history of globalization research paper

A brief history of globalization

Past and present: A Silk Road-inspired installation outside the National Convention Centre in Beijing Image:  REUTERS/Stringer

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When Chinese e-commerce giant Alibaba in 2018 announced it had chosen the ancient city of Xi’an as the site for its new regional headquarters, the symbolic value wasn’t lost on the company: it had brought globalization to its ancient birthplace, the start of the old Silk Road. It named its new offices aptly: “ Silk Road Headquarters ”. The city where globalization had started more than 2,000 years ago would also have a stake in globalization’s future.

Alibaba shouldn’t be alone in looking back. As we are entering a new, digital-driven era of globalization – we call it “Globalization 4.0” – it is worthwhile that we do the same. When did globalization start? What were its major phases? And where is it headed tomorrow?

This piece also caps our series on globalization. The series was written ahead of the 2019 Annual Meeting of the World Economic Forum in Davos, which focuses on “Globalization 4.0”. In previous pieces, we looked at some winners and losers of economic globalization, the environmental aspect of globalization, cultural globalization and digital globalization . Now we look back at its history. So, when did international trade start and how did it lead to globalization?

Silk roads (1st century BC-5th century AD, and 13th-14th centuries AD)

People have been trading goods for almost as long as they’ve been around. But as of the 1st century BC , a remarkable phenomenon occurred. For the first time in history, luxury products from China started to appear on the other edge of the Eurasian continent – in Rome. They got there after being hauled for thousands of miles along the Silk Road. Trade had stopped being a local or regional affair and started to become global.

That is not to say globalization had started in earnest. Silk was mostly a luxury good, and so were the spices that were added to the intercontinental trade between Asia and Europe. As a percentage of the total economy, the value of these exports was tiny, and many middlemen were involved to get the goods to their destination. But global trade links were established, and for those involved, it was a goldmine. From purchase price to final sales price, the multiple went in the dozens.The Silk Road could prosper in part because two great empires dominated much of the route. If trade was interrupted, it was most often because of blockades by local enemies of Rome or China. If the Silk Road eventually closed, as it did after several centuries, the fall of the empires had everything to do with it. And when it reopened in Marco Polo’s late medieval time, it was because the rise of a new hegemonic empire: the Mongols. It is a pattern we’ll see throughout the history of trade: it thrives when nations protect it, it falls when they don’t.

Spice routes (7th-15th centuries)

The next chapter in trade happened thanks to Islamic merchants. As the new religion spread in all directions from its Arabian heartland in the 7th century, so did trade. The founder of Islam, the prophet Mohammed, was famously a merchant, as was his wife Khadija. Trade was thus in the DNA of the new religion and its followers, and that showed. By the early 9th century, Muslim traders already dominated Mediterranean and Indian Ocean trade; afterwards, they could be found as far east as Indonesia, which over time became a Muslim-majority country, and as far west as Moorish Spain.

The main focus of Islamic trade in those Middle Ages were spices. Unlike silk, spices were traded mainly by sea since ancient times. But by the medieval era they had become the true focus of international trade. Chief among them were the cloves, nutmeg and mace from the fabled Spice islands – the Maluku islands in Indonesia. They were extremely expensive and in high demand, also in Europe. But as with silk, they remained a luxury product, and trade remained relatively low volume. Globalization still didn’t take off, but the original Belt (sea route) and Road (Silk Road) of trade between East and West did now exist.

Age of Discovery (15th-18th centuries)

Truly global trade kicked off in the Age of Discovery . It was in this era, from the end of the 15th century onwards, that European explorers connected East and West – and accidentally discovered the Americas. Aided by the discoveries of the so-called “ Scientific Revolution ” in the fields of astronomy, mechanics, physics and shipping, the Portuguese, Spanish and later the Dutch and the English first “discovered”, then subjugated, and finally integrated new lands in their economies.

The Age of Discovery rocked the world. The most (in)famous “discovery” is that of America by Columbus, which all but ended pre-Colombian civilizations. But the most consequential exploration was the circumnavigation by Magellan: it opened the door to the Spice islands, cutting out Arab and Italian middlemen. While trade once again remained small compared to total GDP, it certainly altered people’s lives. Potatoes, tomatoes, coffee and chocolate were introduced in Europe, and the price of spices fell steeply.

Yet economists today still don’t truly regard this era as one of true globalization. Trade certainly started to become global, and it had even been the main reason for starting the Age of Discovery. But the resulting global economy was still very much siloed and lopsided. The European empires set up global supply chains, but mostly with those colonies they owned. Moreover, their colonial model was chiefly one of exploitation, including the shameful legacy of the slave trade. The empires thus created both a mercantilist and a colonial economy, but not a truly globalized one.

First wave of globalization (19th century-1914)

This started to change with the first wave of globalization, which roughly occurred over the century ending in 1914. By the end of the 18th century, Great Britain had started to dominate the world both geographically, through the establishment of the British Empire, and technologically, with innovations like the steam engine, the industrial weaving machine and more. It was the era of the First Industrial Revolution .

The “British” Industrial Revolution made for a fantastic twin engine of global trade. On the one hand, steamships and trains could transport goods over thousands of miles, both within countries and across countries. On the other hand, its industrialization allowed Britain to make products that were in demand all over the world, like iron, textiles and manufactured goods . “With its advanced industrial technologies,” the BBC recently wrote , looking back to the era, “Britain was able to attack a huge and rapidly expanding international market.”

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The resulting globalization was obvious in the numbers. For about a century, trade grew on average 3% per year. That growth rate propelled exports from a share of 6% of global GDP in the early 19th century, to 14% on the eve of World War I. As John Maynard Keynes, the economist, observed : “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole Earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep.”

And, Keynes also noted, a similar situation was also true in the world of investing. Those with the means in New York, Paris, London or Berlin could also invest in internationally active joint stock companies. One of those, the French Compagnie de Suez, constructed the Suez Canal, connecting the Mediterranean with the Indian Ocean and opened yet another artery of world trade. Others built railways in India, or managed mines in African colonies. Foreign direct investment, too, was globalizing.

While Britain was the country that benefited most from this globalization, as it had the most capital and technology, others did too, by exporting other goods. The invention of the refrigerated cargo ship or “reefer ship” in the 1870s, for example, allowed for countries like Argentina and Uruguay, to enter their golden age. They started to mass export meat, from cattle grown on their vast lands. Other countries, too, started to specialize their production in those fields in which they were most competitive.

But the first wave of globalization and industrialization also coincided with darker events, too. By the end of the 19th century, the Khan Academy notes, “most [globalizing and industrialized] European nations grabbed for a piece of Africa, and by 1900 the only independent country left on the continent was Ethiopia”. In a similarly negative vein, large countries like India, China, Mexico or Japan, which were previously powers to reckon with, were not either not able or not allowed to adapt to the industrial and global trends. Either the Western powers put restraints on their independent development, or they were otherwise outcompeted because of their lack of access to capital or technology. Finally, many workers in the industrialized nations also did not benefit from globalization, their work commoditized by industrial machinery, or their output undercut by foreign imports.

The world wars

It was a situation that was bound to end in a major crisis, and it did. In 1914, the outbreak of World War I brought an end to just about everything the burgeoning high society of the West had gotten so used to, including globalization. The ravage was complete. Millions of soldiers died in battle, millions of civilians died as collateral damage, war replaced trade, destruction replaced construction, and countries closed their borders yet again.

In the years between the world wars, the financial markets, which were still connected in a global web, caused a further breakdown of the global economy and its links. The Great Depression in the US led to the end of the boom in South America, and a run on the banks in many other parts of the world. Another world war followed in 1939-1945. By the end of World War II, trade as a percentage of world GDP had fallen to 5% – a level not seen in more than a hundred years.

Second and third wave of globalization

The story of globalization, however, was not over. The end of the World War II marked a new beginning for the global economy. Under the leadership of a new hegemon, the United States of America, and aided by the technologies of the Second Industrial Revolution, like the car and the plane, global trade started to rise once again. At first, this happened in two separate tracks, as the Iron Curtain divided the world into two spheres of influence. But as of 1989, when the Iron Curtain fell, globalization became a truly global phenomenon.

In the early decades after World War II, institutions like the European Union, and other free trade vehicles championed by the US were responsible for much of the increase in international trade. In the Soviet Union, there was a similar increase in trade, albeit through centralized planning rather than the free market. The effect was profound. Worldwide, trade once again rose to 1914 levels: in 1989, export once again counted for 14% of global GDP. It was paired with a steep rise in middle-class incomes in the West.

Then, when the wall dividing East and West fell in Germany, and the Soviet Union collapsed, globalization became an all-conquering force. The newly created World Trade Organization (WTO) encouraged nations all over the world to enter into free-trade agreements, and most of them did , including many newly independent ones. In 2001, even China, which for the better part of the 20th century had been a secluded, agrarian economy, became a member of the WTO, and started to manufacture for the world. In this “new” world, the US set the tone and led the way, but many others benefited in their slipstream.

At the same time, a new technology from the Third Industrial Revolution, the internet, connected people all over the world in an even more direct way. The orders Keynes could place by phone in 1914 could now be placed over the internet. Instead of having them delivered in a few weeks, they would arrive at one’s doorstep in a few days. What was more, the internet also allowed for a further global integration of value chains. You could do R&D in one country, sourcing in others, production in yet another, and distribution all over the world.

The result has been a globalization on steroids. In the 2000s, global exports reached a milestone, as they rose to about a quarter of global GDP . Trade, the sum of imports and exports, consequentially grew to about half of world GDP. In some countries, like Singapore, Belgium, or others, trade is worth much more than 100% of GDP. A majority of global population has benefited from this: more people than ever before belong to the global middle class, and hundred of millions achieved that status by participating in the global economy.

Globalization 4.0

That brings us to today, when a new wave of globalization is once again upon us. In a world increasingly dominated by two global powers, the US and China, the new frontier of globalization is the cyber world. The digital economy, in its infancy during the third wave of globalization, is now becoming a force to reckon with through e-commerce, digital services, 3D printing. It is further enabled by artificial intelligence, but threatened by cross-border hacking and cyberattacks.

At the same time, a negative globalization is expanding too, through the global effect of climate change. Pollution in one part of the world leads to extreme weather events in another. And the cutting of forests in the few “green lungs” the world has left, like the Amazon rainforest, has a further devastating effect on not just the world’s biodiversity, but its capacity to cope with hazardous greenhouse gas emissions.

Globalization 4.0 – what it means and how it could benefit us all

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But as this new wave of globalization is reaching our shores, many of the world’s people are turning their backs on it. In the West particularly, many middle-class workers are fed up with a political and economic system that resulted in economic inequality, social instability, and – in some countries – mass immigration, even if it also led to economic growth and cheaper products. Protectionism, trade wars and immigration stops are once again the order of the day in many countries.

As a percentage of GDP, global exports have stalled and even started to go in reverse slightly. As a political ideology, “globalism”, or the idea that one should take a global perspective, is on the wane. And internationally, the power that propelled the world to its highest level of globalization ever, the United States, is backing away from its role as policeman and trade champion of the world.

It was in this world that Chinese president Xi Jinping addressed the topic globalization in a speech in Davos in January 2017. “Some blame economic globalization for the chaos in the world,” he said . “It has now become the Pandora’s box in the eyes of many.” But, he continued, “we came to the conclusion that integration into the global economy is a historical trend. [It] is the big ocean that you cannot escape from.” He went on the propose a more inclusive globalization, and to rally nations to join in China’s new project for international trade, “Belt and Road”.

It was in this world, too, that Alibaba a few months later opened its Silk Road headquarters in Xi’an. It was meant as the logistical backbone for the e-commerce giant along the new “Belt and Road”, the Paper reported . But if the old Silk Road thrived on the exports of luxurious silk by camel and donkey, the new Alibaba Xi’an facility would be enabling a globalization of an entirely different kind. It would double up as a big data college for its Alibaba Cloud services.

Technological progress, like globalization, is something you can’t run away from, it seems. But it is ever changing. So how will Globalization 4.0 evolve? We will have to answer that question in the coming years.

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Open Access

Peer-reviewed

Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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Globalization: A Very Short Introduction (5th edn)

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Globalization: A Very Short Introduction looks at the interconnected and accelerated processes changing how we see and experience the world. Is globalization really a new phenomenon? Is increased connection between people and nations inevitable, or are we witnessing the beginning of an era of ‘deglobalization’ or ‘anti-globalization’? Updated with new developments including advancing climate change, the Trump presidency, and the Mexico–USA border, this VSI explores the history and impact of globalization. Chapters on the cultural, economic, political, and ecological dimensions of globalization investigate the impact of new technologies, economic deregulation, and mass migration on our world and consider what we might expect from the future of globalization.

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YaleGlobal Online

History of globalization.

Globalization is an historical process that began with the first movement of people out of Africa into other parts of the world. Traveling short or long distances, migrants, merchants and others have delivered their ideas, customs and products to new lands. The melding, borrowing and adaptation of outside influences are found in many areas of human life.

What is Globalization?

The Peterson Institute for International Economics offers a reminder about an age-old process: “Globalization encourages each country to specialize in what it produces best using the least amount of resources.”

Globalization of Food & Plants

Explore multiple articles on the remarkable journey that food and plants have taken throughout world history

Lessons From History: Globalization Then and Now

Globalization brings old problems and new ones

Fast, Freewheeling Globalization for All

Attempts to understand and control globalization must wrestle with its heady speed

Ideas Travel the Globe

Explore how ideas and imagination from  across the globe have come together to shape our world

Bound Together: Players Who Shaped the Globe

The modern counterparts of history’s traders, preachers, adventurers and warriors are at work today

Global Governance

Global connections have grown for thousands of years, but ways to manage them have been slow to develop

Brace for Change

Chaos could shock nations, balkng at global governance, into cooperation

Globalization of the Television Supply Chain

T he supply chain has reduced prices for television sets worldwide

The Lure of Protectionism

Consumers want to protect jobs but also favor low costs

History Without Borders

Historians may be too focused on national borders

Silk Road Diplomacy

There were twists, turns and distortions

Identity History: Austronesian Asia?

