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The Economic Costs of National Security

As the US-China rivalry escalates, the growing emphasis on national security will undermine global trade and investment, leaving fewer resources to finance social policies, address inequality, and tackle climate change. This is a global tragedy of the commons, and there is no guarantee that recognizing it will change the outcome.

HONG KONG – By disrupting the world’s interconnected economic, social, and geopolitical spheres, the COVID-19 crisis has exposed just how fragile and inequitable the institutions that govern them really are. It has also highlighted how difficult it is to address systemic fragility and inequity amid escalating national-security threats.

In 2007, Harvard’s Dani Rodrik proposed an “impossibility theorem” for the global economy, according to which democracy, national sovereignty, and global economic integration are fundamentally incompatible. “We can combine any two of the three, but never have all three simultaneously and in full.”

To see how social, economic, and national security policies are entangled in this trilemma, consider Hong Kong’s experience. Since British colonial rule, a policy of “positive non-interventionism” has enabled the city’s economic growth. Hong Kong’s colonial administrators knew that a relatively small market, manufacturing sector, and trade volume meant that a commitment to openness, rather than a targeted development strategy, was the surest route to prosperity.

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