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THE U.S.-SOUTH KOREA ALLIANCE Free-Riding Or Bargaining?

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THE U.S.-SOUTH KOREA ALLIANCE Free-Riding Or Bargaining? THE U.S.-SOUTH KOREA ALLIANCE Free-Riding or Bargaining? Jong-Sup Lee and Uk Heo Defense burden-sharing has been a much-debated issue in alliance management since the early 1960s. The United States raised this issue to increase allies’ defense burdens in order to reduce its defense spend- ing without major changes in roles and missions. The U.S. executive branch has utilized congressional pressure to request allies to increase their defense burdens.1 For example, the Nunn-Roth Amendment (1984), the Neal Resolu- tion (1987), the Ritter Resolution (1987), the Amendment by John McCain (1988), the Amendment by John Bryant (1988), and the Amendment by Tommy F. Robinson (1988) all required American allies to increase their defense expenditures to a certain percentage of their gross national product (GNP). The Mansfield Amendments (1966–74), which were intended to re- duce the number of U.S. forces in Europe and to increase European contribu- tions, also produced a great debate in the U.S. Senate. In general, there are two contending approaches to defense burden-sharing: the free-riding model and the bargaining model. According to the free-riding model, the larger country in an alliance (as measured by size of GNP) has a larger defense burden than the smaller country does. In addition, the more the larger nation provides, the less the smaller nation will spend on defense.2 Jong-Sup Lee, Ph.D, is Lieutenant Colonel of the Republic of Korea Army. Uk Heo is Associate Professor of Political Science at the University of Wisconsin-Mil- waukee. The authors would like to thank Robert Peterson, Anthony Nownes, Jeffrey Berejikian, Yang Zhong, and Yen-Ping Hao for their helpful comments and suggestions. Asian Survey, 41:5, pp. 822–845. ISSN: 0004–4687 Ó 2001 by The Regents of the University of California. All rights reserved. Send Requests for Permission to Reprint to: Rights and Permissions, University of California Press, Journals Division, 2000 Center St., Ste. 303, Berkeley, CA 94704–1223. 1. Anthony H. Cordesman, “Economics, Strategy, and Burden-sharing, ” in U.S. Defense Pol- icy in an Era of Constrained Resources, eds. Robert L. Pfaltzraff, Jr., and Richard H. Shultz, Jr. (Lexington, Mass.: Lexington Books, 1990). 2. See Mancur Olson and Richard Zeckhauser, “An Economic Theory of Alliances,” Review of Economics and Statistics 48:3 (August 1966), pp: 266–79; Bruce M. Russett, What Price 822 JONG-SUP LEE AND UK HEO 823 Conversely, the bargaining model suggests that the defense burdens of smaller countries move in the same direction as those of larger countries. In other words, a smaller nation will increase (or decrease) its contributions to defense as the larger nation increases (or decreases) its contribution.3 In this paper, we revisit the contending theories of defense burden-sharing to suggest a revised model and apply it to the U.S.-South Korea alliance to explain the alliance relationship. The reason that we have chosen this case is that the alliance between the U.S. and South Korea has confronted the bur- den-sharing issue. For instance, at the beginning of the alliance period, South Korea maintained a relatively low defense burden. In the 1960s, this amounted to less than 4% of GNP. U.S. military aid to South Korea, includ- ing direct and indirect assistance, was more than the South Korean defense budget during this period.4 However, pressure by the U.S. forced South Ko- rea to increase its defense spending. During the 1970s, South Korea’s de- fense burden increased, reaching a high of 5.9% in 1978. This rise was triggered by Seoul’s agreement, signed in June 1979, to raise its defense bur- den to 6% of GNP in return for the cancellation of then-president Jimmy Carter’s U.S. troop withdrawal plan. Since the late 1980s, however, South Korea’s defense burden has decreased continuously, paralleling a similar trend in the U.S.5 Contending Theories of Defense Burden-Sharing Olson and Zeckhauser initiated the study of the free-riding model by investi- gating disproportionate defense burden-sharing6 in the North Atlantic Treaty Vigilance? The Burdens of National Defense (New Haven and London: Yale University Press, 1970); Harvey Starr, “A Collective Goods Analysis of the Warsaw Pact after Czechoslovakia,” International Organization 28:4 (1974); pp. 521–33; James C. Murdoch and Todd Sandler, “A Theoretical and Empirical Analysis of NATO,” Journal of Conflict Resolution 26:2 (1982), pp. 237–63; Wallace J. Thies, “Alliances and Collective Goods: A Reappraisal,” ibid., 31:2 (1972), pp. 298–332. 3. Glenn Palmer, “Corralling the Free Rider: Deterrence and the Western Alliance,” Interna- tional Studies Quarterly 34:1 (1990), pp. 147–64; idem., “Deterrence, Defense Spending, and Elasticity: Alliance Contributions to the Public Good,” International Interactions 17:2 (1991), pp. 157–69. 