Keeping sea lanes open: a benefit cost analysis

by John Q on April 8, 2016

Whenever I raise the observation that navies are essentially obsolete, someone is bound to raise the cry “What about the sea lanes”. The claim that navies play a vital role in protecting trade routes is taken so much for granted that it might seem untestable. But it turns out that most of the information needed for a benefit cost analysis is available. Unsurprisingly (to me at least), the claimed benefit of keeping sea lanes open doesn’t stand up to scrutiny. I’ve spelt this out in an article in Inside Story, reprinted over the fold.

Among the beliefs that drive military policy in the developed world, the importance of keeping sea lanes open is prominent. Australia’s White Paper on Defence, released to a generally favorable reaction, took this requirement as self-evident, and justifying the expenditure of at least $150 billion on submarines. The subsequent controversy turned on the second-order question of whether this requirement was so vital as to require a rushed replacement of our existing fleet, or whether the task should be undertaken more slowly and carefully.

Australia is not unusual in its concern for trade routes. For example, a recent Politico article on European attitudes to the possible election of Donald Trump as US president concluded with the fear that ‘They might also be on the hook for indirect benefits of U.S. military spending, like the protection of commercial sea routes’

This concern is partly based on historical memory of the important role of attacks on commercial shipping in previous wars, most notably World War II. However, the primary focus of concern is not a ‘total war’ on merchant shipping, as in the Battle of the Atlantic (in a world of nuclear weapons, it is unlikely that such a war could last long enough to have any real effect) but on the possibility of struggle for control over particular routes of strategic importance. The most popular candidate at present is the South China Sea, where China has long advanced territorial claims rejected by its neighbors and by the United States.

Given the possibility that increased expenditure might be demanded to protect commercial sea routes, it is worthwhile to ask what the costs and benefits of such expenditure might be. The costs may be measured straightforwardly enough in terms of defense budgets, and particularly of the requirement for increased naval expenditure. But how can we determine whether such expenditure is justified?

It turns out, surprisingly enough, that we can estimate the benefits of open commercial shipping lanes (or, equivalently, the costs of losing access to such lanes) at least to within an order of magnitude. Moreover, we do have some experience to help assess how useful naval power might be in protecting sea routes. In both cases, the source of our evidence is the Suez canal, and the crises that led to its closure in 1956 and again in 1967.

The 1956 crisis is important because it represents the only significant attempt, since 1945, to use military force to forestall a perceived threat to commercial shipping lanes, and because it ended in complete failure. The crisis began with the decision by the Egyptian government, under the effective dictatorship of Gamal Abdel Nasser to nationalize the Suez Canal, previously under British and French ownership. This decision, following conflicts over a variety of other issues, led the British and French governments, in secret collusion with Israel ,to plan a military operation to regain control of the canal. Although the Egyptians were defeated militarily, they sank all the ships in the canal at the time, thereby blocking it. A hostile international reaction, most notably from the Eisenhower Administration in the United States, led to a humiliating withdrawal by the Anglo-French forces. The canal was cleared and reopened after four months.

The 1967 crisis, which began with the Six Days War, led to the closure of the canal for six years. This lengthy period provides empirical evidence on the impact of such a closure, evidence that has been neatly analyzed by James Feyrer,
who summarized his findings in this VoxEU article

Feyrer begins by working out the average increase in shipping distances between countries associated with the canal closure. For any given country, these increases can be weighted by trade flows to give an average effect. For a few countries such as India and Pakistan, the trade-weighted increased shipping distance was large (about 30 per cent) and so, it turns out, was the impact on trade and economic activity. Mostly, however, the effect was smaller. For example, the increase for Britain was 3.3 per cent and for France 1.5 per cent.

Feyrer estimates that, in the long run, a given proportional increase in shipping distances say 10 per cent, produces a reduction in trade of about half that proportion (in this case 5 per cent). Further, he estimates, a reduction in trade produces a reduction in national income or GDP that is about 25 per cent as large.

To produce an estimate of the total impact, we need one more number: the ratio of seaborne trade to national income. This is hard to measure precisely, but a figure of around 15 per cent looks reasonable. With this in mind, we can run the numbers for Britain and the Suez Canal closure. A 3.3 per cent increase in shipping distances should produce a 1.6 per cent reduction in trade, which is equivalent to 0.24 per cent (0.016*0.15) of GDP. The loss in GDP is 25 per cent of this, or around 0.06 per cent of GDP. The corresponding number for France would be about 0.03 per cent.

Is this a lot or a little? An obvious basis of comparison is defense expenditure, which is typically around 2 per cent of GDP, and is commonly thought of as being equally divided between armies, navies and air forces. On that basis, naval expenditure amounts to about 0.6 per cent of GDP.

To compare these two numbers, we need one more piece of information, which is more speculative than those discussed this far. How much difference do navies make to the openness or otherwise of commercial sea routes. On the historical evidence, it might seem, not very much. The one major intervention in the post-1945 record, Suez in 1956, produced exactly the outcome it was supposed to preclude.

