Human Capital and the Balance of Power

Education, immigration and the Chinese challenge

What is a good measure of the power potential of a state? The most commonly used measure is economic size. Although I have used it myself, I have increasingly grown skeptical of it. I’m revisiting this topic after reading Bridge Colby’s excellent monograph, The Strategy of Denial, which simply assumes that national power is proportional to economic size.

Elbridge Colby @ElbridgeColby

@arthurcte11i5 @policytensor @EyalPress @MatthewKroenig What would be the alternative metric to judge its importance? Isn’t economic productivity and scale the source of national power, including economy-shaping power?

I have previously argued that the social scientific theory of war cannot be right. For instance, it predicts that Soviet power should’ve declined in 1941-1945 because of the dramatic erosion of the Soviet economy. Of course, the very opposite obtained. As Glantz and House have documented extensively, the Red Army became stronger and stronger as the war progressed; culminating in August Storm, the greatest operational maneuver of all time. In general, because militaries learn dynamically during war, particularly extended high-intensity conflicts, economic might does not predict war outcomes. Instead of the balance of economic resources, I argued, we need to pay attention directly to the military instrument of the powers (which is otherwise thought to be a mediator between underlying power potential and war outcomes).

I stand by that argument. But note that it applies strictly only to the short run. It can be argued that in the long run, the capacity of states to forge more powerful militaries may indeed be proportional to their economic size. Organski argued that GDP contains a strong signal of national war-making potential because it is the product of population size (a good measure of scale) and per capita income (a good measure of the efficiency of national institutions).

[A] high GNP indicates that the economy is highly efficient or that the population is large or both. An efficient economy and a large population by their very existence imply a certain amount of efficiency in government, access to adequate resources, and a sufficiently large national territory to contain the population. We are interested in the GNP, not because the goods and services it represents contribute to power directly, but because the GNP is determined by so many of the same factors that determine national power. Those nations with the highest GNPs should be the most powerful nations in the world; those with the lowest, the least powerful.

A.F.K. Organski, World Politics, 1968, p. 209.

Population size is indeed the correct signal of scale. At any rate, it is better than alternatives like land area (Brazil, Canada and Australia are medium-sized states rather than world powers despite their enormous land area). Per capita income, on the other hand, may not be the best measure of the efficiency of national institutions and generic national competence. As a measure of living standards, we’ve argued previously that actuarial variables like life expectancy are better metrics than per capita income. Their signal-to-noise ratio is much higher. This makes the crisis of working-class mortality in the US especially concerning.

But for present purposes, that of measuring long-term national war-making capabilities, actuarial measures may not be the best. What one is interested in here is not so much the general well-being of the populace of a nation-state, which are well-measured by mortality rates. One is interested instead in the general competence of national institutions that determine the overall capacity of a state to mobilize, organize and direct military power over the long haul.

Eberstadt and Abramsky argued recently in Foreign Affairs that what really determines the long-term balance of power — of the sort that, say, Hal Brands is interested in — is the aggregate human capital of national populations. I find their argument quite compelling. The point of this dispatch is to propose a measure of national capabilities that is congruent with their way of thinking about the global balance of power, to document what this more refined measure of national capabilities shows, and to draw policy conclusions from it.

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Eberstadt and Abramsky argue that total educational attainment of nations (the product of population size and average years of schooling) contains a strong signal of national power potential. That makes sense, to a degree. Educational attainment, even if it does not capture human capital precisely, scales well with all the stuff that we’re interested in capturing — the stock of a nation’s human capital, the competence of national institutions, the dynamism admitted by economic and political arrangements, all that feeds into the capacity of states to mobilize effective military power in an extended geopolitical rivalry.

Aggregate educational attainment is not quite right, however. The problem is that the signal-to-noise ratio is low, or any rate, not very high. We instead propose a refinement. Specifically, we propose that aggregate female educational attainment contains the strongest signal of national capabilities and power potential. This is not because women are more important than men in national capabilities per se. Rather it is because the status of women contains a very strong signal of national competence. Indeed, Le Bris and others have shown that the status of women is the strongest predictor of economic dynamism, etc. This is true beyond the West and tracks within-country patterns globally — for instance, Indian states where women enjoy higher status are economically more developed.

So, there’s good reason to believe that aggregate female educational attainment contains a very strong signal of national capabilities and war-fighting potential. What, then, does this metric show?

We obtain female educational attainment for populations above 25 from the Barro-Lee dataset. Then we examine the distribution of the same in 1950, 1980 and 2010. In order to focus attention of the biggest powers, we look at the ten biggest countries by this metric in each of these years.

In 1950, the United States towered over all other states in the international system. Germany come in at a distant second, followed by the United Kingdom, Japan, and Russia (not the Soviet Union). China and India did not rank in the top ten (they ranked thirteenth and fourteenth respectively). Interestingly, Ukraine and Poland, both communist at this time, are revealed to have significant power potential already in 1950. Still, the graph underscores the dramatic Western advantage during the Cold War (sensu stricto, 1947-1968).

