The Failure of Diplomatic Protection

THE last two chapters have made it clear that serious conflicts of interest and. clashes of emotional attitude are always likely to be touched off by the international investment of capital. Indeed, it is futile to expect that a process so powerful in its social effects as capital investment can ever occur without giving rise to more or less grave conflicts, even within the bounds of one nation and one culture. Where such conflicts do not call attention to themselves by open and dramatic outbursts (armed rebellions, wars, riots, violent strikes, etc.) the reason is not ordinarily that no conflicts exist, but that social institutions also exist which regularly bring the conflicts to some sort of peaceable and orderly adjustment. This is one of the chief functions of any political system, discharged through such institutions as the law, the courts, and (in a preventive sense) administrative agencies like factory inspection services, land survey offices, and home loan banks. Social institutions that are not governmental in the narrower sense, like collective bargaining, or the prestige acquired by certain classes, help to perform the same function of adjustment. The practical problem, then, of mitigating the international antagonisms bound to be associated with foreign investment is most intelligently stated, not as the task of eliminating all causes of conflict---hopeless in any case, even within the relatively favorable environment of a single national community---but as the task of developing workable social institutions for the prevention, and, where that proves impossible, the orderly settlement, of these conflicts. This is "The Problem of Adjustment."

It is the business of this chapter to inquire what social institutions are relied upon today for the adjustment of international conflicts associated with capital investment, and how well adapted these are to their important functions. Though it must be recognized that all such institutions are the product of "historical" forces rather than rational design, a rational appraisal of their operation is, nevertheless, a necessary preliminary to intelligent efforts at improvement.

Excluding from consideration for the time being the new machinery of international organization which has been developing under the aegis of the League of Nations, methods of adjusting international investment conflicts have centered, and still do center, about the institution known as the national diplomatic protection of citizens abroad. Lately this institution has been undergoing modification through the evolution of arbitration and claims commissions and other developments in the field of pacific settlement of controversies between states, but its essence remains the same. The national diplomatic protection of citizens abroad rests upon the legal theory that an injury to a citizen is an injury to his state. A government may therefore make official representations on behalf of its citizen or his property interests within the jurisdiction of another government, either for the purpose of preventing a threatened injury in violation of international law or for obtaining redress once such an injury has been sustained. There is assumed to exist a body of principles and precepts known as international law which is binding upon all states and which entitles aliens everywhere to a certain minimum of security and fair treatment for themselves and their property. When looked at from this latter point of view the technical designation of the legal doctrines involved is "the international responsibility of states for damage done in their territory to the person or property of foreigners," while from the side of the protecting state the same set of doctrines constitutes the basis for "the diplomatic protection of citizens abroad."(1) It is worth pointing out, however, that the two ways of viewing the matter do not necessarily lead to identical results. The international responsibility of states might conceivably be engaged under a different institutional arrangement, not toward the national government of an injured alien, but toward the world community as represented by an international organization. Thus international responsibility (but not to a national state) might still exist, were diplomatic protection abolished.

Let us proceed now to consider what the institution of national diplomatic protection has to recommend it. In the first place, it provides a basis for international intercourse, both personal and economic, by giving the person who goes abroad or sends his property abroad the assurance that at least some attempt will be made to see that he enjoys a certain minimum of security, as that term is understood in his own country. This is indispensable to the existence of international economic relations, and especially so if they are to take the relatively permanent and vulnerable form of capital investment. By undertaking to reduce the risks of international intercourse, national diplomatic protection has contributed, on the economic side, to the attainment of the relatively high living standards of modern times, which are unquestionably dependent to no small extent upon world-wide specialization and exchange. While national diplomatic protection has performed and still performs this function, we have yet to examine whether it does so more effectively and with less disturbance than the same function might otherwise be performed.

In the second place, the institution of national diplomatic protection does provide the means of settlement for many disputes. (We can waive for the moment the question as to whether it causes others.) It provides an accepted ritual, consisting of the preferment of claims, diplomatic interposition, exchange of legal argument, and payment of pecuniary damages, whereby incidents with potentially grave emotional repercussions upon the relations of two nations are sluiced off into the channel of decision according to legal rules and eventually disposed of. As modified by the now well established custom of international arbitration, especially in the form of joint claims commissions, this process not infrequently approximates the Western judicial ideal of impartial application by disinterested judges of impersonal rules of law. Of late some foreign offices have even followed the practice of referring claims of their nationals directly to arbitral commissions without undertaking to pass upon the merits of each claim in advance, and this practice, in so far as it becomes general, will tend to eliminate one of the objections which is later raised against the institution of national diplomatic protection. Even apart from such advanced procedures, however, the great bulk of the cases arising under diplomatic protection---and cases of diplomatic protection constitute a considerable part of the routine of most foreign offices---occasion no particular controversy. Most of them are settled amicably by negotiation. The reader must be warned that a study like this inevitably centers attention upon the relatively small number in which friction has arisen, leaving aside the greater number in which no difficulty appeared.(2) To point out that national diplomatic protection has operated successfully in some cases, or even in the bulk of cases, however, does not constitute an endorsement of its suitability as an institution of social adjustment, especially if it be found that it solves the easy cases and leaves the hard ones, or aggravates them.'

