Journal of Political Risk, Vol. 8, No. 5, May 2020
A rear view of a businessman as he tries to sort out the mess of geopolitical events. Source: Pexels.
William R. Hawkins
Former U.S. House Foreign Affairs Committee
In the public mind, the outsourcing of jobs to China, which built the conveyer belt that carried Covid-19 from Wuhan to the world, was the fault of soulless transnational corporations. Greedy business tycoons were willing to deal with anyone in the pursuit of profit, regardless of larger consequences (of which the current pandemic is not the most dire). What cannot be overlooked, however, is that these private actors were given moral cover by intellectuals who assured them that they were fulfilling a higher purpose by spreading liberal values and promoting peace in a new era of globalization. As late as 2011, President Barack Obama could tell American and Chinese business leaders, meeting on the edge of his January summit with Chinese President Hu Jintao, that he depended on them to keep good relations between the two powers. This was in the wake of the military confrontations that had dominated the second half of 2010 after a North Korean submarine sank a South Korean warship. Major naval shows of force were conducted by the U.S., Japan, China, and Russia around the volatile peninsula. President Obama thought container ships could calm the waters.
Though the term globalization originated earlier, it became popular in the 1990’s during the post-Cold War euphoria that spawned hopes of a “new world order” devoted to economic development. The ideals of democracy and free enterprise promoted by the victorious United States would envelope the entire world and set humanity on a progressive course. The collapse of the Soviet Union and a wave of economic reforms in China seemed to confirm that the values of the West were becoming universal. The threat of large-scale conflict was no more. Yet, these sentiments were not new. They were rooted in the school of classical liberalism which had gained influence in another post-war era nearly two centuries earlier at the end of the decades-long conflicts of the French Revolution and Napoleon.
The core of this alternative belief system was that private entities; individuals, non-government organizations, and corporations, could run the world better than nation-states. The necessary evil of government in world affairs was national security; but in the post-war environment this was no longer an imperative. The Cold War restrictions on trade and other forms of interaction across borders could be dropped because the exchange of goods, capital, and technology would not be used to create weapons in a peaceful milieu. Nations and empires have pursued global strategies since time immemorial, but globalization was the rejection of this. Governments would be isolationist, while everyone else was liberated.
Transnational associations of business, culture, and people might undermine national loyalties, but if they created “global citizens” who would overcome ancient animosities so much the better. It was claimed that the nation-state could not survive attacks from both below (subnational identity politics of myriad kinds and the notion of personal sovereignty) and from above (supra-national organizations and universal norms assumed to be liberal) as technology and wealth provided the means to act independently. Economic development was the key, and transnational corporations were the tool, though material gain was not the ultimate goal. As David Roche, a former Canadian ambassador for disarmament, put it in a collection of essays entitled World Citizenship: Allegiance for Humanity, “Only by examining the whole world as a community, bounded by our common humanity, can we understand what development should entail.” The editor of this 1997 volume was Joseph Rotblat, the winner of the 1995 Nobel Peace prize. He had long been the leader of the Pugwash Conferences on Science and World Affairs which had tried to cultivate private sector cooperation with Soviet scientists to prevent a nuclear war (though one can question how “unofficial” the Soviet participants were and how balanced were the pronouncements issued).
The principles for this anti-state program of governance were laid out by Immanuel Kant in his tract Perpetual Peace written in 1795 while the French wars were still in their early stages. “There is only one rational way in which states coexisting with other states can emerge from the lawless condition of pure warfare.” argued Kant. “Just like individual men, they must renounce their savage and lawless freedom, adapt themselves to public coercive laws and thus form an international state (civitas gentium), which would necessarily continue to grow until it embraced all the peoples of the earth.” It would be necessary to prevent states from engaging in acts of imperialism, intervening in the internal affairs of others, maintaining standing armies, employing spies, or using public debt to finance war. And, of course, Free Trade was to be promoted to bind people together as individuals practicing peaceful exchange.
