Neither Narrow nor Nice: Economic Warfare, Disinformation, and Civil Society
James Sullivan
“Hope, in reality, is the worst of all evils because it prolongs the torments of man”
A country’s economy is core to its national security, driving significant discourse regarding economic warfare. Current strategies, however, are driven more by political expediency than tactical efficacy. These strategies are based on the hope that “narrow” approaches targeting specific industry sectors or “nice” approaches avoiding harm to large population segments will drive impact. Hope, however, is not a strategy.
Narrow and nice economic warfare strategies are rarely effective. The “small yard, high fence” approach targeting specific industry segments fails in an increasingly interconnected global supply chain with rapidly changing industry linkages. Sanctions targeting elites have not splintered them from leadership; indeed, recent examples have shown the ability to further cement elite loyalty through windfall profits.
Effective economic warfare strategies target the foundation of a nation’s power: its economy and people. This paper suggests that such a strategy can leverage or create broad economic dislocations within a society and then allow those dislocations to be weaponized through disinformation campaigns that aim to manipulate the political beliefs of broader civil society. The integration of economic warfare and disinformation builds on Nye and Wilson’s idea that any separation of hard and soft power creates “an imperfect, dichotomous debate” given that state power increasingly combines hard power and a “nation’s capacity to create and manipulate knowledge and information.”
This integration is self-reinforcing: economic hardship creates receptive audiences for disinformation campaigns, and such campaigns make it harder to: a) maintain social cohesion to address underlying economic issues; b) inoculate against negative effects of disinformation campaigns; and c) legitimize government decisions.
A better understanding of the limited efficacy of “narrow” and “nice” approaches should inform both offensive and defensive policies. Further study of the enabling nature of economic dislocation for disinformation should enable governments to build more robust defences.
Politics over Purpose
Record levels of all voters believe that American troop presence overseas should be decreased. Recent polls show 71 percent of Americans against sending troops to Ukraine but supportive of economic sanctions as a substitute. The development of smart sanctions targeting narrow industry segments or elites has created a tactical toolkit addressing political issues surrounding the use of force against this increasingly isolationist backdrop. However, the strategic impact of this toolkit is decidedly mixed, with some arguing its efficacy is structurally limited. Sanctions are leveraged to create the appearance of action (fulfilling a political objective) at the expense of real progress on underlying strategic issues.
Narrow: The Limitations of Industry Segment Targeting
An analysis of recent U.S. actions in the semiconductor space illustrates the issues facing narrow industry-centric approaches. This is not meant to be an exhaustive analysis, but to provide an illustration of the broader issues at play with narrowly defined sanctions.
Semiconductor policies have been core to cross-Taiwan strait relations, with the United States looking to weaponize its control of global semiconductor technology. These efforts have focused on: 1) Defensive economic tactics, including subsidies to encourage domestic industry development; and 2) Offensive economic tactics, including export bans to hinder adversary industry development. Both approaches face challenges.
1) Defensive Economic Tactics: A new era of industrial policy
The U.S. government is a major procurer across industries and funds one-third of all domestic industrial research and development. The historic lack of political support for comprehensive U.S. industrial policy means that the impact of this procurement and investment was largely random given the lack of planning and coordination. This is suboptimal compared to more comprehensive approaches such as China’s Made in China 2025 program. The recent U.S. pivot to overhaul significant industrial policies arises from the view that more organization will better address efforts by foreign governments to undermine the American lead in key dual-use technologies.
Critiques of this re-centralized industrial policy argue that overall return on government-directed investment is sub-par and that industry subsidies and on-shoring initiatives can damage partner nation relationships and trigger declines in global trade. These are important points which deserve earnest debate.
The larger issue is that most important industry segments today rest on complex global networks of relationships, within which lies their real power. There is no longer a national auto industry, but a global ecosystem comprising lithium and nickel mines, chemical processors, battery technology, power management software, and companies that assemble something that looks like a car (at least from the outside). Similarly, the integrated circuit industry is now a complex global web of companies involved in design, lithography, testing, and assembly of semiconductors so small they beggar the imagination.
This global networked ecosystem prevents the success of any narrow nationalized approach, as all aspects of the ecosystem cannot be addressed. Close partnerships with companies across countries are necessary for commercial viability. Subsidies designed to advance one aspect of the ecosystem cannot exist in isolation. TSMC, the world’s largest semiconductor company, announced construction of a new plant in Arizona after US CHIPS Act subsidies. However, these subsidies don’t address other barriers such as access to qualified engineers and crucial import inputs. These issues led TSMC to slow down U.S. activities while intensifying investment elsewhere.
