How Business Became a Hostage to Geopolitics
Source: International Affairs, Vol. 65, No. 4 (2019), pp. 83-94
Key words: geopolitics, globalization, war of sanctions.
The Russian Foreign Ministry increasingly sees the current state of international relations as a dangerous no-rules game. One comes to this conclusion when one sees the established world order falling apart and international treaties that have done such a good job to so many countries, guaranteeing global security and stability for many decades, being called into question or just ignored. General Charles de Gaulle’s quip that “treaties are like roses and young girls” because “they last while they last” isn’t very comforting. One is tempted to comment that, after all, stability is better than instability. But it is the global business community that today’s transition from the old world order to a new one is hitting particularly hard – it has involuntarily become a hostage to geopolitical games.
Geopolitics vs. Globalization
Today's world is a place where political interests closely intertwine with business interests. International relations have come to amount to competition among countries in which pragmatism pushes ideological considerations into the background. This trend has been particularly obvious after the collapse of the Soviet Union and the onset of the liberal world order. In public discourse, especially in Europe, some politicians traditionally pledge loyalty to “democratic values,” just as the fathers of the church pledged loyalty to Christian dogma in the early Middle Ages.
However, in the epicenter of liberalism, the United States, the democratic values theme has unnoticeably gone down the drain, especially after the well-known business mogul moved into the White House, although it still is a reserve weapon for the opposition. Needless to say, none of the ascending nations, not even China with its construction of “socialism with Chinese characteristics,” sees ideology as dogma. Ideology doesn’t prevent any of those countries from pursuing pragmatic policies while taking the world’s changing geopolitical map into account.
The world has moved into an era when governments throw aside all isms and put their entire power and influence at the service of their country’s business community. This has triggered intense geopolitical rivalries among great powers with consequences that have come unexpected to champions of liberalism and has plunged globalization into a protracted crisis.
After nearly a quarter of a century of “happy globalization,” the world business community has become drawn into a web of geopolitical tensions and uncertainties that is sometimes described as the Second Cold War. This is an effect of the global financial crisis, and to a greater extent, a consequence of the refusal of the West to accept the re-emergence of Russia as a world power and the rise of China. Who will claim today that “politics is a concentrated expression of economics” when time and again there come foreign policy decisions that run against business interests and push the world toward a new economic recession?
What was said at this year’s 49th annual meeting in Davos of the World Economic Forum makes clear that only the most incurable optimists would risk claiming that the fourth (digital) industrial revolution is ushering in a new phase of globalization as the world order built by the United States and its complaisant allies after World War II is falling to pieces. “The mood here is subdued, cautious and apprehensive,” U.S. analyst Fareed Zakaria, author of the book The Post-American World, said in describing the atmosphere at the 2019 World Economic Forum. “The great expansion of globalization is over.”1
Transnational business circles normally don’t need political upheavals, least of all those that undermine markets, break supply chains that have taken decades to build, and lead to tariff barriers, sanctions, and even full-scale trade wars. It is no accident that European capitalism, after reaching maturity back in the 19th century, proclaimed the free trade, open doors, and equal opportunity principles, which paved the way to economic expansion and the conquest of new markets. This doesn’t mean that armed force wasn’t used when agreements proved impossible to reach. “Trade follows the flag” was advice given to descendants by Cecil Rhodes, one of the founders of the British empire, an adventurist, racist and colonizer. Students have recently demanded that the Oxford University administration remove his statue in Oxford.
It is the question of questions how it came about that globalization, extolled by the West as a key to solving global problems, primarily backwardness, poverty and inequality, fell victim to geopolitics, which seemed to have sunk into oblivion and was ousted by revived supremacy struggles among great powers. The answer is that globalization was thought up as a hierarchical project, as the removal of national borders for transnational, mainly American corporations, as, in a sense, an embodiment of the “end of history” – the final triumph of American universalism, an evasive phrase for the onset of the “American age.”
For political simpletons, globalization was portrayed as a blessing for everyone. However, the United States planned to use globalization as a means of advancing its own interests, and least of all did it want a change to the hierarchical world order based on the outcome of the Cold War, and least of all did it want to relinquish its status as the world’s only superpower.