Perhaps the most famous statement on this doctrine came from British Radical (and wealthy businessman) Richard Cobden who claimed in 1842 that commerce was “the grand panacea” and that under its influence “the motive for large and mighty empires, for gigantic armies and great fleets would die away.” Cobden was a “Little Englander”, who hoped that Free Trade would destroy the British Empire as each colony and dominion formed stronger economic ties outside the empire than within it. He wrote in 1835 that under his system the colonies “will be at liberty to buy wherever they can buy cheapest, and to sell in the dearest market. They must be placed in the same predicament as if they were not part of His Majesty’s dominions. When then, will be the semblance of a plea for putting ourselves to the expense of governing and defending such countries?” This program for disintegration has devolved into letting individuals and firms trade in an open world, eliminating any allegiance to any national society.
Interestingly, when the Confederate States followed Cobden’s thinking and favored trade with Great Britain over ties within the United States, he opposed British support for them in the Civil War. Wanting to see slavery abolished, Cobden favored a Union victory showing that even he could place issues above trade in the conduct of foreign policy.
Cobden’s counterpart across the channel was economist Frederic Bastiat who argued, “Free trade means harmony of interests and peace between nations” and went on to state that “we place this indirect and social effect a thousand times above the direct or purely economic effect.” He argued in 1849 that France should be a model for the world by both adopting Free Trade and by disarming unilaterally. “I shall not hesitate to vote for disarmament” he proclaimed “because I do not believe in invasions.” An odd view from someone who lived in France unless the future was going to be very different from the past. It wasn’t.
Economics was to be separated from politics, wealth from power. Free Trade means free from government constraints. A commerce of peoples replacing the rivalry of nations. Jeremy Bentham wanted to replace “offensive and defensive treaties of alliance” with “treaties of commerce and amity.” Thomas Paine, finding that “war is the system of Government on the old construction…. Man is not the enemy of Man,” listed among his revolutionary proposals that all warships be converted into merchant vessels. French economist J.B. Say called for an end to the diplomatic corps, arguing that “it is not necessary to have ambassadors. This is one of the ancient stupidities which time will do away with.” They should be replaced by consuls whose function would be to promote Free Trade as an end in itself.
The textbook economic theory that has come down to us from this classical era holds that this is the way to maximize global output. It promotes efficiency as each region produces what it can do best and contributes whatever resources it has in abundance (including labor) to keep costs low. Entrepreneurs are the best managers and innovators. Distribution of this increased wealth is left to private interests the same as its production, and therein lies a problem in a world that has defied the classical expectation and remains contentious. The world is not a single polity where the term “global” can be substituted for “international” as has been attempted. Where factories, research labs, shipyards, skilled workers and money reside are the material foundations of the international balance of power. Governments cannot remain idle as strategic assets are placed across the map based purely on private profit rather than on national development and security. The classical view can only prevail in a cosmopolitan world where national advantage has no meaning. The 21st century is not such a time any more than prior centuries.
Trade theory cannot be plucked out of its larger ideological context. Consider the worldviews of two of the pioneers of the global division of labor model from which the case for efficiency and growth has evolved. David Hume claimed that nations were mere “accidents of battles, negotiations and marriages.” He denounced mercantilist practices for strengthening the state at the expense of individuals, for promoting wars, and for seeking to cripple the economic advancement of rival nations. He considered himself a cosmopolitan. His love for French culture led him to oppose his own country’s efforts in the Seven Years War (the first truly world war). He asserted there was “nothing ever equal in absurdity and wickedness as our present patriotism.”
David Ricardo, whose theory of comparative advantage is still a mainstay of the Free Trade argument, stated in 1813 “parliaments have something more to do than furnish ministers with the means of preserving the greatness and glory of the country.” England was at war with Napoleon and Ricardo, a member of the British House of Commons, was arguing against financing the war with debt. Ricardo favored the “pain” of a direct tax rather than a sinking fund to finance military operations because “when the pressure of the war is felt as once, without mitigation, we shall be less disposed to engage in an expensive contest.” He felt it his duty to see that “the resources of the country are not misapplied by the arrogant and ambitious conduct of our government or used for purposes of ambition, rapine and desolation.” He was quite the dove, which put him in the mainstream of liberal opinion.
