Classmates: These are the notes from a talk given by
Marsh Carter and his talk was attended by Wayne Downing. If you will scroll to the end of this talk,
you will find a link to a photo of Marsh and Wayne in the ’62 Room.
Title: “21st Century
Warfighting Tools for the Modern Cadet---Beans, Bullets, Brains and
Economics!….Economics???”
Speaker: Marshall N. Carter
Audience: Cadets majoring in economics or Members of the economic club/forum
l Observations on Leadership
l Major Economic Trends
l Resource Constraints
l Economic Sanctions
l Effectiveness of Sanctions and Economic
Power
l Key questions for the future
“21st Century Warfighting Tools for the Modern Cadet---
Beans, Bullets, Brains and Economics!….Economics???”
Marshall N. Carter
For Cadets at the
Acknowledge: General
Downing, General Lenox, Cadets, members of the faculty, others.
Thank you Colonel Belknap
for that introduction. My father would
have been proud, and my mother would have believed it!
I was surprised to learn
recently that Economics is the most popular major here. That’s a long way from the late 1950’s when
General Downing and I were Cadets and 46 of the 48 courses we took were
prescribed by the Dean and the Supe.
Last summer, Colonel
Belknap, who spent part of her summer on Wall Street, asked me if I would, as
Chairman of the New York Stock Exchange and a
The NYSE is the largest pool
of liquidity or financial capital in the world.
At $13 trillion it dwarfs the
In addition to this job,
which I assumed last April, I was for 10 years the CEO of a specialized bank
and trust company in
Anyway, I’m often asked,
because I don’t have an MBA or traditional business background, what leadership
and management techniques have been
successful as a CEO and Chairman. And
where did I learn them? My answer is
always direct – I use the same leadership skills I learned at
Since entering here as
plebes you have been acquiring skills that are rapidly becoming part of your
DNA, your operating style, and your future.
So regardless of whether you
devote your life, and it is a way of life, not a job, to a military career,
which we all hope you’ll do, or choose other avenues, these are the traits that
will mark you, and the ones I have used successfully:
l Leadership
– the acts of getting men and women to accomplish tasks they can’t do
alone. I prefer leadership with no
self-aggrandizing and as you’ll find out as a company grade officer, unit
accomplishment is the thing to focus on.
l Ethics - Defined here as a set of principles of
right conduct and the standards governing the conduct of members of a
profession. You are members of a
profession with very strong ethics. You can’t learn this in an academic course,
as many colleges try to tell you. You
have to live it day-by-day. As evidenced
by the problems in the business community the past few years, many CEO’s did
not. Of course, in the military the
penalty for bad ethics, bad or false reporting, dubious trustworthiness, is
that often men and women are killed or wounded.
l Multi-Tasking
– You’ve been learning this since Beast Barracks and plebe year when studying
while shining equipment or doing other things was routine. Once you’re commissioned, it becomes a
critical skill at all levels but especially lieutenants and captains. I can instantly recall as a 26 year old
infantry company commander during my first tour in
l Finally,
an Ability to Prioritize - to
determine what’s mission critical, what decisions need to be made today versus
those that don’t impact immediate operations.
Again, another skill I don’t see often outside the military.
These are the skills I started learning here. But, enough “free advice” from a grad whose
war was over 30 years ago! Let’s talk
about economics, and there will be a time for questions in a few minutes.
With regard to economics, your main academic focus, first;
l An
Historical Overview. As we look back
over the past few centuries, we see:
-
1800’s – a period of nation building, creation of colonial
empires, territorial expansion; regional economic impacts rather than
global. Most trade and financial
dealings were bilateral. Wars were
fought between armies in the field.
Economics did play a role in the Civil War; three examples that show how
economics, not just trade, was beginning to emerge as a major force.
