Friday 20 Jul 2018 | 09:00 | SYDNEY
Friday 20 Jul 2018 | 09:00 | SYDNEY

Five reasons geo-economics matters


Mark Thirlwell

This post is part of the Globalisation and war debate thread. To read other posts in this debate, click here.

24 May 2010 13:11

This post is part of the Globalisation and war debate thread. To read other posts in this debate, click here.

Following on from my previous post about the revival of geo-economics, here are five reasons why geo-economics looks like an interesting way to think about the world:

1. The rapid geographic shift in economic weight currently underway. This transformation has been given an additional boost by the GFC and the subsequent multi-speed recovery, which has seen emerging markets significantly out-pacing their developed economy counterparts. 

In the near-term, at least, it seems that the post-GFC world is working to accelerate the convergence process, not retard it, although there remain questions regarding the longer term impact. Not surprisingly, some strategic thinkers view these major economic shifts as also heralding big moves in international power.

This sense of a changing world was actually captured quite nicely in the discussions in Bahrain. Once upon a time a gathering of this sort would have involved lots of Western executives discussing growth prospects versus sovereign risk across the various emerging markets. This time, it was more common to hear delegates from capital-rich emerging markets worrying aloud about the declining quality of rich country sovereign credit.

2. Early on in the financial crisis, security experts identified the GFC as a major threat to national security. When the world avoided re-running the Great Depression of the 1930s, such fears looked overdone. Since then, however, the deadly riots in Greece, along with the concerns now being raised about the spread of 'crisis economics', have provided some compelling contemporary support for the idea of focusing on the links between economics and security issues. 

3. The theme of resource security raised by the 2003-2008 commodity boom (which saw average commodity prices double in US$ terms to deliver the longest and strongest price surge for at least a century) has also highlighted the linkages between economics and security. The 2003-2008 boom saw the price of oil peak at around US$147/barrel in July 2008 and prompted a food crisis in 2007-08 that involved riots and other social unrest.

4. The rise of government-controlled investment vehicles such as Sovereign Wealth Funds, along with the growing importance of state-owned enterprises and state-owned banks in international transactions, has contributed to the growth of a version of state capitalism. As was clear in the Australian debate over the Chinalco bid for Rio, the explicit linkages between the states and these financial and corporate institutions automatically injects international politics into issues of international economics.

5. While state capitalism has largely been seen as a feature of emerging markets, the GFC has also seen the state injected back into developed economies in a dramatic way. Initially this was in the form of bank bailouts and other government handouts, including some (effective) nationalisations.  But it's also increasingly taking the form of new regulations and controls, with Germany's recent ban on naked short-selling a potent example. This is a development that has financial markets jumpy and means businesses and investors now face what might be a new age of political risk.

Photo by Flickr user elycefeliz, used under a Creative Commons license.