The high price of bad diplomacy  

By Bruce Nussbaum

Business Week

March 24 2003  

The U.S. has already lost the prewar battle over Iraq, whatever the outcome of a further U.N. vote. Even if it wins a fig-leaf majority vote in the Security Council, America will be entering its first preemptive war faced with opposition from nearly all of its allies and much of the rest of the planet. A world that rallied to America's side in unprecedented demonstrations of support after September 11 increasingly perceives the U.S. itself as a great danger to peace. How did things come to this? The failure of the Bush Administration to manage its diplomacy is staggering, and the price paid, even if the war ends quickly, could be higher than anyone now anticipates.

The political effect of this foreign policy imbroglio is already obvious. It can be measured in tattered alliances and global tensions, eroding support for President George W. Bush, and big changes throughout the Middle East. What remains unclear are the economic consequences. In the end, they may be far more significant.

Uncertainty is anathema to investment and growth. Much of the current weakness in the U.S. and the global economy is due to the immediate questions surrounding an Iraq war. Yet the Bush foreign policy of unilateral preemption is so ill-defined and open-ended that it could weigh heavily on the global economy well after the bombing stops. Look at the Administration's agenda. The war in Iraq will be followed by an occupation that could last years, cost many billions of dollars, and involve tens of thousands of occupying troops. That's a big price to pay if bungled diplomacy means that the U.S. bears most of the financial burden. Then there's dealing with North Korea's rush to build nuclear bombs. And Iran's play for nukes.

The prospect of America taking on this long list of crises -- and perhaps others -- with little international support is making people everywhere jittery. They fear that, beyond the war in Iraq, the global economy may be continuously threatened by political and military unrest. It is not a picture conducive to worldwide economic growth and prosperity. The first decade of the new century is beginning to feel like the 1970s, when the turmoil of the Vietnam War cast a long shadow over the U.S. economy.

It may even get worse than that. Chief executives are beginning to worry that globalization may not be compatible with a foreign policy of unilateral preemption. Can capital, trade, and labor flow smoothly when the world's only superpower maintains such a confusing and threatening stance? U.S. corporations may soon find it more difficult to function in a multilateral economic arena when their overseas business partners and governments perceive America to be acting outside the bounds of international law and institutions.

How did the U.S. lose the prewar? Conventional wisdom holds that September 11 changed everything in U.S. foreign policy. It certainly did with regard to Mexico. Before the attacks, President Bush and Mexican President Vicente Fox were close friends on the verge of a new bilateral agreement liberalizing Mexican immigration to America. Bush made a rare trip outside the U.S. to Fox's ranch and had lunch with Fox's mother. After September 11, Bush abruptly ended all talks, hurting Fox politically in his own country. The message was clear: The most critical issue for the President of Mexico was no longer of any concern to the President of the U.S. Fast-forward two years, and the U.S. is heavy-handedly demanding that Mexico deliver its vote in the Security Council for a second resolution on Iraq. Instead of caving, as Washington assumed, Mexico is resisting. Bush alienated a friend and is paying the price.

But the seeds of the current diplomatic disaster were planted in the first year of the Bush Administration, well before September 11. That's when Washington defined its foreign policy, which has come to be seen as the three "D's" -- disdain, disregard, and disrespect for treaties, allies, and friends. In those early months, the Administration managed to insult the heads of both North and South Korea, an amazing policy feat. Bush was quoted as saying North Korea's Prime Minister was a "pygmy," and later said "I loathe Kim Jong Il." And Bush humiliated South Korea's Kim Dae Jung on his visit to the White House by publicly repudiating his opening to the North, a popular policy at home.

