Countervalue Reimagined
Abstract
This article reexamines countervalue nuclear targeting in a multipolar strategic environment characterized by demographic asymmetry and autocratic governance. During the Cold War, countervalue deterrence relied primarily on population and industrial destruction as proxies for national wealth. This article argues that such metrics are increasingly misaligned with contemporary political economy, particularly in China. Real estate valuation offers a more regime-relevant proxy for elite wealth concentration, fiscal capacity, and sanction resilience. Integrating real estate valuation into countervalue deterrence planning can improve proportionality, credibility, and escalation control while remaining consistent with established deterrence theory and strategic stability objectives.
Introduction: Imposing Unacceptable Costs
In the emerging two-nuclear peer strategic environment including Russia and China, the United States military can no longer optimize its nuclear force and strategy to deter a single potential adversary. Moreover, the advent of capable missile defenses and the introduction of novel nuclear delivery systems further challenge sustained confidence in Cold War-era deterrence concepts. Setting aside the legal and ethical questions which inevitably arise, policy makers must reconsider the necessary costs to impose on nuclear-capable adversaries posing an existential threat to the United States, our allies, and partners. Widely available real estate prices are a useful proxy for the expected value of access to labor and capital in the geographic area. Nuclear targeting and homeland missile defense policy based on population and industrial capacity alone is unlikely to be as effective at maintaining strategic stability without some consideration of real estate valuation, particularly with regard to China.
In the early days of the Cold War nuclear weapon employment planning emerged in two strategic categories: counterforce and countervalue. Counterforce strategy aimed to deter nuclear aggression by holding an adversary’s nuclear force at risk which denied any expected benefit of nuclear employment. Countervalue strategy aimed to deter nuclear escalation by credibly threatening to impose extreme costs on an adversary. The magnitude of these costs would be measured in human casualties and proportion of industry destroyed. Former Secretary of Defense Robert McNamara’s 1965 congressional posture testimony stated the need for a nuclear force capable of destroying over two-thirds of Soviet war-supporting industry and one-third of Soviet population in order to deter nuclear escalation by Moscow. This choice of metrics was consistent with mainstream economics views in the mid-twentieth century about the sources of national wealth. In mainstream neoclassical economics national wealth is approximated by the production function of labor and capital.
When Land is Wealth
Real estate is neither labor nor capital but is naturally scarce and has unique characteristics well-detailed in the recent book The Land Trap by Mike Bird who currently serves as an editor at The Economist. Real estate is a useful store of value for investors and governments even if cut off from access to modern banking and international investment markets. Real estate investments cannot move or be hidden which prevents the outflow of wealth and facilitates tax collection. For the same reason real estate is also useful as collateral to borrow against if ever needed. Real estate contributes to the ability of a nation to generate wealth and to sustain fighting a major conflict even if subject to financial sanctions. Nations engaged in protracted wars almost always rely on deficit spending. The emergence of over-valued and under-occupied developments, the so-called “ghost cities,” in China is commonly perceived by financial analysts as a drag on the Chinese economy. However, from the perspective of an autocratic ruler like PRC leadership concerned with capital outflows and vulnerability to economic coercion, these ghost cities serve a useful purpose.
The demographics of the three major nuclear powers now possess much greater asymmetry in overall population, urbanization, and population density than during the Cold War. The population of the Soviet Union was approximately 241 million in 1965. Today the Russian Federation’s population is around 146 million and is likely to continue declining. Fewer densely-populated large cities mean that the targeting of urban centers results in diminishing returns to countervalue targeting and potentially challenges U.S. strategic stability calculus from a damage expectancy perspective. Once major Russian cities are destroyed, prioritizing the most effective targets to restoring strategic stability is more rationally-informed by total real estate value destroyed than maximizing total casualties. Conversely, China’s population is much more urbanized, densely populated, and therefore vulnerable to countervalue targeting than the United States. This also challenges strategic stability but in a different way, by making it more difficult to generate U.S. nuclear response options in proportion to Chinese escalation thresholds. Consideration of real estate valuations provides useful options to impose proportional costs without unintended escalation resulting from causing unnecessary civilian casualties.
