Occupation is good for you: US troop presence & economic growth
Given that the US is in the midst of a deeply unpopular occupation in the Middle East, in a new paper on SSRN, economists Garett Jones and Tim Kane ask a question conspicuous by its absence in the contemporary debate: “Is the presence of American forces in a foreign nation a help or hindrance to that occupied country’s development?”
The authors consider development, economic history and institutional economics literature, which suggest that security — as in the monopolisation of the use of force — is a precondition of growth. For instance, in Douglass North et al’s model (already covered in an earlier post) of social order development, the organisation of the state moves in linear fashion from a primitive, small band type order, through a limited access order or “natural state”, wherein an elite monopolises the use of force and limits access to power through patronage networks, to an open access order, where access to power is democratic and theoretically evenly distributed across society. According to this model, solving the question of violence is the first and possibly most important problem facing a society. Without monopolisation and the resulting high barriers to entry, activity in the markets for violence is likely to be extensive, and as a consequence actual economic activity is likely to be limited.
There are, then, theoretical reasons for believing that “troop presence”, broadly defined as a functioning security force, be it foreign or local, will be positively correlated with economic growth. Certainly, it is unlikely that chaotic and violent hollowed-out states will produce successful and dynamic economies.
Garett and Kane suggest that US troop presence might positively impact growth along three dimensions: improved security, the diffusion of improved technologies and institutions, and the increased aggregate demand effect of large numbers of relatively wealthy US soldiers. In fact they find that “countries hosting large numbers of U.S. troops experience large and persistent increases in their long-run growth rate.” In addition, they also show that “when a country hosts U.S. military troops, the quality of economic policy and economic institutions in that country generally improves.” The results indicate that “on average, an increase in troop levels of an order of magnitude is associated with a 0.3% higher long-term growth rate of per capita gross domestic product (GDP).”
Furthermore, these results are not simply driven by the experiences of Germany, Japan and South Korea. The authors note that
countries that ranked 11th through 20th in troop deployments (a group that includes Turkey, Iceland, and Morocco) grew twice as quickly as the fifty countries with the lowest troop deployment levels. Thus the positive unconditional correlation between troop levels and growth is not driven by a few observations.
bill greene said,
July 14, 2008 at 2:41 pm
Security is clearly a pre-condition for human progress. A major problem facing African nations is the lack of stability. When the fields and buildings of farmers are routinely destroyed by roving bands of dissidents/revolutionaries, and selected members of the farm family are hacked to death, crop production declines! Homework for the children becomes less of a priority! Food becomes scarce! Compare the neat hedgerows and masonry buildings in the English countryside that were passed down from one generation to the next for a thousand years. Each new generation started with intact buildings, healthy herds of sheep, etc. and built thereon. However, physical security is not enough. There are two forms of security that enable economic growth: Physical safety for one’s self, and legal safety for one’s property. Many police states, some of the harshest authoritarian regimes, provide safety from crime, by their effective police forces. But their people will not prosper without economic freedom–the ability to participate easily and openly in business and to keep the fruit of their work. England again enjoyed a great advantage because of its common law developed tp protect its people and their property. Many parts of the world stagnate because their people, although physically safe, are not allowed to operate due to the closed economies and suffocating bureaucracies. One of the advantages American occupation brought to post WWII Germany and Japan was not just physical safety, but the break-up of their cartels and business trusts that restricted economic opportunity to selected classes and burdened entrepreneurs with excessive governmental interference. It was once hoped that the UN could serve to bring stability to strife-torn regions and that such stability would foster economic growth– But two problems prevented this–1.) the UN forces were too weak, emasculated by feeble “rules of engagement” and internal corruption, and 2.) if some order was gained, the ruling elites of the nation still controlled the economy, and expropriated any foreign aid, for their own enrichment. The US army has served more effectively on both those fronts. This dual nature of security combined with the need for widespread opportunity has been repeatedly demonstrated by those few societies that experienced prosperity for the common people. I developed “The Radzewicz Rule” to quantify this basic lesson of history: CM + S – O = EF = P Thus, if you take the Common Man, add Security, subtract Oppression, you get Economic Freedom which leads to Prosperity. The mercnat princes of Italian city states emulated the experience of Phoenician and Greek rulers to allow safe unfettered trade among a wide spectrum of their people. As in later Holland, Scotland, England and America this combination led to rapid economic growth. In comparison, in communist Russia and China, where central government Oppressed the genius of their people, they stagnated. But in Hong Kong, Singapore, Dubai, and Chile, safety was provided along with economic freedom to gain successful economies. Democracy and popular voting was not the key–it was safe and unregulated business opportunity for all that made for progress. Unfortunately, the World Bank, the IMF, and all the other international aid agencies do not recognize this principle. Instead, they “administer” aid like ex-lax from the top down, expecting that to jump-start economies. The “experts” that run those huge international agencies seek to control rather than empower the people at the bottom who actually make it happen–all they need is opportunity–easily granted by providing a little security and less regulation.