Regional history should acknowledge culture, history and global prominence

The Islamic World and the West

A long and common history too often goes ignored

Asia Battles over War History

World War II still influences relations

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Introduction

The first settlements and colonization.

• The 19th century and globalization
• The 20th century and growth opportunities

Modern Situation

When discussing the critique of globalization, literature tends to analyze its perceived consequences. the emergence of a so-called ‘global culture’ is simply a process that marks the transformation to a culture of consumption and linked to the First World economies, creating new forms of colonial control in the so-called ‘postcolonial’ era; therefore suggesting that globalization is in fact new ‘global colonialism’ (p683). In terms of managing diversity one would argue that this argument lends itself toward later arguments for and against the ethnocentric or parochial approach.

In the USA, the history of globalization goes back to the first colonization and first settlements and is closely connected with names of Amerigo Vespucci and Christopher Columbus. Even before the ‘discovery’ of the phenomenon of globalization and a global culture, the issue of convergence versus divergence in management practices has been researched;. It would appear from the previous arguments of globalization, that globalization itself is a convergence theory (Galbraith, 2002). An older argument as to the distinction between the two trends lay in the existence of similarities between macro-level variables and micro-level variables, with the latter referring to culturally based similarities and the former referring to environmental factors. However, more recently research has gained more momentum, with a renewed notion of the ‘one best way’ of cross cultural management perspective being stronger today (Bhagwati, 2001).

The end of the 16 th century was a period of French and British colonization. The aim of colonization was occupation of new lands and new ways of wealth accumulation for France and Britain. The colonists exterminated Native Americans and exploited their natural and human resources. European immigrants over the past century and racial minorities face opposite cultural problems. The new Europeans were seen as not “American” enough, and they were pressured to give up their strange and threatening ways and to assimilate. Although it might have taken several generations, the offspring that were successful in this process could usually expect to become accepted citizens. African Americans, Asian Americans, and Latino Americans were second-class Americans. They were seldom welcomed and were told to “stay in your place” and were not allowed into the mainstream culture of the privileged, even when “fully acculturated.” The beginning of 18 th century was marked by contradictions between Britain and the US and rejection of the merchants and the state to pay taxes to the British Crown. Further the Monroe doctrines prohibited colonization of America by European nations. Capitalist relations shaped national identity and determine relations between men. For instance, no man had a right to vote if he was not wealthy enough (Bhagwati, 2001).

The 19 th century and globalization

Western European cultures, which formed the fabric of the United States of America, are relatively homogeneous when compared not only with the rest of the world but also with the increasing diversity in this country. This Euro-American worldview continues to form the foundations of educational, social, economic, cultural, and political systems. Capitalist modes of production and labor relations determined national identity and legalized wealth accumulation and exploitation of low social classes. Americans must realize that they benefit not only from the many proud accomplishments of their ancestors but also from their shameful acts (Easterly, 2001).

The 20 th century and growth opportunities

The 20 th century has a great impact on the world transforming social, political, cultural and economic spheres of life. Innovations in transportation have been complemented by the swift development of communication technologies. The 20th-century arrival of mass circulation newspapers and magazines, film, and television further enhanced a growing consciousness of a rapidly shrinking world. Globalization transforms economic system of the world brining new opportunities to less developed countries; it changes cultural and political spheres popularizing democratic values and principles and promulgating western style of life. Globalization in media sphere is influenced by changes in political and cultural spheres brining new economic opportunities and financial capitals to media giants. These needs lead to digitalization, consolidation and deregulation of media environment around the globe (MacGillivray, 2005).

The 20 th century marked a new era in globalizations based on new technologies and increased power of the US state. One can observe that regardless of the specific terms used within the definitions offered, globalization generally appears to be regarded as a process, it is not happening in an instant, but it can creep up unannounced. However, with some referring to it as internationalization or globalization, and some arguments surrounding globalization mentioning both the economics, and HRM this research paper will refer to the process as globalization in the context of people management (Zinn, 2005).

This argument appears to suggest that organization will opt to ignore cultural influences in favor of universal methods in order to remain competitive, suggesting an element of choice in the acknowledgement of culture, hinting at a degree of choice in management approach. The convergence hypothesis in updated research appears to centre on the argument that the common requirements of management disregard the importance of cultural differences thus confirming the significance of the MNC in as much as it is viewed as the vehicle by which dominant HR policies and practices are transported across national boundaries. This suggests that convergence is being driven by powerful MNCs which set the agenda in certain sectors, with his reference to McDonalds (Zinn, 2005).

One of the major features of the internationalization process is the emergence of multinational business networks, within and between companies, as Multinational Corporations (MNCs) extend their activities abroad. The term ‘globalization’ has emerged with the spread of such networks. A global company is one that seeks to define and optimize its strategy in a worldwide market. Alongside this, it is taken for granted that the world is increasingly becoming a ‘global village’ where national cultures and boundaries are dissolving. Discussions surrounding globalization invariably encourage argument, debate, disagreement and, more recently, violence as witnessed by demonstrations at World Trade Organization gatherings. Indeed, the exact meaning and significance of the term, along with its intellectual ownership, are contested areas of interest and when seeking an explicit definition of globalization one finds a variety of interpretations (Zinn, 2005).

There is argued to be evidence of divergent trends when comparing Eastern and Western management, for example found in their study which observed Western individualistic cultures, (Britain and the USA) and Asian collectivist cultures (Japan and Hong Kong) where much greater pressure to perform is placed on subordinates in the West than in the East. One has shown how the culture is argued to present itself in management, and how complex an issue it is. Therefore, one questions the consequences for cultural practices when two cultures collide. The convergence arguments suggest that there is the beginning of a ‘global’ model, whilst the divergence arguments present the idea that this is not the case due to resistance from national cultures. With an increase in multinationals investing in the USA, and bringing with them home-grown people management techniques and opinions, FDI could perhaps be an instrument to promote converging techniques; however, one has also demonstrated the strength of the culture which is deeply-rooted in beliefs highlighting the significance of national culture within the divergence arguments (Bhagwati, 2001).

In sum, the information mentioned above shows that globalization processes in the USA are crucial for success and a strong position of the nation in the global economy. Globalization involves the transfer of resources from the colonized global South in exchange for European manufactures. Developed nations spread their political system and cultural values across the globe. Like all social processes, globalization contains dimension filled with a range of norms, claims, beliefs, and narratives about the phenomenon itself. However, it is not just rational economics that drive this selection: it helps that media organizations tend to be staffed by highly trained people with an interest in new technologies, people who have been selected to embrace and develop new ideas. Of all the functions in a media organization, this is the one that should show the most natural inclination to embrace the new ideas of working within the alliances can all be effective ways to improve the competitive position of an overall firm. However, any one of these processes must be an integral part of an ongoing corporate strategic plan. In addition, the evaluation process must shift its emphasis away from traditional financial performance criteria toward overall competitive dynamics.

Bhagwati, J. (2001). In Defense of Globalization. Oxford: Oxford University Press, 2004.

Easterly, W. (2001). The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics . Cambridge, MA, The MIT Press.

Galbraith, J. (2002). American Capitalism: The Concept of Countervailing Power. Transaction Publishers; New Ed edition.

MacGillivray, A. (2005). Globalization . Carroll & Graf.

O’Brien, R., Goetze, A., Scholte, J., Williams, M., Helleiner, E. (2000). Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements Cambridge: Cambridge University Press.

Zinn, H. (2005). People’s History of the United States: 1492 to Present . Harper Perennial Modern Classics.

• Hybrid Economic Systems: Convergence Theory
• Convergence of Public and Private Security
• Abstract Expressionism: “Convergence” by Pollock
• Free Markets, Perfect Competition and Globalization
• Dynamic and Interdependent Systems: Global Perspective
• Effects of Global Networks of Global Commodity Exchange
• Global Integration: Globalization Effects and Access to Funds
• Globalization a Dynamic Force in International Business
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2021, December 17). History of Globalization: Past and Present. https://ivypanda.com/essays/history-of-globalization/

"History of Globalization: Past and Present." IvyPanda , 17 Dec. 2021, ivypanda.com/essays/history-of-globalization/.

IvyPanda . (2021) 'History of Globalization: Past and Present'. 17 December.

IvyPanda . 2021. "History of Globalization: Past and Present." December 17, 2021. https://ivypanda.com/essays/history-of-globalization/.

1. IvyPanda . "History of Globalization: Past and Present." December 17, 2021. https://ivypanda.com/essays/history-of-globalization/.

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Confronting another axis history, humility, and wishful thinking, philip zelikow, drawing on his extensive experience as a historian and diplomat, philip zelikow warns that the united states faces an exceptionally volatile time in global politics and that the period of maximum danger might be in the next one to three years. he highlights lessons from the anti-american partnerships developed by the axis powers in world war ii and moscow and beijing during the early cold war. zelikow reminds decision-makers who face russia, china, iran, and north korea today to remember that adversaries can miscalculate and recalculate and that it can be difficult to fully understand internal divisions within an adversary’s government, how rival states draw their own lessons from different interpretations of history, and how they might quickly react to a new event that appears to shift power dynamics..

The United States faces a purposeful set of powerful adversaries in a rapidly changing and militarized period of history, short of all-out war. This is the third time the United States has been confronted with such a situation. The first was between 1937 and 1941 and was resolved by American entry into World War II. The second was between 1948 and 1962, implicating the Soviet Union and the People’s Republic of China. Thankfully, world war was avoided and in November 1962 the Soviet Union relaxed its stance in the central confrontation in Europe. 1

It is not yet clear when and how the present-day crisis will resolve.

We are in an exceptionally volatile, dynamic, and unstable period of world history. During the next two or three years, the situation will probably settle more durably in one direction or another: wider war or uneasy peace. There is a serious possibility of worldwide warfare. Because of the variety of contingencies and outcomes, some involving nuclear arsenals, this period could be more difficult to gauge and more dangerous for the United States than the prior two episodes.

I train a historian’s microscope on some of the inner deliberations in past episodes. By recovering a few glimpses of other times in which there were rapid recalculations, quick turns, and surprises, we gain humility and better sift the possibilities now.

I start by introducing the challenge of gauging serious risks in the past, focusing on an oft-forgotten crisis involving Yugoslavia in 1951. I next explain what the anti-American partnerships tend to have in common. I review the twisty and surprising way that the original “Axis” developed into 1941. I then summarize the interactions that led to war with the United States, a war that the Axis powers had hoped to avoid, or at least postpone, when 1941 began. I also summarize how the anti-American partnership solidified and worked in the period of maximum danger of World War III, between 1948 and the end of 1962. Recalling these experiences conditions us for possible recalculations by U.S. adversaries and painful shocks.

In the past, these changes occurred for reasons that outsiders often did not understand or expect. Enemy leaders changed course, sometimes sharply, as they saw successes or reverses in other parts of the world. This suggests that the outcome of the war in Ukraine might strongly affect the wider course of world history.

Assessing the anti-American coalition today, I look at the Chinese vision for peaceful coexistence. Rather than treat this as an analogy to the era of Cold War detente in the early 1970s, it may be more useful to recall the vision of “peaceful coexistence” that Nikita Khrushchev articulated during the late 1950s, which was a prelude to heightened confrontation.

I fear that the legacy of American success in its past global confrontations can encourage wishful thinking now. I note how different America’s circumstances and capabilities are today, as it balances the danger of simultaneous conflicts worldwide. The most serious risks may be those that place the burden on America to escalate in a crisis, in these changed circumstances. I illustrate this point in the Taiwan context.

A frequent answer to such dilemmas is to engage in wishful thinking, usually a call for general American rearmament and reinvigorated power projection. But, absent another great shock, these plans are unlikely to be enacted soon enough and would take a number of years to bear fruit, even if they are well conceived. And, precisely because some allied movements to build up arsenals have gotten underway, the period of maximum danger may be in the short term — the coming one, two, or three years. U.S. and allied leaders should concentrate on how they will cope with forces more readily available. Since the worst case would be a traumatic defeat, U.S. leaders will need to develop more practical plans than seem evident now, with some potentially painful tradeoffs.

I call attention to the neglected significance of economic deterrent tools, amid so much attention to military instruments. Since use of the military instruments will cause economic calamity anyway, there is no good reason not to give much more attention to these economic tools.

I’m relatively optimistic over the medium and long term, but deeply worried about the challenge of getting through the next few years.

A Serious Possibility: The Promise and Peril of Gauging Risk

On Tuesday, March 20, 1951, the CIA’s new board of national estimates, then led by William Langer and Sherman Kent, distributed a new national intelligence estimate. It was on the “Probability of an Invasion of Yugoslavia in 1951.”

When this estimate on Soviet plans for Yugoslavia was distributed, the United States had been engaged in a limited war in Korea for nearly a year. Several months earlier, China had joined this war. By the end of 1950, the United States had declared a national emergency, begun a national mobilization, and tripled its defense budget, preparing for World War III. 2 In March 1951, the most likely place where America’s enemies might wish to widen the war was in central Europe. Since a direct Soviet attack on West Germany would foreseeably and quickly lead to nuclear escalation, the most likely flashpoint was Yugoslavia.

There the communist leader, Josip Broz Tito, had broken openly with Joseph Stalin in 1948. He had avoided the assassination and coup attempts that followed, and he had brutally purged possible Soviet sympathizers. So, Moscow’s last option to bring Tito to heel was invasion, and it began to plan for one. 3

Both the Soviet government and the CIA analysts who were studying it foresaw that such an invasion of Yugoslavia could lead to the intervention of the Western powers. And as everyone understood, this would risk general war.

