Critically examine the proposition that small allies have ‘exploited’ large allies in the North Atlantic Treaty Organisation. Comment on the proposition that prospective gains for producer groups prove more important than assessment of gains to nation states when explaining international collaboration? The North Atlantic Treaty Organisation (NATO) expanded by three new members in 1999 and thus now has nineteen members. Although most people view this to be a benefit for the future of NATO as it should enhance their strength and credibility there are those who view that it will lead to further exploitation in defence budget sharing and an al locative efficiency. It is thought that due to issues such as Globalisation the world is becoming more interlinked with organisations such as NATO and the UN comprising of more and more members.
It is feared that this expansion will lead to problems with free riders taking advantage of the ever-increasing availability of the public goods offered by organisations such as NATO. There is also a case that producer groups within member countries benefit more than the actual nation states as the benefits to them are much more assured and accessible. Politicians are an example of a group, which can benefit greatly from international collaboration, as it is a tool, which can help them, gain re-election. The first real concerns over the economics of alliances were raised in Man cur Olson and Richard Zeckhauser their writings in 1966. This raises the point that in international institutions such as NATO the smaller allies are relying on the larger allies to pay the vast amount of the defence budget and thus free riding, this became known as the exploitation hypothesis. Sandler and Hartley point out a clear example of this exploitation, as in 1970 the USA contributed 75% on NATO’s defence spending with the next closest allies which included the UK, France and Germany only contributing 6%.
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The exploitation becomes evident when you discover that the USA only received 35% of NATO’s defence benefits. Olson and Zeckhauser felt that the NATO members would never be able to gain al locative efficiency under the system they were using for defence contributions. Olson and Zeckhauser developed a test for the exploitation hypothesis this was done by dividing military expenditure by GDP and then adjusting by the ability to pay. Then those states paying a disproportionate amount of their GDP were viewed to have a heavy defence burden on them. On the other hand though it is important to note though that the capabilities of countries such as the USA to spend on defence are much greater than many other countries and thus this may mean that they have a social responsibility to contribute more than others to the NATO defence budget.
It could also be the case that if these countries are helped now then they will have the ability to pay more in the future and help to reduce the defence burden on the larger allies. The table above shows clear exploitation of the USA by many of the smaller allies as their benefit shares are more than their burdens. (Tables from Sandler and Hartley 1999) The table above shows even more examples which back up Olson and Zeckhauser’s allocation hypothesis, Canada being a clear and constant figure in this case where consistently every year their average benefit share is much greater than their defence burden e. g. in 1970 their burden was 1. 98% whilst their benefit share was 25.
32%. There are also efficiency problems, which arise when taking into account factors such as the indirect benefits of NATO’s actions (especially over the 1990’s).
This is to do with issues such as their efforts towards peacekeeping in areas such as Eastern Europe e. g. Bosnia. These actions have helped to increase the security in the area and help it develop as a whole both economically and politically.
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Webster defines "efficient" as acting or functioning competently, with minimum waste or extra motion. The term retains this meaning in the context of efficient markets. An efficient market must function competently, without waste or extra movement. What do we mean by functioning competently, however? One way to address this question is by looking at examples of markets that do not function ...
Thee efficiency problem comes into effect when you take into account the fact that the majority of the NATO members will benefit from these actions which were mostly funded by the USA. international collaboration on the other hand can often benefit producer groups much more than it will benefit the member states. This would mean that groups such as politicians would be able to use their nations membership of international organisations to aid them in issues such as re-election. There is evidence further of this when in the 1980’s Margaret Thatcher’s Conservative government opted to support lowering the UK’s fuel emissions, which had a severely negative effect on the UK coal industry. This benefited her though rather than damaging, as the coal miners were not her voters.
This therefore was a great benefit to Thatcher as she gained votes from environmentalists who may previously not have voted for her but on the other hand this may not have been of a major advantage to the UK as a whole as it created mass unemployment. There was also an example in 1991 where John Major supported an international initiative to support lower airfares. This benefited the Conservative party with public support but had a negative effect for British Airways. On the other hand though when looking at the international aviation market it has become clear that the national states were not the most important factor when the markets were set up post world war 2. The US were pushed into accepting an international cartel to run the aviation markets which was a very inefficient method as it did not allow much room for competition. The airline did not really benefit much until the 1970’s when al locative efficiency came in.
International institutions can also often benefit governments and producer goods as they give governments the opportunity to gain property rights in international markets and thus advance the amount of wealth available for domestic redistribution. A good example of this would be in the post war aviation markets with the Bermuda regime. This is because without international institutions to negotiate the fares, and landing rights etc. the costs would have been extremely high to the airlines and would have stunted the market development. This would have lead to air travel being much more expensive and thus being much further away from al locative efficiency. The international institutions therefore increased al locative efficiency through establishing property rights in the international markets, which in turn lead to the redistribution of wealth.
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An understanding of the difference in stock price exposures across markets helps to determine equilibrium premium and asset allocation of international portfolio. This paper is based on cross sectional study of various developed and developing countries for the year 2006,2007 and 2008. Eight developed countries viz.USA, UK, Australia, France, Germany, Hongkong, Japan, Singapore and Nine developing ...
International collaboration through institutions such as the EU and the WTO will also be a huge advantage to producer groups as it will increase their markets for sales and also enable them to import or get goods produced cheaper than in the UK for example. This is therefore likely to have both positive and negative effects on a country such as the UK though as it will increase GDP but unemployment may rise due to manufacturing jobs being reduced. These benefits to producer groups have become extremely evident since the recent EU expansion and going further back the end of the Cold War. In conclusion with regard to the factor that the smaller allies exploit the larger allies in NATO. These are a clear lack of al locative efficiency, as the smaller allies appear to be free riding off the back of the larger allies especially the USA. In many cases some of the smaller countries are not even covering their defence burdens.
Therefore in the case of the worlds developed countries this is a clear case of exploitation and taking advantage of a public good provided by the larger allies. In other countries such as Bosnia who have not been in a position to pay into NATO but have used their public goods they would not be deemed to be exploiting any of the member states. With regard to the factor that producer groups gain more from international collaboration than the nation states, it is also a debatable subject. There has been clear evidence of international collaboration being used for political or corporate gains, but it is also clear that international collaboration can help to increase the wealth and security of a country as well. The gains by the Conservative party in the eighties and nineties through international institutions are a clear example of hoe they can also be used to benefit politicians.
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International management refers to the pursuit of organizational objectives in more than one nation. International management has evolved as a discipline of increasing importance in recent years. The underlying reason is that the corporate community is becoming more and more diverse. Improvements in and communications and lower production costs in many countries around the world have made global ...
In this case signing up to specific international treaties helped them win extra votes without losing any as the treaties did not affect to lives of their core voters directly. A clear example were producer groups are taken as a primary concern would be the USA’s reluctance to sign the Kyoto treaty. This is mainly due to the fact that it is likely to cost industry in their country too much money. Bibliography Sandler and Murdoch On Sharing NATO defence burdens in the 1990’s and Beyond, Fiscal Studies, vol. 21, no.
3, 2000 pg. 297-327 Olson and Zeckhauser An Economic Theory of Alliances, Review of Economics and Statistics, 1966 (vol 48, no 3, pg 266-79) Richards J E Towards a positive theory of international institutions: regulating international aviation markets, International Organisation, vol 53, 1999, pg 1-37 Sandler and Hartley The Political Economy of NATO, Cambridge University Press, 1999, Chapter 2.
