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Bruce Booth, “Biotech Startups And The Hard Truth Of Innovation,” Forbes, 05-20-2019, https://www.forbes.com/sites/brucebooth/2019/05/20/biotech-startups-and-the-hard-truth-of-innovation/

We work in a high risk field: less than 5% of drug discovery projects ever make it to market. We have to embrace failure. When projects or investments are killed, we should openly acknowledge it in the light of day, not bury the dead in the night, and celebrate the learnings that can be gleaned: as we did with both the Quartet Medicine and OnQity write-offs. Innovative cultures have to convey that its “ok to fail” and foster quality learning loops.

Two years after the $9 billion start-up “unicorn” Theranos crumbled, Silicon Valley still appears to be struggling to learn its lesson when it comes to health and medical start-ups. Improbable-sounding companies continue to turn up with tens of millions of dollars in funding, no published research to back them up, and nothing but criticism from scientists. Last week, BuzzFeed News examined a new set of start-ups promising to detect cancer early via a simple blood test — Freenome, Grail, and Guardant — and found them on paths dangerously similar to the one Theranos was on just a few years ago. A year ago, Freenome promised to publish about its product in a scientific journal “very soon” to Fast Company, and still hasn’t. Cancer researchers told BuzzFeed very plainly that such a simple test would be miraculous but seemed improbably advanced beyond our current technology, which was also the case with Theranos’s miniature blood tests — and Freenome made its lofty promises only months after Theranos started to fall apart. Like a Kickstarter project well over its anticipated delivery date, one begins to wonder if it was all fake. Silicon Valley has a kind of blind spot when it comes to biotechnology, health-related start-ups, and other medical pursuits. The Theranos hype train was only stopped when The Wall Street Journal surfaced evidence that Theranos had misrepresented how far along it was in its research process to its investors, passing off mediocre test results as much more conclusive than they were. Venture-capital firms insist that the standard that needs to be met for investment is much higher for medical start-ups, which must prove that their technology works with data, not just a pitch. And yet somehow, when these start-ups finally surface to public consciousness, they don’t appear to pass even the most basic smell test with literally any experienced researcher in the field. There are some confounding factors to take into account: venture capitalists invest in ambitious businesses and expect a high failure rate; health start-up failures are highly visible in part because biotechnology businesses are more unusual, and because they tend to be involved with actual life-or-death human experiences. No one really cares about another Uber-alike (just as no one really cared about Uber until it had established itself) — but almost everyone has a personal relationship with cancer, and everyone wants a solution to it as soon as possible. But the fact that we all have bodies, and all need doctors may also be why Silicon Valley seems unable to avoid dabbling in medical technology. The intersection of future tech and health has become crowded with some of the country’s richest hobbyists. They love “biohacking” (there’s even a subscription box). They believe, almost to a man, that the singularity is a question of not if, but when. Elon Musk is very seriously investing in arming biological humans against computers; Peter Thiel takes human growth hormone, a popular practice among transhumanists, and has expressed interested in getting blood transfusions from young people as a way of reversing aging (to his credit, there is some published scientific evidence this might actually work, however fundamentally sinister it sounds). Larry Page, Sergey Brin, Mark Zuckerberg, Sean Parker, and Martine Rothblatt have all sincerely expressed interests in similar pursuits. They often seem less concerned with protecting humanity than their own consciousnesses, designing brain-machine interfaces that will both preserve their own copious knowledge reserves and merge them with the larger internet, turning each tech CEO, investor, and founder into an army of IBM Watsons, but smarter. There is a pervasive sense in Silicon Valley, bolstered by ten years of world-conquering success, that any sufficiently intelligent, sufficiently driven person can will what they want. The only thing slowing the unrelenting forward march of medical tech is funding. Solutions are an inevitability, and the realities of the human body are simply a set of inefficiencies that can, with enough time and attention, be brought to heel. The culture of Silicon Valley “meritocracy” affords its practitioners cynicism when confronted with realities other than their own: If you were dumb enough to trust new tech, or too poor to have more options, you deserve what you had coming. Health tech is certainly valuable and ripe for profit. Machines and medical tests used in hospitals for treatment and diagnosis are wildly expensive, but their cost is determined both by demand (high; no one wants to die, and enough people have insurance) and research (expensive, very costly to get right and get through all the hoops of being brought to market). For further evidence, look at the pharmaceutical industry. Investors who sense a rich potential for profit if only they can insert themselves at the right place in the process are not wrong, in that sense. But the “move fast and break things” mantra that has helped Silicon Valley disrupt countless industries over the last two decades is more dangerous when applied to medical science. The roadblocks that health tech companies run into are not qualitatively different from the ones that all tech companies run into. But when Uber or Airbnb run afoul of their respective laws, the result is abstracted lost money out of someone’s pocket — the government, independent contractors, independent businesses, other segments of the market. When Airbnb keeps viable apartments off the market so they can be rented short-term to its users, the money can theoretically be remanded if someone determines that Airbnb is doing something wrong. The “things” being broken by the current generation of unicorns are regulatory regimes. (Valuable, useful regulatory regimes, to be sure.) The “things” being broken by health start-ups are laws of science and ironclad guidelines for research. When a health start-up “moves fast and breaks things,” it can directly result in the death, dismemberment, and injury of real people. You can’t un-kill someone who died thanks to a bad diagnosis (at least, there’s no start-up hawking that yet).