A third point which can be made in favor of national diplomatic protection is that it does undoubtedly, under certain circumstances, perform a preventive function. That is, certain states, and certain officials, who might otherwise be inclined to proceed(3) with flagrant disregard of the rights and interests of aliens are impelled by fear of the international consequences to exercise caution. Insofar as this is true it tends to reduce the number of occasions for controversy.(4)

Writers in Latin America, where the prevalence of weak governments and frequent revolutions has brought it about that the Latin-American states are typically in the position of receiving protests from abroad under the head of diplomatic protection rather than initiating them, frequently complain that the institution of national diplomatic protection is a device whereby weak states have their independence revoked by strong ones. It has been observed in answer to this protest that had the practice of diplomatic protection not developed as a legal institution, some Latin-American countries would probably have had to pay much higher penalties than they have paid for the injuries and losses sustained by foreigners within their borders. "While that institution did not always operate in the manner which Latin-American writers approved, it unquestionably served to delay or discourage the resort to forceful action by stronger states when their citizens sustained what was regarded as mistreatment in the territory of weaker states. The appeal to general rules and principles of law often served to shift attention away from the circumstances of the immediate case, and to give time for passions to cool. In the realm of legal dialectics, the Latin-American statesmen won many more victories than they ever could have won in a trial of physical strength. Furthermore, so long as it was possible to place the discussion of responsibility on the ground of law, the defendant nation could always appeal to arbitration as a last resort. This could not easily be refused by the complainant state, and, if accepted, meant a delay in bringing pressure to bear, and often resulted in a final settlement far easier on the defendant state than the original demand. The legal institution of diplomatic protection, in other words, served as a substitute for territorial conquest in bringing the Latin-American states within the orbit of international trade and intercourse, and, while the results obtained were not what these countries might have desired, the probable alternatives would have been far less desirable from their standpoint."(5) This is a fourth point which may be advanced in favor of national diplomatic protection, but, like the others that have gone before, it carries weight as between the institution of diplomatic protection and nothing at all, but not as between it and any substitute institution which might show promise of performing the same functions more satisfactorily.

This is the case that can be made out on rational grounds for national diplomatic protection. It would be a very strong case if there were no alternative ways of discharging the same functions, and in the historical situation out of which national diplomatic protection developed there probably were no alternatives. But there are alternatives today, and they are not open in the same degree to a number of very grave objections that can be levelled against the institution of national diplomatic protection. Those objections are seven in number. The first six arise out of the application and enforcement of the responsibility of states through the agency of an interested national government; they would not apply to the enforcement of these same legal principles through a disinterested agency representing the international community rather than a single complainant state. The seventh relates to defects inherent in any legalistic approach to problems of social adjustment; it would apply just as forcefully to any attempts to meet the problems of capital investment on a purely legal basis through an international agency as through national diplomatic protection.

First, national diplomatic protection is based upon judgment and execution by interested parties. It would seem to be an elementary principle, established by centuries of experience in the operation of human institutions, that those who have an interest in the outcome of a controversy are not fit to judge of its merits. If the adjustment of conflicts is to proceed successfully, whether in local police courts, in enforcing the rules of an athletic contest, or in international arbitrations, it is recognized that partisans must not decide; advocates must not be judges. Yet the institution of diplomatic protection is founded upon the assertion of rights under international law by a national government, acting on behalf of an injured citizen, and the government not only claims the right to judge whether or not international law has been violated, but to proceed to the execution of judgment through diplomatic pressure and reprisals, perhaps ultimately through intervention by armed forces. The defendant state, likewise, not only advocates its side of the case but claims that it, too, in the exercise of its sovereignty must be the ultimate judge of the issues involved. Agreements to submit to impartial arbitration, though increasingly common, are still voluntary concessions to common sense by the contracting parties; each continues to maintain, with some exceptions, its sovereign prerogative to be the supreme judge and executor of its own rights. This situation may mean that the law of the stronger prevails, if the stronger is willing to assert itself. Just as often, perhaps, it means that even a weak state is able to do manifest, injustice and escape without penalty because the complainant state is unwilling to incur the trouble and expense, perhaps the political risk and the odium, of effective ex parte enforcement of its rights---and ex parte enforcement is the only type provided by the institution of national diplomatic protection. In either case the orderly and equitable adjustment of conflicts is impeded by this vital defect in the method of diplomatic protection.

