Prior to Apple taking the developed world with its innovative products by storm and critically shaping the digital age as we now know it, computer users often used to defrag(ment) their hard drives manually. Basically, the process of ‘defragmentation’ meant to reduce the amount of fragmentation within a system for maintenance purposes “by physically organizing the contents of the mass storage device used to store files into the smallest number of contiguous regions (fragments).”
Are we, maybe, just witnessing what the author of this article would label “Geo-Defragmentation” play out before our eyes in the global arena?
Globalization rose in the Post-Cold War era bringing certain regions closer together via global supply chains and a developmental agenda took precedence over pure geopolitical considerations in many countries as a result of the upheaval. Initially, this led to many newly independent states (UN Charter: all peoples have the right to self-determination) and a looser understanding of alliances – more pragmatically oriented – as well as spheres of influence often exhibited in a certain degree of complacency and/or overconfidence, especially on the part of the US (“unipolar moment”) as some have argued.
Russia, meanwhile, turned in an instant into a ‘former’ superpower and did not have the luxury to grow complacent. Rather, Russia had no choice given that it had just lost a significant amount of its territory and found its collapsed economy in an utter death spiral. This, however, over a period of two decades naturally allowed for ‘bigger’ regional pivotal states, which often benefited from a globalized economy, to vie with their competitors for regional supremacy thereby creating friction and instability within the respective regions while challenging the existing regional international order. What we now witness in many regional hotspots is global powers – with China as the most prominent new addition – reentering the fray in order to reestablish order and/or past spheres of influence through “geo-defragmentation” using geo-economic tools.
The term ‘geo-economics’ became in vogue among strategists at the start of the Post-Cold War era. The concept of ‘geo-economics’ was prominently articulated by Edward N. Luttwak in a 1990 essay, “From Geopolitics to Geo-Economics – Logic of Conflict, Grammar of Commerce” (pp.17-23), in The National Interest. There Mr. Luttwak observed “that the methods of commerce are displacing military methods” and that “[s]tates, as spatial entities structured to jealously delimit their own territories, will not disappear but reorient themselves toward geo-economics in order to compensate for their decaying geopolitical roles.”
In this context, Dr. Sanjaya Baru, Director for Geo-economics and Strategy (IISS) provides instructive theoretical guidance as for the subject matter of ‘geo-economics’: “Geo-economics may be defined in two different ways – as the relationship between economic policy and change on national power and geo-politics – in other words, the geopolitical consequences of an economic phenomenon, or, as the economic consequences of geopolitical trends and national power. Both the notion of ‘trade follows the flag,’ that there are economic consequences of the projection of national power, and the idea that ‘the flag follows trade,’ that there are geopolitical consequences of essentially economic phenomena, would constitute the subject matter of geo-economics.”
In addition, Jennifer Blanke, Chief Economist (World Economic Forum), and Anja Kaspersen, Head of Geopolitics and International Security (World Economic Forum) translate this thought construct into something more concrete by using the example of the US Shale Revolution – which is really just a “geographical shift in energy production” – to illustrate that “no longer [is it constructive to] talk about geopolitics and economics in isolation; instead we must generate a deeper understanding of geo-economics,” they stress.
The relationship between traditional oil producers and oil-importing countries is already changing, they rightly assert. In order to understand the implications of the US as renewed formidable oil producer in the global oil market – at the same time handing its status as biggest oil importer to China – the geopolitics of this phenomenon now “encompass a host of ever more tightly interconnected factors: from international security, jurisdiction, global governance and diplomacy, combined with a global economic landscape in which leaders struggle to interpret the interconnected complexities of monetary and fiscal regimes, currency shocks, shifting international trade frameworks, global investment, talent migration and a host of other globalized macroeconomic forces.”
All the above clearly suggests that geo-economics is not replacing geo-politics but, instead, is complementing the latter in order to paint a more accurate picture of a reality too complex to press through just one sole analytical prism. Most importantly, consider the following regarding the implications of US shale oil for Middle Eastern Gulf oil according to Dr. Baru of IISS: “While Gulf geopolitics and regional security issues continue to require that the GCC ‘look West’ (towards the Middle East, Europe and the United States), Gulf geo-economics increasingly require the GCC to ‘look East’ – towards India, China, Japan and the ASEAN.” This again indicates that geopolitics and geo-economics operate in separate but connected layers.
Now a new paper by the World Economic Forum’s Global Agenda Council on Geo-Economics entitled “Geo-economics – Seven Challenges to Globalization” attempts to map out the challenge of geo-economics for a variety of actors in an international system full of observed frictions during what Mark Leonard, Director of the European Council on Foreign Relations (ECFR) and the lead author, calls an “Age of Geo-economics”, in which he views geopolitics pinned directly against globalization.
“It highlights the powerful trends reshaping the world, which are changing the rules for competition between countries and even the arenas in which these frictions play out,” Mr. Leonard writes. Descending from this inter-state level, the ‘reshaping’ also results in global businesses “feel[ing] like pawns in a game over which they have little control.” He describes those trends characterized by underlying increased tensions between global powers further: “Geopolitical competition is reshaping the global economy and unravelling global power relationships and governance. (…) Before the global financial crisis, geopolitics mainly played out locally, but today the biggest conflicts are between the world’s greatest powers [while in addition] in every region of the world, new powers and restive populations are rising (…). Ukraine is at the epicentre of a crisis of European order (…).”