1. Cotton
and the British Economy
In 1861, 80% of British cotton imports came from Confederate
states and the textile industry was the leading British, as well as French,
industry. As the
As late as 1863, Confederate hopes were based in part upon
British and French intervention to stop the war and recognize Confederate
legitimacy, thus ensuring Confederate success in creating an independent
nation. The Confederacy so strongly
believed in the economic influence and importance of “King Cotton” diplomacy
that they imposed a self-embargo early in the war hoping to drive up global
demand and prices in an effort to gain allies.
Once the Confederates realized the economic necessity of selling cotton
on the world market, the Union blockage was too tight to export in quantity.
2.
Another interesting Civil War economic event was General
William Tecumseh Sherman’s, (Class of 1840) plans to destroy the economic base
of the Confederacy. His theory, according
to several biographers, was that the killing of Confederate soldiers could go
on for years, and the war wouldn’t necessarily be won until the South’s
economic and industrial ability to support their Army with horses, food,
uniforms and materiel was destroyed.
He had a difficult time convincing his bosses, General Grant
and President Lincoln, that this strategy, probably one of the earliest uses of
a “total war” concept to include economic factors, would be effective in
shortening the conflict. While
3.
Another example is Union General Phil Sheridan’s 1864
Shenandoah Valley Campaign. Sheridan,
Class of 1853, recognized the importance of the Shenandoah as the “breadbasket
of the Confederacy,” and his 1864 campaign sought to destroy all forage,
provisions, and stocks in the area to force Southerners to depart the valley.
-
1900’s - periods of
territorial expansion by dictators, wars fought less for economic than
ideological reasons, although you could probably make a case that one of the
“triggers” to WWII was the July 1941 halting of American oil exports to Japan,
a nation even then, totally dependent upon oil imports. In the late 1930’s, it
imported 90% of its oil, 80% from the
- Late
1900’s
From
the end of WWII until the early 1990’s, we had as a national strategic concept,
the containment of communism by all means, military, political, social, and
economic. There are several interesting
examples of economic power being very effective in helping this
containment.
From the end of World War II until the mid 1980’s,
the USSR had as a national objective, militarily matching all threats, favoring
military spending versus domestic and supporting its Communist allies with
money and equipment. This objective
combined with nine failed “Five Year Plans” to boost its domestic economy,
severely overburdened that economy, which was antiquated with no real
infrastructure.
I can remember in 1975, while working at the State
Department, seeing satellite photographs of the Russian corn crop. Less than 50 miles from
In 1985 under Gorbachev, the Soviets underwent a
radical shift to a military policy of “reasonable sufficiency” from matching
all threats. The new Soviet thinking saw
security in a nuclear world as mutual, and indeed saw influence in an
interdependent economic world as based upon technological and economic capability,
rather than military might, as demonstrated by the growing economic power of
While it may be a stretch to credit President
Reagan’s Star Wars Initiative, as some have, with hastening or even causing the
collapse of the Soviet Union, there is no doubt that 50 years of failed
economic plans, failure to modernize basic industries, failure to provide
adequate agricultural output caused a reappraisal of Soviet national economic
objectives away from pure military power when confronted with matching U.S.
initiatives.
Here, unlike
-
2000’s – as we look forward in this century, and a large
number of you will live to see the latter years of this century, there are a
number of economic trends that will have a significant impact on your careers.
One trend, which I won’t cover in detail is the aging
of populations in most European and many Asian countries. A baby girl, born today in an industrialized
nation, has a 1 in 3 chance to live to 100.
This aging process and the economic power necessary to provide for
healthcare, employment and retirement will have a profound effect on your
lives, and the economic growth and welfare of many nations.
(Anecdote: Picture
this – it’s June, week 2080, you are the oldest living grad, they wheel you out
in a non-polluting hydrogen powered portable person device, and you hear a
Firstie in ranks say, “she’s the oldest living graduate and she actually fought
in Iraq with a rifle”. During June week
when General Downing and I were yearlings, the oldest living grad was from a
class in the 1880’s and he had actually fought against the Plains Indians,
needless to say the Corps went wild when he was wheeled out as reviewing
officer!!
