THE PIVOT OF GEOECONOMICS
A Paradigm Shift in Pakistan’s Policy
In March last year, Pakistan announced a huge foreign policy shift from geopolitics to geoeconomics. It is huge because Pakistan’s foreign policy has always been driven by regional and systemic development, especially the global powers’ fluctuating interests in the South Asian region alongside the political and security dynamics of neighbouring India and Afghanistan. In the words of the then-Foreign Minister Shah Mahmood Qureshi, “With the recent intensification of strategic competition between global powers, making the world peace fragile and the direction of diplomacy, unpredictable, Pakistan has made a strategic pivot from geo-politics to geo-economics.” The aim of this writer to pen this article is to understand and explain as to what do we actually mean by geoeconomics and can it deliver the expected economic dividends while also addressing the geopolitics of our region? Let’s find out the answers.
What is geoeconomics?
Although it is commonly understood that geoeconmics is the use of economic instruments to promote and defend national interests, and to produce beneficial geopolitical results, yet it is a glaring truth that this term has almost always been without a specific working definition.
Some authors tend to focus on the use of geopolitical or military power for economic ends while others define it more broadly, as the entanglement of international economics, geopolitics, and strategy,” a kind of catch-all definition that obscures more than it clarifies. Still others primarily stress trade and the protection of industries.
As a field of knowledge, geoeconomics comes from classical geopolitics. In more specific terms, it can be understood as an extension of the sphere of geopolitics applied to international economic relations. In this sense, geoeconomics is an unfolding of geopolitics.
From a contemporary perspective, geopolitics refers to the analysis of the distribution and configuration of power in the international system and its effects on inter-state relations of international politics, as well as on the strategic morphology of the world space. Both geopolitics and geoeconomics are intrinsically linked to interstate geostrategic competition. However, geoeconomics restricts the field of analysis of geopolitics and emphasizes the relevance of economic power as a factor of analysis. In this sense, it incorporates a special type of geopolitical competition.
Simply put, geoeconomics is about viewing resources of countries in political and spatial dimensions.
The term is not new; it entered the lexicon in 1990 with an article by Edward Luttwak “From Geopolitics to Geo-Economics: Logic of Conflict, Grammar of Commerce” in which he argued that following the Cold War, the importance of military power was giving way to geoeconomic power. In this piece, he assessed the United States’ position on the economic and trade threat which represented Japan at the global level. In analytical terms, the author transposes the logic of military competition into the sphere of international trade. In this way, it observes economic capacities as an element of power, diagnosing the advent of Geoeconomics as a new perspective for the understanding of international disputes. In other words, in a post-Cold War perspective, the elements of power that were considered central to classical geopolitics would have given way to the economic factor.
In all, the use of the term was to assert that in the post-Cold War period, competition between states would be in the economic, rather than the military, domain.
One reason the term is more commonly used now is the rise of China, which is increasingly using economic tools to project power. Two other factors are also relevant: the revival of state capitalism and state-owned enterprises means that states have more economic resources at their disposal; and the deep integration of global trade links and financial markets has made geoeconomic tools more powerful.
In War by Other Means, Robert Blackwill and Jennifer Harris explore today’s leading geoeconomic instruments: trade policy, investment policy, economic and financial sanctions, financial and monetary policy, energy and commodities, aid and cyber. While some function as they have in the past (aid), others are new (cyber) or operate in a different environment (energy).
How it differs from geopolitics
Whereas geopolitics is related to the effects of geography on international politics; geoeconomics is linked with spatial, historical, and political aspects of economies and resources. States being central to both as unitary actors in formulating domestic and foreign policies, both the disciplines are also closely linked to strategy in defining optimal plans and states long term goals. However, geopolitics and geoeconomics bear a few fundamental differences. First, geopolitics as a discipline is associated with the neo-realist paradigm of international relations; whereas, geoeconomics is the normative heart of neoliberalism. The former is primarily concerned with political and military activities, and the latter with economic activities. With respect to variables, geopolitics is traditionally linked to slowly-changing variables– like ethnicity, country, religion, and language– and, geoeconomics is more linked to rapidly-changing variables– particularly technological change and developments in commerce.
One can find numerous models in the contemporary and past world orders towing either of the two as the theoretical framework of their domestic and foreign policies. The USA in the contemporary world, the USA and the USSR during the Cold War, and Imperial and Nazi Germany in the pre- and post-world war eras, are all regarded as practitioners of geopolitics. Their elites’ perception was based on a combination of their political, geographical, historical, racial and economic factors which substantiated their perceived right to expand their states’ borders and sphere of influence to control other states’ land masses and natural resources.
China is arguably the world’s most prominent practitioner of geoeconomics, but Russia and the US are also major players. Beijing has repeatedly cut car imports from Japan or withheld exports of Chinese rare earths to Japan in efforts to weaken Tokyo’s resolve over territory and sovereignty in the East China Sea. In providing aid to Africa, China rewards those countries that vote with it at the United Nations.
Russia uses its energy endowment to advance strategic objectives. In 2008, it shut off gas pipelines to parts of Europe in the middle of winter amid political disputes. The Kremlin offers huge financial support to annexed Crimea.
