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We next investigate how state anti-troll laws affect startups’ innovative activities. Critics of the laws worry that efforts to limit the activities of NPEs may have the unintended consequence of making it harder for startups to monetize their inventions and enforce their patent rights, thereby disincentivizing innovation and patenting. Proponents of the laws, on the other hand, claim the laws will foster innovation by making costly patent-infringement claims less likely. Overall, our results suggest that the second effect dominates: We find that IT patent applications filed by individual inventors or small firms increase by approximately 9% following the adoption of anti-troll legislation, an effect that is strongest in the software sector, where NPEs are most active (GAO 2013).4 We also find that citations (a common measure of patent quality) increase for those software patents that are in the top quartile of the quality distribution, suggesting that both the quantity and quality of innovation increase following the adoption of anti-troll laws. There are multiple channels that potentially explain the positive effect of anti-troll laws on high-tech startups’ ability to create jobs and innovate. For one, the laws likely have a direct effect in reducing the incidence of patent-infringement claims by NPEs. Frivolous claims are costly, especially for startups, which often have limited access to capital (Kerr and Nanda 2011, 2015). Indeed, Chien (2014) finds that NPE claims against startups impose monetary costs that routinely exceed 5% of revenue and can have significant operational impacts. By reducing the threat of frivolous claims by NPEs, anti-troll laws help startups avoid having to devote their scarce resources to counter such claims. Another potentially important channel is the effect of anti-troll laws on startups’ ability to raise capital. By reducing the risk of frivolous patent-infringement claims, the laws may increase the NPV of investing in startups, thus making them more attractive investment targets. We test this financing channel by first analyzing the effect of anti-troll laws on venture capital (VC) investment. In line with our hypothesis, we find that the passage of anti-troll legislation in a state is associated with an increase in VC financing in the state—particularly when the state already has an established VC presence. Specifically, in the full sample of US states, we find evidence that anti-troll laws lead to an increase in the number of firms in a state that raise venture capital, though this effect is noisily estimated. The magnitude of the estimated effect nearly doubles to 14% (and is significant at conventional levels) when we limit the analysis to states with an established VC presence prior to the passage of the laws. These findings suggest that the adoption of anti-troll laws, on its own, is not sufficient to attract VCs to states where they have historically not invested. However, the laws do increase VC investment at the intensive margin in those states where VCs are already present. Consistent with our employment results, we find that the increase in VC investment is driven by IT firms, while it is negligible in other industries. Importantly, the effect of anti-troll laws in facilitating access to finance is not confined to venture capital. Mann (2017) shows that patent-backed loans have become an increasingly important source of capital for innovative firms. We find that the passage of anti-troll legislation leads to an increase in the number of small inventors pledging patents as loan collateral. Consistent with our employment findings, this effect is driven by IT firms. Taken together, our results indicate that by decreasing the risk that startups face of being targeted by NPEs and thereby increasing the NPV of investing in startups, anti-troll laws facilitate startups’ access to both equity and debt capital.

In response to the lack of congressional action, state legislatures, beginning with Vermont in 2013, have passed laws to limit NPEs’ ability to target local firms with “bad faith assertions of patent infringement” via demand letters (Vermont Act 44). In this paper, we exploit the adoption of 32 such laws in a difference-in-differences framework to analyze how bad-faith patent infringement claims made by NPEs affect startups’ ability to grow, create jobs, and raise capital.3 We find that state laws that restrict NPEs’ ability to make bad-faith patent infringement claims lead to higher employment at high-tech startups—a key target of patent trolls. Specifically, the adoption of state anti-troll legislation leads to an average 4.4% increase in employment at high-tech startups that are zero to three years old. This increase is mainly driven by startups in the information technology (IT) sector, where NPEs tend to be most active (Chien 2014). By contrast, we find that anti-troll laws have no effect on older high-tech firms or on non-high-tech firms regardless of their age.