Kelvin Stott, November 28 2017, “Pharma's broken business model: An industry on the brink of terminal decline,” Endpoints News, https://endpts.com/pharmas-broken-business-model-an-industry-on-the-brink-of-terminal-decline/

Notice how the midsection of the IRR plot of prioritized opportunities follows a perfectly linear downward trend that passes right through 0% IRR, which is exactlywhat we have seen with our analysis of pharma R&D productivity above! The implications of this are rather striking:

Joanna Shepherd, August 28 2018, “CONSOLIDATION AND INNOVATION IN THE PHARMACEUTICAL INDUSTRY: THE ROLE OF MERGERS AND ACQUISITIONS IN THE CURRENT INNOVATION ECOSYSTEM,” Journal of Healthcare Law and Policy, https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1356&context=jhclp

The number of regulatory requirements imposed by the FDA has increased by 15 percent since the early 2000s.112 The average number of patients required for clinical trials have increased,113 the costs of recruiting patients has increased, the clinical trial period has lengthened, and the number and complexity of clinical tests used in clinical trials have increased.114 The more stringent requirements, along with the more complex science associated with specialized medications, have significantly increased the costs of drug development and FDA approval. Meanwhile, the returns from R&D have not increased to offset the increasing R&D costs. Although drug approval rates vary year-by-year, there has been no consistent increase in FDA approvals in recent decades. 115 Moreover, revenues from new drug sales have steadily declined;116 the average lifetime revenue for new drugs is lower now than at any point in the last 25 years.117 Thus, stagnating or falling returns combined with increasing R&D costs have led to a steady decline in internal R&D productivity.

Joanna Shepherd, August 28 2018, “CONSOLIDATION AND INNOVATION IN THE PHARMACEUTICAL INDUSTRY: THE ROLE OF MERGERS AND ACQUISITIONS IN THE CURRENT INNOVATION ECOSYSTEM,” Journal of Healthcare Law and Policy, https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1356&context=jhclp

Third, while facing increased competition from generics and pressure to reduce prices from PBMs, drug companies have also experienced significant increases in both the costs of drug development and the risks of product failures. Since the 1962 Amendments to the Federal Food, Drug, and Cosmetic Act, the FDA has continued to increase the requirements for new drug approvals. For example, whereas clinical trials in the 1970s typically enrolled only 2,000 patients, trials in the 1990s regularly enrolled over 5,000 patients.31 Similarly, the costs of recruiting patients, the length of the clinical trial period, and the number and complexity of clinical tests used in clinical trials have increased over time.32 These more stringent requirements, along with the more complex science associated with specialized medications, have significantly increased the costs of drug development and FDA approval and in turn lengthened the time to market, driving up the cost of investment. The most current estimates indicate that it now costs approximately $2.6 billion to develop and bring each new drug to market.33 Those costs were estimated to be only $179 million in the 1970s, 34 $413 million in the 1980s,35 and $900 million in the 1990s and early 2000s.36 In contrast, it costs generic manufacturers only one to two million dollars to bring a drug to market.37 Moreover, only about ten percent of brand drugs that begin clinical trials are eventually approved by the FDA. The most recent study to track FDA approval rates found that the approval rate varied by trial phase: phase I had a 64.5% success rate, phase II had a 32.4% success rate, phase III had a 60.1% success rate, and the FDA approved 83.2% of applications that passed phase III.38 Ultimately, of 100 drugs that begin Phase I trials, only ten drugs will eventually be approved.39 Thus, despite dramatic increases in research and development (R&D) spending, drug approval rates have increased little in recent decades.40 Even after FDA approval, pharmaceutical manufacturers increasingly face patent challenges that reduce the likelihood that drugs will achieve commercial success. Hatch-Waxman actively incentivizes generic companies to challenge the validity of brand-name patents by creating a pathway for such challenges and by offering a lucrative incentive to the first generic manufacturer that files a challenge claiming that the brand patent is either invalid or will not be infringed by the new generic (known as a Paragraph IV challenge).41 If the generic company wins or settles the patent litigation, it receives a 180-day exclusivity period during which the FDA will not approve any other generic versions of the drug, a period in which the first generic can earn substantial profits.42 Paragraph IV challenges have exploded in recent years; whereas only 9 percent of drugs facing generic entry in 1995 were challenged, 81 percent of drugs facing generic entry in 2012 were challenged.43 Moreover, Paragraph IV challenges are occurring earlier in the life of brand drugs. Drugs entering the market as generics in 1995 faced their first challenge 18.7 years after original launch.44 By comparison, drugs entering the market as generics in 2012 saw only 6.9 years between market launch and the first Paragraph IV challenge.45 These challenges threaten a drug’s commercial success and cost pharmaceutical companies significant legal fees.46 Moreover, the Leahy-Smith America Invents Act in 2012 gave generics a new administrative venue to challenge patents, the inter partes review (IPR).47 In contrast to Hatch-Waxman litigation that occurs in federal district court, IPR proceedings culminate in a trial before the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office. IPR was expected to offer a more efficient and less costly alternative to Hatch-Waxman’s litigation pathway, but important differences between PTAB trials and district court litigation create significant advantages for generic patent challengers.48 The PTAB applies a lower standard of proof for invalidity than do district courts in Hatch-Waxman litigation.49 It is also easier to meet the standard50 of proof in a PTAB trial because there is a more lenient claim construction standard and a substantially limited ability to amend patent claims.51 Moreover, on appeal, PTAB decisions in IPR proceedings are given more deference than district court decisions.52 Finally, while patent challengers in district court must establish sufficient Article III standing, IPR proceedings do not have a standing requirement, allowing any member of the public other than the patent owner to initiate an IPR challenge.53 These advantages for patent challengers have led to significantly different patent invalidation rates in PTAB trials compared to rates in district court litigation. 54 Whereas patents challenged in district court are invalidated in less than 40%55 of cases, IPRs have resulted in patent invalidations in a shocking 70% of cases. 56 The intensifying competition from generics, expanding power of PBMs, escalating R&D costs, and increasing risk of patent challenges mean that many new pharmaceuticals will never attain commercial success. Even for the 10 percent of drugs that receive FDA approval, only 20 percent will ever earn enough revenue to cover the growing R&D costs. 57 Moreover, the likelihood that a drug will become profitable has decreased over time as both the risk of failure and the costs of development have increased.58 The average lifetime revenues for new drugs are lower now than at any point in the last 25 years.59 These shocks have put many pharmaceutical firms under significant economic stress, motivating consolidation as a means to streamline costs and provide new sources of revenue.

