James Hasik

The 2009 Nobel Prize in Economics, and Securing the Global Commons

Today in Stockholm, the Swedish Royal Academy of Sciences announced the winners of the 2009 Noble Prize in Economics: Oliver Williamson of the Haas School of Business at the University of California at Berkeley and Elinor Ostrom of Indiana University. Both, I think, make excellent choices.

Williamson was a logical one: his book The Economic Institutions of Capitalism is excellent, and provides the detail that extends the groundbreaking of work of Ronald Coase (the 1991 laureate) into the theory of the firm. Ostrom's selection was a more surprising, but equally excellent. In work dating back to her PhD dissertation in political science in 1965, Ostrom has focused on explaining how, contrary to Garret Hardin’s assertion, the commons is actually usually not a tragedy. Rather, her meticulous research into thousands of case studies has showed how self-governance by users of common resources quite frequently works, and why it doesn’t when it doesn’t.

I used Ostrom’s analytical framework late last year in a study for a large military supplier which was interested in how the global commons might merit policing in the next few decades, and how the company could profit from that need. Boots-on-the-ground interventions may have gotten a little expensive and tiresome, so some strategists have been suggesting that more efficient and politically palatable use of limited military resources could be made of focusing them on protecting the things that really matter to the people who really pay for them. However, while the term global commons has circulated in the public discourse with some frequency over the past year, it hasn’t frequently been defined explicitly. So, we took back then a few moments to spell out what we meant:

Securing the commons amongst nations is the joint safeguarding of those assets on which people across the world depend for their common but different livelihoods, and which are most cost-effectively defended in common.

Good enough. Still, as one can imagine, this can encompass huge classes of assets and the networks that connect them. Sea lanes, airwaves, banking systems, pipelines, petroleum deposits, electrical distribution networks, the common frontiers of customs unions, and a host of other assets are more efficiently secured in common than by private actors, or even individually governments acting singly. For whatever the ownership or national domicile, the wide usage of the commons makes them attractive targets for actors who wish to impose costs on rival actors, particularly the constituents of governments at which they are at odds.

So when is this global commons best defended, and by whom? In what is perhaps her best-known book, Governing the Commons: the Evolution of Institutions for Collective Action (Cambridge University Press, 1990), Ostrom lays out four criteria for evaluating the long-term common defensibility of commonly held assets. With some commentary, we can extend them here to the safeguarding of globally relevant assets:

Definable boundaries. Fisheries (an asset class that Ostrom has researched in some detail) may not be too difficult to police with enough cutters, but they inherently difficult to demarcate efficiently. Fish swim past twelve mile limits and through economic exclusion zones without stopping to show their passports. Shipping lanes are easier for responsible parties to agree to respect, with local exceptions like that of the particular thalweg of the Shatt al-Arab, and the so-far amusing Canadian-American dispute over the so-called Northwest Passage. Still, this explains in part why the Somali pirates are so bothersome: even if people around the world don’t care much about what happens in the narrow alleys of Mogadishu, these guys are all very clearly off the reservation.

Small and stable community. Groups of actors cannot become too large before the incentives to shirk responsibilities lead to informal defections amongst too large a subset. NATO’s recent expansion eastward has made the alliance more sensible geographically, but may not have simplified decision-making. On the other hand, by adding countries which have recently been more enthusiastic about overseas combat missions, it has somewhat added to the roster of choices for assembling coalitions. We’re still waiting, however, for that to help in the Horn of Africa.

Appropriate rules. These include incentives for responsible use and punishments for bad behavior. The Second Cod War ended when Iceland threatened to quit NATO, for the alliance seemingly could not prevent one member’s naval vessels from repeatedly ramming another’s. Much of the international discussion over the appropriateness of Chinese and Russian governmental participation in international institutions turns on how these governments can be induced to behave responsibly in their “near abroads,” such as the Caucasus, the Baltic republics, Taiwan, and the Spratly Islands.

Resource dependence. Enthusiasm for collective security increases with one’s dependence on the particular shared resource. A succession of French governments have had less interest than American ones in policing petroleum-producing countries, possibly in part because they simply need petroleum less. High fuel taxes discourage consumption, the TGVs are all electrified, and fifty percent of that electrical power is produced by atomic energy. This could, in the long run, induce economically-minded actors internationally to lessen their dependence on aspects of the commons that they use disproportionately, if only to improve the likelihood of burden-sharing in the defense of what remains to be defended.

Our interpretation may not have been groundbreaking, but it does point to how “coalitions of the sufficiently threatened” may be recurrently organized, to paraphrase Jeffrey Lebowski, to tackle aggressions that must not be allowed to stand. Elinor Ostrom’s work rather was groundbreaking, and for our benefit, shows how there are useful frameworks for business analysis that aren’t found in the Ten Day MBA. The question of how to profitably supply the kit and the services that would be used to secure the global commons requires just that. It’s an amorphous question, but in the end a tractable one that points to some valuable opportunities.

