Russia's Geoeconomic Strategy for a Greater Eurasia

Glenn Diesen

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351815031
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Moscow has progressively replaced geopolitics with geoeconomics as power is recognised to derive from the state's ability to establish a privileged position in strategic markets and transportation corridors. The objective is to bridge the vast Eurasian continent to reposition Russia from the periphery of Europe and Asia to the centre of a new constellation. Moscow's 'Greater Europe' ambition of the previous decades produced a failed Western-centric foreign policy culminating in excessive dependence on the West. Instead of constructing Gorbachev's 'Common European Home', the 'leaning-to-one-side' approach deprived Russia of the market value and leverage needed to negotiate a more favourable and inclusive Europe. Eurasian integration offers Russia the opportunity to address this 'overreliance' on the West by using the Russia's position as a Eurasian state to advance its influence in Europe.

Offering an account steeped in Russian economic statecraft and power politics, this book offers a rare glimpse into the dominant narratives of Russian strategic culture. It explains how the country's outlook adjusts to the ongoing realignment towards Asia while engaging in a parallel assessment of Russia's interactions with other significant actors. The author offers discussion both on Russian responses and adaptations to the current power transition and the ways in which the economic initiatives promoted by Moscow in its project for a 'Greater Eurasia' reflect the entrepreneurial foreign policy strategy of the country.

1 Theorising geoeconomic strategy for Eurasian integration

Introduction

Eurasian integration can alter the balance of power and challenge the foundations for US global primacy. The world’s largest continent in terms of landmass, natural resources and population has historically been divided by the lack of peace, shared physical infrastructure and mechanisms for cooperation. Scarce economic connectivity among land powers has endowed maritime powers with the competitive advantage to dominate the main transportation corridors to move troops and facilitate trade. In the language of Mackinder (1904) and Spykman (1942), the divisions on the ‘Eurasian heartland’ have predisposed the continent to be balanced and even controlled from the periphery or ‘rimland’. Connecting the Eurasian landmass with infrastructure and instruments for cooperation should be regarded as a decisive effort to empower the Eurasian heartland at the expense of maritime states.

The purpose of this chapter is to outline the theory for an ideal and rational Russian geoeconomic strategy for Eurasian integration. It will be argued that rational states increasingly rely on economic statecraft, especially economic connectivity, to augment their bargaining power vis-à-vis other states. Eurasian integration is defined here as economic connectivity between the major Eurasian actors to enhance their collective autonomy and influence. Strategy is conceptually different from policy as the former includes the anticipated behaviour of allies and adversaries to avoid unexpected or undesired responses. Strategies are usually explored to understand how rational actors should ‘correctly’ conduct themselves in the competition with other actors and ‘give us a benchmark for the study of actual behaviour’ (Schelling 1980: 1). States seek to enhance their bargaining power, the ability to influence the decisions of the counterpart, by developing the incentives and deterrents for specific behaviour.

The theory of geoeconomic statecraft will first be outlined. Growing economic interdependence and increasingly destructive military power has led to economic power displacing military means in the global rivalry for overall power. States enhance relative power by developing favourable symmetry in economic interdependent relationships to extract political power. Building on Albert Hirschman’s (1945) theory on the asymmetry within interdependent relationships, it will be argued that the realist balance of power logic is reproduced as the geoeconomic equivalent of the ‘balance of dependence’. Mutual dependence incentivises states to skew the symmetry of dependence, as opposed to ‘defeating’ an adversary in a purely zero-sum rivalry.

Second, repudiating the assumption of rationality is imperative due to the complexity of geoeconomic statecraft. Rationality is defined in terms of decision makers embracing the geoeconomic balance of power logic to maximise security. This entails abandoning inexpedient ideological commitment to laissez faire capitalism that has endowed maritime powers with competitive advantage. Third, modern geoeconomics implies that regionalism is instrumental in developing collective bargaining power. Integration schemes are primarily motivated to develop favourable symmetry in relations with competing powers. Economic connectivity aims to influence the behaviour of others by accommodating the mutual interests of others, and deterring unwanted behaviour with the ability to inflict pain.

