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Tear Down These Walls: Economic Globalisation and the Future of Interstate
War
Michael Rolland Sullivan


The past 70 years have witnessed unbroken interstate peace between great powers
and an immense increase in international economic activity. The relationship between
these two developments, and the wider relationship between economic activity and peace
between states, has been a subject of immense inquiry in international relations. In
attempting to discern a causal link in this area, this essay will ask does increased
international economic activity, namely trade and foreign investment, reduce the
likelihood of interstate war? This question is vital to political scientists and historians
concerned with the neoliberal state organisation and what it reveals about the nature of
states and the system they comprise. It is also important to the general audience; an
answer to this question could reveal whether the system it participates in is nurturing a
liberal peace or summoning an age of war.
In answering this question, it is necessary to establish definitional parameters.
According to Evans and Newnham (1990: 374-5), the state is the main actor in world
politics. [] states must possess [] a permanent population, a defined territory and a
government capable of maintaining effective control over its territory and of conducting
international relations with other states. This essay will use this as a working definition.
Extending from the concept of the state is that of interstate war: direct, somatic violence
between state actors (Evans and Newnham, 1990: 416). This essay focuses on how
interstate economic activity affects the likelihood of war between two states engaged in
such activity. Interstate economic activity can largely be broken down into trade and
foreign investment. Trade is the exchange of goods and services between actors, in the
case of this essay, actors in different states (Evans and Newnham, 1990: 392). The
Organization for Economic Co-operation and Development (OECD) (2008: 234) defines
foreign direct investment (FDI) as a category of investment that reflects the interest by a
resident enterprise in one economy [] in an enterprise [] that is resident in an
economy other than that of the direct investor. This essay will focus on FDI in its
discussion of foreign investment and use the OECDs definition of the term.
Abstract
The past 70 years have witnessed unbroken interstate peace between great powers and an
immense increase in international economic activity. The relationship between these two
developments, and the wider relationship between economic activity and peace between
states, has been a subject of immense inquiry in international relations. In attempting to
discern a causal link in this area, this essay will ask does increased international economic
activity, namely trade and foreign investment, reduce the likelihood of interstate war? This
essay will examine commercial liberal and oppositional viewpoints and then argue that
increased international economic activity decreases the likelihood of interstate war,
particularly when the economic relationships between states are institutionalised, open, and
market-based.


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This essay will argue that increased international economic activity decreases the
likelihood of interstate war, particularly when the economic relationships between states
are institutionalised, open, and market-based. It will begin by reviewing and assessing
existing literature on this topic and dividing it into two general camps: the commercial
liberals and the anti-globalists. Subsequently, it will argue that trade and foreign
investment foster economic interdependence, which increases the opportunity costs of
war. Next, the essay will assess and ultimately refute realist and dependency theorist
arguments concerning asymmetrical trade and relative power differences between states.
It will next contend that the cultural implications of international commerce are
conducive to peace. The essay will then argue that the rise of an international commercial
class and the institutionalisation of economic relations foster international peace. Finally,
the essay will examine the oft-cited example of the First World War and its implications
for the commercial liberal peace hypothesis.
Literature on commercial peace theory can be roughly divided into two groups:
that supporting the proposition that trade and other economic activity between states
leads to peace, and that contending that such activity either does not affect or increases
the chance of interstate conflict. For the purposes of this essay, those who take the former
position will be coined the commercial liberals and those who take the latter will be
labelled the anti-globalists.
The commercial liberals argue that economic relationships reduce the likelihood
of interstate war by increasing their opportunity costs, empowering groups interested in
peace, deteriorating state sovereignty, and uniting the interests of states. The liberal
literature offers that trade creates relationships of mutual dependence between states,
which deters war by increasing the costs of cutting off ties (Russett and Oneal 2001;
McDonald 2009; Choi 2010; Gartzke and Li 2003). According to many liberals, foreign
direct investment creates similar relationships as states grow to depend on foreign
investment and profit from multinational corporations (Gartzke and Li 2003; Choi 2010).
This camp also argues that increased economic access to other states makes conquest and
military imperialism unnecessary in the procurement of resources (McDonald 2009;
Gartzke 2007; Gartzke and Lupu 2012). Commercial liberals also contend that
international finance empowers a commercial class interested in peace and detracts from
a political class interested in war (McDonald 2004; McDonald 2009). The literature also
associates market liberalism with a set of values that lessen the likelihood of conflict
(Choi 2010; McDonald 2009). In addition, a group of commercial liberal and
functionalist literature claims that the rising power of international institutions blurs the
states sovereign power and war-making ability (Mitrany 1966; Choi 2010). Finally, this
camp holds that international organisations encourage dispute resolution (Pollins 2008,
Russett and Oneal 2001). Liberals answer to refutation concerning wars between
interconnected powers by stressing the probabilistic nature of their theory and the degree
to which states control economic exchange (McDonald, 2004; Gartzke and Lupu, 2012).