Critics of injunctions had hoped that reducing the availability of injunctions would have a positive effect on innovation—notably by reducing patent holdup.[64] But empirical research by Alexander Galetovic, Stephen Haber, and Ross Levine suggests that this was not the case: Overall, the eBay decision does not appear to have significantly affected innovation levels in patent-intensive industries.[65] Other authors have reached a similar conclusion.[66] However, the fact that the eBay ruling has not yet reduced innovation is no guarantee that it will not do so in the future. Likewise, as this paper makes abundantly clear, the eBay ruling is but one of many policy developments that have weakened the legal protections afforded to patent holders (or that threaten to do so). While each of these developments might not individually have a statistically significant effect on innovation (which is what the Galetovic, et al. paper looks at in relation to the eBay ruling), the cumulative effect of these changes could be much larger. In other words, available evidence suggests that the threat of injunctions is unlikely to cause patent holdup and reduce innovation. However, this does not suggest that systematically weakening the patent system would have no effect on technological progress.

Property rights are an essential economic institution. As the great UCLA economist Harold Demsetz famously argued, property rights spur specialization, investment, and competition, which in turn increase productivity, innovation, and wealth throughout the economy.[1] The same holds true for intellectual property rights, including patents, which are no less important than their traditional counterparts in facilitating innovation and the efficient organization of productive economic activity, particularly in the modern, high-tech economy.[2] A wealth of literature indicates that much, if not most, of the value of innovation is passed on to consumers in the form of lower prices and higher quality goods and services.[3] Indeed, as Nobel Laureate William Nordhaus finds, even in the presence of patents to facilitate the appropriability of the value of innovation by inventors, “only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.”[4] Thus, although measurement problems plague such research, there is strong evidence that nations with greater levels of patent protection have historically achieved significantly higher innovative output than those with lower levels of patent protection.[5]

The technology standardization space perfectly illustrates the importance of these issues. Many of the most high-profile modern technologies are the fruit of large-scale collaboration coordinated though standards developing organizations (SDOs). These include technologies such as Wi-Fi, 3G, 4G, 5G, Blu-Ray, USB-C, and Thunderbolt 3.[22] This type of collaboration would surely be far more costly without well-delineated property rights and the legal means to enforce them. The reasonable assurances of protection through patent rights provides innovators the security they need to share the information necessary to enable the creation of these organizations. The patent system enables modern firms of all sizes in a dynamic economy to coordinate their behavior to produce modern marvels like the smartphone. The coordination necessary for this sort of feat is hard to imagine without some form of enforceable property right in inventions. This is not to say that some of these features could not be replicated by private ordering or internalized by mergers. Theoretically Samsung or Apple could invent and produce all of the technologies necessary to produce their devices, but the cost for such devices would likely be astronomical and the development time would be measured in years, not months. Absent compelling evidence that these alternative institutions or hierarchies would emerge, policymakers should proceed with caution, or risk killing the goose that lays the golden eggs. At the very least, the fact that many of the most dynamic industries in the world—notably the smartphone and computer hardware industries—develop technologies collaboratively within SDOs is evidence that the benefits of patent protection go well beyond incentives to innovate.

Injunctions, in particular, play a critical role in cementing these rights.[17] Perhaps more than any other tool, they guarantee that the unlawful use of inventions can quickly be terminated by the rightsholder. In so doing, they bring potential licensees to the negotiating table. And, by the same token, weakening patent rights may result in patent holdout, whereby firms strategically decide to infringe others’ patents or delay license negotiations.[18] Even if one ignores the reduced incentives to innovate that this may entail (i.e., it damages the inventor’s ability to recoup costs and threatens the viability of commercialization opportunities),[19] this type of behavior has other highly deleterious effects as well. For example, patent holders may respond by resorting to expanded reliance upon trade secret protection and otherwise inefficient vertical integration.[20] This may reduce the number of commercialized inventions either overall or that ultimately fall into the public domain twenty years later (after a patent would have expired). Similarly, the inability to enforce their rights may discourage rightsholders from taking part in collaborative efforts to develop new technologies (e.g., through standardization efforts), similarly constraining the extent of valuable innovation. In short, on the margins, reducing the incentives provided by the patent system will tend to lower the relative openness of technology- and science-driven industries. Particularly in highly dynamic industries characterized by fast-paced change and cross-pollination of ideas through fluid employment and rapid development cycles, weakening IP protection can have a dramatic effect. Firms in dynamic markets need some ability to appropriate and protect the fruits of their labor.[21] Reducing the protection afforded by patents will urge them to turn toward inferior (costlier, slower, etc.) alternatives to achieve this protection. In other words, injunctions and related doctrines provide property holders with the ability to operate quickly and in the open with the knowledge that they can continue to adequately commercialize their inventions.

