Economic Instruments of Policy

Just as modern nations are politically and technologically interdependent, so do they rely upon each other for resources and commodities that enable them to develop and sustain viable economies. Some economic systems are particularly dependent upon external markets and sources of supply and could not function for more than a few weeks if they were cut off from the rest of the world. British farmers, for example, could produce enough food by themselves to sup­port only 12 million of Britain's 56 million people. The British people would starve to death within six months if they could not import food and raw materials; their economy would collapse within several months if they could not sell manu­factured products abroad. For almost any national endeavor, whether it is to establish or increase standards of living or to produce capabilities and resources that can be used for domestic or foreign-policy purposes, reliance on others has become one of the paramount conditions of modern international rela­tions.

Needs that cannot be filled within national frontiers help create depen­dencies on other states. As we have suggested, degree of need is one variable element in the successful exercise of influence in international politics. Because economic resources are often scarce—but necessary to fulfill national values and aspirations—needs in the modern world are frequently of an economic nature. Possession of these resources can be transformed easily into political influence. It is the need for key raw materials by industrial powers that helps explain how "weak" countries, as measured by military or economic capabilities,

215 Economic Instruments of Policy

are able to influence the actions of the "strong." Economic resources are among the major capabilities that can be mobilized for political purposes.

Today, some developing countries use their possession of rare minerals or other commodities to wield effective international influence. But these coun­tries also need capital, machinery, and technical help to develop their economies. They lack a variety of export products and for these reasons are vulnerable to economic pressure from industrialized countries. When a country relies on the export of a few commodities to earn foreign exchange, any drop in the price of these exports can have disastrous effects on the economy. Such forms of dependence are not uncommon between developing and industrialized coun­tries; and they can be exploited for political purposes, provided that alternative markets are not available. If influence is to be created out of economic need, the need must be genuine.

Economic needs and capabilities are not, of course, distributed equally in the international system. Degrees of dependence upon trade as a component of overall economic activity vary considerably among states. Whereas England and Japan rely very heavily on trade (where trade is measured as a proportion of the Gross National Product), other major powers, such as the United States, the Soviet Union, France, and China, are much less vulnerable to fluctuations in trading patterns. Among smaller states, dependence upon trade also varies considerably. Approximately 70 percent of Canada's trade lies with the United States. This trade generates about 18 percent of Canada's GNP. Cyprus, Malta, and Iceland are among the most vulnerable states in the world because a high proportion of their total economic activity is accounted for by exports and im­ports. Needless to say, if they export most of their commodities to one state or group of states (Iceland sells a large proportion of its fish exports to the Soviet Union), they are potentially vulnerable to threats to break off that trade.

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