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 Title

A Free-Marketeer Looks at Foreign Policy

 Synopsis

Economists are often criticized for assuming that people come into the world in possession of a full-blown "schedule of preferences." But, while admittedly fanciful, it’s an assumption that works. Foreign policy specialists would do well - as Richard Nixon, Henry Kissinger and Theodore Roosevelt did - to adopt the same assumption about nations. We really can’t change other countries’ preferences and attitudes, and even if we could, it’s not clear we should. But that doesn’t mean we can’t, by showing them either sticks or carrots, change their behaviour toward us.

Originally published in Policy Options Magazine

 Author

John Robson

 Author Notes

Senior writer and deputy editorial pages editor at the Ottawa Citizen. Dr. Robson holds a Ph.D. in American history from the University of Texas. He has his own web site at which contact information and some of his works can be found.

 Essay -

Economists generally have difficulty communicating with members of the general public. First you have to run them down and corner them. And even when you do, you encounter basic assumptions so utterly foreign to everyday discourse that you end up discussing first principles rather than specific applications - which creates the additional problem of waking up your audience every three minutes.

This difficulty is especially acute for free-market economists, because their prescriptions are so badly at odds with popular wisdom. The intricacies of Keynesianism may be as forbidding and dull as anything the Austrian or neoclassical school has ever had to say, but the man in the street is more likely to believe that FDR saved capitalism by intervening on behalf of the poor than that by doing so he and Herbert Hoover stretched what should have been a couple of years of distress into a full decade of unprecedented misery. In the end one must embark upon an explanation of individuals as rational utility-maximizers making choices at the margin, which leads to the aforementioned sleep problem.

Readers of Policy Options, of course, not only would stay awake during an exposition of the model of individuals as “black boxes” who respond to incentives, but are already aware of it, even if they don’t agree with it. But members of the public, especially those interested in public policy but ignorant of economics, are very likely to balk at the notion of individuals as autonomous actors whose preferences are essentially beyond our reach (though persuasion may exert some feeble influence) and whose behaviour therefore is a reaction, not to what we hope will happen, but to the structure of incentives we create, modify or leave alone.

By contrast, all radical ideologies depend upon modifying human beings rather than just manipulating the incentives they face, but where the lucid ones, from Rousseau to Stalin to Pol Pot, know it and set about crafting the New Soviet Man, the more confused simply produce institutions, such as UI, or nudity at rock festivals, suitable to the new, improved humans but hopeless in dealing with the Old Adam and the Old Eve. Bankruptcy being preferable to genocide, I prefer the latter form of error in practice, although in theoretical discussions I’d rather deal with those who know their own premises, so as to save the trouble of running through first principles.

Yet first principles are necessary here, because even among free marketeers who really accept that de gustibus non disputandum when it comes to economics, those of us (the foreign policy realists) who accept that the same assumptions and values will and should govern the interplay of nations constitute a small minority. Many of our fellows, however sober and sensible they may be on domestic issues, are wild-eyed utopians when it comes to foreign affairs.

The realpolitik model in foreign affairs is actually almost identical to the Austrian model in economics. It treats nations as black boxes, terrae economicae to economics’ homines economici, whose wants and desires are not really amenable to our fiddling about, whether for their good or our own, and whose behaviour must therefore be controlled by careful attention to incentives. After cutting my teeth on Richard Nixon’s diplomacy, and being profoundly influenced by his 1980 book The Real War, I found when I turned to economics that these same principles work equally well there, too.

