Globalization Make the U.S. More

¶ … GLOBALIZATION MAKE the U.S. MORE SECURE ECONOMICALLY and MILITARILY?

The objective of this work is to answer the question of whether globalization makes the U.S. more secure economically and militarily and why or why not? This work will define globalization in its original and realistic sense and then defend why the proposed security effect is stated as answer to the original question in this study.

The work of Bates and Lu entitled: "Program on the Geopolitical Implications of Globalization and Transnational Security" a GCSP Policy Brief Series (2006) states that globalization "is a double-edged sword." (p.2) This is especially true it appears in view of the United States and its military and economic security.

GLOBALIZATION - WHAT IS it REALLY?

The Department of Defense (DOD) DSB Task Force on Globalization and Security states that 'Globalization' is: "...the integration of the political, economic, and cultural activities of geographically and/or nationally separated peoples..." (, p.1) Additionally the taskforce relates that 'Globalization' is "not a policy option, but a fact to which policymakers must adapt." (p.1) the work of Guay (2007) entitled: "Globalization and Its Implications for the Defense Industrial Base" states that globalization "...is perhaps the most popular term used to describe changes in the international environment since the end of the Cold War. Unfortunately, the term now is used so frequently that it has come to mean different things to different people. This lack of a precise definition of a term with wide currency can make it difficult to discuss globalization's effects in a coherent way." (Guay, 2007, p. 1) Guay states that the definition suggested by the International Monetary Fund as a good working definition of globalization is: "..."the growing economic interdependence of countries world-wide through the increasing volume and variety of crossborder transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology." (Guay, 2007, p. 1) Guay adds: "This combination of forces will present challenges, risks, and opportunities to virtually every industry in every country for the foreseeable future."

II. GLOBALIZATION and the IMPACT to DOD

It is related in the DOD - DSB Task Force on Globalization and Security report that globalization affects DOD in "...two distinct, if overlapping ways. First, it is altering fundamentally -- the composition of DOD'S supporting industrial base while, in turn, necessitating a reengineering of DOD acquisition and business 'practices. Second, and perhaps more significantly, it is reshaping the military-technological. environment in which -- DOD must compete. These twin trends present DOD with both opportunities and challenges to the maintenance of global military dominance." (p. 1) the report relates further that DOD at one time, was dependent on and was able to financially sustain."..a dedicated industrial base for development, production and provision of its equipment and services." (p. 1) Presently, DOD is supported "by a broader, less defense intensive industrial base that is becoming increasingly international in character." (p.1) it is reported that this is due to four factors:

1) Deep cuts in U.S. defense investment in the Cold War's wake (procurement and R&D are down 70% and 25% in real terms, respectively, since the late-1980s), 2) an explosion in commercial sector high-tech R&D investment and technological advancement, 3) a sustained DOD acquisition reform effort; and 4) a shift in procurement emphasis from weapons and platforms, per se, to the sophisticated information technologies so amplifying their capabilities." (p.1)

In the work entitled: "Research Paper Reconciles Globalization Risks, Opportunities for U.S. Defense Industry" it is stated that "Globalization is causing change in nearly every industry in the U.S. economy, but for the defense industrial base, the potential for international growth must be tempered with the need to protect critical defense technologies and U.S. national and economic security." (2007, p.1) Recommendations stated in the report for the Department of Defense include those as follows:

DOD officials should consider stipulating that the 30 largest defense contractors must submit an annual report describing the extent of their international production and R&D, including their leading suppliers;

The executive and legislative branches of government should make the approval process for foreign acquisitions more transparent;

The Defense Department should take a proactive stance in terms of investment in the United States by foreign defense companies;

The DOD should give preference to foreign companies with U.S.-based production when awarding contracts;

The DOD should be judicious in restricting technology transfer;

U.S defense companies should diversify into nondefense sectors;

Federal, state, and local governments should improve math and science education;

The federal government and U.S. universities should rebalance security concerns with economic competitiveness in areas of scientific research;

The federal government and defense companies should ease restrictions on foreign high-skilled workers;

The federal government and defense companies should work with global institutions to harness the benefits of globalization. (DOD - DSB Taskforce, 2007)

IV. ECONOMIC ASPECTS of GLOBALIZATION

According to Guay the "economic dimension of globalization perhaps is symbolized best by the expansion of production, investment, and sales by multinational corporations into other countries." (2007, p.3) Guay states that the United States was in domination of the global defense industry and this remains true however, progress has been most recently noted and specifically in the country of Russia among others that have advanced in recent years in their military capability. The following chart shows these statistics and figures are in U.S.$ million at constant 2003 prices, and exchange rates are for calendar year.

