A New Hope: Will Economics displace Politics?

In the power balance between realm of politics and economics, Globalization has definitely shifted the balance in favor of economics. This process has gathered pace in last few decades. For nation states, questions and concerns of economics are prime drivers now. Nation states do not look for military or political superiority anymore; they value economic advantage, superiority and prosperity much more. Economics drives geopolitics. Nation states sign more and more free trade agreements and economic treaties, rather than pacts military alliances like in Cold War era.

Political Unions are a thing of past, but the world is now increasingly dominated by economic unions. EU, NAFTA, ASEAN, APEC, G8, G20 etc are all made of economically powerful actors. Power itself, to quote Mao no longer flows from the barrel of gun, but from the economy. The threat of capital flight, due to the ease of transportation and communication revolution, has significantly increased the bargaining power of business with politics.

The two factors which are largely responsible for this shift are technological revolutions taking place in communication which has freed the business from constraints of location. The second is growing acceptance of liberal free trade policies worldwide as means of achieving prosperity for large sections of society. The technological revolutions in transportations and communication have freed the business from constraints of location. It is now very easy to manufacture components in different parts of the world, assemble the product at a different place and then ship it to a distant market. Multinational Companies have global supply chains spread across several nations. The geographical proximity to sources of supply and raw materials or to markets no longer determines a company’s ability to compete effectively. The emergence of a liberal trading order, in the form of WTO, common markets, FTAs (Free Trade Agreements) have helped this further. This process has made it very easy for businesses to transfer or move investments from one part of the globe to another. The capital has become more mobile in recent years, as earlier technological and political barriers have crumbled. The easier mobility of capital has resulted in decreasing power of governments to control these flows. Since capital always flows to places where there is least amount of taxes and regulations and the government interference is low, the ability of government to control business through coercive means of taxes and regulations is dwindling. Governments now go out of their way to offer lower taxes and fewer regulations in order to attract capital flows. Sovereign governments are no longer free to determine the level of taxes and the amount of regulations as different economic actors and considerations constrain them. In case if government tries to tighten the capital flows, or regulate it the capital will simply migrate to another place.

In the eighteenth century, warfare was seen as separate realm from politics, while economy never featured in the power equation. With the rise of first national armies, starting with the Grand Army of Napoleon, warfare became an extension of political objectives of state. This was first articulated by Clausewitz in his book On War, where he argues that in any military campaign the basic political aim of the conflict should never be forgotten. War should always be fought for political purposes and it should be seen as an extension of politics. Moreover, big armies require vast resources and manpower, which can only be done by a political regime which has significant amount of popular support and which can inspire soldiers on some higher ideological platform. Populations can be made to sacrifice comforts only if they can be convinced that they are fighting for a higher cause. This required revolutionary ideologies. Warfare, as a ding-an-sich or as an isolated act of violence became a thing of past, as it became terribly costly to wage an absolute war. Overall, gradually with the rise of sovereign nation states military became subservient to the ends of politics and dependent on economy. But, politics still controlled economy and since it could martial resources for military ends, politics remained supreme among all three.

The growing dependence of military power on economic support left military power dependent on economic power. The process continues to this day, as most powerful militaries are backed by large developed economies. Nations can disregard the importance of economic power at their own peril, as seen in the case of USSR and currently with North Korea which has adopted the policy of ‘military first’ in its budgetary planning.

But in the latter half of twentieth century we are witnessing a shift in which both military and politics are subservient to economic objectives. Politics is losing ground to economics, while it uses military power increasingly for serving economic purposes. Earlier military power was a tool which politics maintained by economic support and used for achieving certain objectives for itself. But now, it is tool which is used to serve economics. And the degree of servility is slowly increasing. It is not the military power which is increasingly servile to economics, but the entire political realm is becoming servile to economics. This is mainly because as nation become more and more interlinked and interconnected with one another; exercise of military power will become more difficult. Two nations which are part of a single global supply chain or with significant amount of trade and commercial relations are much more likely to resort to political and economic maneuverings rather than military.

The nature of warfare itself has undergone significant change. Whereas earlier, as written by Clausewitz in On War, war was seen as an extension of politics but now warfare and military muscle supports the economic objectives. No longer is a military muscle considered necessary to defend the economic power, but the economic power is seen as capable enough to defend itself. The large developed economies no longer maintain huge standing armies or feel the need to display their military muscle very often. The old honor, interest and fear theory as three fundamental driving reasons for war no longer applies. Increasingly it is commercial and economic interests that drive various actors to use of military power. Some of the underlying reasons for most of the conflicts in the world today are economic. Most striking examples will be American interference in Middle East, Chechen conflict and Civil wars in Africa. Global political maneuverings are determined more and more by economic considerations.

As hostile military maneuverings among states involved in close economic relationships become rare, it may happen that rising importance of trade and commerce will leave hostile political maneuverings useless as well. Instead, there will be a push to ensure that stable and long term growth is sustained by a cooperative political structure. America and China, India and China, Russia and Europe avoid open political hostilities, as against what was the norm in international politics few decades back. This shows that as the different regions of the world become part of a single global economic order, different countries will find it increasingly tough to take hostile political actions against each other. If the economic cost of an action is greater than the political cost of not doing that action, the different nations are more likely to avoid that action.

The rising importance of economy also holds some hope for the various strife torn regions round the world. If the march of the economic order continues, it can very well be argued that it will knock at the doors of these regions soon. If in these regions also, the political cost of avoiding the conflict is lesser than the economic cost of perpetuating that conflict, the different parties to the conflict can be convinced about the futility of the conflict. This will certainly require building economic bridges beyond political boundaries. As people become involved in tighter economic embrace, they are very likely to sideline the existing political differences. This also means that instead of trade embargoes against ‘rogue nations’, the world should try to involve them in a bigger way in international trade and commerce. This is very likely to reduce the space for their ‘rogue behavior’. This leaves out the non-state actors, like terrorists who are not likely to become involved in any positive chain of global commerce (they are part of global drugs and illegal human trafficking chains however), but the support for them can be cut if the state actors supporting and backing them are incorporated in global commerce.

We can hope that the march of globalization and free trade order will lead to a peaceful world in the coming decades, though we should remain skeptical about the fact whether the process is entirely irreversible or not. But for now, trade and commerce do seem to lead towards a better and peaceful world.

Shivraj Negi

[Image courtesy: http://graphics8.nytimes.com/images/2007/05/24/business/24rupee.600.jpg]