But, the advocates of military expenditure can always argue, it’s only because of powerful navies like that of the US that we don’t see lots of attempts at closing sea lanes. This argument, like that of Lisa Simpson’s tiger repelling rock , does not admit a definite refutation. Still, given the relative magnitudes, the counterfactual in the absence of naval expenditure would have to be a chronic state of crisis ten times as bad as the blocking of the Suez canal.

Would a crisis in the South China Sea, presumably caused by a Chinese attempt to claim control, have such a huge adverse effect? It is routinely pointed out that the volume of trade passing through the South China Sea ($5.3 trillion on this estimate ) is very large. But the great majority of this trade (around $4 trillion) is going to or from China.[^1] Obviously, the Chinese government can control this trade in any way it chooses through domestic policies and has no interest in blocking it. The remaining $1 trillion or so of trade (about 1.5 per cent of global GDP) might, in the event of a crisis, be forced to take more circuitous routes, as happened when the Suez canal was blocked. But using the same method as was applied to Suez, it’s easy to see that the total impact would be modest.

On past experience, it seems highly unlikely that an economic analysis of this kind will have any effect on military policy discussions. Vague claims about economic interests loom large in such discussions, and attempts to pin them down to concrete realities are routinely evaded. The century beginning with World War I, and running through to the trillion-dollar quagmires in Iraq and Afghanistan has seen countless demonstrations that, under modern conditions, war is almost invariably an economic disaster for all concerned. That hasn’t stopped war, and preparation for war, being considered as an essential part of a national economic strategy, and it seems unlikely to do so.

[^1]: Someone who took the “sea lanes” argument seriously might conclude that China had a legitimate interest in excluding potentially hostile forces from such a vital area. But that kind of consistency would violate the sacred doctrine of “freedom of navigation”. Catch-22 is alive and well.



Jason 04.08.16 at 12:23 am

I worked for 3 years inside Australia’s Treasury in a national security spending oversight role. I was junior at the time but my sense is there is no appetite for this kind of analysis in the decision-making hierarchy under most governments. (That hierarchy largely excludes economists, probably because of things like what you just wrote) .

Military spending in my view, mostly depends on a sort of synthesis of imagined threat, budget capacity and nationalistic tendencies of whomever is in power. The “strategic doctrine” that feeds into a Defence White Paper is largely indistinguishable from gut feel. It is then moderated by the budgetary and symbolic priorities of the adminstration


Kiwanda 04.08.16 at 12:54 am

Is the U.S. navy still obsolete after the air force has been abolished, and its planes distributed to the army and navy? How about after the U.S. defense budget has been reduced by a sensible factor, say four or five?


david 04.08.16 at 1:53 am

Surely there is a difference between an incremental increase in the cost of shipping, versus a practical denial of oil and other primary resources critical to an industrialized quality of life. There isn’t a clear demarcation between the two – the Japanese did not feel the same way about the Export Control Act of 1940 as the Americans did.

The status quo of sea-lanes is a kind of negotiated detente – we expect civilian shipping to remain obediently unarmed, even in regions of rampant piracy. This is a plausible equilibrium because of their relative safety, but otherwise there is no reason to respect disarmament.


Soru 04.08.16 at 2:17 am

I think this falls for the basic fallacy of counting something abundant as cheap, and so worthless. By that logic, air represents a minuscule percentage of gdp, so no one could reasonably mind it being privatised.

Ask not what the cost of something is; ask what the cost of it being taken away would be.


John Quiggin 04.08.16 at 3:02 am

@3 and @4 I’m not going to respond to arguments about tiger-repelling rocks unless they are spelt out in more detail than “There might be tigers!”.


Nicholas Whyte 04.08.16 at 3:56 am

There is piracy, though, and you don’t address that at all in the OP.


Watson Ladd 04.08.16 at 4:17 am

Could England use nuclear weapons against an Argentina waging unrestricted submarine warfare over the Falklands? Probably not. Could Argentina wage such an action if the US was unwilling to get involved, and England had no Navy for force projection purposes? Almost certainly. The absence of such a battle probably has more to do with the limited nature of interstate warfare since WWII, a fact where US power absolutely matters, then with incapability due to nuclear weapons (which not all states possess).

In the case of the US Navy, freedom of navigation operations in the South China Sea has been also about territorial claims. Having the ability to project force makes our promises to South Korea, Japan, and Taiwan meaningful. Without these force projection capabilities it is likely Japan and South Korea would feel tempted to build nuclear weapons.


John Quiggin 04.08.16 at 4:42 am

@6 and @7 One spurious justification at a time, please. I had my say about the Falklands in the linked post, and I don’t intend to revisit the issue. I’ll write something about piracy later, if I get time (hint: try a back-of-the-envelope analysis, to get an idea of likely magnitudes).

To restate, this post is about sea lanes for commerce.


Emma in Sydney 04.08.16 at 7:06 am

Australia’s sickening expenditure on subs and planes is and has been for many decades, solely about sucking up to out great and powerful friends. We are the kid who buys the bully’s PlayStation off him when he gets the new model.


sanbikinoraion 04.08.16 at 9:04 am

This post seems to suggest that because the few times sea lanes were closed the effect was small that therefore we can totally abolish all surface navies. The linked post really seems to claim that too, on the basis that surface navies are vulnerable to submarine and air attack.

