Globalisation and Arms Trade

arm trade

Increasing General Military Expenditure in a Global World is Questioned

Introduction 

Globalization is a major phenomenon that has completely changed the economic, political, and military relations between states. After the end of the Cold War, interactions among Nation-States have drastically increased and intensified in a way that every state became dependent on each other. Removal of obstacles to trade and liberalization of capital flow entailed a huge shift in the global production scheme and gave birth to global supply chains that linked national economies into each other. In the same sense, the World Trade Organisation (WTO) has found in 1995 as the mark of market-oriented world’s victory over centrally planned economies to demonstrate the beginning of a long-lasting peace period. (Ünal-Kesenci 2015) In this context, one should claim that the integration process of the world economy has accomplished, and States came to a point where there is no turning back to geographically constrained economies. At this point, some liberal scholars put forth that humanity reached its climax and attained a level of civilization in which there is no possibility to wage wars for profit-seeking reasons. For instance, Francis Fukuyama announced the end of history and said that this is the last stage of humankind in terms of political thoughts. (Fukuyama 2006) Yet, it is interesting to see that the defense industry has blossomed in this period as well. State’s military expenditures rose by 49% from 2000 to 2009. Besides, what intrigues us is that considering the magnitude of the 2008 Quasi-Great Depression, states kept increasing their military expenditures in the following period until today. Given this discrepancy, the paper will argue why States are still increasing their military capacity in a world where every state is not only economically dependent on each other but also politically and socially interconnected.  To address this question, the paper will first investigate how national economies became integrated into the wake of the Cold War. Second, the paper will shed light on the rapid increase in military expenditures from 2000. Last, the paper will try to depict why globalization is in question and what are common points with regard to criticism towards globalization.

Genesis of Neoliberal Globalism

Neoliberalism was and is a catchy word for at least four decades starting from the signing of Smithsonian Agreements in 1971. It was a punchline for developed economies who could from that point onwards print paper money without the gold to back it up. In that regard, developed countries expanded their money supply to tackle the destructive effects of the 1973 and 1978 petrol crises. This change in monetary policy bestowed a stimulus in the domestic financial market. As a matter of fact, monetary expansion has not only created opportunities in the domestic market but also enlarged global money supply in a way that financial intermediary organizations sought to harness more wealth by lending money to countries who are facing difficulties to curb their deficits. According to the World Bank, the broad money-to-GDP ratio rose from 50.37% to 63.87% between 1960 and 1980. (World Bank 2019a) Even if the amount of broad money drastically increased, it was still certain restrictions on capital flows which inhibit investing in developing countries offering more interest rate and more financial revenue. At that point, Reaganomics in the U.S. coupled with Thatcherism in the U.K. came to stage in a sense that neoliberal pamphlet was dictated to other countries in an era where money in circulation all over the world tremendously increased compared to the precedent era.(Kotz 2002) More specifically, the broad money-to-GDP ratio grew from 63.87% to 93.15% in 1980 and 1989, respectively(World Bank 2019a). From onwards, neoliberalism’s postulates had to be reshaped to extend the scope of the global integration process, which started with the financial integration in the mid-1980s. To do this, neoliberalism’s main tenets, namely financial deregulation, privatization, removal of barriers to trade and freeing capital movements, are strongly emphasized, wrapped up in a single package called ‘Washington Consensus’ which promotes structural reconfiguration to the degree that every country has to prioritize several issues such as ensuring rule of law, transparency and democratic governance(Gore 2000). Only after that, a country could embrace the benefits of neoliberal understanding which is basically overall improvement in living standards for every citizen.

Along with financial and economic concerns, neoliberalism has to be redefined in an environment where there is neither balancing power nor a common threat for Western countries after the Soviet Union collapsed. According to Brian Burgoon, the United States and the European Union combined postulates of neoliberalism and globalisation and melt them into a single pot.(Burgoon, Oliver and Trubowitz 2017) Further, they pushed their constituents to believe in a new dream so that absence of a common threat could lead them into a disunification in an economic and political manner. As for justification, Western leaders gave examples of European experience to demonstrate how trade and openness enhanced their economies such that Western bloc arrived to gain victory against the Soviet Union. In essence, the idea which promotes free trade and openness was a bullet-proof argument for those who are willing to expand the scope of neoliberal understanding and to transit from Western-constrained globalization to more inclusive and comprehensive globalisation.

Given that, Tim Oliver argues that Western justification for neoliberal global agenda is not limited to their domestic politics, but also interlinked to converting their influence into the areas where there is a power vacuum after the retreat of the Soviet Union and where it is necessitated to formulate economic and political agenda (Burgoon, Oliver and Trubowitz 2017). At this stage, multilateral institutions turned into a tool to spread neoliberal globalism. To be frank, since multilateral institutions are found by reference to European experience and Western practices, they are inherently a reflection of Western values and thus, they are a manifestation of Western dominance over the rest of the world. As Michel Foucault mentioned in his earlier writing, this is a sort of fabricating régime de savoir upon which Western countries maintained their supremacy over other countries by guiding them through a set of values and norms. Brain Burgoon puts forth that new international setting is, by all accounts, finds its root in Western experience in terms of its governance logic in a sense that Western practices were used as a blueprint (Burgoon, Oliver and Trubowitz 2017). For instance, the Single European Act signed in 1986 predicted full-fledged free movement of capital until 1 June 1990 and following that rapid economic growth is observed in Europe according to Christophe Strassel (Strassel 2012). In this regard, financial liberalization is suggested by the IMF in line with past European experience in the 1990s.