Aurelien Portuese, June 25 2021, “Comments to the FTC on Pharmaceutical Consolidation and Competition,” Information Technology and Innovation Foundation, https://itif.org/publications/2021/06/25/comments-ftc-pharmaceutical-consolidation-and-competition

In pharmaceutical markets, more than anywhere else, “innovation is the name of the game.” Innovation rather than production drives the industry’s growth. Pharma markets are the pinnacle of “innovation markets” as defined by Richard Gilbert and as enshrined in the 1995 I.P. Guidelines. Because innovation requires sufficient scale, firms have often gained that scale through mergers.

Robert Atkinson and Stephen Ezell, May 20 2021, “Five Fatal Flaws in Rep. Katie Porter’s Indictment of the U.S. Drug Industry,” Information Technology and Innovation Foundation, https://itif.org/publications/2021/05/20/five-fatal-flaws-rep-katie-porters-indictment-us-drug-industry

False Claim #1: The Industry Has Gotten Extremely Concentrated

Joanna Shepherd, August 28 2018, “CONSOLIDATION AND INNOVATION IN THE PHARMACEUTICAL INDUSTRY: THE ROLE OF MERGERS AND ACQUISITIONS IN THE CURRENT INNOVATION ECOSYSTEM,” Journal of Healthcare Law and Policy, https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1356&context=jhclp

Despite concerns among some researchers and competition agencies that consolidation in the pharmaceutical industry reduces innovation, aggregate innovation has held strong notwithstanding dramatic increases in M&A activity. The years 2014 and 2015 generated both record numbers of new drug approvals and record pharmaceutical M&A.152 In fact, although M&A deals and new drug approvals vary slightly year-to-year, the general pattern has been increasing aggregate innovation alongside increasing consolidation.153 Although trend data is not enough to prove a causal relationship between innovation and consolidation, when considered alongside the evolving innovation ecosystem, it suggests that M&A does not stifle drug innovation. Today, most drug innovation originates outside of traditional pharmaceutical companies, in biotech companies and smaller firms, where a culture of nimble decision-making and risk-taking facilitates discovery and innovation. In the later stages of the drug development process, the biotech companies routinely partner with large pharmaceutical companies to advance through late-stage clinical trials and produce, market, and distribute the drugs. 154 In this current ecosystem, biotech and pharmaceutical firms are able to specialize in what they do best, bringing expertise and efficiencies to the innovation process. The specialization has led to an environment in which approximately three-fourths of new drugs are externally-sourced. 155 Internal R&D is no longer the primary source, or even an important source, of drug innovation.

Harvard Law Review, “Copyright Reform and the Takings Clause,” 01-xx-2015, vol. 128, no. 93, https://harvardlawreview.org/print/vol-128/copyright-reform-and-the-takings-clause/#footnotes-container

The conclusion that copyrights are property does not mean they must enjoy the same strong Takings Clause protection as real property. For several reasons, copyrights should be entitled only to weaker, probably much weaker, protection than real property is. Indeed, copyrights are such a distinctive form of property that they ought to be considered “unique” for takings purposes.88

Katherine Klosek, “No One Can Own the Law—So Why Is Congress Advancing a Bill to Extend Copyright to It?,” Association of Research Libraries, 04-19-2024, https://www.arl.org/blog/no-one-can-own-the-law-so-why-is-congress-advancing-a-bill-to-extend-copyright-to-it/

Another flawed argument by lawmakers at the Pro Codes markup is that standards incorporated by reference is an unfair “taking” of the SDOs’ copyrights under the Fifth Amendment. As the lawmakers’ argument goes, governments must compensate property owners when they take over private property for public use under eminent domain; similarly, the government should extend copyright to the SDOs in exchange for the use of their standards. But this analogy falls apart because there is no reluctance on the part of the SDOs for the adoption of their standards; in fact, the SDOs actively lobby governments to adopt their standards.

