US Economic Statecraft for Survival 1933-1991 Part 7

Compared to the difficulties of the literature on sanctions, settling on an interpretation of economic warfare appears much more straightforward. Nincic and Wallensteen, Sch.e.l.ling, Mastanduno and Holsti all agree on what const.i.tutes economic warfare: 'economic privations are imposed with a military objective, i.e., to weaken the target's capacity to wage war.'27 And those privations could be imposed by either military or economic means. Holsti takes this to its logical conclusion when he writes: 'Economic warfare refers to those economic policies used as an adjunct to military operations during wartime. The objective is either to hold or conquer strategic resources, so that military forces can operate at maximum strength, or deprive the enemies of these resources so that their capacity to fight will be weakened.'28 These quotes bring to light some interesting considerations. Economic warfare is necessarily an adjunct to war. This is important in terms of setting out what the targets for economic warfare might be. They are necessarily related to conquering or defeating an opponent. This draws quite a clear distinction between the intensity (and, as argued immediately below, the means) with which policy can be implemented in economic warfare, compared with the economic defence policies conducted by the USA against communist states after the Second World War. In short, this distinction has implications for all those scholars who talk of economic warfare being conducted by the USA during the Cold War. This should more properly be termed (following Frland) cold economic warfare. Secondly, economic warfare is not only conducted by using economic instruments of statecraft, as some (including Baldwin) have claimed, but can include military action against economic resources: sinking of supply s.h.i.+ps or bombing industrial plant. Again, this has implications for the Cold War. It was not possible to bomb Soviet industry, so this further strengthens the case for drawing a distinction between economic warfare, in which military instruments can be used to conduct policy, and cold economic warfare, in which they cannot.29 Long-standing practice lends support to these arguments. It would have been a serious mistake to ignore America's naval blockade strategies in the two world wars and the way that they developed out of its policy of neutral rights to trade (see Chapters 3 and 4), because those policies shed enormous light on the way America's overall economic statecraft developed in the twentieth century. The means of carrying out economic statecraft do not have to be restricted to economic instruments. Naval blockades and the military destruction of the enemy's economic facilities were regarded as part and parcel of economic warfare throughout the twentieth century. For example the economist Paul Einzig wrote of British policy in 1941: The Navy is to a large extent an executive instrument of the Ministry of Economic Warfare in the enforcement of the blockade. The Air Force too acts largely upon suggestions coming from the Ministry of Economic Warfare concerning the choice of objectives of air attacks in Axis countries. In past wars it would have been almost inconceivable that the High Commands should have allowed a civilian department to interfere with their plans. In the present war, however, they fully realise the decisive importance of weakening the enemy's resistance in the economic sphere.30 There is no compelling reason to depart from the practice of including military instruments as a means of executing economic warfare. In contrast, a campaign of cold economic warfare uses only economic instruments to achieve its aims-unless truly extraordinary conditions pertain, as in the Cuban Missile Crisis of 1962 and the current (2001) sanctions against Iraq, begun in the 1990s.

Both economic warfare in time of war and cold economic warfare in time of peace aim to weaken or bring about the collapse or defeat of the target state, with the ultimate aim of changing its political regime. The difference lies in the intensity with which these goals can be pursued and, most obviously, the range of instruments available with which to pursue them. In wartime, economic warfare always seeks the defeat of the enemy: in peacetime, cold economic warfare may have, but does not necessarily have to have, the ambition of 'defeating' a regime without recourse to outright military action.

With the term strategic embargo we are back in the realm of more hotly contested meaning. Intuitively, a strategic embargo seems to stand somewhere between sanctions and economic warfare as an instrument of statecraft. Thus Michael Mastanduno claims: 'A strategic embargo seeks to prohibit only the trade that makes a direct and significant contribution to an adversary's military capabilities. In addition to purely military items, it focuses on the control of those commercial items that have a specific and important military use.'31 However, in practice, fungibility blurs the line between civilian items and goods of direct military utility. Furthermore, policy-makers often see a strategic embargo as a moral message-sender in the way that Doxey conceives of sanctions, while others see it as tantamount to cold economic warfare and hope that the ultimate consequence will be the collapse and defeat of the target state. The main difficulty with the idea of a strategic embargo is this tendency to merge on either side with sanctions and cold economic warfare. In practice, the latter kind of merger has often occurred. In the early Cold War there was considerable debate about restricting US policy to a strategic embargo rather than extending it into what US officials called economic warfare. The scope for interpreting what Americans saw as a strategic embargo, but which might be seen by the Soviets as the kind of unfriendly act tantamount to economic warfare (or rather cold economic warfare), worried a number of US officials. In many ways these observations touch on the very heart of the problem of constructing a taxonomy of clearly defined a.n.a.lytical terms, because meaning is given to actions by those subjected to the effects of economic instruments of statecraft, no less than by those who exercise them, and sometimes there may be disagreement among both the receivers and the senders as to exactly what is going on. For example, in Chapter 10 it was clear that some US officials perceived the tightening of the embargo as moving from a strategic embargo to economic warfare, while others saw it simply as tightening up the strategic embargo. Just how complicated this is becomes clear when we recognise that not only are terms such as a strategic embargo inherently ambiguous, but also goods are inherently fungible-in one context a good is not of strategic value, in another it is. These problems created the agonising about policy in Was.h.i.+ngton in the 1940s and 1950s that we witnessed in Chapters 5 and 6.

Contrary to what some a.n.a.lysts have claimed, US bureaucrats and politicians during the Cold War were very much alive to the difficulties of defining the strategic value of goods and tussled with that problem as they strove to maximise both benefits to the West and damage to the communists. They did this by taking into account possible Soviet economic relative gains and made calculations about the fungibility of resources. They also had to make qualitative judgements about whether or not items should be regarded as intrinsically strategic and as having potential to contribute to the Soviet bloc's immediate war-making capability. Even such an astute a.n.a.lyst as Tor Egil Frland appears to prevaricate a little on this. He argues that, as the Soviets only engaged in trade because they believed it was to their benefit, then the logical thing for the West to have done would have been to impose a complete embargo on all trade.32 'Experience from the world wars has shown that in the age of total wars economic warfare should also be total.' By this he means shutting off trade completely-which, he claims, is the logic of the policy of wis.h.i.+ng to inflict maximum damage on the Soviet bloc. He appears to have fallen into the trap of suspending the relative dimension even if calculations of cost and benefit are limited solely to economic and military benefits. But, at another point he springs the trap: 'As Mastanduno observes however, one might alternatively try to practice strategic export controls selectively, embargoing those items of most strategic value to the enemy..., and hoping to reap whatever economic and strategic benefits might accrue from the trade. Actually this has been the basis on which CoCom has functioned.'33 This argument is in line with the idea of maximising relative benefits of trade: engaging in selective trade with the potential enemy that strengthens the home state more than the targeted state, and also strengthens it more relative to the targeted state than if trade were suspended completely.

