It is always difficult to recognize fundamental change in the dynamics of international relations, and it is usually only with hindsight that such changes come into focus. This appears to be the case with the sudden and unexpected end of the Cold War, for the role of technology in helping to bring this conflict to a conclusion has remained largely unnoticed.1 But with the end of the Cold War, something fundamental has changed in the nature of international competition. As Robert Tucker has noted, "there does not appear to be an instructive modern historical parallel of a hegemonic conflict simply being terminated by the default in time of peace of one side."2 Indeed, the Soviet Union’s behavior in the last years of the Cold War was so extraordinary because it entailed the complete abandonment by a "Great Power" of its position in the international system without being forced to do so through coercion or war. Soviet policy defied conventional wisdom and understanding of statecraft, which claims that "...[n]ormally, the threat of war, tacit or overt seems a necessary condition of important political changes in the international sphere."3 However, as Seweryn Bialer emphasized in 1988, "Never in their history have the Russians been as secure from external danger as they are now and will remain in the foreseeable future."4 Nevertheless, in spite of—or because of?—their security, the Russians chose to end the Cold War. This apparent anomaly suggests that the basic dynamics of international competition have altered. Moreover, such changes may well portend the emergence of a fundamentally new international order.
The technological changes that undermined the position of the Soviet Union and ended the Cold War have already been recognized as transforming industry to such an extent as to constitute the "third industrial revolution."5 New revolutionary technologies began to redefine industry several decades ago, but are only now beginning to change international relations as well through their effects on economic power, the structure of production, and the organization of political authority. Such changes cannot help but have a very profound influence on the behavior of states and the nature of the international system. Consequently, the purpose of this essay is to assess more closely the impact of these technologies on states and the emerging international order. Nowhere has the impact of the "third industrial revolution" for international relations been more dramatically demonstrated than in the collapse of the Soviet Union. Therefore, it is well worth beginning this assessment by first unravelling the anomaly of the Cold War’s end.
The end of the Cold War challenges the conventional wisdom and understanding of international relations because the Soviet Union gave up its international position without being forced to do so. By retreating from its "sphere of influence" in Eastern Europe and tolerating anticommunist elections, then holding relatively free elections, dissolving the Warsaw Pact, permitting its republics to secede from the Soviet Union, and accepting the reunification of Germany within NATO, Moscow called into question the very integrity of the Soviet empire. According to the traditional view of state behavior: "It is doubtful whether there is any instance in history of a power disarming unilaterally and voluntarily."6 But this is precisely what the Soviet Union's actions entailed.
This anomaly has been dismissed by arguments that the Soviet Union collapsed economically as a result of four long decades of military spending in an increasingly costly and ever-escalating armaments race.7 It is an established truth that "if too large a proportion of the state’s resources is diverted from wealth creation and allocated instead to military purposes...that is likely to lead to a weakening of national power over the long term."8 According to Central Intelligence Agency estimates, by 1985 the Soviet Union was putting roughly 15 percent to 17 percent of its Gross National Product (GNP) into defense-related expenditures, and by 1990, as Eduard Shevardnadze declared to the 28th Party Congress, 25 percent of the country’s GNP was being spent on defense.9 These large military expenditures must have been a heavy burden on the Soviet economy, but devoting considerable resources to defense was not new to the Soviet Union. This was, afterall, a country that had been able to rebuild its economy and infrastructure after World War II and then achieved military and strategic parity with the United States by the 1970s. Despite its economic limitations and military spending, during the Cold War the Soviet Union had been able to build an atomic bomb, pioneer an earth satellite program, develop a long-range rocket delivery system, and, by the late 1950s and early 1960s, was completely outpacing many western states in rate of industralization. Until the 1970s, the Soviet economy had grown at rates of 5 percent or better. Cold War expenditures on defense had not prevented the Soviet Union from developing into a modern industrial state with a GNP second only to the United States.10 For over three decades, the Soviet Union's allocations for defense did not appear to have crippled the economy.11 However, by the 1970s the Soviet economy's growth rate had begun to decline and by 1984 had slowed to only 2.5 percent.12
The economic decline of the Soviet Union has generally been attributed to the cumulative effects of the Cold War armaments race. It is worth noting, however, that George Kennan argued that the transformation of the U.S.-Soviet rivalry into a military conflict simply served to prolong the Cold War.13 Even if Kennan’s argument is correct, however, that does not mean the Soviet Union’s economic collapse was not the result of the armaments race. It merely suggests that a less militaristic strategy would have been more effective and expeditious in bringing this protracted conflict to an end.14 As debates over the causes of Soviet decline have proven inconclusive, it is worth considering the efforts by Soviet leaders to correct their country’s economic decline.
By the early 1970s, Brezhnev sought to correct the economic inefficiencies of the Soviet Union by instituting reforms aimed at "rationalizing" planning and investment. Ironically, this strategy had the immediate effect of reducing investment over previous 5-year plans.15 More significantly, Brezhnev promoted detente in the hope of gaining greater access to Western technology, and, not surprisingly, Soviet foreign trade increased by 21 percent between 1974 and 1980.16 Brezhnev recognized the Soviet Union’s dependence on foreign technology and, therefore, sought to improve the Soviet economy by developing domestic science and technology. This meant increasing Western imports, in addition to more direct investments, licensing agreements, and joint ventures into the Soviet bloc.17 While the Soviet Union was successful in obtaining some advanced technologies during detente, these "new" technologies were usually already obsolete by Western standards, so the quality of Western technology continued to stay far ahead of that in the Soviet Union. Soviet access to relatively obsolete technology was, of course, not an accident. U.S. objectives during detente included providing limited aid to the Soviet Union in an effort to bind the Soviet economy more closely to the world economy. But the United States, through CoCom, attempted to make sure that access to valuable new technologies was denied.18
The outdated technologies that the Soviet Union obtained were not nearly as useful in helping to develop Soviet technology as Brezhnev had hoped. This was because Brezhnev’s basic strategy for improving Soviet technology was misguided in that he did not fully appreciate the extent to which technology is a product of specific political, social, and economic forces.19 Because of industrial espionage and the help of third parties, getting new technologies from the West was less of a problem for Moscow than "sustaining the application of technology in the economy and constantly improving that technology." In other words, "technology is not something, once obtained, develops on its own. It requires a culture and an economy that are receptive and stimulating."20 The need for an appropriate culture and economy had become even more essential in the development and use of new technologies because of the nature of the technologies of the "third industrial revolution."
