Expeditionary Economics
Based on the attached reading write a brief, less than 1 page, discussion around the article and the below talking points.
America has one of the most entrepreneurial economics in the history of man. To a large extent, the founding fathers inculcated that in us by creating bankruptcy laws that favored the debtor more strongly than common law at the time. While it may have been done to protect Virginia farm owners, it was nonetheless a decision that had far-reaching consequences. What decision (abroad or domestic) should be reconsidered to create better entrepreneurial opportunities in the future?
Expeditionary Economics
Spurring Growth After Conflicts and Disasters
Carl . Schramm
THE UNITED STATES' experience with rebuilding economies in the
aftermath of conflicts and natural disasters has evidenced serious
shortcomings. After seven years of a U.S. presence in Iraq and over
nine years in Afghanistan, the economies of those countries continue
to falter and underperform. Meanwhile, the damage caused by the
earthquake in Haiti early this year revealed deep economic problems,
ones that had confronted earlier U.S. efforts to boost Haiti's economy,
and they will plague reconstruction efforts there for a long while.
Economic growth is critical to establishing social stability, which
is the ultimate objective of these counterinsurgency campaigns
and disaster-relief efforts. Various obstacles, such as insurgencies and
inadequacies in infrastructure, have made economic development
difficult in these countries, of course, but these difficulties cannot be
blamed exclusively on such obstacles. A central element in the failure
to establish robust economies in war-torn or disaster-stricken countries
is the prevailing doctrine of international development, according to
which strong economies cannot emerge in poor countries.
Yet there is a proven model for just such economic growth right in
front of U.S. policymakers' eyes: the entrepreneurial model practiced
in the United States and elsewhere. This model rests to a huge extent
on the dynamism of new firms, which constantly introduce innovations
CARL J. SCHRAMM is President and CEO of the Ewing Marion
Kauffman Foundation and a co-author, with William J. Baumol
and Robert E. Litan, of Good Capitalism, Bad Capitalism.
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Carlj Schramm
into the economy. Washington's recent engagements have made it
appreciate that postconflict economic reconstruction must become a
core competence of the U.S. military. But this appreciation has not
yet been followed by sufficient enabling actions. The U.S. Army
Stability Operations field manual, published in 2009, offers no relevant
guidance on what role economic development should play in the United
States' postconflict strategy or how to help build dynamic, growthoriented
economies. The manual epitomizes the central-planning
mindset that prevails in the international development community.
It is imperative that the U.S. military develop its competence in
economics. It must establish a new field of inquiry that treats economic
reconstruction as part of any successful three-legged strategy of invasion,
stabilization or pacification, and economic reconstruction. Call this
"expeditionary economics.
A DISCOURAGING RECORD
THE U.S. MILITARY often cannot accomplish its long-term missions
by force of arms (postinvasion Afghanistan and Iraq) or with its
logistical skills (relief efforts in Haiti) alone. Military planners are by
no means blind to this challenge. Most are not economists, but they
are well aware that unrest in the world's trouble spots tends to be fueled
by a lack of economic opportunity. Indeed, the areas that have proved
most fertile for terrorism recently have had low or negative rates of
economic growth over the last 30 years.
Yet U.S. military planners and U.S. troops on the ground often
turn to U.S. and international development agencies or nongovernmental
organizations (NGos) for practical guidance on improving local
economic conditions only to find that the putative experts are little
help. The record of recent economic reconstruction efforts in postconflict
settings is discouraging, to say the least. In Bosnia, which has
received massive development aid from a coalition of countries since
NATO and UN forces intervened there in the 1990s (close to $io billion
since 1995), unemployment and poverty both hover around 25 percent
today. A UN report released in early 2009 placed Iraq's overall unemployment
rate at 18 percent (which means it remains virtually unchanged
since 2004)-and unemployment in the volatile demographic of men
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aged 15 to 29 at about 28 percent. Iraq's GDP per capita stands at $3,300,
roughly half the level of Bosnia's. In Afghanistan, meanwhile, the main
growth industry remains opium cultivation, thanks to the support
of both farmers and the Taliban, who sustain themselves financially
partially thanks to the drug trade.
