If U.S. Troops Pull Out, Economic Growth May Slow: Amity Shlaes

Feb. 16 (Bloomberg) — Out. Everywhere. Yesterday. Those three words sum up the mood here at home when it comes to American military presence outside U.S. borders.

President Barack Obama is signaling he wants to get out of Afghanistan so badly that he's even taking a few political gambles to accelerate a pullout. There's also a more general sense that putting soldiers in other countries has proved a bad investment for everyone involved, rendering those nations sadder, rougher and poorer.

Given the parlous budgetary conditions in the U.S., the thinking goes, it would be better to slash U.S. defense spending. We need money at home. This week, Obama proposed reductions in military spending, saying a cut suited our "strategic priorities."

Yet the opposite may be true, at least when it comes to the most obvious form of investment: in economic growth abroad. That is the finding of a study published in recent weeks by Garett Jones of George Mason University in Virginia and Tim Kane of the Kansas City, Missouri-based Ewing Marion Kauffman Foundation.

The more troops, the scholars found, the more growth. Looking at Navy, Army, Marine and Air Force presence in 94 countries over 50 years — 1950 to 2000 — the authors found that putting U.S. troops in a country, starting from 0 to a presence of 100,000, about the number we had in Germany during the period studied, was over time associated with an increase in the per-capita growth rate of that country by an extra 1.8 percentage points a year. Even an increase from 10 to 100 troops corresponded with a rise in growth of a third of a percentage point on average.

Bases Build Nations

"This study suggests Africa is poorer than it would have been with more active alliances between the U.S. and its many countries, particularly because of the absence of U.S. bases there," Kane said in a telephone interview. Right now the concept of nation building is unpopular. But, Kane says, the study suggests that "nation building has a half-century track record worth remembering."

It's worth noting that such sweeping conclusions are only possible because of something many young Americans never knew or have forgotten: that the U.S. was everywhere once, and for a long time. The Pentagon had an average of 730,000 soldiers stationed abroad in the 1950s and 762,000 during the 1960s. Then the numbers dropped to 502,000 in the 1970s, 447,000 in the 1980s and 269,000 in the 1990s. In any given decade, at least 26 nations and as many as 49 nations hosted American troops, according to data assembled by the authors using Pentagon figures.

Most Americans, with the exception of the United Auto Workers, understand that the cars that Japan and Germany sold us after we helped those countries recover from World War II enriched the wealth of both nations. But is the experience of the previous century, when troops were heavily concentrated in European countries with courts and diverse economies, applicable in places such as Afghanistan or Iraq? In one encouraging sign, Jones and Kane found that growth in places with fewer such institutions still accelerated when GIs were present. A prime example is Turkey.

What about military, economic or social aid instead of actual troops? These days, it seems an easy substitute to the U.S. voter, battle-fatigued as he is more than a decade after Sept. 11 and two decades after Operation Desert Storm. But the authors found that "more troops predict growth, but more aid does not," Jones says. "Aid is not a good substitute for growth, even military aid," he adds.

Conversely, the absence of soldiers seemed to hurt. Nations that asked the U.S. to withdraw, like France in the 1960s and Thailand in the 1970s, afterward paid a growth penalty.

Multiplier Effect

The amount of growth forgone in Africa due to the absence of longstanding troops is tragic, Kane says. The 7 percent annual growth once predicted for Ghana by World Bank types would have been more easily realized with troops, he says, than with all the aid it received. Basing Africa Command, a strategic group designed to serve Africa, outside of Africa is perverse, Kane says. It's almost ridiculous for Africa Command to have the address it does: Stuttgart-Moehringen.

The usual explanation for the growth would be the multiplier effect. The local laundry or electrician gets contracts from the base; that laundry owner or electrician then spends what he earned on other businesses in his economy. But multiplier effects don't last, just as stimuli don't last at home. Jones and Kane found robust long-term growth that correlates more with another effect: the exemplar effect. When locals saw how the Army or Navy did business — that it honored contracts or delivered on time — it changed the business culture and courts. Locals trusted one another more, laws changed, and these factors, in turn, strengthened commerce.

Interestingly, the troop growth effects prevail even after the U.S. leaves a place where it has been for a long time. Sometimes there is an initial collapse caused by command economics, as was the case of the Communist regime that took over in Vietnam. But when such countries open up, they tend to grow faster than countries that never had a U.S. military presence. The troops' presence also tended to bring in foreign direct investment from the U.S., supplying capital to locals. This analysis is in line with work by scholars, such as Mancur Olson, who belong to a non-Keynesian school of thought known as public choice theory.

What can all this tell us about Iraq or Afghanistan? One thing, says Kane, is how wrong the U.S. was to hide in green zones and in fighter jets. General David Petraeus, he said, had the right idea when it came to going out into the population and embedding there. "A larger lesson is that engaging in the broader Middle East isn't just about killing bad guys," Kane says. "It is crucial to have presence and build alliances in countries like Turkey, where thousands of U.S. troops have been for decades."

Countries that feel they can count on a U.S. presence prosper under the certainty of the security umbrella and then trade with the U.S. The current thinking may be backward. Defense spending, said to be part of America's growth problem, may instead be part of its growth solution.

(Amity Shlaes is a Bloomberg View columnist and the director of the Four Percent Growth Project at the Bush Institute. The opinions expressed are her own.)

© Copyright 2012 Bloomberg

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