Instead of Uniting the World, Globalization Has Set Nation against Nation

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Total globalization has brought the world order into crisis. The difference in interests, conditions, and opportunities, as well as the socioeconomic regimes of the participants initially implied risks of imbalances. As a result, the wrong policy of coordination—excessive integration with resource autocracies or forced physical (military) coercion to change regimes—led the situation to economic and ideological contradictions. The world has once again clustered into democratic and authoritarian and is obviously already in a phase of conflict between the two poles, deglobalization trends, and a tightening of economic and social conditions.

Integration problems and deglobalization processes have also begun in developed countries, such as the problems of the European Union’s economic homogeneity and Brexit. However, these are the problems of homogeneous liberal democracies. Accordingly, whatever contradictions they possess, the processes of finding equilibrium are on a civilized track. Moreover, as the focus shifts from internal contradictions to external contradictions, to threats from the authoritarian world, internal imbalances weaken and, on the contrary, integration processes begin to strengthen again. A vivid example of this is the creation of various alliances in various areas, such as the Anglo-Saxon alliance, the alliance of a special US information-exchange regime with Pacific countries, a potential cartel of oil consumers, and, finally, the cohesion of democracies with regard to Russia’s actions in Ukraine.

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Until now, Western democracies have followed mainly two political directions with respect to autocracies: external military intervention or deep socioeconomic integration with a de facto agreement to maintain authoritarian regimes according to the principle “your internal affairs are your affairs.” Both, as we can now see, have negative consequences.

On the one hand, attempts at institutional liberalization and democratization of autocracies and dictatorships through military intervention and forced external forms of reform of the socioeconomic frame are obviously an inefficient way to civilize autocratic regimes for a number of reasons. Métis in autocracies—that is, ethical and cultural values, customs, traditions, and established social rhetoric—contradict or are in some way inconsistent with the liberal market values of the Western world.

Elites have no positive incentives to change preferences, and the population has no positive incentives to protest. Thus, military invasion and the use of force exacerbate the social crisis, fail to create the conditions and incentives for liberalization and delay the transformation of the mestizo for the entrenchment of market institutions and democracy.

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On the other hand, the deep integration of autocracies into global value-added processes, primarily to reduce production and resource costs, has led to a significant strengthening and reinforcement of authoritarian regimes. In autocracies, elites are rent-seeking entrepreneurs unfettered by society. Their success and well-being depend on budget revenues, and under conditions of expanding global integration, such regimes ensure for themselves an increase in budget revenues and maximize their sustainability. There is no question of access to the budget: in authoritarian regimes, this is an absolute monopoly of the regime elite, and competition can only come from the inside.

When budget revenues are large, they are enough to ensure the stability of the status quo of the ruling elite. Against the background of the concept of “noninterference” in the internal affairs of such authoritarian countries, the stability of their regimes, ensured by the abovementioned factors, entails the expansion of opportunities for the ruling elites in propaganda, obtaining public support, repression of dissenters, and—most importantly—in potential external aggression.

An alternative path to the first two described above is a policy of disintegration, a policy of limiting the involvement of authoritarian regimes in global economic and social processes on the same terms. This is a necessary measure to both reduce the production and resource dependence of the developed world on resource dictatorships and create incentives to change or transform regimes in the future and incline the necessary cooperation in the present. Such constraints would reduce the opportunities for rent-seeking enrichment by autocratic elites, increase social discontent through falling incomes and living standards, and reduce opportunities for external aggression.

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Reducing the production outsourcing and logistics potential of autocratic economies, as well as their resource exports, will reduce the dependence of the civilized world on resource and production-component imports and will strengthen production and resource security.

Disintegration with autocracies may well give impetus to progradation in various aspects: both in alternative energy and technology since higher costs and lower margins in the new rigid environment will be an incentive to innovative development and search for ways to improve efficiency.