Ricardo believed the gains from trade to be so great that nations would continue to trade with one another even in time of war. Thus, England did not have to worry about being dependent on foreign imports even of food, since these flows would not be interrupted. This was an odd argument given that Napoleon had instituted the Continental System to isolate England from European trade. The Royal Navy had, of course, blockaded France. In this commercial warfare Napoleon failed because his armies were not as successful in dominating Europe’s ports as the Royal Navy was in dominating the seas. Nor did the future confirm Ricardo’s optimism. The strategy of striking at the foundations of an opponent’s economy, using everything from U-boats and strategic bombing to guerrilla raids and economic sanctions, became more useful as the Industrial Revolution advanced.
Paul Krugman won the 2008 Nobel Prize for Economics based on advances he made in trade theory in the 1980s. Like his predecessors, he thought trade between nations reflected their unique nature. Factor endowments (capital and labor) and industrial structures (especially economies of scale in his model) determine what they should produce and exchange. His innovation was to argue that there were multiple possible outcomes not just a single point of equilibrium. He even considered strategic trade policy where nations could gain advantages over rival powers. And he recognized that large nations have inherent advantages. Yet, he abandoned these more useful lines of study in the 1990s, falling under the liberal spirit of the day.
In his 1994 article in Foreign Affairs entitled “Competitiveness, A Dangerous Obsession” Krugman rejected the idea of international competitiveness arguing it is companies that compete, not countries. Business was autonomous in a market system devoid of international repercussions. Yet, history shows the impact of the externalities from corporate operations and disparities in economic advances. The 20th century was rocked by the geopolitical consequences of Germany surpassing Great Britain in production capacity in the years before the First world War; an impact that was mitigated by the industrial rise of the United States. In both cases, protectionist policies supported growth against the former leadership of England. The rise of China is following the same pattern, but in the 1990s it was not fashionable to speak of such things.
Classical liberal thought during the decade following the fall of the Berlin Wall was so persuasive that even national leaders were willing to surrender to it. The crowning achievement of the coalition of intellectuals and merchants was the creation of the World Trade Organization in 1995. The WTO lists as its first principle “A country should not discriminate between its trading partners and it should not discriminate between its own and foreign products, services or nationals.” This essentially removed the nation-state from the world economy. Yet who would support, especially in a democracy, leaders who had declared they would not favor their constituents, their countrymen, over rivals living on the other side of the planet? That even in vital national contests with foreign adversaries, citizens would get no help from their government. They would be on their own in a hostile world as if their flag meant nothing (shades of Cobden). A starker rejection of the social contract would be hard to imagine. During the debate over the creation of the WTO, its proponents argued that those who opposed globalization were “isolationists” when in reality, the WTO was the prime example of a movement that wanted to isolate the nation-state from world affairs.
Even before the Cold War ended, the distinguished political scientist Richard N. Rosecrance argued in his book The Rise of the Trading State: Commerce and Conquest in the Modern World that people could get whatever they wanted more easily through free exchange than by conquest. This again assumes no security issues that would lead some countries not to want to provide certain products or assets to a rival. Being a buyer rather than an owner of strategic items entails greater risk in a contentious world.
More recently Rosecrance has shifted gears, leaning more on the other main rail of liberal thought regarding China: appeasement. His 2014 book The Next Great War? The Roots of World War I and the Risk of U.S.-China Conflict was published under the auspices of the Belfer Center for Science and International Affairs at Harvard where Graham Allison does his work. While Rosecrance blames the alliance system for the outbreak of World War I, Allison goes back to the Peloponnesian War in his 2017 book Destined for War: Can America and China Escape Thucydides Trap? Allison argues that too many wars, starting with the conflict between Athens and Sparta described by the ancient historian Thucydides, have been the result of an established power trying to resist a rising power. So, it is better to accommodate the challenger to keep the peace. This will take “huge, painful adjustments in attitudes and actions” says Allison, including accepting that America is doomed to fall behind China. For a more detailed look at Allison’s work and how it relates to “the Cobden Trap”, see my earlier article in this journal.