“You’ll tell us when you’re worried, right?” That was the question posed to me countless times at the height of the 2014 West African Ebola outbreak. As an infectious disease physician, I was interviewed on outlets such as CNN, NPR, and Fox News about the dangers of the virus, and the answer I gave was always the same: “Ebola is a deadly, scary disease, but it is not that contagious. It will not find the U.S. or other industrialized nations hospitable.” In other words, no, I wasn’t worried—and not because I have a rosy outlook on infectious diseases. I’m well-aware of the damage these diseases are causing around the world: HIV, malaria, tuberculosis; the influenza pandemic that took the world by surprise in 2009; the anti-vaccine movement bumping cases of measles to an all-time post-vaccine-era high; antibiotic-resistant bacteria threatening to collapse the entire structure of modern medicine—all these, like Ebola, are continuously placing an enormous number of lives at risk. But when people ask me if I’m worried about infectious diseases, they’re often not asking about the threat to human lives; they’re asking about the threat to human life. With each outbreak of a headline-grabbing emerging infectious disease comes a fear of extinction itself. The fear envisions a large proportion of humans succumbing to infection, leaving no survivors or so few that the species can’t be sustained. I’m not afraid of this apocalyptic scenario, but I do understand the impulse. Worry about the end is a quintessentially human trait. Thankfully, so is our resilience. For most of mankind’s history, infectious diseases were the existential threat to humanity—and for good reason. They were quite successful at killing people: The 6th century’s Plague of Justinian knocked out an estimated 17 percent of the world’s population; the 14th century Black Death decimated a third of Europe; the 1918 influenza pandemic killed 5 percent of the world; malaria is estimated to have killed half of all humans who have ever lived. Any yet, of course, humanity continued to flourish. Our species’ recent explosion in lifespan is almost exclusively the result of the control of infectious diseases through sanitation, vaccination, and antimicrobial therapies. Only in the modern era, in which many infectious diseases have been tamed in the industrial world, do people have the luxury of death from cancer, heart disease, or stroke in the 8th decade of life. Childhoods are free from watching siblings and friends die from outbreaks of typhoid, scarlet fever, smallpox, measles, and the like. So what would it take for a disease to wipe out humanity now? In Michael Crichton’s The Andromeda Strain, the canonical book in the disease-outbreak genre, an alien microbe threatens the human race with extinction, and humanity’s best minds are marshaled to combat the enemy organism. Fortunately, outside of fiction, there’s no reason to expect alien pathogens to wage war on the human race any time soon, and my analysis suggests that any real-life domestic microbe reaching an extinction level of threat probably is just as unlikely. Any apocalyptic pathogen would need to possess a very special combination of two attributes. First, it would have to be so unfamiliar that no existing therapy or vaccine could be applied to it. Second, it would need to have a high and surreptitious transmissibility before symptoms occur. The first is essential because any microbe from a known class of pathogens would, by definition, have family members that could serve as models for containment and countermeasures. The second would allow the hypothetical disease to spread without being detected by even the most astute clinicians. The three infectious diseases most likely to be considered extinction-level threats in the world today—influenza, HIV, and Ebola—don’t meet these two requirements. Influenza, for instance, despite its well-established ability to kill on a large scale, its contagiousness, and its unrivaled ability to shift and drift away from our vaccines, is still what I would call a “known unknown.” While there are many mysteries about how new flu strains emerge, from at least the time of Hippocrates, humans have been attuned to its risk. And in the modern era, a full-fledged industry of influenza preparedness exists, with effective vaccine strategies and antiviral therapies. HIV, which has killed 39 million people over several decades, is similarly limited due to several factors. Most importantly, HIV’s dependency on blood and body fluid for transmission (similar to Ebola) requires intimate human-to-human contact, which limits contagion. Highly potent antiviral therapy allows most people to live normally with the disease, and a substantial group of the population has genetic mutations that render them impervious to infection in the first place. Lastly, simple prevention strategies such as needle exchange for injection drug users and barrier contraceptives—when available—can curtail transmission risk. Ebola, for many of the same reasons as HIV as well as several others, also falls short of the mark. This is especially due to the fact that it spreads almost exclusively through people with easily recognizable symptoms, plus the taming of its once unfathomable 90 percent mortality rate by simple supportive care. Beyond those three, every other known disease falls short of what seems required to wipe out humans—which is, of course, why we’re still here. And it’s not that diseases are ineffective. On the contrary, diseases’ failure to knock us out is a testament to just how resilient humans are. Part of our evolutionary heritage is our immune system, one of the most complex on the planet, even without the benefit of vaccines or the helping hand of antimicrobial drugs. This system, when viewed at a species level, can adapt to almost any enemy imaginable. Coupled to genetic variations amongst humans—which open up the possibility for a range of advantages, from imperviousness to infection to a tendency for mild symptoms—this adaptability ensures that almost any infectious disease onslaught will leave a large proportion of the population alive to rebuild, in contrast to the fictional Hollywood versions. While the immune system’s role can never be understated, an even more powerful protector is the faculty of consciousness. Humans are not the most prolific, quickly evolving, or strongest organisms on the planet, but as Aristotle identified, humans are the rational animals—and it is this fundamental distinguishing characteristic that allows humans to form abstractions, think in principles, and plan long-range. These capacities, in turn, allow humans to modify, alter, and improve themselves and their environments. Consciousness equips us, at an individual and a species level, to make nature safe for the species through such technological marvels as antibiotics, antivirals, vaccines, and sanitation. When humans began to focus their minds on the problems posed by infectious disease, human life ceased being nasty, brutish, and short. In many ways, human consciousness became infectious diseases’ worthiest adversary. None of this is meant to allay all fears of infectious diseases. To totally adopt a Panglossian viewpoint would be foolish—and dangerous. Humans do face countless threats from infectious diseases: witness Zika. And if not handled appropriately, severe calamity could, and will, ensue. The West African Ebola outbreak, for instance, festered for months before major efforts to bring it under control were initiated. When it comes to infectious diseases, I’m worried about the failure of institutions to understand the full impact of outbreaks. I’m worried about countries that don’t have the infrastructure or resources to combat these outbreaks when they come. But as long as we can keep adapting, I’m not worried about the future of the human race.

Erik Hoel, “Superintelligence is impossible,” The Intrinsic Perspective, 04-20-2021, https://erikhoel.substack.com/p/superintelligence-is-a-free-lunch

I don’t really buy this sort of argument, but it’s nice to see some doubt around this issue. An increase of skepticism is important because there’s been a great deal of intellectual resources devoted to what is, in the end, a hypothetical risk. Of course, for getting people to seriously contemplate existential threats is something thinkers like Nick Bostrom deserve serious credit for, as well as credit for crafting evocative thought experiments. But I agree with Kevin Kelly and Ted Chiang that the risk of this particular existential threat has been radically overblown, and, more importantly, I think the reasons why the claims are overblown are themselves interesting and evocative.

Hadrien Pouget, “What will the role of standards be in AI governance?,” Ada Lovelace Institute, 04-05-2023, https://www.adalovelaceinstitute.org/blog/role-of-standards-in-ai-governance/

As already mentioned, the SDOs’ industry-led model of standard-setting works well when issues are simple and relatively technical. Designing booster seats has an important impact on children’s safety, but the relevant measures, tests and mitigation methods are well understood.