But most current naval use (by the UK and USA at least) is not against wartime opponents with equal force; it’s against, for instance, drug- and human- traffickers, rescuing/returning migrants in the Med, and delivering explosives to civilians and, co-incidentally, terrorists, in the Middle East. Even perhaps against pirates, who thanks to increased military presence off Somalia, appear to have given up the game.

Sorry, John, but “the value of commercial shipping taking a longer way around is too low to justify the entirety of the navy budget” just isn’t a good argument. Perhaps that’s not really the argument you’re making, but that’s how this reads to me.


Adam Roberts 04.08.16 at 10:17 am

I’m curious about the ‘meta’ element to this — I mean in the sense that some of the trade being counted in the cost-benefit analysis is, precisely, military ships. This is going to be a bigger deal for some economies (US and UK particularly I suppose) than others of course, but if world military spending truly approaches $1.8 trillion annually, and even assuming that expensive aircraft account for more than a third of this, expensive naval craft is going to be worth a significant fraction of $1 trillion a year. That’s not chump change. Wikipedia suggests that World Trade (excluding finance) is worth maybe $38 trillion annually; which would make nearly $2 trillion a significant percentage.


lurker 04.08.16 at 10:38 am

@6, Nicolas Whyte
Naval ships are expensive and few, the seas are big and small pirate craft are cheap and easy to replace.


John Quiggin 04.08.16 at 11:10 am

@10 Again, one spurious justification at a time. I’ll do piracy properly later, but it’s obviously a subset of “keeping sea lanes open” – piracy is only profitable if its limited enough that ships keep using the sea lane in question. The other items you mention are mostly more suitable to a coast guard vessel than to a carrier battle group or guided missile destroyer.


Trader Joe 04.08.16 at 11:42 am

I had thought the primary purpose of navies is that they are the most efficient way to move tons upon tons of war materiel to where you want it should the owner of the navy want to fight an actual ground war. Countries that are fundamentally islands (Australia, Japan, UK, US) will naturally have the greatest need for this – Countries like Germany and France, far less and I’d expect the proportional budgets reflect this.

Also, you have to have navies in advance since boats still take a long time to build.

What you do with the navy all the other times you don’t really it is probably not really value adding as per JQs analysis – but if the cost is justified on its primary use, the secondary uses don’t need to pay their own way.


sanbikinoraion 04.08.16 at 1:25 pm

You’ve conveniently ignored the item in my list that obviously isn’t suitable for coastguards to do: US and UK navies have been used effectively for force projection against Iraq, Libya, and in the Balkans in my memory.


Chris Gerrib 04.08.16 at 2:26 pm

This post is a classic example of what I call “Wall Theory.”

Imagine that a village keeps getting attacked by barbarians, so they build a wall. Attacks stop, as the barbarians don’t like heights. Then, about the time the last person who actually saw a barbarian is old and feeble, somebody shows up and says “lets tear down the wall. It’s too expensive to maintain and blocks the breeze.” The question is, are the barbarians gone or just waiting in the treeline?

You say: the counterfactual in the absence of naval expenditure would have to be a chronic state of crisis ten times as bad as the blocking of the Suez canal. Just how many deep-water pirate ships would it take to create that crisis? If any ship is liable to be attacked, they all will need to be armed, insurance rates will skyrocket, and the cost to ship anything will radically rise. Not to mention the human cost in loss of life and limb.

Surface ships at sea serve the same purpose as armies on land: they prevent the development of warlords, and keep crime down to levels that can be handled by police forces. What keeps the Somali pirates down to the level of speedboats and AK-47s is naval power. Otherwise they could take some of their captured merchant ships, mount a cannon on them, and go roaming the oceans. I should note here that Nigeria and Indonesia have piracy problems as well – problems also kept in check by navies.

Oceanic commerce moves on surface ships. Submarines are useless at protecting surface ships from anything, including other submarines, because of the technical difficulties of convoy operations.

Aircraft are helpful in protecting ships, but if you don’t like the expense of operating a frigate, you’ll hate the expense of maintaining a combat air patrol over a convoy 2000 kilometers from the nearest airbase. They also have clear limitations in anti-piracy, in that frequently the only way to tell a pirate from a fishing boat is to board and search the vessel. Also, should a merchant ship be captured, air power becomes useless.

One can and should argue how much navy one needs. (Speaking as an American, frankly I find Australia in particular and most countries in general are spending too little on their navies and relying on Uncle Sam to pick up the gap.) In any event, there is a clear need for some organization to police the seas.


david 04.08.16 at 2:28 pm

John @5I’m not going to respond to arguments about tiger-repelling rocks unless they are spelt out in more detail than “There might be tigers!”.

Fair enough. That shouldn’t be hard, though. Australia (pop: 23m, vastly underpopulated, stunningly resource-rich) lives next to Indonesia (pop: 249m, vastly overpopulated, desperately poor). Indonesia’s traditional solution to internal instability, like Argentina, is nationalism. It has waged territorial war via insurgency on the pretext of anticolonialism not once but three times, successfully against Netherlands New Guinea in 1961, unsuccessfully against the Federation of Malaysia in 1963, and successfully against the Portuguese East Timor in 1975 (which it eventually lost when John Howard turned against its continued Indonesian possession).