Elsewhere, the sweeping structural reforms that have often been
mandated by lenders at the World Bank and the International Monetary
Fund (IMF) have done little to help struggling economies.
Long-running aid programs have left many African countries mired
in poverty. Arguing that the aid may even have retarded progress,
some informed voices in poor countries are pleading for an end to
the assistance.
Two points stand out from these experiences. First, when rebuilding
postconflict and post-disaster countries, it is not enough merely to
restore the economy to a level resembling the pre-crisis status quo.
The economy is often part of the original problem in places that
become trouble spots. Afghanistan has been very poor and thus a
magnet for illicit activities, such as the opium-poppy trade, for many
years. Iraq has long relied on oil exports, treading the risky path of
countries that depend on the extraction of natural resources. The risks
include, among other things, rule by dictator, because a government
that can control such resources can usually control almost everything
else, too.
The second key point is that stabilizing a troubled country requires
economic growth more than economic stability. For this, job diversity
is needed in the private sector-in other words, options well beyond
the usual public-sector sinecures are essential. New opportunities
must be created that are more attractive than trading on the black
market or making bombs.
The U.S. military is well placed to play a leading role in bringing
economic growth to devastated countries. It may have little resident
economic expertise, but it has both an active presence and an active
interest in places where economic growth is sorely needed. The U.S.
armed forces usually are the most formidable and best-resourced
entity in the troubled countries in which they operate; indeed, the
Defense Department today controls one-fifth of U.S. foreign aid. In
many cases, the U.S. military effectively serves as the legs of the other
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CarlJ Schramm
government agencies and of the NGOs offering assistance. It also has
a strong interest in concluding expeditionary ventures quickly: prolonged
occupations increase the risks that more troops will die and
that resources will be stretched thin. Such possibilities weaken the
United States' chances of responding to the next crisis.
The U.S. military must therefore formulate a doctrine of expeditionary
economics designed to spur solid growth as rapidly and effectively
as possible. For this, it should draw on some of the more recent wisdom
of the international development community-a growing number of
scholars are rejecting the decades-old doctrine of big plans and
dictated reforms and turning instead to more modest yet more effective
projects. Some military officers, in fact, have already been doing work
along these lines. The military could then use the various means of
influence at its disposal to steer international development practices
in the direction of the new doctrine.
MESSY CAPITALISM
THE UNITED STATES' method of producing economic growth has
proved itself time and again. Entrepreneurs have continuously reinvigorated
the U.S. economy, especially during periods when experts
feared that it was slipping into decline. And they are poised to do so
again now, in the wake of what is being called the Great Recession.
U.S. and international development policies would be much more
successful if they applied to other countries the salient features of the
United States' economic form, especially entrepreneurship. The rate
at which new businesses are created in the United States is among the
highest in the world. Many countries encourage the activities of small
and medium-sized firms, but the United States boasts many young
companies that grow rapidly to a significant scale and thus inject huge
doses of dynamism into the system. This has been true even during
economic downturns: over half the companies among the Fortune 500
were launched during a recession or in a bear market.
The creation of high-growth firms has multiple benefits, chief
among them the constant creation of new wealth and new jobs, even
as older firms recede because of global competition, changing lifestyles,
or advancing technology. Intel, Genentech, and Google are such
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dynamic companies, and there are others outside the technology sector.
Some high-growth firms have introduced new services or business
methods that have helped the entire U.S. economy operate more
smoothly and more productively: some examples are delivery and
transport firms, such as FedEx; low-cost retailers, such as Walmart;
and various mutual funds and discount brokers, which have vastly
broadened the scope of private investing.
Such transformative entrepreneurship is not a modern phenomenon
or a phenomenon that occurs only in already developed economies.
