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A POLICY OF CONNECTING ISSUES OR EVENTS

The second way force exerts influence on other domains of policy is through the power of linkage politics. In politics, whether domestic or foreign, issues are usually linked to one another. The link can be either functional or artificial. If two issues are linked functionally, then there is a causal connection between them: a change in one produces a change in the other. The price of the dollar (its exchange rate value) and the price of oil imports, for example, are functionally linked, because the global oil market is priced in dollars. (Not only that, oil can only be bought with dollars.) A decline in the value of the dollar will increase the cost of a given amount of oil imported to the United States. Similarly, a rise in the value of the dollar will decrease the cost of a given amount of imported oil. As long as oil remains priced in dollars, the functional tie between exchange rates and energy cannot be delinked. Moreover, as the oil-dollar example illustrates, functional linkages generally have corresponding spill-over effects. That is, weakness on one issue (a weaker dollar) produces more weakness on the other (more money spent on energy imports); and strength on one (a stronger dollar) produces greater strength on the other (cheaper energy imports). Thus, functional linkages produce causal effects that either magnify a state's weakness or add to its strength.

When two issues are linked artificially, there is no causal connection between them. A change in one does not automatically produce a change in the other. Instead, the two issues become linked because a statesman has made a connection where none before existed. Usually, but not always, this will be done to gain bargaining leverage. By making a link between two heretofore unconnected issues, statesmen try to bring about politically what is not produced functionally. They make a link in order to compensate for weakness on a given issue. Their method is to tie an issue where they are weak to an issue where they are strong. Their goal is to produce a more desirable outcome in the weak area either by threatening to do something undesirable in the strong area, or by promising to do something beneficial there. If they can make the connection stick, then the result of an artificial linkage is a strengthening of a state's overall position. Unlike a functional linkage, where weakness begets weakness and strength begets strength, in an artificial linkage, strength offsets weakness. Thus, an artificial linkage is a bargaining connection that is made in the head of a statesman, but it is not any less real or any less effective as a result. I provide an example of a bargaining linkage below.

Whether functional or artificial, issue linkages have a crucial consequence for both the analysis and the exercise of state power. As Keohane suggests: "No issue-specific explanation of events can be completely satisfactory in a world of multiple issues linked in a variety of ways." We can put the point more strongly: because issues are connected, domains cannot be wholly delinked from one another. If they cannot be delinked, then we should not view them in isolation from one another. Therefore, any explanation of an outcome in a given domain that is based only on what goes on in that domain will always be incomplete, if not downright wrong. In sum, issue linkages limit the explanatory power of a domain-restricted analysis.

Bargaining linkages in particular make state assets more fungible than they might otherwise be. Linkage politics is a fact of international political life. We should not expect otherwise. Statesmen are out to make the best deals they can by compensating for weakness in one area with strength in others. Powerful states can better engage in these compensatory linkages than can weak ones. They are stronger in more areas than they are weak; consequently, they can more easily utilize their leverage in the strong areas to make up for their deficit in the weak ones. Great powers are also better able to shift assets among issue areas in order to build positions of bargaining strength when necessary. They can, for example, more easily generate military power when they need to in order to link it to nonmilitary tasks. Therefore, because powerful states can link issues more easily than can weaker ones, can compensate for deficiencies better, can generate more resources and do so more quickly when needed, and can shift assets around with greater ease, how powerful a state is overall remains an essential determinant to how successful it is internationally, irrespective of how weak it may be at any given moment on any specific issue in any particular domain. In sum, linkage politics enhances the advantages of being powerful and boosts the fungibility of force by enabling it to cross domains.

Example: allied energy politics. An example taken from the cold war era—the creation of the International Energy Agency (IEA)—demonstrates that a great power can construct bargaining linkages and use its military power for nonmilitary goals. In creating the IEA, what the United States did was to link the military security it provided its Japanese and European allies to their cooperation on energy matters.