The anti-globalists include neorealists, Marxists, and dependency theorists who
argue that interstate exchange either creates tensions that make war more likely or has no
effect on the prospect of peace. Grieco (1993: 118-9) uses the realist notion that
international anarchy implies that states pursue their own security and power
competitively to combat commercial liberalism. Anti-globalists often hold that this
conflictual nature of states prevents them from co-operating to achieve common interests;
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;
in fact, much of their literature suggests that the creation of connections between states
increases the prospects of war (Barbieri 2002; Grieco 1993; Waltz 1979), This is
especially dangerous, they argue, since economic relationships are often asymmetrical
and disturb the relative power balance of states (Barbieri and Schneider 1999; Barbieri
2002; Grieco 1993; Waltz 1979). Waltz (1999) goes as far to say that the world is,
fortunately, not interdependent. This literature also contends that states merely use trade;
that is, peace can cause trade but trade cannot cause peace (Gholz 2007; Waltz 1979).
Finally, Huntington (1993) suggests that interstate economic activity increases cultural
identification, spawns chauvinism, and leads to conflict between polities representing
different cultures. Anti-globalists answer to refutation concerning international co-
operation by stressing that it might be in the short-term interests of states to co-operate
and that states economically co-operate because they are allies and not vice-versa (Grieco
1993; Gholz 2007).
The commercial liberals are ultimately more convincing in presenting their
arguments concerning interdependence between states; they effectively establish that it
discourages war by increasing its opportunity costs. Trade allows countries to import
foreign goods that either cannot be produced or are difficult to produce domestically. It
also allows them to sell the goods and services that they are best at producing to a wider
market. These characteristics of open economies encourage states to become specialised
rather than self-sufficient and ultimately dependent on their trading partners for goods
and services (Smith, 1993). Since war between trading partners would prevent such
exchange, it would reduce each states economic capability and make war more
expensive, lessening the likelihood of it happening (McDonald, 2009: 33, 38).
States also become dependent on capital investments. Interstate wars threaten
foreign investments with either destruction or expropriation; both of these outcomes
decrease a states gross national income and sacrifice relative power to its enemy (Russett
and Oneal, 2001: 141). In some cases, disturbing international flows of capital can
prohibit a war effort. If a states domestic industry is largely dependent on foreign capital
and credit, beginning an interstate war could prompt a withdrawal of capital and
effectively render that state unable to effectively wage war (Gartzke and Li, 2003). Gholz
(2007: 618) suggests that there is little real separation between resources and foreign
investment, as investments can be captured and used by invading states. However, he
fails to account for other political, fiscal, and economic costs of war that make states
generally prefer to simply invest rather than fight. Capital should also be viewed more as
a flow than a stock in maintaining economic growth. Since states come to depend on
these flows, the cost of breaking them makes war less likely.
Signalising theory explains why interconnected states are reluctant to wage war,
even with states they are not directly connected to. States with closed economies pay
little to no price for their international communications; their leaders may say as they
please and even bluff with practical impunity (Gartzke and Li, 2003: 566). Often, war
results from a failure of states to realise the benefits and costs of fighting. However, if a
state is dependent on foreigners to remain functional, the speech of its leaders becomes
costlier as markets react to threats and deceitful information. This provides an incentive
for state communication to be peaceful and credible rather than reckless and false
(Gartzke and Li, 2003: 566). For example, if a leader threatens war, economic actors have
the power to sell stocks in that states economy or withdraw their capital from that state
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(Chan, 2009: 445). Information becomes even more credible when independent
international organisations compile information and coordinate state interests using it in
dispute resolution (Russett and Oneal, 2001: 164). Flexible capital allows financiers to
choose which economies are the safest to operate in, creating signals for positive and
negative statecraft.
Transnational exchange also provides a means for states to economically expand
without acquiring new territory. Closed economies are often pressured to invade other
states in order to acquire vital yet otherwise unattainable resources or sources of revenue
(Gartzke and Lupu, 2012: 117-18). However, international commerce allows states to
purchase these resources and investment in foreign resources to generate profit, all
without the necessity of annexing territory by conquest (Gartzke, 2007: 166). There are a
number of other economic causes of war that interdependence extinguishes; for example,
states need not expand to attain guaranteed markets for its products (McDonald, 2009:
38).