Andrej Krickovic, Assistant Professor, , HSE, “When Interdependence Produces Conflict: EU–Russia Energy Relations as a Security Dilemma,” Contemporary Security Policy. 2015. https://www.tandfonline.com/doi/pdf/10.1080/13523260.2015.1012350?needAccess=true

Keohane and Nye’s seminal study of power and interdependence distinguishes between symmetrical interdependence, where two parties are equally dependent on each other and therefore will be equally hurt by a break in the relationship, from asymmetrical interdependence, where one state is substantially more dependent on the other, and can be hurt more by such a break.15 Asymmetrical interdependence gives the less dependent partner in the relationship political leverage over the more dependent partner. It can therefore become a cause for concern that intensifies conflict between states.16 According to Albert Hirschman, Nazi Germany set out to make the smaller countries of Eastern and Southern Europe dependent on trade with Germany (even accepting unfavourable balances of trade with these countries) in order to gain political leverage over them that it could later use to advance its imperialist foreign policy goals.17

Christopher Schwartz and Nicholas R. Davis. Davis holds a PhD in Political Science and is a visiting instructor at Marquette University. Schwartz is a Scientist at the University of Wisconsin, Madison. “Decisions, Decisions: Re-examining the Trade-Conflict,” Prepared for the Annual Meeting of the International Studies Association in Atlanta, March 16th– 19th 2016. Panel TB20: The Initiation, Dynamics, and Termination of International Conflict. March 17, 2016. http://democracyobserver.org/papers/schwarz_davis_ISA2016.pdf