Lastly, it will be argued that geoeconomic strategies for Eurasian integration recast Mackinder’s heartland theory in the context of economic statecraft. Throughout the 20th century the US has consistently pursued the strategy of a maritime state maintaining a balance of power by keeping Eurasian land powers divided, and ruling from the periphery in partnership with other maritime states. The shift of economic power from the West to the East has created systemic incentives for intensifying economic connectivity to shift power from the Eurasian periphery to the heartland. The harmonisation of economic interests between large Eurasian powers like Russia, China, Iran and India has the potential to establish collective leadership of a Eurasian core, to create a gravitational pull on the periphery to displace US primacy.

What is geoeconomics?

The term geoeconomics is used with increasing frequency by both scholars and practitioners, albeit often with different meanings and assumptions. The commonality between varying definitions is that economic statecraft entails a mutually beneficial relationship between political and economic power. Geoeconomics is defined here as state intervention in the market to procure a privileged economic position, while the resulting economic instruments of power are utilised to extract political gain. The influential paper ‘Power versus Plenty’ by Viner (1948) theorised that economic affluence and state power are mutually reinforcing objectives. Recognising that communism disrupted the potency of economic statecraft, Lorot (1999) posits that the global capitalist era following the Cold War will be defined by the rise of geoeconomics:

Nations are engaged – alongside their national companies – in offensive policies to conquer external markets and to take control of sectors of activity considered to be strategic. For Nations today, the quest for power and assertion of their rank on the world stage depends more and more on their economic health, the competitiveness of their companies and the place that they occupy in world trade.

Geoeconomics is complex statecraft since economic power does not automatically yield political power, and political power often fails to produce economic benefits. States such as Germany and Japan built powerful economies during the Cold War, but were unable to convert this into political capital due to intrusive US influence (Baru 2012a). Similarly, not all powerful states are capable of converting their influence into advantageous positions in the global economy:

The power to interrupt commercial or financial regulations with any country, considered as an attribute of national sovereignty, is the root cause of the influence or power position which a county acquires in other countries, just as it is the root cause of the ‘dependence on trade.

(Hirschman 1945: 16)

Great powers acting in accordance with geopolitics rather than geoeconomics will eventually erode the economic foundations of their political and military power. Put more bluntly, empires are costly and eventually falter if they do not provide a ‘return on investment’. ‘The rise and fall of the Great Powers’ by Kennedy (1987: 439) crystallised and popularised the theory of ‘imperial overstretch’, stipulating that large empires eventually collapse when the economic foundations for empire diminishes, rather than being defeated on the battlefield. British historian, Arnold Toynbee, similarly noted that ‘great civilizations are not murdered. They commit suicide’ (Schmidt 2015: 1).

States are required to pursue relative economic power to survive in the anarchic system. Realists such as Gilpin thus argue that ‘realism today necessarily means neo-mercantilism’ (Guzzini 1997: 134). In an economically interdependent world ‘economics is the continuation of war by other means’ (Bell 2008: 330). When ‘military conflict between major states is unlikely economic power will be increasingly important in determining the primacy or subordination of states’ (Huntington 1993: 72). States have ‘to act “geo-economically” simply because of what they are: spatially-defined entities structured to outdo each other on the world scene’ that employs ‘the logic of war in the grammar of commerce’ (Luttwak 1990: 19). Trade becomes a tool for power competition, as opposed to a tool for transcending power competition: ‘Everyone, it appears, now agrees that the methods of commerce are displacing military methods – with disposable capital in lieu of firepower, civilian innovation in lieu of military–technical advancement, and market penetration in lieu of garrisons and bases’ (Luttwak 1990: 17).

Geoeconomics is frequently conflated with neomercantilism because of the similitudes. Geoeconomics denotes the geopolitics of neomercantilism, defined as ‘the geopolitical consequences of economic phenomenon, or, as the economic consequences of geopolitical trends and national power’ (Baru 2012b: 2). Mercantilism is a reference to the French economic model from the 17th century that combined the idea of free-market capitalism with government interventionism. The state employed military power to acquire resources and precious metals, while the ensuing economic prosperity funded political and military power. Heckscher (1955: 1–21) outlined in his pioneering work on neomercantilism that relative economic power is enhanced by favouring exports over imports to accrue positive trade imbalances. In modern neomercantilism, the accumulation of foreign reserves has to a great extent substituted the procurement of gold. Yet, the large economies of the world still maintain substantial amounts of gold in lieu of possible rising distrust in fiat currencies. Neomercantilism and geoeconomics differ as the former usually relies more on war, while the latter aims to accommodate adversaries in asymmetrical formats to avoid ‘pure conflict’. In the struggle for power states employed military force with greater ease in a less connected global economy when their commercial competitiveness was insufficient (Luttwak, 1990: 21). In contrast, in an integrated global economy and with more destructive weapons there are greater constraints on the use of force. States still intervene militarily to defend strategic interests if survival is threatened. A prime example was the West’s support for toppling the Ukrainian government in 2014 to push through the EU’s Association Agreement. While Russia has initially won over Kiev by offering more loans than the EU, the coup prompted Russia’s military intervention due to a perceived existential threat resulting from Ukraine being gradually converted into a new frontline.