Of course we do not know what would have happened if all trade had been stopped, but it was not just the Soviets who thought they benefited from trade; the West did as well. Stopping all East-West trade might have hurt the Soviets more than the West, but it could very conceivably have been the other way round.34 Given the West European postwar need for food and raw materials from eastern Europe and the Soviet Union-some of which were highly strategic in nature-one has to accept that even economic logic did not necessarily dictate the complete closure of trade with the Soviets. The difficulty of obtaining commodities from non-Soviet, and probably dollar-area sources, particularly given the European shortage of dollars, could have caused further havoc in an already critically unstable situation. That scenario could have damaged the West economically more than the Soviets. Only a very detailed empirical a.n.a.lysis could have determined whether the Soviets would have lost more than the West by a complete embargo, and at the time that kind of a.n.a.lysis was not feasible because of restrictions on information on the Soviet side. What is clear is that, while some saw the embargo as a moral imperative, Americans generally (or at least a substantial majority) thought that it was economically, and thus strategically, in the interests of the West to continue with a selective trade programme. Furthermore, as some of the materials the West obtained from the Soviet bloc were highly strategic in value, one could argue that a qualitative dimension needs to be factored in that cannot be easily cashed out in economic terms, even after applying the principle of fungibility For example, in an NSC meeting on 3 June 1948 Under Secretary of State Robert Lovett wryly observed that he was more interested in 'getting manganese from Russia than in denying baby bottles to the Russians'.35 Total economic warfare does not allow us to subst.i.tute an economic calculus for good judgement. Thus the Western policy-makers did not fly in the face of the logic of their own containment grand strategy. They were, in fact, perfectly logical when they recognised that complex matters of judgement were at stake, given the imponderables and incomplete information on the Soviet economy and their desire to fas.h.i.+on an embargo policy that would both maximise the West's strength and Soviet bloc weakness in relative terms. That statement delib-erately avoids saying Soviet bloc economic weakness because, at times, the West thought it prudent to strengthen economically certain parts of the bloc in order to cause internal strains, friction and jealousies. Even when the moral or ideological perspective is excluded and only economic calculations are included, the West's cold economic warfare cannot be characterised as aiming only at weakening the economy of world communism.

The above argument does not overturn the observation by Frland that total war involves total economic warfare: it simply explains the character of total economic warfare and some of the differences with cold economic warfare. We must not be misled by the word 'total' into believing that total economic warfare policy is thus necessarily tantamount to stopping all economic intercourse with the enemy. It is tantamount to saying that nothing may in principle be excluded from consideration as a target or a means of waging economic warfare-but that is rather different. As allied policy in the Second World War towards the neutrals showed (particularly well ill.u.s.trated by policy towards Sweden-see Chapter 4), criteria of relative advantage and political considerations held the allies back from a total embargo, even though they knew that the blockade of Germany haemorrhaged badly through Sweden. Clarity can be achieved and confusion avoided here if it is acknowledged: first, that nothing may be excluded a priori from being a strategic good (this will be expanded on in the next section); secondly, that the term total economic warfare is not the language of an absolute that would stop all trade, but only requires an embargo on goods deemed to be of inherent strategic value and those that yield a comparative advantage to the enemy; and, thirdly, that there cannot be total economic warfare in peacetime, and that cold economic warfare captures the sense of the restrictions that apply under these conditions.

After the Second World War, the Americans soon arrived at a policy decision that involved a very extensive strategic embargo. At times the extent and intensity of that embargo effectively amounted to cold economic warfare. In addition, there were more frequently used tactics, employed in more and less powerful forms throughout the postwar period, that amounted to low-intensity cold economic warfare designed to change the Soviet Union. They involved trade as a means of enticing or seducing the communists away from their beliefs, and ultimately their system, by demonstrating the superiority of the productive power of capitalism to meet the needs of ma.s.s society. West European countries generally pursued both these strategies simultaneously. They held to the line that narrowly defined strategic goods and efforts to restrict the war-making potential of the Soviet bloc could go hand-in-hand with a policy of expanding trade in order to demonstrate capitalism's superiority and make the Soviet-bloc economy interdependent with the West. Ultimately, the goal was to socialise the Soviets into Western ways and norms. This did not maximise the economic weakening of the Soviet bloc, and, as the USA pointed out remorselessly, the West European policy created interdependence-and interdependence is a two-way affair. Nevertheless, this was seen as a policy that went beyond pure commer-cialism: it was seen as a means of altering the Soviet system and, as such, as a kind of cold economic warfare. Later these policies came out most potently in detente, but they were manifest in less powerful ways from time to time before the 1970s. For example, before the outbreak of the Korean War, Secretary of State Dean Acheson went along with the British, who favoured maintaining extensive trade and commercial ties with China. President Eisenhower believed that at the end of the day the West would win out because its economic power was superior to the communist system's, and he personally favoured relaxing trade controls for a variety of reasons, among them the hope of seducing the communists. In the early 1950s British Prime Minister Winston Churchill thought that trade would increase the West's ability to infiltrate the Soviet bloc, and a long-standing US tactic was to extend credits and trade to satellite countries, so as to try to drive as big a wedge as possible between them and the Soviets. This did not immediately weaken the Soviet bloc economically (quite the opposite), but it created tensions and problems and often demonstrated that the West could offer things to the satellites that the Soviets either could not or were not prepared to.36 So, the grand strategy of economically weakening the communist bloc has to be quali-fied somewhat. Again this raises question marks over the a.n.a.lytical categories that some of the more theoretical approaches to the subject have tried to impose on past practice.