Opponents of commercial liberal peace theory argue that trade is usually
asymmetrical and changes the relative powers of states, thus generating conflict. For
realists, uneven trade/investment relations imply that trade and foreign direct investment
negatively affect the prospect of peace (Gholz, 2007: 623). First, they argue that
closeness of contact provides a connection between people, which is necessary for a war
(Waltz, 1979: 160; Barbieri, 2002: 81). This is especially the case when cooperation
creates a gap between them and competition emerges without a mediator (Barbieri, 2002:
81; Grieco, 1993). Similarly, dependency theorists offer that the economic relationships
between developed and developing states cause tension and increase the likelihood of war
(Barbieri and Schneider, 1999: 389-90; Russett and Oneal, 2001: 131-32). Finally, the
possibility of a relative power change, which often comes with economic integration, can
lead to rising states that seek to declare their newfound power status and old powers
seeking to defend their primacy (Pollins, 2008: 193).
These critiques fail to adequately demonstrate why closeness or asymmetry
increases the likelihood of war. First, the logical conclusion of Waltzs and Barbieris
argument concerning the dangers of closeness is that allies are more likely than other
states to go to war; this is patently false. If it is true that only states that have previously
interacted can go to war, it does not follow that interaction leads to war. Second, the
incentives for states to wage war, even if they are rising/declining powers, are lessened
by the establishment of new means to express supremacy, namely economic hegemony,
which replaces military hegemony. Fundamentally, realists fail to account for the fact that
individuals and firms trade; states merely allow it. The fact that China has become
Taiwans largest trading partner despite the antagonism between these states
demonstrates that the decisions of individuals and firms can often amount for more than
national interest in international relations (Chan, 2009: 438). The arguments of
dependency theorists are similarly flawed. Tension between a core and periphery does
not increase the likelihood of war as the core has no incentive to invade the areas it can
economically exploit and the periphery realises it could not realistically defeat the core.
Even realist analysis of global equality refutes such arguments: Waltz (1979: 132)
suggests that order is impossible to achieve in an equal society, while hierarchies are able
to provide security and order. Furthermore, Russetts and Oneals (2001: 147) empirical
evidence suggests that dependency increases the likelihood of peace, even in unbalanced
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relationships. Ultimately, a global hierarchy serves to reduce the likelihood of war,
regardless of its moral implications.
Economic exchange between states, especially when open and market-based,
promotes international values that lower the likelihood of war. Choi (2010: 275) suggests
that individualism, tolerance, and universalism are inherent in liberal economies. Since
such economies enable and encourage people to pursue their own interests and maximise
their own utility, they are linked to individualism. Tolerance is related to individualism,
as people are expected to do as they please in a market system rather than do what a
wider community views as right. Furthermore, market liberalism presents itself as a
scientific theory constructed from universal axioms of human nature. It also posits that
individuals have universal rights to engage in various economic activities. These
principles lead people to oppose war, which is necessarily a collectivist venture, is
usually motivated by intolerance toward the behaviour of other states, and often violates
what liberals view as universal rights. McDonald (2009: 33) argues that the classical
liberal belief in individual liberty also reduces popular acceptance of war since it often
coincides with a reduction of civil liberties domestically and the chance of invaders
restricting freedoms. States rely on popular approval to varying degrees and cannot act to
promote their security interests if the people managing the government or if the populace
does not accept the means to do so. Thus, open economies make states and their
populations less prone to war.
Critics of market liberalisms ideological imperialism argue that opening
economies leads to backlash against internationalism and an embrace of regional cultures.
Huntington (1993: 25-26) argues that increased global interaction increases peoples
awareness of their own cultures, increasing what he causes civilization consciousness.
As an example, he cites the rise of fundamentalism in the Middle East. According to
Huntington (1993: 25-26), greater interaction with the world moves loyalties away from
the personal and local to the civilizational (that is, to larger cultural groups).
Huntingtons analysis fails to adequately refute commercial liberal contentions for a
number of reasons. First, he accepts that backlash indicates a general distaste for
something. However, change usually generates opposition: the fact that mens rights
groups have emerged in response to feminism does not indicate that society as a whole
opposes gender equality. Second, he assumes that civilizational tension leads to war. This
begs the question, as the existence of distinct groups is a necessary precondition war. It is
clear that groups cause war, but Huntington never explains why cultural reasons drive
these groups to fight. It does not explain why, for example, the United States has
maintained good relations with Saudi Arabia yet invaded Iraq: economic factors do, as
Saudi Arabia extensively traded with the United States while Iraq did not.
International commerce also enables the institutionalisation of international
relations and the rise of a commercial class that undermines the authority of states.
Gartzke (2007: 170) posits that international economic activity, by allowing capital to
move between sovereign jurisdictions, makes wealth more difficult to control by
governments and easier to control by capitalists. Free trade specifically decreases the
power of groups receptive of war to those that will to prevent it (McDonald, 2004).