Mr. Leonard’s conclusion – in short, “the main battlefield is economic rather than military” – is in line with his above description of the status quo in light of an “absence of global leadership, the erosion of global norms and standards” leading to a shift “towards a multipolar, regionalized power dynamic.” In what he refers to as “brave new geo-economic world”, in which “the institutions developed for an era of win-win cooperation are increasingly in disarray”, he now names both winners and losers of this new constellation:
“The biggest winners are states that are able to shape their own future – China, the United States, the European Union (EU). The biggest losers are international institutions and companies that cannot rely on the support of large states or the autonomy to hedge between them.” In sum, Mr. Leonard sees the danger of multipolar geopolitical competition “unravelling the globalization of the world economy and its systems of governance.” He elaborates on that: “Geo-economics is both the antithesis and the greatest triumph of economic globalization. (…) And after two decades of coming together, many countries are focusing on the challenges of interdependence as well as on its benefits.”
The World Economic Forum’s Global Agenda Council paper identifies a total of seven geo-economic challenges to globalization – each challenge co-authored by other prominent members of the Global Agenda Council on Geo-economics (see list of members and all challenges). The following of those challenges actually pose – in the opinion of this article’s author – not necessarily challenges to our globalized world economy but, instead, are expressions of “Geo-defragmentation” amid intensifying geopolitical and geo-economic forces constantly pulling actors in the international arena in different directions:
- Economic Warfare: Power projection increasingly occurs “through influence over the global economy” instead of the projection of military force. Economic sanctions and restrictions are identified as prime tools of geo-economics. In this respect, the authors – Karan Bhatia and Dmitri Trenin – correctly point out that “[w]hat matters is the size and capacity of the country being sanctioned, and the power of the sanctioning country or international coalition.” The US dominates the global financial system, for example, via Swift, which is a global code for electronic banking transactions, and is therefore by extension also able to ‘regulate’ global trade in critical natural resources. While consequences of this trend are certainly still evolving, it is clear that trade patterns inevitably change in certain cases even if for no other reason than for companies/ governments to avoid ending up in the crosshairs of US authorities. Unlike the authors, this should not be viewed as an indication of “de-globalization” but simply as “geo-defragmentation” in the sense of a global superpower (the US) attempting to hold a potential regional hegemon (Iran) at bay while staking out again its sphere of influence in the region and reestablishing order.
- Geopoliticization of Trade Negotiations: Trade negotiations are in progress around the globe – “some pan-regional, some regional and others country-by-country” – which is “likely to accelerate the multipolarization of the world or even competition among regional blocs far beyond trade.” In this respect, Takashi Mitachi notes that “trade and economies cannot exist outside the geopolitical context.” He also cites China and Russia as “examples of new powers challenging the Western-led post-war economic and political order through developing “trade” zones and strengthening their influence over their respective neighbourhoods.” While this is true, it appears a bit naïve to expect all emerging powers to stand idly by and watch the US negotiate the Transatlantic Trade and Investment Partnership (TTIP) in Europe and the Trans-Pacific Partnership (TPP) in Asia. These steps could also be interpreted as attempts to shore up existing access to respective markets as well as consolidating one’s geopolitical foothold in both regions. This appears to be more “geo-defragmentation” (see above) than a challenge to globalization.
- Competition for Gated Markets, not Natural Resources: “The competition between states in the geo-economic era will increasingly be driven by a quest for markets rather than national resources,” the authors – Sergei Guriev and Hina Rabbani Khar – suggest here and hail it as a major development. This is certainly true for developed countries but appears myopic at best from the developing nations’ perspective. Note, China’s infrastructure investments in Africa are primarily targeted to get natural resources out of the the various countries. It is more than premature and perhaps even wishful thinking to proclaim that “producers of natural resources are likely to see their power eclipsing, so oil rich countries such as Saudi Arabia, Russia and Iran stand to lose.” Future energy demand and demographic trends do not bear this out. Targeted markets with plenty of young people and sufficient purchasing power are expected to buy cars too. Well, it is the transportation sector, which is the slowest sector in terms of becoming more energy (fuel) efficient as well as in terms of reducing its aggregate engine exhaust emissions.
- The Survival of the Biggest and Hollowing out of the Periphery: “While it is true that a breakdown at the global level is strengthening many “core” countries and empowering them in their respective regions, (…) they are creating new core-periphery relationships that benefit the core, often at the expense of periphery states,” Ian Bremmer suggest here. This is very valid point but does not herald the age of geo-economics. It may be a reversion back to ‘Cold War stability’ through a current process of “geo-defragmentation”.
- The Decline in Oil Prices: Oil is an indispensable and critical resource impacting modern economies, international security and climate change, as Michael Levi explains and, most importantly, he adds: “The return of volatility, not the fall in prices, is the trend that can most confidently be expected to persist. That said, with oil supply growth stronger than it was expected to be only a few years ago, and demand growth weaker, the world should anticipate lower oil prices than it would otherwise have seen.” Moreover, Mr. Levi also cautions that “countries’ vulnerabilities can easily be overstated” and that with “substantial cash reserves and some budgetary and exchange rate flexibility” may not result in “significant risk of insolvency despite oil prices well below what the International Monetary Fund has estimated are necessary for (…) budgets to balance.”
In this expression of “geo-defragmentation” the price of oil – impacted by geopolitical and geo-economic factors alike – forces all fragments of oil producing regions globally to ‘organize’ “into the smallest number of contiguous regions” while also “create[ing] larger regions of free space [(e.g. in the Arctic)] to impede the return of fragmentation.”
Photo Credit: Shutterstock