Major Economic Trends
These are the economic trends for this century that
seem critical to me:
First: we are entering a time of global resource
constraints – it took over 100 years for the world to use the first 1
trillion barrels of oil. At the current
rate of consumption, 84 million barrels per day, we will use the second
trillion in the next 30 years. With two
economies,
What
does resource constraint mean to our economy and, more importantly to
you as part of our national defense structure?
The world’s current and prospective largest oil importing
nations will continue to compete to ensure sufficient supplies to meet their
needs. The attempt last summer by
·
·
· Chinese oil
usage rose almost 40% in the first half of 2004, and this accounted for roughly
one-third of the increase in total world oil consumption, although it has rich
coal deposits, its economy is increasingly based on oil much of which must be
imported.
· To meet such
demands, it will be necessary for all countries to both boost their energy
efficiency, which is becoming a matter of national strategic advantage or
vulnerability, and to secure energy supplies from more and more difficult
sources. Difficult means remote
extraction and non-friendly locations.
· The
competitive importance of oil underlies the bidding war last summer between
· Unocal is
known as an expert at drilling wells, some as deep as nearly 10 km under the
crust of the Earth. That, along with its
portfolio of prime deep-water-drilling leases, helps explain why both CNOOC,
the China National Oil Company and Chevron Corp. were willing to spend billions
of dollars for the company.
Additionally,
More broadly, the long-run scarcity
and importance of energy is arguably only beginning to be reflected in prices,
although it is widely recognized as a national security issue.
· The current
price of light crude oil recently went over $60 a barrel, with gas at the pump
up significantly to over $4.00.
· If we take
1980s oil prices, however, and adjust them for inflation, we calculate that,
just to keep oil prices constant in real terms, the current price per barrel
would have to be something around $80.
· In other
words, prices have gone through a period of not keeping up with inflation, and
looking forward they could rise a lot more.
· If the oil
price adjustments were always smooth, they would be much less of a
problem. Unfortunately, price shocks are
ugly and hard to predict. Like
earthquakes, their probability quietly increases over periods of time when
there is calm and complacency can set in.
· The 1970s
Arab and Iranian oil and gas embargoes contributed to US interest rates
reaching as high as 20% and inflation at double-digit levels. The disruption to
· Viewed from
the perspective of the overall economic costs of such an event, it appears well
worth substantial national planning and investments to guard against these in
the future –in energy saving investments, in technologies, in defense, and in
expanding import/export agreements.
Going forward, it is likely that the
risks of such scenarios to include confrontation will increase:
· According to
some sources by 2030 world energy consumption will expand by almost
60%.
· Major
oil-and-gas importing countries, including industrialized countries, and
fast-growing developing countries, such as
·
· Moreover,
almost all growth in energy production also will come from non-European
countries, primarily Middle Eastern members of OPEC and
· There are
several consequences of supply constraints:
vulnerability to supply disruptions will increase as international trade
expands. Climate-destabilizing
carbon-dioxide emissions will continue to rise.
Huge amounts of new energy infrastructure will need to be financed.
· In other
words, energy imbalances in remote or less developed parts of the world, where
· From a
political, economic, and military viewpoint, a central key question is how the
Second Trend: As the Cold War ended, we entered a period
where the world began to shift from a defense and political orientation to
an economic, trade and business focus.
Please Note – I don’t ignore
the current global terrorism challenges, I’m just not sure where it goes
yet. Clearly there is an economic, or
perhaps a “lack of opportunity”
challenge for young people in many countries which makes them vulnerable to
destructive ideologies.
l Economics: If we accept these two trends, resource
constraints and the increased importance of economic power then does
it follow that a knowledge of economics, economic power and the ability and
national will to use this power globally, can or will become an even more
important tool in a nation’s international stature? While economic power can be an effective tool
it doesn’t seem to me that it will ever replace actual force projection or the
threat or capability for force projections.