The "third industrial revolution" has been so important for international relations because it has led to a dismantling of command economies and a decentralization of political power. It was precisely because the Soviet Union was built upon a centrally organized command economy, an authoritarian regime, and a "closed" society that it was unable to integrate modern information-based technologies into its production processes. As it could not adapt these new technologies to its economy, the Soviet Union continued to fall farther behind the much more advanced and technologically sophisticated industrialized democracies of the West and Far East.
The "third industrial revolution" refers to the development and application of advanced information technologies to economic competitiveness. With the rapid advancement of knowledge-based technologies in areas such as semiconductors, robotics, computers, industrial control systems, fiberoptic communications, globally integrated financial trading systems, and "smart weapons," the most important source of power in the contemporary international system has become information.21 These technological innovations have had their most profound effect in the world economy, as is evident from the growing shift away from traditional heavy industrial production to more value-added and knowledge-based manufactures.
For the Soviet Union, these innovations meant it was unable to compete economically against states that had integrated knowledge-based technologies into their market-driven economies. The limits of Soviet economic competitiveness and its technological weaknesses were clearly apparent in the fact that by 1978 the Soviet Union had roughly 18,000 to 28,000 computers in operation, whereas the United States had over 250,000.22 By 1985, there were only about 50,000 personal computers in the Soviet Union, as compared to more than 33 million in the United States.23 By 1988, the Soviet Union was able to increase to about 100,000 to 150,000 computers, but by then the United States had over 40 million.24 The relationship of these figures to economic competitiveness can be surmised from Soviet estimates that only 8 percent of national production was up to world-class standards by the late 1980s.25 This specific weakness in new technology was also significant in that it hindered the development of modern military hardware, which has increasingly come to depend on command, control, and communication components that together make up technological information systems.26 It was not merely the absence of the new technologies that hindered Soviet economic competitiveness and modernization of its military. A more fundamental problem had to do with the nature of Soviet society and the organizational structure of its economy.
As Eugene Skolnikoff has explained, "the Soviet Union, with its command economy proved to be ill-equipped to make rapid and effective use of sophisticated technology even when it could obtain it on the open market or through other legitimate means."27 Even if the Soviet Union had been able to obtain the new technologies, it would have still been unable to develop a competitive position in the international economy. The inability to integrate the new technologies into the Soviet economy was due to the rigidity of its centralized planned structure and the authoritarian nature of its society. This closed society could not tolerate a free-flow of information among groups or individuals, for the legitimacy of the Communist Party depended upon the state maintaining tight control over all social classes. But in order for any economy to remain highly competitive on an international scale, it must be able to adapt to continuous innovations and incorporate new technologies into its production processes.28 As the Soviet economist Oleg Bogomolov pointed out: "The greatest relative advantages in international trade today are connected with the ability to make efficient use of the new information technologies, rapid innovation and continuous upgrading of technologies."29 The Soviet command economy has been unable to meet these requirements, because broad dissemination of information threatens the state’s dominant control over civil society.30 The price of such control has been extremely high, for "vertical" command structures (or centralized planning) over the economy tends to discourage innovation and change.31 "Horizontal communication" of ideas or information is virtually eliminated. Economically this helps to protect against foreign competition, but it also leads to a lack of quality control so that technology and equivalent skills lag far behind those developed in market economies. Such tendencies were all too apparent in the Soviet computer industry. As Skolnikoff elaborates:
Effective use of computers...requires that they be widely available and connected to interactive networks at the working level. That implies a willingness to accept unsupervised horizontal communication linkages—anathema to authoritarian societies...—and also open the door to independent ties to international communication networks. The unwillingness of Soviet authorities to accept that degree of interaction was, in fact, one of the reasons for the absence of a creative computer culture in the Soviet Union.32
Without being able to adapt to a world economy that increasingly relied upon information as the foundation for transactions, it was inevitable that the Soviet economy would be increasingly uncompetitive against advanced industrialized democracies. Only by "opening" its domestic society, allowing for a completely free flow or "horizontal" communication of information and ideas, and by adopting a market economy could the Soviets have hoped to regain their position in the international system. However, such changes would have been tantamount to completely abandoning communism.
Far more than his predecessors, Gorbachev recognized the dire need for sweeping economic and political reform within the Soviet Union.33 From the beginning, Gorbachev used his power as General Secretary to emphasize "new thinking" about Soviet security and foreign policy.34 As Gorbachev acknowledged, "Like many others, I had known that our society needed radical change...If I had not understood that, I would not have accepted the position of General Secretary."35 Gorbachev realized that Soviet development had to occur in conjunction with technological modernization, and both were tied to broad economic and political reforms that seriously threatened entrenched interests. Thus, Gorbachev's "new thinking" had to overcome the deeply ingrained "dysfunctional effects of the Stalinist system...inert interest groups defending conservatism, orthodoxy, entrenched bureaucratic privileges, corruption, and sloth."36 Launching a program of change did not, however, mean Gorbachev was prepared to fully embrace laissez-faire capitalism. Institutionalizing private property or complete market reforms were too radical even for Gorbachev. He favored a gradual adoption of reforms aimed at creating something closer to the social democratic welfare state.37 Even so, anything less than liberalization and modernization of the economy and political system would exacerbate the problems and contradictions of the Soviet state.
Historically, "late industrialisers," like the Soviet Union, have needed highly centralized states in order to oversee economic development.38 Certainly the Soviet state had been able to drive peasants off the land and into factories, and for more than three decades the command economy had been highly effective in building a powerful industrial economy. Over time, however, the command economy had become less efficient in allocating capital, providing labor incentives, and stimulating innovation. The initial problem was that with the development of Soviet industry and the adoption of more sophisticated technological production processes, workers began to demand political and economic reforms. Growing political consciousness among workers was an inevitable consequence of the growing complexity of industrial production. That is, effective management of an industrial economy (not to mention an information-based economy) requires greater worker education.39 As industrial production becomes more advanced, the role for information in the process becomes more significant.40 The growing specialization and complexity of advanced production processes means that centralized control tends to be very inefficient. Thus, to ensure efficiencey, organizational control over processess has to be broken down into a network of more autonomous organizations. As workers assume more responsibilities they become better informed and more politically conscious. Consequently, economic development and modernization eventually requires a lessening of centralized controls, which, in turn, leads to worker demands for greater political representation. Economic modernization transforms "subjects" into "citizens," and, in the case of the Soviet Union, this meant that a "civil society" was beginning to emerge. It also meant there were pressures from "below" to adopt meaningful economic and political reforms.41
Domestic pressure alone, however, would have been insufficient to compel Gorbachev or Yeltsin to launch sweeping reforms. Much more critical was the stark reality that market-based reforms and decentralization of political authority had to occur if the Soviet Union was to reverse its economic decline by drawing upon the new information technologies. By the early 1970s, Soviet industrial development had reached a technological "ceiling" because of the contradictory nature of its centralized system and the environment required to develop and use knowledge-based technologies. If the Soviet state did not move toward open democracy and a market-based economy, its decline was inevitable and probably irreversible.
