This is Sparta! Insights from international relations theory into what the post-Covid world might look like

2500 years ago, in his account of the Peloponnesian War between Athens and Sparta, the Athenian historian and general Thucydides made the ravages of the plague affecting Greece a central feature of the tragic decline and fall of the Athenian Empire. The plague ravaging the many territories that Athens had dominion over, at the time of a desperate struggle against its arch-enemy Sparta, undermined its power and hastened its demise. 

Today’s great pandemic consuming the world has produced similar reactions among some commentators. The trade and security struggles between the United States, as the receding hegemon, and a resurgent China have been interpreted by scholars and commentators as a reiteration of the ancient theory of power transition that defines Thucydides’ history. However, IR theory has more to say about the world of tomorrow than the dramatic effects that, according to Thucydides’ followers, the pandemic could have on security and trade relations between the U.S. and China. This piece seeks to offer a brief but comprehensive overview of the major approaches in IR theory, what they may say about the world after the end of this pandemic, and how it will affect global politics.

IR scholars are often criticised for their engagement in what seems a purely academic exercise centred on an obsession with theory and abstract debates. And, true enough, IR theory is ill-suited to providing pre-packaged solutions to current problems, but many scholars will argue that that is not their business. IR theory can provide insights into international behaviour, and may provide informed predictions about how international affairs may evolve and how states may react to shocks, but it cannot prescribe a course of action. Moreover, IR theory is not in fact a homogenous, coherent‘theory’, but a divergent set of theories and approaches which look at different problems and phenomena in world affairs from different ontological and epistemological positions. No one theory can provide a comprehensive interpretation or predictions of world politics. However, taken together, these theories can help decision makers and the public fill the gaps in the puzzle we call ‘International Relations’. The aim of this essay is exactly that: to suggest a way we can integrate various pieces of the puzzle in a comprehensible way that makes the most of what we know from IR theory. IR scholars produce knowledge, not ‘solutions’ˋ to policy problems; nevertheless, this knowledge can become a tool for devising fruitful solutions.

IR theory can provide insights into international behaviour, and may provide informed predictions about how international affairs may evolve and how states may react to shocks, but it cannot prescribe a course of action.

This essay is divided into three parts. First, it discusses the current pandemic through the lenses of the ‘agency-vs-structure’ debate in International Relations. Second, it uses the three mainstream approaches in IR to interpret and predict the effects of the pandemic on the development of the international system. Finally, it discusses what insights we can gain from other, more critical approaches in IR and their importance for understanding world events.

Changing the structure of world politics

International Relations is a discipline defined by structural theorising. Each of the three major schools of thought in the discipline, neorealism, neoliberalism, and constructivism, are theoretically dominated by a structural understanding of world politics. What makes them different is their assumptions about these structures and state behaviour. Neorealism and neoliberalism share a materialist understanding of structures, arguing that all that matters is the distribution of capabilities under anarchy. How wealthy you are (in weapons, natural resources, GDP, technology) defines your status and behaviour in the international system, which is taken as inherently anarchical and competitive. Where they differ is in their assumption about what drives state behaviour: relative gains, as neorealists argue, or absolute gains, as neoliberals suggest.

Constructivists criticise this materialist understanding of structure and argue that we should conceive structures as inherently social, as the product of social interaction. Structures are, therefore, the product of what we do and how we do it. This means that anarchy is neither pre-given, as the other two schools assume, nor exclusively based on material capabilities, but very much on ideas which give meaning to those capabilities. When the ideas actors have change, then their behaviour changes, and that produces a change in the structure of the international system.

Why does this matter in respect to the effects of the global pandemic in world politics? It matters because change in much of IR theory translates into changes in the structure of the international system. On the one hand, if the structure of the international system is material – defined by how wealthy you are – then change can happen only when the distribution of material capabilities (i.e. wealth) changes. Therefore, according to a materialist ontology, the global pandemic will produce change in the international system if it alters the distribution of material capabilities. On the other hand, if the structure of the international system is ideational, defined by shared ideas and norms, then change can happen whenever the overreaching ideas held by states change. It is thus apparent that the global pandemic can effect change in world politics if it produces changes in the way states (i.e. politicians) understand the world and their role in it.

How does this work in practice? From a materialist perspective, actual changes in the distribution of resources must happen in order for change in world politics to take place. This could happen due to the economic consequences of the pandemic, which may destroy economic capacity in some countries, decreasing their relative material capabilities and therefore shifting the relative distribution of capabilities. If, for example, the United States and Europe are substantially more affected economically than China because of the crisis in the medium and long term, and will experience lower rates of growth with higher rates of public debt, then China becomes relatively more powerful (i.e. it gains more assets than Europe and the US). Conversely, if the pandemic forces a reconfiguration of value chains in world trade, then the United States and Europe may benefit because of what economists call on-shoring, near-shoring, and shortening of value chains.

The global pandemic can effect change in world politics if it produces changes in the way states (i.e. politicians) understand the world and their role in it.

However, from an ideational perspective, constructivists would argue that in order for shifts in material capabilities to happen, changes in ideas need to happen first. The economic ideas dominating the economic models currently operating around the world will define the level of growth, depending on how successful their growth models will prove to be. At the same time, constructivists stress that the international structure is ideational in nature and a product of social interaction. How political leaders decide to act during the pandemic and afterwards will affect how the structure evolves. If decision-makers choose a confrontational approach, then the world of tomorrow will be confrontational. If they decide to cooperate, then the future will be cooperative. In the end, the world is what states make of it.