Michael Mastanduno and Frland37 reject the types of policy considered above as forms of economic, or cold economic, warfare. They both define economic warfare as a policy to weaken an adversary's economy without changing its policy. In contrast, sanctions are defined as a type of economic leverage that does aim to change policy. These definitions are too Procrustean. During the Second World War, when economic warfare appears as a less contestable concept, the goal was not just to weaken the Axis but also to bring about its collapse, and hence change. In the Cold War some Americans were optimistic enough to hope that the embargo policy might modify Soviet behaviour. This was a view expressed by NSC 68, and from time to time some thought that the embargo might actually cause the Soviet Union to implode and thus force a change in its system. When the Soviet Union finally collapsed, some were sufficiently deluded by the image of US economic potency and Reaganite rhetoric to think that US policies of economic denial and the economic challenge posed by US rearmament had caused it. So, economic warfare during hot wars encompa.s.ses attempts to weaken a target state by the use of economic instruments of statecraft, or to damage the target economy by noneconomic means, with a view to bringing about its surrender, and thus a change of policies, or its defeat. Cold economic warfare, by contrast, is more restrained, because it does not accompany war with the target state. It aims to weaken the target state's military and economic potential through the use of economic instruments of statecraft, to change its policies, and possibly bring about the collapse of the inc.u.mbent regime.

For Frland and Mastanduno American policy amounted to economic warfare because it sought to weaken the Soviet bloc economically. But how does this conceptual definition then cope with the distinctions drawn above between economic warfare and cold economic warfare, and, more importantly, the fact that the USA was also prepared to strengthen the Soviet bloc economically, providing that that would cause other types of problems for the Soviets.38 Their definitions cannot catch the nuances of the difference between cold economic and economic warfare. And, because of their insistence that economic warfare aims to weaken a state economically without seeking to change its policies, neither can they encompa.s.s either the USA economically a.s.sisting Soviet satellites, or its use of the strategic embargo in the hope of modifying both Soviet behaviour and policies.39 This is unfortunate, because containment (and, as an integral part of that policy, the strategic embargo and cold economic warfare) was designed to change Soviet policies. The aims were to get the Soviets to abandon communism and to secure the interests and security of the West. Containment was not there, because it was there, because it was there. Neither was the US economic embargo there only to weaken the Soviets economically as an end in itself. That simply begs the question of why the USA wanted to weaken the Soviet Union. It wanted to do so in order to restrict its war-making potential, but that objective was not achievable solely through economically weakening the Soviet bloc, and Western aims were broader than just limiting the Soviets' ability to wage war. There was a series of US objectives: emphasising differences and conflicts within the Soviet bloc; reducing satellite dependence on the Soviets; getting the Soviets to change their policies and modify their behaviour; and sending messages to the Soviets, neutrals, allies and the US domestic const.i.tuency. In the early days of the deployment of the strategic embargo, changing policies and sending messages may not have been clearly articulated aspects of US policy, but they were implicit in the whole underlying rationale and as part of overall containment policy. In the 1960s they became explicit when first Kennedy's administration and later Nixon's looked to sustaining or relaxing trade controls as means of sending signals to allies and adversaries and as linkages or tools to be used in negotiating changes in Soviet policies. Quite clearly, by then, export control policy was designed to send messages to the Soviets, and, although earlier on the messages may have been more muted because of the secrecy surrounding the initial operations of COCOM and its embargo lists, secrecy itself did not remain absolute by any means, and did not preclude the possibility of messages getting through to the Soviets. Also, of course, secrecy was not a factor between the allies, and so the aim of sending messages about US resolve to its allies was accomplished.

Economic statecraft, fungibility and strategic goods.

There are two key issues that come into play when trade controls of whatever kind (except possibly a narrowly construed sanction) are deployed: fungibility and the definition of a strategic good. Baldwin is the scholar who has undoubtedly been responsible for generating renewed debate about these issues within his broader concern with economic statecraft. And it is in that broader context that we need to consider fungibility and the concept of a strategic good.

Baldwin synthesises ideas drawn from the work of Yuan-li Wu and Thomas Sch.e.l.ling40 to produce a comprehensive a.n.a.lytical framework in his cla.s.sic work Economic Statecraft. His declared purpose is to rea.s.sess economic statecraft as an integral part of foreign policy-making and argue that it is a more effective tool than it has been given credit for; to stimulate new interest in this neglected realm; and to develop an a.n.a.lytical framework based on social power literature. Using a taxonomy developed by Harold D.La.s.swell41 that divides the instruments of power into information, diplomacy, economics and force (more colloquially, words, deals, goods and weapons), Baldwin proceeds to outline his view of economic statecraft as a branch of foreign policy in the language of the social-power theorists such as Harold La.s.swell, Abraham Kaplan, Frederick Frey, Jack Nagel and Robert Dahl.42 According to this school of thought, power is a relational concept that shows how one actor influences another to do something that he/she would not otherwise have done. The influence may involve positive or negative sanctions (i.e., carrots or sticks) and arises from a variety of different sources of power (words, deals, goods, weapons). Influence attempts are just that: they may or may not succeed. The effects they have are multidimensional-one should not look for just one outcome, because there could be several, of different degrees of importance. Power is not (as it is often portrayed) a zero-sum game, because one could, for example, influence a state to adopt free-trade policies from which all gain-a positive-sum game. Finally, power a.n.a.lysis always involves the consideration of counterfactuals. In order to evaluate the effectiveness of any given influence attempt, one must ask what were the alternatives and how cost-effective would they have been?

Using this framework, Baldwin wishes to demonstrate how other scholars have devalued economic statecraft by claiming economic influence attempts, such as US sanctions against Cuba, were ineffective. He says that, rather than simply accepting such a judgement, one should pose the following kind of questions. If negative sanctions against Cuba are considered a failure, what is the success rate of other types of influence attempt? If economic sanctions generated popular support for the targeted state's existing regime, then is this a general response to negative sanctions, and not one that applies to negative economic sanctions alone? If the sanctions are considered costly, one should ask what the cost of other influence attempts would have been? Only after asking such questions, contends Baldwin, can a fair and accurate appraisal be made of this particular instance of economic statecraft. He says: 'Merely to pose such questions is to expose the intellectual weakness in much of what has been written about economic statecraft, for most of these writings do not even acknowledge the existence of such questions, let alone answer them.'43 Baldwin's concerns are a.n.a.lytical and prescriptive: he wants to help political leaders appreciate the potential, the character and the scope of economic statecraft, and to do it better. He casts his definition in terms of means, not ends. He uses categories of economic sanctions, economic warfare, and aid, and emphasises both their instrumental and expressive potential. He denies that there is any such thing as inherently strategic goods, and rules out bombing of economic targets as a category of economic statecraft because the means are military. These methodological stipulations are made in order to produce a universally applicable and coherent model of economic statecraft. In a very real sense Baldwin is not concerned to explain any substantive instance of economic statecraft; instead he wants to tell us what the activity must consist of, what its implications might be, and what kind of results we can legitimately expect. Thus he is not primarily concerned with the substantive issue of what is or is not a strategic good in any particular, situation, but he is concerned to explain the nature of a strategic good and what conditions must pertain for it to be so designated.