Australia (despite being overwhelmingly arrogant and imperialist to its neighbours from behind a Royal Navy skirt for the past century) is not its immediate enemy. But Australia would perhaps still like to exercise influence in its immediate neighbourhood; in particular where it owns vast oil and gas resources. It would perhaps not like a repeat of 1961, when the UK and US declined to intervene to protect Netherlands New Guinea, forcing Australia to accept its annexation as a fait accompli. And maintaining such a confidence requires overwhelming force available on immediate notice – like the Falklands, such adventures by their belligerents are not total wars but consciously limited ones; hence, deterring them requires not only the surety of surviving conflict, but additionally denying any gain.

And, well, there’s China. You may not like the Five Power Defence Arrangements, but Australia is in fact a signatory to a “consultation” when Malaysia is subject to an armed attack.


Anderson 04.08.16 at 4:25 pm

Agree w/ Quiggin only to extent that “keeping sea lanes open” is kind of rationale that’s used to justify (say) a fleet of submarines, without much analysis.

Doesn’t mean that keeping sea lanes open isn’t necessary. Tho to agree also w Brett (oh my god, what is happening to me today (& god knows BB can’t like it either)), that’s a cruiser navy at most.


Soru 04.08.16 at 4:36 pm

The phrase tiger- rep pepping rock relies for its force in the idea that a tiger might be present is silly, because they are all thousands of miles away, and there is no logical connection between the existence of a rock and the absence of a tiger.

Whereas the idea of a blockade on commercial shipping both has a direct causal relation to a navy, and happened to the countries in question in living memory. So it more like a tiger-proof-fence at the zoo. You can’t logically prove that the tiger would definitely eat you if it wasn’t there. But if some new zoo manager with an MBA points at the lack of fatal accidents over the last few years as a reason to get rid of the fence, the flaw in their thinking is pretty obvious.


Yankee 04.08.16 at 4:39 pm

The economic argument for navies reminds me of the principled argument against advising and consenting. Some things we do because we have to, some things because we really really like to.


Bruce B. 04.08.16 at 4:41 pm

“US and UK navies have been used effectively for force projection against Iraq, Libya, and in the Balkans in my memory.” For a fair number of people, this is at best a qualified kind of recommendation, at worst a massive dis-recommendation with a few qualification.


Matt 04.08.16 at 5:09 pm

“US and UK navies have been used effectively for force projection against Iraq, Libya, and in the Balkans in my memory.” For a fair number of people, this is at best a qualified kind of recommendation, at worst a massive dis-recommendation with a few qualification.

Sign my name on the “massive dis-recommendation” petition. Keeping a vast force projection capability around just in case of legitimate threats practically invites occasions for its illegitimate use. It’s like leaving your house strewn with loaded, unlocked firearms in every room, just in case a heavily armed invader breaks in too quickly for a family member to unlock the gun safe. It’s a lot more common that this easily accessed firepower is misused than that it saves family members from the threat it’s ostensibly guarding against. Of course, in the case of national military power as well as the case of the heavily and carelessly armed family, the in-group discounts the significance of risk to outsiders by almost 100%, on average.


Patrick 04.08.16 at 6:06 pm

I’ll just note that our naval vessels are designed for WW1/WW2 style naval conflict. But that style of conflict has been made obsolete by anti-ship missiles. On that basis, I suppose submarines are more justifiable than surface vessels:


Omega Centauri 04.08.16 at 6:25 pm

I don’t think this is a binary decision. Having some Navy, is useful, to discourage would-be bullies, be they national or sub-national (pirates/terrorists). The question shouldn’t be navy or no navy, but how much, and what sort of capabilities it should have. This is not independent of potential international agreements, which if used properly should be able to change the calculus in such a way that cost is minimized.

We always have to deal with the psychology often expressed via politics that drives Matt’s hypothetical family to become hyper-armed. It is often expressed and exploited through politics, note how for the Republicans spending more on the military is a kind of litmus test for patriotism.


Richard Cottrell 04.08.16 at 6:27 pm

If the Suez Canal is blocked again, by sabotage or military damage, then an alternative for many shipping functions (esp. containers) is in play with the rapidly strengthening rail links between China and the Soviet Far East, to Europe, and onward through the Channel Tunnel, as far as the UK. And vice versa of course. A well loaded freight train can run direct (even allowing for the switch from wide to narrow gauge at the European portal) in twelve-fifteen days. Beats the boats. Aside from which new connections are being constructed across formerly railway-less tracts such as Laos, which open up a vista of even wider connections. There is a new Silk Road, with rails.



Scott P. 04.08.16 at 7:29 pm

” A well loaded freight train can run direct (even allowing for the switch from wide to narrow gauge at the European portal) in twelve-fifteen days. Beats the boats.”