For three decades, the appeasement of Beijing has been carried out primarily though lop-sided trade, which has transferred production capacity, technology, capital, management and engineering skills across the Pacific on an unprecedented scale. The hope that wealth would tame the Communist regime lacked credibility from the start. Deng Xiaoping, the great reformer, was also the leader who ordered the troops into Tiananmen Square to murder pro-democracy students. A stronger economy was meant to give the regime the resources it needed to pursue its own illiberal agenda. The more practical argument was the old Ricardian interdependence idea that economic integration would so bind people together they could not afford or even organize a conflict that would disrupt commerce.
Lawrence S. Eagleberger, a career diplomat who served briefly as Secretary of State under President George H.W. Bush, wrote the foreword to the 1997 book Pax Democratica: A Strategy for the 21st Century. He embraced “interdependence” as an “inescapable fact” in a world where “Borders have become increasingly less relevant” due to improved communications and transportation. The book he was promoting was a collection of essays based on another fad of the times, that democratic states do not fight each other. This was based on the very small pool of Western experience extended on the blithe assumption that this would hold for non-Western societies in a world thought to be trending towards universal liberal ideals. Yet, states have conflicting interests regardless of type of government, and even Western democracies have disagreed over major cross-border issues including diplomatic alignments. Foreign policies can change on the turn of a ballot. Looking beyond the mere conduct of elections and structure of departments, democracy can be considered the participation of “the people” in the affairs of state. The mobilization of populations has given the modern world the concept of “total war” so resting the hopes for peace on popular passions seems unwise. After all, on August 4, 1914 even the Social Democratic deputies in both the German Reichstag and the French Chamber of Deputies voted unanimously for war credits to use against each other.
As the number of democracies increase, the variety of its forms and the diversity among political parties (including those that are markedly illiberal) will heighten tensions. And, of course, there are still many states with non-democratic (even anti-democratic) regimes. The flaw of ideology is to apply one model to all times and places. A flaw even experienced professionals can fail to see when blinded by hope.
Another leading proponent of “complex interdependence” is Robert O. Keohane whose 1977 book Power and Interdependence (written with Joseph S. Nye) and 1984 book After Hegemony: Cooperation and Discord in the World Political Economy became standard textbooks anticipating globalization even as the Cold War was raging (shades of Kant). His theme was the familiar liberal hope for the transfer of influence from nation states to non-state actors. And his emphasis from this shift was the decline in the utility of military force as he rejected the Realist hierarchy of interests that placed security above business and social issues. Even in 2008, he could still say in an interview “I much prefer ‘world politics’ to ‘international relations,’ since transnational and transgovernmental relations are, in my view, increasingly important; and because so much that is important for world politics takes place domestically, in interaction with what happens elsewhere in the world. ‘Globalization’ is a much broader phenomenon than ‘international relations’ defined as relations among states.”
The theory of interdependence had not been forgotten between Ricardo and Keohane. Consider the case of Norman Angell. His book The Great Illusion was published in reaction to the “naval scare” of 1909 when the expansion of Germany’s High Seas Fleet menaced the Royal Navy’s command of the sea. Angell was opposed to a British naval buildup as wasteful because trade and global finance had already so entangled the major economies that war was impossible. He was proven wrong in 1914, when the Royal Navy needed its new battleships. Yet one grand failure was not enough. Angell was awarded the Nobel Peace Prize in 1933—the same year Adolf Hitler became Chancellor of Germany. In 1938, the prominent British publishing house Penguin put out a special edition of The Great Illusion. That was the year of the infamous Munich conference, where Prime Minister Neville Chamberlain sold out Czechoslovakia to Hitler for “peace in our time.” A year later, Germany invaded Poland and World War II was under way.
Today, interdependence is being used by China not to promote peace but to gain power and national advantages. The COVID-19 pandemic has brought to the public the critical dependence the U.S. and most of the world has on China for medical drugs. Rosemary Gibson co-author of China Rx: Exposing the Risks of America’s Dependence on China for Medicine summed up the problem succinctly in an interview. “Millions of Americans are taking prescription drugs made in China and don’t know it, and neither do their doctors,” she said. “We can’t make penicillin anymore in the United States. That happened after the US opened up free trade with China. It’s the steel story with a twist; Chinese producers sold it at such low prices they drove out all U.S. and European producers. Once we stopped making penicillin, prices shot back up. Now, we’re hugely dependent on China for penicillin and other antibiotics including those for superbugs.” Negative views of China are growing, which will give more support for the Trump administration’s campaign for de-coupling trade with China based on national security concerns.