Second, diplomatic protection tends to widen and complicate disputes, instead of narrowing and localizing them as an efficient institution of adjustment ought to do, for it enlists nationalistic feelings and stakes national prestige on issues of private origin. The rule that an injury to a citizen is an injury to his state ultimately results in the conversion of conflicts between private persons or groups of different nationalities, or between alien private interests and a national government, into disputes between states, if the issue turns upon the interpretation of international law, and if a "denial of justice" can be alleged. Thus, the institution of diplomatic protection operates to enlist on the two sides of a conflict, which may be basically the clash of rival private economic interests, all the formidable apparatus of armed sovereign powers, with their bellicose manifestations of nationalism, their jingoistic presses, their sensitive prides, and their constant concern for the maintenance of prestige. The quarrel between the X Oil Corporation and the landless villagers whose cause has been espoused by the revolutionary government of Mexico becomes a quarrel between the United States and Mexico; Henry Smith vs. Heinrich Schmidt becomes England vs. Germany. The conflict of unscrupulous traders in Samoa brings battleships to the scene and becomes a conflict between great powers. A satisfactory institution for the adjustment of such conflicts ought to tend regularly to localize them, to smooth them over, to play them down, to disassociate them from already existing antagonisms. The institution of national diplomatic protection regularly tends to spread them, to stiffen the attitudes on each side, to dramatize them and to merge new conflicts into the dangerous accumulations of ill-feeling which may exist between contending states.

It may be said that this is regrettable but unavoidable. Is it not natural that a self-respecting state should count an injury to its citizen abroad as an injury to itself, and could citizens rightly be expected to forego national protection? The answer is that the institution of national diplomatic protection seems "natural" only because we are used to it, and citizens could easily forego its assistance if a more satisfactory institution were developed to take its place. This is not the place to discuss substitutes for diplomatic protection, but a significant question may be raised: When a New York owner of an Arizona silver mine feels himself injured by what he deems a confiscatory enactment of the Arizona legislature, does he "naturally" expect the government of New York State to make his complaint its own, and does he suffer because the government of New York State would never think of such a thing?

Third, diplomatic protection regularly operates to entangle justice with haute politique and with political expediency. Of course, it cannot be contended that justice ever has been or ever can be divorced from questions of expediency, but there are certain institutional arrangements for rendering justice which are less subject to the disturbances of extraneous interests than others. Diplomatic protection ranks very low in this respect.

It has been repeatedly emphasized that the basis of diplomatic protection is the doctrine that an injury to a citizen abroad is an injury to his state, and we have just seen that this tends to nationalize foreign investment conflicts. So insistent has the traditional theory been upon the point that only states, and not private persons, can have rights under international law, that current interpretations regard a claim for redress on account of injury to a citizen abroad as a claim on behalf of the protecting state itself and not on behalf of the person concerned. E. M. Borchard writes in his well-known work on The Diplomatic Protection of Citizens Abroad: "As the rules of international law and treaties constitute obligations between states their violation creates international responsibility, not to the individual, but to the state of which he is a member. This state, in demanding redress, does not represent the individual who has sustained the injury, and does not give effect to his rights, but to its own rights, the right, namely, that its citizens may be treated by other states in the manner prescribed by international law. This legal relation between states, however, may and usually does have as a consequence the indemnification of the individual injured, although he has no legal rights either to the protection of his own state or to the payment of the indemnity when received."(6) In the United States, for example, the courts have held that the Secretary of State has practically unlimited discretion as to whether or not protection should be extended to an American citizen abroad in a given case. Diplomatic protection may be denied as a matter of public policy. "The government is the sole judge of what claims it will enforce, and of the manner, time, means, and extent of enforcement. It may refuse to present a claim at all. After espousal of a claim, the government may abandon it, submit it to arbitration or make any other disposition thereof which it deems expedient in the public interests.... The government's power to settle the claim of its citizen against a foreign country is practically unrestricted."(7)