An examination of Baldwin's concept of a strategic good will help to illumi-nate the differences between his concern to produce an a.n.a.lytical framework and the main aim here, which has been to give a historical reason-giving explanation of actual practice. He argues that nothing is inherently strategic, and everything in fact potentially is. In the Napoleonic Wars oil was not a strategic good; in the Second World War it was. A nuclear weapon may be a strategic good so far as modern states are concerned, but for a scientifically illiterate tribe of Amazonian Indians it could not be-at least not in the way it is for a modern state (they might hit people over the head with it, but they would not know how to explode it). In the early 1960s the USA took the view that wide-diameter steel pipes and double-decker buses were strategic goods: the British government disagreed.44 It is this chameleon-like quality-goods are strategic at some times, and in some hands, and not in others-that leads Baldwin, following Wu, to deny that there is any such thing as an intrinsically strategic good.

Baldwin argues convincingly that whether or not a good is strategic depends upon its relative utility, subst.i.tutability, and whether or not the marginal elas-ticity of demand is low. Furthermore, 'The "strategic" quality of a good is a function of the situation; it is not intrinsic to the good itself.'45 Thus the Trident weapon system is not a strategic item in the relations.h.i.+p between the USA and Britain (though realists would not agree with this), but it is in the relations.h.i.+p between the USA and Russia. Similarly, wheat is not a strategic item in US-Argentine relations, but it often was in US-Soviet relations, because of the comparative disadvantages the Soviets had to suffer when either producing wheat themselves or obtaining it from sources other than the USA. Producing things under comparative disadvantages means that the economy is not func-tioning as efficiently as it might, and this reduces the overall potential of the state to produce military or civilian consumer goods-though by now it should be clear that, in strategic terms, there is no clear distinction to be drawn between civilian and military. Baldwin uses the term fungibility to express this: civilian and war production are either convertible into each other, or the way in which they are produced can restrict or enhance the potential production of the other. On this reading, all trade could be the target of a strategic embargo because trade is entered into on the rational premise that it benefits the partic.i.p.ants. The interruption of that trade, even if it were in the celebrated commodity of trouser b.u.t.tons-soldiers cannot fight effectively and hold their trousers up at the same time-would be of strategic value to the country inst.i.tuting the embargo, because the targeted state would then have to get b.u.t.tons elsewhere at greater cost, or devote national resources to their production under comparative disadvantages, and this would take up productive resources that could be otherwise employed more efficiently in producing wealth or military products.

Baldwin has made a major contribution towards a better understanding of economic statecraft, but there have been several challenges to his theoretical framework. Philip Hanson is concerned that, under Baldwin's definitional terms, all trade of a targeted state would be fair game for a strategic embargo. If this is so, 'strategic' becomes a redundant concept. If all trade is of strategic value, then the term becomes meaningless, because it cannot distinguish one good from another.46 But, is this taking logic too far? Even if we concede that in the modern world (because of the threat of total war and the erosion of the distinction between armies and people, as Churchill put it) all goods have a potential strategic value, then it becomes a matter of relative strategic value, to be determined by judgement about the circ.u.mstances. Thus Baldwin has an adequate response to Hanson, but his argument is less persuasive when it condemns US policy-makers for failing to take fungibility into account.

Baldwin does much to expose the complexities involved in trying to craft policies of economic statecraft. Calculations involved in strategic policy-making are not simply mechanical problems of objective calculation. Value here has three sides to it: the instrumental effect that produces economic benefit or inflicts economic cost; the expressive value of moral statements or of sending messages; and the tactical advantages to be gained for diplomatic bargaining. Furthermore, even when an optimum range of sanctions is determined it may have to be modified because of domestic political considerations, because of differing a.s.sessments of optimality by allies, or because, although the sanctioning might have optimal effect in terms of maximising economic denial, there may be fear of an 'irrational' response and dangerous over-reaction by the target state. It is one thing to do an economic calculation of what is in fact the more valuable good strategically in a given situation and what it is feasible to embargo given the state of both domestic and alliance politics: wheat could conceivably have been a.s.sessed as having more strategic value than missiles in US-Soviet trade, but US farmers were politically powerful enough to curb a wheat embargo. To turn to another scenario, the USA often wanted a stricter embargo on trade with the Soviets than proved possible because of pressures from allies. Furthermore, while the export of b.u.t.tons may be as important strategically as the export of nuclear technology, common sense tells us that this is only true in the long term, and decision-makers are always confronted with the dangers of the here and now. With this in mind, nuclear technology in the context of the Cold War does take on the appearance of goods with inherent strategic value (notwithstanding the example of the US selling missile systems and sharing nuclear know-how with Britain, because the context tells us what to make of nuclear technology in this relations.h.i.+p). Baldwin bemoans the fact that: The view of 'military utility' as an inherent trait to be determined by consideration of the possible military uses of a given item is still [c. 1983]

embedded in American export control policy. The law of diminis.h.i.+ng marginal utility, the doctrine of comparative costs, and the fungibility of resources seem to be ignored by such an approach. What Wu labelled the 'strategic materials fallacy' in 1952 appears to be alive and well thirty years later.47 An appropriate comment on this is that, although embedded, it is not certain that this embedding has excluded consideration of the other criteria that Baldwin correctly identifies as being important in the Grafting of effective policy.