Asymmetries and the ‘balance of dependence’

A common theme in international political economy is the enduring dilemma between recognising that prosperity and influence necessitates integration into the global economy, and the ambition of states to maintain economic and political autonomy (Cooper 1968; Gilpin 2011: 80). It will be argued here that there is no contradiction between these two objectives since power derives from the aptitude of states to manipulate the symmetry within an interdependent relationship to maximise both autonomy and influence (Hirschman 1945; Knorr 1977; Wagner 1988).

The geoeconomic ‘balance of dependence’ corresponds with the realist balance of power logic. Von Hörnigk argued in 1684 that power and wealth should be measured by relative gain: ‘principally on whether its neighbours possess more or less of it. For power and riches have become a relative matter’ (Heckscher 1935: 22[Q1]). Similarly, Coke emphasised that ‘if our treasure were more than our Neighbouring nations, I did not care whether we had one-fifth part of the treasure we now have’ (Heckscher 1935[Q1]: 22). In an economic relationship between a rich and a poor country, the richer state would have less of a stake in the trade than the poorer state (Hirschman 1945). Max Sering similarly posited in 1900: ‘As between private persons, there exist between national economies relations of exploitation and the subjection’ (Hirschman 1945: 11). Economic interdependence through the prism of power competition can be broken down into the ‘positive’ aspect of gaining influence over others as they become dependent, while the ‘negative’ aspect is the loss of autonomy as other states gain influence. Asymmetrical dependence, or a skewed ‘balance of dependence’, empowers the less dependent state to set favourable economic conditions and extract political concessions from the more dependent. Whether economic interdependence is sustainable and promotes stability depends on whether there is a balance of dependence, typically referred to as ‘symmetry’ (Barbieri 2002: 3).

Defensive neomercantilism (or geoeconomics) ‘meant the shaking off commercial dependence on foreigners which was continually becoming more oppressive’ and educates the country in the direction of ‘economic autarchy’ (Schmoller 1897: 76). Malevolent or offensive neomercantilism denotes accruing trade surplus to augment relative economic and political power. Powerful states preserve and advance asymmetrical relations by providing material goods to reduce the incentives for weaker states to decouple from interdependent relationships, and preventing larger rising economic powers having access to markets. This is consistent with the basic realist tenets, as powerful states develop ‘interdependence’ to increase their influence over weaker states (Waltz 1970: 214).

The balance of dependence can be manipulated through defensive and/or offensive policies. Defensive policies aim to create a privileged position of one’s own companies and markets by providing favourable conditions (Raza 2007). This includes erecting artificial barriers to restrict access to one’s own market, both tariff and non-tariff. Bureaucratic hurdles, industrial, technological and environmental policies and ‘health and safety’ policies can be instrumental in impeding the ability of imported goods to outcompete domestic producers (Jones 1986; Raza 2007; Cwik 2011). States can contribute to restricting technology transfer to foreign competitors by protecting intellectual property rights or pursuing more ad hoc restrictions on national corporations by linking specific technology to national security (Gipin 2011: 139). Similarly, governments can directly subsidise technological developments, or indirectly subsidise them by funding specific education, competitive infrastructure or for example by providing access to technology developed by the military (Luttwak 2010: 65). While traditionally concerns were devoted to civilian technology being diverted towards military purposes, geoeconomic thinking recognises the competitive advantage of transferring military technology to commercial segments (Luttwak 2010: 65). Offensive policies entail removing similar trade barriers erected by other powers. This can be achieved with anti-monopoly laws or by undermining local producers by ‘dumping’ excess produce. Similarly, dependence can be enhanced with foreign aid and trade concessions that undercut local producers. The instruments of power in economic competition include ‘productive efficiency, market control, trade surplus, strong currency, foreign exchange reserves, ownership of foreign companies, factories and technology’ (Huntington 1993: 73). Governments can also manipulate capital availability and accumulation, labour input and technological advances as important sources of economic growth. Currency manipulation is considered a form of neomercantilism since devaluation protects local industries from imports and assists the penetration of foreign markets (Cwik 2011).