It is strange, in fact, that Nixon was such a bad economist, since he brought to the study of foreign policy precisely the same “black box” model of the actors that sensible people bring to the study of economics. That the models match so closely explains why it is almost exclusively conservatives who think this way - hard reality being precisely what the left thinks it can avoid (although George Kennan is a truly notable exception). Yet very few of my fellow free-market economists make the connection, any more than Nixon did. Sometimes, as free marketeers will understand, there is a temptation to abandon the theoretical issues and just shout that it obviously works: Nixon’s hard-nosed realpolitik brought about détente, the SALT I accord and the opening to China. Jimmy Carter’s dreamy, non-confrontational human rights initiative had the Soviet press, and by implication Leonid Brezhnev, labeling him “an enemy of détente” within six months of his inauguration, to say nothing of the preposterously self-defeating radical Iranian chant “Death to Carter!” It was Woodrow Wilson, too proud to fight, who got the US into war, not the “belligerent” realpolitiker Theodore Roosevelt. (One can adopt the rule of thumb “Elect a Democrat, start a war” and do pretty well.) By the same token deregulation works whether you know why or not.

But the theoretical basis can be explained, and should be, because otherwise all the results in the world can be dismissed as pesky anomalies, and no progress is made toward better predictive capabilities, policy coherence or consistent public support. At its heart, the Nixonian view of foreign policy is that, like the rational consumers of the market model, nations come with a complete set of preferences concerning world affairs - about which you can do almost nothing. They also have the familiar “scarce resources, competing goals” problem: They have limited power, too little, certainly, with which to accomplish all their goals, so they rationally concentrate their efforts in the areas that seem most promising. Thus, like economic actors, they modify their behaviour in response to changes in incentives, and they do so in a rational way no matter how obscure, inaccessible or absurd their underlying preferences may be. Just as both sane and mad people buy more apples if they are cheaper, so both democracies and bizarre ideological dictatorships are more likely to invade Haiti than Switzerland. Granted, those that are sufficiently insane make such bad decisions that they collapse, so they can be ruled out of practical calculations. But everyone who lasts responds rationally (which is not to say reasonably).

This widespread rationality about incentives can lead even realpolitikers into a critical error: assuming that the pursuit of power is somehow cynical, not just in the manoeuvring it may entail, but in the sense of giving the lie to professions of belief. In this view, the Soviets were not Marxists, they were just out for power; the US is not truly democratic, it is merely intent on world hegemony; and so on. Usually this approach is used to blind us to foreign aggressors (Mein Kampf was just for domestic consumption, you see) or to lambaste democracies (Why don’t we live up to our ideals? someone wails). But it is at bottom simply confused: Just because a professional athlete and a serial killer both think pasta today will give endurance on the morrow does not mean either is simply using his professed goals as an excuse to eat pasta. Nor can it explain, for instance, why President Efrian Rios Montt of Guatemala imperilled and ultimately lost his dictatorial position by inflicting fiery Protestant radio sermons on his Catholic subjects. In fact, if the theory were stretched to explain even that, then by virtue of being able to explain everything it would become incapable of explaining anything, and lose all predictive value. (Those who think “money is everything” in business or economics make the very same mistake. Money is an incentive, given everything else.)

As to the argument that while all dictatorship may be sincere or cynical realists, democracies act differently (the “no two nations with a McDonald’s have ever fought a war” theory, which blew up in the Balkans, assuming that was a war), the black box model no more denies the existence of different preference schedules among different nations than the Austrian model denies it among economic actors. Stores discriminate among customers and employees, preferring one kind and not another because of their different underlying preference schedules. The point of job interviews is to find the right candidate for the job precisely because some people act differently from others in ways you can’t change. But anyone, once hired, prefers rewards to punishments. People are who they are, and you can only present incentives that will encourage the right sort to deal with you and the wrong sort to take their trade elsewhere. That remains true of diplomacy as well.

The one crucial difference is that diplomacy is infinitely more competitive than economics. Very few private actors compete directly with one another. McDonald’s and Burger King might be an example, or two people seeking the same job at either, but even there, two people who sought the same promotion then work together after one of them gets it, and plenty of people who work at one burger joint will eat, at least occasionally, at the other. And the vast majority cooperate all the time: The restaurant that feeds factory workers is cooperating with the factory, whose workers are cooperating with one another, with management, and with customers, who are all cooperating with car and gas companies and so on in literally uncountable ways. And the way for them to get ahead is to become more cooperative.

