2. Early on in the financial crisis, security experts identified the GFC as a major threat to national security. When the world avoided re-running the Great Depression of the 1930s, such fears looked overdone. Since then, however, the deadly riots in Greece, along with the concerns now being raised about the spread of 'crisis economics', have provided some compelling contemporary support for the idea of focusing on the links between economics and security issues. 

3. The theme of resource security raised by the 2003-2008 commodity boom (which saw average commodity prices double in US$ terms to deliver the longest and strongest price surge for at least a century) has also highlighted the linkages between economics and security. The 2003-2008 boom saw the price of oil peak at around US$147/barrel in July 2008 and prompted a food crisis in 2007-08 that involved riots and other social unrest.

4. The rise of government-controlled investment vehicles such as Sovereign Wealth Funds, along with the growing importance of state-owned enterprises and state-owned banks in international transactions, has contributed to the growth of a version of state capitalism. As was clear in the Australian debate over the Chinalco bid for Rio, the explicit linkages between the states and these financial and corporate institutions automatically injects international politics into issues of international economics.

5. While state capitalism has largely been seen as a feature of emerging markets, the GFC has also seen the state injected back into developed economies in a dramatic way. Initially this was in the form of bank bailouts and other government handouts, including some (effective) nationalisations.  But it's also increasingly taking the form of new regulations and controls, with Germany's recent ban on naked short-selling a potent example. This is a development that has financial markets jumpy and means businesses and investors now face what might be a new age of political risk.

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1. The past half-century has seen a dramatic increase in the dependence of modern and modernising economies on minerals and energy; and an equally dramatic decline in their self-sufficiency in minerals and energy. These trends will increase in future.
2. Interdependence reaches deep within national economies and societies as well as across borders and oceans. With each passing decade, our economies and societies specialise, and more and more of what we need to survive is sourced from afar and abroad. As we become richer, we become much more vulnerable to the breakdown of the webs of interdependence we rely on – as a matter of life and death.
3. The past 30 years has seen a dramatic internationalisation of production systems, first of manufacturing, but now increasingly of the services sector. This has led to a dispersal not only of production processes but of skills that would be costly and difficult to re-concentrate within countries.
4. Sixty years of rising prosperity has led to a decreasing tolerance for economic pain. Think about the agony and turmoil in Europe and the US over the GFC – an event that made the American economy contract by just 4%. And it's not just the developed world — part of what keeps China together and heading in roughly the same direction is the rising tide of prosperity that's expected to lift all boats eventually.

For these four reasons, the threshold for conflict has been dramatically raised.

Perhaps the calculation of conflict has also changed. In the past, a state waged war if it believed it had a greater capacity to inflict pain than its opponent. In the future, the determinants of conflict may be states' comparative capacity to bear pain.

Photo by Flickr user wallyg, used under a Creative Commons license.

States have therefore been big beneficiaries of globalisation thus far. That's not just because, globalisation notwithstanding, states remain the basis on which all these international transactions are organised and managed, and remain capable of marshaling a big share of the resulting wealth to state purposes. It is also because states remain a remarkably powerful focus of individual loyalty and identity for the vast majority of people around the world, trumping anything expect family. It may be that globalisation, if anything, increased the power of nationality, rather than eroded it.

Hence the paradox: materially we are all more and more dependent on international transactions, but our sense of identity is at least as much, and perhaps more attached to nationality than ever before.

And hence my caution about Michael's optimistic conclusion that economic interdependence will make strategic competition and war prohibitively costly, and hence less likely. I agree with the first part of his argument: that the costs to all of us of any disruption of global transactions is higher now than it has ever been, and that this should therefore raise the threshold for states to engage in competition and conflict.

But I'm much less sure that globalisation raises the threshold sufficiently to reduce the risks of conflict low enough for anyone to relax about it. 

The fact is that the threshold has always been high: war has always been, and been seen to be, expensive, both materially and morally. The threshold nonetheless has often been crossed, because the choices people make on the brink of war are not rational judgements of costs and benefits, but highly emotive impulses reflecting most often their sense of identity. What evidence is there that globalisation has raised the threshold beyond the reach of these deep and still-powerful motives?

Let's look at the prime example. What evidence do we have that the intense interdependence of the US and China has yet had any affect on the probability that each would go to war with the other over Taiwan? More broadly, what evidence is there that either is prepared to put aside its aspirations for regional leadership with the other in order to build the kind of shared regional leadership which alone provides a reasonable prospect that interdependence in Asia can flourish in future? 