In the late i8oos and early l900s, when the United States was itself a
less developed country, high-growth enterprises included all the
major railroads; Sears, Roebuck; Western
Union; International Harvester; and Stan- The U.S. military is
dard Oil. And this is not unique to the
United States: two of the great economic well placed to play a
stories of the past 30 years are China and leading role in bringing
India, whose progress has contributed to a
historic drop in global poverty. Each is following
a different model, and and each is devastated countries.
following a model different from the United
States', but in both cases, entrepreneurs are
playing an important role, as they did in the United States. Although
much attention is paid to the role of the Chinese state, the creation
of private enterprises has exploded in China over the last two decades,
and many observers trace the origin of the Chinese miracle not to
Deng Xiaoping's leadership but to the appearance and spread of village
enterprises in the 1970s and 198os. In India, firms such as Tata (an
industrial giant), Wipro (a vegetable oil trading company turned technology
giant), and Infosys (one of the country's largest information
technology companies) have led the country's economic growth.
Entrepreneurial capitalism is messy, since it is highly organic
rather than centrally planned or centrally managed. Many different
people and entities bring the elements-from new firms to university
research to federally funded research-into place, and activity flourishes
from letting them all evolve and interact in the marketplace. It is
nearly impossible to predict what outcomes these activities will bring
beyond a broad trend toward higher productivity, rising standards of
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CarlJ Schramm
living, and continued economic growth. By contrast, the problem with
international development today is that it is dominated by the theory
and culture of grand central planning. Successfil development requires
a strategy, not a plan.
The so-called Washington consensus laid out a set of guidelines
according to which troubled countries were to restructure their
economies. For the World Bank, the IMF, and U.S. government
agencies, these guidelines have become conditions for granting loans
or aid. Countries seeking assistance are expected to, among other
things, practice fiscal discipline, cut subsidies to domestic industries
while investing more in infrastructure and education, privatize and
deregulate key industries where possible, and reform or liberalize their
policies on taxes, interest rates, and international trade. Development
agencies then translate these policies into detailed plans to be implemented
by allegedly competent government agencies and contractors.
This is the template that U.S. officials used for restructuring Iraq's
economy after the U.S.-led invasion of 2003. The U.S. Agency for
International Development (USAID) hired U.S. contractors, such as
Bechtel, for large construction projects, mostly bypassing ordinary
Iraqi citizens. Little regard was given to incorporating local residents
or local businesses into the reconstruction efforts. At nearly every step,
outside contractors were given priority, and insufficient attention was
paid to helping build indigenous companies. The Coalition Provisional
Authority sought to promote free trade and a market-driven economy,
but its approach focused primarily on the predetermined institution
building outlined by international development doctrine. It paid
little attention to the creation of firms and jobs-in short, to the
engine of growth, entrepreneurship.
Although international development policy is beginning to recognize
the importance of entrepreneurship, it is so far doing so in ways that
make little substantial difference. Microfinance for tiny enterprises
helps many individuals earn a living, for example, but it does not
stimulate high-growth enterprises. Attempts to cultivate high-growth
firms, meanwhile, have focused on attracting venture capital and
other growth incubators. Such important support mechanisms are,
indeed, found in entrepreneurial capitalism, but in advanced economies,
they do not help as much as is commonly believed. Less than 16 percent
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of the fastest-growing U.S. firms in the past decade received any
venture capital. In developing economies, such capital sources should
not be considered an agent for inducing entrepreneurship. Studies
show that it is entrepreneurial activity that creates venture capital,
not the other way around.
The U.S. military's economic programs in Iraq, like its civil programs,
have led to mixed and sometimes contrary results. Operation Adam
Smith, which was meant to revitalize Baghdad's commercial district,
had little impact. The Commander's Emergency Response Program,
which facilitates the rapid disbursement of funds for physical
reconstruction in Afghanistan and Iraq, has helped quell strife by
putting people to work, as was intended, but it may also have created
dependence and led to the neglect of longer-term activities. These
development efforts are motivated by the very best intentions. Still, a new
and more effective doctrine for spurring economic growth is needed.
