Summary of The William J. Casey Institute Of The Center For Security Policy’s Symposium On: “The Growing Nexus Between Geopolitics And The Markets”

13 March 1997
The Harvard Club, New York City

As markets for energy, technology and
financial instruments become more global
in character, the implications for U.S.
national security must be thoughtfully
addressed. The American government’s
practice of recent years — which has
tended to consider these inextricably
intertwined fields in isolation from one
another — is a formula for disaster.
Neither the security nor the economy of
the United States will be well served
over the long-term if policies are
pursued that fail to give due weight to both
facets of the global equation.

The following are among the hard
questions requiring considered answers:
1) Where will the greatest geopolitical
threats most likely emanate from? 2) What
economic and financial policies would
best mitigate the risks to American
national security and what defense
practices would best serve U.S. interests
in the economic, financial, energy and
technology fields? And 3) Is U.S.
currently prepared to formulate and adopt
such policies?

In order to stimulate and inform
debate about these and related issues,
the William J. Casey Institute of the
Center for Security Policy on 13 March
1997 convened its first Semi-annual
Symposium in New York City. The topic to
be addressed was: “The Growing Nexus
Between Geopolitics and the
Markets.”

Three distinguished Americans with
expertise in these fields served as Lead
Discussants: Robert L. Bartley,
Editor-in-Chief of the Wall Street
Journal; John F. Lehman,
former Secretary of the Navy Chairman of
J.F. Lehman & Company; and Roger
W. Robinson, Jr., former Senior
Director for International Economic
Affairs at the National Security Council
and the current holder of the Institute
William J. Casey Chair. Other
participants included more than one
hundred leading members of the
international business community and
defense industry, respected journalists,
former government officials and others
involved in public policy. (A complete
list of participants is attached.)

This paper briefly summarizes the key
points that emerged in the course of the
symposium. No effort was made to define
or approve consensus positions on the
issues discussed, nor were specific
recommendations adopted by the group. wp=”br1″>

The Business-Government
Disconnect

The pace and scope of modern business
have grown to immense proportions. In
fact, the term “multinational
corporation” has, for all intents
and purposes, lost its significance
because fewer and fewer American
businesses are not involved in some way
with the international marketplace. Even
relatively small U.S. businesses are
increasingly operating on a global scale.
The U.S. economy is inexorably being
redefined as an integral part of a
rapidly evolving world economy.

One effect of these changes is to
create unprecedented exposure for U.S.
enterprises to changes in sources of
supply and market share, to say nothing
of the effects of war, local conflicts
and terrorism. This reality places a
premium on ensuring not only open
dialogue between the business and
policy-making communities but also an
increasing appreciation in the former
about the national security implications
of international developments.

Accomplishing these goals is,
unfortunately, complicated by the reality
that the modern business culture is, in
important respects, worlds apart from the
Beltway political culture. For example,
inside the Beltway, there are still many
influential figures who continue to hold
out Japan as the model for economic and
industrial policy. In fact, as any
competent entrepreneur understands,
Tokyo’s efforts at centralized planning
and industrial policy that has greatly
contributed to Japan’s recent economic
decline.

U.S. experimentation with a similar
approach has been scarcely more
satisfactory. A case in point would
appear to be the Pentagon’s Very
High-Speed Integrated Circuit (VHSIC)
program. Fearing that commercial industry
could not produce the advanced circuitry
necessary for high-tech weaponry, the
multi-billion dollar VHSIC initiative was
born. In the event, the first VHSIC chips
produced in 1988-89 were an embarrassing
seventy-five percent slower than the PC
chips Intel was manufacturing at the
time.

The Problem With China

Much of the discussion in this
Symposium involved the nexus between
national security and economic interests
concerning the Peoples Republic of China.
It was noted that despite its repressive
political regime and continuing — if
selectively applied — communist economic
system, China is reaping vast economic
benefits from trade with and investment
from the capitalist world.

These benefits are enabling Beijing to
translate a rapidly expanding economy
into major underwriting for the
modernization of China’s military forces,
including a new-generation strategic
ballistic missiles. Concern was expressed
by many participants about Beijing’s push
for regional and even global superpower
status.

The question facing the United States,
then, is whether to attempt to curb
China’s rapid growth through a policy of
containment, or to “engage it”
in hopes that democratic pluralism and
respect for human rights will flow from
increased exposure to Western
institutions and societies?