4. Young-Sun Ha, “Analysis of South Korean Military Expenditures: Past, Present, and Fu- ture” (in Korean), Journal of International Studies 7:3 (1982), pp. 289–306. 5. In-Taek Hyun, “Between Compliance and Autonomy: American Pressure for Defense Bur- den-Sharing and Patterns of Defense Spending in Japan and South Korea” (Ph.D. dissertation, University of California, Los Angeles, 1990). 6. A general discussion of the defense-growth relationship can be found in Uk Heo, “Model- ing the Defense-Growth Relationship Around the Globe,” Journal of Conflict Resolution 42:5 (1998), pp. 637–57; see also idem., The Political Economy of Defense Spending Around the World (Lewiston, N.Y.: Edwin Mellen Press, 1999). 824 ASIAN SURVEY, VOL. XLI, NO. 5, SEPTEMBER/OCTOBER 2001 Organization. Their notion of free-riding is adapted from Olson’s argument that “in the sharing of the costs of efforts to achieve a common goal in small groups, there is however a surprising tendency for the `exploitation’ of the great by the small.”7 Olson and Zeckhauser express this relation in a formula. The larger country A has to provide the amount of defense (call this D) needed to deal with a threat without help from its allies. With ally B, which faces a common threat, country A needs to provide less defense (da) because its ally B makes some contribution to defense (db), thus (D = da + db). When country A increases its military expenditures and provides a new level of defense da’, that is ( da’ = da + df, where f is the amount of change), country B needs to provide less defense db’, that is ( db’ = db - df) to obtain the needed level of defense. Thus, the smaller country, B, decreases its defense burden as much as the larger country, A, increases it.8 Free-Riding in Alliances It is assumed in the logic that is the basis of this formula that defense provided by an alliance is a purely public good. A purely public good is characterized by two elements: nonexcludability and nonrivalness of benefits. Nonexcludability means that once a good is provided for an alliance, none of the allies can be excluded from benefits of the defense. Nonrivalness means that when a good is provided to one ally it can be supplied to others at little cost. Because of these characteristics, according to Olson and Zeckhauser, the more burden the larger ally shoulders in an alliance, the less smaller allies spend on defense, that is, they “free-ride.” Using this logic, researchers have argued that larger states in an alliance (in terms of GNP) spend disproportion- ately more on defense than smaller countries.9 ”Bargaining” in Alliances The bargaining model provides an alternative perspective on defense burden- sharing.10 According to Glenn Palmer, “Preferences for the supply and con- sumption of a public good are a Prisoner’s Dilemma,”and there is a positive defense burden relationship between (or among) alliance members.11 In 7. Olson and Zeckhauser, “An Economic Theory of Alliances,” p. 267. 8. Ibid., pp. 268–69. 9. See L. Hansen, J. C. Murdoch, and T. Sandler, “On Distinguishing the Behavior of Nuclear and Non-Nuclear Allies in NATO,” Defense Economics 1:1 (1990), pp. 37–55. 10. See W. M. Reisinger, “East European Military Expenditures in the 1970s: Collective Good or Bargaining Offer?” International Organization 37:1 (1983), pp. 143–55; John R. Oneal, “The Theory of Collective Action and Burden-sharing in NATO,” ibid., 44:3 (1990), pp. 377–402. 11. Palmer, “Corralling the Free Rider,” p. 151. See also Russell Hardin, Collective Action (Baltimore: Johns Hopkins University Press, 1982); Robert Axelrod, The Evolution of Coopera- tion (New York: Basic Books, 1984). JONG-SUP LEE AND UK HEO 825 other words, cooperation between allies is attained through a bargaining pro- cess such that the smaller members will increase (or decrease) their contribu- tions to the supply of the good as the largest power increases (or decreases) its contribution. The logic of the bargaining model is derived from the theories of public goods and the Prisoner’s Dilemma (PD). According to Palmer, all states in an alliance have an identical hierarchy of preferences. The preferred out- come is to free-ride, or to enjoy the public goods (i.e., deterrence) provided by an alliance without contributing (DC). If actors cannot free-ride, the best alternative is to pay some of the costs for an alliance while receiving the benefits of others’ contributions. This is mutual cooperation (CC). The third preference is to pay no costs and receive no benefits (DD). The worst possi- bility is to pay the costs and receive no benefits, while others do not pay but enjoy whatever benefits are provided (CD).12 In a one-shot game, mutual defection (DD) is the dominant strategy for all players.
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