In response to the Russian annexation of Crimea, and after the recent war that started on February 24 this year, the United States and others did not send troops to defend Ukrainian territory, but instead introduced sanctions on Russia. The US has also led international efforts to influence Iran’s nuclear policies through sanctions. The preponderance of the dollar and US dominance of the international financial system mean that American sanctions have a lot of bite.
Geoeconomics is important for Pakistan. For too long, Pakistan has been viewed internationally as a country beset with a weak economy, divisive politics, and societal disorders, especially violent religious extremism. If we truly want the world to view us differently, not through these vulnerabilities, but through our strengths — the connectivity hub, large consumer market, expanding middle class, youth bulge — then a greater emphasis on geoeconomics is certainly the answer.
In Pakistan’s context, geoeconomics would mean leveraging our geography to maximise our economic well-being. That’s quite fine. However, when some of us talk of a policy ‘shift’ towards geoeconomics, we must not forget that in our case, geostrategy would never be irrelevant. A move towards geoeconomics should, therefore, not be a shift, but a change of emphasis, within the overall construct of comprehensive national security.
Pakistan is a country which is also strategically located. To the north of Pakistan is China, the world’s second largest economy and the largest trading nation. To the east, lies India, which is one of the key emerging economies.
To the northwest of Pakistan is landlocked Afghanistan and beyond that landlocked and energy-rich Central Asia. Pakistan provides the shortest land route to Afghanistan for its overseas trade.
To the southwest is Iran, which connects Pakistan to the oil and gas abundant Middle East. The Arabian Sea to the south, which forms the northwestern part of the Indian Ocean, constitutes one of the world’s busiest trade routes. Going by its strategic location, Pakistan should have become a trade, transport and investment hub.
On the contrary, the strategic location turned out to be Pakistan’s Achilles Heel and reduced it to a hotbed of militancy, partly because national priorities were misplaced and partly because world or regional powers used the country’s territory for waging their proxy wars. Foreigners by and large saw Pakistan as an instable country with a high political risk, where their lives and assets wouldn’t be safe.
The Pakistani government’s desire to shift its approach is understandable – relying on geoeconomics would help mitigate the costs incurred by rising US-China competition. However, while Islamabad thinks it can maximise its self-interest through geoeconomics, the international system may prevent it from doing so; Pakistan cannot ignore geopolitics.
With Afghanistan, Iran, China and India as neighbours, Pakistan is positioned in a strategic location that comes with its own challenges and opportunities. Decades-long rivals Pakistan and India were on the brink of war as recently as 2019. During the escalation, Pakistan said it shot down two Indian fighter jets. At the time, Pakistani Prime Minister Imran Khan warned that a conflict between two nuclear powers was not possible, and, as he projected, the deterrence power of nuclear weapons prevented an escalation into war.
With the increasing rivalry between the US and China, geopolitics might rekindle tensions between the two countries; Pakistani-Indian tensions could become another battleground. Geoeconomics is limited in its ability to end these tensions.
There are some challenges that need to be addressed. Because of space constraints, only three may be mentioned here.
Ensuring security of foreign investors and workers and safety of foreign assets will be the biggest challenge for Pakistan. Incidents such as the lynching of a Sri Lankan manager of a factory in Sialkot, and the extremist narrative which encourages such incidents, if not controlled, may wreck the success of geo-economics.
Continuity of liberal economic, particularly investment, policies will also be crucial. The objective should be to minimise the cost of doing business, so that the advantage offered by lower wages is not offset by high barriers to trade and investment.
The third important challenge will be ensuring efficient and effective economic governance. Governance in Pakistan continues to remain hostage to the principle of “administrative efficiency,” which looks upon every problem as primarily administrative and which is a relic of the colonial era. Economic management requires specialised knowledge and skills. The Economists and Planners Group is a specialised cadre, which, as the name suggests, can take the lead in economic management.
However, economic management remains an almost exclusive domain of the officials of Pakistan Administrative Service (PAS), whose core competence is related to administering districts and divisions primarily with a view to collecting revenue and maintaining law and order.
Dealing with intricate economic issues of the 21st century through a 19th century administrative system can’t make for efficient and effective economic management.
Geoeconomics will serve us well only if we are able to play the geostrategy right. Doable, but not easy. The US-China competition is intensifying, placing Pakistan in an awkward position. The US-India partnership seems to be emboldening India’s hegemonic tendencies and its relentless pursuit to create a Hindu rashtra, generating fear and discontent amongst its non-Hindu minorities. The Taliban have returned to power in Afghanistan after the US pulled its troops out, but the country is on the brink of yet another round of instability, even civil war. The Kashmir dispute continues to fester, with India now embarked upon changing its demography. Iran remains hamstrung under US sanctions. These are huge geostrategic challenges. The question is how do we turn this profoundly challenging geopolitics to mutually beneficial geoeconomics?
The shift from geopolitics to geo-economics is much needed but ignoring the former will not be in the interest of Pakistan. The fluid situation in Afghanistan and US’ changing policies towards India and the region should be considered in this regard. Indian involvement in Afghanistan is a geostrategic challenge that Pakistan has to face and deal with for its security. Similarly, the US policies in Asia-Pacific and its tilt towards India is concerning. US’ unending reservations about Chinese projects such as China-Pakistan Economic Corridor show that for Pakistan both geo-economics and geostrategic challenges are of immense importance and a systematic pursuance of both the strategies is the need of the hour.