Results

In 1913, Norman Angell declared that the use of military force was now economically futile as international finance and trade had become so interconnected that harming the enemy’s property would equate to harming your own.[1] A year later Europe’s economically interconnected states were embroiled in what would later become known as the First World War. Almost a century later Steven Pinker made a similar claim. Pinker argues, “Though the relationship between America and China is far from warm, we are unlikely to declare war on them or vice versa. Morality aside, they make too much of our stuff and we owe them too much money.”[2] His argument rests upon the liberal assumption that high levels of trade and investment between two states, in this case the US and China, will make war unlikely, if not impossible. It is this assumption that this essay seeks to evaluate. This essay is divided into three sections. The first briefly outlines the theory that economic interdependence results in a reduced likelihood of conflict, breaking the theory down into smaller components that can be examined. In the second section, this essay suggests that the premise ‘more trade equals less conflict’ is simplistic. It does not take into account many of the variables that can influence the strength of economic interdependence’s conflict reducing attributes. Within this section, the essay considers: the extent to which conflict cuts off trade, theories arguing that how and what a state trades matters, Copeland’s theory of trade expectations and the differences between status quo and revisionist states. The final section deals with the realist perspective, concentrating on arguments pertaining to the primacy of strategic interests and arguments that economic interdependence will increase the likelihood of conflict owing to a reduction of deterrence credibility. Each section will be related back to the US-China relationship with a view to assessing Pinker’s claim. The essay will conclude that economic interdependence does reduce the likelihood of conflict but is insufficient on its own to completely prevent it. To calculate the likelihood of conflict correctly one would need to factor in the nature of the economic interdependence alongside the strength of the strategic interests at stake. Economic Interdependence and Conflict The theory that increased economic interdependence reduces conflict rests on three observations: trade benefits states in a manner that decision-makers value; conflict will reduce or completely cut-off trade; and that decision-makers will take the previous two observations into account before choosing to go to war. Based on these observations, one should expect that the higher the benefit of trade, the higher the cost of a potential conflict. After a certain point, the value of trade may become so high that the state in question has become economically dependent on another. Proponents of this theory argue that if two states have reached this point of mutual dependence (interdependence), their decision-makers will value the continuation of trade relations higher than any potential gains to be made through war.[3] It is on this argument that Pinker rests his statement that the economic relationship between the US and China precludes war. One can see evidence of this when analysing US views on China as trade rises. A 2014 Chicago Council on Global Affairs survey indicates that only a minority of Americans see China as a critical threat, compared to a majority in the mid-1990s. This number is even higher when analysing Americans who directly benefit from trade with China.[4] As compelling as this argument may be, high levels of economic interdependence have not always resulted in peace. The decades preceding WW1 saw an unprecedented growth in international trade, communication, and interconnectivity but needless to say, war broke out.[5] This instance alone is not enough to disprove Pinker’s logic. War may become very unlikely but began nonetheless.[6] Let us take two hypothetical scenarios, one in which the chances of war is 80% and the other in which trade has reduced the likelihood of war to 10%. Just knowing that war did indeed take place does not tell us which scenario was in play. Similarly, the fact that WW1 took place gives us no information about whether economic interdependence made war unlikely or not. In fact, evidence even exists to suggest that economic linkages prevented a war from breaking out during the sequence of crises that led up to WW1.[7] However, the fact that a war as detrimental as WW1 could break out despite a supposed reduction of the likelihood of conflict gives us an impetus to examine whether this reduction does take place. Additionally, if this is the case, what variables can weaken this pacifying effect? Does Conflict Cut off Trade? Economic interdependence theory makes the assumption that conflict will reduce or cut-off trade. This assumption appears to be logical, as one would expect that the moment two states are officially adversaries, fear of relative gains would ensure that policy makers want to completely cut-off trade. However, there are many historical examples of trade between warring states carrying on during wartime, including strategic goods that directly affect the ability of the enemy to carry out the war.[8] For example, in the Anglo-Dutch Wars, British insurance companies continued to insure enemy ships and paid to replace ships that were being destroyed by their own army.[9] Even during WW2, there are numerous examples of American firms continuing to trade strategic goods with Nazi Germany.[10] Barbieri and Levy argue that these examples and their own statistical analysis suggest that the outbreak of war does not radically reduce trade between enemies, and when it does, it often quickly returns to pre-war levels after the war has concluded.[11] In response to this result, Anderton and Carter conducted an interrupted time-series study on the effect war has on trade in which they analysed 14 major power wars and 13 non-major power wars. Seven of the non-major power wars negatively impacted trade (although only four of these reductions were significant), but in the major war category, all results bar one showed a reduction of trade during wartime and a quick return to pre-war levels at its conclusion.[12] Accompanying this contradictory finding one must take into account that even if war does not radically reduce trade, if a state believes that it does then potential opportunity cost would still figure in their calculations. Variables that Impact the Pacifying Effect of Economic Interdependence The purpose of this section is to demonstrate that the pacifying effect of economic interdependence is not constant. It achieves this via a discussion of the effect of changes in a number of variables pertaining to how and what a state trades. Once it is established that changes in such variables may alter the effect of economic interdependence on the likelihood of conflict, Pinker’s statement (that the level of trade between the US and China makes conflict unlikely) can be considered to be an over-simplification. One variable is the relative levels of economic dependence. Some argue that asymmetry of trade can increase the chances of conflict if the trade is more important to one state than it is to the other; their resolve would not be reduced by the same degree. The less dependent state would be far more willing than its adversary to initiate a conflict.[13] An example is the possibility of the prevalent idea in China that ‘Japan needs China more than China needs Japan’ leading to China becoming more assertive in Senkaku/Diaoyu islands dispute.[14] It is important to recognize that all trade is asymmetric in one fashion or another. It is radical asymmetry that one has to fear, which at the moment does not appear to be the case in the China-Japan or US-China case. Another variable is the specifics of what is being traded. A study by Dorussen suggests that the pacifying effect of trade is less evident if the trade consists of raw materials and agriculture but stronger if the trade consists of manufactured goods. Even within the category of manufactured goods there are differences in effect. Mass consumer goods yield the strongest pacifying results whilst high-technology sectors such as electronics and highly capital-intensive sectors such as transport and metal industries tend to have a relatively weak effect.[15] If it is a sector with alternative trade avenues then embargos and boycotts as a result of conflict will have far less effect.[16] The rule is that the more inelastic the import demand, the higher the opportunity cost and the smaller the probability of conflict.[17] According to these studies, trade still generally reduces the likelihood of conflict however it is by no means homogeneous in its effects. Additionally, the opportunity costs are not the same for importers and exporters. Dorussen’s study suggests that increased trade in oil tends to make the exporters more hostile and the importers friendlier in relations to their foreign policy.[18] Taking this framework into account, in 2014 China’s top five exports to the US (computers, broadcasting equipment, telephones and office machine parts) all fell under the category of electronics,[19] whilst the US’s top five exports to China (air and/or spacecraft, soybeans, cars, integrated circuits and scrap copper) were all either high-capital intensive sectors or raw materials and agriculture.[20] According to Dorussen’s study, these exports should not yield the strongest possible conflict reducing results, which could impact the validity of Pinker’s statement. Copeland presents another variable, namely expectations of trade. Copeland argues that if a highly dependent state expects future trade to be high, decision makers will behave as many liberals predict and treat war as a less appealing option. However if there are low expectations of future trade, then a highly dependent state will attach a low or even negative value to continued peaceful relations and war would become more likely.