Geoeconomics and the Heritage of Eurasianism

13 february 2017

Reflections on Regionalism a Century Ago and Today

Yaroslav Lissovolik - Programme Director of the Foundation for Development and Support of the Valdai Discussion Club, Chief Economist of the Eurasian Development Bank.

Resume: The economic heritage of Eurasianists includes opinions, still quite important today, on the role of the state and the private sector in the economy, models of economic development and planning during economic modernization.

“Any state is viable only if it is able to fulfill the tasks
that are set by the geographical nature of its territory.”

Nikolai Trubetskoy

When discussing Russia’s pivot to the East and its key foreign economic priorities, it is important to remember Russian economic thought of the last century, the relevance and merits of which are yet to be studied. Conceived almost a hundred years ago, the theory of Eurasianism has played an important role in exploring transcontinental alliances and economic interaction between Europe and Asia. The theory holds that Russia’s development should be based on what makes it distinct from other countries; namely, its geographical, historical, cultural, and economic peculiarities. Russia can advance economically by taking advantage of its geographical position between Europe and Asia as interaction intensifies between these two focal points of the global economy.

However, the economic heritage of Eurasianists is not limited solely to the call for “Russia’s pivot to the East.” It is actually much broader and includes opinions, still quite important today, on the role of the state and the private sector in the economy, models of economic development and their possible use by Russia, and planning during economic modernization. Nonetheless, geoeconomics and the contours of Eurasian and global integration occupy a special place. Many aspects of the geoeconomic world, including the need for effective transport corridors in Eurasia which can compete with oceanic routes, were anticipated by the founding fathers of Eurasianism.

NIKOLAI TRUBETSKOY’S “SPECIAL WORLDS”

In his work “Ideas on Autarky,” Nikolai Trubetskoy, one of the founders of Eurasianism, presents his groundbreaking ideas about the geoeconomic structure of the global economy. He introduces the term ‘special world,’ which can be considered as an analogue of today’s regionalism and mega-regionalism with regard to nation states in building a coherent/complete economic system. Instead of the economic system of nation states, Trubetskoy writes about a system of “special worlds”/regions as key elements of the global economy: “Up until now everyone sought to prove the benefits of an autarkic system for this state. I think, however, that we should be talking about the benefits of a system of autarkic worlds as a special form of organizing the global economy.”

Trubetskoy largely predicted the duality of regional integration groupings, noting, on the one hand, their somewhat closed nature with regard to third countries and, on the other hand, the need for the economy to be open to the states that make up “a special world.” He wrote: “Within a state that is not a ‘world in itself,’ an autarkic economy (or rather an attempt to build one) is not beneficial and is actually harmful not only to this state, but also to its neighbors.” Almost a century ago, long before the publication of Mundell’s works on the theory of optimum currency areas and modern theories of “natural/balanced integration groupings,” Trubetskoy wrote about the importance of balance and stability in regional integration groupings achieved on the basis of fundamental economic, historical, and cultural factors. “The main advantage of autarky—its invariability guaranteeing peaceful co-existence both inside and outside—can only be possible if regions jointly forming a special world are bound with each other not only by the economy, but also by history (“a common destiny”), civilization, national peculiarities, and national equilibrium…” Trubetskoy also wrote about the importance of complementarity in the process of integration between regions and integration groupings, an argument quite congruent with modern views on the effectiveness of interaction and advisability of integration between certain regional systems.

In other words, in order to maintain equilibrium, inequality should remain at a relatively low level and there should not be any large gaps in development between different components of “a special world,” which still exist in the global economy today and existed at the time of the first Eurasianists. Trubetskoy advocates a multipolar/multivariate world of “special worlds.” He wrote: “The modern system of organizing the global economy presupposes one type of civilization [the end of history and convergence of development models in the process of globalization –Y.L.], but very different standards of living (social inequality). The system of autarkic worlds, on the contrary, will be multivariate with regard to civilizations, but at the same time have only one standard within each autarkic world.”