It is important to note that the reform effort and the events leading up to the collapse of Soviet Union occurred long "after it was obvious that U.S. resolve to apply global pressure had already passed its peak and begun to diminish."42 By the late 1980s, the Soviets had very little reason to be worried about their military security, yet every reason to be concerned about their economic capability.43 Consequently, it was this understanding of the need to create a political and economic environment conducive to both technological absorption and innovation that drove Russian policies as the Cold War came to an end.
The unexpected collapse of the Soviet Union and peaceful end of the Cold War provide clear evidence that international politics in the late twentieth century are now guided by very different principles than in previous periods. By redefining the nature of power and economic security, information technologies are forcing states, such as the former Soviet Union, to adopt market economies, reorganize structures of production, and move towards democracy. Technologically induced changes are not, however, limited just to the political and economic structures of the state. New technology is also contributing to fundamental changes in the global economy. The growing "globalization of production and exchange" has occurred as a result of recent technological innovations in communications and transportation. International markets for goods and services have become far more integrated, which, in turn, has forced states to redefine their strategies for growth and development. Thus, technologically driven change at the international and domestic level have become mutually reinforcing.
The growing importance of the new technologies has occurred for several reasons. Due to technological advances in weaponry, as well as improvements in communications and transportation, time and space have become "compressed," and thereby changed the character of military strategy. With the development of nuclear weapons, inter-state competition has been transfromed as military security is no longer a "scarce commodity," especially among great powers.44 International competition has become more economic in nature. That does not mean military conflict has become obsolete, but, as the increasing importance of "smart weapons" demonstrates, even the use of force has become far more technologically sophisticated. Modern weapons now utilize information-based technologies, particularly integrated command, control, and communications systems, which help to increase capacity and effectiveness. As John von Neumann noted, "technology has largely replaced geography as the main element in national power."45
The utility of information technologies is also apparent in the growth of "dual-use" technologies for military and commercial production alike. However, in the past decade, states have become much more dependent on commercial (rather than military) technology in the development of "smart weapons" and of a "defense industrial base."46 That is, there are now less technological "spin-offs" from military to industrial production than "spin-ons" from commercial technology to military weaponry.47 The increased importance of commercial technology is because new information technologies have become essential to industrial competitiveness as well as the basis for the integrated electronic systems used in military production. Furthermore, modern commercial technology tends to be cheaper, more efficient, reliable, and is developed more quickly than military technology. Firms and states that compete in the market, whether domestic or international, must continuously innovate in order to remain competitive. Innovation helps to not only ensure control over markets, but lowers costs and improves efficiency. If a state gains even a modest technological advantage over its competitors, this can result in increased control and a greater share of foreign markets, which further lowers the costs of innovation and improves efficiency. If a state falls behind competitors in technological development, this can lead to diminished industrial competitiveness and market control, which heightens the costs of technological innovation and may increase economic vulnerability. Therefore, even small gaps in technology capability among the most advanced industrialized democracies can have a significant impact on their relative international competitiveness. The role of domestic and international markets in decreasing costs, stimulating innovation, and improving efficiency is a major reason commercial technology has become more important than military technology. Because both military capability and economic strength are tied more than ever to technology, it is vital for the state to maintain a high level of technological capacity to ensure international competitiveness.
While continued commercial competitiveness and technological innovation require that the state compete in international markets, paradoxically this may contribute to a loss of state autonomy or to vulnerability interdependence. The tradeoff is between enhancing commercial competitiveness, and thus the capacity for technological development, and creating the possibility of greater dependence, if not vulnerability, on foreign resources. Increased reliance upon international markets to generate wealth and increase efficiency is a consequence of modern technology and the globalization of markets and production. However, reliance on international markets makes the state more susceptible to the vicissitudes of the market, which may mean loss of autonomy and control over its policies.48 States that choose autarkic policies or concentrate their research and development (R&D) in the military sector may be able to protect themselves against the possiblility of dependence or vulnerability. Yet, such policies weaken the state's access to markets, which also means cutting itself off from the latest and most sophisticated technologies in the international sphere.49 That is, commercial and technological interests require expanding trade and production abroad even at the cost of diminished state autonomy and heightened vulnerability. Given the choice between increased technological capacity or greater state autonomy, it is clear that gaining access to global markets and new technologies should take precedence over other policy objectives. Without the appropriate technologies and economic strength to compete, state autonomy is of little use.
While this would appear to resolve the dilemma, it should be noted that the recent technological decline of the United States is the result of two policies that seemed appropriate in the context of the Cold War.50 First, during the Cold War the United States concentrated R&D in the military sector even though this served to undermine the United States' long-term commercial competitiveness. Secondly, the United States attempted to limit commercial exchange between the West and the Soviet bloc during the Cold War in the belief that by denying access to modern technologies to the Soviet Union its economy would be severely handicapped in international competition. While this strategy undoubtedly hastened the Soviet Union's demise, by imposing limits on many commercial activities in international markets the United States inadvertently weakened its competitive economic position in the international system by ceding control of these markets to European and Asian competitors.51 Thus the strategy of denying new information technologies to the Soviet Union may have helped to "win" the Cold War, but it appears to have been achieved at a cost of U.S. economic and technological decline.