To be blunt: until it is clear that the US is willing to treat China as an equal as China's power grows, I will be hard to persuade me that the imperatives of interdependence will reliably trounce the instincts to competition in the relations between states.

Photo by Flickr user digital trash, used under a Creative Commons license. 

Consider the economic dimension: we spend massively more than 50 or 100 years ago educating and training our citizens. And in post-industrial economies, an increasing number of workers learn specialised workplace skills that are difficult and costly to replicate. Western states also invest ever-increasing amounts to keep their citizens healthy. As people live longer and stay healthier, they become more economically productive.

The increasing value of human life is felt acutely in Western military forces. Equipping a US infantryman today costs about 100 times more than in World War II, and this does not account for the far higher levels of training modern soldiers receive. The power of mass communications also creates a heightened sense of potential lost opportunity for those at mortal threat.

So I would add the increasing value of human life to Michael's list of four geo-economic factors that contribute to a reduction in the likelihood of conflict between advanced states. And I would submit that, even if Hugh is right about the role of 'emotive impulses', it's a factor that could increase the chances of peace as well as war.

Photo by Flickr user owenbooth, used under a Creative Commons license.

Second, I'm not sure I share Sam's belief that decisions for war are made by people slowly and carefully and weighing costs against benefits. It would be nice if they were, because that would allow us to predict strategic behaviour the way we predict economic behaviour – by presuming informed choices by rational individuals pursuing their long-term interests. I'd defer to Mark Thirlwell on how well this model works in economics; it certainly doesn't help us explain choices for war.

There are several reasons for this:

• While Sam is right that decisions to build forces are taken slowly and deliberately, decisions to use them in war are most often taken quickly and under pressure.
• The choice for war is often the last step on a long road of escalating strategic competition. The first steps on that road always seem harmless enough, but each one brings closer the point there seems no choice but for war, whatever the cost. So one might say that we do sometimes choose war slowly, step by step, but we do not know that is what we are doing until the last step, when it seems impossible to do anything else.
• The decisions we take at those fateful moments are seldom informed by a clear understanding of the costs ahead. Even at the last moment, would anyone have chosen war in 1914 if they had known that they were heading not for Sedan but the Somme (pictured)? Would Bush have chosen war in 2003 if he had known he was heading for Fallujah? Would anyone think it would be worth the US and China fighting over Taiwan if they understood how easily it could lead to nuclear war between them?  
• Finally, the decisions for war are made by groups, not individuals; and groups behave oddly, especially under stress. Think of the scene in Thirteen Days where Adlai Stephenson earns the scorn of his colleagues by suggesting that a deal with Moscow might be better than nuclear war.  

In the end, if we argue that the costs of war today make it unthinkable, we must explain how the costs of a global nuclear exchange in the Cold War did not seem to make war unthinkable only 25 years ago. Do we weigh the costs of economic disruption today more highly than decision-makers in 1985 weighed the costs of 100 million dead, or are we just being forgetful?

Actually, I think the focus on shifting views of the costs of war is misleading. Something else is at work here. I do not think we rate the costs of war any higher than we used to, but we do find it harder to imagine a strategic challenge which would justify the costs of major war no matter how they are calculated. 

In other words, the costs of war have not grown, but the reasons for war seem to have shrunk. And that is because, unlike the Cold Warriors, we do not envisage a serious challenge to the international order that underpins our security. If we did envisage a challenge to that order, our views on the costs and risks of major war might change.

And that, of course, is why the possibility of future major war arises. I do not rate that risk very high, because, like Michael and Sam, I think the costs of war do place a huge constraint on strategic competition. But the risk remains, and it will grow if the stable order of recent decades erodes as economic weight and strategic power shift. 

This is a dangerous moment in which concern about the future international order means that the imperatives for war could again rise, notwithstanding the appalling costs. Unless we acknowledge that risk, we will not work hard enough to avoid it. And we cannot afford not to work hard, because we cannot simply rely on globalisation to keep the world peaceful for us over the next few decades.

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The influence of China's increasing economic and military power on its relations with Japan, and regional security more broadly, is mostly seen as increasing competition within a shifting balance of power that will lead to military conflict at some point (the past repeats itself, realists observe).

But China's rise can also be understood as providing opportunities for engagement and cooperation between the two regional powers, which could lead to the formation of a Northeast Asian security community. Viewed exclusively through the prism of balance-of-power thinking, the most likely outcome of China's rise is conflict between China and Japan, and therefore also the US, at some point as strategic competition intensifies under the logic of the security dilemma.