The distinction between material and ideational structure is important not only because it emphasises different factors that affect change, but especially because it delineates the importance of actors as producers of change. For neorealists, for example, history is deterministic, and agency has almost no role in it. In the great scheme of things, neorealists believe that what matters is how material power shifts, not what people do or believe. For constructivists, human agency is at the centre of structure, defining and re-defining it constantly. Human action determines the future of the international structure, not simply how material resources are allocated. However, this structural perspective of change in world affairs is not all that IR theory has to offer.

Power, institution, and ideas in times of global pandemic

Neorealism as a structural theory of international relations is informed by the political theory of classical realism. Therefore, neorealists conceive the world as a dangerous, anarchic world inhabited by egoistic states that seek either their own survival (defensive realists) or to maximise their power (offensive realists) and use any tool at their disposal to achieve these goals. In a world where survival is the main goal and the survival of the fittest is the main mechanism of ‘natural’ selection, states can only rely on their own strength and cannot trust other states. According to this view, international organisations such as the World Health Organisation or historical phenomena such as globalisation are devised and used by great powers to further their power and enhance their control over less powerful states. This is one of the reasons why neorealists dismiss the role of international organisations as venues of cooperation, together with the assumption that all states seek relative gains, making cooperation difficult.

During the current pandemic, a neorealist will ask: how does the pandemic affects the distribution of power in the international system? As mentioned previously, power is understood here in terms of the material capabilities that states have at their disposal. Here, the economic component becomes particularly interesting for neorealists. If the pandemic affects the US economy much more than that of China, for example, then this increases the relative power of China, which over the medium to long term may build an economy which is substantially stronger than the American economy. In the short to medium term, a weak American economy may create opportunities for China to acquire US assets or push to ‘reform’ US-sponsored international institutions, increasing its global influence. The Chinese takeover of Western assets is perceived as a real danger in several Western nations, with Germany taking active measures to prevent Chinese takeovers of strategic companies. The United States may seek to do the same. At the same time, a neorealist would predict that the US will react by counterbalancing China, seeking to preempt or block Chinese takeovers of US-sponsored international organisations, and perhaps impose new economic protectionist measures and create incentives to near-shore or reshore the American manufacturing capabilities currently abroad. In the neorealist playbook, the pandemic will produce increased international tensions, a struggle for power and diminishing opportunities for cooperation.

In the neorealist playbook, the pandemic will produce increased international tensions, a struggle for power and diminishing opportunities for cooperation.

Reversely, neoliberalism suggests that the outcome of the pandemic will be the opposite of what neorealists foresee. Neoliberals assume that states seek absolute gains, not relative gains as neorealists do, and states have a tendency towards cooperation in order to reduce transaction costs and the negative effects of unwanted events, and to enhance the benefits from deeper and denser ties. This means that when faced with a pandemic of global proportions, states have a powerful incentive to cooperate. For neoliberals, international institutions reflect the desire of selfish states to cooperate in order to reduce costs and maximise benefits. Institutions such as the World Health Organisation exist to allow coordination between national health authorities, as a channel for knowledge exchange, and as a forum for deliberation.

Therefore, the question that neoliberals ask is: how does the pandemic affect incentives for states to cooperate internationally? If the pandemic reduces the incentives for cooperation, then a more neorealist logic will dominate world politics. But if the human and economic costs of the pandemic as foreseen prove to be substantial and able to be managed more effectively through global coordination, than the pandemic may increase cooperation and may enhance the importance of international organisations such as the WHO. Signs of increased coordination and cooperation, particularly on economic matters, are already visible. The leading central banks (the FED, the BCE, the CBJ, the BoE) have already signed swap and repo agreements that will provide almost unlimited liquidity in the currency of each party, and the FED is playing its role as the lender of last resort for the world economy. In healthcare we can observe some signs of regional cooperation in Europe, among Latin American countries and, to a lesser degree, in North America and Asia.

Neoliberals would predict the emergence of cooperation frameworks for pooling expertise, sharing knowledge about the virus and how to fight it better. This is visible in the quest to develop a vaccine, even if the Trump administration has been acting in a less cooperative way than the rest of the world. At the same time, the crisis is forcing states to reassess the limits of their cooperation, and to consider why certain cooperative frameworks such as the WHO have not lived up to their expectations by pushing forward reforms. But all these are defined by what ideas are circulating in the national capitals.

Neorealism and neoliberalism presuppose that the way the world works and what interests states have as pre-givens are objective facts which can be taken for granted. Constructivists dismiss this as a lack of sophistication, and even an outright misunderstanding of how world politics works. Instead, constructivists such as Alexander Wendt argue that world politics is “what states make of it”. The beliefs and identities of political leaders define how the world is and how it will evolve. National identity, culture, political interactions play a substantial role in making sense of the world and constructing it as it is. The choice between competition or cooperation results, not from changes in the distribution of power or the incentives states have, but from their identities and beliefs. A state may exhibit bellicose or friendly behaviour in international politics depending on the ideas and identity defining its society and political elite. But these ideas and identities change over time, especially because of crises which force people to reassess their beliefs and who they are.

Therefore, a constructivist would ask: how does the pandemic change shared beliefs and identities, and what effect would these changes have on world affairs? If the pandemic produces new ideas and identities that promote competition and conflict, then international relations will be defined by conflict. Conversely, if the pandemic produces solidaristic and cooperative ideas and identities, then world affairs will be characterised by increased cooperation and harmony. The world is what we make of it; it is constructed by us according to our beliefs about what is appropriate.