Tracking evident military preparations, the CIA’s board of national estimates came to believe the Soviets and their satellites had laid the groundwork for an invasion of Yugoslavia. But they saw no indication of timing or imminence. So, led by Langer and Kent, they concluded, “Although it is impossible to determine which course the Kremlin is likely to adopt, an attack on Yugoslavia in 1951 should be considered a serious possibility.”

Langer and Kent were historians. One of the more eminent world historians in the country, Langer had taught at Harvard and would return there. Kent had taught at Yale and would remain at the CIA. Both were already deeply experienced in wartime political and military analysis, in the Office of Strategic Services and after.

Later that week, Kent strolled from CIA headquarters, which was then in downtown DC, over to the State Department to discuss this estimate with Paul Nitze, the director of policy planning. Kent recalled that Nitze asked, “What did you people mean by the expression ‘serious possibility’? What kind of odds did you have in mind?”

Kent replied, “I told him that my personal estimate was on the dark side, namely that the odds were around 65 to 35 [percent] in favor of an attack.” Nitze “was somewhat jolted by this; he and his colleagues had read ‘serious possibility’ to mean odds very considerably lower.”

Kent then went back and polled his colleagues. Their odds in favor of an attack had, it turned out, ranged between 20 and 80 percent. Kent recalled this story, 13 years later, as a lesson in clarity of expression. 4

The Soviet invasion didn’t happen and the danger was largely forgotten. Kent’s worry about the “dark side” became rueful anecdote. However, he was closer to the mark than he knew.

To me, a serious possibility of worldwide warfare may be only in the 20–30 percent range. But that assessment is not reassuring.

Two months before he helped write the National Intelligence Estimate, in January 1951, there had been a top-secret conference in Moscow. The American analysts had known nothing of it. There, Stalin had told key leaders, including from satellite countries, to prepare urgently, on a crash basis, to invade Yugoslavia. He told them to prepare for the possibility of general war.

For a year, Stalin had orchestrated and watched the developments in Korea. At that January 1951 conference in Moscow, Stalin sized up the situation confidently. The United States, he declared, had failed to defeat China and North Korea. This failure demonstrated that “the United States is unprepared to start a third world war and is not even capable of fighting a small war.” 5

So, as it turns out, the Soviet bloc preparations in 1951 and 1952 were very real. Historians still do not know why the Soviet invasion of Yugoslavia did not happen.

Stalin may have been deterred. NATO had, after all, reacted strongly to the “serious possibility.” Washington had rushed massive U.S. military aid to Yugoslavia. That was quite a remarkable and rapid move, and a somewhat shocking one as it was in aid of a communist dictatorship. Some analysts had advised against such Yugoslav aid. They had worried that such aid might provoke the Soviet invasion. But the policy went ahead. NATO also prepared its own contingency military plans for a Yugoslav war, centering on the Ljubljana Gap (in present-day Slovenia). The plans included contingencies for possible U.S. use of nuclear weapons. Soviet agents may have been aware of these plans.

In 1951, as the U.S. government looked around at other dangers beyond Korea, there was only one main vector for possible enemy escalation. It was in Europe. In 2024, the situation is more complicated. Today, my measure of “serious possibility” is more Nitze’s than Kent’s. To me, a serious possibility of worldwide warfare may be only in the 20–30 percent range. But that assessment is not reassuring.

In February 2021, a year before it happened, I would have placed no higher odds than that in favor of a comprehensive Russian invasion of Ukraine, an invasion that would follow the public announcement of a Chinese-Russian partnership “without limits.” 6 We can all reflect on what we misjudged back in early 2021.

Today the United States has to examine at least four main vectors for enemy escalation. These could involve Russia, China, Iran (including Israel), and North Korea, on their own or linked in some way.

The Ties that Sometimes Bind

Speaking to Russian President Vladimir Putin in Moscow in February 2023, China’s top diplomat, Wang Yi said, “Crisis and chaos appear repeatedly before us, but within crisis there is opportunity.” 7 Wang was stressing their shared understanding that they are making choices at a momentous and fateful time.

All three of the major anti-American partnerships during the last hundred years were founded on a common core. In each case, the partners believe that the United States is the leader or anchor of a domineering imperial or neo-imperial system. They believe this hegemonic system strains in every way to block or strangle their nation’s aspirations. They rally others to their cause, to the resistance, others who also feel oppressed.

That is the core. Beyond that core, though, the partnerships may not have any master plan or planners. Historically, the partners rarely trusted each other. They often do not even like each other.

Historical analogies are only useful for suggesting what is possible, not what is probable. They are better for opening minds with questions, not for closing minds with presumed answers. Recalling this history of past anti-American partnerships illustrates opportunism, constant strategic calculation and recalculation, divided counsels, and the potential for quick, dramatic changes.

Putin and Xi Jinping, and their circles, carefully study this history, at least their version of it. In Putin’s case, the interest is obsessive. It is colored by both a Russian nationalist sensibility and his lingering Germanophilia. 8

The American view of the history draws a clear separation between the Axis powers of the 1930s and 1940s and the Communist bloc during the high Cold War. Yet U.S. adversaries see these conflicts differently.

From their point of view these sets of struggles had a lot of continuity. To them, in both cases strange bedfellows got together to resist domineering imperialists, to achieve true independence, and gain control of, or at least a rightful share in running, the reigning world order. That is why many in India sympathize with their countrymen who joined Imperial Japan to fight Britain. And, today, many in South Africa (and India) sympathize with their old friends, the Russians.

The anti-imperialists, the anti-hegemonists, all focus on America as the anchor and symbol of what they resent — the supposed confinement, power wrapped in pieties, opposing national assertion by new great powers. In the 1930s and 1950s, the British and French empires shared this role as objects of resentment and targets for revolution. Like the old, the new anti-hegemonists all glorify war and sacrifice in their public culture.

The anti-American leaders like Putin and Xi do not have as much personal experience of war and violence as leaders like Adolf Hitler, Stalin, Mao Zedong, or Benito Mussolini did (though there are some exceptions in Iran). The new generation of anti-American leaders are feeling their way. They are trying out a manner of behavior, an attitude that they have read about, perhaps admired, and certainly wondered about. They are wondering if it is their historical mission to usher in a new age of what they may think of as necessary violence. We in America, for our part, are trying to keep such a new age at bay.

By 1933, there were four major powers who resented the prevailing world order. Japan had launched a limited war against China in 1931, expanded it in 1932–33, and expanded it to all-out war in 1937.

It was Italy that then followed Japan’s lead in starting a war for new empire. After the bloody conquest of Ethiopia, it was Italy that became the Spanish fascists’ heavyweight ally in the Spanish Civil War, though the Germans supplied an air contingent.

Late to rearm, the Germans were latecomers to the fight against the prevailing world powers. The Soviets, who shared such grievances, bided their time and, in 1939, put their support up for bids.

Back then, common resentments did not necessarily cement the core. The old Axis was slow to come together tightly. They never were that close in the practical dimensions of defense-industrial cooperation, though the German-Soviet industrial partnership was important while it lasted.

For their part, it was Britain and France who thought Germany would be deterred. They had evidence that the German high command thought it would lose a new war against Britain and France.

By contrast, today in 2024, key countries in the anti-American partnership have been working quite closely together in defense-industrial cooperation — extending across Russia, China, Iran, and North Korea. They have now been cooperating for a longer time, and in more ways, than was the case among any of the future Axis countries of the 1930s.

In the old Axis, there was plenty of distrust. The Italians generally disliked the Germans. They had recently fought them in the Great War. Italy had its own aspirations, both in Africa and in the Adriatic/Mediterranean world. Mussolini remained neutral when European war began in 1939. Japan was neutral too.

When Germany invaded Poland, that plan had been hatched exclusively in Berlin. It didn’t have a long gestation. Poland had been friendly toward Hitler in 1938. But it would not become a German satellite. Hitler settled on an invasion plan against Poland in the spring of 1939.

That same spring, Italy had its own plans. It moved across the Adriatic to invade Albania.

Just before Germany invaded Poland, Hitler told his Italian friends he would do this. He thought Britain and France would stay out, deterred by Germany’s partnership with the Soviet Union. Italy had just concluded a “Pact of Steel” with Hitler in May 1939. But Mussolini vacillated about joining in Hitler’s war and in the last week of August, appalled that Hitler was really going through with his plans, he told Hitler he was not ready to join a war. 9

For their part, it was Britain and France who thought Germany would be deterred. They had evidence that the German high command thought it would lose a new war against Britain and France. Their evidence was accurate. Some top generals even plotted to kill Hitler to prevent such a suicidal war. Yet, though he paused for a few days after getting the news from Italy and realizing that the British and French were determined, Hitler was not deterred.

As the Axis was taking shape and war loomed in 1939, Britain and France did maneuver to try to win the Soviet Union over to their side. The French were serious. But the British were not. The Soviets were not. And the Poles, with their history, wanted nothing to do with the Soviet Union or the Red Army.

The British of 1939 treated the negotiation of such an alliance with the Soviet Union as play-acting. The British hoped their play-acting with the Soviets might actually be an inducement for Hitler. They hoped it might persuade Hitler to make another deal (Munich-style) that might avert war at Poland’s expense. They hoped Hitler would accept their invitation to send Hermann Goering to London to make this deal with Neville Chamberlain. Instead, Hitler sent Joachim von Ribbentrop to Moscow.

So, London and Paris saw “the game” in 1939 as “one of pressure and counter-pressure, as a ‘war of nerves’ in which steadfastness and tenacity would prevail … The Poles shared this view, opposing their own sense of amour-propre and honour to the situation,” wrote Donald Cameron Watt. “The notion that Hitler was intent not on winning the diplomatic game so much as on knocking the table over, drawing his gun and shooting it out, was one they understood intellectually but not in their hearts.” 10

When Germany invaded Poland, its closest partner was the Soviet Union. Moscow had a more active partnership with Hitler, economically and militarily, than Rome or Tokyo did. The Soviet Union supplied vital raw materials. Germany, in return, provided a wish list of advanced military designs and manufactured goods.

In the second German-Soviet agreement, in September 1939, they agreed on the extinction of Poland. And Stalin sent back to Hitler, as a gift, thousands of Germans who had taken refuge in the Soviet Union. In July 1940, Stalin bluntly told the British ambassador, “We must change the old balance of power in Europe, for it has acted to the USSR’s disadvantage.” 11

Stalin was not naïve about Hitler. But, as Stalin explained to his colleagues at the time, he was coming to regard the Nazi leader as a strategic partner in a wider effort for the ‘have-nots’ to take down the great European powers, including the British Empire.

Stalin felt he also had to oppose the Japanese imperialists. The Soviet Union fought two border wars with Japan in 1938 and 1939 and was a key arms supplier for Nationalist China. Until 1938, Nationalist China’s other key arms supplier was Nazi Germany. This made sense to both the Soviets and the Germans. After all, Nationalist China then regarded itself as a kindred revolutionary and anti-imperialist state, opposing predations from Japanese and British imperial interests.

The other revisionist powers, Italy and Japan, remained carefully neutral until June 1940, when France fell. That event reshaped the emergent Axis. It is when Italy fully joined Germany. Italy then took a piece of France and turned its attentions to Greece. Italy did this without Germany’s interest or approval. Germany then had to conquer all the Balkan countries who were not already its allies, and intervene in north Africa, as Italy got in trouble and German oil in Romania seemed threatened by British moves toward the Balkans.

Japan joined what had become an “Axis,” but it did not join the war. Stalin used his partnership with Hitler to neutralize the Japanese threat to the Soviet Union. In exchange for a treaty of neutrality with Japan, Stalin cut off his assistance to China.

The whole story, from 1937 through June 1941, was then one where there was a revisionist core. Yet that core then was looser and less harmonized than the one that exists now.

Thus, in the autumn of 1940, it appeared that the Axis might coalesce to include all four of these major powers. In November 1940, Stalin agreed to Germany’s proposal that the Soviet Union become the fourth major Axis power. He had conditions in Europe (to do with Finland, Bulgaria, and the Dardanelles), the Middle East (from the trans-Caucasus to the Persian Gulf), and Japan (north Sakhalin). Japan and Italy were generally supportive.

The last two concessions were a good fit for German plans, but Hitler would not make further concessions in Europe. Hitler did not engage with Stalin’s requests. Hitler’s high command, particularly the Army staff, had offered him plans that promised a rapid defeat of the Soviet Union. Hitler endorsed them.

So, the final form of the “Axis” crystallized only in 1941. The potential Axis had split. But no one in the free world could take credit for that.

The whole story, from 1937 through June 1941, was then one where there was a revisionist core. Yet that core then was looser and less harmonized than the one that exists now. Its leaders displayed a capacity for strategic opportunism, wishful thinking, rapid turnabouts, and decisive action.

That sort of twisty plotline played out again in its last great chapter of maneuver, the choices that led to war against the United States.

The Choices to Attack America

The Axis, against old empires and creators of new ones, thought they had to throw off and balance American economic and cultural power and be able to confront its military power if that materialized. They also disliked the Roosevelt administration.

But the Axis powers all respected American industrial potential. They hoped America would decide to stay in its hemisphere and mind its own business. They were not sure just when or whether they should do anything that would bring the United States into the war. Thus, though each side started from a posture of basic hostility, they had to make new choices. The United States decided to arm Germany’s enemies. And it decided not to abandon beleaguered China.

In the neutral U.S. government of 1941, no one seriously contemplated any political outreach to Hitler. Instead, Franklin D. Roosevelt did try hard to find an accommodation with Japan. His efforts in the first half of 1941 were entirely fruitless. In July, emboldened by German successes, Japan moved into southern Indochina. The United States cut off vital oil supplies.

The U.S. oil sanctions on Japan shocked leaders in Tokyo. They recalculated. Prime Minister Konoe Fumimaro reconstituted his government and booted out the notoriously pro-Axis foreign minister. He embarked on an effort to fashion a grand bargain at a Konoe-Roosevelt summit meeting, which Roosevelt considered. But the diplomacy to prepare such a meeting (to occur in Juneau in October) foundered at the end of September. 12

At all times Japan was prepared to negotiate about Indochina. It was even prepared to forego the great plans for the southward advance into resource-rich British and Dutch colonies. But Japan was not prepared to yield its domination of China.