If new information-based technologies had not been developed, economic competitiveness would still depend upon the production of heavy industries, areas in which the United States and the Soviet Union both excelled. Their economic success was due in no small part to concentrating R&D and investments into military technology, which tended to complement production of heavy industry. Clearly the military armaments race that drove the Cold War also aided the United States and Soviet Union in economic expansion for several decades. But just as the knowledge-based technologies undermined the economic capabilities of the Soviet Union, so too have they greatly weakened the economic position of the United States because of its long-term investment in military technologies at the expense of the development of commercial technology. The decline in the 1970s of the steel industry, manufacturing, and capital equipment sectors in the United States were all highly symptomatic of a clear loss of technological competitiveness due to its concentration on military technology.52 Yet, the United States cannot immediately overcome its present technological deficiencies even if it does begin to concentrate investment and R&D in commercial technologies. This is because the development of the new technologies is not simply a question of acquiring appropriate technical knowledge, as the Soviet Union has discovered. The capacity for technological innovation, absorption, and integration cannot be separated from the state's political and economic organization.
If technological capacity were simply a matter of adopting a market-based economy and democracy, it might be expected that the advanced industrialized democracies would all have equal or fairly comparable levels of technological development. While the rest of the world is still far behind, the technological gap between the industrialized democracies is relatively small. But, although this gap is small, it is quite significant and reflects very different "technological trajectories." Traditionally it has been argued, following from Joseph Schumpeter, that technological innovation is "exogeneous," in that it is based upon the advancement of science and technology and therefore occurs outside of economic processes. Yet more recent views have claimed technological innovations are "endogeneous" and explained by economic factors.53 The endogenous nature of technological innovation means that its development is largely "path-dependent." As Michael Borrus and John Zysman have explained: "Technology is a path-dependent process of learning in which tomorrow's opportunities grow out of product, process, and applications activities undertaken today."54 By concentrating for several decades on military technology, the United States created a technological development trajectory, or "path-dependence," that was based upon "products, processes, and applications" that were very useful for the production of heavy industry, but which became uncompetitive with the introduction of information technologies. Moreover, the historical trajectory of U.S. technological development has hindered its absorption and utilization of the new knowledge-based technologies, as Japan and the Asian NICs take the lead. Although the United States, or any country, can gain access to technological knowledge through international markets, this in itself is insufficent to ensure technological absorption, greater competitiveness, or future innovation. Specific forms of technical knowledge cannot be immediately absorbed and adapted to production processes within a particular state unless there is an appropriate environment, or technological trajectory, for integration. This is because recent "technical knowledge involves additional, often more subtle insights that coalesce only in conjunction with experience in development and production. The process is simultaneously cyclical and incremental...advances are driven through iteration and cumulative learning by doing in production."55 As Borrus and Zysman elaborate, cumulative learning creates a skilled workforce as well as proprietary technology and techniques. This constitutes a specific "path dependence" which makes it more difficult to copy or apply the new technologies to areas that lack the appropriate infrastructure, skilled labor force, or organization of production. In order for the new information technologies to be effectively absorbed and utilized by a state, it must at the least have highly educated workers and production processes that are organized around horizontal communication networks. In sum, while new information technologies can indeed be acquired through international markets, the ability to integrate them efficiently into a state's production processes depends on a range of political and economic factors, not the least of which are the state's past "technological trajectory."
New information-based technologies are not only forcing states to reorganize their domestic political and economic structures, they are also transforming the character of international markets. Because of the power of modern computers, computer software, fiber-optic cables, and satellites, a new global communications system has been created so that international markets now function as essentially one where buying and selling never stops. With vastly improved communications networks and the decline in transportation costs, it is now highly profitable to produce and market goods on a global scale. But as conditons in the global market can rapidly shift, the international economic competitiveness of states and firms depend primarily upon having up-to-date information on such changes. For that reason, it is hardly an exaggeration to claim "[i]nformation has become the key to modern economic activity—a basic resource as important today as capital, land and labor [was] in the past."56 Information has become so important because the world economy is highly integrated, although it was the development of knowledge-based technologies that made the integration possible.
The growing recognition of the importance of information as the basis of competitve advantage has led the advanced capitalist states to utilize new technologies to shift production away from material goods to information processing activities. That is, the underlying structure of modern production is now being reorganized and enhanced by concentrating on economic activities that utilize information and communications technologies. This has meant that advanced economic activity has changed radically from standardized mass production to adjustable customized production, which is vital to maintaining competitive efficiency and flexibility in the ever-changing environment of the global economy. The restructuring and reorganizing of production is apparent in the use of "horizontal networks" between economic units, rather than traditional large-scale "vertical integration." Greater "horizontal reorganization" is evident in management, production, investment, markets, labor, and technologies, so that production now extends across national frontiers.57 That is, until the development of the new information technologies, "horizontal reorganization" of production had to be "primarily organized within national economies..."58 But the new technologies have made it possible to organize production "outside" of national economies. This has led to the "internationalization of production," where capital, technology, and other factors of production are extremely mobile. But the "internationalization of production" also means the location of natural resources, cheap and abundant labor, or capital stock are no longer primary determinants of where production occurs. It is more important for the economic development of a state to be able to incorporate new knowledge and apply it quickly to a broad range of activities through information processing and telecommunications.59 Consequently, "...a country's comparative advantage lies in its ability to utilize effectively the new information technology, in the speed of its absorption into the productive process, and in the relative efficiency with which it is applied. Less and less it is other factor endowments..."60 States using old organizational structures, whether hierarchical structures or assembly-line production, will inevitably remain at a competitive disadvantage because they will not be able to adapt new technologies to their production processes or to quickly adjust to changing international market conditions.
Advanced industrial democracies with flexible market economies and access to these new technologies have increasingly been able to "globalize" their production processes throughout the international system, and their most effective "tool" for doing so has been the multinational corporation (MNC).61 In the expanding global market, MNCs are extremely well-suited to produce and market goods on an international scale.62 In addition to MNCs being able to mobilize investment capital, conduct research and development on products and their applications, as well as process and utilize information throughout the globe, MNCs have become the primary creators and controllers of modern technology. With the growing diffusion of technology from economy to economy, rapid shifts in comparative advantage between countries have become more frequent, which leads to changes in location of international production. Thus trade and investment are more dynamic, but MNCs are able to take advantage of such shifts because of their innate technical expertise, managerial skills, and economies of scale. Trade now quickly adjusts to new opportunities because MNCs have immediate knowledge of foreign markets and access to global distribution channels.63 The power of some contemporary MNCs is now greater than that of many states.