Yet, at the same time, by eliminating ideological antagonisms and putting an end to many of the international conflicts caused by them, globalization has brought about a more favorable environment for economic competition, removing many of the artificial barriers erected during the Cold War. Businesspeople across the world feel nostalgic about those days as a “golden age” when markets expanded tremendously after former socialist countries had gone over to free enterprise and China was reforming quickly. There emerged truly global markets, which many believed offered equal access and equal competition. New power centers emerged that were quickly asserting themselves instead of taking prepared for them rungs in the U.S.-created hierarchical system. Surely the ways of competition, just as any spontaneous forces, are unpredictable and inscrutable.
Consequently, what the United States got wasn’t what it had expected – it was caught in a trap it had laid. It had assumed that the developed part of the world, the “golden billion,” would retain its role as the financial, economic, and technological center, naturally under American organizational supremacy and control, and pass over “yesterday’s” functions – manufacturing and other – to the rest via an integration and interdependence system that would perpetuate global political and economic inequality. But this is not what has happened.
This quickly came home to the United States, which knows how high a profit needs to be to justify a specific investment, while Europe was still laboring under liberal illusions. The American model of global domination, which seemed immutable after the Cold War, was unexpectedly in danger.
The British, linked to Washington by a “special relationship,” were also anxious. Once again, they launched a policy that reflected their self-centered insular mentality. Britain saw the incipient European Union crisis and European disintegration as symptoms of growing nationalism and protectionism and as a harbinger of an upcoming replacement of world political leaders. The British reacted by pre-emptive action that reflected typical British shrewdness and pragmatism – they hadn’t won two world wars to accept Germany as the new European economic hegemon. This pre-emptive action took the form of the Brexit vote, which altered the course of European politics and meant that the British elite wanted freedom in the turbulent times of global uncertainties, though it’s not yet clear what effect this hazardous (and possibly disastrous) move will have on the British economy and financial system, and maybe on British statehood as well – Brexit proved impossible to launch on the initially scheduled date and had to be put off by several months.
The election of scandalous billionaire Donald Trump as president of the United States came out of the blue for the entire world. In a sense, it meant that Washington was ditching a strategy that had ceased to work and was launching a new strategy. Actually, Trump’s electoral victory was not as accidental as it might have seemed. On the other hand, it’s unclear whether the U.S. military-industrial complex, hit by a post-Cold War production decline in the 1990s and the subsequent “peace dividend” period, was instrumental in bringing about this change of strategy. The defense industry, the military, the intelligence community, and the media played a significant role in the United States’ swing from globalization to protectionism and in its stronger defense of American interests under the “America First” slogan.
Government and Business
The collapse of a world order has always involved painful processes in international relations, changes of leaders and parliaments, and the agonizing birth of new rules of international behavior. And it is business that has always had the worst time. For companies that didn’t directly participate in hazardous governmental projects and managed to avoid bankruptcy, those have been times of serious losses and difficult adaptation to new realities.
In the past, such periods have usually involved economic antagonisms that developed into trade wars and military conflicts some of which evolved into world wars. It’s only rather simple-minded people who believe claims by some fashionable authors that World War I was an accidental result of activities by some political “sleepwalkers” and not a clash of the economic interests of European great powers, primarily Britain and Germany, and business elites that were behind those interests.2
Economic interests were to an even greater extent behind World War II as the motivations of those who unleashed it, the Axis powers, mainly Nazi Germany and militarist Japan. Those countries were primarily fighting for strategic resources, such as oil, commodities and labor markets, and living space. The Treaty of Versailles, which put a formal end to World War I, violated the interests of the worst enemy of the Anglo-Saxons, German companies, and it was mainly this and not any anti-Bolshevik ideology that propelled the National Socialists led by Adolf Hitler into power. And it was chiefly the interests of big German companies that the Nazis were serving in their bloody attempts to redivide the world.