But if China and Japan's fast-developing economic relationship and domestic circumstances and priorities are also considered – in particular, a clearly stated aversion to war with other states common to both societies and governments – the foundations of what Karl Deutsch described as a 'pluralist security community', including the Korean peninsula, may already exist. 

What makes the distinction between these alternative futures interesting is the way in which either set of assumptions fundamentally informs opinion on why the future role of the US in Northeast Asia is important.

Conventional wisdom, informed by a balance-of-power approach to China's rise, argues that the future course of China-Japan relations and regional security in the Asia-Pacific cannot be judged without also attempting to gauge US intentions in Asia. Viewed from the perspective of a shifting balance of power in the region, and the propensity for competition and conflict such shifts bring, the importance of US power in balancing that shift is undeniable.

But if the prospects for increased competition were to be diluted by a mutual aversion to the costs and destabilising effects of inter-state conflict, what would this mean for our understanding of the significance of the US role in Asia, and what could it tell us about the kinds of assumptions that realist depictions of Northeast Asia's security environment are based on? 

Because judgments concerning the importance of future US military engagement and support in Asia are the product of an assumed balance-of-power security environment that excludes other possible scenarios, the evidence informing this view needs to be tested rather than merely accepted as being intuitively correct.

Moreover, the possibility that balance of power competition will be diluted or prevented by the establishment of a security community in Northeast Asia – founded simply on a common aversion to war and the costs it entails –also needs to be more closely examined and assessed to obtain a more rigorous understanding of why the level of future US engagement in Asia is critical to the region's stability.

My guess is that security perceptions and developments within Northeast Asia are likely to reflect a mix of these two perspectives, and that, therefore, the significance of future US engagement in the region, especially why it is significant, may be far less clear than mainstream security thinking contends.

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This can be either a general belief ('we can beat them on any given day') or specific ('something has given us a brief opportunity to beat them'). I know of no power that enters a war it is sure it will lose – or that it can win but at terrible cost.

So wars happen because of split-second decisions made by groups and with more than a bit of emotion thrown in – but all based on the general feeling that they can be won at acceptable cost. And here's the nub: there's plenty of emotion around in our region on any given day (some of it even whipped up by governments) but there's not much evidence it's being acted on. And I think the reason is that governments are well aware of how fragile the structures underpinning their stability and prosperity are.

Some may argue that it's precisely the changing power relativities that will contribute to an evolution of beliefs that wars can be won at acceptable cost. I'm not so sure. Even with the enormous power lead the US enjoyed in Asia in the early '50s and late '60s, Washington was unprepared to wage total war, even as the risks of losing the limited war mounted.

In the years ahead, there's no prospect of any one country building that sort of power lead. And with each passing month, the great rivals in Asia become a bigger and bigger part of each other's success. The likelihood of winning is going south, while the costs of fighting are heading north. This looks to me like a calculus of bounded competition, not war.

Photo by Flickr user DazT, used under a Creative Commons license.

So choices for war very often swing, not on a calculation of the balance between the material strength of the two sides, but on the balance between matériel on one side and motivation on the other. That's much harder to calculate, and it can often make sense for a weaker state to fight a war it knows it cannot win, if it believes it can stop the enemy from winning.

Which leads to Caveat Number Two: believing you will 'win' is at most necessary, not sufficient, to choose war. You must also believe that the costs of winning are worth the benefits. And this is where the irrationality really comes into the picture. Again, the Taiwan case is telling: most people agree that the US and China could choose war. But even if one side or the other could expect to win (however defined), how could Taiwan's political future possibly be worth what such a victory would cost the winner?

This brings me to Chris Skinner's interesting contribution. While agreeing that resource scarcity is an important issue, I'm not sure I agree that what drives states to war are rational, material concerns like that. My hunch is that states do not start wars to win resources — at least not big wars, even when access becomes a zero-sum struggle. The market can resolve the allocation of resources more cheaply and efficiently than wars ever can. 

The thing that drives people to fight big wars is most often fear or status ('honour', Thucydides calls it). The competition for status is much more zero-sum than for resources, and much more emotive. That, of course, is what is at stake over Taiwan.

Speaking of markets, Mark's post on the value of life is illuminating. It reminds me of Kipling's Arithmetic of the Frontier: 'Two thousand pounds of education falls to a ten rupee Jezail'. Of course, Kipling was being ironic, because the material value of human life, real and rising though it is, does not reflect the full human cost of war – which was my point to Sam.

