hunter Lovins of the Rocky Mountain Institute to complain in The Christian Science Monitor about America's energy dependence. "Replacing Mideast oil is vital, but not by substituting equally or more vulnerable domestic sources," they wrote. "The next step is to obtain more energy from sources that are inherently invulnerable because they're dispersed, diverse, and increasingly renewable." Are they right to worry?

"There's a long tradition of analysis that's often referred to as economic nationalism, that suggests that the roots of national power are in productive capacity within the nation," said Mark Rupert, a professor of political science at Syracuse University. "People who look at the world from that kind of orientation are likely to be very concerned, for example, that the aircraft industry is increasingly transnational, with Boeing outsourcing parts of its aircraft production to China and so forth." "Taken on its own terms, that's not necessarily a crazy response to globalization," Rupert said. "But it comes from an assumption that the world is carved up into competing, rivalrous nation-states, and that that is the competing, overriding reality of global politics."

That assumption doesn't necessarily correspond to today's reality, though. During the mercantilist eras of history, the fight for an export market or the race to grab natural resources could indeed lead to war; that was as true in the Roman empire of two millennia ago as in the Japanese empire of last century. Now, however, the power of markets and corporations transcends national borders, Rupert said, and may create a need for solidarity, rather than rivalry, among nations.

Globalization is "empowering market institutions to an unprecedented degree, and every kind of social value is treated as secondary to private profit," Rupert said. The need to attract capital from abroad (and this may be especially true in small countries) supersedes any social concerns. Interdependences between economies - whether for capital, resources or products - could therefore add to the motivation for some kind of global governance. Indeed, Rupert said, the World Trade Organization is already branching out, if informally, into areas like competition policy and intellectual property. To the unabashed free traders, however, there's little cause for concern.

"Concerns about being too dependent on foreign sources are misplaced," said Daniel Griswold, director of the Center for Trade Policy Studies at the Cato Institute, a pro-free-market research group in Washington. "We're more secure when we can draw on a wider range of sources for the goods and services we need in our day-to-day lives. We would be even more vulnerable if we had to rely exclusively on domestic sources of energy, food and manufactured products. If isolation from global markets were the key to prosperity, Burma and North Korea would be thriving nations when in fact they're stagnating." Griswold added that he didn't buy the argument about national security, either. "The list of strategic industries that we for some reason have to protect should be kept to a minimum if not kept at zero," he said. "This is too open to political manipulation. Every manufacture or commodity will see itself as being strategic and needing protection."

Still, some academic and government reports have outlined areas where the United States could be vulnerable to a shut-off in supply, for example, materials needed to make telecommunications switching equipment. And dependence on Russian gas is a very real concern, especially for countries like Georgia and Ukraine, which have seen their supplies interrupted. But for Griswold, these and other economic links are a force for stability, not conflict.

"Trade ties tend to promote peace," he said. "Our greatest security is our commercial and diplomatic alliances with countries around the world. We are more secure, in every sense of the world, when we have strong commercial ties to other countries."

Ultimately, globalization may mean that dependence on foreign economies becomes a question of price, rather than a question of war. Very few commodities come from only one place, so countries faced with a sudden shortage can usually find another source - though they may have to pay a little more.