Military Defense Spending and Rankings by Country

Source: Guay (2007)

The following figure lists the top eleven suppliers of major conventional weapons from 2001 to 2005 in international arms sales.

International Arms Sales: Ranked by Top Eleven Suppliers of Major Conventional Weapons (2001-2005)

Source: Guay (2007)

The following table lists the 'cumulative FDI inflows for eleven OECD member countries for the period 1996-2005 and 2002-2005. Clearly, the FDI inflows for the period 2002-2005 are greatly reduced as compared to the FDI inflows for the period 1996-2005.

Figures are stated in U.S.$ billion

Source: Guay (0207) p. 23

Guay relates that the globalization of capital has contributed to the growth in cross-border mergers and acquisitions (M&a) in nearly every sector, including defense. In many OECD countries they account for more than half of the total FDI." (p.24) in the mergers and acquisitions that have been witnessed the M&as of the defense industry have "followed a distinct pattern. The first phase consisted of regional mergers that led to formation of large companies in the defense aerospace and electronics sectors. The second phase appears to be unfolding in two ways: consolidation in the land armaments and naval sectors, as well as large firms buying smaller ones on the opposite side of the Atlantic Ocean." (p. 27) a great deal of country protectionism exists in foreign direct investment (FDI) and this is especially true in the defense industry. Guay states that in this "era of ever-increasing cross-border deals, the issue of whether national security will be adversely affected by the acquisition of U.S. assets will become more prominent." (p. 31)

V. PRIVATIZATION

Privatization has also been a trend of globalization in a process that results in assets that were "formerly held by governments" becoming privately owned and this has affected the defense industry as well. Difficulties noted include the case of India in the "opportunities and challenges" it presented for U.S. defense companies in 2006 when a private sector Indian company was appointed prime contractor for rocket launchers. Prior to this time the work of defense integration had been performed by either corporations of the government tor suppliers from overseas resulting in approximately seventy-percent of the defense capital budget spent across its borders due to public sector limitations and since FDI in defense companies that were private was disallowed until 2002. Guay relates that the approximate amount of $365 billion spent fighting the Iraq war and terrorism has been spent with private contractors for services. Guay states: "Controversially, oversight safeguards were lifted prior to the Iraq war, including the Department of Defense's (DOD) ability to circumvent competitive bidding rules in emergency situations. Consequently, sole-source and other non-competitive contracts awarded by the Pentagon have increased 54% since 2000, from $65 billion to $100 billion." (p. 33)

While privatization is described by Guay as "liberalizing' he also stated that the effects noted throughout the world are mixed in nature. Fraud and waste are stated to be "prevalent, including a finding by defense Department auditors that Kellogg, Brown & Root (a Halliburton subsidiary) had billed the government $1.2 billion for questionable charges, a Congressional Budget Office study suggests that outsourcing is still a net benefit for the Pentagon." (p. 33) Guay relates that product supply chains represent multiple countries integration with the globalization of production being "in part, a response by firms to lower costs in an increasingly competitive marketplace. Host countries see many opportunities from attracting FDI and the increasing 'statelessness of multinational corporations makes production in a variety of countries a necessary strategy." (p. 40) a key component of globalization according to Guay is "the promotion of international trade by reducing tariffs and other national barriers." (2007. p. 46) Guay also states that a consequence of "increased international trade is a corresponding increase in demand for commodities." (2007, p. 46) Guay writes that companies that are producers for civilian and military markets "are susceptible to increased global competition on the civilian side, even as the military side of their business may be fairly protected." (2007, p. 46) These firms may be forced to restructure which means restructuring as well as "selling divisions, reducing workforces, or ultimately going out of business - which could seriously affect the defense industrial base." (Guay, 2007, p. 46)

