The economic nationalism of a hundred years ago is not possible in the modern world of distributed resources and a single information domain, writes Valdai Club expert Alexander Losev. The existing associations of countries and large regional powers are not able to create autarchies, but they may well unite into large, self-sufficient blocs.
Globalisation can be supported for a long time either by a superpower, which plays the role of an absolute leader and is not afraid of competition with large economies, or by countries that receive maximum profit from participation in the global distribution of production and goods, and from international trade, if they do not challenge the established hegemony.
But the United States, which has governed global political processes and finances for decades, has been losing its weight in terms of its proportion of global GDP for years. China, which has accounted for a third of the world’s economic growth, now claims to participate in global governance and also advocates trade liberalisation, while the United States, on the contrary, is building barriers and replacing “soft power” with sanctions and political pressure.
Protectionism, sanctions and trade wars, which were the answer to the imbalances that occurred in the largest economies of the world, and the socio-political processes that began in a number of states that were openly anti-globalist and populist in nature, arose even before the coronavirus crisis. By 2020, the world had approached a situation of increased competition due to the obvious overproduction of goods and services in the face of prolonged economic stagnation and deflation, growing inequality and an increase in the already-enormous amount of debt. The unprecedented monetary infusions of central banks and endless lending remained the last factors holding the global economy from stalling and entering a deep crisis.
History shows that any transformation of hegemony due to internal causes or global challenges such as crises, wars, or rivalries with other powers, entails irreversible changes in the geo-economic space. And now we can confidently assume that for the global economy, which has turned out to be in a state of recession, the coronacrisis, regionalism and national egoism will become relevant trends.
Globalisation Still Exists
Nevertheless, the basic foundations of the modern economy created by globalisation will be able to survive for several more years until the next crisis. Despite the obvious processes of de-globalisation, the world is still tightly connected by the financial threads of the US dollar system, both in international trade and in the markets for raw materials and capital. Over a third of debt outside the United States is denominated in dollars. Many countries and corporations are now in a state of recession, and in the face of future uncertainty, they have to somehow service their dollar obligations and refinance debts. In addition, there is the urgent task of restoring national economies after the quarantines put their prospects for economic growth on hold. This means that among the countries which are deeply involved in world production and trade, a struggle will begin to resume alongside access to foreign markets, primarily to the American market, which received huge financial assistance from the Fed and the US government. A level lower – among the commodity countries supplying basic materials to the market, the struggle began in the first quarter of 2020, when the Chinese economy was closed due to the danger of the coronavirus spreading. The triple shock dealt the oil industry by falling demand, an overabundance of raw materials and absurd exchange pricing caused a war for sales markets, which ended with the fragile truce of the new OPEC+ deal. When it comes to survival with poor budgets, none of the players have any time for creating autarchy.
The Coronacrisis as Harbinger of a New Order
The reaction of politicians and governments to the spread of coronavirus caused an unusual crisis. In previous economic crises and in past pandemics, the world did not encounter such harsh quarantine measures, closing entire regions and industries, blocking economies, the shipping of commodities, and transport flows. The rupture of global production and trade chains, the collapse of demand and the prospect of massive bankruptcies, the formation of fault lines along the geographical borders has made many countries think about reducing their dependence on foreign markets, localising production and adopting alternative supply chains.
Moreover, the problems caused by the coronavirus open up opportunities for the most elite groups to expand their influence and redistribute assets, both in their countries and internationally. The monetary infusions of central banks are distributed unevenly between economic entities and agents. Those who received funds earlier than others, simultaneously received benefits and new opportunities for using this money.
In the logic of the answer to the emerging economic collapse and medical and social chaos in the world, various zones of consolidation will appear. For example, the response to Trump’s trade wars with China in 2018-2019 there was an increase in domestic trade in Southeast Asia. By the beginning of 2020, about 60% of trade was already carried out between the countries within this region. Those states that fail to pursue the task of partial localisation and reign in control of vital supply chains for their economies are doomed to suffer if and when a new catastrophe takes place in the foreseeable future.
Common sense also suggests the need for regional payment systems. Crises lead to a slowdown in international trade and a fall in commodity prices, which instantly creates a shortage of dollars in markets external to the United States. The dominance of the dollar in international payments is the main cause of imbalances, because in the existing global financial system, in order to maintain global solvency, the United States needs to export dollars to the outside world through trade and see the money returned through the capital market.
The Ideas of “Great Spaces” (Großraum)
In the present circumstances, one can expect a renaissance of the ideas of the 19th century about “autarchy of large spaces” (adjusted for the realities of the 21st century) and the emergence of models of economic development based on internal factors and the pure pragmatism of groups of states that can form self-sufficient economic unions with their own rules, which will replace the interstate agreements of the past.
The economic nationalism of a hundred years ago, however, is not possible in the modern world of distributed resources and a single information domain. The existing associations of countries and large regional powers are not able to create autarchies, but they may well unite into large, self-sufficient blocs. The meaning of such associations is to ensure the growth of national welfare, the concentration of capital, resources and production capacities in their own or controlled territories, in order to fully satisfy domestic needs in the present and future and not to depend on the import of raw materials, goods and technologies, especially critical categories, from other economic zones.