A number of participants emphasized
the difficulties associated with trying
to contain China. Unlike the Soviet
Union, which presented itself easily to
economic isolation, China has sought to
push its tendrils out into the
international economy, and has done so
with considerable success.

On the other hand, the policy of
unbridled economic engagement being
pursued by the Clinton Administration
could carry serious implications for
American security. The record to date
suggests that, rather than becoming
‘democratized’ through economic growth,
open access to Western markets and
investment merely serves to enrich,
empower and embolden China. Notably,
since the People’s Liberation Army (PLA)
is comprehensively engaged in much of
China’s commercial operations, its
profits can go straight into PLA coffers
for the purpose of buying, among other
things, advanced conventional and
unconventional weaponry.

‘Strategic Bonding’

The Casey Symposium also illuminated
another, less noticed down-side to
China’s yawning access to American
corporations and investors: Doing
business with Beijing tends to creates a
U.S. constituency comprised of interested
parties (e.g., securities firms, pension
plans, insurance companies, leasing
firms, corporations and individuals) that
could effectively hamper, if not
preclude, Washington in taking political,
economic or military actions against the
Chinese government should the need arise.

A case in point is the use China,
among others, is making of international
and U.S. financial markets to secure
undisciplined, unconditioned and largely
non-transparent resource sources. By
issuing sovereign bonds or similar
instruments offered by government-owned
or controlled corporations, China is able
to gain access to large sums of
inexpensive, general purpose cash without
having to meet the requirements imposed
by the International Monetary Fund.

For example, China’s Military
Commission (which oversees the People’s
Liberation Army) has reaped hundreds of
millions of dollars by issuing U.S.
dollar-denominated bonds. Using front
companies such as the China International
Trust and Investment Corporation (CITIC),
the Chinese military can obtain funding
from America’s companies and individuals,
and then use the money for goals inimical
to U.S. interests.⁽¹⁾

Through such borrowing hundreds of
firms, and tens of thousands of Americans
and foreign nationals may be converted
from investors into advocates bent on
ensuring that no economic action is taken
against China, irrespective of its
policies and behavior. Indeed, they may
even push for financial support for
Communist China. After all, holders of
Chinese “paper” will not want
their un-reschedulable assets to lose
value; it stands to reason that the
prospect of a cash-flow or liquidity
crisis in China when the bonds mature,
will translate into intense pressure on
the US government to bail out Beijing in
much the same fashion that it did
previously with respect to Mexico City.

Financial Sanctions

Markets are extremely powerful forces,
which is why economic sanctions have such
problems in being influential and
sustainable. Attempts by Washington to
levy sanctions unilaterally are often
ineffectual, especially with the rapidly
changing international environment. Even
when effective, such sanctions tend to be
a blunt instrument, frequently harming
innocent citizens of the target country
while having little, if any, impact on
their leadership elite.

These realities give rise to an urgent
need to define and, as appropriate,
utilize carefully crafted financial
measures designed to penalize foreign
misdeeds in a discriminate and effective
way. The Symposium identified financial
sanctions as one potentially promising
new policy tool that might be considered
in this regard. The recommendation that a
screening process for the bond market
should be implemented in order to weed
out those who would use American
investment for goals contrary to U.S.
national security received considerable
favorable attention.

Relevant Factors Affecting
U.S. Options

• Defense Contraction

Since the Clinton Administration came
into office, the contraction in U.S.
investment in its military and the size
of the armed forces has been outpaced by
contraction in the defense industry.
Excessive consolidation of the defense
industrial base could have potentially
adverse consequences on America’s
military power in the long run. It is no
accident that there have been 103 major
mergers under President Clinton, however.
Short-sighted profit-taking without
regard for the larger national interest
has transformed a reasonable effort to
streamline the defense sector into a
feeding frenzy resulting in excessive
consolidation and an industrial base that
may prove unresponsive to the Nation’s
needs as conflicts loom in the future. By
reducing competition through the
centralization of defense contractors,
the Pentagon risks repeating the earlier
VHSIC debacle — paying more for an
inferior product that takes longer than
necessary to bring on-line.

• Insufficient Policy Attention
  Economic Security

No Cabinet-level body exists in the
Clinton Administration to consider
economic matters in the context of
national security. In contrast to the
Reagan era, when fundamental national
security interests were carefully weighed
against exports, jobs and profit margins,
President Clinton has seemed almost
exclusively concerned with pursuing the
latter factors without regard to the
former.