In fact, Kipling's poem captures the West's predicament in Afghanistan perfectly, and brings us back to the importance of imponderable and irrational motives in war – on both sides. How would Blainey describe what either side there is fighting for? 

Smart guy, Kipling. Was there ever a poet with a better grasp of strategy? He also gave us the wonderful line in Recessional, foreshadowing at its apogee the sunset of empire: 'Far called, the navies melt away/the captains and the kings depart’. It comes to mind, these days.

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In both cases, capitulation was seen to be preferable to calling the opponents' bluff. But in other cases, capitulation is out of the question, irrespective of the imbalance in material strength. The Vietnamese stood up to a nuclear-armed superpower not because they thought they would lose but because they could not imagine losing. The Pashtuns are doing the same today.

There's a calculus at work here: the amount of pain a society is willing to bear in war rises the closer its aims are to the heart of the body politic's sense of being. Avoiding yet another unequal treaty was not as dangerous to the Qing Court as the continued occupation of Beijing by foreigners. The preservation of a 20-year old sovereign state was not as important to the Czechs as the preservation of the centuries-old culture embodied in their capital.

This is important because it separates wars of necessity from wars of choice. Societies are willing to bear enormous pain in what they see as wars of necessity – by which I mean a conflict that, if lost, would negate what the entire society stands for, and defines itself by. Societies will bear considerably less pain for wars of choice, the outcomes of which are not seen to have a major effect on how a society defines itself.

This pain threshold for wars of choice is lowered dramatically by the rise of mass politics in which societies in both democracies and non-democracies expect their opinions to count. Messrs Bush, Blair and Howard were reminded of this quite recently.

A pretty good way of picking winners is by working out for which party the war is one of choice, and for which it's one of necessity. For the latter, the war's not over even if it loses the fighting stage. For the former, societal support is likely to fall well short of the effort needed to prevail.

Thanks to the communications revolution, societies are much more able and inclined to interrogate governments' decisions to go to war, and their level of scepticism rises with their material prosperity. This means the ambit of wars of necessity is shrinking. That's why neither side has pushed the Taiwan issue towards decision. That's why the possibility of war in the coming years is dropping dramatically.

Political scientists rather than economists seem to have made most of the early running on this. In a large literature on the subject, they have tended to focus on the relationship between bilateral trade interdependence and military conflict. So, for example, one important early contribution from John Oneal, Bruce Russet and co-authors uses this approach to find empirical support for the hypothesis of a commercial peace. 

On the other side of the debate, Katherine Barbieri's work has suggested that things are not quite so straightforward: instead of a negative relationship between bilateral trade interdependence and military conflict, Barbieri finds a positive one. Oneal and Russet have found that this result is sensitive to the way trade interdependence is measured.

Taken overall, surveys of this literature tend to find that the majority of studies support the idea of a negative relationship between bilateral trade and conflict, a result supported by some recent work.

Economists look to be relative newcomers to this debate. One interesting and relatively recent contribution comes from Philippe Martin, Thierry Mayer and Mathias Thoenig (summarised here). Their work confirms the proposition that a given pair of countries with more bilateral trade has a lower probability of bilateral war. 

But they also report a more surprising finding: countries more open to global trade have a higher probability of war. They explain this result by arguing that, while the probability of war is lower for countries that trade more bilaterally because of the opportunity costs associated with lost trade, greater multilateral openness has the opposite effect because, by reducing the level of bilateral dependence, it reduces the opportunity cost of any given conflict. 

They argue that multilateral trade openness therefore affects the nature of war: it increases the probability of local wars but deters global conflicts, a prediction which they argue fits well with the stylised fact that military conflicts have become more localised over time:

The same authors have built on these results to suggest that free trade agreements are good for peace.

Another recent paper, this time from Jong-Wha Lee and Ju Hyun Pyun (summarised here), also finds that bilateral trade interdependence is associated with a lower probability of conflict. And, in contrast to the surprising findings of Martin, Mayer and Thoenig, they find that global interdependence is good for peace. Lee and Pyun also find that the peace-promoting effects of trade vary depending on the degree of geographical proximity: greater bilateral interdependence seems to produce larger peace-promoting effects for neighbouring countries, while greater global trade openness has a relatively greater positive effect on peace for distant countries.

Summing up, I would judge that, while the evidence for the Pax Mercatoria is not absolutely conclusive, nevertheless its still strongly supportive of the general idea that international integration is good for peace, all else equal.

