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Mr. Samuel Porteous
Abstract: This is the second in a continuing series on the relationship between the broad concept of national security and a nations economy - a relationship which, as the author points out, attracted little attention in North America until recently. In this issue, the author focuses on a particularly controversial aspect of economic security - "equity" - and examines security implications stemming from the economic crisis facing the developed world. December 1993. Author: Mr. Samuel Porteous.
Editors Note: This is the second in a continuing series on the relationship between the broad concept of national security and a nations economy-a relationship which, as the author points out, attracted little attention in North America until recently. One example of its growing importance, however, is the establishment in the United States of an agency equal in status to and modelled on the powerful National Security Council; namely, the National Economic Council, "designed to be the arbiter of issues relating to economic security".
In this Commentary, Mr. Samuel Porteous focuses on a particularly controversial aspect of economic security-"equity" and examines security implications stemming from the economic crises facing the developed world (jobless growth, for example, and increasing income disparities within the developed world itself). In the authors words, "As the economic changes marking the transition to the 'new economy' buffet nations and trading blocs, national and international leaders more than at any time since the Thirties will be forced to deal with the security repercussions of inequities both within their countries and between nations."
Disclaimer: Publication of an article in the Commentary series does not imply CSIS authentication of the information nor CSIS endorsement of the author's views.
Whether viewed as a broadening of the definition of national security or just a readjustment of priorities, economic security has, in the absence of any monolithic military threat, emerged in the 90s as a widely recognized and significant element of national security. Yet, almost lost in the animated discussions of economic independence and competitiveness is an equally important and more controversial component of economic security-equity: the state existing when groups or individuals, in subjectively evaluating their position or place in a society, feel they have been "fairly" dealt with. It is this element of economic security that will bedevil national and international policy makers over the next decade. In a world increasingly divided between the haves and have nots, both within the populations of the developed world itself, and in the North-South context, the question of equity moves from charitable afterthought to fear over social explosions and unchecked migration.
The concept of national security, although instinctively thought of in terms of protection from physical threat (typically military), is on closer analysis more subtle and in many cases decidedly vague. Often definitions of this amorphous term make reference to the protection from threat of the "acquired" or "fundamental" values of a society. Clearly, a nations ability to defend these values and determine its future hinges on more than a sound military. In the absence of a strong stable economy the momentum necessary to sustain the day-to-day interactions that define a society is lost.
Not surprisingly, the economic component of national security attracted little attention in North America until recently. In the easy years that followed WWII, Canada and the United States, unlike Europe and Japan, experienced a period of wide prosperity and rising standards of living that in retrospect now resemble a golden age. During the latter part of the 20th century, however, military threats receded and new economic ones arose. From the "oil shocks" of the 70s to the debt crisis of the 80s, the steady erosion of North Americas economic strength gradually pushed the issue of economic security forward. The most tangible manifestation of this process occurred in the USA, where President Clinton, making good on a campaign promise to create an "economic security council" soon after his election, established the prestigious and powerful National Economic Council (NEC). The NEC is designed to be the arbiter of issues relating to economic security, and in this capacity is to enjoy status and power equivalent to the National Security Council upon which it is modelled.
Economic independence and competitiveness are clearly elements of economic security and hence an integral part of the larger concept of national security. Ideally, a country is neither dangerously dependent on foreign suppliers nor so uncompetitive that it can no longer purchase or produce the goods necessary to sustain itself. The role played by equity as an component of economic security is less apparent. The term equity as it is used here should not be confused with equality. The egalitarian ideal of absolute equality is as unattainable as it is unworkable. Equity, however, encompasses something less readily dismissed as an amalgam of aesthetics and envy.
The sense of community that links a nation can be destroyed by perceived inequities and crumbled expectations. Harold Lasswell, writing in the 1940s, recognized the importance of this issue when he wrote of measures "to maintain high levels of productive employment and reduce discrimination" as key elements of Americas national security. Joseph Romm, commenting more recently on the issue of equity and national security, found evidence of the enduring relevance of Lasswell's words in the Los Angeles riots of 1992.
Obviously, the problem extends beyond the United States. Developed countries around the world are experiencing rising unemployment, jobless growth, declining real wages and an increasing gap between rich and poor. Meanwhile, the increasingly visible divide between the populous developing world and the resource-hungry North continues to widen. There is no indication these trends will quickly be reversed. As the economic changes marking the transition to the "new economy" buffet nations and trading blocs, national and international leaders, more than at any time since the 1930s, will be forced to deal with the security repercussions of inequities both within their countries and between nations.