2) Offensive Economic Tactics: Export bans on…knowledge?
U.S. strategy to curtail adversarial development of dual-use technologies includes export controls on high-end lithography machines and semiconductor chips. Such controls may have been more effective during the Cold War’s bifurcated global economy. Today’s web of global trade ties means these controls are more likely to negatively impact ally relationships and U.S. market share than their intended targets. This trade interconnectedness also allows countries to find workarounds, as shown when Huawei and SMIC surprised the world with a new mobile phone using Chinese-made advanced semiconductors.
Nice: The Limitations of Targeting Elites
Research on sanctions targeting regime-linked elites shows that their holdings linked to global capital flows are most exposed and easily targeted. This has driven Vladimir Putin and Russian elites to reduce their financial market linkages. Additionally, regimes can use sanctions to redirect significant windfall profits to targeted elites through exit taxes, forced sales, and asset seizures. These tactics have been used in Russia to ensure strong elite ties to Putin’s regime, overseeing “one of the biggest transfers of wealth within Russia since the fall of the Soviet Union.” Elites in such a society can be seen as passengers in a vessel with only one lifeboat (their existing benefactor regime), rather than as potential coup-plotters.
Economic Warfare and Civil Society
Other academic research questions the viability of sanctions overall, focusing on their lack of impact and growing defenses deployed by targeted groups. The examples above further question the efficacy of even narrowly-targeted economic warfare tactics.
This paper suggests that narrow tactics fulfil the West’s increasingly isolationist political impulse. They are politically expedient, but generally fail to fulfil desired policy goals. An alternative approach recognizes the enabling impact of economic dislocation for disinformation campaigns, potentially contributing to significant civil society degradation. This option deserves further study to develop proper defences.
Economic impacts Driven Through Behavioral Theories
The proposed approach identifies or creates a macroeconomic change within a target country that creates disadvantaged groups, recognizing that income and opportunity inequality create significant political pressure. Efforts are made to exacerbate the problem and mitigate solutions, stressing these groups. These stresses will: 1) challenge group identities in line with Ontological Security Theory per Mitzen and Kinvall; 2) change in-group and out-group dynamics according to Tajfel’s Social Identity Theory and Brewer’s Optimal Distinctiveness Theory; and 3) shape group reactions to external stimuli based on shifting identities and perceived membership. These changing group dynamics can be influenced through disinformation tactics addressing identity security, potentially unravelling societal bonds by polarizing domestic narrative debates. An ensuing civil society breakdown can weaken the target country on the world stage.
Case Study: The United States
The rapid reduction in U.S. manufacturing jobs during 2000-2020 illustrates the potential impact of a broader, longer-duration economic warfare strategy. The contention here is not that any nation’s actions directly created this macroeconomic dynamic, but how an adversary can opportunistically leverage existing economic dislocation.
Step One: Identification of disadvantaged groups created via economic dislocation
Manufacturing jobs represented 38 percent of the U.S. workforce post-WWII, 32 percent in 1955, but only 8 percent by 2019. The decline’s drivers are debated, but the impacts on communities and individuals are clear.
Workers with more than ten years of manufacturing experience who lost jobs generally moved to service sector positions, with 80 percent experiencing wage declines of 45 percent or more. These wage losses were significantly larger in the U.S. than other developed economies. For every 100 durable manufacturing jobs lost, 744 indirect jobs were impacted, explaining the community-wide impact in certain geographies.
China’s entry into the global economy drove a portion of this impact from 1992 through 2010. While trade with China and emerging economies wasn’t net negative for U.S. job creation overall, with export-oriented and high value-added service jobs partially offsetting manufacturing job losses, this doesn’t help the workers and communities “left behind” and at risk of targeted attempts to break down U.S. civil society.
Step Two: Leverage disinformation to enhance identity insecurity and social divisions
Several state actors have the will and capability to pursue disinformation efforts. We focus on three of the most capable, without suggesting that this sample is exhaustive:
Russia has an over one hundred year history of active measures or information warfare, not targeting a positive analytic truth supported by facts and data, but one relative to specific communities, shared values, and histories. This truth is “preached from a pulpit, not tested in a lab” and is by definition inherently political in nature. Recently, Russia has embarked on sophisticated social media disinformation campaigns to exacerbate political tensions and exploit the link between rising inequality and declining civil participation. This strategy targeted existing tensions on socially divisive issues into the 2016 election cycle and beyond. While the efficacy of these campaigns is debated, they’re expected to continue into the 2024 election cycle.
