Introduction 3
Definition of large and small nations 3
Background and Theory of Alliances 3
Theories 4
a. Free-riding theory 4
Challenges Mobilizing Nations to Produce Public Goods Globally 6
b. Game Theory 6
c. Dependency theory 7
d. Pareto efficiency 8
Conclusion 8
Bibliography 10
Introduction
Strategic alliances have been used over the decades by firms pursuing diverse economic goals. Strategic alliances have become an essential feature in the global economy, especially due to the challenges paused by factors such as rapid globalization. As an emerging way of action, alliances have been viewed as a solution to implementing efficient global strategies capable of enhancing growth of a state or nation. Despite the popularity of alliances in enhancing success in the global economy, they have had a relatively high rate of instability as evidenced in NATO’S economic alliance (Cullis & Jones, 2009). A military alliance often turns out to be expensive and raise a myriad of distribution issues especially when it comes to provision public goods. This paper explores the proposition that small nations usually exploited established nations in NATO using the relevant economic theories. In addition, this paper offers a response regarding the challenges of mobilizing countries to produce public goods accessible worldwide.
Definition of large and small nations
The term small and large is a relative concept that is used to define an object or phenomenon. In reference to NATO, the organization originally had twelve members who had joined the organization in 1949. Small nations refers to those countries who spend less than 2% of the GDP in North Atlantic Treaty Organization while large nations refer to those nations which spend more that 2% of the GDP in NATO security (Cullis & Jones, 2009 & WSJ, 2014). The U.S. for instance is classified as a large nation while Lithuania and Spain are categorized as small nations in terms of GDP defense spending.
Background and Theory of Alliances
Since 404 BCE, military alliances have gained increased recognition due to their significant role in declaring victory when deterrence proved in effective. Although the concept of alliances appears somewhat straightforward, the functions can turn out to be expensive due to free-riding concept enjoyed by smaller alliances or nations. The distribution of costs in a military alliance and the element of free-riding has received intense debate and exploration to understand the economics of these alliances. Issues heavily raised during these debates include how free-riding is a serious concern, scarcity of resources and problem in production and distribution of public goods. Northern Atlantic Treaty Organization, commonly recognized or abbreviated as NATO, has particularly been referenced by various exploratory studies to understand how small nations become a burden to established/developed nations (Sandler & Murdoch, 2000, p. 298). Players in a strategic alliance benefit from economics of speed, scope, scale and symbiosis. In the case of weak allies, they reap numerous benefits from an alliance since they larger nation provide most resources (Chen & Fan, 2006, p. 2). Failure of small nations to meet the required quotas threatens their independence since they become burden to large or developed nations. Small nations such as Spain contributed less than 1% of the GDP for defense purpose while the U.S. made three quarter percent GDP contribution for the purpose of defense (WSJ, 2014). Clearly, this describes how Spain exploited the U.S. since it used its GDP contribution to benefit from defense/security and other accrued benefits.
Theories
Free-riding theory
When a state decides the number of military members to provide in a strategic alliance, it often or must consider the value pegged against nondefense goods and collective defense. The level of military defense provided by a nation ultimately affects the amount consumed by an alliance nation. In regards to the indifference curve, an equilibrium position is established when the two nations in the strategic alliance place a similar value towards the alliance interest (Plumper & Neumayer, 2014, p. 3).
Nation A expenditure
Nation B expenditure
In this respect, the above two nations will devote similar military resources to share the cost of the burden. It is essential to acknowledge that the value placed by a country in an alliance is influenced by its national income. As such, a nation with a larger network of resources/GDP and frontiers will devote a large army compared to a nation with lesser resources.
Game Theory
In game theory, there are two players or partners and have a choice of action, which is usually to cooperate or not to cooperate. Cooperation dictates that a partner is willing to utilize resources with the other player, while non-cooperation implies that the partner wishes to pursue their own interests. A smaller alliance or nation may have an alliance with another party hence may show support causing the conflict discussed in this section. Economically, non-cooperation in an alliance results in lost victory whereby a conflict occurs separating the smaller nation from the larger one or vice versa (Chen & Fan, 2006). In the case of NATO, the decision to cooperate with players is what creates the exploitation and the dependency relationship with weak players (Chen & Fan, 2006, p. 2).
Pareto efficiency
Pareto optimal is an outcome of the pareto optimality game whereby this outcome is achieved through hurting one of the players in the game. In reference to the subject matter of discussion, pareto efficiency creates an optimal distribution of resources and the general provision of defense as a public goods. Nevertheless, this is achieved through hurting the strong or established nation resulting in exploitation of its resources by the smaller nation. Exploitation of resources creates a dependency relationship whereby the weaker alliance depends on the superior strategic partner for resources for providing defense or achieving the homogeneous economic goals (Jackson, 2001).