Maybe, but you’re not going to be able to quintuple the throughput on that rail line with a week’s notice.


jgtheok 04.08.16 at 10:37 pm

Not sure I follow the reasoning behind the OP. Is this discussion really about limited warfare over shipping routes? My (very sketchy) understanding of how U.S. naval building breaks down is: strategic threat (the submarine fleet), projecting military power (carriers, plus their escorts), and deterring piracy and similar non-state threats (destroyers and assorted small vessels).

Yet you seem to view the first two as reasonable, while labeling the third as somehow a subset of ‘protecting trade routes.’ Well, possibly, but you are citing historical examples of international conflict… Could you explain which money is actually being spent in support of the motive you worked to debunk?


Oxbird 04.09.16 at 12:45 am

Following up on @29: My view of the concerns about Chinese actions in the South China Sea is that they are not limited to interference with seal lanes. Rather they are reactions to Chinese expansion and projection of power that is seen as threatening by a number of states, including the Philippines and Vietnam. US naval actions are part of a countering projection of power that is welcomed by these states. The economic cost if the sea lanes were closed is not the driver — or certainly the sole driver — of current policy.
The foregoing may be wrong as an assessment of Chinese actions, as an overreaction, or as a policy that will create risks of its own but, be that as it may, is it not something that you have to address when you argue navies are essentially obsolete?


John Quiggin 04.09.16 at 3:05 am

@29 and @30 I’m just trying to deal with one spurious claim at a time. I’ll write about force projection and strategic threats another time. In this context, I’ll just mention that many countries other than the US have expensive navies, and that most of these provide very little capacity for force projection or strategic threats.


Layman 04.09.16 at 3:17 am

“I had thought the primary purpose of navies is that they are the most efficient way to move tons upon tons of war materiel to where you want it should the owner of the navy want to fight an actual ground war.”

I think this is wrong. The US Navy sails almost no bulk shipping capacity. Ground forces being deployed to a theater for hostilities are by and large not transported on naval vessels. Troops go by air, heavy equipment goes by sea, but both are chartered from commercial operators.


Layman 04.09.16 at 3:25 am

“I’ll just note that our naval vessels are designed for WW1/WW2 style naval conflict. ”

I also think this is wrong. Modern naval vessels are electronics platforms, designed for the era of anti-ship missiles. Aircraft carriers may be something of an exception – they’re big high-value targets by design – but they are fitted into a structure of electronic anti-missile screens and are themselves anti-missile capable. There are basically no modern naval vessels fitted out to fight a WW1/WW2 big-gun engagement.


John Quiggin 04.09.16 at 3:27 am

@32 IIRC, this was a central idea in Cold War strategy. The Navy was to transport US armies across the Atlantic in the event of a European war launched by the Soviet Union. This sounded kind of crazy to me, but has in any case been irrelevant for decades. Not as irrelevant, though, as the justification (somewhere above in comments) of planning for a rerun of WWII on the basis that this is “within living memory”.

As you say, for the kinds of “small wars” that are fought these days, the troops fly in to the nearest friendly airport.


Layman 04.09.16 at 3:35 am

Perhaps, but a review of this list should settle the question of whether the US Navy is equipped to ferry the US Army to war.


Peter T 04.09.16 at 5:25 am

“for the kinds of “small wars” that are fought these days, the troops fly in to the nearest friendly airport”

The troops, yes. The fuel, ammunition, heavy equipment, not so much. For instance, most of the supplies for Afghanistan come through Karachi. It would be a very small, short war or peacekeeping mission that could rely on airlift alone.


Peter T 04.09.16 at 10:36 am

From the post:

“That hasn’t stopped war, and preparation for war, being considered as an essential part of a national economic strategy, and it seems unlikely to do so.”

I agree that war is futile (or worse) from the economic point of view (at least in modern times). That it presented as part of an economic strategy does not mean that there is a belief to the contrary. It just indicates the standing of economic reasoning as the dominant mode of discourse of our times.

As for the particulars of the post, navies are better thought of as being for denial of sea lanes. As in, perhaps, enforcing an embargo, escorting commercial traffic through threat zones or or instituting a blockade. Surface ships are able to do all these selectively (as in escorting Iraqi but not Iranian tankers in the Iran-Iraq war), and with minimal intrusion on neutral traffic. This is not an argument for doing these things – just an observation that, if they are done, some means are more appropriate than others.

Some above have suggested that these could be done by patrol boats or similar. This is only true where range, endurance, ability to monitor a large area, and a range of boarding capabilities are not factors.