One last thought. I have concentrated on trade flows, but globalisation, even narrowly defined, encompasses more than the market for goods. While there has been some work on the relationship between conflict and other variables (such as foreign direct investment), this seems to be an area which is still relatively unexplored.

They are not. Michael's examples show that states sometimes calculate the costs and risks of war rationally, but not that they always do. There are many examples of irrational choices for war, right up to the present day. Michael mounts a supplementary argument that states are better at making rational decisions now than they were, because their people are better informed, and more sceptical. I'm not so sure: a comparison of Fox News and Thucydides' accounts of the Athenians debating war with Sparta does not flatter the globalised age.

Hence my central point: despite globalisation, there remains a real risk of escalating strategic competition between major powers, as their relative strategic weights shift. This carries a smaller but still very serious risk of conflict between them. The development of a new order which reduces these risks is the most important strategic issue of our day, and poses immense and unwelcome political challenges. We need to face up to them. 

My argument, in other words, is not that the 'globalised peace' theory is wrong, but that it is not right enough to make any difference to how we should act.

Mark's wonderfully meaty posts on Pax Mercatoria prompt me to air a hypothesis about the poverty of my own discipline compared to his. Economics and International Relations (including Strategic Studies) both attempt to create predictive generalisations about human conduct. But economics enjoys an advantage in numbers: the sheer volume of the decisions it studies provides a huge data-set from which generalisations can usefully be drawn. 

In IR – especially strategic studies – the total number of decisions is tiny, and so building useful generalisations is much harder. This makes the subject especially prone to extrapolation error. Sure, there have been no big wars between major powers for many decades. But with so few data points, how can we know whether this reflects a deep and enduring trend, or just the gap before the next event?

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Britain was the superpower of the age, with heavy weaponry and a large, well-trained army. They were up against a local militia with little weaponry or training, men who walked from their homes and farms to fight. Yet the locals won. They won because the fight for them was essential in a way it simply was not for the British troops.

An American who knew a lot about war understood this. Dwight Eisenhower once said, 'What counts is not necessarily the size of the dog in the fight — it's the size of the fight in the dog.'

All Americans are raised on the Fourth of July story, and yet, extraordinarily, they don't understand it, and continue to replay it. America went to war in Vietnam underestimating the fight in the enemy. The US had all the advantages of modern weaponry, but the war was one of necessity for North Vietnam, and of choice for America.

America went to war in Afghanistan and Iraq and won the military battles swiftly. But the wars drag on, with no victory in sight, again because for only one side in each war is the issue one of necessity.

Whether globalisation makes war less likely is a difficult question. However, one way we could reduce the number of wars is to help America understand its founding story. The fourth of July story is glorious, filled with heroism and the highest of ideals, and Americans see in it the proof of their own exceptionalism.

Yet America could have taken from this story that those fighting from necessity will always triumph over those fighting out of choice. If this lesson had been learned from the story of America's founding, we'd have fewer ongoing wars today, and a world that looks quite different.

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Expectations of war lead states to shape their international relations around preparing to minimise their losses and maximise their gains in such a contingency. But I'm not sure I agree with Hugh that such shaping of international processes necessarily leads to painful and unpopular compromises of deeply-held national values.

I also greatly enjoyed Mark MarkThirlwell's posts on Pax Mercatoria and would like to raise one more strand of research on trade and security. There's a fair bit of research establishing a pretty convincing correlation between trade and investment flows and security alliances or alignments. This seems to me a dangerous correlation, because with lower levels of trade and investment between enemies, the less there is to lose from going to war.

But China's economic dynamism has in recent years trashed this set of correlations. Australia, Japan, South Korea and Taiwan are all in the unprecedented position in which their most important trading partner is their ally's greatest strategic competitor.

I think this departure holds the key to regional relations in the future. Few countries in this region are completely comfortable with a position of growing dependence on China, and many are solidifying counter-balancing relationships. So we have a situation in which states' two most basic interests – security and prosperity – are pulling in different directions.

And they are doing so in ways that dampen the chances of conflict. Nervousness about dependence on China makes a China-centered alliance confident about muscling up to competitors very unlikely; while the importance of trade and investment links to China means that an alliance to contain China is equally unlikely.

The result will be a very competitive pattern of international relations – but one in which such competition is highly bounded. My money's on a dynamic of intense sphere of interest competition among four great powers, of a type we've never seen before. In fact, Ross, I'll bet the entire non-existent endowment of the Lowy Institute on it.