[21] As an example, he points out that despite high levels of trade in 1914 German leaders believed that rival great powers would attempt to undermine this trade in the future, so a war to secure control over raw materials was in the interests of German long-term security.[22] Via this framework, if the US began to believe that in future years they would be less dependent on China’s economy, or if it became apparent that a US-China trade war was about to take place, there would be a sharp rise in the probability of conflict. The final variable this essay will discuss relates to the differences between status quo and revisionist states. Most empirical analyses of economic interdependence tend to group together states as different as the United States, Pakistan, Australia, Germany and China and assume that variations in their behaviour would be the same.[23] Papayoanou on the other hand, argues that when analysing the effects of economic interdependence it is useful to differentiate the effects on great power states and states with revisionist aspirations.[24] If a status quo power has strong economic ties with revisionist state there will be interest groups who advocate engagement and who believe that confrontational stances will threaten the political foundation of economic links. This will constrain the response of the status quo state.[25] One can see evidence of such an interest group in the US, a group Friedberg describes as the Shanghai coalition, who he argues advocate engagement with China at the expense of balancing.[26] A study by Fordham and Kleinberg backs up this argument as they find that US business elites who benefit from trade with China tend to see little benefit in limiting the growth of Chinese power.[27] A 21st Century revisionist power is far less likely to be a democracy, and therefore, interest groups will influence the leadership far less. This means an authoritarian revisionist power will be working under fewer constraints and will be able to take a more aggressive stance.[28] This appears to be the case in China where rather than having domestic constraints on taking an aggressive stance against Japan, one of their biggest trading partners, grassroots nationalism has made explicit cooperation a domestically risky option.[29] There are many indicators to suggest that China is a revisionist power willing to wage war. Lemke and Werner argue that an extraordinary growth of military expenditures’ reveals when a state is dissatisfied with the status quo.[30] Data provided by the Stockholm International Peace Research Institute certainly indicates that China qualifies as its military expenditure has nominally increased by 1270% between 1995 and 2015.[31] Additionally, the military modernization appears to be aimed at capabilities to contest US primacy in East Asia.[32] Much like German strategists recognized that Britain was operating under significant domestic constraints, China could realize the same of the US.[33] This is not to say that Chinese decision-makers would be cavalier about making a decision that would be to the detriment its economy. A crash in the Chinese economy due to the loss of exports to the US could potentially undermine the legitimacy of the Chinese Communist party and endanger the regime. However, the view that China is a revisionist power indicates that good trade relations alone will not result in a low probability of conflict. Realist Arguments Pertaining to Dominance of Strategic Interests Having established that if the pacifying effect of trade does exist, it can rise or fall depending on changes in a series of variables this essay proceeds to deal with realist theories arguing that trade has a negligible or even negative effect on the likelihood of conflict. Buzan argues that noneconomic factors contribute far more to major phenomena than liberal theorists usually cite to support their theory.[34] There is evidence of the primacy of strategic interests in Masterson’s 2012 study on the relationship between China’s economic interdependence and political relations with its neighbours. The study concluded that as economic interdependence with neighbouring states increased the likelihood of conflict did indeed decrease, but that the impact was minimal when compared to the impact of relative power capabilities. In other words, political and military issues dominated interstate relations. Growth in power disparities were associated with decreases in dyadic political relations that were greater than the increase caused by economic interdependence.[35] If the pacifying effect of trade can rise and fall so can the provocative effect of strategic interests. It is important to distinguish between the existence of a strategic interest and a situation of unbearable strategic vulnerability. China and the US have many opposing strategic interests, but neither is in a strategically vulnerable position. For example, China shares many borders, but none present the same threat of invasion that Tsarist Russia did to Imperial Germany as none of the current maritime tensions between China, Japan, and the US equate to a matter of national survival.[36] This is crucial as some believe that for a crisis to escalate to a major war an actor who is isolated and believes that history is conspiring against them is needed. Only this actor would take an existential risk to try and offset their strategic vulnerability.[37] Imperial Germany fit this description, but neither China nor the US does. This is largely due to the geography of the region. The tension between the US, China and Japan are over maritime regions. Maritime issues still relate to national interests but, as Krause points out, “Land armies are still the only forces that can conquer and hold territory.”[38] Taking this into account one can argue that the benefits of US-China trade are, for each state, currently greater than the benefits of pursing strategic benefits via force, but this situation will only remain as long as the situation does not become one of unbearable strategic vulnerability. Realist Arguments Pertaining to the Undermining of Deterrence Having established that scenarios exist where strategic interests and vulnerabilities have a greater effect on the likelihood of war than economic interdependence, this essay will now evaluate arguments that economic interdependence can increase the likelihood of conflict through the undermining of deterrence. The argument proceeds as follows: if economic interdependence constrains the ability or willingness of a state to use its military, security is lowered as the state now has a weakened ability to engage in deterrence and defensive alliances. Deterrence relies on the ability of a state to make credible threats and defensive alliances rely on credible promises to protect one’s allies.[39] Credibility is defined as the product of the operational capability to follow through with a threat and the communication of resolve to use force.[40] What is at risk here is that if economic interconnectivity interferes with the communication of resolve to use force then states may end up with a way that neither side expected or wanted. Some argue that it was such a failure to communicate resolve that resulted in the beginning of WW1. Indeed, Jolly claims that: “The Austrians had believed that vigorous actions against Serbia and a promise of German support would deter Russia: the Russians had believed that a show of strength against Austria would both check the Austrians and deter Germany. In both cases, the bluff had been called and the three countries were faced with the military consequences of their actions.”[41] The risk in the US-China case would be that the interest groups described earlier would prevent the US from effectively communicating its resolve to use force if China were to cross a redline. The flaw in this argument lies in the fact that whilst interest groups might push back against public statements outlining redlines; the US has many less overt options available to it to communicate resolve. Modern technology and the forms of interconnectivity have resulted in many more lines of communication between China and the US than adversaries had access to in 1914. Private meetings, electronic communication and numerous other methods of communication have the capability to be candid without being visible to interest groups. It is for this reason that this essay discounts the theory that Sino-American economic interdependence results in a reduction of deterrence and therefore increases the likelihood of conflict. Conclusion This essay has shown that the strength of the pacifying effect of economic interdependence is subject to change depending on a series of dynamic variables. It has also demonstrated that the strength of the conflict provoking effects of strategic interests can change depending on whether the strategic interest amounts to a situation of unbearable strategic vulnerability. It has discounted the theory that interdependence leads to a higher chance of conflict through an erosion of credibility. To sum up, trade does seem to reduce the likelihood of conflict but should not be seen as a deterministic factor as strategic interests, and vulnerabilities also have a large effect. There is no hard rule as to what will be the driving factor as the nature of economic interdependence and of strategic factors impact their relative values. Accordingly, Pinker’s statement that the trade between the US and China makes war exceptionally unlikely is simplistic and misleading because it fails to account for a wide array of variables that can radically change the likelihood of a Sino-American war. An intellectually honest thesis would insist upon a comprehensive approach in which the level of economic activity is simply one of many variables that is required.

