Producing Security: Multinational Corporations, Globalization, and the Changing Calculus of Conflict.

Li, Quan

Producing Security: Multinational Corporations, Globalization, and the Changing Calculus of Conflict, Stephen G. Brooks (Princeton: Princeton University Press, 2005), 316 pp., $35 cloth.

Multinational corporations (MNCs) have always been controversial. Proponents praise them for creating jobs in host economies, raising labor's wage rate, bringing in scarce capital and managerial know-how, generating technology spillovers, and increasing economic growth. Opponents criticize them for introducing inappropriate technologies, setting up sweatshops, exploiting and destroying the environment, reducing market competition, and wielding excessive economic and political power in host economies. In these debates, however, most scholars, social activists, and policy-makers have ignored the implications of MNCs and international production for international security.

In this path-breaking book, Stephen Brooks provides a systematic analysis of the causal mechanisms by which MNCs influence international security and offers predictions about the kind of influence they are likely to have on the security relations among different countries in the future. Now, 65,000 MNCs and their 850,000 affiliates account for 30-50 percent of international trade and a significant portion of global value-added activities (pp. 17-18). More importantly, MNCs have geographically dispersed their production activities and technological development in a way that is qualitatively different from that of the first, pre-1914 globalization era. Since the 1970s, there have been not only increases in the stand-alone MNC foreign affiliates and the within-MNC research and development activities, which are traditional features in the history of multinationals, but also MNCs' newer growing strategic reliance on international subcontracting, outsourcing, and interfirm alliances in technological development. For example, the value of international outsourcing by U.S. manufacturing firms rose from $48.8 billion in 1972 to $356 billion in 1987 (p. 22), and the number of interfirm alliances reached 4,182 in the 1980s (p. 34). All these developments in international production have made foreign direct investment (FDI) the key source of advanced technology and capital. As a result, being closed to MNCs has become costly for states in terms of lost opportunities to raise their international competitiveness. States have rushed to liberalize their controls over MNCs, relaxing entry and operational conditions, national control, and sectoral regulation, while they have competed to offer various investment incentives. However, while competitive pressures to internationalize production have become pervasive, the dispersion of international production across regions has not been uniform--it tends to be concentrated in North America, Western Europe, and Japan, which appears attributable to the influence of regional economic integration agreements (p. 30). It is noteworthy that new forms of dispersed international production such as interfirm alliances, which have transformed the advanced countries into knowledge-based economies, have not occurred in most developing countries, even in China, which has received the largest amount of FDI among all developing countries.

Brooks argues that these characteristics of international production affect international security by changing the incentives, capabilities, and, hence, the nature of the actors. First, the geographic dispersion of international production reduces the economic benefits of military conquest, particularly among the advanced countries, because military conquest repels foreign capital, undermines interfirm alliances, often results in economic centralization in the conquered land, generates less spoil for the conqueror along the dispersed value chain, and reduces technological innovation in knowledge-based economies. Brooks demonstrates this by reference to the experience of the Eastern European countries under the Soviet rule, particularly Hungary. The Hungarian government sought to attract foreign production capital after 1972 by liberalizing FDI regulations and offering tax concessions and new source capital. However, the influence of the Soviet Union, with its centralized management of the economy, prevented Hungary's policy efforts from producing any significant amount of FDI inflow before 1990. Soviet economic centralization also repressed innovations and the rise of knowledge-based economies in other Eastern European countries and, in the end, brought little economic benefit to the Soviet Union itself.

Second, competition for global production capital deepens regional economic integration among long-standing security rivals, producing better political relations--but only for cases in which these countries are parties to regional trade agreements with few other member countries, all of whom have large economies and would have difficulty attracting foreign capital unless they cooperate through the agreements. For example, the development of Mercosur, the Southern Cone Common Market, motivated partly by the pursuit for foreign capital, helped Argentina and Brazil to resolve their 150-year-long security rivalry.

Third, the existence of MNCs also implies the internationalization of weapons production and the rising cost, complexity, and scale of developing new military technologies. States pursuing cutting-edge military technology can no longer resort to autarkic defense production without falling behind. The internationalization of U.S. defense production and military technology, Brooks notes, stood in sharp contrast with the autarkic production of the Soviet Union and contributed to the technological gap between the Cold War superpowers. In short, great powers can no longer afford to pursue autarkic defense-related production.

Overall, the postwar dispersion of international production could be credited with producing peaceful relations among great powers, and can be expected to do so in the future. This stands in contrast to the pre-1914 era when, critics argue, globalization failed to secure peace. Brooks further argues, however, that the dispersion of international production capital has not produced such pacifying effect on security relations among developing countries and has had only a mixed effect on security relations between great powers and developing countries. This is mainly because the noted economic and institutional conditions under which international production reduces economic benefits of military conquest and deepens regional integration among security rivals are not present in the developing countries. Furthermore, since developing countries most often employ their militaries in regional actions and focus on less complicated, smaller weapons systems, it is unlikely that the globalization of defense-related production would be relevant to their security relations.

Three issues, however, may challenge Brooks's causal analysis, suggesting the need for future research. First, the game theoretical literature of international conflict, which Brooks has ignored, posits that the decision to go to war results from the failure of bargaining between states due to their uncertainty about their opponent's payoff structure and resolve over a contested issue. Globalization, measured in terms of trade, FDI, and financial openness, reduces the probability of war by serving as a means of costly signaling, rather than by changing the cost-benefit calculus. That is, since both parties already know the value of their economic exchange before engaging in military action, the size of the economic stake per se is not informative as to the opponent's resolve to uphold its position on the contested issue. But a military threat over the contested issue has the effect of repelling international production capital, and so carries an economic cost that gives the state's threat additional credibility. Such costly signaling informs the other state of its opponent's resolve, often resulting in bargaining success and avoidance of violence. While Brooks focuses on the role of globalized production as a structural constraint that prevents any great power from complete dominance in bargaining (p. 217), one may wonder how his argument fits into the bargaining framework, since the quality of security relations eventually boils down to the decision to go to war. Second, the rapid dispersion of international production appears itself to be a consequence of the end of the Cold War. Brooks claims that his book focuses on the impact of globalization, touching on this endogeneity issue only in passing. But the empirical evidence he uses shows that multinationals' international production increased much more rapidly and dramatically after 1989 (for example, fig. 2.2, p. 18). Third, given the theoretical and policy significance of Brooks's predictions about security relations among various countries, it is important to verify their empirical validity in large cross-national samples to avoid case selection bias, rather than focusing on a few countries. Of course, it should be acknowledged that the lack of reliable data poses a significant challenge to such an exercise.

Despite these quibbles, this is an innovative, sound, systematic, and insightful volume for all those who are interested in the implications of economic globalization for interstate war and peace.

QUAN LI

Pennsylvania State University