When Konoe’s government failed in its diplomacy with America, the Japanese recalculated again. An entirely new cabinet took power in October 1941. It had a new prime minister and yet another foreign minister. Tokyo redoubled its efforts, diplomatically and militarily. The new government decided that it would either conclude a deal by the end of November — even a temporary one — or it would go to war.

In this crunch time, the United States still would not write China off. This U.S. commitment to China was not well-understood at the time or by historians now. For Roosevelt, the commitment mainly arose from his complex calculations about the war in Europe — the need to keep the Soviet Union from collapse and therefore the need to keep Japanese troops tied down in China. 13 It is worth recalling today, as Russia and China confront the United States, that the proximate reason for America’s entry into World War II was its determination to save those two countries from extinction.

Yet for the United States, that determination created an acute global dilemma. The United States had prioritized Germany as the likely main enemy. Its strategy for Japan was deterrence. By October 1941, it became more and more apparent that the U.S. deterrent strategy might fail. So Roosevelt seriously considered a temporary deal to relax sanctions on Japan, at China’s expense.

The U.S. Army and U.S. Navy supported such a deal, if only to buy time. They feared they might be embroiled in the wrong war against the wrong enemy on the wrong side of the world. The possible deal, called a “ modus vivendi ,” leaked. Amid the domestic furor and British and Chinese complaints during that fateful last week of November, Roosevelt decided: No deal.

Roosevelt’s reasoning was complex and global. The U.S. decision to turn down the deal with the Japanese was meant to prevent a Chinese collapse. It thus helped pin down a million Japanese troops that the Americans thought might otherwise be deployed against the Soviets.

Fortunately, for reasons that no outsider really understood at the time, Hitler declared war on the United States. This German declaration was a kind of surprise. Throughout 1941 Hitler had deliberated on when or whether either Germany or Japan should go to war with the United States, vacillating back and forth.

Hitler did regard the United States as an ultimate enemy. But, contrary to what some historians have contended, Hitler — who paid close attention to microeconomic issues — had a deep regard for the military and industrial potential of the United States.

Once the United States adopted its enormous Lend-Lease program in March 1941, Hitler assumed, as Putin now does, that he was effectively in a kind of war with the United States. Yet Hitler wished to put off any direct warfare with the United States.

By late October 1941, Hitler still seemed willing to put up with American provocations and leave the ultimate war against America to “the next generation.” In early November, his foreign minister was pointing the Japanese toward the British and Dutch, urging them to avoid any attack on America.

But Hitler had not declared war on the United States because of nihilistic fanaticism. He had carefully calculated. He had calculated wrong.

Yet Hitler’s calculations about both a Japanese and German war with America finally turned around. This happened, decisively, during the second half of November 1941. 14 Why then? Washington rescinded the Neutrality Acts on Nov. 13. That move would, for the first time, bring U.S. convoys into the western approaches near Britain and likely lead to clashes in 1942 unless Germany abandoned its Battle for the Atlantic.

With its final diplomatic cards having just been laid on the table in Washington, having set an internal deadline for a war decision, Japan began final preparations for possible war with America. On Nov. 20, Japan asked Germany to join in. Hitler therefore also had that request pending.

Finally, the latest news of German military progress in the Soviet campaign seemed to clear the way. Berlin did not expect to conclude the Soviet campaign in 1941, regardless of whether or not German forces took Moscow. But Berlin did assess that the Red Army was essentially broken. Germany’s 1942 campaigns would just have to mop up. That remained the prevailing assessment in Hitler’s headquarters until Dec. 18.

So, toward the last week of November, Hitler had said yes to Tokyo. Japan, disappointed by its final diplomatic failure in Washington, set loose its war plans. Elated by their attack on Pearl Harbor, Hitler then made his declaration of war on Dec. 11.

It was only about a week after that, in the second half of December, that Hitler started receiving the full news of the weight of the Soviet counteroffensive, even though those attacks had actually begun on Dec. 5. This rough news from the East was joined by other unpleasant disillusionments, about the U-boat program and developments in war industry.

Confiding to his intimates on Jan. 15, 1942, Hitler worried aloud that he might have erred. He wondered if the odds might now favor an eventual American victory. But Hitler had not declared war on the United States because of nihilistic fanaticism. He had carefully calculated. He had calculated wrong.

The Early Cold War and the Next Stage of Enemy Partnerships

Whatever one’s view of the possibilities for a cooperative world order after the defeat of the Axis, a revisionist partnership was soon reforged. The revisionists were again unified by opposition to what they saw as an oppressive imperialist/capitalist order, led by the United States, which they argued was in league with the decaying European empires and revived reactionary forces in Germany and Japan.

This anti-American partnership was at its height between 1948 and 1962. Again, this was a time of strategic opportunism, profound miscalculation, rapid decisions, and decisive action.

The new partnership coalesced as the Chinese communists defeated the nationalists and won their civil war in 1948–49. Codified in a public partnership announced in Moscow in 1949, the Stalin-Mao partnership certainly had its own legacy of distrust. Stalin had hedged his bets until 1947, and perhaps even later than that. But by 1949 all was forgiven between Stalin and Mao. Stalin’s position was firmly preeminent. His satellites understood what party discipline meant.

In January 1950, Stalin decided to approve the invasion of South Korea. He summoned North Korean leader Kim Il Sung to Moscow so Stalin could personally and secretly explain his reasoning and plans in detail. Listen to Stalin’s explanation of how he sized up the situation:

China is no longer busy with internal fighting and can devote its attention and energy to the assistance of Korea. If necessary, China has at its disposal troops which can be utilized in Korea without any harm to the other needs of China. The Chinese [civil war] victory [in 1949] is also important psychologically. It has proven the strength of Asian revolutionaries, and shown the weakness of Asian reactionaries and their mentors in the West, in America. Americans left China and did not dare to challenge the new Chinese authorities militarily. [This U.S. stance had surprised Mao, who had expected a large, direct U.S. military intervention in the civil war.]   Now that China has signed a treaty of alliance with the USSR, Americans will be even more hesitant to challenge the Communists in Asia. According to information coming from the United States, it is really so. The prevailing mood is not to interfere. Such a mood is reinforced by the fact that the USSR now has the atomic bomb and that our positions are solidified in Pyongyang.   However, we have to weigh once again all the ‘pros’ and ‘cons’ of the liberation. First of all, will Americans interfere or not? Second, the liberation can be started only if the Chinese leadership endorses it. 15

Mao did indeed endorse the plan. There are striking features of the Soviet-Chinese planning of this period worthy of notice and reflection. First, the Soviet-Chinese planning occurred at a time when both countries were still very badly damaged, in every possible way, by their recent wars. There were members of the leadership group in both countries who were anxious to first heal such wounds. These men were also apprehensive about new wars that might involve the United States. They were overruled.

Second, the pace of Soviet-Chinese planning was remarkably rapid and decisive. The Berlin blockade came in 1948. The Chinese won the civil war in 1949 and the Soviets tested an atomic bomb. Settling the failed Berlin blockade, Stalin concluded his defense alliance with Mao.

And finally, they planned three major operations in east Asia in 1950: a North Korean invasion of the South with China pledged to back the play if needed; a Chinese invasion of Taiwan later in the year; and a Viet Minh revolution against the French in Indochina, using Chinese sanctuaries, advisers, and weapons.

In September 1950, Stalin decided that China should join the Korean war and defeat the Americans. China’s homeland would be sheltered from American counterattack by the Soviet alliance.

In 1950, the United States ended up fighting in Korea, blocking the Taiwan move with naval forces, and reluctantly deciding to support the French in Indochina. Washington reversed its earlier decisions, in 1949, that it would not do any of these things.

This American resolve may have surprised Stalin. He had a chance to evaluate this and recalculate. He and Mao also began thinking hard about what they thought would be the coming revival of Japanese or German power.

Stalin’s reaction was to double down. In September 1950, Stalin decided that China should join the Korean war and defeat the Americans. China’s homeland would be sheltered from American counterattack by the Soviet alliance.

We can eavesdrop again on how Stalin sized up this new situation, writing very secretly to Mao:

1) the USA, as the Korean events showed, is not ready at present for a big war;   2) Japan, whose militaristic potential has not yet been restored, is not capable of rendering military assistance to the Americans;   3) the USA will be compelled to yield in the Korean question to China behind which stands its ally, the USSR …;   4) for the same reasons, the USA will not only have to abandon Taiwan, but also to reject the idea of a separate peace with the Japanese reactionaries …   Of course, I took into account also that the USA, despite its unreadiness for a big war, could still be drawn into a big war out of prestige which, in turn, could drag China into the war, and along with this draw into the war the USSR, which is bound with China by the Mutual Assistance Pact. Should we fear this? In my opinion, we should not, because together we will be stronger than the USA and England, while the other European capitalist states (with the exception of Germany which is unable to provide any assistance to the United States now) do not present serious military forces. If a war is inevitable, then let it be waged now, and not in a few years when Japanese militarism will be restored as an ally of the USA …. 16

Overcoming sharp disagreements among China’s leaders, Mao went forward with the plan to join the war. The Chinese offensive was barely contained. The U.S. seriously considered nuclear escalation in Asia and mobilized for World War III.

Then, as mentioned earlier, in January 1951 Stalin accelerated planning for an imminent invasion of Yugoslavia. Later that year, Stalin paused.

A tense equilibrium seemed to slowly develop during 1951 and 1952. Why? Perhaps it was the product of further Chinese defeats in Korea. Maybe the scale of U.S. and NATO aid for Yugoslavia helped. Then there was the scale and rapidity of the Western mobilization for general war, the extensive deployment of U.S. nuclear weapons, and the Western determination evident in the appointments of Dwight Eisenhower and Bernard Montgomery to lead the newly mobilized NATO forces.

The confrontation revived between 1958 and 1962. Growing tension between the Soviet Union and China made the dangers worse, as each power wished to show that it was the true leader of the world revolution. Beijing courted war over Taiwan and helped sponsor renewed war in Indochina. Moscow threatened war over Berlin — to win a battle over the future of Germany and show that America’s nuclear threats in defense of allies were hollow. Only at the end of 1962, when Moscow stepped back from the brink, did the threat of World War III start to recede. 17

The Anti-American League Now

“Everything is changing now, changing very fast.” Those were Putin’s words a year after he had begun the full invasion of Ukraine. In some periods of history, events seem to accelerate. My working hypothesis is that, as 2022 began, the anti-American partnership was in an upbeat mood. They thought that, since 2014, their various limited offensive moves had worked and that the West was bribable or tearing itself up.

The free world’s adversaries had their “coming out” party in 2022. That was a bad year for them. The free world did well that year.

In 2023, however, its adversaries did much better, especially by their lights. They feel it. They also feel the momentum of the rising tide of violence around the world.

The course of 2024 is still unsettled. It is still too soon to judge how the war will develop in Ukraine or in the Middle East.

Under their current leaders, America’s principal adversaries — China and Russia — are fundamentally revisionist powers. Their leaders regard themselves as men of destiny, with values and historical perspectives quite different from the consumerist or social metrics that suffuse much of the world. During the last two years they, Iran, and North Korea have intensified their common work to shore up weaknesses in each other’s defense-industrial bases, with Russia the most active entrepreneur.

All feel boxed in by extensions of American power they regard as fragile, though formidable in parts. All have long been preparing for a great reckoning. They wonder: Is now the time? If not soon, when?

It is possible to argue a relatively benign case in which the conflicts do not get much worse during 2024, or even 2025. There are economic worries. There are factions in all the adversary countries, especially in the administrative and business class, whose outlook is narrowly focused and fundamentally inertial. Their outlooks might seem sensible to us.

Yet there are many historical cases in which dictators did not do what seemed sensible to well-informed outside specialists. 18 Above all, a deep historian of the topic has observed, “dictators who surround themselves with a cult of personality tend to drift off into a world of their own, confirmed in their delusions by the followers who surround them.” 19

The default assumption in national assessment is to hypothesize the position of governments and generalize about their national interests. Yet all the relevant governments have factions that may disagree quite fundamentally about what the interests are, how they should be pursued, and what risks should be accepted.

These factional debates are difficult for outsiders to see or gauge. Their outcomes often crystallize opportunistically and unpredictably around somebody’s proposal or some external development that forces choices.

The United States does not have the strategic initiative in the present conflict. It is reacting to choices made by others, which its analysts may not anticipate and understand.

The joint British-French-Israeli invasion of Egypt in the Suez Crisis of 1956 is mainly remembered now as a mistake by the British government. Yet the plan was actually developed by factions in the French and Israeli governments. Washington knew nothing of it. The French and Israelis developed their plan at a time that the United States had justifiably concluded that the crisis was being settled with diplomacy.

France was the indispensable organizer — the Israelis and British detested each other. Yet in the French case the idea ran exactly counter to what the French foreign ministry wanted. The French and Israeli factions, mainly in the military and intelligence services, sold their joint plan to a faction of one in the British government (Prime Minister Anthony Eden), and brought along the somewhat reluctant French and Israeli prime ministers. 20

The United States does not have the strategic initiative in the present conflict. It is reacting to choices made by others, which its analysts may not anticipate and understand. U.S. and allied planners can hope for the best and plan for the worst.

Under the category of “best,” there are two families of relatively benign expectations, which are not necessarily consistent. One is that America’s adversaries think they are already doing pretty well. They find current trends satisfactory. They will watch as Ukrainian resistance ebbs and fractures, as “the West” grows tired and quarrels, and as Israel tears itself apart. Meanwhile they will keep building their strength.

Or, some may think U.S. adversaries have been sobered by recent setbacks, problems at home, and demonstrations of U.S. and allied resolve. They find current trends unsatisfactory, but tolerable. So they may decide to retrench, cope with sanctions regimes, let the Russo-Ukrainian war peter out, and consolidate their position across Eurasia and in the global South.