It may be some time before the
full cost of such monomaniacal
policy-making becomes evident. The
Symposium nonetheless signaled that that
cost with respect not only to China, but
Russia, the Europeans, Japanese and
others may prove to be very high, indeed.

Conclusion

Clearly more attention must be paid by
both U.S. official policy-makers
and business leaders to the growing nexus
between economic and national security
issues. Global integration dictates that
new strategies be devised — including
some of the above-mentioned ones — to
combat the increasing threats to U.S.
leadership in the areas of national
defense and technological competitiveness
superiority. The William J. Casey
Institute of the Center for Security
Policy looks forward to encouraging and
facilitating such progress through its
future Symposiums, which will be held
semi-annually on an alternating basis in
New York and Washington.

— End of
Summary —

The Casey
Institute of the Center for Security
Policy
Symposium on “The Growing Nexus
Between Geopolitics and the Markets”
The Harvard Club, New York City
13 March 1997
List of Participants wp=”br1″>

Ms. Tatiana Androssov, Global Forum of
Spiritual & Parliamentary Leaders
Col. Edward V. Badolato, USMC (Ret.),
CMS, Inc.
Dr. Norman A. Bailey, Potomac Foundation
Mr. James M. Barkas, Business Network
International, Inc.
Mr. David Baron, Foundation for
International Business & Economic
Resources, Inc.
Mr. Robert L. Bartley, Wall Street
Journal
Mr. Falk-W. Beindorff, Beindorff
Strategic Relations
Mr. Michael Belkin, Belkin Limited
BGen. Harry H. Bendorf, Boeing Defense
& Space Group
Ms. Rinelda Bliss, Center for Security
Policy
Mr. John A. Bohn, J. Bohn & Company
Mr. Thomas A. Bolan, National Review
Institute
Ms. Suzanne M. Bosze, Marfin
International, Inc.
Mr. Thomas Boyd, Bankers Trust Company
Mr. Barret F. Bryant, Center for Security
Policy
Hon. Jack W. Buechner, Manatt, Phelps
& Phillips
Mr. Daniel W. Caprio, Jr., KPMG Peat
Marwick LLP
Mr. Lawrence Casey, McCary & Rood
Mrs. Sophia Casey
Ms. Wai Wah Chin, Charterhouse Group
International, Inc.
Mr. James Claybough
Mrs. Denise Cocciolone, National Life
Center
Ms. Devon Gaffney Cross
Ms. Monica Crowley
Ms. Judy D’Agustino, American Council on
Science and Health
Mr. Kenneth Damstrom, Bankers Trust
Company
Mr. Gerald J. Davis, EQ Financial
Consultants, Inc.
Mr. Thomas C. Dawson II, Merrill Lynch
International
Mr. Joseph DeSalvo, Bankers Trust Company
Mr. Joseph R. DeTrani, Department of
State
Mr. Lawrence H. Douglas, Yankee Investor,
Inc.
Mrs. Ann English, Westchester Catholic
Coalition
Mrs. Mary Lou Forbes, Washington
Times
Mrs. Gabriella Fuisz
Joseph Fuisz, Esq.
Mr. Frank J. Gaffney, Jr., Center for
Security Policy
Hon. Evan G. Galbraith, Moet Hennessy
Louis Vuitton
Mr. Julian H. Gingold, Dean-Witter
Reynolds, Inc.
Mr. Thomas Glenn
Mrs. Thomas Glenn
Ms. Laura Hadjolian
Mr. Charles A. Hamilton, Charles A.
Hamilton Associates
Mr. Laszlo Hamos, Hungarian Human Rights
Foundation
Prof. C. Lowell Harriss, Columbia
University
Mr. G. William Heiser, GWH Consulting,
Inc.
Mr. Tom Hoopes, Tricentennial Foundation
For America
John L. Howard, Esq., Tenneco
Mrs. Mary Reilly Hunt, Mary Reilly Hunt
& Associates
Mr. Niger Innes, Congress Of Racial
Equality
Mr. Roy Innes, Congress Of Racial
Equality
Hon. E. Pendleton James, Pendleton James
Associates, Inc.
Mr. Geoffrey Jones