Patents are certainly idiosyncratic, but they are also highly valuable and tradeable in commercial markets. The key feature of patents in this latter respect is that their value is uncertain ex ante. The value of a particular invention or discovery cannot be known until it is either integrated into the end-product that will be distributed to consumers or actually used by consumers. This uncertainty creates a need for patent holders to carefully structure their risk and reward calculus such that the commercialization of the invention can reasonably be expected to generate a profit (which in turn goes back to the initial incentives to even proceed with the expensive R&D process to create the invention in the first place). Particularly with highly complex innovations—such as in pharmaceuticals and technology—the degree of risk taking and the required investment of capital is large, and the foregone opportunities can be massive. As such, it will often be difficult or impossible to adequately calculate appropriate monetary damages for the unauthorized use of a patent, even if the ex post value of the patent is knowable. So while it will be necessary to establish damages for violations after the fact, it will nearly always be appropriate to award injunctions to deter ongoing violations and to allow the property owner to do their own value calculations based on their investments, sunk costs, and—critically—lost opportunities that were foregone in order to realize the particular invention.

Third, new criteria regarding eligibility to obtain an injunction mostly favor large firms (Everding, 2007; Holte, 2015). Based on the new ruling, being or not being a product market competitor with the infringer is considered by the6 courts in determining the patentee's eligibility for an injunction (Diessel, 2007). Specifically, when a patentee is a direct product market competitor with an infringer, they usually secure an injunction (Seaman, 2016). However, if a patentee is not in direct competition with the infringer (e.g., small firms with no downstream production, specialized technology firms, or individual inventors), an injunction is generally denied (Seaman, 2016). Thus, following the Supreme Court's ruling, it has become harder for small firms to obtain injunctions, while large firms with downstream operations remain mostly eligible (Denicolo et al., 2008; Holte, 2015).

To sum up, we posit that small firms are more reliant on the excludability provided by injunctions in technology market transactions, while large firms can shield themselves from imitation via alternative mechanisms of protection. Additionally, with the new eligibility rules, small firms are less likely to obtain an injunction than large firms. Therefore, we expect to observe the decline in firms' propensity to license to be mainly driven by small firms.

The imposition of a liability rule for most non-practicing patentees may adversely affect entities that engage in innovation and utilize a business model that relies heavily on the right to exclude others, such as startups that have developed a new technology but have not yet brought a product to market.339 For many startups, the process of commercializing an invention is costly and complex, with uncertain prospects for success.340 Empirical researchers have found that many startup companies seek patents to secure rights to their inventions, particularly in the biotechnology and medical device industries,341 and the vast majority of startups that successfully secure venture capital financing have applied for patent protection.342 The effective loss of the right to exclude post-eBay may hinder these firms’ ability to subsequently commercialize their inventions.343 In addition, a liability rule may decrease the value of patents owned by PAEs and other non-practicing entities. By removing the threat of a permanent injunction, and thus the ability to potentially force infringing products off the market, eBay has “decrease[d] the incentives for potential licensees to seek a license rather than practice patents without permission.”344 The loss of the right to exclude erodes the patentee’s bargaining power and consequently may result in lower licensing rates.345 Indeed, this second-order effect is likely to have a much wider impact than injunction denials in litigation, as only a small fraction of patents are ever litigated, while many more are licensed.346

