How to prevent war with economic power

After the end of the cold war, we had thought that free trade would liberate the world. We had to learn that it can be the other way around, too. Trade with oppressive regimes can strengthen their power, fill their war chest, support their rule. We also learn these days that economic sanctions can be powerful. 

What conclusions do we draw from this? Here is my top 5 list.

1) We must draw conclusions NOW. Imagine China was invading Taiwan. The people might put pressure on their governments to impose the same sanctions on China as we do now on Russia. The world economy would falter (China’s share of global gross domestic product is 20 per cent; Russia is 3 per cent). What would be – on the other side – if we didn’t treat China the way, we treat Russia today? And a military response wouldn’t be an option either. Then we would have to watch such a war of aggression pretty much defenceless. If we don’t want that, we have to act today. We have to think about how we can ensure that autocratic regimes are not encouraged by economic trade and that this economic trade helps prevent those regimes from wage war.

2) The risk of investing in oppressive countries must be priced into investments. If investing companies knew that if authoritarian states crossed borders, that could bring their business to a standstill, they would consider this risk when investing. With such a risk premium, there was less investment in authoritarian countries which would, in turn, reduce dependence on such a country. And autocratic regimes also would have an interest in credibly assuring that they will not cross borders because this credibility would attract capital to their country and thus promote economic advancement. To calculate such a risk premium…

3) … the democratic states have to make clear in advance which sanctions were to be expected for certain actions of an autocratic country. Only in this way investment decisions can be reasonably planned, and the authoritarian regime can assess the damage it faces if it goes beyond the limits – which will hopefully prevent the regime from doing so.

4) The threat of sanctions must be credible, i.e. actually implemented if the border will be crossed. A mandatory prerequisite for this: Dependence on the sanctioned country must not be too significant. Because the higher the damage to the sanctioning country, the lower the credibility of sanctioning in case of crossing borders. It must be the task of economic policy that dependency does not become too heavy. To provide this…

5) … threats of sanctions and their possible implementation must be taken jointly by many countries. On the one hand, this increases the pressure on autocratic regimes not to cross borders, as the sanctions would be extensive. On the other hand, it helps the sanctioning states because together they could compensate if the lack of economic exchange with the sanctioned country is a too heavy burden for some of them.

I am convinced that we need a new global regulatory policy. Such a regulatory policy would clarify that one can only be part of the global economy game if one plays by the rules. And these rules must be based on the principle of voluntariness. Only those who do not oppress, occupy or force others are allowed to play. 

Good coexistence is based on cooperation. With such a new global regulatory anyone who doesn’t understand this will be excluded until they learn that it is also beneficial for them to cooperate. We should start working on this new order today. So that democracies can thrive and dictatorships perish.


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