Both of these kinds of reassuring arguments are plausible. They are plausible enough that they are likely already being voiced by factions in Beijing, Moscow, or Tehran.

Yet some enemy factions likely have a different view. They find current trends infuriating. These Russians and Iranians see no way out of jail. They find the prospect of stalemate against their main adversaries to be intolerable. These Chinese see a slow buildup of encircling alliances, a rearming Japan, a slowly mobilizing Taiwan, and American plans for high-tech countermoves and containment. These enemy factions would be searching for plausible moves of their own.

Under the category of “worst,” I believe that, on current trend lines, Putin is content to grind away against Ukraine, whose forces are depleted and exhausted and whose economy withers. Putin sees no reason, yet, to think he must conclude the war.

Why is this so important for situations beyond Ukraine? The Ukraine war has already created a more fluid strategic environment. It has already caused a visible closing of ranks on both sides.

Putin has already traveled to Tehran for personal confidential conversations with Iran’s leaders, where the ascension of Ebrahim Raisi in June 2021 began a period of intensifying relations with other members of what Iran regards as the “resistance” front. Putin’s discussions with Xi have surely been “strategic” (the Russian government’s description).

I believe the anti-American partnership has probably decided to double down. They are probably preparing in earnest for a period of major confrontation. My view on this rests on my analysis of the history presented above as well as some key assessments of Moscow, Tehran, Beijing, and — to a lesser extent — Pyongyang.

Xi and Putin regard themselves as world-historical men of destiny. They believe they are capable of decisive, strategic action. Xi ranks himself with Mao and Stalin. Putin evokes the memory of Peter the Great. In China, Russia, and Iran the information and decision environments are cloistered.

In China, Russia, and Iran the propaganda ministries have already been preparing their populations for a time of war, great sacrifice, and existential struggle. Russia is becoming hyper-militarized. In China, most visible are the full cinemas watching blunt messages in massively popular and costly movies that were deliberate government projects, such as The Battle at Lake Changjin (the highest-grossing Chinese film of all time), its recent sequel (also one of the highest-grossing movies of all time), and Full River Red (last year’s top film).

Russia’s leaders regard themselves as now at war with “the West.” They now treat this as an existential struggle. 21

Iran’s leaders similarly feel they are in an existential struggle for the survival of the revolution at home, while they are also engaged in their war with Israel. I believe that some Iranians have now stored up so much resentment and hatred that they may be desperate to do almost anything to get at Israel.

The North Korean intentions seem driven, but as opaque as usual. My working hypothesis is that they are preparing for a period of conflict and that they are wondering about possible opportunities to play an important role.

In each capital there are arguments for retrenchment on one side and, on the other, for more militancy. The more militant factions have likely been arguing and speculating about ways to turn over the table.

Beijing’s outlook both the most important and the most difficult to assess, since its government has visibly sought a policy of “peaceful coexistence” with the United States. I think it is most likely that Beijing has assessed that the die has been cast for a period of escalating confrontation.

The “San Francisco Vision”

On Dec. 4, 2023, the Chinese embassy in Washington sent a letter to select Americans explaining their government’s view of the just-concluded summit with President Joe Biden in San Francisco (actually in Woodside, in San Mateo County). The Chinese regarded the summit as “historic,” that it “fostered a future-oriented San Francisco vision.”

In the Chinese version, they offer a path of mutual respect. Each side can “coexist in peace and pursue win-win cooperation.” Biden, the embassy explained, seemed to agree. He told them, they say, that the United States “does not seek a new Cold War, does not seek to change China’s system, does not seek to revitalize its alliances against China, does not support ‘Taiwan independence’, and has no intention to have a conflict with China.”

For its part, China says it is prepared to carry out its side of the San Francisco vision. China hopes the United States would do likewise, including that it will “abide by the one-China principle [and] stop arming Taiwan.”

Beijing seems to now be making an offer strikingly similar to the offer Moscow made back then. They offer peaceful coexistence, if only “the US will develop a right perception toward China, see China as its partner rather than rival.”

In 2023, Chinese leaders made a strategic choice to replace defiant “wolf warriors” with peace offerings, extending olive branches, inviting mutual cooperation and peaceful coexistence. In this strategy, the burden of choice thus shifts to the United States and others to decide whether to accept these offers.

This Chinese articulation of their San Francisco vision bears a striking, eerie resemblance to the “spirit of Camp David.” That phrase, of Soviet coinage, arose in September 1959. The context was the first year of the second Berlin crisis. Eisenhower was doing all he could with diplomacy to ease the danger of war. He invited Khrushchev to the United States, to Camp David — a marked sign of respect. Khrushchev accepted, believing that he could persuade Eisenhower to give way on Berlin. Eisenhower did not give way, but his language was reassuring, looking toward a major international conference planned for the spring of 1960, in Paris.

The Soviets thus spoke of the spirit of Camp David. They explained that they were offering America, and the world, “peaceful coexistence.” What did peaceful coexistence entail? It meant an end to imperialist-capitalist wars, accepting that nuclear weapons had ruled these out. It meant acceptance and recognition of the outcome of World War II, including the legitimacy of communist East Germany. 22 It meant an end to occupation regimes. Foreign forces might withdraw from both German states. Imperialist-capitalist rule was in the process of being overthrown by revolutionary forces around the world. The world’s “have-nots” were claiming their rightful place. But that was a natural, inevitable historical process, and no occasion for international aggression or interference.

The spirit of Camp David lasted for about six months. It became obvious that the West would not concede its position in Berlin, a standoff of global importance to both sides. The May 1960 Paris conference dissolved in acrimony. To many outsiders it made no sense that Khrushchev would not accept the status quo in Berlin. But the truly dangerous phases of the standoff were still to come.

Beijing seems to now be making an offer strikingly similar to the offer Moscow made back then. They offer peaceful coexistence, if only “the US will develop a right perception toward China, see China as its partner rather than rival.” And again, I believe, the Chinese will prefer to seem to be placing the burden of choice — on the status of Taiwan — on the United States.

To Americans it may seem like it is the Chinese who are the troublemakers, trying to disturb the status quo . That was John F. Kennedy’s argument to Khrushchev in their one meeting, in Vienna in June 1961. Khrushchev did not agree. He and the East Germans would only be asserting their legal rights, he explained. It was the United States that would then have to challenge that and start the war.

“You are trying to humiliate us,” Khrushchev replied. “You speak about your prestige but do take our prestige into account.” When Kennedy held firm, Khrushchev warned him, “Let the war happen now rather than later, when there will be even more horrible types of weapons.” 23

China’s leaders today respect American military and technological capabilities. They do not appear to be confident of victory in any scenario. These anxieties should not reassure us. They appear to take the Biden administration’s alliance and defense buildup plans quite seriously. From their point of view, the American-led enemy mobilization has already begun.

Chinese analysts might then offer several reasons for taking necessary actions sooner rather than later. Their actions will not cause a geopolitical break, because they believe this break has already occurred.

They see America already energetically organizing, with some effect, its global coalition to impose containment and strategic decoupling through technology and trade controls. For now, in this wartime environment, the European governments are deferring to the Americans, though many of their business leaders disagree.

They might also see that Americans and Europeans feel economically and financially fragile. They will be fearful of initiating a conflict that will immediately trigger an apocalyptic global economic and financial crisis. And if there is such a storm, Chinese leaders may believe they are better able to weather it. They have already been helping to establish a parallel global trading system to accommodate Russia, Iran, North Korea, and other victims of American sanctions.

And, of course, they cannot help but miss that the Ukraine crisis has shocked America into trying much harder to ramp up its defense-industrial base. This is a worrying development for China. The Americans might transform their capacity to produce long- or mid-range standoff precision munitions. But it will take some time for the Americans to do this. Even an extra year or two may make a difference.

Further, Japan is rearming. This could have huge consequences. It too will take time. To Chinese leaders, the Japanese turn may seem particularly ominous. Japan has also overcome historical grievances that have blocked close military and intelligence cooperation with South Korea.

The Americans now have a huge backlog of approved arms sales to Taiwan. Yet, for now, almost none of this has been delivered. Chinese leaders will prefer that none of it ever is. The Americans have secured planned bases in the Philippines. But they are not yet ready to use them. And the Americans are orchestrating new military combinations and exercises with their AUKUS partnership, the Quad, Japan, and South Korea.

What about China’s most important partner? Right now, Putin’s grip on power seems firm. That may not last indefinitely. For now, Putin’s firm position means that China can rely on the Eurasian reserve of strategic resources that he represents, especially oil.

Beijing probably now regards the East Asian divide against them as already taking shape, with hostile forces starting to gather strength — with particular worries about Japan. The U.S. rallying of partners during 2022 and 2023 is probably reframing the way the Chinese now see their choices. These U.S. policy successes may strengthen the case of factions urging action sooner rather than later.

The Novelty of America’s Position

A year before Pearl Harbor, on Dec. 14, 1940, the U.S. ambassador to Japan, Joseph Grew, penned a long letter to his old friend, Roosevelt. Grew had known Roosevelt since prep school days at Groton. He was the only U.S. ambassador in the world who would open his letter to the president with, “Dear Frank.”

“History has shown,” Grew wrote, “that the pendulum in Japan is always swinging between extremist and moderate positions.” Grew thought a “showdown” seemed to be coming — “the principal question at issue is whether it is to our advantage to have that showdown sooner or to have it later.”

More than a month later, on Jan. 21, 1941, after he had delivered a landmark fireside chat to the nation on Dec. 29, Roosevelt found time to send a long letter back to his old friend. To Roosevelt, “the fundamental proposition was that the hostilities in Europe, in Africa, and in Asia are all parts of a single world conflict.”

It is really hard, cognitively and institutionally hard, to hold open a doorway to the emptiness of what we don’t know and adapt to changing circumstances.

After detailing some implications, Roosevelt concluded: “I am giving you my thoughts at this length because the problems which we face are so vast and so interrelated that any attempt even to state them compels one to think in terms of five continents and seven seas. In conclusion, I must emphasize that, our problem being one of defense, we cannot lay down hard-and-fast plans. As each new development occurs we must, in the light of the circumstances then existing, decide when and where we can most effectively marshal and make use of our resources.” 24

Over time and in separate settings the U.S. government has laid down plans that, if not “hard-and-fast,” may be cumulatively unsustainable in the present global situation.

The United States needs to be able to double-down in Europe while, in Asia and the Middle East, recalibrating how to “most effectively marshal and make use of our resources.” This view is not driven by abstract notions of regional importance. It is driven by practical analysis of the stress tests.

For the Axis, even when their ranks seemed to include the Soviet Union, their underlying war production capabilities were not close to that of the mobilized United States. 25 And they never had a meaningful capability to attack the American homeland. In 1937–41 and in 1948–62, Americans felt that, if they mobilized, their war production would be overwhelming and that their eventual striking power was limitless.

Americans are used to thinking of their defense position as mighty. The civilian population watches news about faraway wars and roots for this or that team — and they are always far away. Humility is applauded in principle. It is hard to practice it. It is not hard just because of arrogance or complacency. It is so hard because people are drowning in information and commentary. It is really hard, cognitively and institutionally hard, to hold open a doorway to the emptiness of what we don’t know and adapt to changing circumstances.

China is preparing for war. I am not saying it seeks a war. But, publicly and privately, the Chinese Communist Party is mobilizing its country for one.

For the last 10 years, China has been working hard on preparing and refining its plans for national defense mobilization. This topic has repeatedly engaged Xi’s personal attention. He does not appear to be satisfied. But he and his advisers can contrast their commitment and readiness for national mobilization with the comparable situation in the United States. 26

One lesson to them from the Ukraine war is the shallow and fragile character of the U.S. defense-industrial base. Chinese manufacturing capacity now exceeds both the United States and Europe put together.

Also, three of these adversaries each have numerous nuclear weapons. Another, Iran, is on the verge. Pakistan, which is not a friendly country, has plenty of nuclear weapons too. All the nuclear-armed states believe they may now be able to deter American attacks against their homeland. All of them — including Iran — believe they are effectively invulnerable to being invaded. They may therefore feel greater freedom to design and wage limited wars.

Americans may be presented with novel scenarios, bracketed by nuclear dangers, in relation to interests most of them do not care much about. Most living Americans no longer have a palpable memory of battlefield or national vulnerability. The magnitude of the 9/11 shock to American sensibilities proves the point in a way, and for younger Americans that is now vague history. U.S. adversaries believe, rightly or wrongly, that they are tougher, and that their societies are tougher, readier to follow orders and handle hardship, than America’s.

The Burden of Escalation Might Be on the United States

My working hypothesis is that its adversaries will not initiate a direct attack on the United States. No Pearl Harbor. Instead, such adversaries may see this as a time when it is America that will be restrained from initiating direct military actions in response to adversary moves that do not directly attack the United States.

Speculations about a possible war with China tend to assume a large Chinese attack of some kind. Yet this is contrary to Chinese strategic tradition. That tradition emphasizes planning for carefully limited wars. That is exactly what China has done in each of its military confrontations with the United States. Their military writings frequently emphasize what they call “war control.” 27

China has fought America before. Their reading of this history is very different from the way these conflicts are usually taught in the United States. China has gone to war with the United States in Korea and in Vietnam and it has extended control over the South China Sea without a war.

In Korea, the Chinese war was unofficial, conducted by “Chinese people’s volunteers.” The Soviet Union had promised a defense umbrella to ward off U.S. counterattacks against the Chinese homeland. That worked.

In Vietnam, the Chinese war was covert, conducted by hundreds of thousands of troops and workers operating only in North Vietnam and Laos. North Vietnam dispatched arms and troops to help conquer South Vietnam. This plan was launched in 1959. At least through 1966, China sheltered North Vietnam from conventional counter-invasion by the United States. China warned the United States that any such invasion would meet a full Chinese counterattack, Korea-style. These warnings worked. They effectively kept the United States at bay and confined the war’s parameters in the way China wished.