A neorealist or neoliberal would find it hard to answer why states would build air bridges to transport COVID-19 patients from Italy to Germany, for example. Constructivists, instead, would say that this sign of solidarity is the result of the beliefs dominating the public debate in the societies of Italy and Germany and among the political elites of those two countries. Another example is the reappearance of policy debates about resilience, ideas about the need for strategic autonomy in the production of vital products such as medicine, or the need for European solidarity.

Malign actors may seek to produce bellicose beliefs and identities by promoting polarising ideas, or fake news which provokes anger and fear, or reframes truthful news in ways that promote conflict and social tensions. The world is what we make of it, as constructivists say.

At the same time, constructivists would caution about the impact of misinformation and information warfare on which ideas and identities become dominant. Malign actors may seek to produce bellicose beliefs and identities by promoting polarising ideas, or fake news which provokes anger and fear, or reframes truthful news in ways that promote conflict and social tensions. The world is what we make of it, as constructivists say.

Who is right? None of them and all of them. While these three major approaches to international relations are often framed in opposition to each other, they illuminate various parts of international politics. Practitioners and policy elites should use them together to make sense of the world and to build better calibrated and critically informed policy responses to global challenges such as the current pandemic.

Society, discourse, and security in the world of tomorrow

IR theory may be dominated by neorealism, neoliberalism, and constructivism as the three major approaches to the study of world politics, but they are not alone, and several other theories and approaches can fill other gaps in the puzzle. Among them, new liberalism and the critical approaches to IR and security studies are frequently mentioned in disciplinary debates.

New liberalism is a contemporary reformulation of interwar liberalism, and was proposed primarily by Andrew Moravcsik. New liberal theory looks at domestic dynamics to explain foreign policy. In its most common formulation, new liberalism argues that the most important actors in world politics are not the states, but the domestic groups and actors which define state policy and thus influence world politics. Adopting a bottom-up approach to foreign policy analysis, liberals assume that domestic actors have different interests and are in a constant struggle to shape state policy. Therefore, foreign policy is defined by this confrontation between various groups seeking to influence foreign policy. As a result, the question asked by new liberals is: how does the pandemic reshuffle or reinforce the configuration of power and influence between domestic groups?

In Europe, the economic consequences of the lockdown and the pandemic have the potential to increase the power of those social and political groups which seek a more solidaristic European Union, pressing for more social transfers at the European level and more integration, especially with regards to monetary and fiscal issues. This may overcome the long dominance of austerity- driven fiscal hawks that have ruled the higher echelons of power in Berlin, Frankfurt, Paris and Brussels. If that happens, the configuration of power between these groups will change, and consequently it will shift the policies adopted at national and European level.

In other parts of the world, such as in the United States, the effects of the pandemic are harder to discern, but they seem to be producing a new wave of social unrest which may or may not unravel the current political configuration, and with it the American foreign policy. In an increasingly dangerous world, ‘America First’ could become an even more persuasive idea, and the US may seek to shore up its current unilateralist and isolationist foreign policy. In totalitarian or authoritarian regimes faced with increased death tolls, such as Russia or Belarus, the regimes may seek to enhance their power over society by increasing the levels of oppression and intrusion, as well as the elimination of political opponents.

Finally, another perspective comes from the Copenhagen School’s ‘theory of securitisation’, which argues that security is intersubjective and socially constructed. This means that there are no inherent security threats, and that all threats are defined socially through processes of persuasion by powerful actors, which seek to securitise – to take outside the sphere of normal politics and life – certain issues. The pandemic itself has been securitised in much of the world, as an existential threat to life and our societies, with leaders such as Emmanuel Macron and Angela Merkel using a martial language, talking about a ‘state of war’ in relation to the pandemic and the imposition of exceptional measures (i.e. lockdown).

In Europe, the economic consequences of the lockdown and the pandemic have the potential to increase the power of those social and political groups which seek a more solidaristic European Union, pressing for more social transfers at the European level and more integration, especially with regards to monetary and fiscal issues.

If issues related to the pandemic or its aftermath are subjected to further processes of securitisation, this may further impact world politics. If the virus continues to be an existential threat, social, economic, and political links may be distorted by the perception of danger. If travel between countries becomes impossible, as the risk of infection during transit appears too great, then trade routes will be cut and investment and tourism will be imperiled. This, in turn, could escalate into political and diplomatic tensions and conflict between countries who ban travel to certain countries and those who are thus affected.

Conclusions

IR theory cannot provide prepackaged forecasts or solutions about and for the world after the pandemic, but it can suggest further possible trends in world politics, depending on the theoretical assumptions each approach supports. Neorealism assumes conflict as the natural state of the world, and therefore predicts more conflict. Neoliberalism presupposes cooperation and foresees as much. Constructivism tells us that it is what we make of it, that nothing is predetermined, and what matters is the ideas and identities that come out of this pandemic. New liberals look inside the state and tell us that what matters is how domestic groups will be affected by the pandemic, while the Copenhagen School argues that the socially constructed understanding of threats will define much of the world after the pandemic. Who is right? Again, none and all at the same time. Every one of these theories provides a piece in the larger puzzle we know as world politics. Understanding what each of them has to offer and what its limits are can help practitioners to better understand what is happening and prepare better for tomorrow.

Relocating production from China to Central Europe? Not so fast!

Western European imports from central Europe have fallen dramatically, while imports from China fell much less, and had already recovered to pre-COVID level by April 2020. Central European governments should instigate new measures to foster the transition towards knowledge-intensive economic activities.

The COVID crisis caused a major setback to global trade and disrupted the functioning of global production networks. From the perspective of Central, Eastern and South Eastern European (CESEE) countries, this has raised the hope that Western European manufacturers will bring their suppliers from East Asia closer, potentially boosting investment in CESEE.

