Geoeconomics in a Globalized World

Geoeconomics in a Globalized World

 “In the realm of economic competition, the instruments of power are productive efficiency, market control, trade surplus, strong currency, foreign exchange reserves, and ownership of foreign companies, factories and technology.” (— S.P. Huntington)

Geoeconomic power and its use appear to be a crucial, albeit understudied, aspect of today’s international relations. Traditionally, international power has been thought of in geopolitical rather than geoeconomic terms. Indeed, ever since the famous debate about sea power and land power between Alfred Thayer Mahan and Halford MacKinder at the cusp of the twentieth century, scholars have linked geography with the pursuit of political and military power. However, the term “geoeconomics” is of a more recent origin, and also more vexing than geopolitics. The term is commonly associated with Edward Luttwak’s writings in the early 1990s, although it did not spin a major scholarly discussion at the time.

Definition

Geoeconomics is the study of spatial, cultural and strategic aspects of resources with the aim of gaining a sustainable competitive advantage.

History

The battle for acquiring or maintaining economic supremacy and the control of natural resources has been the underlying logic of every major conflict in the world history. From the Trojan and Peloponnesian Wars to the latest 21st century military interventions, the principal motivation has been the enforcement of economic freedom — and essentially the preservation of access to natural resources. The Cold War marked the shift from geopolitics to geoeconomics. Luttwak argued that concern with the economic basis of political and military strength was particularly pronounced after the collapse of the Soviet Union as America’s official enemy, the Eastern Other that had helped define the Western Self for over four decades. As a consequence of both the globalization of the American economy and the Reagan administration’s military buildup of the 1980s the New World Order had moved toward geoeconomics.

Related Theories

Realism: Realism is a school of thought that explains international relations in terms of power. The exercise of power by states toward each other is sometimes called realpolitik, or just power politics.

Idealism: Idealism emphasizes on international law, morality and international organizations rather than power alone as key influences on international events.

Liberals: Liberals view the individual as the seat of moral value and assert that human beings should be treated as ends rather than means. Politics at the global level is more of a struggle for consensus and mutual gain than a struggle for power and prestige.

Balance of Power: The term balance of power refers to the general concept of one or more states’ power being used to balance that of another state or group of states. Balance of power can refer to any ratio of power capabilities between states or alliances, or it can mean only a relatively equal ratio. Alternatively, balance of power can refer to the process by which counterbalancing coalitions have repeatedly formed in history to prevent one state from conquering an entire region. The theory argues that such counterbalancing occurs regularly and maintains the stability of the international system

Constructivism: It suggests how states construct their interest through their interactions with one another. It emphasizes the behavioural norms of states.

Concept and its meaning

Geoeconomics is basically a branch of geopolitics. Geopolitics is based on rivalries, competition, conflict and confrontation whereas geoeconomics is based on mutual cooperation. The basic concept of geoeconomics is not advocating that the actors achieve absolute benefit maximization through cooperation; it rather stresses the scarcity of resources and emphasizes the independence of market players.

In the context of geopolitics, a state’s ultimate goal of cooperation is to deprive other states of sovereignty and obtain all their living resources with lower cost, and thus to obtain comparative advantage. According to Luttwak, from the perspective of geoeconomics, the main target of economic policy is to improve the state’s geopolitical potential, and to use the available instruments of economic policy (and the capacity of the country’s economy) to maximize benefits in external relations.

In geoeconomics, on the other hand, the values have changed and a country will gradually shift from the pursuit of power to the pursuit of peace, development and cooperation.

Sparke opines that geoeconomics can be understood not just as a description of a certain style of economically-oriented geopolitics, but also as a form of spatial strategy, which, like the so-called hidden-hand of the market, itself emerges more as a systemic net effect. He further argues that geoeconomics should be examined in relation with the positioning within global free trade and border-less economic flows, resulting from geographic position. He talks also about the re-invention of geopolitics in the context of economic independency.

Geoeconomic strategies are pursued by countries to maintain and secure their economic interests. For example, the creation of a new “Silk Road”, linking Beijing to its immediate neighbours, is a geoeconomic strategy which will not just dramatically increase regional productivity and trade, but will also stand as an enduring, very tangible expression of China’s material centrality in Asia and beyond.

Geoeconomics in a globalized world

Geoeconomics and its geo-financial system of mentioned trans-border manifestations and flows represent various forms of geoeconomic expansionism. Its main objective is to promote the leading position and geoeconomic interests. Geoeconomics has achieved its goals, thanks to a colossal boom of innovation in all areas of social relations, especially in the domain of interdependent functioning of national and international institutions. The dynamics of geoeconomics include the laws of market development accumulations, concentration of capitals between countries, relocation of business centres, replacement of exchange mechanisms, redistribution of world incomes, material and financial resources, changes in the global status of individual countries and so on. Its objects of study include the development processes of national and regional entities and the real international structures (economic, financial and integration associations), transnational corporations, various economic regions, free economic zones and geopolitical entities i.e. blocs.

Geoeconomically conducted foreign policy includes a strategy for conquering others’ market space and also for the geoeconomic defence of the state. Regional economic integration i.e. regionalism is a game strategy of geoeconomics for creating a larger unit from small national economies, for the purpose of removing trade barriers, and financial cooperation. Firstly, it’s important for the creation of broader markets. Secondly, it’s beneficial for the production of new commodities.

The world has seen the emergence of economic power blocs. Europe with its European Economic Community (EEC), the US, Mexico and Canada with a North American Free Trade Agreement (NAFTA), the formation of the Asia-Pacific Economic Cooperation (APEC), the South Asian countries with the South Asian Association for Regional Cooperation (SAARC) are examples of such regional groupings. Moreover, the doctrine of free market economy, privatization and MNCs are also the strategies of geoeconomics. Luttwak stated: “As spatial entities structured to jealously delimit their own territories, to assert their exclusive control within them, and variously to attempt to influence events beyond their borders, states are inherently inclined to strive for relative advantage against like entities on the international scene, even if only by means other than force.”

Critical Analysis

Classical war discourses are fading and intangible economic warfare has emerged in the shape of geoeconomics. Economic conflict is a form of warfare which affects the survival of the country. The cooperation in geoeconomics is just a special form of conflict. The endless conflict is changing the balance of power; once the balance is broken, the institution which was constructed by the former hegemon will face the danger of subversion, and the former hegemon will choose the war to protect its vested interests. Geoeconomics is the principal focus of inter-state competition. In practical terms developing countries are not able to implement geoeconomic policies; geoeconomic competition exists only among developed countries. Developing countries are only the playing grounds of economic powers to pursue their interests — a new form of imperialism.

Kennedy wrote in his book: “All of the major shifts in the world’s military-power balances have followed alterations in the productive balances; and further, that the rising and falling of the various empires and states in the international system has been confirmed by the outcomes of the major Great Power wars, where victory has always gone to the side with the greatest material resources.”

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