In the South China Sea, the Chinese conquest did not meet military opposition. The occupation was conducted first as a civilian assertion of territorial rights. China strenuously denied any plans to militarize its outposts in the South China Sea. It then proceeded to full militarization, tolerating the occasional international protest cruises.

From the Chinese point of view, in an ideal case China might make its moves after being publicly provoked. In the 2021 Nancy Pelosi case, for instance, international opinion would have blamed the United States for causing the crisis. The Biden administration had to work hard to manage that crisis.

In the indirect control scenario China can then force the other countries (or Taiwan) to decide whether or how to challenge such a realization of the “one China” the world formally recognizes.

Another kind of opportunity for decisive action, from China’s perspective, could be any U.S. attempt to make actual delivery of notable U.S. military equipment into Taiwan (ideally some kind of missiles — hence China could have its version of the America’s 1962 Cuban missile “quarantine”).

As an illustration of how to apply historical precedents to illuminate the challenge of global readiness, consider the U.S. commitment to Taiwan. This commitment is morally and politically justifiable. It may be hard to sustain, in practice. I see three main plausible scenarios:

• Pearl Harbor. China combines an invasion of Taiwan with an attack on U.S. installations, at least in Guam, and possibly on Japanese territory as well. The United States, and possibly Japan, are immediately at war with China, with high likelihood of rapid escalation to general war.
• Korea 1950. China attacks Taiwan, probably associated with preparations for invasion. Though, as in South Korea in 1950, the U.S. defense commitment is ambiguous, the brazen character of the attack raises the odds of at least U.S. and Japanese intervention, and all prepare for the possibility of escalation to general war.
• Indirect control. China implements air and sea border controls to make Taiwan a self-governing administrative region of China. There is no need for a direct attack on Taiwan or any blockade of usual commerce. Without initiating violent action, the Chinese can assert sovereign control over the air and sea borders to Taiwan, establishing customs and immigration controls. This is not the same thing as a blockade. A blockade would instead become one of the possible consequences if the other side violently challenged China’s assertion of indirect control. 28

In the indirect control scenario China can then force the other countries (or Taiwan) to decide whether or how to challenge such a realization of the “one China” the world formally recognizes. And China could violently retaliate against any Taiwanese air or sea units that violently challenged China’s move.

Taiwan could keep governing itself, for a while. The situation would be similar, in substance, to the condition Hong Kong was in after the British relinquished control in 1997, except China would not need to raise its flag on the island itself. Taipei could file its protests and hold its demonstrations. But any Taiwanese military moves could trigger Chinese responses that Taiwan could not top. For instance, if Taiwan sought to cut off semiconductor exports to China, China could cut off all energy supplies to Taiwan, including the energy that runs its principal chip producer, TSMC. There is no plausible scenario in which Taiwan could force an outcome where it supplied the world, but not China. Eventually, China could steer Taiwan’s semiconductor trade and access to its supply chains without touching the fabrication centers themselves.

America’s military and 99 percent of the public commentary focus on the first two scenarios. The third one seems more likely to me. 29 It is doable now, with little warning. In every way, this is the easiest option for China to execute and defend publicly. In every way, it is the hardest option for the United States to counter. China is already rehearsing this option on a limited scale in controlling the waters around Taiwan’s offshore island of Kinmen. This option might effectively accomplish China’s objectives with the least danger of massive disruption and the best posture for escalation dominance, since the other options still remain. 30

Therefore, stepping back, the general American posture vis-à-vis Taiwan seems reminiscent of the second Berlin crisis of 1958–62, in which the burden of military escalation to preserve access would fall on the United States, which may or may not have Japanese support, and in an environment where a conventional fight to restore access seems very challenging. In that earlier Berlin crisis, facing a similarly forbidding conventional challenge, the United States ultimately relied on the threat, or bluff, that it would initiate the first use of nuclear weapons. 31 That threat was thinly credible then, in a situation of U.S. nuclear advantages. Such a threat is inconceivable now. Yet, for good political as well as strategic reasons, the United States also can’t and won’t preemptively and visibly abandon Taiwan. As a practical matter, the dilemma is acute.

In other regions too, the more difficult scenarios may place the main burden of choosing violent escalation on the United States. Russia is already testing the limits of the West’s capabilities to sustain Ukraine. They are pushing very hard during 2024. Their goal is to wear Ukraine down and fracture its politics, economy, and society. As one prominent Russian nationalist has explained, “In a year or two, the special military operation will have to be wound up with a decisive victory so that the present American and related comprador elites in Europe come to terms with the loss of their dominance and agree to a much more modest position in the international system.” 32

The situation in Europe is still retrievable. My suggestions on this front are familiar. 33 It will be a close call to see if military aid can shore up Ukraine’s defenses. It may be an even closer call to see if the West can sustain the level of financial assistance vital to Ukraine, especially in 2025, as Europeans still wring their hands over whether and how to use the Russian financial assets frozen in their jurisdictions. The period of maximum danger may come if Ukraine’s supporters are successful and Ukraine’s position becomes sustainable and promising. Because then Russia will have to decide whether to escalate. 34

Some of the near-term danger is a byproduct of the administration’s own policy achievements. Large Western defense buildups are now in motion. They may bear significant fruit in the out years, including the buildup in Europe and Ukraine — but not right away. More reason for Russians to push as hard as they can in 2024 and 2025.

In the Middle East, Iran can provoke with proxies, continue the renewal of its nuclear program that it accelerated in 2023, and dare exhausted, isolated Israel to attack. Iran can also dare the United States to join such a war in the Middle East. We can see how that war may start. The Iranians, or at least some faction of them, may think they see better how it will end.

Meanwhile, Saudi Arabia and the United Arab Emirates may be planning to stay out of such a war, as they conduct a diplomatic revolution in the Middle East. Their realignments include a detente with Iran, brokered with China. It includes understandings with China, Russia, and India that further guarantee their security. These Arab leaders think they are this era’s Henry Kissingers, cleverly navigating and dominating the space between rivals.

The United States therefore ought to deeply reexamine its strategy and strategic posture toward the whole Middle East region.

The current Gaza and Israeli-Iranian war is affecting the domestic political situation in Iraq and Turkey. The scope of operations the United States can conduct out of Incirlik and Al-Udeid may become more constrained. The United States should not assume it can readily use either of those bases in certain contingencies involving Iran or obtain easy permission for certain airspace transits.

Greatly exacerbated by the Russo-Ukrainian war, Europe’s current dependence on Middle Eastern, North African, and east Mediterranean gas and oil has become profound. European states will feel great pressure to avoid doing anything that might endanger these supplies.

The United States therefore ought to deeply reexamine its strategy and strategic posture toward the whole Middle East region. A cornerstone principle for such a reexamination might be that the future viability of Israel itself is coming into play. Its current government is on a course that will isolate and weaken it, as its enemies gather. But any future Israeli government will face terrible choices, probably involving civil strife as in 1948, but much worse. The United States, like Israel, will need to focus more on the essential requirements of Israeli survival, at least as a free and promising society.

The United States should have plans for a possible war with Iran that do not assume or rely on initiation of a preventive war, either alone or in conjunction with Israel. Those plans may need to assume Iranian access to weapons of mass destruction. Those plans will also need to have a plausible concept for how such a war might end.

Wishful Thinking and the Alternatives

Though Americans have lost limited wars in which they chose to disengage, their historical memory encourages a belief that they have always projected sufficient power for great-power contests if only they will try hard enough.

America’s adversaries have sometimes engaged in wishful thinking. The United States has certainly shown it can do this too. If it faces the burden of choosing escalation, the political, financial, and industrial base to support such a choice is weaker than it was in past episodes.

Calls for massively larger military preparedness may be politically unrealistic. There is little net public support in the United States for further big increases in defense spending beyond current levels. Yet despite an uptick in spending after Russia’s invasion of Ukraine, Michael Brown notes that “America has a smaller military with older and less equipment than at any time in memory.” 35 Even if funded, plans for large expansions of naval or air power have a long lead time, looking at least into the 2030s. Even then the results may not provide the kind of capabilities that will solve the particular escalation choices that America faces. Depending on the scenario, the United States may also encounter severe practical issues in its internal decision processes, the preparedness of key allies, or the requirements of the military operations.

The worst case, in a major crisis, will be if the United States and its allies commit to victory, animated by their own rhetoric and dutiful but ill-considered military plans, and then are outmaneuvered and defeated. It would be the “Suez moment” for the United States, or perhaps much worse.

The United States may therefore need to prioritize action in the theaters and on the problems where its interests, allied readiness, and capabilities are at their height. Where they are more vulnerable, the United States may need to quietly rethink its current military plans. The current postures in the western Pacific and the Middle East may be especially unsound, depending on the situation.

One way to rethink the plans is to hedge the reliance on military insurance. For several reasons, the U.S. government has leaned too much on military capabilities to offset deep, chronic weaknesses in all its civilian institutions for foreign work. The United States is turning more frequently to economic sanctions. As the Ukraine case and the problem of Russian assets illustrates, this reliance has overwhelmed the capabilities, culture, and staffing of the usual bureaucracies handling these efforts, which in the U.S. case are mainly in the Treasury and Commerce departments. The overall capacity to guide these efforts strategically relies on a few overburdened civil servants.

By contrast, beginning in 1940 and accelerating in 1941, Roosevelt began creating quite new institutions for “economic warfare.” Boards and committees proliferated, and skilled brain trusts reset failing strategies. 36

A principal reason for the 1947 creation of a “National Security Council” was so that it would coordinate economic instruments of national power alongside the military ones, as the Americans had seen the British do so effectively in their War Cabinet system. That system in the United Kingdom had included a Ministry of Economic Warfare that recruited some of the most able people in Whitehall.

Even a relatively limited war with China would almost automatically, practically overnight, lead to freezes or seizures of trillions of dollars’ worth of Chinese and American assets of all kinds, with all sorts of counterparties caught in the whirlpools.

At the center of the American production bureaucracies was a man, now almost forgotten, named Ferdinand Eberstadt. He had been at the center of the challenging interagency and public/private economic work on both the War Production Board and the Army-Navy Munitions Board, and the later National Security Resources Board.

Eberstadt became the most important single proponent of the creation of a National Security Council for the United States. Then he became the single most influential advocate of the eventual National Security Act that created it. His reasons for supporting a National Security Council are practically forgotten today, but could not be more relevant. 37

The United States and its allies are already very far along in creating a divided economic world to isolate Russia, Iran, and North Korea. They are not altogether isolated, of course. They just function increasingly in a separate world of trade and finance, with China as a hub. That separating world can include much of the so-called “global South.”

Amid the enormous public discussion about Taiwan scenarios, hardly anyone analyzes the economics in depth. A recent illustration in late 2022 just took on the Taiwan blockade scenario, with no analysis of secondary consequences of any military action or second-order moves. Just that very conservative scenario featured trillions of dollars in losses across the world, huge problems in downstream supplies of semiconductors, the collapse of trade finance, and likely national efforts to control currency outflows. 38

A key point: In my indirect control scenario, the burden of challenging offshore Chinese border controls, and therefore of causing any cut off of Taiwanese exports like semiconductors, would actually fall on the United States and its allies, not on China. This may deter the United States .

Americans usually think that “deterrence” is all about how to deter bad countries from attacking them or their friends. To America’s adversaries, this paradigm is reversed. They think they are deterring America from attacking them.

When World War II began, and in the early Cold War, the world economy was already deeply fragmented and organized imperially. Those experiences are not sufficiently suggestive about the scope of a breakage now. A little more suggestive was the experience when war broke out in 1914. On July 31, 1914, the New York and London stock markets closed. They did not reopen for the next five months.

Even a relatively limited war with China would almost automatically, practically overnight, lead to freezes or seizures of trillions of dollars’ worth of Chinese and American assets of all kinds, with all sorts of counterparties caught in the whirlpools. It could rapidly trigger the greatest disruption in the global economy since the Great Depression, and the effects could easily exceed that.

From America’s adversaries’ point of view, the economic nightmares may not be so frightful. They may think they are readier for such calamities than the United States is.

Since some of the contingencies are out of American control, the president and his chief advisers at least need to map out these risks and visibly prepare to manage them. The United States should visibly plan whether and how it and its allies might weather the extreme economic contingencies that would necessarily accompany the outbreak of even a limited war.

These contingencies will include the abrupt disruption, freezing, or confiscation of Chinese and American, and allied, financial assets in the jurisdiction of the other side. It could produce the abrupt disruption of trade and supply chains of many kinds. The United States and its allies could also contemplate the affirmative moves and reassurances that might ease the shocks and reassure other countries around the world. 39

Such visible preparations will acquire a momentum of their own. If these plans become viable, they may even become plausible substitutes for the most vulnerable military moves.

The Big Picture

If the United States and its partners in Europe and Asia can weather the current international and domestic political crises, they will be  better positioned to thrive during the rest of the 2020s than their principal adversaries. They are well positioned to influence the shape of the great technological revolutions of this age, help guide the future of the global economy, build on America’s new status as an energy superpower in managing the energy transition, and lead a deep re-conception and overhaul of the defenses that countries will build in the digital age.

So it is important to keep in mind that the broader fundamentals for the United States and the free world are promising. They are especially promising in comparison with the courses that America’s adversaries are charting.

The main challenge to the United States and to its friends may be in the short-term. They are stretched thin. A handful of key officials are functioning at the very limits of their capacity. With few exceptions, civilian leaders in the United States and the free states of Europe and Asia that are still at peace do not want to try to scare their publics into a prewar mode. They are uneasy about how their publics might respond to such alarms. And right now, the free world countries are coping. Their various enemies have problems and worries too.