My
answer is YES, BUT, the “but” reflects the changing nature of the global
economy and the difficulty in actually making economic power effective and useful
in keeping the peace or furthering national goals.
l Economic
Sanctions. In the broadest sense,
an economic sanction is any action by a nation or group of nations, to
deliberately alter, withdraw, terminate established international trade or
financial dealings. The purposes range
from forcing a targeted country to stop military action, abandon plans for
territorial acquisitions, impair the economic capacity of the country thereby
forcing curtailment of some activity or force a change in policies.
Some of
the more successful were
In 1956
the Egyptian government nationalized and seized the
What would
it have been like to be a paratrooper lieutenant in the British airborne
units? Let’s look.
It’s
mid-October 1956, you’re a lieutenant in the 3rd Parachute Battalion
(Red Devils of WWII fame). Your unit is
alerted for a combat jump. You’ve never
seen combat, you’ve had some “police duties” in Cyprus, but all you ever hear
about from the field grade officers is WWII, Korea, and how your generation
won’t amount to much because you’ve never been in combat. (That’s what General Downing and I heard in
1964-65, who knew then the war would last 10 years and we would each spend over
2 years there). The assault is on, and
on November 5 you make a combat jump onto an airfield in
Some
economic facts; First,
l Effectiveness
as an Economic Technique
The
current global economy has characteristics such as fungible commodities, speed
of funds/money transfers, internet, that work against economic pressure because
there are so many alternative ways to conduct financial transactions. A key factor is that large country economies
are interdependent and the magnitude of trade has created co-dependencies,
thereby making sanctions a 2-edged sword with substantial domestic policy
impacts.
The
In the
case of
1) They
have a subsistence level economy so economic sanctions would take years to have
an impact.
2) They
have a long border with a country,
3) Transhipment
of goods through third or fourth countries or the international blackmarket
allows essentials to reach to the country or be exported from
What can we say about sanctions and their power to
influence a countries actions:
1) They
seem to work best when the imposing powers act in concert to bring real
pressure on the target economy.
2) They
work best when there is real economic leverage such as
3) They
are increasingly difficult in the 21st Century because of the
blackmarket in many goods such as uranium and nuclear technology.
4) The
“law of unintended consequences” may apply!
For example, if the US applied sanctions on agricultural
products/exports and a large sector of the US farm community say soy bean
growers were impacted there would be concern in Congress. Or too tight a set of economic sanctions on
Let
me sum up by saying that I’ve painted a mixed picture here, economic power can
be powerful, but often difficult to make effective. So, what’s the impact upon you and why is it
important to understand the practical side of economic theory? Rather than answer that directly, let me pose
a set of questions about your future for you to ponder. Lots of topics for the dreaded term paper
here! These relate to the practical,
real world of global economics that are of interest as a complement to your
formal economics courses. These are not
new and have appeared in various newspapers, magazines and journals.
l ECONOMICS
1. If economics is powerful, effective and useful, what’s the
implications for military force structure and the organization of the Army and
other services? Do we/will we need more
practical economists and less war fighters?
2. Is force projection through economic power really a viable
alternative to “boots on the ground”? Do
we ever have the luxury of time to wait until economic sanctions work?
3. What does a shift in the economic center of gravity of the
world from the US/Europe regions towards
4) Clearly,
l
1. Balancing
our relations to an emerging economic powerhouse and growing military power,
how do we do that? Can we continue to
keep economic and military / political issues separate?
2. In
3. How do we deal with Chinese companies
purporting to be part of the global economy but actually controlled by the
government (UNOCAL purchase). This issue
is getting widespread attention. Quote
from Foreign Affairs magazine of the Council on Foreign Relations:
“Chinese foreign policy is now driven by
l
1. Without population controls, can they
grow their economy to match their population growth?
2. What are their global and regional
aspirations?
l Economic
sanctions.
1. Sanctions
on trade and financial dealings between countries have been used since the
Peloponnesian War in 432 B.C. but are they still an effective policy for this
century? Is the global economy too
complex with too many alternative sources of money and goods?
Thank you. We do have time for questions, and they don’t have to be limited to economics.
..................................................................................................................................