The reason why policy-makers concentrate on military items is to do with politics and the fear of war. It may make more logical sense strategically to sell weapon systems to an enemy than to sell them industrial equipment: politically it does not make sense. Having one of your cities blown up by a missile exported from your own country could not be politically defended: having one of your cities blown up by a missile made with engineering equipment you have exported is also difficult to defend politically, but there is a difference. When these political considerations are taken into account, it is difficult to see how the criteria of diminis.h.i.+ng marginal utility, comparative costs and fungibility can define the optimum policy decision. There is also a problem with time: weapons are immediately usable, 'more strategically' valuable exports take more time to contribute to the war-making capacity of potential opponents. Fungibility can only work over time, and nuclear war would be so swift that the luxury of time would be denied to the targeted state. These kinds of considerations were given weight by US policy-makers and led them to treat certain goods as inherently strategic, not out of adherence to the strategic materials fallacy but because of lines of reasoning of which Baldwin's own position would approve. In an ideal world of rational choice, in which economic instruments of statecraft can be deployed within a clearly delineated framework, calculations of economic loss and gain are appropriate for recommending and a.s.sessing economic statecraft. However, in the open-ended world of practice, recommendations on the basis of economic costs and a concept of strategic value, sensitive to changing circ.u.mstances, may be compromised by both political realities and context, which (as Baldwin acknowledges) may oblige policy-makers to talk meaningfully of 'inherently strategic goods'. The immediacy of nuclear war and its likely short duration limits fungibility. Hence the strategic value of such goods and those that depend for their value upon the criteria of diminis.h.i.+ng marginal utility and comparative costs would be negated. In the event of a sudden war their potential contribution to the strength of the targeted state could not be realised, but the strategic value of direct military utility items could be realised, even though, in the longer term, they might not have been of such strategic value as other categories of goods. After taking these considerations into account, one could argue that whether decision-makers like it or not, and even when they accept the logic of Baldwin's argument that there is no such thing as an intrinsically strategic good, they have an obligation to treat goods with clear and present military utility as if they were of inherent strategic value. Thus, while there is force in the a.n.a.lytical axiom that strategic value is a function of the situation, it rather begs the question of what the situation actually is and ignores what it might become. It is often an a.s.sessment of what it might become that creates the notion of strategic value in the minds of decision-makers. This highlights the fact that fungibility is not static.

Before industrialisation and the emergence of total war, fungibility was very limited, as were notions of strategy. While warfare and the tools of power politics were so limited, it was easier to identify what could be of strategic value. The constraints of the context meant that over a long period of time certain kinds of things were seen as (and, for all intents and purposes, were) of inherent strategic value among European states-territory, weapons, battles.h.i.+ps, and the skill and size of armies. The emergence of total war changed that. All society and its productive forces were now mobilised for the war effort. In this situation fungibility comes into its own, and is countered by attempts at total embargo. However, as the model of nuclear war succeeded the model of total conventional war, the situation changed again. If nuclear war broke out, it would be so swift that it would not allow time for the fungibility factor to take effect. This scenario placed renewed emphasis on the need to define inherently strategic goods within the context of the incipient struggle between competing superpowers, in case nuclear war were suddenly to break out. At the same time, so long as war does not break out, there must also be emphasis on the need for calculations about how to define strategic in Baldwin's terms, because of the fungibility of goods and the danger that non-military goods could, over time, contribute more to the power of the potential enemy than selling them missile systems or other 'inherently strategic goods'. This was the complex scenario that confronted US policy-makers after the Second World War.

There thus appears some incompatibility, some lack of coherence, between the framework Baldwin produces and economic statecraft in practice, which goes beyond misunderstanding by the pract.i.tioners. This problem is of some concern for Philip Hanson.48 Taking up Baldwin's notion encompa.s.sing the whole range of complexities a.s.sociated with inherently strategic goods, he tries to reconcile it with his own interest in a debate within the Western Alliance about what was and what was not a strategic good and the central place the concept held in the West's embargo policy. This draws him into a defence of inherently strategic goods, provided their designation as such is restricted to a particular time frame and circ.u.mstance. He notes that Baldwin and others go along with this in principle, but he also remarks that some of the definitions used by Baldwin have little to do with the strategic embargo that exists in the real world (a view that has resonance with the argument developed above). However, having said that, he goes on to show that Baldwin's ideas can be reconciled with at least some of the actual practice of Western embargo policy Hanson adopts the ideas of Peter J.D. Wiles,49 that bottleneck goods and imported technology should be used to define strategic goods in the context of East-West trade, because their embargo inflicted severe costs upon the Soviet economy and inhibited its technological advance. On the matter of military items Hanson appears less happy with Baldwin's thesis on strategic goods. He actually refers to Baldwin as having defined away the problem of establis.h.i.+ng what is and is not a strategic good. In fact Baldwin has not done that, but he has played down important aspects of politics, context and time-all of which, in a strong sense, oblige policy-makers to treat certain types of military goods as inherently strategic. This does not mean that they were unaware bf the kind of argument put forward by Baldwin that some goods deemed to be civilian were in fact more strategically valuable to the Soviets than military equipment. Often they were aware of this, but for domestic political reasons, or because of the position of allies, such goods of high relative strategic value could not be embargoed. On other occasions time and context persuaded US policy-makers that items of direct military utility, but low relative strategic value, had to be treated as being inherently strategic, and thus had to be embargoed.