This feature of diplomatic protection has two practical consequences of great importance, and the first is that the presentation and enforcement of a claim for redress becomes not simply a matter of right and justice, but of political expediency. An alien who complains of unlawful injury may receive much less protection than that to which he might be entitled in the view of an impartial judge, simply because his home government finds it inexpedient to press his claim vigorously, perhaps because it is seeking alliances with other powers concerned, or because there are mutinies in the navy, or because it hesitates to run afoul of a Monroe Doctrine or other "regional understanding." Again, he may be the beneficiary of diplomatic protection far beyond his just desert, because his government desires to pick a quarrel in order to complete a territorial conquest, because internal opposition to the party in power seems to call for a foreign diversion, or because a navy bill is about to come up and it seems desirable to impress the legislature with the usefulness of naval power. Legal rights may provide the formal basis for diplomatic protection, but political expediency has in practice been a more than significant modiifier.

Illustrations can easily be recalled. The Mannesmann brothers claimed that the German government urged them forward in their Moroccan mining projects so long as its policy called for disputing French influence there, but showed no enthusiasm in defending their claims after the accord of 1909 had inaugurated a policy of compromise. French investors and speculators in Tunis before the occupation by France in 1881 received an extraordinary diplomatic support for their projects and were able to impose unreasonable demands for concessions and damage claims upon the government of the Bey. In Tripoli, while Italian statesmen were preparing that region for annexation, any conflicts which arose between Italian enterprise and the Turkish rulers were eagerly seized upon as pretexts for diplomatic intervention by Italy. The same was true of Russian private interests in Persia before the World War. The complaints of British investors in the region of the Persian Gulf and the Suez Canal were much more likely to receive willing and vigorous attention from their home government than were similar complaints from, let us say, Mexico, Colombia, and the Caribbean. Just the reverse was true of complaints by United States investors, while a century of diplomatic protection of United States citizens in Mexico revealed at times "a striking parallel between the upward and downward curve of American territorial and economic ambitions toward Mexico on the one hand and the concern with which American officials seemed to regard reported injuries to Americans in Mexico on the other. The same events which, in times of mounting ambitions, took on an aspect of extreme gravity, were at other times treated as minor misfortunes that might happen in any country."(8) The evidence is decisive that the system of national diplomatic protection in actual operation has shown a universal tendency to mix extraneous political ambitions and expediency with the determination of issues arising in connection with private investments. This tendency results from the nature of national diplomatic protection itself, is inseparable from it, and seriously disqualifies it as a useful instrument for the adjustment of investment conflicts.

Fourth, the manner in which diplomatic protection operates is oftentimes a direct incitement to antagonistic propaganda. This is the second consequence which follows from the fact that diplomatic protection is dependent upon the discretion of a national government and cannot be invoked automatically or as a matter of right by an injured party.

That is, investors are led to bring political pressure to bear upon their government in order to obtain vigorous support for their interests abroad.(9) That pressure may be exerted through direct contact with government officials, through influence upon party organizations, or through propaganda designed to influence public opinion and hence indirectly the policy of the government. The latter method is likely to have extremely important consequences for international relations, since the propaganda campaign is not likely to limit itself to a discussion of the issues at stake, but will usually include vituperation or misrepresentation directed against the foreign state whose actions are resented. In other words, while seeking to convert their own government to the adoption of a "strong" policy for the protection of their interests, the propagandists may succeed in stirring up a general public hostility toward another nation, and this hostility may be a very serious matter when other delicate negotiations arise. This incitement to antagonistic propaganda by interested pressure groups is a defect partly, but not wholly, remediable within the framework of diplomatic protection itself. The tendency referred to earlier for governments to set up joint claims commissions, with neutral umpires, and then to refer all claims of citizens on either side directly to these commissions without endorsement, obviates the evil to some extent.

Fifth, diplomatic protection provides too convenient a pretext or tool for aggressive political penetration by strong states. Historically, this aspect of the political problem of private investments under diplomatic protection has been the most dangerous to peaceful international relations and the most productive of serious conflicts. All the great powers have either directly or indirectly encouraged their business men and bankers to make investments in regions where it was thought necessary to strengthen the nation's political influence, and investments thus made have been incomparably more productive of international difficulties than investments made on the initiative of business men themselves and wholly for profit. Recall the Italian investments pushed into Tripoli before the Turco-Italian War, the Russian and Japanese enterprises pushed into Manchuria by their respective governments, the American government's deliberate promotion of economic holds on strategic centers in the Caribbean area, and the rivalry of France and Italy in Tunis.(10) Needless to say, an institution which operates so frequently in such a way is seriously defective as a device for orderly adjustment of investment conflicts.