My argument echoes Roosevelt’s warning to Grew in January 1941. “We cannot lay down hard-and-fast plans,” he said. Yet leaders today might be forgiven if they feel enmeshed in seemingly “hard-and-fast” commitments around the world. As enemies maneuver, and America does its own private stress tests, the United States and its friends should sharpen their focus and their strategies around allied strengths and strongpoints. “As each new development occurs we must, in the light of the circumstances then existing, decide when and where we can most effectively marshal and make use of our resources.”

The worst case would be to sacrifice fundamentally strong future prospects because of short-term miscalculations. Having navigated successfully through years of intense crisis, the Kennedy and early Johnson administrations had turned the corner in the Cold War by 1963–64. The momentum of Soviet and Chinese advance was ebbing. The free world was on the verge of historic advances and achievements in society and science.

Then America’s leaders blew it. The great tragedy of Vietnam was that although the fears about North Vietnam turned out to have been well-judged, the efficacy of a commitment to defend South Vietnam was not. The American overcommitment in Vietnam, at that moment of promise in world history, instead became a dreadful self-inflicted wound. 40

The task for this period of crisis is to weather it with America’s core strengths and advantages preserved, or even enhanced.

Philip Zelikow is the Botha-Chan Senior Fellow at Stanford University’s Hoover Institution. For 25 years, he held a chaired professorship in history at the University of Virginia. For seven years before that, he was an associate professor at Harvard University. An attorney and former career diplomat, Zelikow’s federal service includes work across the government in the five administrations from President Ronald Reagan through President Barack Obama. Zelikow has also directed three successful and bipartisan national commissions: the Carter-Ford Commission on Federal Election Reform, the 9/11 Commission, and the Covid Crisis Group.

Image: ChatGPT

1 The prewar period in this rivalry ended in 1950 and the danger of World War III reached an initial peak in 1950–52. That danger rose again, reaching another kind of crescendo in 1958–62. Although by 1959 the Soviet Union and China were no longer really functioning as strategic partners, they were both pursuing quite confrontational strategies.

2 A fine, neglected account is Lisle Rose, The Cold War Comes to Main Street: America in 1950 (Lawrence: University Press of Kansas, 1999).

3 “The 1948 Yugoslav-Soviet split was total, and the ideological, political, and military hostility in the subsequent years comprehensive. Between 1948 and [1954], Yugoslavia was under a real threat of a military invasion from the Soviets and their satellite states. Border incidents and armed clashes were an everyday occurrence.” Svetozar Rajak, “The Tito-Khrushchev Correspondence, 1954,” Cold War International History Project Bulletin , Issue 12/13 (Fall/Winter 2001), 315.

4 Quotes from NIE-29, March 20, 1951, in Foreign Relations of the United States 1951 , vol. 4 pt. 2, doc. no. 876; and Sherman Kent, “Words of Estimative Probability,” Studies in Intelligence , Fall 1964 (declassified), NARA RG 263.

5 From notes of Stalin’s remarks in Romanian records, quoted in Mark Kramer, “Stalin, the Split with Yugoslavia, and Soviet -East European Efforts to Reassert Control, 1948-1953,” in Mark Kramer and Vit Smetana, eds., Imposing, Maintaining, and Tearing Open the Iron Curtain: The Cold War and East-Central Europe, 1945-1989 (Lanham: Lexington Books, 2013), note 25.

6 “Joint Statement of the Russian Federation and the People’s Republic of China on the International Relations Entering a New Era and the Global Sustainable Development” (February 4, 2022), http://www.en.kremlin.ru/supplement/5770 .

7 Wang quoted in Christian Shepherd & Vic Chiang, “A year later, China blames U.S. 'hegemony' - not Russia - for war in Ukraine,” Washington Post , February 22, 2023, https://www.washingtonpost.com/world/2023/02/22/china-us-blame-ukraine-war/ .

8 In 2020, I analyzed and replied to Putin’s extraordinarily elaborate views on the origins of the World War II. “Lessons from the Second World War: A Reply to President Putin,” The American Interest , July 2020, https://www.the-american-interest.com/2020/07/31/a-reply-to-president-putin/ . My reply was noticed in Moscow and published in Russian, in Russia in Global Affairs.

9 The Italian-German maneuvers are concisely summarized in Zara Steiner, The Triumph of the Dark: European International History 1933-1939 (Oxford: Oxford University Press, 2011), 844-55, 999.

10 Donald Cameron Watt, How War Came: The Immediate Origins of the Second World War (London: Pimlico Press, 1989), 536-37.

11 Stephen Kotkin, Stalin: Waiting for Hitler, 1929-1941 (London: Penguin Random House, 2017), 777. Kotkin is best for the reconstruction of Stalin’s calculations.

12 Ian Kershaw provides a good overview of Fateful Choices: Ten Decisions that Changed the World, 1940-1941 (London: Penguin, 2007), with the refinements noted below about the November 1941 choices. Good recent summaries of the Japanese background are Eri Hotta, Japan 1941: Countdown to Infamy (London: Randon House, 2013) and Takuma Melber, Pearl Harbor: Japan's Attack and America's Entry into World War II , trans. Nick Somers (Cambridge: Polity, 2021).

13 This judgment is based on my own research in the sources. It dovetails with the argument perceptively made in Waldo Heinrichs, Threshold of War: Franklin D. Roosevelt & American Entry into World War II (Oxford: Oxford University Press, 1988) and ably elaborated recently by Richard Frank, Tower of Skulls: A History of the Asia-Pacific War, July 1937-May 1942 (New York: W. W. Norton, 2020), chapters 8 and 9.

14 In a large literature, the close analysis of Hitler’s choices and available information that now supersedes all others is Klaus Schmider, Hitler’s Fatal Miscalculation: Why Germany Declared War on the United States (Cambridge: Cambridge University Press, 2021).

15 From the Soviet records of discussions with Kim in April 1950, unearthed by Evgenii Bajanov & Natalia Bajanova and published in Kathryn Weathersby, “‘Should We Fear This?’ Stalin and the Danger of War with America,” Cold War International History Project Working Paper No. 39, July 2002, 9. When Stalin referred to “information coming from the United States,” he was not only referring to Dean Acheson’s famous press conference in January 1950 drawing a defense line that excluded Korea and Taiwan. Stalin was probably also referring to his knowledge of the contents of the secret U.S. decision document, NSC-48, of December 1949, that had first codified this U.S. government conclusion. The contents of NSC-48 may have been passed to Soviet intelligence by Kim Philby.

16 Stalin to Mao, October 7, 1950, included in Stalin’s letter later that day to his man in Pyongyang, Terenty Shtykov, in Alexandre Mansourov, “Stalin, Mao, Kim, and China’s Decision to Enter the Korean War, September 16-October 15, 1950: New Evidence from the Russian Archives,” Cold War International History Project Bulletin 6/7 (1995-96), 116.

17 On the Sino-Soviet break as a spur to confrontation, see Thomas Christensen, Worse than a Monolith: Alliance Politics and Problems of Coercive Diplomacy in Asia (New Jersey: Princeton University Press, 2011). For the best studies so far of Khrushchev, Berlin, and the linked crises of 1962, see Gerhard Wettig, Chrustschows Berlin-Krise 1958 bis 1963 (Berlin: Walter de Gruyter, 2006); and Aleksandr Fursenko and Timothy Naftali, Khrushchev’s Cold War: The Inside Story of an American Adversary (New York: W. W. Norton, 2006), chapters 17 and 18.

18 Among the more famous assessment debates and misjudgments about “rational” versus actual choices were about German aims in 1938; Japanese aims in 1941; the Soviet-sponsored invasion of South Korea in 1950 (which made no sense at the time even to Stalin’s colleague, Khrushchev); the Chinese entry into that war in 1950; the Soviet deployment of ballistic missiles to Cuba in 1962; the North Vietnamese escalation of war in South Vietnam in 1965–66; and the Soviet invasion of Afghanistan in 1979 (when the U.S. intelligence community had good evidence that the Soviet establishment opposed such an invasion).

19 Frank Dikötter, Dictators: The Cult of Personality in the 20th Century (London: Bloomsbury, 2019), 206.

20 If this summary seems surprising, see Philip Zelikow, Ernest May, and the Harvard Suez Team, Suez Deconstructed: An Interactive Study of Crisis, War, and Peacemaking (Washington DC: Brookings Institution Press, 2018).

21 Putin himself has made this point over and over again. See, e.g., Angela Stent, “Putin’s Next Term: Repression in Russia, Aggression in Ukraine,” United States Institute of Peace, March 19, 2024, https://www.usip.org/publications/2024/03/putins-next-term-more-repression-russia-aggression-ukraine .

22 At the time (1959) there was also a quite serious crisis still ongoing over Taiwan, where the Soviet and Chinese position was that the United States should accept the outcome of the Chinese civil war, recognize the People’s Republic of China, and grant its sovereignty over Taiwan. The Soviets had already provided the Chinese with designs for how to build nuclear weapons. But, in 1959, the Soviets refused Chinese requests to provide them with actual nuclear bombs.

23 From the Soviet memcon, June 4, 1961, as translated by Sergey Radchenko in his forthcoming book, To Run the World . During the summer and fall of 1961 both sides began mobilizing for war. Khrushchev postponed his moves because Kennedy opened a secret backchannel that Khrushchev thought might produce a deal. But it did not. As Soviet documents now reveal, in early 1962 Khrushchev renewed his preparations to prevail and deter America from initiating a war.

24 The correspondence was published in Joseph Grew, Ten Years in Japan (London: Hammond, Hammond & Co., 1944), 359-63.

25 Soviet war production capability during World War II is usually exaggerated in the literature. If properly estimated to account for the vast inputs involved in making aircraft and warships, Soviet productive capacity was comparable to that of Japan. The best work on this is now Phillips Payson O’Brien, How the War Was Won: Air-Sea Power and Allied Victory in World War II (Cambridge: Cambridge University Press, 2015).

26 E.g., John Pomfret and Matt Pottinger, "Xi Jinping Says He Is Preparing China for War," Foreign Affairs , March 29, 2023, https://www.foreignaffairs.com/united-states/xi-jinping-says-he-preparing-china-war ; or Kawala Xie, "China's Fujian province steps up defence mobilisation reforms to improve war readiness," South China Morning Post , February 3, 2024, https://www.scmp.com/news/china/military/article/3250840/chinas-fujian-province-steps-defence-mobilisation-reforms-bid-improve-war-readiness ; or Mike Studeman, "China is Battening Down for the Gathering Storm Over Taiwan," War on the Rocks , April 17, 2024, https://warontherocks.com/2024/04/china-is-battening-down-for-the-gathering-storm-over-taiwan/ .

27 A summary is in Burgess Laird, War Control: Chinese Writings on the Control of Escalation in Crisis and Conflict, Center for a New American Security, March 30, 2017, https://www.cnas.org/publications/reports/war-control . These writings tend to downplay some of the escalation risks that are highlighted in Western literature about limited war.

28 To illustrate what is or is not a “blockade”: The 1948 Soviet cutoff of Western ground transport into West Berlin was a blockade. It was surmounted by an airlift until the blockade was lifted in 1949. The second Berlin crisis (November 1958 to November 1962) was not a threatened blockade. It was the threat to treat Allied-occupied West Berlin as now being part of communist East Germany (which the West would not recognize as a state), and thus turning over border controls that would stop the access of “outside” U.S., British, and French military forces into the middle of East Germany. It was these outsiders who would face restrictions, not ordinary commerce. In the proffered Soviet peace treaty West Berlin would become a “free city,” nominally self-governing and with U.N. oversight. This second crisis was horrifyingly difficult for the Western powers, because the threatened move would force them to initiate the moves to fight their way into preserving access. Their plans involved escalating initiations of forceful efforts, culminating in an initial “demonstration” use of nuclear weapons by the United States.

29 For an earlier discussion of this indirect control scenario three years ago, then referred to as a “quarantine,” see Robert Blackwill and Philip Zelikow, The United States, China, and Taiwan: A Strategy to Prevent War , Council on Foreign Relations Special Report no. 90 (2021), 35-36, https://www.cfr.org/report/united-states-china-and-taiwan-strategy-prevent-war .

30 On China's new de facto border patrols around Kinmen, see Radio Free Asia, "Record number of Chinese ships enter Taiwan waters near Kinmen island," May 10, 2024, https://www.rfa.org/english/news/southchinasea/china-kinmen-intrusion-05102024034553.html . For a good recent analysis of the military problems a quarantine or indirect control move might pose, see Robert Haddick with Mark Montgomery and Elaine Luria, “Quarantines and Blockades,” in Matt Pottinger, ed., The Boiling Moat: Urgent Steps to Defend Taiwan (Hoover Institution, 2024), chapter 8.

31 This Berlin context is why the United States strained to assert, in 1961 and 1962, that it enjoyed nuclear superiority, so that its threats to escalate to nuclear war, to risk American survival, might seem credible. The Soviet government therefore strained in several ways, including eventually the secret deployment of missiles to Cuba, in order to dispel such images and make such threats seem less credible.

32 Sergei Karaganov, “An Age of Wars? Article One,” Russia in Global Affairs , January 2024, p. 8 (translated).

33 For a three-page summary see Philip Zelikow, “The Atrophy of American Statecraft,” Foreign Affairs , vol. 103 no. 1 (January-February 2024): 56, 67-70, https://www.foreignaffairs.com/united-states/atrophy-american-statecraft-zelikow .

34 For an example of this argument, see Peter Schroeder, “The Real Russian Nuclear Threat,” Foreign Affairs , December 20, 2023, https://www.foreignaffairs.com/ukraine/real-russian-nuclear-threat .

35 Michael Brown, “A Plan to Revitalize the Arsenal of Democracy,” War on the Rocks , May 10, 2024, https://warontherocks.com/2024/05/a-plan-to-revitalize-the-arsenal-of-democracy/ .

36 Few stories of potentially war-losing failure and war-winning ingenuity are more striking than that of the U.S. rubber industry, which was rescued from a very misguided start by desperate salvage work in 1942 and 1943. Alexander Field, The Economic Consequences of U.S. Mobilization for the Second World War (New Haven: Yale University Press, 2022), chapter 3.

