New role may be too
costly for Americans to bear
By Alan Beattie
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?
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.
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
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.
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
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.
open-ended commitment to eliminating threats to the US would
simultaneously reduce private sector growth while incurring new government
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.
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.
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.
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."
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 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.
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
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.
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
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.
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.