An injunction is not merely a remedy ordered by a court against someone found liable for violating a property right such as a patent. When property owners lose the ability to say “no” when faced with the unauthorized access or use of their property, common sense says that infringement will become more common and commercial transactions more difficult and protracted.35 In patent law, this is now known as “predatory infringement,” in which defendants choose a commercial strategy of “infringe now, pay later,” at worst, or, at best, they get away with infringement through a lengthy legal battle of attrition in which the patent owner ultimately just gives up. The existence of predatory infringement is difficult to measure; yet, the simple idea that reduced legal protection may result in predatory infringement is being confirmed by some empirical studies.36 Common sense also tells us that the loss of injunction to stop violations of property rights also devalues property in the marketplace—it is simply worth less given that it offers less protection to its owner. This is a basic idea in economics. The exclusive nature of property is the key to efficient use of assets. Exclusion means an injunction. An injunction is the legal backstop for commercial negotiations—it is the protection that secures to any property owner the freedom to say “no” to an offer to purchase or access one’s property. In patent law, an injunction allows a patent owner to walk away from negotiations if the party wishing to use the patented technology is unwilling to pay the asking price. But where an injunction is unlikely to be granted, that third party has little-to-no incentive to negotiate a license and instead may choose the “infringe now, pay later” strategy of predatory infringement. Even when a company chooses to follow ethical practices and properly purchase a license—pay for the rights to use the invention—the lack of injunctive relief necessarily means that the patent is worth less in this commercial transaction. The licensee is purchasing fewer rights, because the right to exclude is no longer one of the rights that the patent owner can offer for sale. This legal and economic logic has now been confirmed by an empirical study. In a recent study, AUTM reviewed university patent licenses with companies between 1996 and 2021, looking at whether a company purchases an exclusive or nonexclusive license. Understandably, an exclusive license is a higher-valued transfer of property rights, because the buyer is the only person legally allowed to use and commercially benefit from the patented technology. In legal and economic terms, an exclusive license is the transfer of the exclusive right to make, use, or sell something—it is the sale of the entire property right—and so it is worth more to the buyer. Nonexclusive licenses are generally lower-valued assets and cost less because the technology is made available to multiple parties that are in competition with each other in the marketplace. Figure 1. AUTM US Licensing Activity Survey: 1996–2021 Figure 1 Source: AUTM. As figure 1 illustrates, prior to the eBay decision in 2006, the amount of exclusive licensing and nonexclusive licensing was very similar. After 2006, nonexclusive licensing grew significantly, while exclusive licensing dropped off or remained stagnant. In fact, since approximately 2011, the time of the Federal Circuit Bosch decision, the relative rate of nonexclusive licenses has skyrocketed compared to the rate of exclusive licenses. Though overall licensing activity has increased over the period studied by AUTM, the growth is almost entirely attributable to nonexclusive licenses. Again, a nonexclusive license is one in which the right to exclude—the right secured by an injunction—is not purchased by the licensee. Following eBay and Bosch, as confirmed by the empirical studies, injunctions are metaphorically off the table, which means exclusion is no longer a term available for purchase from a patent owner by a licensee. What economically rational company would pay more for something that the patent owner no longer possesses and thus cannot sell? To apply here the classic cliché about someone trying to sell something they don’t own: if a patent owner offers an exclusive license today, it’s trying to sell you the Brooklyn Bridge. The AUTM data is an initial empirical insight into the negative commercial effects of the loss of injunctions as a remedy for patent infringement. It requires more study and analysis based on rigorous statistical methods. However, it provides support for the supposition that eBay not only has fostered the practice of predatory infringement, but has devalued patents as commercial assets generally. Exclusion is no longer one of the terms a patent owner can offer for sale in a license. Where an injunction is unavailable, patents have become less valuable—and that is a very b”ig problem because it reduces the ability of patent owners to obtain returns on their investments that drive growth in the innovation economy.

Misunderstanding the Commercial Function of Injunctions for Patent Infringement

Feeding the misplaced and unverified arguments about “patent holdup” is a widespread misunderstanding about the function of injunctions in securing property rights and as a driver of economic activity in the U.S. innovation economy. Although some companies internalize many aspects of research and development, manufacturing, and commercializing products and services in their business models, most companies do not do this. Businesspersons regularly create innovative economic arrangements to efficiently produce new products and services, such as creating disaggregated supply chains among different companies distributed throughout the global economy, franchise business models formed around licenses of a portfolio of intellectual property rights, portfolio licensing of patents, and patent pools, among many others.53

The Biden administration is pushing forward with new merger enforcement guidelines even as antitrust enforcers have been dealt a series of losses in court that may call into question whether their aggressive approach can withstand judicial scrutiny.

This tension was on display at a Tuesday event staged by the Federal Trade Commission and the Department of Justice featuring several antitrust experts, some of whom were critical of the Biden administration’s approach to merger enforcement.

The U.S. government wants to stop Big Tech from parlaying its control of present-day platforms into power over the future — but the giants haven't gotten the message.

The big picture: The Justice Department's major new case against Apple, filed Thursday, completes the Biden administration's quartet of antitrust lawsuits aimed at the companies that have defined the tech industry's last 20 years.