The volume of merchandise trade is expected to drop by almost 20% in the second quarter of 2020 compared to the same quarter of the previous year, the steepest decline on record according to the World Trade Organisation. Almost half of global trade is composed of intermediate goods for production, and there were companies in Europe and elsewhere which did not receive essential intermediate inputs for production during the height of the COVID crisis. Such disruptions to global trade and global production networks, or global value chains (GVCs), can call the benefits of globalisation into question, and might prompt companies to bring their suppliers closer. For Western European producers, the CESEE region would be a natural place to relocate their suppliers due to its geographical closeness. Relocation would boost investment in CESEE, which in turn could speed up the recovery from the corona-recession and support medium-term growth and jobs.

Foreign trade facts disappoint relocation hopes

However, recent trade data paint a sobering picture of such hopes: the imports of the first fifteen European Union member countries (EU15) declined the most from the CESEE region, while imports from China had reverted back to their 2019 level by April 2020, the latest available data at the time of writing (Figure 1). Imports from CESEE declined by a shocking 35%, while within the EU15 imports (such as German import from France and French import from Germany) declined by 30% on average by April. EU15 imports from the United States and Japan declined by about a quarter. The decline of EU15 imports from China had already started in February 2020, earlier than from the rest of the world, given that COVID-19 hit China first. Yet even at the lowest point in March 2020, the EU15’s imports from China was ‘just’ 16% lower than on average in 2019, while in April 2020 it had returned to the same level as in 2019. 

Figure 1: EU15 imports from different regions, euro billions at current prices, seasonally adjusted, 2019 average = 100

Source: author’s calculation, using bilateral trade data from the IMF’s Direction of Trade Statistics dataset (accessed on 6 August 2020), which includes US dollar values. Average euro/US dollar exchange rates from Eurostat were used to convert USD figures to euros. The euro values were seasonally adjusted using the X12 method. 

Note: EU15: first 15 members of the European Union. CESEE13: the 13 countries that joined the EU in 2004-2013.

Among the 13 CESEE countries, Slovakia was hit the hardest by its exports to the EU15 almost halving. Romania was the second hardest hit, followed by Hungary and the Czech Republic with about 40% export losses. At the other end, Estonia, Latvia and Lithuania suffered from ‘just’ about 15% trade losses. 

Relocation would boost investment in CESEE, which in turn could speed up the recovery from the corona-recession and support medium-term growth and jobs.

The composition of EU imports from China shows that some product categories saw major increases, while others declined; however, several intermediate goods categories gained or did not suffer much from April 2019 to April 2020. The highest increases in April 2020 compared with the same month last year were recorded for automatic data processing machines (+€884 million, +33%), articles of apparel of textile fabrics (+€129 million, +36%) and electronic tubes, valves and related articles (+€92 million, +12%). (Textile articles include COVID-19 related products, such as textile face masks, surgical masks, disposable face masks and single use drapes). The largest decreases in absolute terms were observed for imports of footwear (-€254 million, -52%), telecommunications equipment (-€232 million, -6%) and baby carriages, toys, games and sporting goods (-€225 million, -28%). Other intermediate production inputs such as pumps, compressors, fans, electric power machinery and parts, motor vehicle parts fell less.

What can we make of these developments?

First, the limited fall and the quick rebound of EU15 imports from China is really remarkable, given that the economic activity and total imports of the EU15 was much lower in April 2020 than on average in 2019. Perhaps imports from China in April 2020 partially replaced imports from other countries suffering from COVID-related lockdowns. The rebound of imports from China suggests that East Asian supplier problems were short-lived; and from the perspective of disrupted supply chains, there is not much justification to relocate suppliers from East Asia to Europe. The adverse public health situation due to COVID-19 was addressed quickly in China, allowing suspended production and shipments to restart – and faster than in Europe. Such rapid control of the epidemic in China might even reinforce the reliability of Chinese suppliers.

The rebound of imports from China suggests that East Asian supplier problems were short-lived; and from the perspective of disrupted supply chains, there is not much justification to relocate suppliers from East Asia to Europe.

Second, while the CESEE countries are geographically close to consumer markets in the EU, they are still very far away for the value chains of some goods that are produced in China. For instance in ICT goods, the value chain is predominantly East Asian, so moving certain intermediate inputs from China to Europe would mean getting closer to the consumer but farther away from other suppliers. Replicating whole value chains in Europe seems to be a difficult and costly task.

Third, the lower decline of EU15 imports from the United States and Japan than from CESEE suggests that distance to Western Europe is not the primary determinant of trade flows, even in times of lockdowns and trade disruptions. The product composition of trade seems to be a more important factor. This again highlights that the geographic proximity of CESEE to Western Europe should not be overrated.

Fourth, the extent of trade losses depends on the sectoral and product composition of exports to EU15, including the mix of intermediate and final products. It seems that CESEE countries which are more integrated into Western European production networks, such as Slovakia, Romania and Hungary, suffered from larger declines in exports. Since the bulk of exports includes manufacturing products, export decline should coincide with industrial production decline. Indeed, industrial production fell the most (by about one third) from May 2019 to May 2020 in Slovakia, Hungary and Romania among EU member states, according to Eurostat. This suggests that greater participation in European value chains exposes an economy to greater variation in production, with associated consequences for employment and GDP growth.