The resource and production leverage provided by autocratic regimes is actually some kind of “resource curse” of Western economies when the motivation to increase efficiency and innovation falls against the background of voluminous and cheap resources. Such leverage has contributed to the decline of entrepreneurial initiative and individual responsibility in the Western world, expanding state expansion and social subsidies. As a result, agents’ dependence on the state increased, and redistribution of benefits became more vertical.

This is why, paradoxically, the tightening of economic conditions in advanced economies can stimulate the state to reduce social welfare and expenditures, and economic agents to increase entrepreneurial initiative and individual responsibility. In other words, it would stimulate a shift away from the “leftist” discourse of social and economic policy toward the important ethical and social values of market capitalism, individualism, and meritocracy.

In fact, such a disintegrative policy could take several directions.

The first direction is the creation of so-called friendly chains—i.e., the building of resource and production close ties within friendly countries. This implies the removal of much of the production capacity outside the autocratic countries and the relocation of resource sources.

The second direction is the creation of a maximum number of restrictions that cut off authoritarian regimes from global economic processes and create unfavorable conditions for their domestic economies. This is realized through sanctions restrictions, both direct and indirect, aimed at creating an intolerable environment for creative economic activity.

The third direction is positive incentives aimed at the elites as the force that actually makes decisions, and at the population, which can be a catalyst for such decisions. Here it is important to understand that it is possible to condition the progressive decisions of both the elites (be it a voluntary change of political course by the current government or a change through a forced rotation within the elites, usually referred to as a palace coup) and the population, to give impetus to their passion in the right direction only when both of them as agents understand and correctly assess the benefits and costs. And for this, firstly, it is necessary to clearly mark up the benefits, costs, and tasks, and secondly, to create the conditions that condition the change of preferences and maximize the efforts of the elites and the population in regime change.

In fact, all this is already relevant and is being implemented, unfortunately, with a great delay and in completely different extreme conditions. The aggressive geopolitical actions of a single autocracy in eastern Europe have forced Western countries to adopt this political paradigm, putting an end to a conciliatory policy that has lasted since at least 2007.

The externalities for the developed world will certainly be significant. Moreover, they are already significant today. They take two main forms: social and economic. Economic effects are inflation as a result of resource—and production—deficits arising from recanalizations.

The social negative effects are a continuation of the economic ones: an increase in social tensions amid falling incomes and rising costs caused by inflationary spiking. In authoritarian countries, the inevitable growth of social tensions will lead, among other things, to increased immigration to developed countries.

However, both of these externalities can be neutralized in the foreseeable future, as I will discuss in my next article. What I can say here is that models and research on this topic clearly point to acceptable ways of dealing with these problems.

Another important potential cost is geopolitical. It is the intensification of the processes of unification of autocracies. However, autocracies are different, and it is necessary to create conditions in which autocracies are more comfortable cooperating with the developed world and changing their preferences than joining the camp of authoritarian regimes. In fact, this is exactly what has been done with respect to Russia now, including all sorts of sanctions and impending restrictions on imports of hydrocarbons. Creating conditions of contradiction between the interests of the various autocracies and stimulating their transformation is a necessary part of the policy of disintegration.

Limiting integration and encouraging regime change is a long-term process. However, one must understand that the world order has indeed changed. It is neither possible nor dangerous to be in a state of illusory optimism and to believe that maximum rapprochement with countries where authoritarian regimes are entrenched, social openness, geopolitical inclusiveness, and productive globalization is the real path to a bright future. It is precisely this kind of conciliatory policy or, on the contrary, the policy of forced external military intervention that has brought the world into a state of turbulence.

The path to cooperation under conditions of acute conflict and lack of empathy lies in two directions: coercion of the opposite side through negative and positive incentives and the alignment, or maximization, of the costs of both sides. 

The first is the way the developed world should go, and the second is the way of direct confrontation, which should be avoided. The West with great delay is following the first path. We can only hope that there is an understanding that the second path is a disaster.

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This article was published by the Ludwig von Mises Institute and is reproduced with permission.

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