Sixth, diplomatic protection stimulates conflict-provoking policies on the part of countries where politico-economic penetration is feared. This tendency has been noted in Chapter 14. The small and weak importers of capital feel that they are under the threat of domination by the stronger capital-exporting countries, and to protect themselves they often take legislative and administrative measures designed to inhibit the political effects of foreign capital. These measures are likely to be unreasonable, and in any case irksome to foreign capitalists and their governments. The actual result may be to provide foreign powers with justifiable cause of complaint or to irritate them into a mood which hastens the very interference it was desired to avoid. Not only small, weak countries, but also rival great powers, may see in the foreign investments of private citizens sinister attempts to establish political hegemony in certain regions, and the resulting state of suspicion may interfere with perfectly legitimate non-political enterprise and stimulate international friction. Something of this sort took place in the Persian Gulf before the war, as has been recounted in the story of the Wönckhaus firm, Chapter 2. Thus, diplomatic protection actually stimulates injurious treatment of aliens and generates causes of controversy.

We have been considering the objectionable features of diplomatic protection which arise primarily out of the fact that the law of responsibility is applied by interested national states rather than by some impartial authority representing a larger community of states or peoples. A second type of defect in diplomatic protection as an institution for adjustment of investment conflicts results from its legalistic nature. The diplomatic protection of citizens abroad takes the form of a legal process. That is, the interposition of a government in matters ordinarily falling within the territorial jurisdiction of another government must be justified by the complainant state on the ground of some general principle of international law, which means that the injurious act complained of or the claim presented must be brought by a process of logic under some rubric of the international law of diplomatic protection---"denial of justice," lack of "due diligence," etc. The defendant state thereupon makes its reply, which is also cast into the form of legal logic, perhaps challenging the existence of certain rules of international law whose validity the complainant state has asserted, or perhaps invoking a totally different set of concepts from which a result favorable to the defendant can be deduced---"exhaustion of remedies," sovereignty of states," or the like. Because of the legalistic nature of the representations made in the course of the actual application of the institution of diplomatic protection, questions of protection are ordinarily handled by the law officers of the Department of State and of other foreign offices.(11)

There are two difficulties with this legalistic approach to the adjustment of international investment conflicts. The first arises from the vagueness or the unsettled condition of many of the rules of international law on which diplomatic action is supposed to be based. This is unavoidable at present.(12)

The other difficulty is fundamental. The really serious problems raised by international investment conflicts are often, as we have seen in the two preceding chapters, due to the disturbing social changes and the clashes of diverse cultures associated with capital migration. In other words, these problems arise under circumstances for which there are no exact precedents and in settings to which the scale of values, the ethical system, and the legal system of any one culture cannot be unreservedly applied. Yet the traditional legal process employed in the institution of diplomatic protection proposes to deduce the answer to such problems from an assumed body of preëxisting rules and principles. Legal scholars devote themselves to the study and elaboration of these rules and principles, while the lawyer and the man in the street assume that, with a knowledge of this body of legal precepts, one can know with reasonable certainty how particular cases will be decided in the future.(13)

In actual practice, however, the traditional legal process does not bring everyone who applies it to the same problem to the same inevitable answer. Especially as applied to the materials of diplomatic protection it creates only a relatively low degree of probability that such will be the result. Legal logic enables one to predict, not what decisions will be arrived at in novel cases, but what rationalizations will be used to support the decisions after they have been reached. The traditional legal process does not permit the probable social consequences of crucial decisions to be considered openly and intelligently, and thus it leaves the door wide for a variety of unacknowledged factors to influence the actual determination of the issue.(14)

For example, suppose that the Mexican government proposes to expropriate large landed estates, including those owned by foreigners, in order to provide its landless citizenry with small holdings. It offers its own bonds in compensation, to the amount at which the land has been valued for tax purposes. These facts present certain novel features which make it impossible to decide by logical deduction alone which of several categories they shall be held to fall into: "confiscation," "non-confiscation," "public utility," "vested rights," "denial of justice," "domestic question," etc. Yet the decision as to the legality or illegality of the measure at international law depends upon what category is selected. "Unless we make the choice blindly or intuitively, we are forced to consider the consequences of classifying the act in one category or another, and to choose that set of consequences which we think most desirable." But the traditional view of the legal process forbids any such conscious consideration of the consequences of rival courses of action. The decision must be made to turn solely upon logical deduction from previously established rules and principles---even though logical deduction offers no way of determining which of several rival principles shall apply. By insisting upon adherence in form to a process which is incapable of yielding determinate results in cases outside the routine---and these are the important, controversial cases---the traditional legal method actually forces the decision to turn upon unconscious, intuitive, or at any rate unacknowledged factors.