Fifth, as industrial production recovers, so does trade. Eurostat data shows that industrial production started to recover from April to May 2020 since lockdowns were eased, and is expected to recover further in subsequent months. At the time of writing, the latest bilateral foreign trade data available is for April 2020. Hence the large drop in intra-EU trade by April is expected to correct itself, at least to some extent, over the coming months. It will be interesting to analyse whether intra-EU trade will recover as fast as EU15 imports from China, or whether it does so at a slower pace.

Greater participation in European value chains exposes an economy to greater variation in production, with associated consequences for employment and GDP growth.

And sixth, GVC-related trade also suffered much more in the aftermath of the 2008 global financial crisis than traditional trade, but it also recovered faster after 2009 (see Figure 1 here).

Thus, greater participation in GVCs exposes trade and production to greater variation, which can have adverse consequences for output, employment, government budget balances and many other indicators in times of economic shocks. Such adverse variation should certainly make CESEE policymakers think about their industrial policy strategies, although shorter-run (or cyclical risks) and longer-run structural impacts should also be jointly analysed.

Global value chain participation has longer-term benefits

Participation in GVCs has a number of longer-term benefits. As Richard Baldwin argues, emerging and developing countries with less developed industrial structures and smaller domestic markets can join the supply chains of firms from high-tech nations, instead of building such supply chains as Korea and Taiwan had to do over a long period of time, since these countries developed themselves before the GVC era. Joining GVCs since the mid-1980s has allowed less developed countries to embark on a faster-track development, specialising in certain tasks. 

A recent IMF study concludes that it is GVC-related trade, rather than conventional trade, which has a positive impact on income per capita and productivity, even though such gains appear more significant for upper-middle and high-income countries.

Such longer-term benefits have likely induced CESEE governments to attract as much foreign direct investment (FDI) as they can by offering the maximum amount of state aid which is possible in the EU, such as tax exemption for a decade, or financial support to train employees and reduce labour costs. FDI can foster participation in GVCs by local suppliers. The recent races between CESEE countries to attract prominent foreign manufacturers seem to suggests that this development strategy is set to continue. 

Most CEESEs have not moved up in the value chain

An important aspect of development is whether companies participating in GVCs gradually move up in the value chain: that is, whether the initial contributions to low-wage sectors are gradually replaced by higher value-added and higher technological-level production. The IMF study mentioned above finds unfavourable results for most CESEE countries, by analysing Germany’s auto supply chain: for the Czech Republic, Hungary, Poland, and Slovakia, the contributions of high and low technological-level sectors remained broadly the same between 2000 and 2013, suggesting there had been no moving up on the value chain. For Romania, in contrast, there has been a shift away from low-tech to more high-tech manufacturing. As regards non-EU countries, the study finds that China’s contribution to the German auto supply chain is showing a shift towards more high-tech services, while Russia’s contribution became more intensive in low-tech manufacturing due to the mining and quarrying sector.

The region’s advantage as a low-wage supplier of western European manufacturing networks is gradually diminishing.

Related indicators suggest similarly unsatisfactory progress for most CESEE countries. The European Union’s innovation scoreboard, which is measured using 27 performance indicators distinguishing between ten innovation dimensions in four main categories, concludes that with the sole exception of Estonia, CESEE countries rank well below the EU average in 2019. Moreover, the improvement in innovation performance from 2012 to 2019 in the Czech Republic, Hungary, Bulgaria and Slovakia was below the average improvement in the EU, and there was even a setback in innovation performance in Romania and Slovenia. CESEE countries do not rank highly in the World Economic Forum’s Innovation capability component of the Global Competitiveness Index either. Slovenia (28th), the Czech Republic (29th) and Estonia (34th) have the highest rankings in the CESEE out of 155 countries, while the lowest rankings in the CESEE region belong to Latvia (54th), Romania (55th) and Croatia (73rd). 

Overall, it seems that while participation in global value chains has brought major benefits to CESEE countries in terms of growth and jobs, it has not been associated with improved technological and innovation capabilities. This is a key problem, because with continuing fast wage growth and a deteriorating demographic outlook, the region’s advantage as a low-wage supplier of western European manufacturing networks is gradually diminishing. Most CESEE countries rank disappointingly in the World Economic Forum’s Skills ranking, which considers various indicators related to the current and future workforce, suggesting that the workforce is not up to the challenge of moving away from low-wage activities.

Sustained convergence requires transition towards knowledge-intensive economic activities

Sustained convergence toward western European productivity and living standards will be possible by moving up the value chain towards more knowledge-intensive activities. This, first and foremost, requires better education and research, which in turn necessitates higher public spending. 

For example, public expenditure on tertiary education is below 1% of gross national income in most CESEE countries, but around 1.5% or more in most northern and western European countries. In a forthcoming study we find a statistically significant correlation between public spending on universities and a number of educational result indicators. Primary and secondary education are equally important. As James Heckman argues, in disadvantaged families the highest rate of return in early childhood development comes from investing as early as possible, because skills beget skills in a complementary and dynamic way. There are many poor and disadvantaged families in CESEE. Secondary education, vocational training and lifelong learning are similarly crucial. 

Given the relatively low public debts of CESEE countries and their prospectively faster economic growth than in Western Europe (which will help their fiscal sustainability), it is surprising that these countries do not devote more resources to education and research. The COVID-19 economic shock and the associated collapse in trade should serve as a wake-up call for policymakers in CESEE countries. The existing economic model, which has fostered as much foreign direct investment as possible as well as greater participation in global value chains, has served its purpose, but it will soon run its course. Even a short-term boost cannot be expected from a hypothesised strategic reorganisation of suppliers from East Asia to CESEE. Instead, policies fostering upward movements on the values chain should be significantly stimulated.

