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University of Leiden: Notes on Geo-Economics
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College notes for the course Geo-Economics for the minor Global Affairs at Leiden University.
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Notes on Geo-economicsLecture I, 30 th of October:
Geo-economics: the use of economic instruments to promote and defend national interests,
and produce beneficial geopolitical results, as well as the effects of other nations’ economic
actions on a country’s geopolitical goals.
Ex.: China’s Belt-and-Road initiative.
Geo-economics differs from geopolitics, as geopolitics is a set of assumptions how a state
exercises power over territory. It is essentially a ‘zero-sum game’ as power is inherently
limited, whilst in economics, there is the possibility for a positive-sum game.
To focus on the use of economic instruments to advance geopolitical ends is to say nothing
about the nature of the ends themselves; whether the ends of foreign policy are also changing
stands as a separate question.
States can and often do design geo-economic policies that simultaneously advance multiple
interests- geopolitical, economic, and otherwise.
Ex.: Nord-Stream advances energy, geopolitical and economic interests for the Netherlands.
Geo-economic attempts at power projection can take many forms. However, just as not all
states are created equal in their capacity to project geopolitical power, there are certain
structural features (geo-economical endowments) that dictate how effective a country is
likely to be in the use of geo-economic tools.
Currently, there is no consensus as to the range of geo-economic tools that presently exist, or
the set of factors that make states -more or less suited- to wield them effectively: no
conceptual blueprint.
Geo-economics is distinct from other economic theories, such as mercantilism and liberal
economic thought. Here, mercantilists emphasise heavy state intervention in economic life,
and liberal economists emphasise limited state involvement in private markets. Both can be
concerned with state interests, but differ on the ‘tactic’. Both can pursue geo-economics, but
thus differ in their argumentation on how best to pursue this. Liberal economists are often
reluctant to use their toolbox for geopolitics.
1
,Wigell (2015): conceptualised regional powers’ geo-economic strategies as follows:
Blackwill & Harris (2016) define seven economics tools that have geopolitical applications,
namely trade policy, investment policy, economic & financial sanctions, cyber, aid, financial
& monetary policy, and energy & commodities (ex.: China enacting export bans on rare earth
elements).
Troxell (2018) categorised geo-economic instruments based on trade, finance, aid, and policy,
and whether they had a positive or negative effect. This is shown hereunder:
2
, Lecture II, 6 th of November:
China has always been autocratic, self-centred, and inward looking. Confucianism, a
humanistic philosophy and a way of governing, revolves around harmony in the group, and a
deep respect for hierarchy through education (as an alternative for the rule of law or a
totalitarian state). Self-centredness and Confucianism combined have resulted in a closed,
authoritarian society/economy with limited impulses for modernisation and innovation.
Politically, Mao’s China was characterised by a ruling one-party system. It attempted to stay
out of the cold war, and it went through a cultural revolution that caused fear and terror.
Economically speaking, China was inward looking (a closed economy), collectivising was
dominant, there was a focus on agriculture and industrialisation, a persistent drive towards
income equalisation, and nationalisation of nearly all private enterprises.
Result: a totalitarian state with economic stagnation and rising poverty.
Under Deng Xiao Ping, market forces were introduced, there was a focus on manufacturing
and export, and consequently, China opened up. This was done to boost the economy and to
avoid social unrest and collapse, looking at the decline of the USSR. Unlikely his predecessor,
Deng was pragmatic and did away with ideology. It experienced a growth miracle, leading to
a larger GDP, more exports, a heavy increase in real per capita GDP, and a decrease of
extreme poverty. It managed to do so due to several factors:
o A large labour supply, although this has structurally declined, and the quality hereof
has changed: from blue- to white collar workers.
o Low wage costs, although labour costs have steadily increased due to social welfare,
resulting in less competitive manufacturing/exporting sectors.
o Geopolitical neutrality as China established friendly relations with as many as
possible nations to increase its export market. However, tensions with other
superpowers are rapidly rising, notably with the US.
o Infrastructure/construction: high investments in infrastructure. However, this
caused uncontrolled public and private indebtedness, increasingly saturated demand,
and over-capacity on the supply side. Hence, investment in infrastructure has declined
since late.
o Foreign investments: high foreign investments, to create production possibilities and
to import modern knowledge, management, and technologies as a form of innovation.
3
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