At the same time, the U.S. simply walked away from both the Kyoto global warming treaty, infuriating the Europeans, and the Anti-Ballistic Missile Treaty, angering the Russians. A personal rapport between Bush and Russian President Vladimir V. Putin papered over the humiliation felt by Russia. In exchange for help in the war in Afghanistan, the Administration did give Moscow a green light in Chechnya. But it never made the effort in Congress to lift the Jackson-Vanik trade restrictions on Russia imposed during the Cold War. In short, Washington treated Russia as cavalierly as it treated Mexico and Europe. Now, bolstered by new oil riches and courted by France and Germany, Russia is trying to regain some of its luster as a world power by threatening to veto a second U.N. resolution on Iraq. The White House has been surprised by the move -- yet another diplomatic miscalculation.

September 11 did matter greatly, of course, in redirecting U.S. foreign policy. Into the breach opened by the first massive act of terrorism against the country, the Bush Administration published The National Security Strategy of the United States of America, a formal codification of the White House's intentions. It rightly stated that two new realities of life -- terrorism and proliferation of weapons of mass destruction -- are restructuring the global order. The Cold War foreign policies of containment and mutually assured destruction can't work when suicidal fanatics, rather than rational states, are the major threat to America. The document also says these policies can't work when terrorists can get access to biological, chemical, and nuclear weapons from failing states or dictatorships. But the Bush Administration's prescription was a Pax Americana that broke traditional norms of international behavior. Since the Treaty of Westphalia in 1648, the concept of the sovereignty of states has been sacrosanct. Nations are open to attack only when they actually do something to threaten another country. An imperial America acting alone to spread democracy by the sword may appeal to a handful of neocon ideologues, but it doesn't sit well with many Americans -- and especially not with people around the world.

The Bush Doctrine, laid out in the national security paper, has three tenets: that unilateral measures are better than international treaties and organizations in dealing with global problems; that no country or combination of countries will ever be allowed to challenge U.S. military dominance; and that the U.S. is free to take preemptive action against terrorists and states that have weapons of large-scale destruction. In short, it's my way or the highway. As a foreign policy, it is both arrogant -- certain to generate opposition by even the most friendly of countries -- and corrosive, certain to undermine multilateral institutions and agreements, including those in the economic sphere. Worse still, it is ill-constructed and confusing, making for a more, not less, uncertain and dangerous world.

The Bush Doctrine never defines just when the U.S. will act preemptively and take sovereignty away from a nation. That vagueness is apparent in the first test case of the preemption policy -- Iraq. The White House has said Iraq was helping the terrorists of al Qaeda. Then it argued that Iraq had to be disarmed because of the threat of proliferation of weapons of mass destruction. Then the Administration said a change in Iraqi regime was required to disarm the country. It has offered the grand vision of establishing democracy in Iraq. Washington is now suggesting that regime change and democracy in Iraq would help settle the Israeli-Palestinian conflict. This jumble of reasons has undermined the credibility of the entire invasion, even though there are strong grounds to disarm Iraq. After all, Saddam Hussein is a tyrant who gases his own people, wages war on his neighbors, and builds weapons of mass destruction that terrorists could potentially bring to Chicago, Los Angeles, New York, Paris, Berlin -- and elsewhere.

North Korea adds further confusion to the Bush Doctrine. Washington insists it has no intention of preempting Pyongyang's nascent nuclear arsenal and wants regional powers -- China, South Korea, and Japan -- to take the lead in negotiations. But if preemption works in Iraq, why not North Korea? And what about Iran? These questions can only make the world, and the world economy, more volatile and uncertain.

The U.S. will win militarily in Iraq, but a victory in the period after the war is still in question. Whether the damage done by inept diplomacy will be long-lasting and deep will depend on whether the Bush Administration acts magnanimously and invites those nations who opposed the war to help rebuild Iraq. Holding grudges, as the White House has done against Germany, will be expensive. There are thousands of German troops in Afghanistan and Bosnia maintaining the peace.

President Bush might want to take some advice from his father, who clearly offered it up in a rare public speech at Tufts University in late February. Looking back at his effort at healing his relationship with Jordan, which sided with Iraq in the first Gulf War, the elder Bush said: "I think there's a message in that for those who today say, How can we ever put things together? The answer is: You've got to reach out to the other person. You've got to convince them that long-term friendship should trump short-term adversity."