By 1980, the deck has shuffled dramatically. On the eve of its economic miracle, China had already emerged as a peer of the United States in underlying national capabilities. Meanwhile, Japan and Russia had overtaken Germany. India had moved up to seventh rank, above Italy and France. Ukraine still ranked higher than Italy and France. By this metric, then, a unipolar world was yielding to a bipolar one — which China as the second pole.

By 2010, China had left the United States in the dust and was in a league of its own. India had surpassed all the lesser great powers and was beginning to close the gap with the United States. The smaller states of western Eurasia (Ukraine, Italy, France) were replaced in the top ten by non-Western powers: Brazil, Indonesia and Mexico.

The pecking order of underlying national capabilities revealed by our measure is striking: China, US, India, Russia and Japan. Recall that, raw economic size suggests a different pecking order: US, China, Japan, Germany, India — with Russia not even appearing in the top ten.

Using PPP, we find a different rank order: China, US, India, Japan, Germany, and Russia.

So, our metric tracks PPP-GDP rather than nominal GDP. But note that the gap between the top ranked power, China, and the second ranked power, the United States, is more pronounced by our metric than by PPP-GDP. The following table displays our exact estimates of national capabilities. China really dwarfs the United States; India seems poised to catch up with the big two; Russia is revealed to be as strong in underlying national capabilities as Japan; and both are revealed to be stronger than Germany. This is the basic global balance of national capabilities over the policy-relevant horizon. Parenthetically, the United Kingdom still ranks as one of the ten strongest states in the system by our measure.

If our approach towards measuring long-term national capabilities is right, the United States faces a more daunting challenge than hitherto suspected. The good news is that China’s demographic challenge is much more serious than the United States’ — China may indeed grow old before it can translate its enormous stock of human capital into more formidable war-making capabilities than the United States.

But the gap in scale between the United States and China is so large that the United States cannot simply assume that rapid aging will thwart China’s rise as a great military power. The United States must work harder to prevent China from closing the gap in military capabilities. But that effort cannot succeed for very long if the United States lets its human capital decay. So, we second Eberstadt and Abramsky’s call for greater investment in human capital formation at home. Indeed, the US must pay special attention to reversing the decades-long decay of the American working class.

We also believe that, given the scale of the challenge posed by China to the United States’s world position, relying on existing national resources and capabilities alone is unlikely to be enough. The United States must leverage the resources at its disposal to augment’s its power.

One of the lowest hanging fruit is immigration policy. The present policy can be described as being blind to ability. In 2012-2021, according to Homeland Security, the United States admitted roughly 10 million people as lawful permanent residents. Of these 10 million, 4.6m were relatives of US citizens, another 1.9m were family-sponsored, 2.0m were refugees etc, and only 1.5m were skilled workers admitted on employment-based criterion. Even in the employment category, rigid country quotas mean that the system is highly inefficient at selecting immigrants on ability or skill. A million skilled Indian migrants will have to wait for more than a decade to become permanent residents, given the current backlog. Not only does the current immigration policy regime discriminate egregiously on the basis of national origin and impose harsh costs on immigrant families, it is most decidedly not in the US national interest.

To get a sense of the scale of the catastrophe of US immigration, note that the United States admitted 1.8m migrants from Mexico (population 130m) in 2005-2010, compared to 0.5m from India (population 1,380m). Ie, the US admits 3.6 Mexicans for every Indian, despite India being 10 times as populous as Mexico. Much of this is surely gravity. But it is all shaped by the rigidity of the US immigration regime. Indeed, twice as many Indians immigrate to the United Arab Emirates as to the United States. It is hard to escape the conclusion that the United States is foregoing the world’s talent because of its highly irrational immigration regime.

The following figure shows the global migration flow from the Wittgenstein Center Data Lab.

The United States is a magnet for the world’s talent. But its present immigration policy is squandering that resource. Note that the United States does not have to increase rates of immigration to harvest this resource to augment its capacity to compete with China in the long run. It merely needs to rationalize the system to be more discriminatory. Put simply, it is in the US interest to ration green cards by skill and talent. This is not the place for a precise specification of the mechanism that should replace the current system. But almost any criterion — educational attainment, income, even math scores — to ration the bulk of US green cards would be vastly superior to the present system.

We have argued that more sophisticated measures of underlying national capabilities show that the United States has lost its preponderance on the world stage. China has surpassed the US, even as the US continues to enjoy military primacy for the time being. The United States is almost surely going to find itself in an extended rivalry for geopolitical primacy with China — even if a cold war is not the right way to frame the contest. Shoring up US national capabilities over the coming years and decades will be decisive in this contest. In order to succeed, the United States must work harder to augment its human capital by improving the skill-set and life chances of its working class, and by implementing an immigration policy that does a better job of serving the American interest.