Economic statecraft ‘costs something’ and the inputs must be compared to the output (Baldwin 1985: 119). The costs can be measured in pure monetary terms and the sustainability of the economic tools. Economic coercion is only sustainable when used in moderation as excessive usage increases the incentives for weaker states to reduce their dependence. The advantage of the more dependent state is the willingness and preparedness to accept significant economic pain to obtain greater autonomy (Hirschman 1945; 1978). Conversely, the stronger and less dependent state will often be preoccupied with other relationships thus making it unable to prevent the weaker state from decoupling (Hirschman 1978). Economic sanctions are an extremely coercive use of geoeconomic leverage, which significantly elevates the willingness of the weaker side to accept economic pain to reduce dependence. For example, the EU is likely to accept paying more for alternative energy resources to lessen dependence on Russian energy if Moscow is believed to extract unwarranted political power. Likewise, Russia will be more likely to accept economic pain to achieve greater autonomy from the West if economic reliance is used excessively to extract political concessions or cement its peripheral position in Europe.

Strategic industries

Assessing asymmetry solely in terms of total trade volume neglects the imperative of controlling strategic industries. A privileged or hegemonic position in strategic markets may have low profit, yet the ability to extract political concessions can be vast. Competition for market share is often deemed more important than profits, to the extent that even losses are accepted (Huntington 1993: 74). Dependence on strategic industries have a greater potential to become a ‘commercial fifth column’ since economic elites develop greater loyalty to a competing state (Hirschman 1945: 29). Geoeconomic dominance is achieved by ‘develop[ing] exports in articles enjoying a monopolistic position in other countries and direct trade to such countries’ (Hirschman 1945: 34).

Large energy corporations are commonly recognised as strategic assets since modern economies can only survive with reliable access to affordable energy. The energy industry is predisposed to hegemonic dominance since some states are endowed with ‘natural’ competitive advantage because they possess natural resources and transportation corridors. Geography therefore plays an important role in geoeconomics and the regional concentration of economic activities is often a mere ‘historical accident’ (Gilpin 2011: 118). The geoeconomic significance of oil was vividly demonstrated when the Organisation of Petroleum Exporting Countries (OPEC) raised the oil price in 1973 and plunged the West into economic crisis. Similarly, the national interest of controlling transportation corridors was exemplified by the British-French-Israeli invasion of the Suez Cannel in 1956, and the unyielding response by the US. Competition over energy infrastructure implies primarily control over producers, transit states and consumers.

Energy and other strategic industries requiring concentration of power in large corporations to remain competitive internationally must to some extent be placed under the control of the state, as the alternative could be the industry controlling the state. The rise of an oligarchic class with control over energy resources could lead to the pursuit of political interests that conflict with the state, which could be courted by foreign powers seeking indirect influence. Checks and balances on the government are however required to prevent self-serving officials from exploiting the concentration of power.

Rationality and liberal delusion of laissez-faire capitalism

Rationality is pivotal to any strategy as decision makers must be capable of making a conscious calculation in the pursuit of accurately defined security interests (Schelling 1980: 5). The behaviour of states can be labelled ‘rational’ to the extent that security is maximised, which in the realist understanding implies responding to systemic pressures in accordance with the balance of power logic. Rationality is explored in neoclassical realist theory by opening up the ‘black box’ of policy-making, with decision makers being the intervening variable between the international distribution of power and foreign policy. Neoclassical realist theory responds to the recognition by scholars from different realist strands that states do not always act ‘rationally’ (Rose 1998: 150; Rathbun, 2008: 305; Mearsheimer 2009: 242; Kitchen 2010; Reichwein, 2012; Quinn, 2013). Economic dependence, ideological convictions, domestic competition for power, institutional entanglement and other variables can prevent states from mobilising resources domestically and internationally in response to systemic pressures deriving from the international distribution of power (Diesen 2015: 14).

The proper relationship between the state and the economy, which several scholars believed had been settled with the demise of communism (Fukuyama 1989), has been debated forcefully throughout history. The ideological conviction that polity and the economy should be disconnected undermines rationality by impeding decision makers from employing economic statecraft (Baldwin 1985: 59). The sta...