Mr. Norbert W. Josten, Boeing Defense
& Space Group
Mr. Sven F. Kraemer, Global Challenge
2000
Ms. Karen Kurrasch, Smith Barney, Inc.
Grant M. Lally, Esq., Lally & Lally
Mr. Thomas Langan
Larry Latourette, Esq., Preston Gates
Ellis & Rouvelas Meeds
Dr. Thomas J. Ledwith, Saint Patrick’s
College Maynooth
Mr. Steven M. Lefkowitz, Caxton-Iseman
Capital, Inc.
Hon. John F. Lehman, Jr., J.F. Lehman
& Company
Mr. David K. Lifschultz, Lifschultz Fast
Freight, Inc.
Mr. David L. Luke III
Stephen R. Macdonald, Esq., Dewey
Ballantine
Dr. Vincent G. Massaro, CW Post, Long
Island University
Mr. Robert J. McDermott, Charan
Industries, Inc.
Judge Owen McGivern, Donovan Leisure
Mr. R.T. McNamar, AVIC Group
International, Inc.
Mr. J. Paul McNamara, Sequoia National
Bank
Hon. Edwin Meese III, Heritage Foundation
Mrs. Ursula Meese
Ms. Ann-Marie Meulendyke, Bear, Stears
& Co., Inc.
Mr. Marc S. Miller, Julian J. Studley,
Inc.
Mr. Thomas G. Moore, Heritage Foundation
Mr. John U. Moorhead II, VM Equity
Partners
Mr. Amir A. Morgan, Center for Security
Policy
Mr. Geoffrey J. Morris, Reader’s Digest
Association
Mr. Denis J. Moynihan II, HRC Services,
Inc.
Ms. Maryann Murray
Mr. George Natalino
Mr. Fred Nimmich
Mrs. Fred Nimmich
Ms. Mary A. O’Grady, Wall Street
Journal
Hon. Sean O’Keefe, Syracuse University
Mr. John O’Sullivan, National Review
Mr. Daniel Nicholas Odescalchi, Strategic
Advantage International, Ltd.
Mr. Edmond P. Odescalchi, Global
Technology, Inc.
Ms. Athena Palumbo
Lawrence M. Parks, Ph.D., Foundation for
the Advancement of Monetary Education
Hon. Howard Phillips, Conservative
Caucus, Inc.
Mr. Richard Pollan, Pollan Trade, Inc.
Mr. Kary D. Preston, U.S. Trust
Mr. Raymond K. Price, Jr., Economic Club
of New York
Hon. Roger W. Robinson, Jr., RWR, Inc.
Mrs. Iris G. Rossi
Mr. Merrill C. Roth
Mr. Christopher Ruddy, Pittsburgh
Tribune-Review
Hon. Donald H. Rumsfeld
Mr. Zack Russ, Lockheed Martin
Corporation
Mr. John J. Ryan, Charan Industries, Inc.
Mr. Kevin T. Ryan, McCary & Rood
Mr. Tom K. Sayed, Camoflauge Inc.
Mrs. JoAnn Scebold
Mr. Stephen F. Scherock, Morgan Stanley
& Co.
Mr. Peter J. Scrobe, A1 Marine Adjusters,
Inc.
Mr. Edward Sellazzo, Solomon Brothers
Inc.
Mr. Jay Shaw
Mr. Thomas C. Shull, Federated
Merchandising Services
Rev. William Slattery, Legionaires of
Christ
Mrs. Bernadette Casey Smith
Mr. Owen Smith
Mr. W. Dennis Stephens, Preston Gates
Ellis & Rouvelas Meeds LLP
Mr. Ronald J. Sylvestri, Fleet Investment
Management
Ms. Alicia D. Therrien, Center for
Security Policy
Mr. James Tolmie
Mr. Stephen A. Traver, TRW Space &
Technology Division
Peter J. Wallison, Esq., Gibson, Dunn
& Crutcher LLP
Mr. Mark Weaver, National Center for Home
Education
Mr. Edwin Weisl, Jr.
Dr. Elizabeth M. Whelan, American Council
on Science and Health
Stephen T. Whelan, Esq., Thatcher
Proffitt & Wood
Prof. David Wigg, Southern Illinois
University at Edwardsville
Mr. Joseph R. Wright, Jr., AVIC Group
International, Inc.
Mr. Justin Yu, World Journal
Mr. Walter Zaryckyj

1. For more on this
important subject, see the following
Casey Institute Perspectives:
Russian ‘Bondage’: Moscow’s
Financial Breakout Gets Underway With
Wildly Oversubscribed Eurobond Sale
(No. 96-C
119, 26 November 1996) and Dangerous
Upshot of Clinton-Gore’s China ‘Bonding’:
Strategic Penetration of U.S. Investment
Portfolios ( href=”index.jsp?section=papers&code=97-C_47″>No. 97-C 47, 1
April 1997).