Waning Counterforce Credibility
The emerging set of potential nuclear adversaries are expanding and diversifying their nuclear capabilities. If this trend continues, U.S. nuclear counterforce targeting will continue to lose credibility to deter by denial until the United States modernizes its nuclear force and postures its industrial base to directly compete with two nuclear peers. For the first time since the Cold War, the United States must reconsider the integration of countervalue targeting into nuclear deterrence policy. However, countervalue targeting need not resemble its previous manifestation. Nuclear deterrence options must be tailored to each adversary. The destruction of industry, infrastructure, and the attrition of civilian population only matter to the extent they are required for the autocrat to stay in power. Accordingly, countervalue deterrence must be reimagined not as the maximization of aggregate harm, but as the imposition of regime-relevant costs. In autocratic systems where political survival is closely tied to aligning the incentives of elites through the distribution of wealth and taking measures to maintain the fiscal capacity of the state through conflict, real estate valuation offers a more discriminating proxy for these interests than industrial and population-based metrics alone. Integrating real estate valuation into countervalue planning improves the precision, proportionality, and credibility of U.S. nuclear deterrence options.
Non-Nuclear Options to Restore Deterrence
Conventional military campaigns, offensive cyber operations, and unconventional warfare could also be tailored to disrupt China’s real estate values at lower levels of escalation. Because real estate is a culturally important and relatively sanction resilient store of wealth in China, disrupting real estate values earlier in a conflict will probably increase the effectiveness of other non-nuclear tools to restore deterrence at higher levels of escalation. For example, freezing the foreign-held financial assets of Chinese elite regime members is likely to be more effective when most of their domestic wealth is tied up in negative equity value real estate. Furthermore, targeting real estate valuations offers a pathway to degrade China’s ability to borrow money in a protracted conflict. A significant disruption in real estate prices poses a major threat to the solvency of Chinese banks holding mortgages on their balance sheets. Bank runs are not uncommon in times of conflict. If systemically important Chinese banks are forced to liquidate mortgage assets to fend off bank runs, this could lead to grave consequences for China’s banking sector requiring central bank intervention.
A likely objection to this revision of countervalue targeting logic is that it might imply the United States should prioritize homeland missile defense of wealthier counties over the more conventionally utilitarian approach of saving the maximum number of lives. For example, the total value of real estate in the Hamptons is roughly twice the total value of all real estate in the borough of the Bronx, New York City, despite the Bronx being home to fourteen-times the population. This is neither an ethical or rational homeland missile defense policy outcome. What I suggest is that real estate valuation should be considered with all other considerations being equal and decision makers have little time to answer what might manifest as a real-life trolley problem. There is likely to exist some margin at which the expected loss of human life becomes comparable and relative real estate valuation becomes a useful strategic heuristic when decision space and homeland missile defense resources are scarce. The better prepared the United States is to respond to potential nuclear escalation dilemmas, the more effective our strategy to deter nuclear escalation is in the first place.
Conclusion: Tailor Deterrence to the New Strategic Environment
According to deterrence scholar Robert Jervis, deterrence must leverage one of these three mechanisms: impose cost, deny benefit, or encourage restraint. Countervalue targeting seeks to credibly threaten to impose sufficient costs on a threat actor to dissuade them from taking some undesirable action. To that extent, countervalue deterrence is contingent upon an adversary’s perception of expected imposed cost. If policy makers get this wrong, there is a real risk that deterrence will fail. Autocratic heads of state are under different constraints of the political economy than democratic heads of state. In order to remain in power, autocratic heads of state do not need to be perceived as legitimate by their nation’s population. Autocratic heads of state need to retain the loyalty of a smaller subset of stakeholders to control the apparatus of state and need to prevent competing centers of power from emerging. To the extent that elites in an autocracy concentrate their wealth into real estate, the elimination of that wealth imposes a greater cost on an autocratic nuclear decision maker than to non-elite civilians, the favor of whom are unnecessary for the autocrat to remain in power.
Great power competition increasingly requires the alignment of economic security with national security policy. Real estate valuation should not be the only or even primary countervalue targeting consideration, but the variable is worthy of explicit inclusion in nuclear targeting and homeland missile defense guidance. Furthermore, for this reimagined countervalue targeting framework to achieve its effect, it must be credibly signaled by the appropriate policy makers to the intended audiences. This signaling could entail public statements –similar to McNamara’s February 1965 Assured Destruction congressional testimony statement. It could also entail codifying in publicly available national strategy documents which align defense resources to strategic goals. Lastly, because of the implications for how homeland missile defense resources are aligned, policy makers need to be able to articulate to the American public how potential changes to nuclear and missile defense contingency planning contributes to national security and makes nuclear escalation by potential adversaries less likely and improves the prospects for restoring deterrence in any U.S. military response to limited nuclear escalation scenarios.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the U.S. Army, U.S. Strategic Command, the Defense Intelligence Agency, the Department of Defense, or the U.S. Government.