The IMF has termed the current employment situation within the developed world "intolerable", while normally reticent OECD officials have warned of a "social explosion". The current conjuncture of stubborn or increasing unemployment in the face of modest growth is unlike anything the Western democracies have faced before and it is causing concern in capitals from Washington to Brussels. The situation where jobless numbers do not decline in periods of recovery but in fact ratchet up after each economic slow-down is exacting not only a human cost; it also challenges the tired but intellectually convenient dogma that economic growth unimpeded by government intervention will solve all problems everywhere. Higher investment and consumption remain important goals, but in the "new economy" growth seems to have been demoted from a sufficient to a necessary condition for job creation.
The equity-related problems of the developed economies do not end with unemployment. Distributional issues are also coming to the fore. Growth experienced by the Western economies in the 1980s did little to distribute income more equitably. In fact, over this period, contrary to what occurred in the 1970s, many OECD countries experienced growing gaps between rich and poor in their respective societies. This was accompanied by falling real wages and an erosion of the middle class. Although troubling, these results are much more compatible with current economic thinking than jobless growth. Few who argue the link between economic growth and job creation see any necessary connection between economic growth and a more equitable distribution of income. There is, however, a strong relationship between income disparities and job creation.
One sure means to reduce unemployment involves lowering wages closer to the market-clearing level, i.e., what employers are willing to pay, and in addition making it easier to hire and fire employees. This is often seen as the American model. The American economy has been creating many new jobs over the past decade but at the cost of falling real wages, increasing income disparities and the enlargement of a class of working poor. The Europeans, on the other hand, have opted for maintaining certain labour market rigidities which benefit the employed but result in higher unemployment through increasing the cost of engaging workers. For this reason some have accused Europe's employed of acting as a "cartel" against the unemployed; keeping their comfortable high-priced positions at the cost of keeping their neighbours unemployed. Canada, typically, has taken the middle ground, adopting a labour market with fewer rigidities than many European economies but more than can be found in the U.S. labour market.
Regardless of the model chosen, the prospects for many workers in the developed world seem grim. This is not a problem limited to "low skill" workers. The more appropriate term to describe workers who face wage deflating international competition is workers with "widely held skills", be they scientists or managerial staff. This phrase better captures the dynamics of a globalized market for some types of labour where, for example, excellent Indian software programmers or Brazilian engineers can be hired at a fraction of the cost of their North American counterparts. Differences in real wages between countries generally reflect differences in productivity. Developed-country workers who are less productive or only as productive as their developing-country counterparts face a future of declining real wages or unemployment. As these trends continue, the question for the developed world becomes what to do with an economy increasingly characterized by a bi-modal income distribution where one is either well-off or working poor-and an increasingly alienated and growing group of individuals burdened with frustrated expectations.
Xenophobia and racism tend to flourish in times of major economic adjustments and dislocations. The head of Germany's domestic security service has publicly acknowledged the links between extremism and the economy. Eckert Wertheback, President of the German Domestic Security Service acknowledged that unemployment and other reunification-induced economic problems have created fertile ground for right and left-wing extremism. A German study found most violence against foreigners is committed by males 15-20 with low or average levels of education. Not incidentally, these are just the sort of people who are being hit hardest by the current employment situation. Even in Sweden, a country often seen as a model of tranquillity and tolerance, violence against foreigners is reportedly on the rise. Those evaluating the situation in Sweden once again single out economic hardship as the factor motivating the young people who commit most of the violent acts. The country is suffering its worst employment crisis in decades and young workers face the bleakest prospects.
The link between high unemployment among young males and extremist violence against immigrants and foreigners is troublesome since the poor employment prospects for this group repeats itself across the developed world. Canada's newly appointed Human Resources Minister, Lloyd Axworthy, in examining the dismal jobless figures for those aged 15-24 in his own country, voiced concerns that this group could become "a lost generation". Even in the UK and the USA where job growth was the strongest due to fewer labour market rigidities, the rate of unemployment among young, poorly educated men was as bad as or worse than most other developed countries. The low-wage service-sector jobs created by these economies were largely rejected by males and taken up by women.
Apart from violence against minorities and foreigners, frustrated expectations can also result in calls for protectionism which ultimately influences migratory pressures. Fears of "unfair" foreign competition based on cheap labour have led to the addition of social charters and side deals on environment and labour issues to various trade agreements. These measures may or may not be necessary to protect the standard of living within developed countries, but they certainly slow or prevent a much needed acceleration of economic growth in the South by reducing market access. This comes at an inopportune time since, apart from some Asian and Latin American countries, the living standards of most developing countries are not catching up to those in the industrial economies. The UN has reported that between 1950 and today, per capita income in the rich countries has almost tripled, while in the poorer countries there has been no improvement.
