The Economy, Conqueror?

The economy is, without a doubt, the single-most important topic right now, whether it be political or otherwise. The overwhelming majority of the Republican presidential primary debates have centered on it, news headlines bring us dire predictions every day and the people in most of the developed world are having a hard time believing their leaders when they stand behind a lectern and tell their people the worst is over.

If there is anything that we should have learned from this economic crisis, as we should have learned from every crisis prior, it is that an interconnected world feels the tremors and failures of every state. Greek debt is still causing instability in markets worldwide, banks in Western Europe removed all their capital from fledgling Eastern European economies and the collapse of Lehman Brothers in the United States signalled the continuing economic downturn had truly begun.

It’s easy to say that the current economic situation we find ourselves in is chaotic. But, is it possible to purposely steer an economy to the point where it can be used as a weapon? Can a nation’s output be used as a weapon to dominate other nations? Some economists would say that it is not only easy, but that the threat of it necessitates some governmental control over the economy to make sure such a thing never happens.

In the days before the Second World War, Germany was in dire need of cheaply-produced food and resources for their growing war machine. As Hitler’s economic policies put more and more of the workforce into either heavy industry or infrastructure to support their martial aspiration, Germany found itself in need of reliable sources of food and raw resources. As the need became more dire, Berlin began to look to the states along the Danube.

The formula was simplistic. Germany needed food and resources and had a surplus of high-quality, advanced goods. The new states that were created in the collapse of empire after the First World War were agrarian states with some mines that could not produced high tech goods needed to spur growth and an advanced economy. One had all the food, one had all the goods. It began with what appeared to be simple trade agreements. Germany promised to export prodigious amounts of their finished goods in return for importing massive amounts of food and resources. Both sides seemed to win – Germany found a market for its surplus of goods and nations producing unfinished goods and agricultural commodities that generally don’t fare well on markets found an eager buyer.

The truth was much more sinister. What Germany was fostering was utter dominance of smaller economies. First, Berlin was not just buying the output of these countries, it was buying it in amounts beyond what they needed. By doing this, Germany was creating an opportunity for farmers that they couldn’t refuse. Rather than diversifying crops, entire agri-economies became dedicated to catering to the whims or dictates of Berlin. Second, Germany was fostering an environment where supplies that practically any state could produce were being exchanged for products only Germany could provide. These states desperately needed Germany, while Germany could find the items the Danube states were turning out practically anywhere.

Essentially, Nazi Germany succeeded in turning the states along the Danube into slave economies.

Almost 70 years ago, political economist Albert Hirschman first wrote on the pattern that Nazi Germany had used to dominate its neighbors without firing a shot. He argued that through binding trade agreements, dependence on foreign-made goods and reliance on a single state as a market for goods, smaller states could essentially cease to be independent. Through nothing more than skillful economic machinations, one country could take over another without so much as a single soldier’s boot touching the other country’s soil.

Nazi Germany in the 1930s is one thing. What about today? Is it still possible for this to happen today?

Some would argue it already has. Globalization, specifically the version that is pushed by the United States, carries with it a heavy dose of American culture. American TV shows, fast food, fashion and business models are now the norm around the world. In return, the United States receives cheaply-produced goods from around the world, the sort that could easily be transplanted into any other nation with minimal training. This is a trend that many point to as an example of Hirschman’s theory.

There is a way the tables can be turned, at least somewhat. The United States has been utterly dependent on outside energy for the better part of the last century. While the economies of OPEC nations might be portrayed as less-developed or singularly focused on resource extraction, the fact of the matter remains that they hold the resources we so desperately need. Aren’t the oil embargoes just an example of the tables turning on a Hirschman-esque power?

Not so fast! For these states, oil sales are almost the only source of income. Cutting off oil exports is tantamount to committing economic suicide. In addition, Hirschman made one prediction concerning how states would react to being cut off from necessary resources: They simply find the next provider and move to them. When countries absolutely have to have something, they will stomach increased prices and more conditional agreements to ensure they have it. The United States typifies this. In recent years, American oil companies have seen a virtual renaissance in field exploration. Most of our petroleum now comes from Canada, and fields in Indonesia, Nigeria and the deep waters of the Gulf were extensively tapped in the aftermath of the oil crises. None of these options are the cheapest, nor are they the most politically expedient. However, in the aftermath of the embargoes, both sides learned their lessons: One had to have the other to provide the backbone of their economy, one could no longer rely on the other to provide what it needed.

However, these are absolute worst case scenarios. Overall, the argument can be made that international trade brings about overwhelming positive change in the world. Increased access to ideas and products, increased competition and lower prices mean that those with less can do more and that the things we all love and need can be made for less. The question is not whether trade itself is good or bad, it is whether trade is being done the wrong way for the wrong reasons in the wrong amounts.