MNCs are helping to further integrate the global economy by moving vast amounts of capital, technology, factories and equipment across national boundaries.64 It is hardly surprising then that international trade is now expanding faster than world production. While much of this trade continues to be in merchandise goods, the proportion of services traded across borders is increasing.65 The growth in trade of merchandise and services is due largely to the developments in communications, data-processing, and information technologies. Such services as transportation, telecommunications and computer services, data processing, financial services, cross-border consulting, and professional services have all become much more important in the global economy.66 A related trend is the growth of trade in merchandise goods and services occurring between advanced developed countries. That is, over three-quarters of the developed countries' exports go to other developed countries.67 In addition, most of the trade in merchandise goods, and much of it in services, is not between industries in different states, but between industries of MNCs whose plants are increasingly located in different countries.68 This growth in "intra-industry" trade, along with increasing trade between industralized countries and the rise in services, reflect the importance of information-based technology on economic behavior. However, as these recent trends also clearly indicate, having new technologies and being able to effectively use them remain largely the privilege of the advanced industrialized democracies.
Although the internationalization of production and exchange continues to expand, information-based technologies have also begun to generate contradictory effects throughout the global economy. The advanced industrialized democracies, and their multinationals, have a considerable stake in the stability and development of the global economy. The expansion of production, exchange, and new technologies in the global economy have created very strong ties of mutual interests among the developed states, which are helping to mitigate the harmful effects of the inevitable unequal gains from trade. Certainly, industrialized democracies recognize the gains to be had by ensuring the stability and efficiency of the global economy, but this does not mean that international order precludes competitive trade strategies and increased friction among the most advanced countries.
Because of the growing importance of technology as the basis of comparative advantage, rapid shifts occur as innovations are introduced into production processes and markets. Moreover, the increasing mobility of capital and other factors of production tend to intensify the competition for foreign investments and control of markets. As a result, the underlying importance of technologies for economic competitiveness are causing advanced industrialized democracies to adopt increasingly mercantilist and protectionist trade policies. Under the guise of "strategic trade theory,"69 states now utilise managed trade arrangements, sector subsidies, "nontariff barriers," and other tactical devices in an effort to gain unilateral or competitive advantage in particular sectors or industries.70 Because many of the new technologies have "spin-on" applications from commercial to military uses, strategic trade policies attempt to grasp key technologies and markets before others do. The effectiveness of such strategies frequently depends on a state taking "a first mover advantage" as a preemptive measure.71 Japan has been extremely successful over the last 40 years in using such strategies of "international mercantilism." Through its strong bureaucracy, the Japanese state and zaibatsu (industrial conglomerates) have guided the country's development in the world economy by effectively adapting to the dynamic and changing nature of comparative advantage.72
As other industrialized democracies adopt similar strategies, it remains unclear how the global economy will evolve. It may well reflect "liberal protectionism" or "benign mercantilism" between "loose regional blocs."73 But more pessimistic scenarios envision regional blocs becoming increasingly aggressive to gain favorable "technological balances of power."74 Certainly, because of their vast financial resources, well-developed markets, and relatively independent industrial and technological bases, Europe, Asia, and North America are all capable of emerging as autonomous regional actors in the new global economy. Whether technological needs will induce greater cooperation or preemptive trade strategies to gain technological advantage will contribute to mercantilist competition remains to be seen.75
While economic growth and international competitiveness depend upon advanced information technologies, the new technologies have been developed and are controlled by the industrialized democracies of the First World. However, in 1987, W.W. Rostow argued that the new technologies were contributing to a "diffusion of power away from Washington and Moscow...," much to the advantage of the less developed countries of the Third World.76 According to this view, education and the spreading of the new technologies are the great equalizers among states. Certainly the Asian NICs, Mexico, Brazil, India, and China have demonstrated that with correct development strategies and self-discipline it is possible to achieve remarkable levels of growth. The question for these countries is whether they can sustain long-term growth and development without becoming full-fledged democracies, which is virtually a prerequisite for the use of the new technologies. If they fail to become democratic with market-based economies and open societies, the technological gap between them and the advanced industrialized democracies will only continue to get wider.
Most threatening to the global economy and the stability of the international order are those countries confronted with their increasing marginalization because of a total lack of access or ability to use the new technologies. In effect, the development of the knowledge-based technologies has served to further handicap those Third World countries that lack the political and economic prerequisites, including the appropriate technological trajectory, to adapt and integrate the technologies into their economies.77 Many of these states have become totally marginalized or excluded from the global economy, despite having cheap and abundant labor and considerable natural resources that formerly attracted foreign investment. Because the information technologies require a well-educated workforce, an entrepreneurial or professional class, adequate capital, extensive knowledge resources, as well as an efficient financial structure supported by a stable and functional national infrastructure,78 the absence and unattainability of these resources have caused MNCs and the advanced industrial states to investment elsewhere.79 But as foreign investment in Third World states declines, the resources necessary to improve "human capital" and make the great technological leap forward to development are absent.80
Those Third World countries that have suffered the most from recent technological changes, and the integration of the global economy, are being relegated to what is now characterized as the "Fourth World." For the several hundred million people that occupy this world, their economies "fail to provide even bare subsistence on a reliable basis, so that economic collapse is avoided only through resource transfers from the advanced nations."81 They are truly the newest "wards of the international community." As the new technologies contribute to the increasing marginalization of the Third and Fourth Worlds, their situations are only likely to get worse. As a result, it is just a matter of time before the growing ecological and environmental disasters of the Fourth World spill over and affect the stability and order of the First World.82
By redefining the basis of power and international economic competitiveness, the new information technologies of the "third industrial revolution" are forcing increasing numbers of states to become democratic and adopt market-based economies, if only to ensure their economic and political survival. These changes cannot help but have a profound influence on the interstate competition and the nature of the international relations. The impact of new technologies on the industrialized democracies and international system will be no less profound than they have been on the former Soviet bloc. The emerging international order will undoubtedly reflect the spreading of democracy and the growth of market-based economies, and both should contribute to greater stability and cooperation in the system, albeit still within a highly competitive environment. But many potential and actual international problems remain even after the "third industrial revolution," particularly with regard to the Third and Fourth Worlds. As Eugene Staley presciently noted in 1939: "A conflict rages between technology and politics...Stability and peace will reign in the world economy only when, somehow, the forces on the side of technology and the forces on the side of politics have once more been accommodated to each other."83 The difficult transitions to democracy and free market economy in the former Soviet Union and in parts of the Third and Fourth World, along with the increasingly competitive nature of relations between the advanced industrialized democracies, indicate that technology and politics are still a long way from reaching accommodation. This will, however, be far easier to achieve if it is based upon an understanding of the critical role information-based technologies played in ending the Cold War and helping to define the emerging global order.
