Economic Statecraft
Power and the Challenge of Confrontation

Wealth can be important for power but is not equivalent to power. Wealth can sometimes make rulers weaker because they take their associated power much more for granted than it actually is, indulging in complacency and/or vainglory. Likewise, prolonged peace can reduce military alertness and readiness, adding to the wealth problem, writes Karl Hermann Höhn, an independent expert from Germany.

February 24 shattered normal expectations for a time as extreme possibilities opened themselves up. In the recent months the military situation in Ukraine has taken form in what appears to be a stalemate with slow advances. Current anticipations cannot put to rest the increased likelihood of intended or unintended escalations.

The relation between Russia and the West is asymmetric as the West holds more power resources. It is no longer asymmetric when China is considered to be on Russia’s side (even if indirectly and quietly).

An American world order (Pax Americana) was the end result of the Cold War. It is open and speculative to what degree the escalated military situation in Ukraine may constitute the heatshield of an emerging Chinese world order (Pax Sinica).

If Russia had no huge nuclear weapons arsenal (6,000 warheads), the commencement of a hot war between West and Russia could appear not unlikely.

Within Europe, a remilitarization of Germany is of concern to Russia. Germany has vast industrial and financial capabilities and is a major weapons exporter (number 4 in 2020). Before the recent escalation of the military situation in Ukraine, Germany exported high quality machinery to Russia in exchange for natural resources. Now Germany plays a role in arming Ukraine with sophisticated weapons.

An arms race between Russia and the West is the likely outcome of the current situation. Dangerous for Russia under conditions of smaller resources.

There remain limits.

The German industrial and financial capabilities are relevant to the degree that they support a fighting population in the Ukrainians. It is unlikely that Germans as a people themselves will anytime soon be fighting in front of the gates of Moscow.

The military capabilities can be revived. A culture rooted in nationalism and military discipline and sacrifice cannot so readily.

In this regard one may recall the Mongol conquest of the Khwarazmian Empire between 1219 and 1221. Khwarazmia consisted of a Persianized Turkic dynasty ruling over large parts of present-day Iran, Afghanistan, and Central Asia. Its late capital was Samarkand. Together with Gurganj, Otrar, Bukhara, those were prosperous cities.

In contrast to these important trade cities and centers of culture and civilization, the Mongols had been poor primitives much of their prior history. At the same time, they had the tribal-nomadic culture of military will. As the tribes managed to unify under Genghis Khan, they turned into a terrifying force eventually in every direction.

The Turko-Persians were wealthy and developed in contrast to what the Mongols had been (prior to their incursions into China). Even as Khwarazmia was an expanding power in formation, their military vigor proved less than that of the Mongols. They were defeated despite overall numerical superiority. The speed and flexibility by which the Mongols operated was frightening and devastating.

The point of this and other historical examples is that wealth can be important for power but is not equivalent to power. Wealth can sometimes make rulers weaker because they take their associated power much more for granted than it actually is, indulging in complacency and/or vainglory. Likewise, prolonged peace can reduce military alertness and readiness, adding to the wealth problem (paradox).

Economic Statecraft
Issues and Problems of Power Measurement
Karl Hermann Höhn
Generally power and the psychological (or sociological) appear intrinsically intertwined. One may try to subtract the psychological from power and then call it ‘capabilities’. Depending on the purpose, such distinctions between capabilities and the psychological can be promising both conceptually and in power formula implementation, writes Karl Hermann Höhn, an independent  expert in measuring national power.

Another factor is the number of children. Societies with high fertility tend to be more war-prone than societies with fewer children. German economist and sociologist Gunnar Heinsohn has developed a demographic war index taking the ratio of the number of young men aged 15-19 to the number of men aged 55-59. This relates to the ability of the young male generation to find gainful employment as the older one retires and the resultant socio-political stability.

To be clear, fertility is not the only factor regarding violent conflict. On average, if one looks at a list of countries and compares fertility and violent conflict (both internal and external), then one will find more often violent conflict associated with higher fertility. It does not follow that there are no countries with high fertility and low belligerence and vice versa.

For example, from 1950 to 1988 Brazil used to have a high fertility rate without being particularly belligerent. The Soviet Union and United States had fertility rates much lower than that of Brazil, yet both were much more active in terms of conflict engagement.

A divergent argument illustrates the psycho-emotional ramification from low fertility on a society at war. That is, if an Afghan family loses a number of sons in an endless conflict, the loss hurts the family, still the other sons carry on. Compare this to the Russian and American family where the loss of the only son may signify family extinction.