By contrast, diplomacy is the field in which the police power of one state deals with the police power of the other over issues of force and fraud, and that makes it different from commerce. All the real agents are governments, who bring to the table, not money earned through honest toil, but varying amounts of the capacity for organised violence, including political and other assets that facilitate its use by minimising the collateral problems it causes. As always, government is force. More often than not, the way for governments to get ahead is to become more dangerous, not less.

Not all international interaction is competitive. In fact, the most common form is cooperative: It’s called trade. But in their international affairs governments deal with the failures of cooperation, just as they do domestically. And diplomacy is as necessary as a domestic government complete with cops and courts: Even many of those who shop at Loblaws might well take things and not pay if they were left out unattended, for the same reasons Tamerlane won’t stop because you say “Put down my daughter, you naughty man.”

Just as individuals remain black boxes responsive to incentives even when in coercive situations, so the model is equally applicable to governments. As in all sound economics, the starting point is that the participants, for reasons of their own, are using scarce resources for competing ends, and all you can do to influence the behaviour of others is to offer them rewards for doing what you want and penalties for doing what you don’t want. As Henry Kissinger told the Senate Foreign Relations Committee in 1974, “We seek, regardless of Soviet intentions, to serve peace through a systematic resistance to pressure and conciliatory responses to moderate behavior.” To Nixon, and Kissinger, makers of foreign policy should evaluate the means at their disposal, whether military, political, economic or moral, evaluate the preferences and capabilities of other powers in the world, and then try to maximize their nation’s utility subject to a sound sense of the limits of the possible.

Naturally, that requires taking the preferences of others into account. Adversaries must talk, realistically, about what is going on, and avoid unduly dangerous confrontations or destructive engagements of a military or paramilitary sort (as for instance at Fashoda in 1898, when the British and French wisely buried 500 years of reflexive enmity because of the geopolitical threat to both from Germany).

Nations bring different strengths and weaknesses to the table, in the economic basis of military power as well as in the finished product, and Nixon stressed the importance of making intelligent compromises (trading American technology and grain for Soviet military restraint, for example, though that bargain didn’t hold very well). But he insisted that international relations is fundamentally competitive. When his own commerce secretary asked him why the Chinese were meeting with the Americans at all, Nixon replied “Cold-blooded interest.” It is not from the benevolence of the Butchers of Beijing that we expect our dinner, but from their regard to their own interest.

Just as people aren’t suddenly going to be just as concerned about others as about themselves when it comes to putting a roof over their family’s heads, every nation must continually seek to increase and to exploit its strength in the world. Those that don’t, whether on high or low moral grounds, simply lose control of their affairs to those that do. Nations, like people, wind up under bridges if they ignore the reality that life involves hard work. Once this point is grasped, all the talk of “soft power” and of leading by example starts to sound like the sort of pie-in-the-sky you often get in economics. People simply will not stop claiming to have found a way to get a free lunch even though there isn’t one. In fact, those who advocate free security will often volunteer, unprompted, that before their modest proposals can be implemented they must first attend to the small matter of completely changing the world. Or, worse, they will claim that it has already changed, which brings to mind pre-1914 arguments, not dissimilar to those heard today, to the effect that economic interdependence had made war impossible. To provide but a few examples from the very recent past:

  • Allan Gotlieb wrote in the National Post this June that “We have entered into a new era dominated by a new ethic and doctrine. It is simply this: Human rights are trumping national sovereignty.”
  • Lloyd Axworthy told the UN General Assembly in September 1997 that “The people of the world are laying the foundations of a new international system for the new millennium.”
  • And in February 1997 Joe Clark told the Institut Québecois des hautes études internationale at l’Université Laval that “All countries have national interests, but Canada has defined our national interest more broadly, less selfishly, than many other countries. That is why the British economist and commentator Barbara Ward called Canada ‘the first international country.’” The first. Presumably not the last.
  • And lest you think Mr. Clark was simply swept away by a trendy cliché, note that in May 1990 he had said that “Security must become co-operative rather than competitive.” Yes, it must, if his views are to be anything but dangerous moonshine. The trouble is, there is no reason to suppose it is going to, nor has he any sensible proposal for making it do so.