AN INTEGRAL GOAL
A DOCTRINE OF expeditionary economics, with practical guidelines
for economic expansion, must begin with a clear notion ofwhat works.
Whenever the United States sends troops overseas, military planners
must consider the effort in three phases: invasion, stabilization or
pacification, and economic reconstruction. These are so strongly linked
that the U.S. government should not engage in any significant military
action until it has thought through and anticipated the requirements
for stabilization or pacification and economic development.
Nor should economic development be seen as a separate task that
can wait until after the others have been achieved. Although the various
steps involved may compete for attention, there are also ways in
which they can inform and reinforce one another. Counterinsurgency
campaigns, for example, can facilitate economic growth by helping
identify the entrepreneurial aspirations of certain individuals.
Going in, detailed economic planning probably is not necessary
and may even be counterproductive. What is most needed then is a
good assessment of the work that lies ahead (and attention paid to
such assessments), with a range of options for how to meet the likely
needs and with well-defined economic goals.
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Carlj Schramm
Too often, in both the military and the international development
spheres, there has been a failure to consider the postwar economy in
any strategic sense. Military doctrine has usually treated operations
other than war as secondary matters to be handed off to other agencies.
These agencies, USAID in particular, have rarely conceived of their work
as part of a larger strategy for the country in question or for promoting
U.S. interests. One-off projects and bureaucratic delays-due in no
small part to congressional constraints on USAID-have created the
impression that dependence and subsistence are the inevitable future
for countries such as Afghanistan. Economic growth is rarely even
considered a possible goal. Regrettably, too, the body of scholarship
on the relationships among economic prosperity, democracy, and
war is a morass of tangled regression analyses and confused notions
of causation. Yet economic growth plainly is a positive force in
society and for governments; it is no coincidence that most conflicts
today, most of which are civil wars, occur in countries with weak or
stagnant economies.
Economic growth must be an integral goal ofU.S. postconflict and
post-disaster strategy. Growth is not simply a mechanistic composite
of statistical indicators. It is in a very real sense an expansion of the
imagination. "For income growth to occur in a society," the economist
and Nobel laureate Robert Lucas has written, "a large fraction of
people must experience changes in the possible lives they imagine
for themselves and their children, and these new visions of possible
futures must have enough force to lead them to change the way they
behave." This view suggests that economic reconstruction must be
rethought, especially by the military planners tasked with establishing
the foundations on which stable postconflict economies will need
to be built.
Economists sometimes get tripped up trying to measure growth; it
can be misleading to look at a single standard, such as GDP growth.
For example, Iraq's per capita GDP rose from 2006 to 2008 due to increases
in world oil prices, but was that really growth or just a fortuitous and
temporary gain in revenues? Afghanistan has enjoyed double-digit
GDP growth for the last several years, but largely because foreign
aid accounts for roughly 40 percent of its economy and the opium
trade accounts for another 40 percent. Strictly speaking, economies
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do not grow. It is individual firms within these economies that growor
shrink. The collective fate of these firms is the fate of the economy.
In other words, signs that real growth is occurring include the
fact that new firms are being founded; that the number of jobs in
firms younger than five years old is rising faster than that of jobs
in older enterprises, including government-owned companies; and
that new firms are growing to large sizes by bringing new products
or new services to the market. For this growth to be sustainable, it is
vital that firms regularly give birth to new lines of business or entire
new industries, especially since existing industries tend to contract as
they mature and as they face ongoing competition. Only then can real
GDP expansion follow.
International development researchers have often been perplexed
by the fact that a program that produces good results in one country
may not work in another. They should not be: every situation is
different; formulaic approaches cannot work.
It is not necessarily true, for example, that Helping other
an economy needs great infusions of outside
capital in order to grow. Start-up ventures countries'economies
do need capital, but the best sources of this grow may be the
capital may differ from one state to another. United States'most
In poor postconflict countries, few entrepreneurs
can finance their own projects, potent way of
especially if these are ambitious ventures with projecting soft power.
high growth potential. In those instances,
some direct investment from the U.S. military
or other U.S. government agencies, preferably working through
local lending institutions, may be required. Another possible model
is something like the United States' Small Business Innovation
Research Program, which makes grants to small firms so that they
can develop and commercialize innovative technology.