Baldwin is right when he claims that there is no such thing as 'an inherently strategic good', because all goods in principle have the potential to be strategic. One cannot argue a priori that a particular good is strategic. The term strategic good only counts in practical affairs when one looks at particular policies and particular problems at particular points in time. So far, so good. But from here onwards Baldwin's argument weakens, when it underestimates the political inputs and constraints that necessarily arise in the practice of economic statecraft, and when he fails to give due weight to the factors of time and context which make it inc.u.mbent upon policy-makers to treat certain goods as inherently strategic. These points do not challenge the logic of his argument, but they ill.u.s.trate that it has limitations, and that he may have misjudged the policy and actions of US policy-makers. The uncertainties inherent in the pa.s.sing of time render any calculations based on fungibility tentative and provisional. Domestic and foreign political considerations can qualify what would otherwise be economic imperatives derived from calculations of marginal utility and the infliction of comparative disadvantage. And in some cases the sending of a diplomatic message to potential enemies and actual friends override any calculation of economic cost or benefit.50 Baldwin's framework cannot always show us where decision-makers have gone wrong in the past, or tell them how to do their job in the future, though it may alert them to the complexities and many facets of policy-making, as hopefully this review of his work has done for the reader. Baldwin seems to think that policy-makers have not followed his kind of guidelines for conducting policy because they have not learnt from people like Wu, who first coined the phrase 'strategic materials fallacy'. In fact it appears from previous chapters that they had learnt the lesson, but were unable to do what Baldwin thinks that they should have done because of political and legal constraints and the views of allies, all of which were const.i.tutive of the context in which policy was formulated. Furthermore, they were aware that fungibility and the impact of producing under comparative disadvantages need time to take effect, whereas nuclear war is immediate, and this affected the way they viewed the concept of a strategic good. Once time, context and political considerations are introduced, then the economic criteria for prescribing effective action and for a.s.sessing success and failure run into difficulties. If other criteria are rational and applicable, and if economic statecraft is not solely to be determined on the basis of diminis.h.i.+ng marginal utility, comparative costs and the fungibility of resources, then things are not so straightforward. Before leaving that tentative conclusion it would be fair to point out that what is at issue here with Baldwin is not so much his a.n.a.lytical framework as his contention that US policy-makers have been wedded to the strategic materials fallacy. However, there is also a point to be made about his framework. There are two important sides to it: rational economic calculation of relative gains and losses, closely linked to the concept of fungibility; and the more subjective psychological side, to do with expressing moral viewpoints or communicating messages. (This does not do justice to his framework, but it gets the key characteristics across.) How the subjective and the economically objective factors can be knitted together into a coherent framework of a.n.a.lysis is a challenge that Baldwin rose to meet in Economic Statecraft, but a question-mark remains over whether or not his a.n.a.lytical framework const.i.tutes a total victory.

12.

Concluding thoughts.

It is not possible to pinpoint the exact date in the twentieth century when the USA began to fear for its survival. The challenge posed by Germany during the First World War, notwithstanding the Zimmerman telegram and the scare about the possibility of a hostile German-Mexican alliance, was not of an order of magnitude to warrant fears of mortal danger.1 It was only when ideological, economic and military power were welded together, successively by j.a.pan and Germany, and then by the Soviet Union, that American leaders perceived immediate threats to the survival of the state. Such perceptions regarding j.a.pan and Germany took shape in the minds of some US leaders in the mid-1930s, but domestic politics and the inheritance of America's foreign-policy traditions made it difficult to craft an effective peacetime response. Neutrality, isolationism and disarray among the liberal democracies only allowed piecemeal, inconsistent and, from the perspective of the totalitarian aggressors, irresolute responses. Even when the danger became clear and present, and when some semblance of a coherent economic defence policy began to take shape, Roosevelt was constrained by the Congress, public opinion, the law and lack of allies. Moreover, calculating how best to deal with j.a.pan was fraught with dangers and difficulties. Economic sanctions did not restrain, they provoked j.a.pan. Messages sent were ambiguous and weak, partly because the liberal democracies could not establish a common ground upon which to stand. More than anything else, the Americans learnt from this failure of economic statecraft in the 1930s that they must never again supply material to strengthen an aggressor, that they must craft the instruments of economic statecraft and apply them skilfully to convey the right messages, and they must be prepared both to defend themselves and to lead their democratic allies purposefully.

Even before the attack on Pearl Harbor, the military threats from Germany and j.a.pan persuaded many in Was.h.i.+ngton that previous traditions of practice would have to be abandoned. Fond regard for neutral rights to trade was soon replaced by a Realpolitik conception of an embargo that would be enforced to the maximum extent feasible under prevailing conditions. There was little real difficulty with Britain over its naval embargo before the USA entered the war, and, once in the ray, the USA soon pressed for an ever more expansive embargo, ultimately at the expense of neutral rights to trade. By the end of the war the USA was urging upon the neutrals a duty not to trade with the enemy at all. As wartime negotiations developed, the USA became increasingly a.s.sertive, both among its allies, in persuading them to adopt more drastic embargo policies, and in pressing such policies upon the neutrals. The Americans also came to the realisation that at the war's end they would be in a position to design a new world economy that would exemplify widely held convictions that free trade, prosperity and US security were inextricably interwoven. In working with Britain towards forging these plans they operated without much regard for the sovereignty of allies and also learnt much about the effectiveness and impotence of economic power.

As the war drew to a close Americans felt well-equipped to deal with the peace. In particular, they believed that they had learnt how to use economic instruments of statecraft effectively, even if events, or other non-economic priorities, sometimes meant that they did not always achieve their ideal economic goals. Nevertheless, the targets of American ambition were not going to wriggle free as they had done after the First World War. Economic warfare against Germany and j.a.pan had been prosecuted vigorously and effectively and seemed to demonstrate the potency of embargoes, naval blockades and aerial bombard-ment. And economic leverage against Britain had yielded agreements along lines that, more or less, represented US preferences. Both those experiences reinforced in American minds the potency of economic instruments of statecraft. The tactics and strategy developed in their dealings with Britain would now be wielded in discussions with the Soviets. Unfortunately for US ambitions, the Soviets would not succ.u.mb to the kind of pressure that had been applied to Britain. The USA was now confronted with something totally unique: cold war in a nuclear age with a totalitarian opponent that had such military, economic and ideological strength that it could destroy the USA.

Coming to terms with the Soviet challenge involved the development of an economic defence policy that metamorphosed over time: through a strategy designed to deny armaments and strategic technologies and weaken or, most ambitiously, cause the collapse of the Soviet economy, to one that placed priority upon psychological effects, sending messages, and bargaining. In conducting these strategies, Americans often found themselves arguing about the merits of fungibility, what was and was not a strategic good, and what should and should not be embargoed. Successive administrations discovered that they were not as autonomous as they might wish in formulating and conducting policy. Disputes within administrations, and incomplete and often contradictory information, made things difficult. Periodic pressures from public opinion, Congress, allies and, from 1970 onwards, from US corporations, business and farm lobbies also affected what were decided. It was in this highly complex environment that US policy-makers had to reason out possible strategies and tactics in order to determine what, in their opinions, were the optimum policies to promote national interests and ensure the survival of the USA.

