Discussions of capitalism and globalization tend to focus quite narrowly on their economic effects. Although I am convinced of the economic benefits of globalization and free trade, these benefits might be less important than their international security benefits.

     The quantitative literature comes fairly close to general agreement on the following four propositions from economics, political sociology and international relations: First, democracies rarely fight each other. This does not say that democracies fight fewer wars than other regimes. It is even compatible with the view that the risk of war between autocracies and democracies is even higher than the risk of war between autocracies. Second, prosperity or high per capita incomes promote democracy. Third, export orientation in poor countries and open markets in rich countries, i.e., trade between rich and poor countries promotes growth and prosperity where it is needed most, in poor countries. Fourth, trade reduces the risk of war between nations.

     Free trade plays a pivotal role in the prevention of war because it exerts direct and indirect pacifying effects. In addition to the direct effect, there is an indirect effect of free trade on the avoidance of military conflict mediated by growth, prosperity and democracy. Prosperity comes close to being a prerequisite of democracy. The risk of military conflict and war is extremely small among democracies. This package of effects may be labeled the capitalist peace. If globalization is understood as the spread of capitalism by free trade, foreign investment and outsourcing, then globalization promises to promote prosperity and peace at the same time. Of course, the diffusion of capitalism and peace by globalization takes time and does not solve all urgent problems at once. That is why I have always advocated robust military capabilities in order to deter and, if necessary, to fight the enemies of the free world. But the capitalist peace is likely to prevent many security problems from even arising.

     The occurrence of World War I is the standard argument against peace by trade or the capitalist peace because economic interdependence between the Western powers and the Central European powers before it was quite substantial. Certainly, World War I serves as a useful reminder that, at best, the capitalist peace works like an inoculation: useful, but not failsafe. Moreover, World War I is not as unexplainable even by the short version of capitalist peace theory provided above. After all, there was no democratic contribution to pacification because the Central European powers were, at best, imperfect democracies. By contemporary standards, even the democratic character of the United Kingdom was not beyond suspicion because of franchise limitations. As far as trade linkages were concerned, it is noteworthy that Germany traded much more with its Austrian-Hungarian ally in the war to come than with its French opponent in the war to come, that France traded much more with its British ally in the war to come than with its German opponent in the war to come. So, the strongest shots of the capitalist peace inoculation have not been delivered where needed most.

     Finally, capitalist peace theory is an admittedly incomplete theory .It says only how risks of war may be reduced but it says nothing about what generates them in the first place. In a fully developed theory of war root causes have to be analyzed, including security dilemmas and international anarchy, territorial conflicts of interest and the associated notions of national identity , as well balances of power or spheres of influence. Time does not permit a discussion of these issues.

     But capitalist peace theory is easily compatible with World War II which was even bloodier than the previous war. There was little trade between the Western powers and the Axis powers. The other major participant in the great war, the Soviet Union pursued an autarkic policy. Since the Axis powers were no democracies, the democratic peace could not apply. The different long- term effects of the settlements of both world wars may be explained by differences in application of the capitalist peace strategy toward the losers of the wars. After World War I, France determined the settlement more than anyone else. It did not even think of a capitalist peace strategy. Misery and desperation within Germany contributed to Hitler's empowerment and indirectly to World War II in which France had to be saved by its allies. After World War II, the United States, however, pursued a capitalist peace strategy toward the vanquished. It promoted global free trade and subsidized even the recovery of the losers of the war. Germany and Japan became prosperous and allies of the United States.

     The most important contemporary application of peace by trade may be the Sino-American relationship. Already now, trade between the United States and China as well as American investment in China and profits made by American enterprises in China may pacify an otherwise competitive relationship. Moreover, economic interdependence between China and Taiwan might be the most important pacifying influence in an otherwise truly dangerous relationship. If the Chinese economy prospers, if China outgrows poverty , then Mainland China may become democratic, say, in about two decades.

     On the one hand, globalization promises to enlarge the market and therefore to increase the division of labor and to speed productivity gains and economic growth. On the other hand, it remains under attack from special-interest groups and misguided political activists. Critics of globalization not only forget both the benefits of free trade and globalization for developing countries and for their poor and underemployed workers and the benefits of free trade for consumers everywhere, but they know almost nothing about the international-security benefits of free trade. The least enlightened opponents of globalization still think in Leninist terms about capitalism, imperialism and war. Historical evidence properly analyzed, however, suggests the opposite: By promoting capitalism, economic freedom, trade, and prosperity, we simultaneously promote peace.

     Conceivable instruments to promote capitalism, freedom, and prosperity include advice about the legal foundations of capitalism and about economic policies. Open markets in rich countries for exports from poor countries generate credibility for free market institutions and policies. They complement export-oriented growth strategies in poor countries. Foreign direct investment by private enterprises and donations from private Western sources to poor countries are more likely to have a positive effect on the growth path of poor countries than will official aid, which tends to strengthen the state at the expense of free markets and which is frequently wasted. The more capitalist the rich countries become, the more they provide a model for emulation by poor countries as well as a market and a source of technology and investment for them. By resistance to protectionism and to the creeping socialism of the welfare state, Western nations may simultaneously strengthen their own economies, improve the lot of the poor in the third world, and contribute to the avoidance of conflict and war.