This sort of talk has been going on for ages, with results that are, to a realist, tragically and tiresomely predictable. Not only did FDR insist during World War II that communism was out in the Soviet Union, but Life magazine ran a special issue on Russia in March 1943 that said such things as that Lenin was “perhaps the greatest man of modern times,” that the Russians are “one hell of a people [who] ... to a remarkable degree ... look like Americans, dress like Americans and think like Americans,” and that the NKVD is “a national police similar to the FBI ... If the Soviet leaders tell us that the control of information is necessary to get the job done, we can afford to take their word for it.” Even these people recognized that if their generous assumptions about the Soviet Union were not true, there’d be trouble in the post-war world. So they were clear-eyed enough to want it to be true, but sufficiently confused to be able to believe it was true on the sole evidence of their own desire.

The same thing happened under détente, on those occasions when Nixon ultimately was over-turned on matters of foreign policy, most notably in the Jackson-Vanik amendment by a coalition of left-wing liberals, including George McGovern, who entertained unrealistic fantasies about the Soviet Union’s love of peace, and right-wing liberals like Democratic Sen. Henry M. Jackson of Washington state, a Cold War liberal hawk who insisted that although the Soviet Union hadn’t been transformed, it would have to be before it could become a normal diplomatic partner. The actual question at issue in the Jackson-Vanik amendment was free emigration for Soviet Jews, but everyone understood that if it were Jews today it would be everyone tomorrow, and that a nation that allows free emigration cannot oppress its people, lest they vote with their feet for some other system. Nixon was left as the monkey in the middle, saying that the Soviet Union had not been transformed into a peace-loving normal state but that it did not have to be, and that, moreover, nothing the United States could do in the realm of traditional diplomacy could possibly be as threatening to the Soviet leaders, and therefore draw as hostile a response, as measures that struck at the heart of their political system. Compared to dissidents in Moscow, missiles in Turkey were nothing. And of course once Jackson-Vanik passed, and that awful cynic Nixon was replaced by that fine idealist Carter, the Cold War heated up considerably. Since that’s what Nixon had predicted, he must have known something the others didn’t.

The same point applies to this century’s other outstanding practitioner of a Nixonian foreign policy, Theodore Roosevelt. Despite his often having given the impression of being a jingoistic interventionist, TR went into Panama to secure America’s national security (and given the vital importance of ocean warfare in this century, is anyone sorry he did?). He brought peace between Russia and Japan by dint of great delicacy, and he kept Germany in line without overextending himself. After leaving the White House he wrote that “During the seven and a half years that I was president, this nation behaved in international matters toward all other nations precisely as an honorable man behaves to his fellow man. We made no promise which we could not and did not keep. We made no threat which we did not carry out.” And it worked.

It is also of vital practical importance that TR’s “nationalism” reflected the gentleman’s credo in that he asked nothing of other nations that he would not in turn grant to them. Liberals often lose sight of the fact that our vision of a world transformed requires all those silly foreigners to let us make their rules for them, and that this is something they are unlikely to accept, nor appreciate even, finally, if they must accept it.

Trying to remake other nations is classic liberal arrogance - and no less offensive for being mislabeled “humility.” What difference exists between Kipling’s white man’s burden, Woodrow Wilson’s making the world safe for democracy and teaching the Latin American republics to elect good men, Henry Jackson’s support for his amendment, Jimmy Carter’s human rights as “the soul of our foreign policy,” Ronald Reagan’s rhetoric about exporting democracy, and the current drive by such as Louise Arbour to undermine national sovereignty in order to impose our model of human rights on others? Only that, for the moment, the current version looks chic and all the others hopelessly quaint. George Kennan, a consistent voice for realpolitik in principle, both in his early days on the moderate right and through his detour into the policy swamps of the left, said this August in the New York Review of Books that “it really is in ill grace for us to be talking down to them and saying that ‘you ought to govern yourselves as we do.’ For goodness’ sake, can’t we get away from that sort of nonsense? Let people be what they are, and treat them accordingly.”