Leaders of developed countries recognize both the obligation and the necessity to assist the developing world, but are also beginning to recognize the effect this may have on their own social structure. The seldom enunciated concerns over this issue are best articulated by a relatively surprising source: the General Secretary of the International Metalworkers Federation. In supporting calls for the introduction of a social clause in the GATT, Marchello Malentacchi said, "The challenge facing policy-makers is to increase the living standards of people in the globe's South without destroying jobs and living standards in the North." Malentacchi has aligned himself with those who believe freer trade, unless accompanied by labour standards in poor countries, will result in downward pressures on wages and increasing income disparities within the developed world. This is not to argue that freer trade does not result in economic growth; only that the distributional impact of that growth may be destabilizing.
This view that barrier-free trade should be limited to a club of countries that share comparable social support and legal systems is finding support in the European Community. The anxiety regarding the interrelationship between social programs and international competitiveness is such that concerns are voiced that even the social legislation of member states must be harmonized in order to avoid "social dumping" within the EC. Social dumping is said to occur when companies relocate to countries where social costs are cheaper. Not surprisingly, many developing countries find this sort of stance by developed countries typically selfish and self-absorbed. In this context the cartel argument used earlier against the "employed" of Europe could be applied by the developing countries to the entire protected labour force of the developed world. Northern workers could easily be accused of forming a labour "cartel" that unjustly benefits their members while condemning workers in developing countries to relative penury.
Increased protectionism in the developed world in the form of labour codes or other non-tariff barriers will only aggravate the current income disparities between North and South and magnify the threat of massive migration flows. Where trade cannot flow across borders, individuals will, and populations have never been more mobile.
Developed countries are beginning to recognize the force of this argument. Part of the logic behind NAFTA was to raise living standards in Mexico by liberalizing trade with North America, thus alleviating the illegal migrant problem faced by some American states. Much the same logic motivates Germany's massive investments in the former East Germany.
The UN has already warned that there is "an uncontrollable tide of people" coming from the poorer countries to the richer and the flow can only be stemmed by superior development strategies including liberalized trade. Excess labour supplies in both the developed and developing world, along with worsening inequalities between rich and poor nations, ensure that migration will be one of the major security issues of the next decade.
The conundrum facing world leaders is that in addressing the migration issue by liberalizing trade to encourage economic growth in developing countries they will almost certainly face the repercussions of causing increasing income disparity in their own.
Unfortunately, as is the case in the North, economic growth in the developing economies cannot be relied on, in and of itself, to address inequities. In fact, in many parts of the developing world economic growth is leading to increasing income disparities that some regard as destabilizing. For example, a recent World Bank report noted that Latin America suffers from the most extreme income disparities in the world and warned that despite encouraging signs of economic growth, "failures to act aggressively on poverty will likely encourage distributive conflicts, prompting discontent and perhaps even a return to populism, dirigisme and chaos." The so-called "economies in transition" of eastern Europe and the former Soviet Union are facing similar problems. Even booming Asia is beginning to sense the instability economic growth without equity may hold. A recent UN report notes that despite the rapid economic growth of recent years, the number of poor in many Asian cities has increased. According to the report, 60% of Asia's urban population will be living in absolute poverty by the year 2000. Ironically, the rapid growth of many of the developing worlds cities is a microcosm of the migration problems facing the North. Income disparities within developing countries are resulting in destabilizing internal migrations driven by internal inequities. The Chinese government, for example, has recently been searching for means to stem the flow of economic migrants into the prosperous coastal regions from the relatively impoverished Chinese interior.
Apart from the specific ills of xenophobia, racism and migratory pressures there is the more general problem of the social unrest generated by the uncertain economic conditions facing both the developed and developing worlds. Within the developed world a potentially volatile population, politicized by widening income disparities and frustrated expectations, could lead to instability. One might wonder what the potential for social unrest is if unemployment and income disparities trends continue in the West. In Brazil, for example, which suffers from one of the greatest income disparities in the world, the relatively limited manifestation of social unrest-apart from the periodic angry outpourings of looters from the favelas down upon the beaches-has surprised some. Others believe discouraged Brazilians have simply opted out of the system, creating a thriving underground economy that eludes the taxation of a government they do not trust and provides them with a livelihood the official economy cannot provide. Still, it is hardly a desirable alternative to the current structure of Western society. Expectations also play a role in unrest, and a generation of Westerners raised to believe they would own a home and a car may be less easily placated than survivors of the slums of Sao Paulo.
The developed world may not have the luxury of focusing exclusively on its own problems much longer. The 1993 Human Development Report argues that poverty in any corner of the world is a threat to security everywhere else. The UN report further states that left unaddressed, "global poverty will begin to travel, without a passport in many unpleasant forms: drugs, diseases, terrorism and migration" thus threatening the security of both the developing and the developed world.
The task of decision makers struggling to address these security implications and the inequities that feed them is complicated by a combination of factors many of which were unheard of just a generation ago.
Widening income disparities in a country have a predictable impact on that nation's sense of community. Step by step with the ever-increasing gap between rich and poor, Western societies are beginning to exhibit both an incapacity and a reluctance to support those who cannot or will not support themselves. The current trends toward greater and continued inequities is complicated by the fact that the traditional mechanism through which we decide who we help and how much we help is seen to be breaking down.