Working through her arguments, Grinberg established cases where trade could legitimately be conducted during conflict. It was time to turn to the evidence in historical records to find out very specifically what kind of trade occurred in wars, and under what kind of conditions.

Grinberg dug deep in British and French archives, where she found a trove of relevant documents going back to the Crimean War. She found notes from a British advisory committee in World War I that recommended banning the trade of products that could be used immediately in war, as well as banning those that could be used in war before the war was over, and those whose sales generated profits that could be used during war.

Conclusion Political economy theory would lead us to expect rising trade protection during hard times. Yet empirical evidence on this count has been mixed. Some studies find a correlation between poor macroeconomic conditions and protection, but the worst recession since the Great Depression has generated surprisingly moderate levels of protection. We explain this apparent contradiction. Our statistical findings show that under conditions of pervasive economic crisis at the international level, states exercise more restraint than they would when facing crisis alone. These results throw light on behavior not only during the crisis, but throughout the WTO period, from 1995 to the present. One concern may be that the restraint we observe during widespread crises is actually the result of a decrease in aggregate demand and that domestic pressure for import relief is lessened by the decline of world trade. By controlling for product-level imports, we show that the restraint on remedy use is not a byproduct of declining imports. We also take into account the ability of some countries to manipulate their currency and demonstrate that the relationship between crisis and trade protection holds independent of exchange rate policies. Government decisions to impose costs on their trade partners by taking advantage of their legal right to use flexibility measures are driven not only by the domestic situation but also by circumstances abroad. This can give rise to an individual incentive for strategic self-restraint toward trade partners in similar economic trouble. Under conditions of widespread crisis, government leaders fear the repercussions that their own use of trade protection may have on the behavior of trade partners at a time when they cannot afford the economic cost of a trade war. Institutions provide monitoring and a venue for leader interaction that facilitates coordination among states. Here the key function is to reinforce expectations that any move to protect industries will trigger similar moves in other countries. Such coordination often draws on shared historical analogies, such as the Smoot–Hawley lesson, which form a focal point to shape beliefs about appropriate state behavior. Much of the literature has focused on the more visible action of legal enforcement through dispute settlement, but this only captures part of the story. Our research suggests that tools of informal governance such as leader pledges, guidance from the Director General, trade policy reviews, and plenary meetings play a real role within the trade regime. In the absence of sufficiently stringent rules over flexibility measures, compliance alone is insufficient during a global economic crisis. These circumstances trigger informal mechanisms that complement legal rules to support cooperation. During widespread crisis, legal enforcement would be inadequate, and informal governance helps to bolster the system. Informal coordination is by nature difficult to observe, and we are unable to directly measure this process. Instead, we examine the variation in responses across crises of varying severity, within the context of the same formal setting of the WTO. Yet by focusing on discretionary tools of protection—trade remedies and tariff hikes within the bound rate—we can offer conclusions about how systemic crises shape country restraint independent of formal institutional constraints. Insofar as institutions are generating such restraint, we offer that it is by facilitating informal coordination, since all these instruments of trade protection fall within the letter of the law. Future research should explore trade policy at the micro level to identify which pathway is the most important for coordination. Research at a more macro-historical scope could compare how countries respond to crises under fundamentally different institutional contexts. In sum, the determinants of protection include economic downturns not only at home but also abroad. Rather than reinforcing pressure for protection, pervasive crisis in the global economy is shown to generate countervailing pressure for restraint in response to domestic crisis. In some cases, hard times bring more, not less, international cooperation.

Christopher J. Fettweis, an American political scientist and the Associate Professor of Political Science at Tulane University, “Chapter 1: Unipolarity and the System,” Psychology of a Superpower: Security and Dominance in U.S. Foreign Policy, Columbia University Press, 2018, accessed through Georgetown Libraries

If either version is correct—that global stability is provided by U.S. hegemony—then maintaining that stability through a grand strategy based on either primacy (to neoconservatives) or “deep engagement” (to liberals) is clearly wise.80 If, however, U.S. actions are only tangentially related to the outbreak of the New Peace or if any of the other proposed explanations are decisive, then the United States could retrench without fear of negative consequences.

Conclusion Political economy theory would lead us to expect rising trade protection during hard times. Yet empirical evidence on this count has been mixed. Some studies find a correlation between poor macroeconomic conditions and protection, but the worst recession since the Great Depression has generated surprisingly moderate levels of protection. We explain this apparent contradiction. Our statistical findings show that under conditions of pervasive economic crisis at the international level, states exercise more restraint than they would when facing crisis alone. These results throw light on behavior not only during the crisis, but throughout the WTO period, from 1995 to the present. One concern may be that the restraint we observe during widespread crises is actually the result of a decrease in aggregate demand and that domestic pressure for import relief is lessened by the decline of world trade. By controlling for product-level imports, we show that the restraint on remedy use is not a byproduct of declining imports. We also take into account the ability of some countries to manipulate their currency and demonstrate that the relationship between crisis and trade protection holds independent of exchange rate policies. Government decisions to impose costs on their trade partners by taking advantage of their legal right to use flexibility measures are driven not only by the domestic situation but also by circumstances abroad. This can give rise to an individual incentive for strategic self-restraint toward trade partners in similar economic trouble. Under conditions of widespread crisis, government leaders fear the repercussions that their own use of trade protection may have on the behavior of trade partners at a time when they cannot afford the economic cost of a trade war. Institutions provide monitoring and a venue for leader interaction that facilitates coordination among states. Here the key function is to reinforce expectations that any move to protect industries will trigger similar moves in other countries. Such coordination often draws on shared historical analogies, such as the Smoot–Hawley lesson, which form a focal point to shape beliefs about appropriate state behavior. Much of the literature has focused on the more visible action of legal enforcement through dispute settlement, but this only captures part of the story. Our research suggests that tools of informal governance such as leader pledges, guidance from the Director General, trade policy reviews, and plenary meetings play a real role within the trade regime. In the absence of sufficiently stringent rules over flexibility measures, compliance alone is insufficient during a global economic crisis. These circumstances trigger informal mechanisms that complement legal rules to support cooperation. During widespread crisis, legal enforcement would be inadequate, and informal governance helps to bolster the system. Informal coordination is by nature difficult to observe, and we are unable to directly measure this process. Instead, we examine the variation in responses across crises of varying severity, within the context of the same formal setting of the WTO. Yet by focusing on discretionary tools of protection—trade remedies and tariff hikes within the bound rate—we can offer conclusions about how systemic crises shape country restraint independent of formal institutional constraints. Insofar as institutions are generating such restraint, we offer that it is by facilitating informal coordination, since all these instruments of trade protection fall within the letter of the law. Future research should explore trade policy at the micro level to identify which pathway is the most important for coordination. Research at a more macro-historical scope could compare how countries respond to crises under fundamentally different institutional contexts. In sum, the determinants of protection include economic downturns not only at home but also abroad. Rather than reinforcing pressure for protection, pervasive crisis in the global economy is shown to generate countervailing pressure for restraint in response to domestic crisis. In some cases, hard times bring more, not less, international cooperation.