But that implies a belief that long-term friendships are important -- a belief that it is not clear George W. Bush shares. From the outset, the Bush White House has emphasized hard power -- the military. Yet the U.S. derives much of its influence from leading a global political economy based primarily on American values. Since the end of the Cold War, the world has been moving toward this integrated system of democratic capitalism. Terrorism and the need to fight it don't change that. In fact, a multilateral effort to combat terrorism should reinforce this unity. To win the postwar in Iraq, America needs a multilateral foreign policy shared by its allies and feared by its enemies.

It is true that the Bush Administration did, belatedly, go to the Security Council and did receive a unanimous vote for Resolution 1441, which calls for Iraq to disarm or face the consequences. But then, of course, Secretary of Defense Donald Rumsfeld made the diplomatic gaffe of publicly insulting France and Germany by calling them "Old Europe." This stoked anti-American fires across Europe. France went on to disown 1441. Had it not, the U.S. might now be poised to fight as part of multilateral U.N. military force.

The price the Bush Administration is paying for its failed diplomacy is high, and it promises to rise even further. A world divided between multilateral economic and unilateral security policies is an uncertain and risky place. It is not likely to encourage economic growth or prosperity. The Administration risks turning what was once trumpeted as the American Century into the Anti-American Century.

Bruce Nussbaum is Editorial page editor of Business Week.


New role may be too costly for Americans to bear


By Alan Beattie

Financial Times

March 14 2003 

The coming war in Iraq may presage a new era in US foreign policy, where a more muscular America is ready to pre-empt perceived threats to its security. It is unclear whether the American public will embrace this new strategy - but if they do, can they afford it?

In the short term, the answer is Yes. Attempts to quantify the economic cost of the imminent conflict with Iraq and the country's subsequent occupation by US forces indicate that it is well within America's means. The middle point of range estimates by the non-partisan Congressional Budget Office suggests a two-month war would cost about $40bn and military occupation another $30bn a year.

It is true no extra expense is welcome when the US budget deficit this year is already pushing above $300bn, or 3 per cent of gross domestic product. But if the Iraq war and occupation is a one-off cost spread over the medium term, it is fairly small against the US's existing $3,700bn public debt.

Matters will be less clear-cut if Iraq, rather than a simple tidying-up of unfinished foreign policy business, turns out to be the first case of a permanent global commitment to aggressive US intervention against any perceived threat to its security. The price of such a shift, converting the rhetoric of Washington's neo-conservatives into reality, could be a move back to an economy on a cold war footing.

George Magnus, chief economist at UBS Warburg, and his colleagues have sketched out a scenario in which the need to combat the threat of terror sees US aid and personnel deeply involved in countries as varied as Turkey, North Korea, Colombia, Iraq, Afghanistan, the Philippines, Djibouti, Yemen and Bosnia. "Our admittedly crude guess is that the broadly defined military budget, encompassing homeland security, foreign aid and other nation-building programmes, could more than double from 3.5 per cent of GDP to as much as 8-9 per cent over the coming years," their report says.

This would mean that, after the honeymoon of the 1990s, the US public would have to pay back the cold war peace dividend. US defence spending, as high as 10 per cent of national income in the 1950s, dropped to 5-6 per cent by the 1980s, fell to 3 per cent by 2000 and, state CBO estimates, was set to fall further. Ensuring US security could throw this trend into reverse.

An open-ended commitment to eliminating threats to the US would simultaneously reduce private sector growth while incurring new government costs.

