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CHAPTER 7 The Utility of Economic Persuasion: A Reappraisal “George Kennan, meet Willy Loman.”1 The utility of economic persuasion, in particular the use of economic incentives, can be a powerful tool for governments seeking peaceful change. Yet it also means retooling for diplomats schooled in old-fashioned ways of bargaining and negotiating: government of‹cials need to also be business-minded. This is understood best within the context of policy objectives as well as strategy options. If the objective is to build trust or elicit political cooperation from the target state, then being able to generate conciliatory signals is paramount for the sender state. In particular, if the goal is to de-escalate con›ict, or simply reduce the barriers of mistrust between nations, concessional gestures such as economic rewards may be the only vehicle to reach that goal. When seeking peaceful change, then, the usefulness of economic persuasion as a viable foreign policy strategy is without parallel among all forms of statecraft. Offering economic incentives can indeed be an extremely effective strategy, if not the only feasible one under certain circumstances. While the costs of economic incentives may be signi‹cant, these costs may pale in comparison with the costs of alternative strategies, in particular military intervention. Nonetheless, if economic persuasion is to be a viable alternative to use of force, certain conditions must prevail; otherwise the basis for economic leverage— suf‹cient reward power—will not ›ourish. In other words, the German model of economic persuasion is dependent on certain domestic factors. This chapter presents a reappraisal of economic persuasion by examining the costs and bene‹ts of such a strategy. It surveys the domestic constraints Bonn encountered while employing economic statecraft as a technique of foreign policy and examines how these constraints affected the outcome of such a policy. In particular, it focuses on the domestic institutional structures that Bonn developed to implement its strategy of economic statecraft. This is especially crucial since I argue that it was precisely these structures that gave Bonn the capacity to extract the critical resources necessary from its domestic society. I then examine the feasibil137 ity of economic persuasion for other nations by asking whether the German model can be replicated elsewhere. In particular, I examine the U.S. policy toward Poland in the postwar era to elicit comparisons, and I focus on the institutional structure of that policy: How well was the U.S. government able to “manage” foreign economic policy? Was it able to muster the same amount of reward power as the German government? I close with a discussion of the likelihood of the United States developing such institutional structures in the post–Cold War era. The Benefits of Economic Persuasion Concomitant with the transformations in West German political objectives after 1969 (from diplomatic isolation to political rapprochement), even more signi‹cant changes took place in the strategies of the German government. The shift was away from a “policy of strength,” meant to coerce Poland into concessions through a show of military force, and instead toward traditional means of diplomacy (i.e., treaties and political agreements). To enhance these efforts, increasing use was made of economic instruments. In particular, once Bonn began its policy of damage limitation in the mid-1970s and, later, even more so during its policy of stabilization in the early 1980s, it increasingly emphasized a strategy of economic persuasion. The main instruments German of‹cials employed were the “carrots” of credit and technology transfer. This shift in strategy neatly coincided with a shift in Poland’s goals. Once Poland achieved its political goal vis-à-vis Germany, namely, the con‹rmation of its western border, it, too, was interested in intensifying economic relations. Bonn, then, was willing to oblige, even if it meant incurring high economic costs. For example, by the early 1980s it was clear that the Polish economy was suffering from a major economic crisis. Even so, German of‹cials continued to award Poland credit, directly and indirectly. By continuing to grant export credit guarantees under the guise of national interest , the German government primed the pump for commercial loans. I interpret this willingness to oblige Poland as an attempt to keep the Polish regime politically a›oat despite costing the German government several billion deutsche mark. In 1982 German elites even grudgingly accepted the “necessity” of martial law,2 and tried as much as possible to exempt economic relations from the political fallout. Later, during the 1980s, even the conservative government...

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