The West should avoid the Beatles’ predicament and become more like the Rolling Stones – interview with Dr. John C. Hulsman

In your latest book – To Dare More Boldly; The Audacious Story of Political Risk – you talk about the ‘butterfly effect’ (where random events have outsized consequences), and quote the British prime minister Macmillan – “Events, dear boy, events.” Do you see COVID-19 in such a disruptive manner for the international order? What trends, new or old, would you expect to accelerate? 

Going into COVID-19, there was a 20-year pattern, a generational pattern of a poker game between the Europeans, the Chinese and the Americans. The Americans were the richest people at the poker table, the Europeans were the oldest player, while the Chinese were the up-and-comer. And every year in the game the Chinese tended to win, the Americans broke even and the Europeans lost for a variety of reasons. Now with COVID-19 you see all the cards thrown up in the air. The question is who plays them fastest and best. COVID-19 was a disruptive event to a very routinised and predictable pattern.

Crises don’t tend to make things new; they tend to clarify things that are already going on.China has already been rising, but now that it’s getting through COVID-19 quicker, it has a first-mover advantage. It got hammered in the first quarter but it’s coming out now, whereas the Americans and the Europeans are going to be hammered in the second quarter. So in the short run, the Chinese have the freedom to act while all their enemies are preoccupied. So what do the Chinese do? They are going to settle their unfinished business, because no one is going to stop them. China is on the march. They crack down on Hong Kong, they bully the Indian army along its shared Himalayan border, they cause trouble in Vietnam and the South China Sea. All these moves suggest that they know that in the short run they have an advantage. Everyone is going to be preoccupied so they are going to be aggressive. The problem with being aggressive is that doesn’t change the longer-term problem that they have. The Chinese economy is 14 trillion dollars, while the American one is 22 trillion dollars. The US is still by far the dominant economy in the world, while China is clearly second. By bullying all the neighbours, the Chinese are giving the United States a tremendous opportunity to gather allies both in Europe and in Asia, NATO plus the Quad basically, and a League of Democracies in the long run. If the United States can husband together the resources of NATO and the Quad-plus (Australia, India above all, Japan plus the ASEAN countries) in a global League of Democracies, the US will be in a perfectly good position. The Chinese have an immediate, fantastical advantage, but they are overplaying that, because they don’t see the strategy behind things. 


“Events, dear boy, events.”

Harold Macmillan and John Kennedy had totally different histories, and that explains their different points of view. I have a historical approach to political risk, as opposed to most of my competitors that have a more political science approach. History is the experience of lived life, the way we’ve lived in society since time began, meaning it’s empirically based on how humans actually behave. So here is a man whose entire cast of life was shaped by Balliol College, Oxford and WWI (of the 28 students who were in his year at Balliol, only one other classmate survived the Great War), and he has this gloomy view of human affairs; Kennedy, on the other hand, has this WWII rationalist can-do kind of mind-set. They got along really well: they were both intellectuals, both had a sense of humour, had fairly decent lives, but when Macmillan says to Kennedy, what do you worry about, Kennedy the rationalist said he worried about the deficit and nuclear weapons – things with numbers, political science stuff. Kennedy was scared of the known. Macmillan, on the other side, is a historian and says, “I worry about the events, I worry about the things I don’t know are coming, I worry about the unknown.” COVID-19 is the greatest example of that. 


Is Donald Trump the right steward and the ideal builder of a League of Democracy? The concept is an old one – it was used by John McCain in his 2008 campaign, now it’s being embraced by Joe Biden as a core concept of his foreign policy.

The easy answer is that he is not the right guy. I am unique among the people you are going to interview. I neither love or hate Trump. Most analysts love or hate Trump. It gets in the way of their analysis. I don’t love or hate the people I analyse. I analyse. As a disruptive force, Trump has done some good things. It has forced the Europeans to pay more money for NATO. I was polite to Europeans for 20 years. How much progress did I make? Thank you for laughing. Zero. Trump made good inroads in Central and Eastern Europe. That’s a good thing. Trump got most of the Americans to see China as the next Cold War enemy. That’s an incredibly important historical thing. When I left Washington everybody was pro-Chinese. When I go back everyone is a hawk. Trump is the catalyst in that change. All that is to the good. 

Saying that, given that world I just described, smart realists have always said that institutions can be a force multiplier for power. Hard realists don’t think that. Of course, institutions should be used as power maximisers. NATO and the Quad are two great examples. This nuanced argument is what separates realist internationalism from isolationism and unilateralism. So no. It disturbs me that he spends all his time insulting our friends. It disturbs me that he doesn’t see that it is in America’s interest – if you really are ‘America first’ – to work with as many natural democratic allies as humanly possible. He is very useful on pointing the finger at China, but to best China you need a different kind of leader. 

On the other hand let’s not assume that that is a Wilsonian democrat who doesn’t understand the power realities of the world at all. Talking shops are no good if they are talking shops. If they maximise power and reach common decisions that suit people’s interests, then they are good. Joe Biden has his own problems to deal with. More importantly for him, he has a real record of weakness on China. He has been part of the old pro-Chinese consensus, and this is going to come to bite him, and I imagine Trump will spend a lot of energy on that. Frankly neither of them is ideal for the world we are living in. But it is up to those of us across the party lines that see that the League of Democracy is the future to band together for this argument, and take someone who is not a natural ally and convert him to this idea. 

How can the West be re-invented as a geopolitical & geo-economical unit for a world shaped by great-power competition? Should we start planning in terms of the resilience of the West? What initiatives should be contemplated for strengthening the West?