VI. GLOBALIZATION, FREE TRADE and NATIONAL SECURITY (JUSTER, 2001)

Juster (2004) relates that while free trade is important and "the salience of economic integration as a primary component of globalization...globalization involves much more than an increase in economic activities throughout the world. Globalization also involves the integration - or, at times, the collision - of political, social, and cultural activities and values." (p.1) Economic risks at the micro-level includes "inevitable short-term dislocations, as resources and capital move across open borders to seek out comparative advantages, such as lower labor or raw material costs." (Juster, 2004, p.1) at the macro level, "markets are increasingly volatile due to large amounts of cross-border investment and the ease with which capital can be injected into and withdrawn from different markets." (Juster, 2004, p.1) as noted by Juster, " a downturn in one financial market can have almost immediate repercussions around the world as a result of the interconnectedness and interdependence of financial markets arising from globalization." (Juster, 2004, p.1)

Globalization has resulted in markets becoming "increasingly volatile due to large amounts of cross-border investment and the ease with which capital can be injected into and withdrawn from different markets." (Juster, 2004, p.1) Juster relates that export controls that are effective in nature have the potential to bring about a reduction in the chance that an act of terrorism will "disrupt out critical infrastructures, deflate our consumer confidence, and throw our economy into a tailspin. Effective export controls also help ensure that markets are not destabilized by regional arms races or by the proliferation of weapons of mass destruction." (Juster, 2004, p.1)

Disruption of the infrastructures within the United States makes a requirement of risk management relating to service disruption. It is related that due to the dependence of shared information systems and networks, "the very information systems and networks that facilitate commerce also leave us vulnerable to a new type of threat - that of cyber attacks. And the interconnected nature of our infrastructure sectors significantly magnifies the consequences of a service disruption. Today, disturbances originating locally or in one sector are more likely than ever before to cascade regionally or nationally and affect multiple sectors of the economy. For example, a significant electrical or communications problem in one part of the country could adversely affect our banking and finance system, our air traffic control system, or even our oil and gas distribution system." (Juster, 2004, p.1) Juster summarizes by stating that the result of globalization is that the "economic integration and national security are more intertwined than ever. No longer is national security narrowly limited to national defense and military preparedness. Our conception of national security must also be concerned with securing the international conditions necessary for preserving and enhancing free trade and U.S. economic prosperity." (Juster, 2004, p.1)

Guay relates that in effect globalization as "strengthened the hand of defense companies at the expense of national governments. With more opportunities to expand their international presence, governments, at times, are being required to make concessions that would have been unheard of even a decade ago." (Guay, 2007, p. 63) Recommendations stated by Guay include those, which are described as "multilayered, with different roles for the private sector and the various branches, departments and agencies of the federal government and include those as follows:

1) Monitor international production patterns of leading U.S. defense industrial companies; (2) Make the approval process for foreign acquisitions more transparent;

3) Take a proactive stance in terms of investment in the United States by foreign defense companies;

4) Give preference to foreign companies with U.S.- based production when awarding contracts;

5) Be judicious in restricting technology transfer;

6) Diversify into nondefense sectors;

7) Improve math and science education;

8) Rebalance security concerns with economic competitiveness in areas of scientific research;

9) Ease restrictions on foreign high-skilled workers; and 10) Work with global institutions to harness the benefits of globalization. (Guay, 2007, p. 69-71)

DISCUSSION

This research study has sought to answer the question of whether U.S. security has been enhanced or if U.S. security has declined both economically and militarily due to the effects of globalization. As noted in this study, the Department of Defense (DOD) defines globalization as "the integration of political, economic and cultural activities of geographically and/or nationally separated peoples..." Furthermore, globalization cannot be viewed as an option of policy but instead it is simply a given that must be adapted to by policymakers. Globalization's affect to defense is in two primary ways that overlap one another. The first of these is the composition of DOD's supporting industrial base being altered in a fundamental manner requiring that DOD reengineer its business and acquisition practices and secondly, globalization has resulted in the competitive environment both militarily and technologically to be reshaped. No longer is the industrial base of DOD one that is of the nature of a dedicated industrial base for developing, producing and providing services and equipments and this is because of large defense cuts since the late 1980s, an expansion in commercial sector high-tech R&D investment and technological advancement, a sustained acquisition reform effort on the part of DOD and a transition in emphasis on the procurement of weapons and platforms to information technology that is more sophisticated and that amplifies capabilities.