Power Games – The Statesman

Credit: Original article can be found here

There is not yet an authoritative definition of geo-economics that is clearly distinct from geopolitics. Geo-economics and geopolitics are interdependent. States interact with one another as independent sovereign units while exercising political power and authority. Market dynamics and economic necessities bring them together and make them interdependent.

Economic strength and economic diplomacy have become increasingly important factors in shaping modern international relationships. A country’s economic strength decides the amount of resources a government can command for diplomacy, aid assistance and military spending both in the form of soft power and hard power.

A country’s economic strength is also crucial for building technological capabilities which in turn can be converted into instruments of power. Prosperous and highly developed countries with diversified economies are capable of making threats such as blocking exports or imports, stopping capital flows and restricting foreign direct investments.

They can also turn these economic instruments into positive elements of international cooperation. Economic pressure has remained the last refuge where diplomacy has failed. Geo-economics as it is called refers to use of economic means to achieve political goals without use of military power.

The variables and the routes to achieving the goals are control of markets, trade surpluses, currency reserves, strategic investments, economic sanctions, tariff discriminations, blocking the access to natural resources and freezing of capital assets. Only a strong economy and a developed country can afford them. Contemporary economic power rivalries are being increasingly determined by applying methods of non-military warfare.

The concept of geo-economics as a power strategy appeared at the waning of the Cold War, thanks mainly to the works of Edward Luttwak, a US strategist and military historian. In his article,” From Geopolitics to Geo-Economics: Logic of Conflict, Grammar of Commerce” published in “The National Interest” summer 1990 edition, he wrote, “Except for those unfortunate parts of the world where armed confrontations or civil strife persist for purely regional or internal reasons, the waning of the Cold War is steadily reducing the importance of military power in world affairs.

The concept that armed strength could evoke in the dealings of governments over all matters including economic questions has greatly declined and seems to decline further.” He further outlined that the methods of commerce would displace military methods with disposable capital in lieu of firepower, civilian innovation in lieu of military technical advancement and market penetration in lieu of garrisons and bases. Luttwak claimed that ideological rivalries between Western liberal and communist collectivist models of societies would be replaced by a worldwide economic rivalry, in which trade, finance and the mastering of important technologies would often prevail over military power.

Although geo-economics is a modern concept introduced by Luttwak and not yet properly tested, the interrelations between state power, economy and international trade have remained important throughout economic history but without diluting or compromising in any way military authority.

Mercantilism as an economic theory and policy became influential in Europe from the 16th to the 18th century that called for government regulation of a nation’s economy in order to increase its power at the expense of rival nations.

Mercantilism’s emphasis on importance of gold and silver holdings as a sign of nation’s wealth and power led to policies designed to obtain precious metals through trade by ensuring favourable trade balances. Mercantilism provided a favourable climate for the early development of capitalism but was replaced by Laissez-Faire that argued all trade was beneficial and that strict government controls were counterproductive.

The German economist Friedrich List (1789-1846) advocated economic nationalism to support state policies to help industrialisation and build domestic economic power in order to gain security and independence. Economic warfare was applied both in periods of peace and war against countries to weaken their economy and thereby reduce their political and military power.

Economic rivalries had often resulted in geopolitical competition and led to different types of conflict including military ones. The most prominent example and experience of geo-economics of the modern world is China’s Belt Road Initiative (BRI). It is the central theme and anchor of China’s geostrategic approach and foreign policy. Initially conceived as a large scale” One Belt, One Road” project back in 2013, since renamed as BRI, it is a global infrastructure development strategy adopted by the Chinese government to invest in nearly 70 countries in Asia, Asia Pacific, Europe and Africa which make up more than sixty per cent of the world population.

BRI is a geo-economic initiative to construct a unified large market and to promote economic development and inter-regional connectivity. Economic decisions can always change depending upon geopolitical environment, resource mobilisation and strength of the economy. For China it is a different ball game. BRI has been incorporated in the Constitution of China in 2017.

The proposed investment is over one trillion American dollars. BRI includes infrastructure investments in deep water ports, skyscrapers, highways, railroads, airports, dams, tunnels, power grid, iron and steel.

There is a plan to build a transportation corridor all the way to Rotterdam connecting Pakistan, Southeast Asia and Central Asia.BRI has a completion date of 2049 that will coincide with the centennial anniversary of the founding of People’s Republic of China. In the words of Kevin Rudd, former Prime Minister of Australia and an expert on China,” China has already become a more important economic partner than the United States to practically every country in wider East Asia.

We all know where the wider strategic logic takes us. From economic power proceeds political power; from political power proceeds foreign policy power; and from foreign policy power proceeds strategic power.

That is China’s strategy”. It is now reported that Australia has pulled out of BRI completely. BRI has been interpreted by skeptics and nonparticipant countries as a plan for a Sino-centric international trade network.

The TransPacific Partnership (TPP) was a proposed free trade agreement comprising eleven countries, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. It was signed in February 2016 at Auckland, New Zealand. Former US President Donald Trump withdrew from TPP in January 2017.

The agreement could not be ratified as required and did not come into force. It remained a non-starter. Many observers have argued that the proposed geoeconomic trade deal could have served a geopolitical purpose by reducing the signatory countries’ dependence on Chinese trade. It could have also created a large economic area. Without USA, another agreement was signed by the remaining countries that came into force in December 2018.

US withdrawal from TPP reduced the effectiveness of a treaty that was designed to contain the economic and geostrategic influence of China. The US, Japan and Australia have formed a counter initiative, the Blue Dot Network (BDN) in 2019.

This multi-stakeholder initiative has been tasked to provide assessment and certification of infrastructure development projects worldwide on financial transparency, environmental sustainability and impact on economic development with a goal to mobilising private capital to invest abroad. BDN is not a direct counter to China’s BRI. BDN would not offer funding but would certify that projects are sustainable and not exploitative. BDN is seen as part of US strategy of trying to persuade developing countries in Asia and Pacific not to rely on Chinese funds for infrastructure.

Not much of BDN’s activity has come into public focus so far. China has already invested billions of dollars in several South Asian countries ~ Pakistan, Nepal, Sri Lanka, Bangladesh and Afghanistan ~ to improve their basic infrastructure with implications for China’s trade regime as well as its military influence.

The BRI now refers to the entire geographical area of the historic Silk Road trade route which had been continuously used since antiquity. It is too early yet to comment whether China’s geo-economic designs through BRI will serve the goal of establishing political power. Countervailing powers are destined to rise that will obstruct China’s advancement.

There is not yet an authoritative definition of geo-economics that is clearly distinct from geopolitics. Geo-economics and geopolitics are interdependent. States interact with one another as independent sovereign units while exercising political power and authority.

Market dynamics and economic necessities bring them together and make them interdependent. Geo-economics illustrates the strategic interactions between state agencies and various economic sectors to enhance the power position of states in the contemporary international system.

The possession or control of a segment or share of the world market confers to the state or national enterprise an element of power and international influence. Geo-economics provide a tool and successful strategies to conquer markets and protect strategic segments of domestic economy without compromising political authority. In spite of its increasing role, geo-economics does not substitute geopolitics.

The two concepts are closely linked and are destined to remain so as long as states retain their sovereign powers. Political sovereignty always precedes economic prosperity. That is the power rivalry scenario of the contemporary world.

The writer is a former central civil service officer who retired from the Ministry of Defence.