August 27, 2009

Reading Old Magazines: Rare Earth Elements and Security

For this week’s Reading Old Magazines I decided to focus on minerals, given the news pieces yesterday on rare earth materials. I chose one with a great title from the journal Economic Geography, “The Changing Relation of Natural Resources to National Security,” by Harold J. Barnett, a senior economist at RAND, Washington University economics professor, author of many books and articles on economics and natural resources, and a director at Resources for the Future when he wrote this article.

Barnett’s most notable work is perhaps the 1963 tome Scarcity and Growth: The Economics of Natural Resource Availability. Barnett and other economists found that technology and other trends seemed to help create conditions such that larger and wealthier populations didn’t necessarily correlate to resource scarcity. He also recognized that this might not always necessarily be the case, but his confidence in human ingenuity in developing substitutes for resources we need is hopeful. Three other Resources for the Future economists, R. David Simpson, Michael A. Toman, and Robert U. Ayres, revisited Scarcity and Growth and Barnett’s conclusions in their 2004 study “Scarcity and Growth in the New Millennium: Summary,” using today’s globalized conditions and modern economic tools and theories. They concluded that there were several possible paths of interactions between scarcity and economic growth that could lead to negative consequences, one being that “If essential but renewable resources are not traded in complete markets in which all aspects of their extraction, production, and use are incorporated in their prices, disaster could ensue unless public action is taken to address problems of pollution and degradation.” We’re seeing some of this today in the security field, and that makes Barnett’s piece all the more appealing.

What technologies the military favors is a dynamic process, as the author describes, and with changes in warfare and the nature of peacetime procurement come changes in natural resource inputs. This seems obvious today, but from his 1958 vantage point, Barnett was witnessing firsthand the ways in which nuclear weapons and new missiles – significant technological changes, to say the least – were reshaping how the country defined security broadly, national defense, and deterrence at a rate faster than had been seen before.

His goal through this article is to determine what kinds of economic relationships, based on natural resources trade, are most favorable to different security conditions. Barnett breaks down the economic reaction the United States should have given four different types of warfare, the least likely of which he considers to be World War III and full-blown thermonuclear war. It would be more likely (as of 1958) that the United States (and the Soviet Union) would devote its national security resources toward the prevention of war – at that time, via stockpiling nukes; or that the country would find itself engaged in one or more “peripheral wars,” to use Barnett’s term, which he describes as “Korea-like,” but adds as recent examples “Greece, Turkey, Iran, Yugoslavia, Indonesia, Indo-China, Formosa, Malaya, the Middle East, and Hungary.”
In conditions of “no war,” or as we work to prevent war, the United States should consider in its economic policies, “would the measure weaken or improve free world unity? If it would damage relations with other free nations, what is supposed to be the offsetting advantage?” With peripheral wars the do-no-harm-with-econ approach must be calibrated to account for the fact that military needs often become more immediately important than other considerations. “Our need in this case,” Barnett wrote, “is first, to have flexible military forces and munitions properly positioned…second, we need reservists and military supplies in readiness and strategically located.”  If warfare builds to World War III or thermonuclear war, obviously we’d have even more important considerations on our hands, and all national policies would be affected.

One resources-related solution the author offers is to increase international trade, as many countries that relied heavily on exports for their income do so by the export of raw materials to countries such as the United States and Canada, “For we [would] become partners in the economic growth of other nations,” and thereby benefit from more stable international relations. We could even get military bases in such countries of heavy trade and use these relationships as expressions of U.S. commitment to “collective defense,” to boot.

Threats of supply cutoff, according to Barnett, also make the least-bad option a “gradual accumulation of raw material stockpiles limited to clearly essential levels, from least cost (usually foreign) sources, in preference to a combination of tariffs or quotas and subsidized domestic raw material production capacity.” He did express concern, however, that these policies would be subject to political hijacking, and that any civilian response of reduced consumption would not be accounted for (and thus the country would stockpile too much of a given resource).

Time has obviously changed a few things in more recent decades. The high metal and mineral use as materials and in the production of energy sources, weapons systems, and communication equipment is likely higher in peacetime than in 1958, before stealth technology, night vision equipment, GPS, and cell phones were as widely used as they are today.

And today, rare earth is no longer just a really cool band. Rare earth materials are in all of our fancy phones and flat screens today, as catalysts in producing gasoline and jet fuel, and other uses. According to the 2008 National Research Council report, “Managing Materials for a Twenty-First Century Military,” we trade in rare earths and other minerals in ways that are making the old defense stockpiling system Barnett advocated “ineffective in responding to modern needs and threats.” In listing the changes since World War II that made the world different enough to require a new minerals management system, the report cites the modern security environment characterized by asymmetric threats and the increased dependence of the military on civilian industry.
The House and Senate drafts of the 2010 National Defense Authorization Act (embedded below) both require DOD to study the security uses of rare earth elements, and the security consequences of U.S. dependence on them. China, which supplied 76% of the world’s rare earth elements between 2002 and 2005, “threatened to withhold supplies” in 2007 until the State Department got involved, according to U.S. News & World Report.  Nathan Hodge at Danger Room picked up a great story yesterday from the UK Telegraph which reported that China might consider an outright ban on exports of rare earths. As Hodge noted, “it’s a reminder of the role that strategic resources play, especially for the high-tech military of the United States.”
Barnett’s descriptions of how the country might best consider these strategic resources in its international relations, and how they can play a positive role in improving relationships, are still useful in their differentiation of the role of resources in different types of war and peace. With China’s perhaps reasonable desire to use its mineral wealth in its own production rather than selling it raw to others, it is healthy I think to contemplate Barnett’s suggestion that there should be alternatives to policies that could negatively alter our trade (and broader) relationship. While this article is about the changing relationship between resources and security, it serves as a good reminder to me that as we consider strategic minerals issues, strategy and security will always continue to change, and any plan for managing resources must reflect that.

House and Senate NDAA on Rare Earth Elements