Richard Cottrell 04.09.16 at 4:20 pm

Rail freight runners up to a mile and more long make more sense than boats exposed to wind and weather, before we get around to geopolitical instability. Its a question of attitudes and convenience. Containers have been rail-shifted from the Russian Far East through to Europe for some time now, and perhaps it would be more interesting to talk about that rather than gunboat protection of the high seas. But the real issue is the US and Japan stirring instability, in order to ‘contain’ China, which of course will have the reverse affect. Kennanism didn’t ‘contain’ Russia, or China, and Kennan didn’t understand Russia, until he came to reject his containment thinking right at the end of his long life. By then it was too late to distract Washington from a disastrous policy.
Right now we are in the grip of Russian mania to invade Europe hysteria. For what, and with what, and for what purpose? The old Kennanism fanned back to life, and Eisenhower’s off the peg New Look nuclear strike capacity taken down and dusted off.
We Europeans are not interested in America’s obsession with the Bear. So it follows that all the war like preparations that are now being made by Pentagon chiefs applying to a are not likely to be automatically endorsed by a generation on this side of the Pond which is gearing up for a repeat of the mass social protests of 1968. (I see nothing ab out this in the lackey US media).
I drifted somewhat from the navy larks, but it should be remembered that the US Navy has never won a war anywhere. Nor has the US won any war since WWII, come to that.
The president’s recent visit to Castroland is ample proof, if any is required.
Traditionally, navies are pilot cutters for wars, which then lean on heavy aerial bombardments, and which in these times would be nuclear. I think it is important for Americans to understand that we do not share their cultural fear of the Russian Bear, that Russia is a neighbour not a constant enemy. We may not like or trust Putin, but that has also been the case with certain US presidents.
As to the general matter, an objective study of the Korean War, the objectives and aims of the combatants, the defeat of the US led UN intervention force, and the lasting failure to achieve a closure, tell all that we to know concerning the logic of military interventions in seas and territories where China holds all the aces.


Glen Tomkins 04.09.16 at 4:30 pm

Sure, no doubt that a large part of the reason we (with the US way in the lead, but the rest of the West as well) spend so much on “defense” is pure institutional inertia. We built up huge military establishments to defeat the Axis, and unlike every other time in history when the victors had to cut way back on such establishments after they were no longer direly needed, this time societies had become so productive that they could afford huge military establishments even in peacetime. If you have piles of money not otherwise direly needed, sure, you’re going to avoid the painful necessity of cutting anything.

But part of what is going on is what we are told by the fact that what people had always called military spending, became “defense” spending after WWII, when all that military spending was not cut. The War Department became the Defense Department, surely one of the specific inspirations for Orwellian language.

My point: do an analysis on the cost effectiveness of the US Navy for wars of aggression and the coercion of other countries by the threat to use military power. “Nice export economy — based on imports of raw materials — you got there, China. Shame if something happened to it. Maybe you should pay us protection so that Global Terrorism won’t mess up your economy.”

Do I believe that there is some sort of conspiracy to turn the US into a tributary empire? No. But a massive military, far exceeding any “defense” needs, that has been kept in place maybe 90% based on institutional inertia, and the other 10% on the quiet but hardly secret wet dreams of US Fourth Reich enthusiasts, is a constant source of temptation to actually use it for something. Madeline Albright famously asked why we bothered to have a huge army, when all the generals were so deep into the Vietnam Syndrome as to never be willing to use it for anything.

When someone like Madeline Albright is in power, the profitable uses are at least arguably benign projects like stopping the war in Bosnia. Trump might actually use the US military to get a tributary empire going. Mexico will build that wall or face the consequences. Europe and developed Asia will foot the bill for our military to protect the world from Global Terrorism. How popular would Trump be in the US if he managed to make folks other than US taxpayers fund our “defense” establishment? That’s over half our budget.


Peter Erwin 04.09.16 at 5:23 pm

… and unlike every other time in history when the victors had to cut way back on such establishments after they were no longer direly needed, this time societies had become so productive that they could afford huge military establishments even in peacetime. If you have piles of money not otherwise direly needed, sure, you’re going to avoid the painful necessity of cutting anything.

What actually happened was that US military spending fell quite dramatically with the end of World War 2… and then bottomed out and started gradually climbing a few years later with the onset of the Cold War.

(As a naval example of the immediate post-WW2 wind-down: 6 aircraft carriers that had been ordered but not yet built were cancelled, two more were scrapped in the building stages, and a further twenty-five were decommissioned in 1946 and 1947. Fifteen of these were then recommissioned in the early 1950s.)


Eggplant 04.09.16 at 9:06 pm

Maybe this is addressed in the article but the argument as presented here sounds like the usual economist’s fallacy of estimating the effect of large changes from small perturbations and a strong implicit assumption of linearity.
If you remove an edge from a graph and find that the average path length barely changes this doesn’t mean you can start hacking away at it without exponential consequences.


John Quiggin 04.09.16 at 11:27 pm

@41 The closure of the Suez canal was about as big a hack as you could get from any one country blocking a sea lane. As stated in the OP, I’m not considering reruns of World War II.


Bernard Yomtov 04.10.16 at 12:37 am

Is there something missing from the calculations?

Feyrer estimates that, in the long run, a given proportional increase in shipping distances say 10 per cent, produces a reduction in trade of about half that proportion (in this case 5 per cent). Further, he estimates, a reduction in trade produces a reduction in national income or GDP that is about 25 per cent as large.

I think, based on the rest, you meant that a reduction in trade produces a reduction in trade’s contribution to GDP that is about 25% as large.

or else

To produce an estimate of the total impact, we need one more number: the ratio of seaborne trade to national income.

we don’t need this at all.

Or have I missed something?