In line with, financial and political effects of neoliberal globalism, it also portraits a new phenomenon which is the birth of transnational firms along with the development of supply chains. From onwards, economics entered into an unchartered territory where no one ever experiences an economic entity whose operations are not restricted by national boundaries and whose employees are not just its national, but also international. B. Sutcliffe and A. Glynn found out that the one hundred largest TNCs in the world (ranked by assets) had 40.4 percent of their assets abroad, 50.0 percent of output abroad, and 47.9 per- cent of employment abroad in 1996.(Kotz 2002; Sutcliffe and Glyn 1999) It clearly demonstrates how economic relations have changed starting from the 1990s. In line with a change in the structure of economic entities, namely transnational firms, the production network had to align with the economic realm. That’s why, one should claim that production is delocalized in a way that every part of a goods manufactures in different places and assembles in the central country which is where the to headquarter of this economy is installed. That shift from territorial production to fragmented production could be explained by two factors.

First, an abundance of money supply in developed economies created an excess and paved the way for foreign direct investment of a company that foresees much more profit in developing economies due to relatively cheap labour force and easy access to raw materials. (Croissant et al. 2019)

On the left-hand side, the table represents a rapid increase in the global net inflow of foreign direct investment between 1989 and 2001. (World Bank 2019b) Starting from the end of the Cold War a smooth uptake was observed until the end of 1996. It is interesting to see that the amount of foreign direct investments was rapidly increased after the United States and the European Union agreed on the neoliberal global agenda in 1996.

Second, the production scheme was fragmented as a means to supervise developing nations in a sense that companies whose headquarters are located in Western countries are exemplary for portraying the Western ways of doing business in these countries. It means that they acted as a mirror to reflect on how and why Western values lead to generating more wealth. At that point, developing economies discerned to what extent the rule of law and democracy are handy in terms of securing an investment environment. Only after that, state apparatus bears the responsibility of protecting property laws as well as ensuring contracts and servicing judicial effectiveness. According to the Index of Economic Freedom prepared by the Heritage Foundation, BRICS countries except China displayed a major improvement in economic freedom. If one would like to give an example, it is certain that Brazil performed very well. More specifically, Brazil’s overall economic freedom score jumped from 48.1 points to 63.4 points between 1995 and 2003.(Heritage Foundation 2020) In the same period, foreign direct investment in Brazil skyrocketed. In detail, while FDIs in Brazil was 4.85 billion dollars in 1995, it reached a peak in 2000 with 32.95 billion dollars. Due to the financial crisis that happened in 2001, it gradually regressed to 10.12 billion dollars in 2003. However, foreign direct investment in Brazil doubled between 1995 and 2003. It moved from 4.85 billion dollars to 10.12 billion dollars. (World Bank 2019c) It clearly displays a parallel between the Westernisation of business practices and norms and the amount of foreign direct investments. (Butcher 2014)

In general trend, almost every economy experienced the same evolution in the course of globalization, and following that, an impressive overall improvement in every economy is observed after the neoliberal global agenda has announced by the Atlantic alliance. At that point, it is logical to look at to what extent fragmented production, or simply global value chains take a central place in global commerce and how it changed the export and import rates in developing countries. William Milberg and Deborah Winkler carried out a study to scrutinize the evolution and impact of global value chains in the global economy. It reveals that developed economies’ imports remained restricted compared to those of developing economies. (Milberg and Winkler 2010) According to the U.S. Bureau of Economic Analysis, the U.S. imports moved from around 11% of its GDP to 15% of its GDP between 1995 and 2007. As for Europe, EU 27’s imports constituted 16.5% of its GDP and 21% of its GDP in 1999 and 2007, respectively. When it comes to low-and middle-income countries, their imports-to-GDP ratio moved from 19.8% to 33.2% in 1990 and 2007, respectively. It seems that developing economies integrated into the world economy and thus, they became interconnected to developed economies. From onwards, these economies attracted capital from centre economies and invested this capital into the manufacturing and services sectors. This radical shift entailed the rise of emerging economies and it eventually has an impact on world politics. New actors in commitment to WTO rules gained huge benefits from global value chains and enhanced their economies. For instance, China was a comparatively less influential economy at the beginning of the 20th century. After it became a member of WTO in 2000, its economic performance drastically improved. China’s GDP almost tripled from 2000 to 2007 (1.21 trillion dollars to 3.55 trillion dollars, respectively) In parallel, Chinese foreign direct investment outflow increased almost four times in the same period. Given that, one should say that China has massively engaged in the global economy. However, China contested core Western values in the course of its economic development and critiqued its validity all over the world. Thus, China formulated another model, called ‘visible hand’ as opposed to the Western model ‘invisible hand’.(Womack 2017) In line with China, other BRICS countries raised a question regarding Western dominance.

In fact, it is interesting to perceive how a dominance project or a pacificator aim initiated by Western countries turned into a hurdle for themselves. In the beginning, Western economies strived to extract more profit from developing economies and to keep their influence on those countries who lack the necessary capital as well as institutional capacity and technological know-how. However, developing economies took advantage of being exposed to Western direct intrusion and started to accumulate capital and to ameliorate their technological and institutional capacity. In the end, these dissident voices against the Atlantic alliance questioned the functioning of multilateral organisations and criticised Western norms and values. The rift between developed and developing economies caused a bottleneck in world politics, which is gradually becoming more and more unstable.