This book has been an attempt to reconstruct how American leaders and policy-makers made those decisions: how they formulated good reasons for the policies that they crafted. In short it has been an exercise in explanation. The work of Baldwin et al., considered at length in the previous chapter, is primarily concerned with a form of practical reasoning. Such scholars are not concerned so much with explanation, but with what works best. Criteria of practical reasoning have to do with practical results, not with explanation. The key issue is Does it work?, not Is it true? And truth here does not mean an absolute truth, but refers to claims that this is closer to the truth than that, based on criteria that can be referred to in order to correct, or revise statements or claims. Grasping this casts further light on the rather fraught question of definitions raised in Chapter 1 and discussed at length in Chapter 11. Trying to present a definition of something that changes is rather a logical contradiction, unless the thing to be defined can be rendered intelligible in terms of an organism, a process or an item of utility whose function is clear and uncontested. In other cases, such as those of sanctions and strategies of strategic denial that clearly change and develop over time, formal definitions before the enquiry takes place are inappropriate, to say the least. Only after the enquiry has been completed can a form of ex post facto generalisation be teased out of the narrative of explanation to claim that-during the time under consideration, and within the scope of the enquiry- sanctions and strategic embargoes were like this. Such definitions cannot then be applied elsewhere, because there are no grounds for claiming that practice and meaning will repeat themselves-unlike in cases of definitions relating to organisms and processes which have set patterns of repet.i.tive behaviour, or regarding items of uncontested utility, such as chairs, tables and so on. This does not mean that there has been no practical reasoning, or practical a.n.a.lysis in the narrative. From time to time comments have been made about the success and failure of sanctions within this practical mode of thinking, but such excursions into practical strategic thinking remain just that: excursions. The task of explanation abides as the main intellectual journey.

Between 1933 and 1991 the USA faced what it considered to be strategic threats to its survival from a succession of actual or potential aggressors: j.a.pan, Germany and the Soviet Union. Under such conditions economic statecraft directed at those states was largely formulated according to criteria to do with economic defence, rather than commercial gain. Strategies of economic statecraft were designed to enhance the security of the USA and pre-empt the possibility of its destruction by limiting both the opponent's specific ability to produce weaponry and his economic output in general, to send important political and diplomatic messages to a variety of const.i.tuencies, and to provide bargaining chips in the process of negotiating advantages for the USA. Such strategies were not in evidence before 1933 or after 1991, because they had no plausible targets. This is not to say that the USA did not deploy embargoes or sanctions before or after those dates; it did, but they had different motives. Sanctions against Iraq are real and important in US post-Cold War foreign policy, but they are not justified by, or related to, considerations of defence against a real or potential vital strategic threat to the USA. In simple terms, before and after the dates in question in the twentieth century, there was no clear and present danger to the survival of the USA.

Suffering under and being free from perceptions of vital strategic threats to the USA affected the way American leaders and officials thought about economic statecraft. On 4 October 1940 there was a conversation in the White House Oval Office concerning reports that the j.a.panese Government would regard it as an act of war if the USA were to 'give aid and comfort to any of the enemies of j.a.pan'. Roosevelt ruminated out loud about the possible practical consequences of the USA continuing to trade with Britain, which was the matter that had prompted the j.a.panese comments.

Now, they might send us an ultimatum: 'If you continue to send anything to England, we will regard that as an attack on us.' I'll say: 'I'm terribly sorry. We don't want any war with you.... If you regard us as a belligerent, we're frightfully sorry for you, because we don't. Now, all we can say to you is that, of course, if you act on that a.s.sumption, that we're a belligerent, and make any form of attack on us, we're going to defend our own.'2 Having a clear and present danger to the survival of the USA imposed a form of practical reasoning upon Roosevelt that obliged him to think in terms of a possible cataclysmic war if the USA were to continue to trade, or, though largely unspoken on this occasion in the Oval Office, what the consequences might be if the USA were to comply with j.a.panese wishes and weaken Britain by stopping the flow of supplies. In 1989, as the USA emerged into what some have termed 'the unipolar moment', concerns about the second most powerful military state on earth were rather different from those evident in Roosevelt's chain of practical reasoning about j.a.pan in October 1940. Secretary of State James Baker and President Bush speculated about the consequences for the Soviet Union and internationally, if Gorbachev failed to stabilise things.

Baker We've got to ask ourselves: What happens if Gorbachev loses, if things go to h.e.l.l in a hand basket over there? Bush It's tempting to say, 'Wouldn't it be great if the Soviet Empire broke up?' But that's not really practical or smart is it?3 There was still a nuclear threat to the USA, but it was of a different order and kind from what had existed in the past. The Soviet Union was hardly in a position to threaten the USA directly. Its regime was discredited and offered no viable alternative to Western liberal const.i.tutional democracy. It was all that Moscow could do to prevent its domestic matters spiralling out of control into chaos. The priority for US economic statecraft now was to help the Soviet Union and prevent chaos that could have regional repercussions in Europe and central Asia. The agenda of economic defence policy had changed. The need to weaken global challengers who had the ability to destroy the USA, the sending of messages of resolution and moral rect.i.tude, the clear subservience of economic to strategic priorities, and the need for vigorous leaders.h.i.+p of the Western Alliance, all became of less importance, or redundant. In the future conditions might arise again that would once more demand the kind of strategic practical reasoning about economic statecraft that governed much of US thinking between 1933 and 1991. If they do, then policy-makers will turn to Baldwin et al. and their intellectual successors for guidance on how to develop their strategic thinking. Later on will come the turn of someone like myself to explain what they actually thought and the reasons they had for developing the strategies that they did. But, for the moment at least, Americans have been liberated from the need to develop and deploy such strategies.

Notes.

1 Economic statecraft.

1 Thomas A.Wolf, US East-West Trade Policy: Economic Warfare Versus Economic Welfare (Heath, Lexington, 1973).

2 Hegemonic decline is caused by the hegemon shouldering the costs of sustaining the system while others ride free at its expense and improve their relative position in the system's hierarchy of power. See Charles Kindleberger, The World in Depression 19291939 (University of California Press, Berkeley, 1973), and, for further discussion and literature references, Alan P.Dobson, 'The USA, Britain and the Question of Hegemony', in Geir Lundestad (ed.) No End to Alliance: The USA and Western Europe, Past, Present and Future (Macmillan, Basingstoke, 1998).

3 Realists hold that considerations of state power and security, rather than values or affections, determine relations between states in an anarchical international state system. Hans J.Morgenthau, Politics Among Nations (Knopf, New York, 1955); Kenneth N.Waltz, Theory of International Relations (Addison Wesley, Reading MA, 1979).

4 Henry Kissinger, Diplomacy (Simon & Schuster, London, 1995), p. 299. Kissinger incorrectly describes Abyssinia as the last independent state in Africa. In fact, as my friend and colleague Norrie MacQueen has pointed out, Liberia was also independent.