Hot washup from the 2009 AUSA and HL conferences

This week I've been in Washington DC for the annual Association of the United States Army (AUSA) exhibition and Houlihan Lokey's annual aerospace and defense conference. The first, to be blunt, is basically the biggest arms show in the US every year, and the latter is one of the best gatherings of A&D investors and financiers anywhere. Neither explicitly advertised this theme, but both featured companies that were rapidly adapting to changing patterns of demand, even ahead of their customers.

Here's what I mean. One of the presenters at HL's event, from the aircraft components maker TECT, forecast that things would get worse in his industry before they got better. Business aircraft makers wouldn't recover for several years, they thought, Airbus and Boeing's build rates were still unrealistic, and military forces were still ordering too many jet fighters--whether any of them knew it or not.

Around that point, I remembered how Booz & Company had earlier this year forecast how sharply the Pentagon's investment spending (that's RDT&E plus procurement) might drop over the next few years:

2008. $249B
2009. $214B
2010. $205B
2011. $183B
2012. $166B
2013. $150B

I don't know what method (multivariate Kentucky windage?) they used to devise that slide, but it's an indication of what people are thinking. So were General Cartwright's complaints this week in his speech about how the "Pentagon needs more adaptable, cheaper weapons." (see the Defense Department's press release by that title). Specifically talking about long-range strike aircraft, he seemed to be addressing specifiers and industrialists alike with his warning that complicated, niche solutions were on their way out.

Fortunately, I can say, after many conversations at both events, I left town with the impression that enough of the industry has internalized that message that rapid progress is possible. The problem rests with those marketing expensive, bespoke solutions to Cold War problems. If investment spending really drop by one-third over the next four years, more than a few companies will be in the hurt locker. Look, as one panelist at HL's conference forecast, for a restructuring wave on the order of that from the early and mid 1990s.

"Are we sure that the military is certain about what it needs?" Not if we mean the US Army.

In that long response I received a few months ago, my friend Dr. Burak Codur of the Turkish Scientific and Technological Research Council commented that

        I am not sure whether militaries are certain about their future plans. For example, during the rush to service MRAPs, it seems that nobody really thought about Afghanistan and now development of modified MRAPs is sought for Afghanistan. Are we sure that the military is certain about what it needs?

Actually, I’m getting increasingly certain that the US Army never knows what it needs. That is, this past week brought news articles on nearly simultaneous Army decisions regarding two programs: the Stryker and the M113. Here are edited excerpts from three articles on the issues:

        ...Planning documents obtained by Army Times say 1st Brigade, 1st Armored Division at Fort Bliss, Texas, and 3rd Armored Cavalry Regiment (ACR) at Fort Hood, Texas, will be converted to SBCTs [Stryker Brigades] beginning in fiscal 2011 and fiscal 2012, respectively, and will take 24 months to become fully operational. Another combat aviation brigade would be built, with aviation assets reallocated from the 3rd ACR’s Longknife Squadron, mostly AH-64D Apache Longbow attack helicopters, and tracked equipment and other assets of the heavy units to undergo conversion will be redistributed to the Army’s heavy BCTs [brigades] as needed.
        —        Gina Cavallaro and Kris Osborn, ‘U.S. Army To Switch 2 Heavy Brigades to Strykers,’ Defense News, 1 October 2009

        The first iteration of the Army’s new ground combat vehicle (GCV), the centerpiece of its multi-billion modernization program, will be known as the Infantry Fighting Vehicle and introduced in 2017, according to a previously unreported document obtained by Inside the Army.
—        “First GCV to Be Known as Infantry Fighting Vehicle; Intended to Aid M113 Divestiture,” Inside the Army, 29 September 2009

        The Army wants the first variant in its new ground combat vehicle effort to offer the mobility of a Bradley Fighting Vehicle but with better protection, according to a briefing from last week’s Infantry Warfighting Conference in Columbus, Georgia. The briefing—delivered by Donald Sando, director of capabilities development and integration at the Army’s Maneuver Center at Ft. Benning, Georgia—outlines broad design characteristics for the initiative, which will replace the canceled Future Combat Systems’ manned ground vehicle component.
        —        “Army Seeking Bradley Mobility With Improved Protection,” Inside Defense, 29 September 2009

The first part is easily understood. Emphasizing armored infantry in its force structure today, the Army high command has taken a shine to the Stryker and the organization of the brigades that drive it. So, the addition of two more Stryker brigades had been long rumored anyway. That the 3rd ACR was chosen for conversion also shouldn’t be shocking. Despite diehard enthusiasm for the concept in some quarters, the concept of a multi-battalion ground reconnaissance unit is wholly endemic to the US Army, so that idea was not guaranteed to last.

The Army is also repeating its interest in divesting itself of the M113 quickly. In this context, though, quickly seems to mean before 2018. That’s taking some time with a straightforward issue: lightweight, flat-bottomed, and aluminum-hulled, M113s are so vulnerable to blast damage that they clock just one-twentieth the mileage of Strykers in Iraq. If replacing them in their relatively quotidian roles is indeed important, the Army has a host of off-the-shelf military vehicles to choose amongst. Some of these options are already in its inventory, like General Dynamics’ Stryker, Force Protection’s Cougar, BAE Systems’ RG-series, and even, in some roles, vehicles like BAE Systems’ Viking or Singapore Technologies’ Bronco.