Remarkably, as soon as German forces occupied a European country, tycoon Gustav Krupp von Bohlen und Halbach, a lavish funder of the Nazis, would fly to that country on board his private Messerschmitt to look for assets to include in his empire. It became a state policy to plunder occupied countries, specifically to take hold of Jewish capital. For example, Alfred Rosenberg, the chief Nazi ideologist, who was sentenced to death at Nuremberg and executed, said in his diary that the Mendelssohn & Co bank, “which had existed since 1795, was handed over to Deutsche Bank in the course of Aryanization.”3
The Ost plan, which was adopted by the Nazis after they launched their invasion of the Soviet Union, involved robbing Slav peoples on a vast scale. In European Russia, the Nazis planned to leave a maximum of 30 million people, according to minutes of a meeting at Hitler’s headquarters on July 16, 1941. “As regards German requirements in the East, feeding the German people is undoubtedly our main concern…. But we do not see it as our duty to provide Russians with food from those regions. The Russian people are in for difficult years. It will be decided later to what extend industrial facilities will be preserved there. Crimea must be liberated from all aliens and populated by Germans…. By and large, the point is to intelligently divide a huge pie so that we can, first, possess it, second, manage it, and, third, exploit it.”4 Such was the role of a criminal state that had put itself at the service of big companies. Present-day demands by Berlin that Russia return property obtained from the defeated Third Reich as reparations with the consent of the Allies seem strange, to say the least.
After decades of ideological confrontation, the world has clearly entered a new era, a period of redistribution of roles among principal power centers, primarily the United States, China, Russia, and the EU. Apparently, the nuclear arsenals of key global powers remain the only brake on their increasingly intense rivalries and mainly limit them to economic competition.
It is surprising that there aren’t too many detailed, fact-based, insightful studies that shed light on roles played by intricate relationships between big companies and governments in foreign policy decision-making with all the hidden objectives and behind-the-scenes movements. It’s much too important a subject to be neglected. One profound study is the article “Business and Foreign Policy” by Jeffrey Garten, a former U.S. undersecretary of commerce for international trade, that was published in influential American magazine Foreign Affairs and explains a symbiosis between the United States’ government and business community.
“Throughout most of American history, commercial interests have played a central role in foreign policy, and vice versa,” Garten says. “During the next few decades, the interaction between them will become more intense, more important, more difficult to manage…”5
Calvin Coolidge, who was U.S. president in the 1920s and was the hero of Ronald Reagan, another former American president and another big friend of American corporations, is the author of the popular aphorism, “The chief business of the American people is business,” which reflects the essence of U.S. foreign policy. The State Department terms this “commercial diplomacy,” a policy to advance the interests of American companies in the world come hell or high water, no matter what political cost of it is and what obstacles may emerge. U.S. foreign policy owes its tough, uncompromising nature to American corporate culture, which was built from scratch and evolved through brutal competition unlike what happened in Europe with its soft movement from feudalism to capitalism, not to mention the 1990s privatization of government property by nomenklatura in Russia.
“For most of the country's history, foreign policy has reflected an obsession with open markets for American firms,” Garten says further on. The United States looked for markets to export “autos and airplanes,” and for “access to raw materials like oil or copper.” Business expansion outside the United States has often been seen as part of a national mission. As never before, the health of the American economy depends on foreign markets, Garten says. The domestic market has ceased to guarantee adequate growth, employment, revenues, and accumulation, he argues. “If the global experiment in democratic capitalism goes awry, the international landscape will be ominous for the United States,” Garten says. Garten, who, besides having been a politician in the 1990s, is a businessman as well as an academic today, makes another interesting point – he criticizes economic sanctions, especially if they are unilateral and argues that they harm American companies and help rivals of the United States. American businesses have always preferred stability to uncertainty, he says.6 In other words, “money loves silence,” as the adage goes, and business loves stability. In the words of the unforgettable and outstanding Russian aphorist Viktor Chernomyrdin, stability is better than instability.
How has it come about that the United States threw aside the advantages of stability, abandoned caution and circumspection that are inherent features of business, and embarked on the dubious and dangerous enterprise of seeking to safeguard its dominant positions in the world, challenging increasingly powerful rivals such as China and Russia, and even the EU? What is behind this: a paranoid fear of losing former power? Refusal to adapt to a new reality after being used to be the hegemon? Or justifiable fear that the onslaught of rivals would deprive the Americans of privileges in world markets, or even throw America back to its pre-World War II status with a scale of influence limited to the western hemisphere?