In the not too distant past the question "who is my neighbour?" and thus entitled to my assistance, moved from a question of clan and proximity to common citizenship. The implication was that individuals have an obligation to assist their fellow countrymen. The current and increasing disparities in incomes within Western countries strain these beliefs. The tacit or explicit understanding that existed in the Western democracies that holding citizenship in these countries "guaranteed" a certain shared standard of living and quality of life is threatened. It is threatened by the financial and productivity crisis facing the developed economies and an increasing indifference to issues of equity. As a nation declines in power and influence, it can offer less and less to those who are numbered among its citizens.
The fraying at the edges of the concept of citizenship and its entitlements can be seen in California where the pressures of illegal migration on the near bankrupt state government have brought calls for new immigration laws. These proposed laws would deny U.S. citizenship to children born of illegals and drastically reduce their access to government services such as medical care. Necessity is formulating a harsh equation-either citizenship comes with few entitlements and is available to many or it comes with substantial entitlements and is available to few.
In order for the current system within the Western democracies, with its implicit understanding of a shared standard of living, to survive with any degree of harmony, those who gain from the current economic changes within the developed world will have to accept an obligation to assist the losers. This is not a proposition that instills optimism. In an increasingly secular and atomistic society within which the "good life" has come to be defined as a mixture of self-gratification and consumption, the call for sacrifice for the sake of fellow citizens loses much of its resonance. In times of economic stress, an increasing tax burden to subsidize the living standards of those who are no longer internationally competitive will not be welcome. Retraining the uncompetitive to become more productive is a necessary goal but success could be limited. Absent any sort of spiritual imperative or strong sense of community, such a tax hike or even maintaining taxes at current levels may result in tax resistance and the growth of the underground economy. As the nation state decays and common ties between diverse classes become ever more tenuous, the political and moral will to assist those at the bottom of the income disparity spectrum will continue to weaken.
The use of mass communications also influences individuals sense of community. It is interesting to speculate on what role the spread of mass communications, such as television, will play in this complex situation. The current global reach of television creates a world of almost capricious "virtual proximity" that places the concerns of Somalia in the developed world's living rooms while ignoring those of the Sudan. It also sells the values of its producers and puts their life-style on display. The question of who is my neighbour and what are my expectations will therefore become even more confused in an electronically linked global village.
The role of communications media as pacifier also deserves examination. Historian Sir Michael Howard has observed that "modernisation is improving living standards for many ... but often at much the same cost in disruption, misery and alienation that characterized our own experience in Europe a century and a half ago." He speaks of "an increasingly alienated underclass ... kept quiet by a diet of mass-produced sport and entertainment ... if not more dangerous drugs."
It is yet unclear what impact the move towards multilateral governance and the increasing democratization of international institutions will have on relations between North and South. The fact the developing world outnumbers the developed by a ratio of 5:1 may place additional strains on the current allocation of wealth and resources between developed and developing countries. In the new world order with the new style of international politics, demographic weight may matter much more than it did in the past. Within the new structure the West will find it more difficult to run the world through international institutions and use them to promote its economic and political values. If these trends continue, the West's precarious control of most of the world's wealth seems destined to become much weaker.
Even those who favour a growth-dominated strategy to combat the worlds economic ills will have to weigh the pursuit of economic growth against environmental limits and sustainability. It seems clear the earth cannot support 6 billion practitioners of the Western consumerist lifestyle. New measures of quality of life that go beyond consumption levels will have to developed and accepted. Large segments of the developed world will have to adapt to lowered expectations and a less materialistic view of life without falling prey to the lure of what Zbigniew Brzezinski has termed "doctrines of irrational escapism".
Within developed countries unemployment levels will either remain high or be reduced by removing labour market rigidities i.e., through lower wages and benefits for those workers holding widely held skills subject to international competition. Partially due to this, increasing income disparities within developed economies can be expected for some time. While the dynamic Asian economies and some Latin countries will likely continue their economic ascent the standard of living for many in the developing world will continue the downward spiral that began in the 1970s.
Many comparisons have been drawn to the present era and the period that gave birth to fascism and communism; ideologies that reached out to the dispossessed of another time. If current economic trends continue, we may be in danger of recreating the inequities and economic disruption that led to the socio-political convulsions of the first half of the 20th century. In this context the celebrations of the collapse of the Soviet Union as an ideological victory seem somewhat premature.
The developed world is poised to enter a radically new period in its history. Fundamental values thought to be integral parts of Western society will be challenged by a dramatically different economic environment. First among these will be the concept of equity and the entitlements of citizenship. How governments attempt to address these challenges will have a profound effect on the security environment of the 1990s.
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