It should be repeated that any attempt to meet the problems now handled through diplomatic protection by the development of some other institution of adjustment, such as international judicial settlement, would be subject to the same criticism insofar as it proceeded along purely legalistic lines. Conciliation, compromise, consideration of social policy and readjustment to new situations are needed in the adjustment of international investment conflicts as well as, or more than, the logical application of judicial maxims. Diplomatic protection itself, in the hands of statesmen with social vision and a sense for the realities of a situation, can be employed in a far-sighted manner, despite its handicap of legalisms. It is unfortunate, however, that the nature of this particular institution tends to favor its operation by legal minds in a field where the broadest social understanding is called for.

This concludes our survey of the advantages and disadvantages of national diplomatic protection as an institution for the adjustment of international investment conflicts, but there is one final question worth raising. Viewing the matter for a moment from a narrowly restricted standpoint, that of the pecuniary interest of the private foreign investor alone, is it as certain as commonly assumed that diplomatic protection has really operated to his net advantage? Has diplomatic protection actually protected international private investments? If it has protected investments and made them possible at some times and places, it has also at other times and places imperilled investments or restricted the opportunities for them. A balance sheet might be drawn up as follows:

Services of National Diplomatic Protection to Investors

Prevention of many injuries, by restraining governments or officials that would otherwise treat aliens unjustly, by imparting prestige or inspiring awe.

Indemnification for injuries on occasion.

Provision of a sense of confidence and security which results from the investor's knowledge that his home government will endeavor to help him in case of need.

Disservices of National Diplomatic Protection to Investors

Creation of an illusion of protection and redress available against unjust treatment, when protection and redress actually depend more upon political expediency than upon just cause of complaint.

Entanglement of non-political business operations in a web of suspicion, intrigue, and obstruction, inspired by the knowledge that such operations may be used as tools of political penetration.

Creation of special difficulties for business men who are citizens of a state whose political power is feared; discrimination against them; loss of goodwill.

Aggravation of international conflicts. Insofar as this helps to cause war, it results in great losses to investors through destruction or confiscation of property, intensification of nationalism, and business depressions ascribable in part to post-war reactions.

This rough tabulation sets over against each other items which are not subject to estimate in quantitative terms; it is impossible to strike totals and arrive at a net result. But the query is justified: All things considered, does the national diplomatic protection of investors abroad really protect more than it handicaps or imperils?



The argument of this chapter may now be briefly recapitulated: The institution mainly relied upon today for the adjustment of international investment conflicts is known as the national diplomatic protection of citizens abroad. It does give the person who goes abroad or sends his property abroad the assurance that at least some attempt will be made to see that he enjoys a minimum of security and fair treatment, as those terms are understood in this country, and thereby provides a necessary basis for international economic intercourse. It does provide a method of procedure whereby many disputes are settled. It does perform a preventive function at times, inspiring more considerate treatment of aliens and hence reducing the occasions of conflict. It may have served as a substitute for territorial conquest in bringing certain states within the orbit of international economic intercourse. These are weighty arguments in support of diplomatic protection if we assume that there are no alternative ways of performing the same functions. The objections to national diplomatic protection as an institution for the peaceable and orderly adjustment of investment conflicts are numerous and grave.

1. It places reliance upon a process of judgment and execution by interested parties, a thoroughly discredited method of rendering justice and a method calculated to intensify disputes.

2. It has the effect of enlarging rather than restricting conflicts by enlisting national feelings and staking national prestige on disputes of private origin.

3. It entangles justice with haute politique and makes it subordinate to political expediency.

4. It stimulates antagonistic propaganda of a sort likely to heighten international friction, thereby making conflicts less easy to adjust.

5. It provides a readily available pretext for aggressive political penetration by strong states.

6. It induces some countries to adopt policies hostile to foreign capital through fear of penetration; these policies provoke more conflicts and generate more friction.

7. It encourages a legalistic approach to the problems raised by international investment conflicts, an approach which tends to inhibit the conscious and intelligent consideration of social consequences, This same criticism would apply to any attempt to meet the problems of investment conflict on a purely legalistic basis, whether through national or international agencies.

Chapter Seventeen

Table of Contents