Who's hiding under our umbrella? by Paul Kennedy

International Herald Tribune
January 30, 2008

Who's hiding under our umbrella?

By Paul Kennedy

CAMBRIDGE, England:

It has rained virtually every day since I arrived in Cambridge a few weeks ago, so lots of umbrellas are about. Being tall, and with Cambridge's sidewalks being narrow, I am frequently hit by them.

In English, the umbrella has also been widely and usefully extended into the larger realms of everyday life, politics and even grand strategy. It has come to mean gathering different entities together under the shelter of an overarching roof.

In the realm of world politics, for example, students of the Cold War learn that, to deter possible Soviet aggression, the United States placed a "strategic umbrella" over NATO Europe and Japan, declaring it would fight if their independence was threatened by the Soviet Union.

The details of those arrangements are not for this column. Instead, our focus will be on the complex relationships between the "provider" of the strategic umbrella and the countries that shelter underneath it. For example, consider the complaints by American Congressmen and media over the past few decades that the country's European and Japanese allies have been taking economic advantage of the fact that the United States was providing for most of their own national security.

Under President Ronald Reagan, approximately 6 percent of the GDP of the United States was spent on defense, whereas the Europeans tended to spend only 2 to 3 percent and the Japanese a miserly 1 percent, although all faced a common enemy. Thus the American taxpayer bore a disproportionate burden for the overall defense spending, whereas those sheltering under its umbrella spent more on social or consumer goods, or saved while the U.S. went further into debt. This "free riding" was not fair - a complaint that, at first sight, seems quite valid.

Still, hegemonic empires usually carry a heavier burden and pay a larger cost, than those nations gathered under its strategic umbrella. Thus, a well-to-do farmer in 2nd-century Andalusia or Oxfordshire would certainly have appreciated being part of the Pax Romana and having security without much direct cost. Yet the Romans themselves, in providing the "international public goods" of long-lasting peace and uninterrupted commerce, also benefited from the growing wealth of their overseas domains, plus the flow of grains, olives, tin, timber and all the rest.

In any case, there was the matter of pride. You didn't abandon your Number One position, and the control it gave you, just because some provincial farmers were getting fat.

Then there is the example of that "second" Roman Empire, the world system at the time of the Pax Britannica. Inward-looking American historians might not admit this, but probably the single most important explanation for the remarkable rise of the United States in the 19th century was . . . well, Great Britain.

For most of the time, the Royal Navy blocked any possible continental European intrusions into the Western Hemisphere, allowing the United States to keep defense spending extremely low. Secondly, British investors poured millions of pounds into the development of American cities, railways, insurance companies and agriculture; for example, much of the cattle industry of the Western prairies was funded by banks in Scotland. The Scottish bankers benefited, and the ranchers and cowboys even more.

Finally, and despite increasingly higher tariffs against their own exports, the British never abandoned free trade (at least not until 1932, when the Depression forced them to give preferences to their colonies over foreign goods). They provided the greatest open market for American foodstuffs, raw materials and manufactures. The fledgling United States thus grew big under the British umbrella, until it no longer needed that protection and could stand up on its own right.

Today, the United States, like Rome and Britain in their time, is the provider of international public goods. Who, after all, has deterred North Korea from driving south and plunging East Asia into war? And whose warships and aircraft deployed in the Gulf offer protection to oil tankers headed for Japanese and European ports? Whose citizens carry by far the largest weight in taxes per household in order to maintain this Pax Americana?

All this, however, is part of that unwritten bargain between the single Great Power that provides the strategic umbrella and the nations that shelter under it. In the best of circumstances, each partner, large or small, benefits. But what happens when the "free riders" secure too many of the public goods or, perhaps more importantly, are perceived by the citizens of the Number One power as taking too great an advantage of the pax provider? What if the consensus between the umbrella-holder and those hiding below breaks down?

This is a question that will be increasingly asked in the years to come. It is already being asked in a few circles, as we strive to understand the larger implications of the enormous surpluses of sovereign wealth funds, the soaring cost of raw materials (especially oil and gas), the weakening of Wall Street's once-great banks, and the increasing purchase of American assets by dollar-rich Asian and Middle Eastern enterprises.

The argument goes something like this: The United States has recently expended vast amounts of money, blood and energy in fighting two Iraq wars. On each occasion, the White House had its own secular reasons for going to war (to punish aggression, to protect American consumers from catastrophically high gas prices, and so on). But the chief beneficiaries were clearly our Arab allies like Saudia Arabia and the Gulf states, together with East Asia and Europe, which depend much more than the U.S. does on the uninterrupted flow of Middle East Oil. How convenient to live under the American strategic umbrella.

Yet all the fighting by the U.S. armed forces in those wars has not been able to prevent the great rise in the price of oil and gas, which hits petroleum-dependent Americans hard but puts billions of dollars into the pockets of certain free riders in the system. As the United States takes its economic hits - and while the White House insists on record defense spending to maintain its hegemonic "umbrella strategy" - foreign financial interests are steadily acquiring American companies, especially banks. And Wall Street houses now paying the price for their reckless stoking of dubious subprime loans have little alternative but to sell; as I write, some chief executive will be flying to Dubai or Singapore to sell off a chunk of the firm's assets.

Those bankers, and the free-market economists who service them, will assure you that such asset sales are perfectly O.K. Asian and Arabic sovereign wealth funds are extremely discreet and cautious. They do not play politics. They are not asking for a seat on the board. They have to invest their monies somewhere. So this is just a normal commercial transaction. Stop worrying.

Well, if you think that way, then nothing can be done to help you. But every sensible homeowner or farmer or small businessman knows that, once you take out a loan (mortgage) from another party, or sell a share of your property, a subtle or not-so-subtle power relationship has changed. To a greater or lesser degree, you have become dependent upon other players who can probably influence you more than you can influence them. And in this case, since hundreds of other companies and banks are doing the same, the collective result is that the United States is ceding influence.

Each individual sale of assets may make perfect sense to the company needing a cash insertion. The larger consequence implies a shift in the global economic balances and, in the longer term, the global political balances.

What, in sum, we may be witnessing is a fraying of the U.S.-directed international "strategic umbrella" system that has been in operation since 1945. The system was battered before (in the Gold Standard crisis of the early 1970s), but the global boom of the past 20 years allowed its recovery. Now it is under strain again. Perhaps sensible fiscal and taxation policies by the next White House administration will keep things afloat - that is, keep the umbrella upright for the next few decades. Or perhaps not.

This is not a matter that should concern American politicians alone. The larger point is that all of us, free riders included, depend upon the provision of international public goods. If the country guaranteeing those services is heading for trouble, so, probably, are the rest of us, wherever we live on this tight little planet.

Paul Kennedy is a professor of history and director of International Security Studies at Yale University. This Global Viewpoint article was distributed by Tribune Media Services.

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