The Economics Of Borders

We are living in uncertain times, with conflicts around the world that could spin out of control.  Most of these conflicts involve disputes over borders: Ukraine and Russia; China and Taiwan; North and South Korea; Israel and Palestine; Turkey and the Kurds; India and Pakistan; Saudi Arabia and Yemen; and just about everywhere in Africa.  

While formal, well-defined borders can be a tool for peace, they can also be a source of conflict. So, I thought it would be appropriate to look at the economics of borders.

To begin, one must make a distinction between nations and states. Nations consist of people who identify with one another because they share common characteristics such as religion, culture, language and ancestry. States are political entities defined by recognized and enforceable borders. Generally, these borders are determined by military barriers, such as a river, a sea or a mountain range. A few nations are contained within a single state (for example, Japan, Italy and Norway), but most states encompass multiple nationalities, and nationalities often overlap into neighboring states causing tension and conflict.

Nationalism is the idea that a state and the nation should be one and the same, and the only rightful source of political power is derived from the nation. Nationalism can be a source of pride, but it can also be used to stir up hatred. 

Samuel Johnson (1709-84) once said: “Patriotism is the last refuge of the scoundrel.” He did not mean that all patriots are scoundrels. Johnson believed a real and generous love of one’s country was a good thing, but it was his observation that patriotism is often used to cloak one’s self-interest in a quest for person gain. I believe history is on the side of Johnson: most wars are fought over economic interests, with nationalism used as a justification.

For example, Adolph Hitler rose to power in Germany preaching an extreme form of nationalism, and the Germans bought it. Prior to the First World War, Germany had one of the most advanced economies in the world, with more electric lighting, more automobiles (the Volkswagen “Bug” was designed in the ‘30s), more steel and chemical production and the best scientists in the world.  

But when Germany lost the war, it was stripped of its colonies, depriving them of foreign trade, and was forced to pay reparations that destroyed their currency, The borders of Europe were redrawn, placing millions of Germans in states with which they had no common bond.  

But after Hitler reunited the German nation, he sent the German army to attack the Soviet Union. He claimed the attack was to create room for the German race to expand, but it was primarily for economic reasons: the Soviet Union had resources Hitler wanted (food, minerals and oil), and he believed he had the military power to seize them. Russia responded with its “Great Patriotic War” to defend Mother Russia, but then seized and exploited Eastern Europe for its resources.    

Similarly, when Japan invaded China and the Philippines, and attacked Pearl Harbor, they were not trying to reunite the Japanese nation. Those countries in the South Pacific had resources Japan wanted for its industries, and the Japanese military believed it had the military power to seize them.

This is certainly true of Russia and Ukraine today. Putin can declare that the Russians and Ukrainians are historically “one people,” and that his “special operation” is simply to “de-Nazify” a region that is rightfully part of Russia, but the war is really about control of the resources in Ukraine. Putin feared that Ukraine would join the European Union and Russia would lose control of those resources.

Sixty-five percent of the international borders in effect today were established in the 75 years from 1875 to 1950. This period coincided with the industrial revolution, when modern weapons revolutionized warfare: tanks replaced cavalry, steel battleships replaced wooden frigates, machine guns replaced muskets, and airplanes ruled the sky. It was also a time when the United States became a player on the world stage by defeating Spain and taking control of Cuba, Puerto Rico and the Philippines; annexing the Republic of Hawaii and the Samoan Islands; and building the Suez Canal to gain access to the Pacific. 

But only 6 percent of the borders in the world were established in the last 72 years. Partly, this is because the world has had relative peace since 1950. But it also suggests that today’s international borders do not coincide with today’s military technology. 

One reason for this is the use of military alliances, such as NATO, SEATO and the former Warsaw Pact, among sovereign states. But these pacts can be unstable. For example, Turkey is a NATO member and has the second-largest army in NATO behind the U.S., with 50 U.S. nuclear bombs stored at Incirlik Air Base. But Turkey’s national and economic interests often conflict with NATO’s European members.

Borders can also be an impediment to economic growth and development.  The commerce clause in the U.S. Constitution prohibits the individual states from interfering with the movement of goods and people across state lines, so our state borders play no economic role. If this were not the case, one would need a passport to go from state to state, and the states would quickly move to protect their domestic industries from competition. This is how it was in Europe prior to the European Union: one needed a passport to go from country to country, each country had its own currency, and the movement of goods was regulated as exports and imports.

Our 2,000-mile southern border with Mexico is the most frequently crossed border in the world, and it has become a major political issue. Our equally long border with Canada is almost non-existent, with minimal enforcement. Far more terrorists have entered the U.S. through Canada than through Mexico, and there are many ways addictive drugs can enter the U.S. market, including domestic production by pharmaceutical companies, although the sheer volume of traffic across our border with Mexica makes it the most economical route.

Nationalism has become a driving force behind barriers to the movement of people across our southern border. Many people see Hispanics as foreigners who don’t belong here. But again, there are economic issues lurking behind this nationalism. Many people are afraid of losing their jobs to cheap labor or seeing our American culture change (although “American culture” — our food, music, religions, customs and language —  is a conglomerate of many different ethnicities).

I don’t know what the future will bring, but I suspect the technological revolution we are currently undergoing will change global alignments and borders in much the same way the industrial revolution did from 1850 to 1925.  

World War II was not conducted to spread Japanese culture or reunite Japanese with their homeland; it was to secure oil and other resources for Japanese industry.  

Similarly, China’s expansion into the Pacific and Africa is not about nationalism; it is about control of resources; Russia’s invasion of Ukraine is not because the Ukrainians and Russians are ”one people,” as Putin maintains, it is over the control of resources, especially natural gas supplies.