For our purposes what is interesting about the IEA is not whether it was effective (it was not), but how it was created. At the instigation of the United States, the world's major oil consuming nations reluctantly agreed to create the IEA in late 1974. As conceived by Henry Kissinger, secretary of state, the IEA was to be the oil consumers' riposte to the producers' cartel— the Organization of Petroleum Exporting Countries (OPEC). The primary purpose of IEA was to increase the bargaining power of the consumers in order to deal with the producers' new found strength. In late 1973, OPEC had seized upon the October Arab-Israeli war to lay an oil embargo on the United States and the Netherlands, to restrict the output of oil, and to double its price. The initial reaction of America's Japanese and European allies to the actions of OPEC was a "rush to bilateralism": each sought to make their own deals with the Persian Gulf producers; all distanced themselves from America's Middle East diplomacy; and every one opposed the idea of consumer cooperation. Only the Netherlands, which had large reserves of natural gas, supported the United States' diplomatic approach during and after the October war. France was the most outspoken about the advantages of bilateral deals for securing continued access to oil at the best possible price. It sought to arrange a Euro-Arab political dialogue and took the most public steps to distance itself politically from America's Middle East diplomacy. Though they were more discreet, the Japanese and the other Western European nations followed the basic French line, each seeking its own bilateral deals. Bilateralism reached such a degree that none of the members of the European Community was initially prepared to share oil supplies with one of its members—the embargoed Dutch—because they feared that the Arab producers would extend the embargo to them. Only when the Dutch reminded their EC colleagues that the Netherlands was a major supplier of natural gas to them, providing forty percent of France's supply, for example, did the EC work out a compromise that provided the Dutch with their oil needs from non-Arab producers.

The energy crisis of the early 1970s presented the consuming nations with the classic choice states face when contemplating cooperation. Should they bear some shortterm pain in order to bring about mutual long-term gain, or should they sacrifice mutual long-term gain for individual short-term gain? When the energy crisis broke, all the consuming nations would have been better off had they cooperated with one another by sharing supplies and information, by investing jointly in research on new energy technologies, and by jointly confronting the OPEC producers. Except for the Netherlands, however, each nation feared that it would lose in the short term if it cooperated with the United States, and all believed they could do better by making their own deals. As happens when international cooperation fails, governments chose defection over cooperation. Initially, then, the allied response to energy developments mimicked the beggar-thy-neighbor trade and currency devaluation policies that the western world had pursued with such disastrous effect during the 1930s.

It fell to the United States, which was more self-sufficient in energy resources, to take the lead in trying to induce consumer cooperation. Creation of the IEA was one step in that effort. Early in 1973, Kissinger had become concerned about the growing power of OPEC because of major changes in world supply and demand. On 23 April 1973, in his "Year of Europe" address, he had urged the major oil consuming nations to work together to deal with the adverse trends then taking place in the oil market—the rise in global demand for oil, the producer states' nationalization of the multinational oil companies' reserves, and the end of America's ability to serve as an oil supplier of last resort in an extended emergency. Until the embargo and the doubling of oil prices in October, Kissinger had gotten nowhere. Once OPEC took the actions described above, the Western Europeans and the Japanese agreed in theory that cooperation was better than bilateral deal making, but each feared the consequences of taking a common front and resisted concerted consumer action. Through much diplomatic pressure, the United States succeeded in arranging a Washington Energy Conference in February 1974 to forge a common allied response. Just before the meeting, however, the European Community met and under French pressure decided that it would agree to no actions at the conference that would mean either confrontation with the Arab producers or creation of a new institution to deal with the energy crisis.

After the opening session of the conference on 11 February, Kissinger told his deputy Al Haig: "The French are isolated but we are not getting what should be happening—a response of united action. The basic theory [of consumer unity] they are not willing to buy." On the evening of 11 February 1974, the tide was turned after Nixon addressed the group at a state dinner. He delivered the following remarks:

[t]here has been growing in recent years…a growing sense of isolationism [in the United States], not just about security… but also with regard to trade where those who completely oppose the initiatives we have undertaken in the trade area and who oppose even some of the initiatives in the international monetary area that you are all familiar with.

[I]t is possibly good short-term politics, but disastrous long-term statesmanship for this reason, because if each of the nations in effect goes off on its own or, as I have put it, goes into business for himself, the inevitable effect will be this: It will drive the prices of energy up, it will drive our economies down, and it will drive all of us apart….

I believe that the, let me put it, the 'enlightened selfish interest' of each nation here is better served by cooperation in security, by cooperation in trade, and by cooperation in developing our sources of energy….

Security and economic considerations are inevitably /inked and energy cannot be separated from either.