These assessments of conflict are by necessity relative, because there has not been a “high” level of conflict in any region outside the Middle East during the period of the New Peace. Putting aside for the moment that important caveat, some points become clear. The great powers of the world are clustered in the upper right quadrant, where US intervention has been high, but conflict levels low. US intervention is imperfectly correlated with stability, however. Indeed, it is conceivable that the relatively high level of US interest and activity has made the security situation in the Persian Gulf and broader Middle East worse. In recent years, substantial hard power investments (Somalia, Afghanistan, Iraq), moderate intervention (Libya), and reliance on diplomacy (Syria) have been equally ineffective in stabilizing states torn by conflict. While it is possible that the region is essentially unpacifiable and no amount of police work would bring peace to its people, it remains hard to make the case that the US presence has improved matters. In this “strong point,” at least, US hegemony has failed to bring peace.

In much of the rest of the world, the United States has not been especially eager to enforce any particular rules. Even rather incontrovertible evidence of genocide has not been enough to inspire action. Washington’s intervention choices have at best been erratic; Libya and Kosovo brought about action, but much more blood flowed uninterrupted in Rwanda, Darfur, Congo, Sri Lanka, and Syria. The US record of peacemaking is not exactly a long uninterrupted string of successes. During the turn-of-the-century conventional war between Ethiopia and Eritrea, a high-level US delegation containing former and future National Security Advisors (Anthony Lake and Susan Rice) made a half-dozen trips to the region but was unable to prevent either the outbreak or recurrence of the conflict. Lake and his team shuttled back and forth between the capitals with some frequency, and President Clinton made repeated phone calls to the leaders of the respective countries, offering to hold peace talks in the United States, all to no avail.67 The war ended in late 2000 when Ethiopia essentially won, and it controls the disputed territory to this day.

Reports of the demise of the liberal order, however, are greatly exaggerated. First, Hungary and Poland are newly contractualist states. The sociological nature of economic norms theory means that contractualist values should be more firmly rooted in older contractualist societies than in newer ones. This is corroborated with the natural experiment of Germany: in 1962 West Germany embraced contractualism (see table 1), but it was only after 1991 that East Germany could have become contractualist, when massive investments from the Federal Republic caused incomes in the marketplace to become higher than incomes obtainable from status relationships. Today, Germany’s populist movement is concentrated in the eastern part of the country and is largely nonexistent in the western part,83 which corroborates the expectation that some newly contractualist societies retain some of their status values even after a generation of robust opportunity in the marketplace. Deeper changes in values may not occur until generational cohorts initially socialized into status or axial economies have passed on. Second, the electorates in most of the thirty-five contractualist states listed in table 1 in 2010 have not experienced substantial increases in populist sentiment. Italy’s Five Star movement is often called populist but largely because of its anti-immigrant stance. Although an embrace of immigrants would seem consistent with contractualist values, opposition to large numbers of immigrants is arguably a rational response to what is essentially a huge external shock that has intensified in recent years. Britons voted to leave the European Union, but largely because they believed they were being treated unfairly in it. The rejection of unfair terms of trade, whether perceived correctly or not, is consistent with contractualist values. Third, the strength of institutions far exceeds that of any one person, including the president of the United States. Liberal values and institutions are rooted in contractualist economic norms and will not disappear simply because some leaders choose not to abide by them. For instance, although Trump may want the United States to withdraw from the North Atlantic alliance, this is not a view shared by Congress and the American people. Even members of Trump’s administration have often restrained him in ways consistent with contractualist values and institutions.84 In economic norms theory, the only way the United States’ contractualist values could shift to status or axial values would be through radical economic change. As mentioned above, economics is ultimately at the mercy of politics, as an influential coalition of rent-seekers could potentially collapse a contractualist economy by failing to sustain the highly inclusive marketplace or uphold the state’s credibility in enforcing of contracts. In recent years, the U.S. economy has begun tilting toward rent-seekers, given the growing role of private money in electoral campaigns and the increasing sophistication of rent-seekers in masking their activities though the manipulation of public opinion, including through their concentrated ownership of media outlets. Such rentierism could precipitate a change in U.S. values if it results in a retraction of the market substantial enough that newer generations began to obtain higher wages in newfound status networks than in the marketplace. In this way, the Trump phenomenon may reflect a pathology in U.S. governing institutions; but at least so far, it arguably has not extended to the American people. Most of Trump’s supporters seem to be drawn to him not for his expressions of status values, but for his pledges to fight a “rigged” system and create well-paying jobs. Whether or not Trump means what he says, many of his supporters saw a vote for him as an act of protest against the increasing corruption occurring in the United States, a clear contractualist expression.85 Although a collapse of the U.S. economy and transition to an axial or a status economy is always possible, the feedback loop of popular insistence on economic growth and a highly inclusive marketplace makes this unlikely. Aside from an external shock (such as nuclear war or climate devastation), such a transition could happen only if the rentiers somehow manage to remain in power long enough to institutionalize a permanently underemployed underclass. Fourth, even if the U.S. economy were to collapse and the United States became an axial or a status power, the combined economic might of all the other contractualist countries in the world is nearly twice that of the United States. The soft power of the United States in world politics lies not in its power to persuade, but in it being the largest of the contractualist states, and in its willingness to provide the public good of global security since the collapse of the pound sterling in late 1946. If the United States withdrew from its leadership role, the remaining contractualist powers would fill the vacuum. None of them has an economy relatively large enough to enable it to act as a natural leader and principal provider of global security, but it is the temperament of these states that they can easily form an international organization to coordinate and act on their shared security interests, even if some may choose to free ride. Fifth, current events need to be viewed within a larger context. Fernand Braudel pinpoints the rise of the modern world economy as starting around the year 1450 in northwestern Europe.86 The first contractualist economy emerged more than two centuries ago. Since then, contractualist states have confronted numerous shocks and threats to their systems, including the American Civil War, the Great Depression, two world wars, and the Cold War. The present populist mini-wave and pathologies in U.S. democracy are mere trifling episodes in a larger historical frame.