Judging by heated polemics within the U.S. government that spill into public space, the American elite is generally united, extremely militant and believes that it will be able to reverse history. This belief has got stronger after Trump was elected president and is based on the power of the American economy, the United States’ financial and technological superiority bolstered by its military might, and the experience and clout of American transnational corporations. On the surface, this looks like a dangerous gamble with unpredictable consequences for the Americans and the rest of the world.
The War of Sanctions
Today’s world political scene is marked by intertwining geopolitics and geo-economics that underlie bitter global antagonisms. Any dispute or conflict, no matter which region is its site, is, at the end of the day, a struggle for resources, especially energy, a clash of the interests of large corporations and governments backing them. Recent developments in Iraq, Libya, Syria, Venezuela, and other hot spots are good examples. After many years of relative stability, those countries were rocked by bitter domestic conflicts with the United States and its main NATO allies interfering in them. These conflicts inflicted heavy losses on rivaling transnational corporations regardless of their jurisdiction. One would have expected Western countries to realize by now that one can never be sure of consequences of any interference in someone else’s affairs no matter what noble pretext is used for it. One can’t help thinking of the European quip of the days of Napoleon III that the French “are always surprised at the outcome of what they have done.”
Many experts believe that, after a relative lull, a new global conflict is looming and that business interests are neglected in this situation. This highlights the issue of interference in internal affairs. American-Chinese antagonisms and the simultaneous American-Russian confrontation are at the epicenter of this brewing conflict. The American-built world order based on the results of World War II, which, it seemed, became definitively triumphant after the Cold War and the collapse of the Soviet Union, has sunk deep into crisis because of the Americans’ own conduct, and this crisis has spread to what is the “holy of holies” for the United States, trans-Atlantic relations. One has the impression the Americans are deliberately trying to split up the world in order to reassemble it in their own way.
Trump’s America with its neo-conservative logic prefers bilateral relations with each ally to the old multilateral approach that France and Germany still call for. Trump bases his behavior on the tough business logic of everyone taking care of themselves, although this runs against the United States’ post-World War II strategy of unifying the Western world under its leadership and setting up political and military alliances, primarily NATO, although the latter’s future looks uncertain, to say the least, now that Trump has accused its European members of parasitism.
Focusing on military operations to “liberalize” and “democratize” the world, the United States has been finding it harder to win economic competition both with its allies and partners and with its principal adversaries. American companies, primarily transnational military-industrial, energy and telecommunications corporations that behave as masters and lawgivers throughout the world and therefore are geopolitical actors, felt threatened in this competition. The entire world is the scene of these rivalries, all its key regions – Europe, the Indo-Pacific, the Middle East, Africa, Latin America. One can detect geopolitics behind any of these clashes of interests – one just has to scrape the surface.
The international business community is confused. Until very recently, companies had the decisive say in the policies of their governments but today they have been pushed into secondary roles in U.S.-directed dangerous geopolitical games and therefore are forced to accept hazardous rules dictated to them. The United States makes fairly sober-minded near-term assessments of its economic power and the extent of its control of the global financial system and, in view of nuclear-age realities, uses economic sanctions as its chief means of political pressure in dealing both with its adversaries and with its partners.
The United States included sanctions in its political and diplomatic arsenal when it was launching a policy of expansion and, when applying them, sometimes supplemented them with the use of threat of armed force. When the Cold War came to an end, unilateral economic sanctions that didn’t have the approval of the UN Security Council, although very damaging to American and European companies, became one of Washington’s chief means of political pressure on Russia, China, and even some allies of the United States. According to calculations by American economists Gary Clyde Hufbauer, Jeffrey Schott, Kimberly Ann Elliott, and Barbara Oegg, in the 1990s, the United States used various forms of sanctions against 35 countries compared with 20 countries that it had sanctioned in the preceding decade. The United States obtained UN Security Council approval for its sanctions against Iraq in 1990-1991, the former Yugoslavia in 1991, and Rwanda in 1994 in order to give them legitimacy. However, if coordinated international pressure proved unachievable or failed to make the target country change its behavior, the United States unhesitatingly employed more aggressive unilateral measures, the four economists said.7
The declared reason for the current large-scale sanctions against Russia was the reinclusion of Crimea in Russia. However, it was long before that when the West began to consider the use of sanctions as a long-term strategy to achieve a “change of regime” in Russia and force the country to abandon an independent foreign policy if it contradicted Western interests. The hasty introduction of sanctions – first personal and then sectoral – meant that the administration of President Barack Obama had adopted them as a reserve instrument before the conflict in Ukraine, no later than in 2012, the year the “Magnitsky Act” was put into force. This reflected deep disappointment with the results of the “reset” of Russian-American relations – no new edition of Gorbachev’s perestroika came about while Vladimir Putin won a new presidential term in 2012. And it can never be a problem to find a pretext for sanctions, as the downing of Malaysia Airlines Flight 17 or the Skripal poisoning case make clear.