5 W.S.Churchill, The Gathering Storm (Bantam, New York, 1961), pp. 1589.

6 Most situations that invite sanctions are so plagued by uncertainties that it is impossible to predict the outcome if sanctions were to be used. Harsh sanctions, intended to deter aggression by sending a clear message that force will follow if sanctions fail, might provoke retaliation. Alternatively, a programme of sanctions, carefully designed to deter and not provoke, might be perceived by a potential adversary as a sign of weakness and thus fuel aggression. These are the kinds of calculations that Americans had to make with respect to j.a.pan in the late 1930s and early 1940s (see Chapter 3). And, of course, there is one further perspective on this. In some circ.u.mstances, irrespective of whatever level or type of sanction used, the target state might remain immune from its influence so far as changing policy is concerned.

7 David Baldwin, Economic Statecraft (Princeton UP, Princeton, 1985); Susan Strange, 'International Economics and International Relations: A Case of Mutual Neglect', International Affairs, 1970, 46, pp. 30415; Joan Edelman Spero and Jeffrey A.Hart, The Politics of International Economic Relations (Routledge, London, 1997).

8 Baldwin, Economic Statecraft, Philip Hanson, Western Economic Statecraft in East-West Relations: Embargoes, Sanctions, Linkage, Economic Warfare and Detente (Routledge & Kegan Paul, London, 1988); Per Lundborg, The Economics of Export Embargoes (Croom Helm, London, 1987); Michael Mastanduno, Economic Containment: COCOM and the Politics of East-West Trade (Cornell UP, Ithaca, 1992). The distinction drawn here has resonance with the argument about practical att.i.tudes to the past and interest in the past for its own sake developed in Michael Oakeshott's essay, 'The Activity of Being An Historian', in his Rationalism in Politics (Methuen, London, 1974).

9 G.Adler-Karlsson, Western Economic Warfare 194767: A Case Study in Foreign Economic Policy (Almquist & Wiksell, Stockholm, 1967); R.N.Gardner, Sterling-Dollar Diplomacy in Current Perspective (Columbia UP, New York, 1980); Alan S.Milward, The Reconstruction of Western Europe 194551 (Methuen, London, 1984); S.Strange, Sterling and British Policy (Oxford UP, London, 1971); Alan P.Dobson, The Politics of the Anglo-American Economic Special Relations.h.i.+p (Wheatsheaf/St Martins, Brighton and New York, 1988). There is also, of course, the cla.s.sic by John Maynard Keynes, The Economic Consequences of the Peace (Macmillan, London, 1920).

10 Strange, 'International Economics and International Relations'.

11 The kinds of work that have emerged over the years cover a wide spectrum. For example Spero and Hart's The Politics of International Economic Relations, with its emphasis on the politics of international economic relations, contrasts with the more radical approach of international political economy advocated by scholars such as Susan Strange. Spero and Hart favour emphasising the state as the main actor in international affairs, albeit in a milieu in which economics is given more prominence than in the traditional approach to the subject, which emphasises political, security and strategic matters. My own inclination is to side with international political economy and its emphasis both on the inter-relatedness of politics and economics and on the importance of non-state economic actors and forces, though I would probably still give more attention to the state than most IPE scholars. And, of course, my focus of attention in this work is indeed on state policies. However, unlike Baldwin, who concentrates on how politics determines economic instruments of statecraft and excludes consideration of domestic forces from his a.n.a.lysis (Economic Statecraft, p. 4), this work demonstrates how economics dynamically interacts with politics, and how at times the domestic situation can determine, or at least greatly influence, the political realm and the way that it formulates economic instruments of statecraft and determines how they are to be deployed. Robert W.Matson in Neutrality and Navicerts: Britain, the United States and Economic Warfare, 193940 (Garland Publis.h.i.+ng, New York, 1994) is concerned with a specific historical problem, and the concepts he uses are rather simplistic. In contrast, the work of Michael P.Malloy, Economic Sanctions and US Trade (Little, Brown, Boston, 1990), is wide-ranging and looks at the legal and policy-promulgation side of the post-war US strategic embargo. Finally B.E.Carter, International Economic Sanctions: Improving the Haphazard US Legal Regime (Cambridge UP, Cambridge, 1988) offers a wide-ranging study of sanctions and some useful definitions, including sanctions as: 'coercive economic measures taken against one or more countries to force a change in policies, or at least to demonstrate a country's opinion about the other's policies.'

12 The most effective a.n.a.lytical work on this remains Baldwin's, Economic Statecraft, but see also the exchange between Baldwin and Robert A.Pape, 'Evaluating Economic Sanctions', International Security, 1998, 23(2), pp. 18998, and my own comments on Baldwin's work that come later in Chapter 11. Also, it is important to note that the first scholar to coin the term 'cold economic warfare', at least to my knowledge, was Tor Egil Frland, 'Cold Economic Warfare: The Creation and Prime of COCOM, 19481954', PhD thesis, University of Oslo 1991. However, he does not draw the distinction between economic warfare and cold economic warfare in quite the same way as it is drawn here.

13 By introducing the term 'cold economic warfare' there is danger of confusion, because it is used to describe an activity that the officials at the time simply called 'economic warfare'. What I have tried to do is restrict my use of the term 'cold economic warfare' to pa.s.sages of a.n.a.lysis, and where the narrative is reconstructing the past I have remained true to the language of the time and use the term 'economic warfare'.

14 Yuan-li Wu, Economic Warfare (Prentice Hall, New York, 1952).

15 These comments touch on some fundamental issues of epistemology, which will be taken up again in more rigorous form in Chapter 11. For the time being, the reader unfamiliar with this territory might wish to refer to Martin Hollis and Steve Smith, Explaining and Understanding International Relations (Clarendon, Oxford, 1991), which sees explanation as something from the outside of an event that follows a scientific-like paradigm, and understanding as an insider's reason-giving that renders something understandable. Unlike the present author, they do not see the latter exercise as a form of explanation in its own right. For a somewhat different att.i.tude to the inside and outside of events, see R.G.Collingwood, The Idea of History (Clarendon, Oxford, 1946), Part 5, 'Epilegomena'.

16 Eugene V.Rostow, A Breakfast for Bonaparte: US National Security Interests From the Heights