At home, the domestic economy would once again have to fight for resources. Highly skilled labour would be particularly in demand. In recent years, armies have become more capital-intensive, as smart bombs, unmanned drones and laser-guided missiles have replaced massed ranks of infantry. But a continual struggle against an amorphous terrorist enemy is likely to require more reliance on human intelligence. Taking the nation's best brains out of biotechnology research, investment banks and corporations and putting them into the State Department, the Central Intelligence Agency and the military is not a blueprint for continuing the high productivity growth of the 1990s.

Meanwhile, the cost of a single- handed commitment to global security would be large and open-ended. It is true the US economy, now much larger than during the cold war, can shoulder military burdens with less effort. But taking the Iraq crisis as a guide, Washington may find other factors offsetting superior economic firepower.

For one, the US may bear the cost of conflict largely on its own. Kuwait, Japan, Germany and Saudi Arabia shared most of the $60bn costs for the 1991 Gulf war. No such coalition of the wallets seems likely this time.

In a unipolar world, the US's potential ad hoc coalition partners for each engagement would be in a powerful bargaining position, as the recent haggling with Turkey shows. Mr Magnus says: "In a world where all countries [in effect] belong to the non-aligned movement, the price to a major power of building a coalition increases."

The same is true of post-conflict reconstruction and nation-building. As UK foreign office wits put it, the usual pattern has been that "the Americans cook the dinner and the Europeans do the dishes". European aid and peacekeeping troops have followed US-led military interventions in Kosovo and Afghanistan. This time, the divide between the US and Europe places the onus for reconstruction on the US. Christopher Patten, European Union external affairs commissioner, said this week that a lack of political consensus for war would make it harder for the EU to contribute to reconstruction.

Failure to command broad consensus also reduces the number of foreign policy tools available. During the cold war, international fears about communism meant the US was able to harness multilateral institutions. Hundreds of millions of dollars in International Monetary Fund and World Bank loans went to US client governments in Zaire, Kenya and Liberia. But the US now finds itself far more isolated. If France, Russia and China are capable of blocking the US in the United Nations Security Council, they are equally capable of doing so in the IMF.

Comparisons are often made between the US and the empire-builders of the 19th century. But there is one important difference. Empires such as that of the British either ran a profit or defrayed at least some costs by sourcing cheap materials in the colonies and re-exporting goods to a captive market. In a much freer world trading system, and without the coercive power of permanent occupation, the US taxpayer will be left funding its overseas actions.

Whatever their thirst for security in the aftermath of September 11 2001, it remains unproven that the American public and Congress are prepared for this financial sacrifice. "It is unclear if America is truly prepared to accept an imperial role on a sustained basis," says David Hale of Hale Advisors, the economics consultancy. Despite the attacks in 2001, the sustained threat to the US from terrorism is less obvious than that from the Soviet Union.

The prospect of imperial burdens will give more ammunition to critics of the administration's move towards fiscal deficit. As Democrats in Congress have been gleefully pointing out, the Bush administration is simultaneously arguing that it cannot say what the Iraqi war and reconstruction will cost, but that whatever that cost is, it can afford it and $1,500bn in tax cuts over the next decade. If, as UBS Warburg estimates, military and security spending take up another 3 or 4 percentage points of GDP, taxes will have to be raised sharply, domestic spending cut to politically unimaginable levels or the fiscal deficit allowed to widen to a point at which even the Bush administration will balk.

Governments faced with such competing claims over resources often resort to easy but damaging ways out. Pressure for more domestic spending during the cold war placed the federal budget under intolerable burdens. President Lyndon Johnson helped set off the inflation of the 1970s by in effect printing money to finance his simultaneous goals of fighting the Vietnam war abroad and building the Great Society welfare state at home.

"One of the notable things about imperialism is how responsive are many imperial countries to the rising costs of their ambitions," says David Landes, a Harvard economic historian. Even in Britain, where attachment to the empire ran deep, economic necessity meant that the rapid liquidation of imperial liabilities in India and the Middle East after the second world war met little opposition. Once the potential cost becomes apparent, the willingness of the American public to pay for their country's new security strategy will be tested to the limit.