The anti-Russian sanctions, which are based on American legislation but run against the UN Charter and international law, have become a permanent factor in international relations, raising major obstacles to trade and investment. They have mainly hit the EU countries, which have thoughtlessly joined the sanctions out of trans-Atlantic solidarity and refused to recognize the right of Crimea’s population to self-determination, which it exercised after ultranationalists took power in Kiev.
Russia’s main trading and business partners in the EU such as Germany or Italy sustained heavy losses. The Russian Foreign Ministry estimates that the sanctions have cost Europe a total of about 100 billion euros. Import substitution measures and exploration of non-EU options whereby Russia reacted to the sanctions irreversibly deprived many European companies of markets in Russia. Being barred from Russia’s agricultural market was the greatest loss for them. Russia meanwhile achieved a breakthrough in grain production. Exports of wheat began to bring Russia higher revenues than its weapons exports and made it one of the world’s main grain exporters. The United States involuntarily created a long-term rival for itself in the world agricultural market.
Only a naïve politician may expect a great power to change its behavior under that external economic pressure rather than looking for an antidote. Several years after the West launched its war of sanctions against Russia, some Western analysts and politicians admit this. An article by David Cohen and Zoe Weinberg headlined “Sanctions Can’t Spark Regime Change” is a good example. “In the last several decades, financial and economic sanctions have become a key tool of U.S. foreign policy. The Trump administration has made particularly heavy use of this tool, especially in its efforts to induce regime change in Venezuela and Iran,” Cohen and Weinberg say. However, they indicate, “the more the United States uses sanctions to pursue policies that lack international support, the more other countries … will seek alternatives to the dollar and the U.S. financial system. If they find such alternatives, it will be a blow not only to U.S. sanctions policy but to the United States’ position in the global financial system.”8
That is true, but the current sanctions are a mechanism with an inertia that’s hard to stop. The United States is unlikely to abandon them in the foreseeable future, even though by sticking to them it will be harming itself and others. That is a reality one can’t avoid. It’s more likely that the EU’s united front will be breached, but even that can only happen if Trump’s policies continue to undermine trans-Atlantic solidarity, which has already become looser due to his efforts. It’s too early to expect European countries to shake off their dependence on the United States, although they have become more independent in decision-making on issues such as the Iran nuclear deal, Middle East policies, European energy security, or relations with China, and put more value on their own interests. Whether this independence trend gains momentum largely depends on how much pressure European companies will put on their governments, on whether European governments will prioritize market advantages, and on how influential Europe’s pro-American circles will be.
1 Zakaria, Fareed. “Davos is a microcosm of the world – and the outlook is grim,” The Washington Post. January 24, 2019.
2 Clark, Christopher. The Sleepwalkers: How Europe Went to War in 1914. New York, 2013.
3 Politichesky dnevnik Alfreda Rozenberga, 1933-1944. Moscow, 2015, pp. 264, 277-278, 314.
4 Piker, Genri; Khaffner, Sebastian. Plan “Ost.” Kak pravilno podelit Rossiyu. Moscow, 2011, pp. 198-200.
5 Garten, Jeffrey E. “Business and Foreign Policy.” Foreign Affairs. May/June 1997.
7 Hufbauer, Gary Clyde; Schott, Jeffrey J.; Elliott, Kimberly Ann; and Oegg, Barbara. Economic Sanctions Reconsidered. 3rd Edition. Peterson Institute for International Economics. June 2009, pp. 87-88.
8 Cohen, David S. and Weinberg, Zoe A.Y. “Sanctions Can’t Spark Regime Change: The Trouble with Trump’s Approach to Venezuela and Iran.” Foreign Affairs. April 29, 2019.