     Although the democratic peace is a component of the capitalist peace, the policy implications of both ideas differ. Some powerful adherents of the democratic peace hope to spread democracy not only by providing a model for emulation and by propaganda, but also by war and subsequent regime change. This idea is dangerous for at least two reasons. First, it proposes to avoid some future wars by fighting a war now. Although such a policy may be justified and unavoidable under some circumstances, it presupposes excellent intelligence about the intentions and capabilities of autocratic regimes. Unfortunately, intelligence failures happened in the past and are likely to occur again in the future. Second, winning a war might be a first step to regime change and democratization, but it does not necessarily suffice. It may succeed, but not always. (West) Germany and Japan after their defeat in World War II provide examples that democratization under the sponsorship of occupational forces may work. In my view, the Germans and the Japanese accepted reeducation and American guidance because they regarded the Soviet threat as much worse than being American clients. (West) Germans and Japanese could ally with the Americans against someone, against Communism.

     If one considers regime change and democratization in the Muslim world today, it is hard to imagine against what America and the West on the one hand and fundamentalist Muslims on the other hand can form an alliance. Such an alliance could still be established against Soviet occupation forces in Afghanistan. Nowadays, however, the communist threat has disappeared. In the absence of a common threat I cannot imagine imposed democratization to work, least of all in the Muslim world where the idea of rule by the people is sometimes perceived as incompatible with the rule of God's law. Whereas spreading democratization by force of arms is inherently problematic and less likely to work in current than in past theaters of operations, spreading capitalist globalization does work.

     Since the late 1970s when Deng Xiaoping returned to power China has effectively given up socialism and replaced it with creeping capitalism under new labels – from 'responsibility system' to 'comparative advantage confirming development strategy'. China achieved miraculous growth rates and lifted about four hundred million people out of abject poverty. In the early 1990s India started to climb out of the socialist trap, too. Together these two nations account for about half of the population of the developing world. After the collapse of the Soviet Union, capitalism – albeit in severely distorted form – spread to Russia and Eastern Europe. Not even North Korea, the least enlightened and most Stalinist regime on the globe, is fully resistant against the lure of the market. Thus, capitalism is more likely to spread by the sheer power of example, by providing a model for emulation, than democracy does. In the long run, capitalism is likely to undermine the foundations of autocracy and to prepare the ground for democratization. The main policy difference between a capitalist peace strategy and a democratic peace strategy is its consistently peaceful and patient character by contrast to temptations of rooting out one of the causes of war by war itself.

     Critics raise another objection against the global spread of capitalism. In their view, capitalism and globalization promote poverty and inequality which in turn promote political instability and civil war. Although some parts of these assertions are compatible with observable data, others are quite false. In essence, these objections refer to two causal chains, one running from capitalism and globalization to poverty and then to political instability and civil war. Here, the first link of the asserted chain simply does not exist. Capitalism and globalization do not increase poverty, but prosperity. Admittedly, most African countries have at best stagnated during the recent period of globalization. But these countries practiced neither capitalism and economic freedom, nor globalization. Capitalism does not help those who practice statism and corruption. Globalization helps globalizers only.

     The second causal chain asserted by critics runs from capitalism and globalization via income inequality to political instability and civil war. Here, the second link of the asserted chain is somewhere between extremely weak and non-existent. Therefore, the argument collapses. But the first part of the chain raises interesting issues. On the one hand, global inequality between individuals, families, or households has certainly stopped growing and already has begun to decrease slowly. The main reason for the recent reduction of global inequality is fast catch-up growth in Asia where the majority of mankind lives. On the other hand, it has to be admitted that income inequality has increased in many countries, including big ones like the US or China. Since inequality between countries still is a more important component of inequality between human being than inequality within countries, growing inequality within many populous countries is compatible with decreasing inequality among human beings.

     In sum, shifting one's attention from the link between globalized capitalism and war to the link between globalized capitalism and political instability or civil war does not justify an indictment of capitalism, or economic freedom, or globalization. Quite to the contrary: Capitalism, economic freedom and globalization lead to growth and prosperity which in turn promotes political stability and reduces the risk of civil war.

     Ultimately, the purpose of capitalism is to restrict the sphere of force, obedience and command as much as possible and to expand the sphere of individual freedom and choice as much as possible. The promise of capitalism is to make politics less important, and conflict within and between states less rewarding for the victors than it still is.

Erich Weede is a professor of sociology at the University of Bonn, Germany. Recently, he published a paper on 'The Diffusion of Prosperity and Peace by Globalization' in The Independent Review, vol. 9, no. 2, fall 2004, pp. 165-186, and a book Balance of Power, Globalization, and the Capitalist Peace,. Berlin: Liberal Verlag 2005 (for the Friedrich-Naumann Foundation, Potsdam)..

Professor Dr. Erich Weede
Hauptstr.470
53639 Koenigswinter
Germany
e-mail: e. weede{at}uni-bonn.de