1. John Lewis Gaddis, "International Relations Theory and the End of the Cold War," International Security 17, 3 (Winter 1992/1993), pp. 5-58.
2. Robert W. Tucker, "1989 and All That," Foreign Affairs 69, 4 (Fall 1990), p. 95.
3. E.H. Carr, The Twenty Years’ Crisis, 1919-1939 (New York: Harper, 1964), p. 216.
4. Seweryn Bialer, "Gorbachev’s Program of Change: Sources, Significance, Prospects," Political Science Quarterly 103, 3 (Fall 1988), p. 459.
5. On the concept of the "third industrial revolution," see Daniel Bell, "The Third Technological Revolution," Dissent (Spring 1989), pp. 164-76; and on the role of technology in international relations, see Eugene B. Skolnikoff, The Elusive Transformation (Princeton: Princeton University Press, 1994).
6. Martin Wight, Power Politics (New York: Penguin, 1986), p. 262.
7. John Lewis Gaddis, "Hanging Tough Paid Off," Bulletin of Atomic Scientists 45 (January 1989), pp. 11-14; and Valery Giscard d’Estaing, Henry Kissinger, and Yasuhiro Nakasone, "East-West Relations," Foreign Affairs 68 (Summer 1989), pp. 1-21. See also, Seweryn Bialer and Joan Afferica, "Reagan and Russia," Foreign Afairs 61 (Winter 1982/83), pp. 261-67; Richard Pipes, "Can the Soviet Union Reform?" Foreign Affairs 63, 1 (1984), pp. 47-61; and Barry Posen and Stephen Van Evera, "Defense Policy and the Reagan Administration," International Security 8 (Summer 1983), pp. 3-45.
8. Paul Kennedy, The Rise and Fall of the Great Powers (New York: Random House, 1987), p. xvi.
9. Joint Economic Committee, U.S. Congress, Allocation of Resources in the Soviet Union and China - 1986 (Washington, D.C.: Goverment Printing Office, 1988), p. 15; and Eduard Shevardnadze, Atlantic Council Bulletin 1, 19 (August 1, 1990), p. 1. On the problematic nature of these estimates, see Franklin D. Holzman, "Politics and Guesswork: CIA and DIA Estimates of Soviet Military Spending," International Security 14, 2 (Fall 1989), pp. 101-31.
10. Gur Ofer, "Soviet Economic Growth: 1928- 1985," Journal of Economic Literature 25, 4 (December 1987), pp. 1767-1833.
11. Aaron L. Friedberg, "The Political Economy of American Strategy," World Politics 41, 3 (April 1989), pp. 381-406.
12. Ofer, pp. 1814-26; and Paul Kennedy, Preparing for the Twenty-first Century (New York: HarperCollins, 1993), p. 231.
13. George Kennan, "The G.O.P. Won the Cold War? Ridiculous," The New York Times (October 28, 1992), p. A21. See also, Thomas Risse-Kappen, "Did `Peace Through Strength’ End the Cold War? Lesson from INF," International Security 16, 1 (Summer 1991), pp. 162-88.
14. See for example, George F. Kennan, "America and the Russian Future," Foreign Affairs 29, 3 (April 1951), pp. 351-70.
15. Ofer, pp. 1818-1819; and Myron Rush, "Guns over Growth in Soviet Policy," International Security 7, 3 (Winter 1982/83), pp. 167-79.
16. Joint Economic Committee, U.S. Congress, East-West Trade: The Prospect of 1985 (Washington, D.C.: Government Printing Office, 1982), p. 367. On Soviet objectives during detente, see Harry Gelman, The Brezhnev Politburo and the Decline of Detente (Ithaca, NY: Cornell University Press, 1984), pp. 124-31; and Bruce Parrott, "Theory and Praxis of Soviet Economic Modernization," Problems of Communism 33 (September-October 1984), pp. 104-08.
17. Joint Economic Committee, East-West Trade: The Prospect to 1985, p. 278; and Timothy W. Luke, "Technology and Soviet Foreign Trade," International Studies Quarterly 29, 3 (September 1985), pp. 346-47.
18. Michael Mastanduno, "Strategies of Economic Containment: United States Trade Relations with the Soviet Union," World Politics 37, 4 (July 1985), pp. 503-31. Also, Michael Mastanduno, Economic Containment: The Western Politics of East-West Trade (Ithaca, NY: Cornell University Press, 1992); and Beverly Crawford, Economic Vulnerability in International Relations (New York: Columbia University Press, 1993). CoCom was the Coordinating Committee for Multilateral Export Controls, a multilateral regime to restrict Western exports to the Soviet bloc.
19. Paul R. Josephson, "Science and Technology as Panacea in Gorbachev’s Russia," in Technology, Culture, and Development, edited by James P. Scalan (London: M.E. Sharpe, 1992), p. 26.
20. Loren R. Graham, "The Fits and Starts of Russian and Soviet Technology," in Technology, Culture, and Development, p. 3, pp. 17-22.
21. Melvin Kranzberg, "The Information Age: Evolution or Revolution?" in Information Technologies and Social Transformation, edited by Bruce Guile (Washington, D.C.: National Academy Press, 1985), pp. 35-53.
22. Luke, "Technology and Soviet Foreign Trade," p. 350 note #5.
23. Joseph S. Nye. Jr., "Is There a New World Order?" in The New World Order, edited by Carol Rae Hansen (Flagstaff, AZ: Arizona Honors Academy Press, 1992), p. 8. See also, Loren R. Graham, "Science and Computers in Soviet Society," in The Soviet Union in the 1980s, edited by Erik Hoffmann (New York: Academy of Political Science, 1984), pp. 124-34; and S.E. Goodman and W.K. McHenry, "Computing in the USSR: Recent Progress and Policies," Soviet Economy 2, 4 (1986), pp. 327-54.
24. Seymour Goodman, "Information Technologies and the Citizen; Toward a `Soviet-Style Information Society’?" in Science and the Soviet Social Order, edited by Loren R. Graham (Cambridge: Harvard University Press, 1990), p. 373 note #13.