Accepting them as they are does not, of course, mean accepting that they are right, any more than accepting that we cannot stop people from liking rap music means that rap music is not appalling. It is true that the wave of radicalism that swept the Third World in the 1960s and 1970s has brought misery, madness and death to its people, just as John Foster Dulles said it would. But we had no right to stop it, save by exhortation and example, nor had we the ability to do so. Surely the US has occupied enough Latin American countries by now, usually under liberal Democrats, to know that.

We did, however, have the right to protect ourselves from radicalism’s excesses. For Kennan’s sound advice comes in two parts. We must both “accept them as they are” and “treat them accordingly.” The New Left got the first part right for a while after Viet Nam, but refused to act accordingly, which led to a catastrophic decline in America’s position in the world and a decade of massive disorder. By the end of Jimmy Carter’s term in office, the Red Army had gone into action outside the East Bloc for the first time ever; the Chinese had invaded Viet Nam; and American allies were falling like ten-pins in the Middle East and Central America. More countries went communist between Watergate and the election of Ronald Reagan than in the entire previous history of the world. All this, too, was predictable, for to refuse to oppose another nation’s attempts to strengthen itself in the world (as when, courtesy of its North Vietnamese clients, the Soviet Union moved into Cam Ranh Bay and Da Nang airfield) while trying to encourage its people to overthrow their government for their own good is the best way to get everyone killed.

In the end, it was these dismal practical results, more than the weakness of the theory behind them, that convinced the American people to try another alternative. In Ronald Reagan, in fact, they elected a president who often talked like a man on a mission, about a City on a Hill, about exporting democracy, and so forth. But in practice he did not attach unrealistic conditions, like internal reform, to good relations with other nations, but did act decisively to punish attacks on America’s national interest (not only in Grenada or in shooting down Libyan jets, but in decisive if quiet assistance to Great Britain in the Falklands war). Again, they approved of his results. And the proof of the pudding should be in the eating. The main reason for thinking TR could have prevented World War I had he been president in 1914 is that he kept the great powers at peace from 1901-09.

But the theory is important if we are to learn from it. Germany really did have unreasonable goals in the early 20th century. Knowing that the US would fight to keep the seas open would have created a huge disincentive to try to close them. Woodrow Wilson did the opposite, and millions died. You can no more have security than you can have income without working for it. Of course, you can inherit a sound strategic situation, as you can inherit money. But a dissolute heir will quickly squander either, as Bill Clinton has with America’s national security. And whatever you inherit, someone has earned. There is no free lunch in either cafeteria.

It can be difficult, though, to explain to people exactly why not. Indeed, even when talking to free marketeers, it can be difficult to explain how the model applies to diplomacy. I was opposed to the intervention in Kosovo less for fear of what might happen there (we were too strong, and even the Russians too weak) than for fear that the sheer weight of the Allies’ power was likely to create a plausible illusion that we could somehow either help the people of the Balkans to become better or enhance our own security by praising international law while breaking it to wage a non-war war in a squalid backwater. I do note, hopefully, that no one seems to want to do it all again elsewhere, and that it is beginning to dawn on many people that we have not accomplished what we first thought we had, either militarily or politically, so maybe a salutary lesson will be drawn after all.

Any free marketeer, it seems to me, ought to recognize Kennan’s words about “taking them as they are and acting accordingly” as a precise description of their core methodology, and so should apply it to foreign affairs as well: Nations, like economic actors, are black boxes, whose preference schedules are beyond our ken and reach but whose behaviour will respond rationally and predictably to incentives, even when their leaders are completely insane.


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