The idea is similar to the idea of globalisation, but already this means that emphasis will be placed on macro-regions.
If a high level of technological development and financial independence is ensured in the macro-region, a multi-sectoral structure of the economy, a security system based on alliances among armed forces, a system to stimulate domestic demand and a common foreign policy strategy are created, and the necessary borders and barriers with other economic zones are established, then this will allow the unions of “large blocs” not to be afraid of external economic crises, trade wars and political pressure from other powers, even if they are very strong economically, militarily or politically.
Technology Development and Maintenance Centres
The emergence of macro-regions is impossible without the creation of technology development centres. In the modern economy, the main productive forces are scientific knowledge, information and human potential. The world right now is divided into states that are able to enter the stream of innovative changes, and countries that will be left behind forever.
In the 21st century, a macro-region will be viable if the countries included in it make it possible to continuously provide scientific, technical and industrial development to create and maintain its own technologies and infrastructure on its territory, providing for all sectors of the economy, and also independence in critical vital areas from the external technologies of other world zones. The macro-region should not depend on the possibility or impossibility of acquiring imported industrial goods, components and equipment, especially amid conditions of geopolitical competition or external threats, including economic crises and pandemics.
Globalisation and the neo-liberal model of recent decades have led to the creation of a global oligopoly on technology, and in some cases even a monopoly, including the standardisation and management of technology movement, as well as intellectual property. The world is now conditionally divided into the technological metropolis and the technological periphery. High technologies include aerospace, nuclear and energy technologies, digital and information technologies, including artificial intelligence and quantum computing, the telecommunications sector, biotechnology and the creation of medicine, as well as technology for creating materials with desired properties and nanotechnology.
The existing transnational corporations can compete with countries of any macro-region, whose current leadership is based not only on production volumes and close ties with governments, but also on active research funding and the constant introduction of innovation, which now determines the development of all world production, from consumer goods to military technology.
Thus, high technology is crucial for the socio-economic and political independence and defence capabilities of states or associations of countries. That is why China began a technological race with the United States, which at times began a technological war.
The success of regional projects over decades will be determined by the availability of their own technology, which in combination with the armed forces will provide the necessary control over the economic, financial and information space.
The Possible Geography of Regionalism
The process of regionalisation is likely to begin with the creation of semi-autonomous regional blocs of different compositions, which can arise both on the basis of existing unions, and countries which are, so far, not very interconnected.
Much will depend on what prevails – the political considerations of the current elites or the cynical pragmatism of those who succeed these elites.
The first macro-region is likely to emerge in a few years in the Western Hemisphere under the slogan “make America great again”, as a response to the redistribution of economic weight in the world in favour of the Asia-Pacific. The United States under Trump has already begun to create its “large bloc” in North America and Mesoamerica, as opposed to the globalisation of world production and trade, which has begun to bring more benefits to China. The United States has almost achieved energy independence (although bankruptcies in the shale industry may drag out this process), and to concentrate within its territory not only research centres and structures for the development of new technologies, but also industries in which innovations will be introduced and serve as the basis of a new technological structure.
The European Union is also a kind of “large space” with a developed economy, a common currency – the euro, research centres, uniform production standards and customs rules. The capital accumulated in the EU, intellectual and scientific potential, its own high technology, labour resources and a huge domestic consumer market satisfy the criteria of the new macro-region. But these conditions are not enough. There are a number of serious problems that do not allow the European Union to become the core of a new “big bloc” of the Old World. First of all, this is an insufficient resource base, the virtual absence of sovereignty, and a monolithic political space (the Visegrad group sometimes behaves like a “Alien’s larva” in the body of the European Union, and a number of countries are faced with regional separatism). Structural imbalances within the EU, the inflexibility of fiscal rules and the lack of control over Africa and the Middle East add systemic and security concerns. In addition, the industrial countries of Europe are heavily dependent on access to the United States consumer market (hence the effectiveness of US secondary sanctions) and have deeply integrated their technological and commodity chains into the Chinese economy.
Russia and India
The success of the macro-regions of the Eastern Hemisphere will be determined by which ones develop alliances with Russia and India. It is these two countries, with their natural and human resources, available scientific and technological potential, as well as positioning vis-à-vis the north-south and west-east transport corridors, that are able to strengthen any of the potential macro-regions so much that they not only allow them to survive, but also take leadership roles in the decades to come.
If Europe proves capable of political consolidation and the restoration of sovereignty, then everything will be in order with the construction of a large bloc within the Old World. This macro-region will be provided with additional resources and markets in Russia, the Middle East and Africa, and thus the EU will be in full working order.
But the chances of reason and pragmatism prevailing in Europe remain small. Therefore, Russia will have to equip the north of Eurasia and ensure its survival until better times, and for this it will be necessary to achieve technological sovereignty in critical sectors and solve the tasks of re-industrialising the economy, re-equipping the army and gaining a number of competitive advantages sufficient to compensate for the new range of economic problems.