Seokwoo Kim, Assistant Professor, Dept. of International Relations firstname.lastname@example.org
Since the end of the cold war, scholarly interests in economic security have much increased. Globalization plays a major role in enhancing those interests.
As the scope of markets widens, as the interval of economic changes shortens, and as economic competition heightens, countries take all the possible measures to survive in the international economic system. Countries compete and cooperate each other in all the economic issues of trade, finance, monetary affairs, and foreign investment.
To be more competitive in international markets, countries try to advance technological development, reduce production costs, secure more capital investments, and adapt to whatever changes in markets.
In short, economic globalization has created new security challenges for countries through the ability of international markets to rapidly transmit economic shocks to disparate parts of the world, spreading social and political turmoil. Therefore, globalization of the economy and the borderless nature of the economy must inevitably drive security policy in the future.
However, the issue of national security is difficult to define, and it’s much more difficult to define which economic activities are linked to national security issues.
Economic threats are more difficult to relate to national security, because the normal condition of actors in the economic domain is one of risk, competition and uncertainty. If insecurity in the economic domain is the normal condition, then it is difficult to locate the boundary at which issues acquire special status as threats to national security.
Economic threats tend to be neither swift nor precise in their effect, and at lower levels may easily become indistinguishable from the normal rough-and-tumble of economic practice. The economy presents a much more ambiguous target for threats than do more concrete elements like territory and government institutions.
A huge number and variety of economic threats exist which cannot reasonably be construed as threats to national security. Export practices, import restrictions, price manipulations, default on debts, currency controls, and a host of other actions may have serious effects on the economies of other states.
These range from loss of income to the destruction of whole industries, but they all fall within the merciless norms of competitive economic activity. A sustained and drastic economic decline is not normally seen in national security terms even when it cuts deeply into the state’s military capability.
Although the case for economic threats to be counted as threats to national security is superficially plausible, it must be treated with considerable caution. The parallel with a military attack cannot be sustained because while a military attack crosses a clear boundary between peaceful and aggressive behaviour, an economic does not.
Aggressive behaviour is normal in economic affairs, and risks of loss are part of the price that has to be paid to gain access to opportunities for gain. From this perspective, economic threats can be self-inflicted in as much as a choice is made to participate in a pattern of production and exchange in which such risks are endemic.
Only occasionally will specific economic threats deserve to be ranked as a national security problem. For the most part, the day-to-day inconveniences and disruptions of complex economic relations should be viewed as a normal cost of such activity.
Regardless of these difficulties and cautions in relating economic policies to national security, some economic issues have become more and more important in national security interests. One of them is utilization of capital flows. The amount and value of international capital flows have tremendously increased in the past 10 to 20 years, and the trend continues. Therefore, it will be very important to investigate how international capital flows affect national security issues.
The relationship between capital flows and national security can be both direct and indirect. One of direct relationship can be found when foreign countries try to manipulate currency values arbitrarily to attain foreign policy or security policy objectives. Foreign countries can take coercive measures in an attempt to destabilize the economy by arbitrarily manipulating currency values of target countries.
This is more possible when the target country is more dependent on foreign capital flows and when it is more involved in foreign economic activities in general. Historical cases of currency manipulation are abundant. For example, during the Suez Crisis in 1956, the United States attacked on pound values in an effort to coerce the Great Britain to pull back out of Egypt.
Another historical case of currency manipulation occurred in China during 1935-1941 when Japan attacked the Chinese currency as the predator, while the United States and the United Kingdom engaged in protection of the Chinese currency.
The other case of the direct relationship can be found when foreign firms merge or acquire domestic military-related industries and firms, or when foreign firms behave in a way of hurting economic and military interests of the host country.
The following example illustrates the issue. During the 1980s, with the ever-increasing bilateral trade deficit and the drastic increase of Japanese investment in US, especially in the high-tech industry which might be closely related to military technologies, many in US became more concerned about Japanese investment.
Especially, many in the US were shocked when Fairchild, the progenitor US high-tech company which had supplied the US defense and intelligence community with high-speed circuitry, announced the firm was to be sold to Fujitsu.
When we think about another possible relation between foreign capital flows and national security, we may consider financial crises coming from over-utilization of foreign capitals and abrupt capital flight, and ensuing threats to national security.
Whatever reasons may have caused the Asian financial crises in 1997, one clear common cause was over-utilization of short-term capitals. Before the crisis, the protracted, dynamic, export-oriented growth in Asia attracted international investors, with the region becoming a magnet for lending and direct investment.
The resulting excessive capital flows ended up in the financial crises when panicked investors overreacted to decline in economic conditions in some of those countries. That is, as a large portion of these financial flows is short-term, highly volatile, and speculative, international finance has become the most vulnerable and unstable aspect of the global capitalist economy.
Economic stability of a country becomes more and more important to other countries. Economic crisis in a country or a region may not only lessen national security of directly-affected countries, but also hurt security interests of other countries because of decrease in export and investment opportunities.
The Asian financial crises affected national security issues in some direct ways. The crises affected the pace and scope of military modernization, procurement, force structure, military operations and the respective capacity for cooperation, the development of regional institutions, and might have raised a new set of security concerns.
Considering direct and indirect effects of financial crises on national security, it will be very important to find out a way to utilize foreign capital on balance not to hurt national security eventually.
In spite of these kinds of threats faced by countries in inviting foreign capital, the countries have been trying to secure more foreign capital. They may think that benefits of foreign capital far surpass costs accompanied. However, countries have to consider risks of utilization of foreign capital.
In this sense, they have to find out the optimal amount of foreign capital which will be used for economic benefits at the minimal costs. Unfortunately, this is not an easy task.