Ideologies and attitude of a nation also partly influence the allocation of military resources. In NATO’s case, it had a pacifist ideology and this explains why it allocated massive resources to influence global events to its interests. Smaller nations often devote smaller sacrifices or military force due to the view that large sacrifices on their hand would have a lesser impact on the global balance. This perspective explains the topic under exploration in this paper whereby smaller nation are seen to exploit larger states or appear as a burden to these established nations. Defense in a strategic alliance is explained by Zeckhauser and Olson (1966) as a public good (p.266). The benefits accruing from defense measure are non-rival and non-excludable among members in an alliance.
As discussed in this section, the smaller an alliance is, the higher the probability that it will under supply the required public good or defense. The impact of this decision is less noticeable, but is extremely noticeable in the case of superior alliances. The amount of resources commanded by an alliance influences the provision of military resources and this is what gives rise to free-riding alliances. The theory of free-riding in the case of a strategic alliance expressly shows or predicts how a smaller nation exploit established nations resulting in a burdened relationship or unequal contribution (Olson & Zeckhauser, 1966, p. 267). The issue of defense being non-rival in terms of consumption is a question, which has gained increased focus. Military resources on a trivial level are considered to have this trait of non-rivalry in consumption (Sandler, 1993, p. 446). However, if the U.S. for instance attacks an enemy, another military group in NATO cannot embark on the same war.
Challenges Mobilizing Nations to Produce Public Goods Globally
The pure-public goods model explains the changes in development of new machinery and NATO’s new strategy and documents the differences between defensive, protective and deterrent weapons. Alignment of interests remains a major defining feature of nation’s contribution of resources on the alliance front. The extent with which defense is defined as pure-public good in the case of an alliance invokes the concept of free riding among smaller alliances due to homogeneity of interest (Anand, 2004, p. 215). The proposition under exploration in this paper is thereby true going by this statement. In addition, the above statement clarifies the element of smaller nations exploiting larger nations or appearing as burden in the case of strategic alliances. Unless smaller nations have independent interests, then they are welcome to free ride in the strategic military alliance, owing to homogeneity of interests.
The contribution made by each country impact the provision and availability of public goods. Technological aggregation, transnational externalities and the provision of public goods as a joint product are some of the reasons influencing the provision of public goods. Defense spending, foreign aid and scientific exploration are provided as public goods depending on a country’s decision. Leaving the provision of global public goods as a joint-product can be disastrous due to personal interests. As such, factors such as the country size are used to determine the input required by the international community in regards to each nation. The responsibility of providing public goods is placed on global government agencies in order to prevent the occurrence of the above-mentioned problems.
Referring to the case of large nations in NATO such as the U.S., the nation has vast economic interest hence contribute a higher GDP to the provision of collective goods. The little contribution made my small nations is insufficient to provide the world with public goods hence large nations must make the remaining contribution. Additional costs in the provision of public goods are however borne by small nations. The concept of free-riding by small or large nation is one of the key challenges in the provision of public goods. Free-riding can be exemplified by large and small nations, but is influenced by nations interests and resource endowment (WSJ, 2014). It should be noted the dis-proportionate sharing of the burden of providing public goods is embedded on nation’s interest and not moral suasion.
Dependency theory
This theory provides an important insight regarding the behavior by smaller nations to exploit developed nations in NATO. Imperialism and world market inequality are some of the historical traits of the capitalism economy. Small nations exploit developed or established nations to benefits for technological penetrations and financial strength (Frey, 1984). Poverty in smaller nations is often caused by the peripheral position of these countries requiring them to form an alliance with a strong nation to enhance growth/overall wellbeing. In the concept of military alliances, smaller nations have fewer resources hence devote the only available military resources to provide defense. The provision of insufficient resources makes these nations depend on larger nations to supplement the required goods (Barrett, 1999). Dependency by small nations on larger or established nations prohibits the provision of defense as a pure-public resource or good. The world systems divide nations in periphery, semi-periphery and core countries with different areas of focus. The latter is formation of alliances depending on the specific areas of interest or perceived importance. Economically, the dependency relationship created between the latter and the former in this case, causes the superior nation to incur more costs in regards to GDP just as evidenced in NATO.
Conclusion
Strategic alliances have been used by various nations and organizations over the decades to accomplish the identified economic goals. Due to the various challenges experience in the global economy, the concept of forming an alliance has become a defining feature of the modern economy. Despite their popularity, alliances have a relatively high rate of instability as evidenced in NATO’S economic alliance. An alliance allows smaller nations to take-advantage or exploit developed nations as evidenced in NATO’s case. Large or established nations provide more resources in an alliance due to their huge resource endowments and to protect their interests. Smaller nations, on the other hand, have fewer resources hence provide the only available resources. This creates a dependent relationship whereby weaker nations depend on established nations to provide more resources necessary for defense and provisions of public goods. The outcome of a large nation not providing the necessary military resources is extremely significant, but in the case of small nations, it is almost negligible. As such, large nations in NATO such as the U.S., must always provide a higher GDP due to their big defense requirement and vast interests.
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