Essentially, Trubetskoy depicted a world of diverging economic models and co-existing regional and mega-regional systems, which he called “special worlds.” In this sense, Eurasianists regard autarky, or economic autonomy, as a way of achieving greater independence in determining the best path of economic development that would be in harmony with the priorities of “a special world.” Trubetskoy wrote: “Autarky is more beneficial economically and politically and provides more guarantees for human happiness than the system of ‘the world economy in one pot.’” The Eurasian picture of the global economy and foreign economic policy are interpreted through the lens of regionalism, or Trubetskoy’s “special worlds,” leading to duality with regard to autarky and globalization in “one pot:” certain countries and regions are open for building their own “special worlds,” yet at the same time these “special worlds” remain relatively closed to interaction with each other.

PYOTR SAVITSKY: CONTINENTAL INTEGRATION AND TRANSPORT CORRIDORS

Pyotr Savitsky, a pioneer in the development of the economic teaching of Eurasianism, also pointed out in his work “Continent-Ocean (Russia and the World Market)” that the economic openness of continental countries was a controversial factor. Among the possible dangers, he named the isolation of the economy in backward economic systems and the possible marginalization of those countries because of low competitiveness if their economies opened up to the “world ocean.” He wrote: “For countries marked out among regions of the world by ‘continentality,’ the prospect of turning into the ‘backyard of the world economy’ becomes a fundamental reality if they actively join in the global oceanic exchange… If they remain isolated from the world, they are in for economic primitivity stemming from ‘natural economy’ … If they join the ‘world economy,’ they will face the everlasting power of their economic and geographical ‘deprivation’…”

According to Eurasianists, oceanic and continental countries compete with each other on the world stage. “One can say that the ‘oceanic’ principle, which underlies combinations of economically complementary countries and which does not depend on distances, is opposed by the principle of continental neighborship as two fundamental principles of international and interregional exchange…,” wrote Savitsky. He noted that competition in interaction between oceanic and continental countries and regions could be accompanied by the loss of trade and investment flows by less competitive countries in favor of more successful ones. So Savitsky foresaw trade flow deviations and the loss by Russia of entire regional markets in the 1990s. “There is a clear rationale for the entire ‘oceanic’ world that continental countries must resignedly assume the burden of this deprivation, thus providing ‘oceanic’ countries with additional products and extra markets for their own goods.”

For Eurasianists, distances and transportation costs are a key factor in assessing the relative competitiveness of oceanic and continental countries. Savitsky noted that oceanic countries were in a more advantageous position for advancing their goods to world markets. He wrote: “The difference in maritime and surface transportation costs suggests that countries and regions which due to their location can use predominantly sea transport are much less dependent on distance in international and interregional exchanges than countries whose economic activity is based mainly on continental transportation operations.”

Savitsky’s observations that oceanic countries had better chances to create integration groupings than continental ones were truly prophetic (as proved by the processes related to the trans-Pacific and trans-Atlantic partnerships). “The ocean is whole. The continent is fragmented. That is why the world economy as a whole is seen as an ‘oceanic’ one, and oceanic exchanges inevitably involve every country and every region of the world economy.”

When analyzing the factor of distance, Savistky came very close to the concept of “a gravity model,” which determines trade flows between countries on the basis of distance (in inverse proportion), GDP measurements (in direct proportion), and such factors as common borders, culture, language, and history. He wrote: “In order to join global trade, these [continental–Y.L.] countries should make extra effort to both bring their goods to the shore and transport across the continent the goods they receive from the world market.” Savitsky also spoke of “inland attraction” for trade flows based on distance/economic sizes and mutual complementarity of trade patterns. To illustrate the difference in the cost of transporting products to world markets, Savitsky compares England and the Central Asia hinterland (Semirechye). He wrote: “The distance from Semirechye to the coast, unheard of in the rest of the world, will predetermine Semirechye’s special kind of ‘deprivation’ when it joins in global trade… It will get less money for its products than all the other parts of the world, but will pay more than others for goods it brings in… Double deprivation as a manufacturer and as a consumer cannot but, ceteris paribus, turn Semirechye into a sort of ‘backyard of the world economy’…”