The part that’s less easily understood concerns eventual divestiture of the M2/M3 Bradley. It as well is unacceptably vulnerable to blast from below, with its similar flat bottom and aluminum hull. It’s also an impressive tank destroyer, though the Army’s emphasis today is not on tank destroyers. However, contrary to what I wrote in a paper a few months ago, the Army still seems content so far to upgrade the Stryker, but also to start paying for the design of a wholly new and rather heavier infantry fighting vehicle.

For now. Eight years is a long time, and the Army hasn’t shown any uncanny prescience about the kinds of kit that it will need. In 2017, the Army could be buying Strykers, something like ARTEC’s Boxer, something like BAE Systems’ RG-35, or like (in this last case of the so-called GCV-IFV) something like IMI’s Namer. The only thing that’s clear is that the M113 is high on the hit list, and the Army has over 6,000 of those vehicles in service. Its replacement will mean big money for the winning bidder.

Doesn't the RAF already have a dual-mode guided bomb? Or, how to confuse the task with its process.

All these contract protests of late have given me quite a bit about which to write—in this column I’ve contributed commentaries on the FMTV, the CSAR-X, the KC-X, and others. After another essay, I received a comment from a colleague that just has a fabulous and recyclable line about how contract protests can quickly obscure the whole point of what we’re doing here. I’ve edited the comment for readability, but as he put it,

        Here’s a classic example: the Dual-Mode Laser-Guided Bomb (DMLGB). In 2004, Marine Harrier pilots noticed these dual-mode things—Raytheon's Enhanced Paveway IIs—on their brother British Harriers in the RAF. By the time the request made it up the chain, the official 2005 UUNS out of I MEF requested the more generic "dual mode guided bomb units (GBUs)" to be developed/produced out of the existing laser-guided bomb funding line. By the time Naval Air Systems Command received the tasking, and after several years of contract execution, we're still working on the "dual mode GBU" that will do, fundamentally, what EPII has been doing for years. I know many of the folks who were involved with the project since 2005 and I believe all of them have been/are trying to do what they perceive is in the best interests of the fleet. But why the plan wasn't simply to buy what is essentially an off-the-shelf system, Raytheon's EPII, I don't know. Likely, the regulations of the acquisition system didn't allow it; rather, it forced the creation of a generic requirement and then a competitive bid. The end result is that the Navy has spent years and tens of millions of dollars to do something that could have more simply been done had the acquisition system not confused the task with its process. I'm not saying the acquisition system should be chucked, but as you note in your essay, some means of non-traditional tool acquisition may be useful in some cases for more closely coupling an operational requirement with a material solution.

This sort of behavior sometimes seems endemic to the US and the UK. As money has gotten tight around the world, some other defense ministries have surged ahead with reforming their approach to business. In early 2007, Swedish Defense Minister Sten Tolgfors announced that Sweden’s days of building everything locally to locally-developed requirements were over. Henceforth, procurement would follow a three-phased decision process:

1. The first choice for procuring new hardware would be off-the-shelf purchases which satisfy 80 percent or so of the military’s stated requirements for new systems. Purchases would be pursued for best value regardless of the nationality of the offering firm.
2. If off-the-shelf equipment were not available, the ministry would pursue a cooperative development program with other national governments with similar requirements.
3. If no development partners could be found, a purely national development program would be undertaken.

In the interests of simply being able to deploy the largest number of well-outfitted troops for battle, this makes great sense. It didn’t make BAE Systems Bofors or Hägglunds happy in the short run, but their skills had long been honed in the export markets anyway. It wasn’t a process for fostering autarky, but it couldn’t be assailed as unfair, either.

That should take care of the question of the DMLGB, if it really does do 80 percent of what the Marines need want it to do. In the case of the KC-X, however, there’s a further argument about opportunity to be debunked.

In the US, the contract protest culture amongst some military contractors seems to incorporate a presumption of a right to play. Witness, most poignantly, Todd Tiahrt and Norm Dicks’ complaints about Airbus’s launch aid: the issue of what is best for international security, or just the interests of the troops, is kicked to the side in favor of “leveling the playing field”. The peculiar problem in this case is that launch aid, contrary to Boeing’s assertions, is a good deal for Americans. Effectively, assuming the USAF again chooses Airbus’s tanker, taxpayers in France, Germany, Spain, and Great Britain will be footing a small part of the Pentagon’s bill through their state-sponsored low-cost financing. This doesn’t make Airbus a particularly stronger company; if anything, it makes it more susceptible to political decisions like that of the A380. If it were such a good deal for governments everywhere, then we’d all be flying on Tupolevs and trying to rack up frequent-flyer miles on Aeroflot, comrades.

Rather, as with the Navy’s tedious approach to buying the Marines a new guided bomb, this is confusing the task with its process. Whether Boeing or Airbus wants another try at an aircraft contract, the essential question really ought simply to concern the goal of providing the most suitable kit to the front line.