This reconnects to the prior point in that wealthier societies tend to have lower fertility. Germany fought its wars when fertility could still make up for war fatalities (Germany’s fertility in 1915: 3.47, 1940: 2.24, 2020: 1.59). The military situation in Ukraine is thought-provoking insofar as it involves two countries with below-replacement fertility (assumed to be 2.1, compared to Ukraine’s 1.23 and Russia’s 1.5 in 2019).

Plate tectonics is sometimes used as an illustrative analogy in geopolitical discussions. Nobody doubts that volcanic eruptions and earthquakes and tsunamis are extremely destructive events. Yet what is the alternative? A planet without plate tectonics would appear to mean that all land mass gets carried into the sea through billions of years of erosion through wind and rain.

Sumatra is an island with much more fertile soil due to volcanic activity than Borneo, even though Borneo is bigger. The rich flora and fauna supports, for example, the Sumatran tiger. Borneo has neither volcanoes nor tigers. Having a volcano erupt under our shoes is not our favorite fantasy. Still there is creation in this violence. This connects to Heraclitus dictum that “war is the father of all things.”

In international relations, Israel can be said to have built its house on top of an active volcano (difficult internal situation and external environment). This has motivated the Israeli army to develop into one of the strongest in the world in terms of being able to rapidly mobilize (48 hours) and respond to sudden crisis situations. Israel as a dynamic society has had to prove adaptable to the permanence of various challenges.

Pierre-Olivier Gourinchas, the chief economist of the International Monetary Fund (IMF), wrote an opinion piece titled “Shifting Geopolitical Tectonic Plates” (June 2022). There he states that “the war has made manifest deeper divergent processes.” He likens the fighting to an earthquake with the epicenter located in Ukraine and Russia, causing “seismic waves, radiating from the epicenter, and impacting economies far and wide.”

Gourinchas notes the limitation of the plate tectonics analogy: “These ‘geopolitical plates’ are man-made reflecting history, institutions and people. While each plate or bloc may carry tremendous inertia, ultimately people—and their governments—can chart their own course. Reason and mutual economic interest can prevail.” Can they?

Theoretical and empirical grounds appear to support the argument that more complicated societies become more risk averse and adept at risk avoidance.

Excessive risk and error avoidance can stifle technological, social, economic, political adaptation as for trying new things. To a point that stagnation results in seriously damaging effects (including the possibility of cascade failure). Though this is hard to know and predict in advance.

Putin took an unexpectedly bold step with regard to Ukraine and the West. The military situation in Ukraine has resulted in negative consequences to Russia. The military, economy, society are going through an acute shake-up. The resilience of different sectors of Russian society, economy, and military are strained and tested, pushing for innovation.

The shake-up proves the critical importance of three key sectors of the national economy: (1) food, (2) energy, (3) weapons. If a country were a big importer in one or more of those three, perhaps it could be brought to its knees by pressures and sanctions as massive as those intended to be used against Russia. Being an exporter, Russia can endure.

In the East, Russia faces Japan. Japan has a bombastic China to worry about. Yet Japan can hardly openly proclaim anti-Chinese rhetoric to justify politico-military necessities. The most viable ways and means for Japan to reassert itself is to take hard stances with regard to the Kuril island dispute as well as the current situation in Ukraine.

Japan needs the West and remilitarization. Hanging the flag in Western winds to (1) hope this way in turn to gain and maintain powerful Western support regarding the China threat and (2) push domestic public discourse for the need for more assertiveness.

The Kuril islands issue was basically solved in 1956 when both sides agreed that two of the four islands should be returned as part of a peace deal. It was after the US threatened to not return Okinawa that Japan was pushed into a more hardline position.

The geo-economic equation that is true for Germany and Russia (high tech for natural resources) is also true for Japan and Russia. Based on geography and demography, there stays behind tremendous potential in economic complementarity, which is currently contradicted by the antagonistic geopolitical situation. Times change, and realignments that are inconceivable today may become conceivable again in a distant future.

Norms and Values
Russia as the Cradle of Revisionism
Vyacheslav Shuper
We, figuratively speaking, are fighting according to other people’s maps; we use the picture of the world created by the West in its own interests. Only its deep revision will allow us to achieve success in clashing with the West and win the sympathy of non-Western countries that are in dire need of an alternative picture of the world, but do not have the necessary intellectual resources to create it, writes Vyacheslav Shuper.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.