DIRECTIONS TO EURASIA

How can continental countries reduce their higher transportation costs than those borne by oceanic nations? Savitsky said that a simplified imitation of oceanic countries’ strategies could not provide a complete solution for continental countries. He wrote: “The economic future of Russia is not in copying like a monkey the ‘oceanic’ policy of others, which in many ways is inapplicable to Russia, but in coming to terms with its ‘continentality’ and adapting to it.”

Savitsky saw the solution in building a complex of mutually complementary economic systems on continents which would saturate themselves with mutual trade flows. He wrote: “Isn’t there a chance for ‘continental’ regions to eliminate, at least partially, the disadvantageous consequences of their ‘continentality,’ while avoiding the isolation inherent in primitive natural economy? This can be done by breaking, within the continental world, the full dominance of the principle of the oceanic ‘world’ economy, promoting economic complementarity of certain contiguous regions of the continental world, and ensuring their development conditioned on their mutual ties.” This vision comports to a certain extent with both the integration of continental regional groupings into a Eurasian mega alliance and with the creation of a chain of sectoral alliances and regional value-added chains which make Eurasia more competitive against the “world ocean.”

It must be noted that Eurasianists did not object to Russia’s integration into the global economy, but insisted that it should take into account Russia’s specific economic features and its limited possibility to use “oceanic principles.” “To a certain extent Russia needs and will need the sea as a link to the ‘world market,’ but one must understand that the ‘oceanic,’ or ‘maritime,’ principle plays a substantially limited role in building the Russian economy…,” Savitsky wrote.

From a present-day perspective, the heritage of Eurasianism in studying the world economy boils down mainly to directions for Eurasian continental integration in complex competition with the oceanic project through the creation of a network of transport corridors linking Asia and Europe. This is already happening with the Silk Road Economic Belt and its integration with the Eurasian Economic Union (EEU) and other Eurasian continental projects. But perhaps the most important and pertinent heritage of Eurasianism is the call for diverse and diverging economic models in the world. This approach counterbalances arguments in support of convergence towards one model—the “end of history”—and a new edition of the Washington Consensus at the top of the global financial architecture. In this respect, Eurasian integration based on its own development imperatives determined by early Eurasianists becomes Eurasia’s contribution to the process of global economic divergence.

Based on Russia’s foreign economic policy tendencies in 2015-2016, we can sketch out a neo-Eurasian concept for its geoeconomic strategy, which in current conditions could look as follows:

  • Integration into the global economy: promoting closer links between integration projects in Europe and Asia in order to boost trade and investment across Eurasia. Russia could benefit the most by acting as a mediator between the rapidly growing economies of China, Japan, Korea, and ASEAN countries, on the one hand, and Europe, on the other. China’s new Silk Road project, which Russia is going to support, has given a fresh impetus to Eurasian integration.
  • Eurasian integration in former Soviet countries: the better Russia advances the idea of deeper economic integration in the post-Soviet space, the more trade and investment flows can be attracted into Eurasia as a whole. The creation of a common economic space would strengthen its positions in negotiations with other trade associations and enable it to act as a mediator between Europe and Asia as they step up their economic cooperation.
  • “Open regionalism” and the priority of multilateral regulation of the global economy: in the battle between regionalism and multilateralism, Russia should focus on supporting such organizations as the WTO in order to strengthen international regulatory norms and thus limit preferences and discrimination in the world economy. Trade alliances should be formed in Eurasia in accordance with the WTO’s principle of “open regionalism.”

Russia’s economic diplomacy will focus on promoting competition between European and Eurasian suppliers for access to the vast Russian market, while Eurasian integration could guarantee the success of China’s Silk Road project aimed at establishing deeper and closer economic ties with Europe.

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