China has a rich history in information warfare tactics dating to the Qing Dynasty. China’s tactics have been less focused on fostering civil-societal breakdown and more on pushing pro-China views or “flooding the field” to obscure critiques. However, there are signs of a shift towards inciting divisions, including commentary around QAnon conspiracies and the anniversary of George Floyd’s death.
The United States has focused on information superiority since the American Revolution, advancing significantly during the Cold War with the Active Measures Working Group designed to give the United States an upper hand in an “arms race of fictions.”. Recent literature discusses the evolution of U.S. defensive disinformation strategies and argues for more offensive tactics. Further development of offensive and defensive capabilities would be required if the strategies described here are pursued.
Lighting the fuse: why disinformation matters
The growth of these disinformation campaigns, targeting potential fault lines in civil society, is critical as they light the dormant fuse of economic distress. Defensive strategies must be developed to mitigate this impact.
Traditional “discontent” theories by Garr and Midlarsky argue that economic dislocation and income inequality are root causes of political violence. These include economic discontent theory and political opportunity theory. More recent work, like Schock’s Conjunctural Model, suggests it’s the interplay between these forces that matters, arguing that inequality mixed with an unresponsive political system ignites the flame. Interventions creating or expanding the perception of unresponsiveness can accelerate civil breakdown. Income inequality is a necessary but not sufficient precondition for civil societal ruptures. Sophisticated disinformation campaigns leveraging social media and AI render these inequalities visible, driving outrage, ruptures, and political violence.
India: Potential Risks and Vulnerabilities
While China has seen compressing income inequality since 2010 and introduced Common Prosperity policies to mitigate economic dislocations, India has emerged from the COVID-19 slowdown with a “K-shaped” recovery, where gains in middle and upper-income segments aren’t matched by gains in lower-income rural areas.
Step One: Identification of potential disadvantaged groups
Macroeconomic statistics point to a growing disadvantaged group in India, largely in the rural agricultural population. Car sales (wealthier segment) grew 32 percent relative to 2019, while motorcycle sales (lower-end segment) shrank 7 percent. The share of affordable new housing construction fell from 44 percent to 18 percent, while super-luxury construction grew from 23 percent to 54 percent. White-collar wages grew 16 percent since 2022, while agricultural wages remained stagnant. These trends likely exacerbate fissures between formal economy players and informal economy workers. India’s February 2024 federal budget opted for fiscal consolidation over investments in rural economies or manufacturing stimulus, limiting short-term progress on inequality.
Significant government intervention is likely necessary to address these structural inequalities, focusing on skills training for transition to more productive manufacturing jobs and investment in infrastructure to entice foreign direct investment.
Step Two: Leverage disinformation to enhance identity insecurity and social divisions
India has a long history of political violence triggered by caste differences, religious disputes, and nationalism. It’s experiencing a significant increase in dis- and misinformation campaigns, targeting one of the world’s largest social media user bases. Evidence links these campaigns to mob violence, anti-Muslim riots, and majoritarian radicalization.
Various players are active in the Indian misinformation space, including domestic political parties and foreign countries. Indian Intelligence officials blame China for launching “massive information warfare” activities. The structural basis of the disadvantaged economic class, combined with the world’s largest social media user base and history of political violence, creates a rich target environment for adversaries looking to trigger civil society breakdowns.
Conclusion
Income inequality is a national security risk that can be effectively activated by mis/disinformation campaigns targeting left-behind communities. Current economic sanctions and warfare tactics focus too much on politically acceptable approaches at the expense of efficacy. Governments must be aware that the lack of impact from current economic policies may lead adversaries to pursue more damaging approaches. This paper illustrates one such risk to spur debate on defensive strategies.
About the Author
James Sullivan serves as an External Associate on the Economic Conflict and Competition Research Group at the Defence Studies Department at King’s College London, where he is also is a PhD candidate. Previous fellowships have included roles as an Adjunct Fellow at Pacific Forum and a Visiting Scholar at the Daniel K. Inouye Asia Pacific Center for Security Studies. He also serves on advisory boards for the Fuqua School of Business, Duke University and Duke Corporate Education. James holds a Master’s degree in International Relations (Dean’s List Academic Achievement Award) from Harvard University’s Extension School, an MBA from Duke University’s Fuqua School of Business, and a Bachelor’s degree in Political Science (Summa Cum Laude) from Marist College. He also serves as Deputy Director of the International Affairs Directorate for the United States Coast Guard Auxiliary and holds multiple marine safety qualifications.