Beijing has been claiming it is the great defender of “globalization.” Yet, it does not mean the withdrawal of government control of international relations as in the classical model. To Beijing it means the conduct of national strategy on a global scale, fully in the hands of the regime. It is ironic that those transnational corporations that had “escaped” regulation by the U.S. government under the banner of Free Trade have been firmly captured in Beijing’s sovereign grip; forced to surrender control of enterprises and technology to a power with a nationalist agenda aimed at eventually displacing them both at home and abroad.
“Globalization” has given Beijing a stranglehold on international supply-chains in many strategic areas. A China Daily essay on April 14 proclaimed, “Global Reliance on China Won’t Reduce.” The state-run paper started with the assertion “While many governments have pledged to bolster their economies with unprecedented monetary and fiscal stimulus－despite having already massive public debt－the best they can probably hope for is to stave off economic collapse. If they insist on turning inward－pointing fingers and erecting barriers, instead of upholding international cooperation and economic engagement－even that may become impossible.” It went on to argue, “Even if more regionalized and diversified supply chains would reduce risks, China retains considerable competitive advantages in many areas, such as electronics and machinery and equipment manufacturing. It cannot be replaced, at least not in the near term” and “the world may now be more dependent on China than China is on the world.” New “investments will help China to build on recent progress in even more high-tech sectors, including big data, artificial intelligence, the internet of things, and the industrial internet. Which in turn will deepen China’s integration into the global technological supply chain. And not even a Sino-American decoupling can stop technological exchanges between China and the rest of the world.” Thus, the interdependence that intellectuals urged political and business leaders to pursue with Beijing has backfired, producing a more powerful and aggressive China rather than a peaceful member of a global community.
The Secretary of Defense’s annual report to Congress on The Military and Security Developments Involving the People’s Republic of China 2019 presents the economic component of Beijing’s “comprehensive national strategy.” The report sees China’s leaders “focused on realizing a powerful and prosperous China that is equipped with a ‘world-class’ military, securing China’s status as a great power with the aim of emerging as the preeminent power in the Indo-Pacific region.” The economic role in this expansion includes “China has mobilized vast resources in support of defense modernization, including ‘Made in China 2025’ and other industrial development plans, as well as espionage activities to acquire sensitive, dual-use, or military-grade equipment.” Key to this mobilization is the effort “to align civil and defense technology development to achieve greater efficiency, innovation, and growth. In recent years, China’s leaders elevated this initiative, known as Civil-Military Integration (CMI), to a national strategy.” International projects that expand Chinese trade and investment will also yield strategic gains. As the report states, “China’s advancement of projects such as the ‘One Belt, One Road’ Initiative (OBOR) will probably drive military overseas basing through a perceived need to provide security for OBOR projects.”
Beijing thinks seriously about economics as part of national strategy, and so should the United States. A column in the Chinese Communist Party media outlet Global Times set out the challenge, “The US wants to reconstruct its manufacturing capability or diversify supply channels outside China, and China needs to speed up to make breakthroughs in some key technologies. The country that moves faster will gain the initiative.”
Globalization has run its course. The 2017 National Security Strategy was a restoration of the Realist school of international relations for the U.S. under President Donald Trump, who has called himself a nationalist. The White House stated, “The strategy is realist because it is clear-eyed about global competition: It acknowledges the central role of power in world affairs.” There was nothing new in the sophistry of globalization including its demise. Once again, its brief moment of glory was upended by events in a dynamic and divided world where wealth and power are up for grabs and security cannot be taken for granted. Perhaps this time American society will have developed a herd immunity against any resurgence of this intellectual plague.
William R. Hawkins is a consultant specializing in international economics and national security issues. He is a former economics professor who has served on the staff of the U.S. House Foreign Affairs Committee.