That is the question. We have to remember what unites us, and not necessarily the obvious things that divide us. We need to go back to first principles. We are democratic. When we see what the Chinese are doing in Xijiang province with a million people in concentration camps; when we see the door closing on freedom in Hong Kong, where they totally neutralised the agreements made in 1997 to the British and where the ‘two systems, one country’ mantra falls apart; when we see the way they threaten the Taiwanese for nearly having democratic elections; when we see them throwing their weight around in the South China Sea; when they ignore international ruling and treaties that don’t suit them, or trying to bully the democratic Indian state – this is all part of a larger pattern. Yes, I am a realist; there are times when you have to engage authoritarian countries, when you have common interests you have to do things with them. However, values do matter. In the West we share a certain way of looking at the world: individuals matter, the state doesn’t dominate everything, we have free internal elections where people make the decision, when I mention Thomas Jefferson is a common point of reference, when we say democratic, we broadly mean the same thing. This is a tremendous amount in common, and it puts us on the side of the Hong Kong protesters, on the side of the Uighurs, on the side of the Indians, on the side of the Hague Court ruling on the law of the sea. It puts us all on the same side on all these policy issues. Let’s take a deep breath and remember: for as annoying as a NATO meeting can be – and God, they can be annoying – it is better to have friends with disagreements than be surrounded by people who don’t see the world as we do, and normatively are against it.

Second point, the US needs to be agnostic about Europe. Through COVID, Europe has yet another navel-gazing exercise about what it is: is it a Hamiltonian state? (which I think it will never be, given its history) is it a Jeffersonian confederation? (that might be possible) or a free formation of nation states? That isn’t our concern. That’s up for Europeans to decide.

The more the US meddles in that, the worse we will do. Obama overdid it with Brexit by saying we will never support Brexit; that didn’t help the cause. And Donald Trump overdoes it by saying ‘I hate everything the EU does’.

That doesn’t help either. We need to say that because we share democratic norms, that’s up to you. What is up to us is that – whether Hamiltonian, Jeffersonian, or free nation states – we will work with you. We want to work with you: we share interests, we share values. 

In Asia it is much easier because the Chinese are throwing their weight around. I would argue that we are in a better strategic position in Asia than Europe because, with the Chinese doing all these things, the outcome is that our new best friends are the old best friends. We are closer to Japan, Australia and India (that is the key to the region) than we have ever been. This happens not because we are nice guys, but because the Chinese are behaving like a neighbourhood bully and an offshore balancing friend is always better than the bully next door. Even the ASEAN countries that are not democratic, like Vietnam, are doing things with us because they are aware they’re next door to a very angry and a very brutal neighbour.

To unite the West we need to find ways to get the Europeans interested in a common position that says, yes, you can commercially do things with China given certain limitations, but let’s be very careful not to sell the strategic silver and pay the butcher. For this reason we need common standards against Huawei. We didn’t let the bloody KGB run the telephone network in the 1980s, why should we let Huawei in the British network now?

Given the Chinese situation, we need Europeans to play a role there. Europe is great with trade. This Cold War will be much more about trade, about standards, things that are European strengths. At the same time, Europe has a tradition of being involved in Asia. We need Europeans to do more in a global way. If we do all these things, and at the same time work on a free trade deal (here Biden would be much better than Trump) – a version of TTIP with Europe uniting Europe and the US at last – this will put the West in a much better position. The worst thing Trump has done was getting rid of TPP. We had a brilliant trade deal with all of Asia who was united in an anti-Chinese, pro-free trade, pro-American position, and we threw it away. Easily the worst thing we’ve done. We need to go back to first principles, and resurrect those alliances and link that world together. We need to remember that we have each other. If we do all those things, that is an agenda for a Harry Truman-style presidency and that is what we need back – a transformative presidency policy that will resurrect the West. 

You are always the best in crafting gifted metaphors to explain visually key geopolitical predicaments. So let’s discuss a bit the implications of the Beatles vs. Rolling Stones as alternative futures for the West.

The problem with foreign policy is that you have to know in what system you are – is the system stable, and how is the power working in the system? Rather than talking about what in IR we are calling Waltzian systemic analysis (I am bored even saying that), instead it seemed to me more interesting to talk about the breakup of the Beatles, as a cautionary tale for today’s Western world as a whole, and the rise of the Rolling Stones. We all understand the story and you can visualise it. The basic point is that the Beatles in a very short period of time went from being a very stable, very happy band, and everything was great from about 1965 to 1967, when they did their best work – they do Rubber SoulRevolver and Sgt. Pepper’s Lonely Hearts Club Band. The reason everything worked so well was that the system was stable. George Harrison got two to three songs, Ringo got one, with everything else being Lennon/McCartney originals. Everybody was happy with that system. That system began to break down because George Harrison got better and better, John Lennon lost interest and Paul McCartney was resentful for being the force holding the band together when it frankly would do other things.

In a very short period of time, between 1967 to 1970, the whole thing breaks up. What makes it a great metaphor is to put geostrategic realities in that. What does the world look like today? If the global ordering system is the Beatles, then John Lennon is Europe utterly preoccupied with himself, with Yoko Ono, with his past, wanting to get out from the tours around the world – neo-isolationist, self-involved, and not very helpful. When I go to Germany I talk to them about China; they are polite, but they are more interested in the future of the EU, how do we get off our knees economically, what we are going to do with the French – that’s what drives them. They are not driven by China, it’s a longer term issue.

Europe is doing a pretty good impersonation of John Lennon.

