How do shifts in international political economy affect national politics?Adriatic Journal 27 May 2019
In a recent column in Slovenia’s daily Delo, Tine Kračun, editor-in-chief of the Adriatic Journal and director of the Institute for Strategic Solutions, looks at the increasing impact economic interests have on both internal and international politics.
It is a fact that international politics is now more intertwined with economic interests than ever before.
While in Slovenia for almost thirty years there have been continuous discussions over the interference of politics in the economy, these days state interventions on economic flows are taking place on a global scale. And not in the internal political and economic sphere, but at the international level.
The decision by the US President Donald Trump to increase tariffs on Chinese imports has shaken international financial markets and has once again opened up a discussion about a changing international political economy.
So, what is going on? The international political economy, as we have known it to date, is based on assumptions made in Bretton Woods by winners of the World War II from the western hemisphere. The essence of the new system at the time was that, while recognizing that the international system was a set of sovereign states, international trade issues would be tackled by the World Trade Organization, with additional support from the International Monetary Fund and the United Nations.
For many years, the main protagonist of these organizations has been the US. But suddenly, this is no longer the case. With the election of Donald Trump, it seems that the United States has lost interest in maintaining the importance of these organizations.
This is further emphasised by the fact that countries that had not had much influence in the past within the existing international set up, have in recent years gained economic power and thus strengthened their international standing, which resulted in them demanding a greater role in the international system. In this context, of course, in the first place is China, which in the period after the last financial crisis has gained considerable economic and thus global power. Countries overall have become more protectionist and have begun to make agreements between themselves, rather than within international organizations. When US agreed to this game or saw advantages for themselves in this, it began to weaken the system.
With this, the debate on politics interfering in the economy has spread from national to international frameworks. Fact is that international politics are now more interconnected with economic interests than during any time after World War II. During the Cold War, countries generally measured their power in terms of weapons games. After the Cold War this has changed.
Today, power lies within the economy. The pace is dictated by countries that are economically more agile and stronger, and the purpose of integration is no longer in terms of collective security, as in the case of NATO or the Warsaw Pact, but it is developing in the direction of economic interests.
In this context, there are two current initiatives taking place: the Chinese “One belt, One road” that includes the integration initiative of 16 + 1 countries; and the Three Seas initiative, whose next meeting will be held in Slovenia at the beginning of June. In both cases, this involves political integration based on the opening of business channels and joint economic projects. The Chinese are investing in relations in the eastern part of Europe, exploiting the potentials in this part of the European Union, with the aim to strengthen its prospects of entering European Union markets. Even in the Three Seas, there is political motivation to carry out strategically important economic projects in Europe.
The interference of politics in the international economic activity is not new. In the past, some European countries colonized other countries via corporations in the first phase, that is, through economic channels. The most prominent example is the East India Company, through which London pursued its geo-strategic interests. At that time corporate management was non-existent, politics and business were intertwined.
The paradox that arises is that the aspirations and interests of politics are different from the aspirations and interests of the economy that can often be an obstacle to the realization of healthy economic ideas and goals.
The main premise of the economic initiative is that it is economically meaningful and sustainable. So, it creates added value in terms of capital. In politics, capital is not a basic motive, but it can be a means of achieving something else. And in such cases capital serves the purpose. Therefore, under the influence of politics, an economic initiative can achieve an opposite effect. It can become very expensive. East India Company operated during most of its time at a loss and in the end went bankrupt.
Another obstacle to achieving economic integration is populism, which often has unrealistic goals that are not accessible. Therefore, populism is an inhibitor of integration. Similarly, populism, if it is nationalistic, prevents inter-state integration and damages cross-border economic cooperation. In recent developments in the international political economy, populism and nationalism seem to be important factors of change. Only time and economic indicators will show whether this is true.