Even for companies that are already growing fast but need financing
to continue, venture capital is hardly a one-size-fits-all solution.
Venture-capital financing, which is based on investors' ability to cash
out quickly, may not be desirable in developing countries. In such
places, one should prefer to see local entrepreneurs hold on to their
ventures and eventually build iconic homegrown firms, like Infosys
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Carlj Schramm
and Wipro in India, which not only generate more growth but can
serve as examples for other entrepreneurs throughout the country.
Thus, financing tailored to the circumstances of each country and the
needs of its particular high-growth enterprises is required.
FOSTERING DYNAMISM
PLANNERS AND decision-makers everywhere try to control events
and steer their policies toward predictable outcomes. But a successful
entrepreneurial system requires a willingness to accept messy
capitalism even when it appears chaotic, trusting that the process
will eventually bring sustained growth, as it has in the United States
and elsewhere.
Such an approach may seem to contradict the U.S. military's
usual goal of imposing order in postconflict zones. But this is so only
at first glance. The stability that the military seeks is primarily social
and political, not economic. Some of the world's most dynamic
economies exist in some of the most stable countries-the United
States is an obvious example-and nothing about messy capitalism
inherently suggests a connection to social chaos. Quite the reverse:
social stability often enables entrepreneurial capitalism. The two
goals may conflict sometimes, as when jobs are lost after major
privatizations. Where and when they do, there is no easy answer
for how to reconcile them. But it would be a mistake to invoke this
problem as a justification for preferring stability to dynamism, as the
U.S. government seems to do in other countries, when dynamism
is required for economic growth. A new strategy that strikes a balance
between control and laissez faire is necessary. Economic activity outside
of the government's control should be more than just tolerated:
it should be encouraged.
A successful example of this is the National Solidarity Program
in Afghanistan, an Afghan government initiative that gives block
grants to villagers, who then decide, through elected councils, how
to spend the money. This program, which stresses accountability
has been much more successful than many other development
programs in Afghanistan. (A similar program in Indonesia also
enjoyed success.) Unfortunately, the U.S. government has repeatedly
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scaled back funding for it, perhaps because of its persistent discomfort
with projects that it cannot control.
If they want to do better at building vibrant economies in countries
that have been devastated by war or natural disasters, U.S. military
planners will have to look beyond international development organizations,
which are prone to self-reinforcing thought patterns.
They will have to consult people with practical experience, such as
entrepreneurs who have gotten concrete results from launching
successful firms.
Helping other countries' economies grow may be the United States'
most potent way of projecting soft power. But such power will be
effective only if what Americans have accomplished for themselves
appeals to others. Some nations show disdain for American popular
culture and its supposedly materialistic values, but many more consider
U.S. levels of economic prosperity and opportunity to be the
gold standard, even after the recent recession. They desire the same
at home, only a version tuned to their own cultures and values. If the
United States lets its economic performance slip or if it drifts away
from the principles of entrepreneurial capitalism, it will endanger
the standard that others view so highly and create the conditions for
less America-friendly views to prevail in the world. Conversely, if
it maintains its economic health and learns how to export it more
effectively, the future will look bright for all.
The United States' armed forces are uniquely positioned to contribute
to world peace and prosperity by means other than actual force. And
if they apply the ideas outlined here, they could start a revolution in
thinking about economic growth. But using the whole of American
power effectively-beyond simply the "whole of government"-
means reconfiguring the usual cast of actors, recognizing the limits
of government, and tapping the enormous potential of entrepreneurs
and skilled investors. If successful, such efforts could reshape
current thinking about international development and help strengthen
the United States' national security. One can only hope that this
decade will one day be known as the decade of development, a decade
when the world's most troubled nations finally began to grow.@
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