There is a large literature on diversionary conflict in international relations, but it focuses on material conflicts like militarized interstate disputes rather than foreign policy rhetoric. It is based in social identity theory, which suggests that leaders can increase ingroup affinity by making intergroup distinctions more salient (Closer, 1950; Simmel, 1955; Tajfel and Turner, 1979). A recent review concludes that though the internal logic of diversionary conflict is “compelling and theoretically well supported,” the empirical evidence is “decidedly mixed” (Baum and Potte r, 2008, 48). Several studies find evidence of diversionary aggression in US foreign policy (Clark, 2003; DeRouen, 2000; DeRouen and Peake, 2002; Fordham, 1998a, 6; Hess and Orphanides, 1995; Howell and Pevehouse, 2005; James and Hristoulas, 1994; James and Oneal, 1991; Levy, 1989«,fc; Morgan and Bickers, 1992; Ostrom and Job, 1986) and elsewhere (Bennett, 2000; Dassel and Reinhardt, 1000; Davies, 2002; Enterline and Gleditsch, 2000; Gelpi, 1997; Heldt, 1999; Lebow, 1981; Mansfield and Snyder, 1995; Oneal and Tir, 2006; Russett, 1990; Sobek, 2007; Tir, 2010). Yet skeptics have amassed opposing evidence (Chiozza and Gormans, 2003, 2004; Foster and Palmer, 2006; Gowa, 1998; Johnston, 1998; Leeds and Davis, 1997; Lian and Oneal, 1993; Meernik, 2000, 2004; Meeraik and Waterman, 1996; Moore and Lanoue, 2003; Potter, 2007). Some cases are hard to reconcile with the theory: in Britain, there were rallies in the Falklands War and the Gulf War but not in other cases in which rallies would be expected, such as the Korean, Suez, and Kosovo wars (Lai and Reiter, 2005). Some go so far as to call diversionary aggression a “myth” (Meernik and Waterman, 1996).

Others have developed scope conditions for diversionary aggression. It is more likely between states with pre-standing rivalries (McLaughlin and Prins, 2004), when leaders are accountable (Carter, 2018; Kisangani and Pickering, 2011), and in mature democracies, consolidating autocracies, and transitional polities (Pickering and Kisangani, 2005). It is less likely when states avoid provoking troubled adversaries (Clark, 2003; Fordham, 2005; Leeds and Davis, 1997; Miller, 1999). Diversion appears more likely to produce a rally when supported by Security Council authorization (Chapman, 2011; Chapman and Reiter, 2004), when the White House draws attention to a dispute (Baker and Oneal, 2001), and in conditions of media attention, popular leadership, divided government, non election years, and first terms (Colaresi, 2007). Most recently, scholars have asked whether diversion occurs outside democracies. They find some autocracies, especially single party regimes, divert as well (Carter, 2018; Pickering and Kisangani, 2011).

