“Economic sovereignty has moved up the political and business agenda and is challenging globalisation resulting in the end of globalisation as we knew it. All countries are increasingly under threat of economic coercion… COVID-19 and Putin’s special operation has highlighted the critical importance of all countries developing approaches to protect and enhance national economic sovereignty. This has important implications for the United States, the European Union, and countries like the UK.”
John R. Bryson, Professor of Enterprise and Economic Geography, Birmingham Business School.
In 2006 J.K. Gibson-Graham published a highly influential book entitled The End of Capitalism (As We Knew It). This book envisioned alternative economies, but now an alternative form of globalisation is forming. Covid-19 was a global inflection point, or a key event that changed the trajectory of socio-economic processes. Inflection points change the future. Inflection points are usually identified by historians as they reflect back on events. It is difficult to identify an inflection point in real-time. Putin’s ‘special military operation’ in Ukraine is another inflection point that is reenforcing some of the drivers of change that emerged with COVID-19.
COVID-19 highlighted the dangers of over-reliance on global supply chains. Globalisation is associated with many benefits related to economic efficiency resulting in the production of cheaper goods and services. But globalisation is also associated with labour exploitation, carbon-intensive production systems, risks related to the complexity of distributed production systems, and it also erodes national economic security. COVID-19 required all countries to have access to personal protection equipment (PPE), vaccines and computer chips as everyday living became even more dependent on the Web. Nevertheless, over-reliance on global value chains led to major supply issues. The European Commission began to appreciate that there was a blurring of national economic interests with national security as China and the US increasingly exploited economic connections to gain geopolitical advantage.
Putin’s so-called ‘special operation’ in Ukraine has finally persuaded European countries to develop solutions to their over-dependency on Russian oil and gas. This is to be welcomed and should be considered as an important shift towards decarbonisation and enhancing European national security. Sanctions imposed by governments and businesses are also severing Russia’s connections to the global economy. Putin’s war is also beginning to impact on China. A senior executive of a machine parts manufacturer located in eastern China is worried that a Munich-client justified cancelling orders on the grounds that “it feels terribly wrong to send money to a country that is tolerating war in Ukraine – sorry”.
In 2014, Putin’s annexation of Crimea led to a deterioration of Russia’s ties with the West. One response was an attempt to increase the independence of Russia’s financial system. Russia developed the System for Transfer of Financial Messages (SPFS) as an alternative banking messaging system to SWIFT, the global payments system, and also introduced MIR, a local card payment system sponsored by the Russian government in 2015. The creation of SPFS and MIR was an attempt by Russia to enhance national economic resilience by policy interventions intended to increase economic sovereignty.
Economic sovereignty has moved up the political and business agenda and is challenging globalisation resulting in the end of globalisation as we knew it. All countries are increasingly under threat of economic coercion. This is especially the case for any commodities, products, or services in which there is over-dependence on another country including food, medical goods, infrastructure-related equipment, military supplies, and energy.
COVID-19 and Putin’s special operation has highlighted the critical importance of all countries developing approaches to protect and enhance national economic sovereignty. This has important implications for the United States, the European Union, and countries like the UK. China is a special case as strategies are already in place intended to balance the tensions between three Chinese policies that lie at the intersections of foreign and economic policy: economic security (jingji anquan), strong trading power (maoyi qiangguo) and economic diplomacy (jingji waijiao).
China has adopted an ambidextrous approach to economic policy. On the one hand, economic diplomacy underpins strategies to ensure that China plays a critical role in global economic relations. One outcome of this, is that too many countries have become over-dependent on China, and this erodes their economic sovereignty and national security. On the other hand, China also focusses on economic security to enhance national resilience to any threats, and disruptions that might impact on its own economy. This Chinese approach needs to be adopted by all countries. All countries need to become ambidextrous by balancing local capacity and capability with involvement in global transactions.
China, the United States and Russia have merged geo-politics with geo-economics deploying economic transactions as a weapon. For Putin, the European Union’s over-dependency on Russian gas and oil has been a weapon to force cooperation, or passive acceptance, of Russian aggression. In 2019, the European Union realised that there was a danger that Europeans could be negatively impacted by Sino-American competition that would reduce European economic sovereignty. One outcome was the European Union’s Digital Compass plan that was announced in March 2021. This plan is intended to reduce Europe’s dependence on semiconductor chips made in Asia by doubling European capacity by 2030 with a focus on ensuring that European production accounts for 20% of global supply.
Deepening globalisation is behind all the products and services that support everyday living, but it comes with benefits and risks. One risk is any one country’s overdependence on exports from countries that might decide to weaponize economic relationships. A new form of globalisation is required based on every country paying due attention to the critical importance of maintaining economic security and sovereignty. This requires a very different balance between activities that are controlled and regulated nationally compared with imports.
China is very much aware of the tensions that exist between economic security and being too reliant on imports of key components including food. It is time, for all countries to appreciate that economic weapons might be even more powerful than military weapons. All countries must develop an ambidextrous approach to balancing globalisation with national economic security.