Kissinger's account of the conference makes clear that Nixon's intervention stiffened the will of both the Japanese and France's EC partners to resist French opposition to a more joint approach to the energy crisis. The Conference finally agreed to set up the Energy Coordination Group, which then worked over the summer to produce a consensus by the fall among the major consumers on energy cooperation. The result was the IEA, which began work in November.

What had happened was clear. Because it was no longer self-sufficient in oil, the United States could no longer serve as the energy supplier of last resort to its key allies; therefore, it could not induce their cooperation on energy matters simply by offering to replace any oil that the Arabs might deprive them of. Instead, it had to force cooperation on energy by linking that issue to one where the United States still retained its strength. Hence Nixon tied the continued provision of American security to the Europeans and Japanese to their acceptance of a united consumers' energy front. Of course, linking American protection to allied energy cooperation was not the only reason the IEA came about. America's allies wanted to share in the benefits that would likely flow from an American investment in alternative energy sources that would dwarf anything they could mount and from America's help in establishing information about the oil market. These two incentives, however, were not enough to obtain allied agreement to establish the IEA: the French had previously proposed cooperation on both matters, but both only within an overall framework of consumer bilateralism with the OPEC producers. It was the American demand for a joint consumer approach to dealing with OPEC that required the use of American military power. America's exercise of its military muscle was not sufficient to create the IEA, but it was necessary. Thus, the fact that the IEA was established at all is testimony to the fungibility of American military power and to the Nixon administration's willingness to exploit it.

The IEA ultimately proved to be of only limited utility in fostering consumer cooperation. It could not reverse the price rises of the early 1970s, and it was of little value in countering the second steep rise in oil prices that occurred with the onset of the Iran-Iraq war in 1979.

That the IEA turned out to be of little use, however, does not negate its serving as an important example of a bargaining linkage constructed with military power. Limited though it subsequently proved to be, the United States put a high premium on the IKA at the time it was created. Kissinger and Nixon saw an interest in fostering allied energy cooperation that went far beyond the energy issue. In their view energy bilateralism threatened the viability of the Western alliance. As Kissinger recounted in his memoirs:

The industrial democracies, in my view, would not be able to maintain even their domestic cohesion, much less their relationship with one another, unless they acted in a manner perceived by their publics as mastering the new economic challenge. A policy of jockeying for national advantage in the hope of riding out the immediate crisis was bound to fail—weakening confidence in democratic institutions, demoralizing governments, and eroding political ties on which Western security depended.

For these reasons, the United States felt so strongly about allied energy cooperation that it was prepared to use its military leverage to bring it about. Whether exercised forcefully or peacefully, states do not use their military power in the service of diplomacy unless they value the given goal highly. For the United States in 1973-74, the IEA was just such an issue. Thus, it is the creation of the IEA, not its subsequent usefulness, that makes it an important example for our purposes.

Examples: deficits, petrodollars, and oil prices. The IEA case is not an isolated instance of a military bargaining linkage. Three other brief examples show the range of state goals that can be served by constructing such linkages.

The first involves the relation between America's large and continuing balance of payments deficits and its global alliance system. Throughout most of the cold war era, the United States ran annual large balance of payments deficits. Historically, no nation has been able to buy more abroad than it sells abroad (import more than it exports) in as huge a volume and for as long a period as has the United States. There were many reasons why it was able to, ranging from the liquidity that deficit dollars provided, which enabled world trade to grow, to general confidence in the American economy, which caused foreigners to invest their dollar holdings in the United States. Part of the reason that foreigners continued to take America's continuing flow of dollars, however, was an implicit, if not explicit, tradeoff: in return for their acceptance of American IOU's (deficit dollars), the United States provided the largest holders of them (the Germans, the Japanese, and the Saudis) military protection against their enemies. America's military strength compensated for its lack of fiscal discipline.