25. Joseph S. Nye, Jr., Bound to Lead (New York: Basic Books, 1990), p. 122.
26. S.E. Goodman, "Technology Transfer and the Development of the Soviet Computer Industry," in Trade, Technology, and Soviet-American Relations, edited by Bruce Parrott (Bloomington, IN: Indiana University Press, 1985), pp. 117-40. See also Bell, "The Third Technological Revolution," pp. 165-66; and Beverly Crawford, "The Security Dilemma Under International Economic Interdependence," Millennium 23, 1 (Spring 1994), pp. 25-55.
27. Skolnikoff, p. 58.
28. Nathan Rosenberg, Inside the Black Box: Technology and Economics (New York: Cambridge University Press, 1988); and "A Background Review of the Relationships Between Technological Innovation and the Economy," in Technology, Trade and the U.S. Economy (Washington, D.C.: National Academy of Sciences, 1978), pp. 18-48.
29. Oleg Bogomolov, "The World Economy Faces a Technological Challenge," in Science, War, and Peace, edited by Jean Jacques Salomon (Paris: Economica, 1990), p. 158.
30. Loren R. Graham, "Introduction: The Impact of Science and Technology on Soviet Politics and Society," in Science and the Soviet Social Order, pp. 12-13. See also, Goodman, "Information Technologies and the Citizen: Toward a `Soviet-Style Information Society’?" pp. 51-67.
31. Skolnikoff, pp. 128-32. "Vertical communication" refers to communication from authorities to citizens/workers (top down), but it may also be from from citizens/workers to authorities (bottom up). "Horizontal communication" is across social classes.
32. Skolnikoff, p. 130.
33. Loren Graham, "Gorbachnev's Great Experiment," Issues in Science and Technology 4 (Winter 1988), pp. 23-32; and Robert Legvold, "The Revolution in Soviet Foreign Policy," Foreign Affairs 68, 1 (1989), pp. 82-98.
34. Bruce Parrott, "Soviet National Security Under Gorbachev," Problems of Communism 37 (November-December 1988), pp. 1-36; Matthew Evangelista, "Sources of Moderation in Soviet Security Policy," in Behavior, Society, and Nuclear War, edited by Philip E. Tetlock et al., Vol.2 (New York: Oxford University Press, 1990), pp. 254-354; David Holloway, "State, Society, and the Military Under Gorbachev," International Security 14, 3 (Winter 1989/90), pp. 5-24; and David Holloway, "Gorbachev's New Thinking," Foreign Affairs 68, 1 (1989), pp. 66-81.
35. Interview with Gorbachev on April 1, 1993, cited in Janice Gross Stein, "Political learning by doing: Gorbachev as uncommitted thinker and motivated learner," International Organization 48, 2 (Spring 1994), p. 158.
36. Marshall Shulman, "The Superpowers: Dance of the Dinosaurs," Foreign Affairs 66, 3 (1988), p. 495. See also Matthew Evangelista, "Economic Reform and Military Technology in Soviet Security Policy," The Harriman Institute Forum 2, 1 (Janauary 1989), pp. 1-8.
37. Daniel Deudney and G. John Ikenberry, "Soviet reform and the end of the Cold War," Review of International Studies 17 (1991), p. 136.
38. Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge: Harvard University Press, 1962), Chapter 1.
39. Alaine Touraine, The Post-Industrial Society (New York: Random House, 1971); Daniel Bell, The Coming of the Post-Industrial Society (New York: Basic Books, 1973); and John A. Hall and G. John Ikenberry, The State (Minneapolis, MN: University of Minnesota Press, 1989), pp. 80-83.
40. Deudney and Ikenberry, "Soviet Reform and the End of the Cold War," pp. 235-39, 241-44.
41. S. Frederick Starr, "New Communications Technologies and Civil Society," in Science and the Soviet Social Order, edited by Loren R. Graham (Cambridge: Harvard University Press, 1990), pp. 19-50; and S. Frederick Starr, "Soviet Union: A Civil Society," Foreign Policy 70 (Spring 1988), pp. 26-41.
42. Fred Chernoff, "Ending the Cold War: The Soviet Retreat and the U.S. Military Buildup," International Affairs 67, 1 (January 1991), p. 124.
43. Bialer, "Gorbachev's Program of Change," p. 459.
44. Steve Weber, "Cooperation and Interdependence," Daedalus 120 (Winter 1991), pp. 183-201.
45. Robert Gilpin, "The Computer and World Affairs," in The Computer Age, edited by Michael L. Dertouzos and Joel Moses (Cambridge: MIT Press, 1980), p. 230; and John Von Neumann, "Can We Survive Technology?" Fortune (June 1955), p. 152.
46. Stephen S. Cohen and John Zysman, Manufacturing Matters (New York: Basic Books, 1987), pp. 24-27; and Ethan Kapstein, The Political Economy of National Security (New York: McGraw Hill, 1992), pp. 91-112.
47. Michael Borrus et al., "Mercantilism and Global Security," The National Interest 29 (Fall 1992), pp. 26-27; Charles Herzfeld, "Technology and National Security," The Washington Quarterly, 12 (Summer 1989), pp. 171-72, 180-83; and D. Weston and P. Gummett, "The Economic Impact of Military R&D: Hypotheses, Evidence, and Verification," Defense Analysis 3, 1 (1987), pp. 63-76.
48. Barry Buzan, People, States, and Fear (Boulder, CO: Lynne Reiner, 1991), especially pp. 124-31; and Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1944).
49. Crawford, "The New Security Dilemma Under International Economic Interdependence," p. 26.
50. Charles H. Ferguson, "America's High-Tech Decline," Foreign Policy 74 (Spring 1989), pp. 130-39; and John Zysman, "U.S. power, trade, and technology," International Affairs 67, 1 (1991), pp. 81-106.
51. See Jay Stowsky, "From Spin-Off to Spin-On: Redefining the Military's Role in American Technology Development," in Wayne Sandholtz et al., The Highest Stakes (New York: Oxford University Press, 1992) pp. 114-40.
52. Stephen Cohen and John Zysman, Manufacturing Matters: The Myth of the Post-Industrial Economy (New York: Basic Books, 1987); and Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America: Regaining the Productive Edge (Cambridge, MA: MIT Press, 1989).