One familiar argument is the so-called diversionary (or “scapegoat”) theory of war. It suggests that leaders who are worried about their popularity at home will try to divert attention from their failures by provoking a crisis with a foreign power and maybe even using force against it. Drawing on this logic, some Americans now worry that President Donald Trump will decide to attack a country like Iran or Venezuela in the run-up to the presidential election and especially if he thinks he’s likely to lose.

This outcome strikes me as unlikely, even if one ignores the logical and empirical flaws in the theory itself. War is always a gamble, and should things go badly—even a little bit—it would hammer the last nail in the coffin of Trump’s declining fortunes. Moreover, none of the countries Trump might consider going after pose an imminent threat to U.S. security, and even his staunchest supporters may wonder why he is wasting time and money going after Iran or Venezuela at a moment when thousands of Americans are dying preventable deaths at home. Even a successful military action won’t put Americans back to work, create the sort of testing-and-tracing regime that competent governments around the world have been able to implement already, or hasten the development of a vaccine. The same logic is likely to guide the decisions of other world leaders too.

On balance, however, I do not think that even the extraordinary economic conditions we are witnessing today are going to have much impact on the likelihood of war. Why? First of all, if depressions were a powerful cause of war, there would be a lot more of the latter. To take one example, the United States has suffered 40 or more recessions since the country was founded, yet it has fought perhaps 20 interstate wars, most of them unrelated to the state of the economy. To paraphrase the economist Paul Samuelson’s famous quip about the stock market, if recessions were a powerful cause of war, they would have predicted “nine out of the last five (or fewer).” Second, states do not start wars unless they believe they will win a quick and relatively cheap victory. As John Mearsheimer showed in his classic book Conventional Deterrence, national leaders avoid war when they are convinced it will be long, bloody, costly, and uncertain. To choose war, political leaders have to convince themselves they can either win a quick, cheap, and decisive victory or achieve some limited objective at low cost. Europe went to war in 1914 with each side believing it would win a rapid and easy victory, and Nazi Germany developed the strategy of blitzkrieg in order to subdue its foes as quickly and cheaply as possible. Iraq attacked Iran in 1980 because Saddam believed the Islamic Republic was in disarray and would be easy to defeat, and George W. Bush invaded Iraq in 2003 convinced the war would be short, successful, and pay for itself.

The fact that each of these leaders miscalculated badly does not alter the main point: No matter what a country’s economic condition might be, its leaders will not go to war unless they think they can do so quickly, cheaply, and with a reasonable probability of success.

With respect to internal explanations, the effects of income inequality and ethnic diversity are presented in Table 3. Models 3.1 and 3.2 indicate that neither directly affects chauvinism. H4 is therefore not supported. The results suggest, however, that both have a negative effect on the national-identification slopes. Contrary to our expectations, countries with higher levels of economic and ethnic division appear to exhibit a weaker relation between national identification and chauvinism. While these findings might seem to contradict H5, the pattern was caused by outliers. After excluding South Africa—the most unequal and ethnic diverse country in our sample—the effect of ethnic diversity is not even of borderline significance. After excluding Chile—the most unequal country in our sample—the interaction effects for economic inequality were also far from significant.