A second example involves the recycling of petrodollars. After the oil price hikes of the 1970s, the OPEC producers, especially its Persian Gulf members, were accumulating more dollars than they could profitably invest at home. Where to put those dollars was an important financial decision, especially for the Saudis, who were generating the largest dollar surpluses. There is strong circumstantial evidence that the Saudis agreed to park a sizable portion of their petrodollars in U.S. Treasury bills (T-bills) in part because of an explicit American proposal "to provide a security umbrella for the Gulf." As David Spiro notes: "By the fourth quarter of 1977, Saudi Arabia accounted for twenty percent of all holdings of Treasury notes and bonds by foreign central banks." The Saudis also continued to agree to price oil in dollars rather than peg it to a basket of currencies. Although there were clear financial incentives for both Saudi decisions, the incentives are not sufficient to explain Saudi actions. The Kuwaitis, for example, never put as many of their petrodollars in the United States, nor as many in T-bills, as did the Saudis. Moreover, an internal U.S. Treasury study concluded that the Saudis would have done better if oil had been pegged to a basket of currencies than to dollars. Indeed, OPEC had decided in 1975 to price oil in such a basket, but never followed through. As with the IEA example, America's provision of security to the Saudis was an important, even if not sufficient, ingredient in persuading them both to price oil in dollars and then to park them in the United States. Both decisions were of considerable economic benefit to the United States. Parking Saudi dollars in T-bills gave the American government "access to a huge pool of foreign capital"; pricing oil in dollars meant that the United States "could print money to buy oil." Military power bought economic benefits.

A third example, again involving the Saudis, concerns the link between American military protection and the price of oil. The Saudis have a long-term economic interest that dictates moderation in oil prices. With a relatively small population and with the world's largest proven oil reserves, their strategy lies in maximizing revenue from oil over the long term. It is therefore to their advantage to keep the price of oil high enough to earn sizable profits, but not so high as to encourage investment in alternative energy sources. Periodically, Saudi Arabia has faced considerable pressure from the price hawks within OPEC to push prices higher than its interest dictates. American military protection has strengthened Saudi willingness to resist the hawks.

A specific instance of this interaction between U.S. protection and Saudi moderation, for example, occurred in the fall of 1980, with the onset of the Iran-Iraq war. Iraq attacked Iran in September, and the two countries proceeded to bomb one another's oil facilities. The initial stages of the war removed about four million barrels of oil per day from world markets and drove the price of oil to its highest level ever ($42 dollars per barrel). As part of their balancing strategy in the Gulf, this time the Saudis had allied themselves with Iraq and, fearing Iranian retaliation against their oil fields, asked for American military intervention to deter Iranian attacks on their oil fields and facilities. The United States responded by sending AWACS aircraft to Saudi Arabia and by setting up a joint Saudi-American naval task force to guard against Iranian attacks on oil tankers in the Gulf. In return, the Saudis' increased their oil production from 9.7 million barrels per day (mbd) to 10.3, which was the highest level it could sustain, and kept it there for the next ten months. Saudi actions had a considerable effect on oil prices, as Safran argues:

Physically, the Saudi increase of 0.5 mbd was hardly enough to make up for the shortfall caused by the war….Psychologically, however, the Saudi action was crucial in preventing the development of the kind of panic that had sent oil prices soaring after the fall of the shah and the Saudis' April 1979 decision to cut production by 1 mbd.

As in the other cases, in this instance, American military power alone was not sufficient to cause Saudi actions to lower oil prices, but it was essential because during this turbulent period Saudi decisions on how much oil they would pump were not determined solely by economic factors. True, the Saudis, against the desires of the price hawks, which included the Iranians, had been pumping more oil since 1978 in order to lower oil prices. The Saudis had also violated their long-term strategy in March 1979, however, when they decided to cut oil production by 1 mbd, primarily to appease Iran, a move that triggered a rapid increase in oil prices. This pumping decision followed a political decision to move diplomatically away from the United States. Only a few months later, however, the conflict within the Saudi ruling family between an American- versus an Arab-oriented strategy was resolved in a compromise that led to a political reconciliation with the United States; and this political decision was followed by another to increase oil production by 1 mbd, starting 1 July 1979. Before the Iran-Iraq war, then, Saudi pumping decisions were affected by political calculations about their security, in which the strategic connection with the Americans played a prominent role. If this was true in peacetime, surely it was so in wartime, too. The military protection announced by the Americans on September 30, 1980 was a necessary condition for the Saudi increase in oil production that followed in October. Again, military power had bought an economic benefit.

In sum, these four examples—creation of the IEA, America's ability to run deficits, petrodollar recycling, and moderate oil prices—all illustrate just how pervasive bargaining linkages are in international politics and specifically how military power can be linked politically to produce them. In all four cases, military power was not sufficient. Without it, however, the United States could not have produced the favorable economic outcomes it had achieved.