John Quiggin 04.10.16 at 1:55 am

@43 At last, a substantive comment on the OP! Thanks very much for this.

Yes, I think the way you have written this is clearer than what I had. I’ll revise it.


David 04.10.16 at 5:14 pm

I think two things are being confused here – “keeping sea lanes open”, I agree, is vague and not terribly useful concept. But being able to import and export things by sea is quite important for many countries. You might reformulate your question as “if Australia’s ports were blockaded and nothing could come or go, would it matter? If it matters, is it worth investing any money in preventing it?” History suggests that on the whole blockades can be rather unpleasant.
Beyond that it’s a question of specific circumstances. In Africa, for example, the vast majority of international trade goes by sea, because the rail and road networks are rubbish. At the moment this trade is largely unprotected from pirates etc., which results in increased shipping and insurance costs, and discourages seaborne trade in favour of expensive and laborious travel by such roads as there are. A small investment in patrol craft and helicopters could turn this around.
After that, it depends what you want to do. Force projection (East Timor in 1999, UN operations, whatever) requires sea transport. You can send soldiers and their personal equipment by air: anything more, you need specially designed boats.


John Quiggin 04.10.16 at 10:17 pm

@45 The two things aren’t being confused. They were carefully distinguished in the OP. Blocking particular sea lanes is feasible under modern conditions, so I looked at it carefully. All out war on merchant shipping isn’t.

Just think about what would be needed for a blockade of Australia – 35 000km of coastline, and the capacity to ship through the Indian, Pacific and Southern Oceans, as well as through all the SE Asian trade routes. Given that we have quite a powerful air force, you’d need a carrier battle group to maintain a blockade in any one of these locations. There’s only one navy in the world that has anything like this capacity, and we have already indicated our willingness to do the bidding of the government in question under any and all circumstances.

On the remaining points, one spurious argument at a time, please.


Patrick Caldon 04.11.16 at 3:27 am

I looked at your first article in the link, and the only commentator making reference to keeping shipping lanes open made the statement in reference to mine-layers and anti-submarine warfare.

The Suez Canal has about 1500 ships/month pass through it. In 1984 the number was perhaps 2/3 that – say 1000. In 1984 the Libyan government put a disguised mine-layer in the Red Sea, and damaged 20 vessels over a month – about 2% of the traffic.

So we can estimate the shipping damage rate at at least about 2% of shipments under the scenario of bad governments lays lots of mines everywhere.

Currently the global maritime insurance premia are about $30bn, based on a loss rate of 0.2% as a percentage of the world fleet. So if the global maritime insurance market moves to a loss rate of say 2%, we get around $300bn of total insurance premia.

Now if the “keep open shipping lanes” were all that global navies did (at a cost of say $500bn annually – 400bn USA + 100bn-ish everyone else) – clearly not a good deal. But if “keep open shipping lanes” is 30% of the task – maybe the artithmetic makes sense.

There’s a lot of fudge factor in all these numbers. But a stab at the arithmetic suggests that it’s not obvious on it’s face that it’s not worth $300bn a year to keep shipping lanes open, and this might not be a bad estimate of the value.


RNB 04.11.16 at 5:46 am


david 04.11.16 at 6:20 am

Must a blockade be total to have an undesirable economic impact? Are blockades undertaken by a well-funded, centralized state entity acting explicitly against the physical territory of Australia (rather than, e.g., against Australian interests in Papua New Guinea, or Australian allies in Southeast Asia) the only scenario you consider to be non-spurious here? Piracy happens. And insurgencies denied or overlooked by their governments happen. The Indonesian state in Jakarta is functionally dependent on the RAN to police its own waters, even at a time when the same RAN defends East Timor from it. What happens if it becomes less friendly or less stable?

Are Indonesian fishermen entitled, by right of tradition and heritage, to ignore Australian attempts to impose Western notions of EEZs and fishery preservation? The distinction between a fisherman and a pirate is slippery. You cannot police that enormous coastline with submarines and the air arm. What are you planning to do, launch Hellfires at civilian fishermen? And once you have small ships out there, they themselves become targets, and you need larger and larger ships to defend them from $1000 RPGs.


David 04.11.16 at 10:17 am

My lower case namesake @48. No, indeed, blockades don’t need to be total: John is thinking in Napoleonic/WW1 terms. The size of Australia’s coastline doesn’t matter: these days, maritime trade takes place through very small numbers of highly sophisticated and very large ports, which can take huge container ships and super-tankers, as well as their approaches. We aren’t in Suez 1967 any more. I doubt if more than a fraction of one per cent of the Australian coastline comes into this category. There are lots of cheap and simple ways of stopping trade through such places, using psychology as much as things that go bang. Mines, for example, can be sown from commercial ships, and these days are intelligent enough to wait for their targets to pass by before surfacing. The RAN has coastal mine hunters to cope with such threats. Likewise, modern port infrastructure is incredibly delicate and complex, and largely automated (see Rotterdam for example) so attacks from the sea, by improvised missiles or even human beings, could knock a port out of commission for a long time. That’s what you need patrol craft for. And finally, the presence, or even the threat, or small missile armed patrol boats or submarines could close shipping lanes entirely. By definition, you don’t know where a submarine is, or where it might attack next. Navies have special ships, helicopters and planes (and indeed submarines) designed to counter such threats. Jet fighters (like the Australian F-18) are no good against these sorts of targets, even if you can find them.
This debate should not really be about the US Navy (or smaller versions of it) or about strategies and tactics reminiscent of the Cold War. Where navies can be useful today is on a much smaller scale, often protecting economic assets. For example, Mozambique has some of the best prawns in the world and they are a major export earner. But for the last twenty years Chinese and Korean factory ships have hovered them up without the Mozambicans being able to stop them, to the point where the prawn beds are largely destroyed. The IMF refused to let the Mozambicans spend money on developing an offshore protection capability. Now there’s a good cost/benefit argument for you.