The results, therefore, do not support H5.21¶ Conclusions¶ During the historic phone call between President Obama and Iranian President Sheikh Hasan Rouhani in September 2013, the latter stated that his country’s nuclear program ‘represents Iran’s national dignity’.22 This declaration reflects the common perception that Iran’s nuclear program mobilizes Iranians in support of resisting further national humiliation at the hands of foreigners (Moshirzadeh, 2007). This reflects the important role national feelings play in the contemporary international arena. Evidence from other examples—such as the Israeli-Palestine conflict—indicates that national identity serves as a key factor in conflict resolution. The prominence of national feelings is not limited to the Middle East, their effect on public attitudes towards international issues, and conflicts also being manifest in the West (Billig, 1995; Kinder & Kam, 2010).¶ It is thus hardly surprising that scholars seeking to develop a better understanding of conflicts adopt a social-psychology perspective, replacing the deterministic view that identification with one’s in-group necessarily leads to antagonism towards out-groups with an examination of the broader social context. In line with this approach, the present paper focuses on the way in which political and social contexts encourage chauvinistic views towards the international arena and how they affect the relation between national identification and chauvinism.¶ Integrating various social and psychological theories, we investigated two external contextual explanations (globalization and conflict) and an internal explanation (social division). Employing cross-national survey data, we examined the relation between national identification and chauvinism across 33 countries. The findings indicate that a positive relationship exists between national identification and chauvinism across most of the countries, although the level differs from country to country. Using a multilevel regression analysis, we tested to see whether globalization, conflict, and social division correlate with this variation. The results indicate that social and political contexts are related to chauvinism and the ways national identifi- cation and chauvinism are linked. Although a closer relation exists between national identification and chauvinism in more globalized countries, globalization failed to explain the variation in chauvinism itself. These findings support the notion that globalization highlights the importance of national identity (Calhoun, 2007; Castells, 2011). While those sections of globalized societies that are attached to their country also tend to resist international cooperation and endorse hostile views, the complexity of the phenomenon—as evinced by the divergent findings of previous studies (e.g. Jung, 2008; Norris & Inglehart, 2009)—calls for further research of this interpretation. The fact that the current study is cross-sectional must also be taken into account, the findings adducing the relation but not the causal relations between the variables. In contrast to experimental studies, the present design is similarly limited in its ability to offer a robust control for alternative explanations.¶ Another external factor found to be relevant—to a certain degree—was conflict. Countries that suffered large numbers of deaths in conflicts and mobilized resources and personnel exhibited higher levels of chauvinism. When other indices for conflict were used, however, these results were not replicated. A possible explanation for this finding lies in the inherent limitation in the way in which conflicts are measured across various countries. Measuring international conflicts is a challenging task (Anderton & Carter, 2011). While the ways of measuring conflict were chosen because they reflect different dimensions of conflict in order to be representative of a wide range of countries, the problem of comparability cannot be ignored. An alternative explanation may derive from the fact that only deaths from conflict and resources/personnel mobilization are sufficiently significant to contribute to chauvinism. The limitations of our measurements of conflict and research design mean that this idea must remain speculative, however. In addition, it is important to emphasize that the sample of countries is also limited as many countries are not involved in conflict and there is also limited variation in the types of conflicts.¶ Contrary to what the divisionary theory of national mobilization would lead us to expect, neither economic inequality nor ethnic diversity were related to chauvinism or affected the relation between national identification and chauvinism. This finding might also be explained by the limitation of the current research design. The number of countries included in the ISSP 2003 National Identity Module being relatively small and the sample only covering countries with available survey data, the results relate solely to this specific sample of countries. Across another set of countries, social division might play a far more significant role. Another explanation might be the meaning given to national identification and chauvinism across the countries. While evidence exists for the comparability of the scales across most of the countries, the divergent meaning probably attributed to them in Germany, the United States, and Israel might form an additional limitation.

Does economic inequality lead to conflict? This question has attracted the attention of prominent scholars at least since the time of Aristotle (Nagel 1974). The frequent assumption that unequal distribution somehow fuels rebellion has resulted in a vast amount of theoretical as well as empirical work. For long, results remained mixed. Despite countless qualitative studies asserting that inequality is a major reason for conflict outbreak, quantitative studies struggled to establish a firm relationship between the two (Blattman and Miguel 2010, Cramer 2005, Lichbach 1989).

These quantitative studies, including the most influential ones by Collier and Hoeffler (2004) and Fearon and Laitin (2003), rely on analysis of individual measures of inequality. However, as most prominently set forth by Frances Stewart, it is minority groups or collectives of individuals who rebel, not the whole population, nor individuals (Stewart 2002). Stewart’s theoretical development has given rise to several quantitative studies which uniformly support the role of economic group inequality in inducing conflict (Buhaug, Cederman, and Gleditsch 2014, Cederman, Weidmann, and Bormann 2015, Cederman, Weidmann, and Gleditsch 2011, Deiwiks, Cederman, and Gleditsch 2012, Østby 2008a, b, Østby, Nordås, and Rød 2009). Hence, there is an emerging consensus in the literature that inequality causes civil conflict when it overlaps with relevant group identities.