Under the mercantilist economic models of the early modern period, the emerging
bourgeoisie depended on the state for its livelihood. With international exchange and the
empowerment of capital, the state depends on the bourgeoisie for prosperity (McDonald,
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2009: 38-39). Increased wealth also lends this commercial class power as a special
interest group within states (Russett and Oneal, 2001: 130). The interests of this
commercial class manifest themselves in the international institutions that govern
interstate economic activity, such as the World Trade Organisation. Since war generally
reduces the ability of commercial groups to make profits, the rise of an international
bourgeoisie reduces the likelihood of trading states fighting.
Institutionalisation also unites the interests of states and provides an avenue for
dispute resolution. Although it is often in the long-term interest of states to economically
co-operate, states often choose to conflict with each other due to short-term security
concerns. However, international institutions allow states to promote their shared
economic interests by independently concentrating on specific issues and applying
independent, credible information to them (Russett and Oneal, 2001: 165). This
proposition is supported the functionalist thought of David Mitrany (1966), who argues
that international organisations designed to perform certain functions could weaken state
sovereignty and unite the interests of global populaces. Although realists have accused
such thinking of overlooking national backlash to the assumption of sovereign power,
history has suggested that states tend to sacrifice their own might to appease their
commercial classes and internationalise their economies. For example, membership in
international organisations provided South Africa, Ukraine, Belarus, and other states
enough of an incentive to abandon their nuclear weapons programs (Choi, 2010: 276).
Finally, international institutions provide a means for rival states to resolve their disputes
formally (Russett and Oneal, 2001: 163-64); the leverage granted to these organisations
by the peace-interested commercial classes allows them to influence state behaviour
(Pollins, 2008: 197).
Although opponents of the commercial liberal peace hypothesis often cite the
First World War, the war ultimately provides evidence for its validity. First, it began
between non-interdependent states that had not fully industrialised; there was little
economic interaction between Serbia, Austria-Hungary, and Russia (Gartzke and Lupu,
2012: 125-27). Where there was significant trade, alliances formed. France, for example,
traded far more with the United Kingdom and the United States than Germany, leading
these states to reconcile past disputes (Gartzke and Lupu, 2012). The commercial liberal
peace hypothesis also concerns itself with likelihood, so a single counterexample
involving two countries that trade and go to war is not sufficient to disprove the theory.
In the case of the First World War, there were other reasons for war that became too
many for economic activity to prevent (Russett and Oneal, 2001: 174). It is also worth
noting that international trade had reached a relative maximum in 1906 (Russett and
Oneal, 2001: 174) and that political controls over interstate economic activity became
popular before the war, indicating that institutionalised openness helps peace as it
restricts state control over their economies (McDonald, 2009: 185). Waltz (1979: 141)
asserts that states were more interdependent before the First World War than now;
however, he supports this by referencing trade as a percentage of gross domestic product,
which fails to account for the growth of capital investment since then. Ultimately, trade
allowed for peace between some states in the First World War but was not substantial
enough to prevent a host of other factors from culminating in armed conflict.
Regardless of its other consequences, increased international economic activity
between states is an unambiguous force for peace, especially when economic
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relationships are institutionalised, open, and market-based. This essay first established
this by illustrating that economic interdependence, a consequence of trade and capital
investment, increases the opportunity costs of war; it then contended that economic
interconnectedness removes ambitions to acquire resources and wealth as a cause of war.
The essay continued by refuting the anti-globalist claim that asymmetric trade
relationships increase tension and the possibility of war by pointing out internal
contradictions in this argument and by examining the available models of such
relationships. Next, it assessed the values of market liberalism and concluded that open
economies encourage values that make war less likely. It subsequently examined the
ascendency of the commercial class and international organisation and how this
phenomenon makes great power war unlikely. Finally, the essay applied the arguments of
liberals and anti-globalists to the First World War.
These findings are significant as they suggest that the world system, recently
shaken by financial crisis, should head down the road to greater globalisation if global
peace is to be its greatest priority. They also demonstrate that the international cannot be
purely understood in terms of states; rather, individuals, firms, and organisations also
determine whether there is peace. This supports the wider notion of a liberal peace
between co-operative republican states. Although the lack of great power war in recent
history and the inability to separate individual factors from the narrative of history put
limits on how categorical any answer can be, this essays conclusion follows from the
available literature and evidence. This essay suggests opportunities for future research
including the relative importance of trade and investment, the effect of globalisation on
civil strife, and the actual power of international economic organisations. Ultimately, this
essays findings suggest that the international neoliberal paradigm is fostering peace
regardless of its other consequences despite the contentions of protectionists and anti-
globalists. Assuming these findings to be correct, the international community is left with
the choice of peace under an international commercial class or a potentially less stable
alternate order.


















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