Stan 04.11.16 at 6:06 pm

“Just think about what would be needed for a blockade of Australia – 35 000km of coastline, and the capacity to ship through the Indian, Pacific and Southern Oceans, as well as through all the SE Asian trade routes. Given that we have quite a powerful air force, you’d need a carrier battle group to maintain a blockade in any one of these locations. ”

I am sure any given port could be ‘blockaded’ for at least a couple days if a half-dozen trained soldiers (on shore) with antitank missiles wanted to do so. Or, as others have mentioned, with a few mines. I am confident that if you hit one port, all the others would over-react and close themselves.

The right kind of navy would help a lot with the mine threat but not at all with the commando threat.


John Quiggin 04.12.16 at 5:03 am

@47 You seem to be in furious agreement with the OP. As you imply, the “sea lanes” function looks plausible as a partial justification of naval budgets if the absence of large blue water navies would lead to continuous attacks on shipping on a global scale, and not otherwise.

@48 and @49 For heaven’s sake make up your minds which spurious justification you want to push. David 1 proposes a blockade, I show that’s silly. David 2 goes back to sea lanes and fisheries and pirates. David 1 endorses, concedes this is a job for Coast Guard patrol boats, not destroyers and guided missile cruisers. Lather, rinse, repeat.


JakeS 04.12.16 at 6:16 am

I think your analysis misses the most important component of commerce protection: Enforcing the rules of the international trade system.

You are considering only the impact of lawlessness at sea, but the real purpose of surface navies – and the real meaning of the euphemism “protecting the sea lanes” – is to intimidate small, remote countries into falling in line with the supernational rules of commerce. The high seas portion of commerce protection is the tail. The dog is in being able to park a missile destroyer outside the port where one of your merchant vessels has been impounded for some reason you do not agree with, or where the local government has violated the rights and privileges that you believe your companies operating in that country are entitled to.

But admitting that this is the fundamental purpose of the navy would violate a number of happy feel-good narratives about the nature of globalization, international trade, and national sovereignty. So it’s much easier to let people believe that commerce protection means keeping ships from being attacked on the high seas; that commercial shipping should be kept safe from armed robbers and hostage takers is not very controversial in most quarters, even if it is, as you note, economically a quite minor component of commerce protection.


david 04.12.16 at 6:46 am

Perhaps you should first clarify whether a surface navy is supposedly pointless because blockades are physically impossible, or whether it is because blockades – despite being possible – are not an existential threat and only impose small costs.

Outside of blockades, I will take it as obvious that if Australia wishes to, e.g., use the RAN as a way to influence Jakarta by reinforcing Jakarta’s own influence in nominally Indonesian waters, or by parking a missile frigate off the coast of East Timor, then it needs destroyers and frigates, not Coast Guard patrol boats. You may of course reject that as a legitimate foreign policy goal. But then it is obvious that this is really a dispute over foreign policy, not the technocratic economics of navies.


JakeS 04.12.16 at 8:06 pm

Blockades which are more than mere nuisances are infeasible.

There are two ways to interdict someone’s commerce with sufficient reliability to pose a non-nuisance threat: Unrestricted high-seas commerce warfare (unrestricted because even at the best of times target discrimination is not awesome in commerce warfare), or a littoral blockade.

High seas interdiction is infeasible for non-state actors due to the geographic and logistical scope.

Littoral blockades are infeasible for sub-state-level actors, because they die to coast guard vessels.

Littoral blockade is infeasible for state-level actors because it brings the blockade vessels into hostile littoral waters, where they die to shore based missiles.

General high-seas commerce interdiction is infeasible for state-level actors, because if state-level actors engage in it, the USS Ronald Reagan and its sisters will turn them into sub-state-level actors. Unless the state-level actor in question is a nuclear power. If a nuclear power decides to blockade you then you lose, no matter what your force composition is. If you have second strike capabilities you can make them lose too, but that does not prevent you from losing.

Obviously, this reasoning presupposes the existence of someone in your trade bloc who has the ability to conduct punitive expeditions with relative impunity, and will do so if non-nuclear state-level actors decide to mount a general attack on the global trade system. But if that stops being the case then all planning will anyway go out the window, because then the entire global trade system is going to catch a terminal case of national sovereignty. What force mix you will need to deal with that contingency is an entirely different question.

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