On the other hand, the US is a harassed Paul McCartney. We keep calling NATO meetings demanding more from people, we keep calling meetings with the Quad in Asia and demanding people work together.

But we are angrier as we do it, hence the Trump phenomenon. We keep grinding everyone up, we are resentful, they are resentful. Eventually this is what happens with Paul McCartney. Increasingly, Paul finally says in 1970 – I’ve had enough, I am going my own way – Make Paul Great Again. 

George Harrison is China in this scenario. He can’t understand why, despite his increasingly dominant position, he still was not being given real opportunities to rise in the Beatles’ system. He soon becomes resentful and distrustful, and after a while he says I don’t like the system anymore, it doesn’t give me room to grow so I want out. So by the time we hit the ’70s, they all want out for different reasons, and the system breaks down. 

We are at this key moment at about 1968 in this analogy, the system hasn’t broken down yet, but nothing new has taken its place. One of the outcomes is that things break down, and we have naked jungle-living great-power competition. But there is another model, the Rolling Stones – a system that evolves over time to change to the power reality. Originally, under Brian Jones, the founder and original leader of the Rolling Stones, the system was unipolar. He was the manager of the band, he picked the other band members and the profit places. But that didn’t work because he didn’t write the music, and was increasingly incapable of sustaining performances because of alcohol and drug problems. Over time the band evolves into a multipolar power triumvirate of Jones-Jagger-Richards, not much liking each other, but working together. That doesn’t work either, so Jagger and Richards ruthlessly get rid of Jones. A month later, he dies mysteriously in his swimming pool, but now the system has lasted for 50 years as the band was able to adopt a power relationship that mirrors its basic creative forces. Richards and Jagger are the creative powers of the band, and they have been since 1969. The power and the reality of who does what is the same, and when that is the case, the system works. So I would argue that a League of Democracies linking Europe (while in relative decline, still important and viable) to up-and-coming powers like India and the Asian world, to the greatest single power still in the world – the US. That is a strategic threesome that has the dominant power to sustain itself in terms of global governance – if it wants to. It is a duty thing. But if it does that instead of the Beatles’ outcome, we are going to end up like the Rolling Stones.

You’ve lived in Europe for the past 15 years. You’ve seen the weaknesses and the strengths, the debates without end, the cleavages between North and South, East and West. Can Europe become structurally ready for a more great power-centric world, and become ready to go beyond a Steven Pinker belief in the ‘Better Angels of Our Nature’ strategic mindset?

The good news is that Europe is kind of the key power, along with a rising Asia. If the US and China are by far the two dominant powers, certainly who scrambles for allies matters immensely. Does the Quad emerge as a Chinese or a pro-American group, or is it neutralist? More importantly, does Europe maintain its pro-Western, pro-American and trans-Atlantic outlook, meaning that it is broadly anti-China and broadly pro-America? If it does that, that’s enough power in the group to dominate. But if it is neutral, which Europe could well be given what’s going on, then we are living in a very different world. Given the structural position, Europe has a real say in what kind of world we are living in.


For the past fourteen years, Dr. John C. Hulsman has been the President and Managing Partner of John C. Hulsman Enterprises (www.john-hulsman.com), a prominent global political risk-consulting firm. Presently, John is also the widely-read senior columnist for City AM, the newspaper for the city of London. Dr. Hulsman is also a life member of the US Council on Foreign Relations, the pre-eminent US foreign policy institution. The author of all or part of 14 books, Hulsman has given over 1540 interviews, written over 790 articles, prepared over 1330 briefings, and delivered more than 540 speeches on global political risk and foreign policy for blue-chip corporations and governments around the world, making a name for himself as an uncannily accurate predictor of global geopolitical risk (and reward) in our new multipolar era. In recognition of this, Hulsman presently sits on the Editorial Board of the prestigious Italian Foreign Affairs Journal, Aspenia. His most recent work, the best-selling To Dare More Boldly; The Audacious Story of Political Risk, was published by Princeton University Press in April 2018, and is available for order on Amazon.


An agenda for reviving the West

“First, it must re-engage the emerging market powers – on new terms that actually reflect today’s changed multipolar global geopolitical and macroeconomic realities. It must forge a new global democratic alliance with rising regional powers, connecting itself more substantially to South Africa, Australia, Canada, Israel, Japan, Indonesia, Brazil, Mexico, and India. The single greatest strategic challenge for the next generation is determining whether the emerging regional democratic powers can be successfully integrated into today’s global order.”

Second, the West itself must be bound together anew; Lennon-McCartney must recommit to the band, in this case the project of serving as the ordering powers in an increasingly factious world. The common grand strategic project of enticing the emerging democratic powers into becoming stakeholders of the present international order can serve as a large portion of the glue that relinks Britain, Europe and America.”

Excerpt from To Dare More Boldly; The Audacious Story of Political Risk  published by Princeton University Press, 2018.

 

The Sino-Russian “axis” is a partnership of strategic convenience, not an authoritarian alliance

Bobo Lo was previously Head of the Russia and Eurasia Programme at Chatham House and Deputy Head of Mission at the Australian Embassy in Moscow. He has written extensively on Russian foreign and security policy, with a particular focus on Sino-Russian relations.

Turkey and Russia are bound to fall out of love in Syria

By Ana Maria Luca| Bucharest

When the Syrians took to the streets in 2011 after the Tunisian, Egyptian, and Libyan uprisings, surprisingly for the outsider, the Kurds did not immediately join in. There were some protests here and there, but nothing was politically coordinated. There was also no outreach to the rest of the Syrians protesting in Daraa, Homs or Idlib.