53. See, for example, Jacob Schmookler, Invention and Economic Growth (Cambridge, MA: Harvard University Press, 1966); and Robert Gilpin, "Trade, Investment, and Technology Policy," in Emerging Technologies, edited by Herbert Giersch (Tubingen: J.C.B. Mohr, 1982), pp. 390-92.
54. Michael Borrus and John Zysman, "Industrial Competitiveness and American National Security," in The Highest Stakes, p. 26, pp. 30-31.
55. Ibid., p.27.
56. W. Michael Blumenthal, "The World Economy and Technological Change," Foreign Affairs 66, 3 (1988), p. 534.
57. Martin Carnoy, et al., "Introduction," The New Global Economy in the Information Age (University Park, PA: Pennsylvania State University Press, 1992), pp. 5-6; and Manuel Castells, "The Information Economy and the New International Division of Labor," in ibid., pp. 15-20.
58. E.J. Hobsbawm, "The Development of the World Economy," Cambridge Journal of Economics 3 (1979), p. 313.
59. Manuel Castells and Laura D'Andrea Tyson, "High Technology Choices Ahead: Restructuring Interdependence," in Growth, Exports, and Jobs in a Changing World Economy, edited by John Sewell and Stuart Tucker (Washington, D.C.: Transaction Books, 1988), pp. 55-95.
60. Blumenthal, p. 536, pp. 537, 542.
61. Raymond Vernon, Sovereignty At Bay (New York: Basic Books, 1971); Helen Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press, 1988); and Lorraine Eden, "Bringing the Firm Back In: Multinationals in International Political Economy," Millennium 20, 2 (1991), pp. 197-224.
62. Martin Carnoy, "Multinationals in a Changing World Economy," in The New Global Economy in the Information Age, pp. 45-96.
63. Robert Gilpin, The Political Economy of International Relations (Princeton: Princeton Universtiy Press, 1987), pp. 261-62; and Blumenthal, pp. 536-37.
64. Robert Jervis, "The Future of World Politics," International Security 16, 3 (Winter 1991/92), pp. 49-51.
65. Robert Reich, The Work of Nations (New York: Knopf, 1991), pp.85-86, 94-95. See also, Jagdish Bhagwati, "Trade in Services and the Multilateral Trade Negotiations," The World Bank Economic Review 1, 1 (1987).
66. Jock A. Finlayson, "Trade and Global Interdependence," in World Politics, edited by David G. Haglund and Michael K. Hawes (London: Harcourt Brace Jovanovich, 1990), p. 288, 297-99.
67. Raymond Vernon, "Japan, the United States, and the Global Economy," The Washington Quarterly, 13 (Summer 1990), p. 58; and James M. Goldgeier and Michael McFaul, "A Tale of Two Worlds: Core and Periphery in the Post-Cold War Era," International Organization 46 (Spring 1992), pp. 484, 488.
68. Such trends as the increase in "intra-industry" trade and the expansion of trade between developed countries are examined in more detail in Peter Dicken, Global Shift: The Internationalization of Economic Activity (London: Guilford, 1992).
69. On "strategic trade theory," see Paul Krugman, "The Current Case for Industrial Policy" in Protectionism and World Welfare, edited by Dominick Salvatore (New York: Cambridge University Press, 1993), pp. 160-79; David B. Yoffie, ed., Beyond Free Trade (Boston: Harvard Business School Press, 1993); and Helen V. Milner and David B. Yoffie, "Between Free Trade and Protectionism," International Organization 43, 2 (Spring 1989), pp. 239-72.
70. Jagdish Bhagwati, Protectionism (Cambridge: MIT Press, 1989); and W. Max Corden, "The Revival of Protectionism in Developed Countries," in Protectionism and World Politics, pp. 54-79.
71. Michael Borrus et al., "Mercantilism and Global Security," The National Interest 29 (Fall 1992), pp. 26-27.
72. James R. Kurth, "The Common Defense and the World Market," Daedalus 120, 4 (Fall 1991), p. 220-22. See also, James R. Kurth, "The Pacific Basin versus the Atlantic Alliance: Two Paradigms of International Relations," The Annals 505 (September 1989), pp. 39-42; and Raymond Vernon, "Japan, the United States, and the Global Economy," The Washington Quarterly 13 (Summer 1990), pp. 57-68.
73. Gilpin, The Political Economy of International Relations, pp. 204-09, 381-406; and Barry Buzan, "Economic Structure and International Security," International Organization 38, 4 (Autumn 1984), pp. 597-624.
74. Steve Weber and John Zysman, "The Risk That Mercantilism Will Define the Next Security System," in The Highest Stakes, pp. 167-96.
75. Laura D'Andrea Tyson, Who's Bashing Whom: Trade Conflict in High-Technology Industries (Washington, D.C.: Institute for International Economics, 1992).
76. W.W. Rostow, "On Ending the Cold War," Foreign Affairs 65, 4 (Summer 1987), pp. 840-41.
77. Ian C. Parker, "Myth, Telecommunication and the Emerging Global Informational Order: The Politcal Economy of Transitions," in The Political Economy of Communication, edited by Edward A. Comor (New York: St. Martin's Press, 1994), pp. 37-60.
78. Skolnikoff, pp. 137-38, 145; and Bogomolov, pp. 159, 163.
79. James M. Goldgeier and Michael McFaul, "A Tale of Two Worlds: Core and Periphery in the Post-Cold War Era," International Organization 46 (Spring 1992), pp. 484, 488.
80. Fernando Henrique Cardoso, "North-South Relations in the Present Context: A New Dependency?" in The Global Economy in the Information Age, p. 157.
81. Paul R. Krugman, "Developing Countries in the World Economy," Daedalus 118 (Winter 1989), p. 184.
82. These problems are examined in detail in Robert D. Kaplan, "The Coming Anarchy," The Atlantic Monthly (February 1994), pp. 44-76; Thomas F. Homer-Dixson, "On the Threshold: Environmental Changes as Causes of Acute Conflict," International Security 16, 2 (Fall 1991), pp. 76-116; and Thomas F. Homer-Dixon, "Environmental Scarcities and Violent Conflict," International Security 19, 1 (Summer 1994), pp. 5-40.
83. Eugene Staley, World Economy in Transition (New York: Council on Foreign Relations, 1939), pp. 51-52.
* Reprinted by permission of the author and publishers from SAIS Review (1995).
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