37 See Douglas Stuart, Creating the National Security State: A History of the Law that Transformed America (Princeton: Princeton University Press, 2012).

38 The recent example is the brief note by Charlie Vest, Agatha Kratz, and Reva Goujon, The Global Economic Disruptions from a Taiwan Conflict , from the Rhodium Group in December 2022..

39 Hugo Bromley and Eyck Freymann have drafted an illustrative study of such plans, to be published later in 2024 by the Hoover Institution Press.

40 One of the least-known aspects of Kissinger’s relation to Vietnam were his remarkable and secret efforts, while a professor advising the government, making in-depth visits in the field during 1965 and 1966, to suggest politically practical ways for America to get out. Niall Ferguson brings this out in the first volume of his biography of Kissinger. Niall Ferguson, Kissinger 1923-1968: The Idealist (New York: Allen Lane, 2015).

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Measuring and Predicting “New Work” in the United States: The Role of Local Factors and Global Shocks

The evolution of work is of emerging importance to advanced economies' growth. In this study, we develop a new semantic-distance-based algorithm to identify “new work,” namely the new types of jobs introduced in the US. We characterize how “new work” relates to task content of jobs and skill characteristics of workers and document its geographic distribution and association with employment growth. Then, we analyze whether local factors associated in the previous literature with agglomeration economies and productivity growth as well as local exposures to global shocks—technology, trade, immigration, and population aging—predict the creation of “new work.” We find local supply of college educated in 1980 as the strongest predictor of “new work.” Using the historical location of 4-year colleges, a strong instrument for local college share, we find a positive and significant causal effect of local supply of human capital on “new work.”

This project was funded by the Russel Sage Foundation, Grant G-2211-41017 "Measuring and Understanding “New Work” and “Displaced Work” in the US: New Technologies, New Markets and New People." We are grateful for their support. We thank Janet Currie and Enrico Moretti for generously sharing their data on local colleges in 1980 and 1960 with us. We thank Luc Chen for his excellent assistance in supporting the data cleaning process. We thank participants at seminars at the UCLA Anderson School of Business, Tenth International Workshop on NSE at Peking University, Tsinghua University and University of Milano for their comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

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Navigating the labor mismatch in US logistics and supply chains

As the US economy recovers postpandemic, demand for labor has outstripped supply. Companies are facing the “ Great Attrition ,” coupled with increased competition for labor. The transportation and logistics sector has been particularly hard hit, with the impact of worker-retention challenges and rising labor costs being felt across the entire value chain.

The labor mismatch has pushed private-sector wages to increase at more than double the long-term pre-COVID-19 growth rates, yet positions remain unfilled. There are several underlying factors for this imbalance. Some are directly related to the impact of the COVID-19 pandemic and are therefore likely to be temporary. There are indications, however, that deeper structural shifts are at play that could have a longer-lasting impact on labor supply and demand. On the supply side, evolving work preferences and accelerated retirement may continue for some time; likewise, demand shifts from services to goods also appear to have some staying power.

Addressing the challenges is not easy, and focusing on recruitment and pay may not be sufficient to resolve the issue. Successfully navigating the current labor mismatch requires a comprehensive set of coordinated actions that address labor issues and their effects across the value chain. Nevertheless, there are actions executives can take to respond.

The 2021 labor mismatch has had a profound impact on US businesses

The United States’ post-COVID-19 economic recovery has seen an unusual reduction in labor-force participation. Jobs are available—the job-openings rate is around 50 percent above prepandemic levels—but the workforce to fill them has contracted. About four million people have left the civilian workforce (Exhibit 1).

With demand for workers exceeding supply, the cost of labor has increased accordingly. Private-sector nominal-wage growth is more than double the long-term pre-COVID-19 pace—more than triple when adjusted for the consumer price index (CPI). Transport and warehousing labor has been most affected in terms of cost, with wages increasing four times faster than before the pandemic.

Despite wage increases, logistics operations are still having difficulty hiring and retaining frontline workers, while also seeing increased absenteeism, causing knock-on effects across the supply chain. Suppliers’ on-time delivery rates are falling, a situation exacerbated by supply shortages. “On orders” are being cut at greater rates and experiencing significant delays, driving even further volatility in order patterns. Companies that employ third-party logistics services are also experiencing considerable challenges, such as transport rates increasing by up to 30 percent.

The labor mismatch is unlikely to dissipate on its own

What’s striking about the current labor challenge is that, unlike in the past, higher wages alone have not led to positions being filled. There are several underlying factors for this imbalance—some may be temporary, while others are long lasting. There are also regional differences, and in some cases labor availability varies significantly at different zip-code and skill-level combinations.

Some factors related to the COVID-19 pandemic are beginning to dissipate. For example, the federally enhanced unemployment-benefits program wound down in September. Workers who left their jobs because of health concerns or to take care of family members or children at home due to school or childcare-facility closures may return to work. 1 A McKinsey survey found that among respondents who had left their jobs, 45 percent cited the need to take care of family as an influential factor in their decision. See “ ‘Great Attrition’ or ‘Great Attraction’? The choice is yours ,” McKinsey Quarterly , September 8, 2021. And training programs that were suspended due to the pandemic, such as those provided by driving schools, have largely resumed.

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Other factors, however, could lead to more permanent shifts in the labor supply. The relationship between job openings and unemployment has departed from past trends and appears to be driven by fundamental shifts in labor supply-and-demand curves (Exhibit 2). Further evidence that the drop in labor-force participation is underpinned by systemic causes is the fact that the decline in labor supply can be seen across all worker types and demographics, including gender, age, marital status, and whether the person works part time or full time.

Furthermore, since the start of the pandemic, more than 15.9 million people have relocated within the United States. In the same time period, there has been a noticeable increase in the number of people taking early retirement, as 1.7 million workers retired from the labor force earlier than expected. 2 Owen Davis et al., “The pandemic retirement surge increased retirement inequality,” The New School Schwartz Center for Economic Policy Analysis, June 1, 2021, economicpolicyresearch.org. Immigration rates also have a lasting impact on labor supply, and the net immigration rate in the United States fell by 1.3 percent between 2020 and 2021. 3 “U.S. net migration rate 1950–2021,” United Nations World Population Prospects, accessed on November 2, 2021, macrotrends.net.

Last, a change in mindset toward work may also be an underlying factor of long-term shifts in labor supply. McKinsey research indicates a disconnect  between why employers think their staff are leaving and why employees are actually leaving their jobs. Employers are looking at transactional factors, such as compensation or alternative job offers, but these are not the primary drivers of attraction or attrition. Employees place greater value on relational elements, such as a sense of belonging or having caring and trusting teammates at work.

How COVID-19 is reshaping supply chains

There is also uncertainty over how supply-chain labor demand will continue to evolve. The growth in e-commerce, for example, has driven new demand for supply-chain labor that is likely to remain postpandemic. Recently signed infrastructure legislation is projected to further increase labor demand: industries within the construction value chain are likely to require an additional one million workers if the projected 30 percent of Infrastructure Investment and Jobs Act (IIJA) funds are spent by 2025. 4 Infrastructure Investment and Jobs Act draft, August 2021; EMSI; US Bureau of Labor Statistics. Since the logistics and construction industries typically attract similar pools of labor supply, the impact of such legislation would extend multiple years into the future. Additionally, the shift in consumer spending from services toward goods during the COVID-19 pandemic, which added supply-chain pressure to refill fast-selling products, may also stick.

Several industries are also experiencing drastic changes in demand. The travel and food-services industries, for example, saw severe demand drops and responded by furloughing or laying off workers and accelerating early retirements. These measures may have contributed to structural shifts in the labor market for these industries. The trucking industry was facing falling numbers of drivers before the pandemic because of multiple factors, including generational demographics, age limits, time away from home, and drug tests. The pandemic compounded the problem: on one hand, more people ordered goods to their homes, which changed how the deliveries were made and further increased the demand for truck drivers—and on the other, the closure of truck-driving schools, combined with a pull of labor supply away from driving toward construction, reduced the supply of labor.

A meaningful intervention for the mismatch

Together, these factors mean that the labor mismatch in US supply chains is unlikely to dissipate quickly, with imbalances in supply and demand persisting. So what can companies do to address this imbalance now? In this unprecedented environment, companies may have to look beyond the traditional levers of recruitment and retention, and also implement a comprehensive set of coordinated actions to address the labor shortage. For interventions to be meaningful, they need to address the full value chain.

This seems challenging, but there are reasons to be optimistic. Companies are seeing meaningful shifts in their labor-supply profiles by taking the following steps.

Ensuring viability of the supplier base. Companies can engage suppliers with large labor forces—for example, temporary labor, food services, janitorial services, and third-party transportation—to ensure operational viability or identify alternative suppliers that can reduce first- and second-tier supplier risk.

Reimagining the job of a driver and warehouse worker

One logistics company used advanced analytics, including machine-learning techniques and web scraping more than 50,000 reviews, to identify causes of worker attrition among its drivers and distribution-center employees. It found that the physical nature of the job, lack of work–life balance, and scheduling issues were key drivers of attrition.

The company then designed a range of interventions to mitigate these issues, including a leadership training program for supervisors and managers to address frontline grievances. It also provided greater flexibility in scheduling and pay, and collaborated with customers to solve the root causes of employee-satisfaction problems—such as SKUs that were difficult to pick and deliveries that were scheduled for inconvenient times.

Finally, the company developed an implementation structure and stood up a project-management office to ensure that initiatives were successfully implemented. In distribution centers where changes had been implemented, worker retention improved by about 10 to 15 percent; the company sought to scale those gains across the organization.

Reimagine the employee value proposition—beyond wages. Companies that solved for competitive wages and built attractive value propositions for employees have found it easier to retain their workforces. In addition to proactively adjusting wages to stay ahead of competitors (especially in highly competitive markets), or embarking on aggressive recruitment campaigns, companies can deploy analytics to pinpoint drivers of attrition—and make bold changes where it matters most (see sidebar “Reimagining the job of a driver and warehouse worker”).

Create capability to identify the stressed nodes and adjust labor flows. Companies can take measures to shift network flow away from labor-stressed nodes, especially where labor supply varies across regions. For example, orders could be rerouted to other warehouses, or products could be manufactured in locations that are less stressed from a labor-supply standpoint. Reformulating or redesigning products can help as well by reducing the need for labor-constrained components and ingredients.

Increasing output by reducing complexity

A consumer-goods company was able to increase productivity by cutting 30 percent of its product portfolio with limited impact on sales. It achieved this by defining the labor cost and complexity of each product, deploying advanced analytics to estimate the substitutability of each product, and conducting an assortment and optimization simulation to identify which SKUs to delist (exhibit).

Reduce complexity and labor content of products and services. Companies can reassess their product and service portfolios by building a robust understanding of each offering’s operational and commercial trade-offs. One company was able to increase throughput at its factories and warehouses by optimizing its product portfolio (see sidebar “Increasing output by reducing complexity”).

Explore lean management and automation. Companies may reduce reliance on labor across the supply chain over the long term through product reengineering, lean-management transformation, and automation. Furthermore, automation could help companies improve employee engagement and satisfaction. More than 40 percent of employees spend at least a quarter of their time performing manual and repetitive tasks. In some cases, automation can help not just reduce labor demand, but also allow employees to spend more of their time on higher-value, meaningful work.

Engage customers and suppliers on cost and service. Companies can engage customers on value-based offerings. They can also engage suppliers through cleansheet—based negotiations that build in complete cost-to-serve estimates, such as cost differences for labor-intensive activities, and service factors such as lead times and delivery windows.

Unlock new sources of labor supply. Companies can explore new sources of labor supply—for example prison-, juvenile-, or veteran-transition programs—or adapt roles for non-English speakers and reskill workers from declining industries or roles.

Bolster HR processes. They can also streamline and strengthen interview and onboarding processes—for example, by setting up “talent war rooms” to focus on such interventions.

Leveraging people analytics to improve frontline retention

A trucking company successfully deployed people analytics to improve frontline retention. First, it identified the top quartile of drivers who were most likely to leave the company. Analysis of this high-risk population allowed the company to identify the key drivers of employee dissatisfaction and implement targeted interventions. These interventions led to an improvement of more than 20 percent in new-driver retention, a 15 percent increase in the number of driver applications, and a more than 30 percent increase in the number of new hires, which translated to a 10 percent-plus increase in revenue potential (exhibit).

Deploy advanced people analytics. Companies can leverage people analytics, such as cluster analytics and attribution models, on internal and external data to identify and prioritize interventions on segmented groups of the labor force (see sidebar “Leveraging people analytics to improve frontline retention”).

Develop agile management across functions. Companies can deploy digital performance-management tools, such as control towers, to manage labor flows. Daily cross-functional war rooms can increase visibility around labor availability and help the organization to plan and adjust accordingly.

The labor mismatch is a complex challenge, one that may be here to stay for a while—and it is clear there is no silver-bullet solution.

The labor mismatch is a complex challenge, one that may be here to stay for a while—and it is clear there is no silver-bullet solution. Companies looking to embark on a labor-resilience transformation can take the following three steps. First, employers need to understand how labor shortages impact their suppliers, internal labor, and customers—starting with the size and impact of labor risk across operations; the severity of the labor gap by location, roles, and suppliers; and a forecast of labor dynamics in each relevant market. Second, companies could design bold interventions that structurally change both the demand and supply of the organization’s labor. Third, companies may require strong executive-level support to ensure that cross-functional initiatives are implemented effectively.

Dilip Bhattacharjee and Andrew Curley are partners in McKinsey’s Chicago office; Felipe Bustamante is an associate partner in the Miami office, where Fernando Perez is a partner.

The authors wish to thank Aditi Brodie, Mike Doheny, Travis Fagan, Ezra Greenberg, Darren Rivas, and Daniel Swan for their contributions to this article.

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