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A 21st century response to Sino-American geo-economic rivalry: Layers of governance and strategic autonomy

Published onJul 11, 2022
A 21st century response to Sino-American geo-economic rivalry: Layers of governance and strategic autonomy

Are we gathered at the grave of the liberal international order? Or can we find building blocks to re-establish international liberalism as a global order in which non-liberals also participate?

My remarks focus on two topics, which are in the end related. The first is about the structure of international life. And the second is about how agents in this international life should navigate the emerging Sino-Western relations.

I think now I have to agree that a lot of the global governance conversation seems to be hitting different kinds of dead ends. So I'm not going to dwell on multilateralism.

We are facing a situation right now, especially in Europe, where the WTO may be losing rather than gaining members. But I think it's also important to remember that, at least in the 21st century, post China joining, there really wasn't a golden age for the WTO. The responsible stakeholder talk started right away. The US was concerned, even in the early years of this century, that things were not going the way they hoped they would go.

I think the OECD can be a very powerful mechanism for building coalitions of liberals. It is a prestige, members-only club. Brazilians, for example, would love to join it. But I'm not sure that it will work as a way of bringing China into the conversation. If anything, it does the opposite.

In the context of diminishing multilateralism, it is interesting that the speakers in this conference have been focussing on ‘managing’ rather than on ‘governing’ the world. I remember teaching Mark Mazower'z book Governing the World, about nine years ago as part of a course on the history of the idea of globalisation. At that time, my Ivy League undergrads thought that this was the most natural idea — that the world must be becoming governable. Of course, in reality, we were only months away from Russia's first invasion of Ukraine at that point; but it's a sobering thought that, not too long ago, reasonable people coming up in the world would think that global governance was a realistic possibility.

It is definitely true, today, that the idea of multilateral or even international governance is in retreat. This should lead us to concentrate on two other levels of governance — national and transnational. The interplay of these two forms of governance is crucial for the management of Sino-Western geoeconomic relations.

At the national level, over the past decades, we've seen a proliferation of good governance standards. Nowadays, there's an index for pretty much any feature of nation state governance, from rule of law to welfare provision. There hasn't been quite as much focus on the substantive capacity of bureaucracies to make decisions. But the capacity of bureaucracies within nation states to make decisions reliably and independently is also essential to the creation of hospitable environments for investment and business.

And that brings me to the other type of governance, transnational governance.

About a quarter century ago, there was an explosion of literature on the importance of the multinational corporations, or ‘multinational enterprises’. This was in part because the MNCs or MNEs were seen as potentially undermining the capacity of national governments to govern, due not only to the size and reach of the MNCs but also to the fact that they could effectively impose transnational standards. The thinking here was that such transnational standards could challenge home and foreign host countries' capacities to govern.

But there is another challenge that is also posed by these multinational corporations; and here there is a twist. Recently, MNCs have begun to undermine the nation state in a way that is rather different from what people imagined at the turn of the millennium. In the UN Global Compact's 10 principles from 2000, or the OECD's guidelines for multinational enterprises, the focus was on preventing MNCs from doing evil things in their new host countries. But we can now see “free world enterprises” that — without necessarily doing any damage to their host countries, nevertheless expose themselves in the unfree world in ways that pose risks for their free-world home nation states.

Of course, part of the problem here is that, if the corporations try to uphold the values of the free societies from which they come, and consequently fail to follow the local law in an unfree society that is hosting them, they are convicted not only of local crimes but also of transnational bad governance. Hence, their good faith can be used by states in the unfree world as leverage against their free-world home states. This is clearly the case with Western companies now still stuck in Russia.

Conversely, of course, we have corporations from the “unfree world” operating in the free world — and the problem with them is that the ultimate beneficiaries of their actions tend not to be any sort of loosely understood shareholders, but rather the governments of their unfree home states. This “free-world” terminology can of course be challenged. But it’s a way of pointing out that we stand in danger of having a liberal international order from which non-liberals are increasingly excluded. And it is by no means clear that MNCs from non-liberal home states will in the future see themselves as benefitting from participation in a civil liberal order of free-world exchange.

What is the solution on this front? We have had plenty of theories not only about good governance for nation states, but also about good corporate governance; but there is still very little understanding of how good corporate governance interacts with good governance in nation states, much less how such interaction might contribute to better forms of transnational governance. The solution lies in establishing better forms of connection between different forms of governance. So, for example, good corporate governance would entail not leaving your home country in a bind through exposure to political risks in host states.

The risks, here, are far higher than just a corporation suffering some reputational damage, or having to write down some of its investments in a place like Russia or perhaps even one day in China. The real risk is that MNCs could actually undermine effective national governance, by limiting the number of choices available in their home countries. And this is not because of what they do in their home countries, but because of the risks they've taken overseas. So there is much at stake as we begin to understand these different forms of governance and how they need to interact with each other.

The basic problem is that our thinking about governance has been too simplistic, too siloed, and that's why these sorts of risks have been taken. Just managing the risks would mean that we're setting our sights too low. There needs to be an attempt at governing. To the extent that global governance of the multilateral kind is available, it should be pursued; but I don't think this is in any way incompatible with being very serious about the wise application of transnational and national governance, and seeing where the global results might take us.

So my first point is that some unified theory of governance is needed. That’s a point about the structure within which different actors should think about this emerging world. But I also think that it's important to look at the actors themselves — nation states or other organisations of pooled sovereignty — and how they should be thinking about this question of management or governance.

Here, I want to focus on two alternative orientations towards the struggle for supremacy between China and the United States (but also in some cases between China and the West as a whole). The first possible orientation springs from the recent conversation about non-alignment and its resurgence on the global stage. The second is strategic autonomy.

Non-alignment, though a blast from the past, has really been gaining traction (for example in Latin American academic and diplomatic circles) during the last few years, as a means of avoiding a polarising competition between the United States and China. Elements of non-alignment, definitely, have also been present in Latin American responses to Russian aggression in Ukraine, which have generally been less than wholehearted. Proponents of something called ‘active non-alignment’ believe that it is a doctrine suited to this century. They think that it can be a source of greater regional integration, and that Latin America will be more relevant as a global region if it plays off China against the US.

I think this is wrongheaded for two reasons. First, because in a situation where there's strategic competition between a democratic and autocratic power, democratic countries that pursue non-alignment risk getting pulled into the autocratic sphere. And second, because active non-alignment is a poor choice when there's a better approach.

If one looks at what happened to the original non-aligned movement, they were obviously heroes of the anticolonial struggle, but — with the exception of India (outside the period of emergency powers) — they were never exactly known for their democratic credentials and were subject to malign influence. In Latin America, one of the major non-aligned powers was Cuba, which, obviously, colours the experience a little bit. But also, in its Cold War afterlife, if we look at the kind of countries that have been practicing non-alignment, we find capitals such as Tehran and Caracas hosting the members of the non-aligned movement. So, not exactly a recipe for flourishing democracy.

The better approach is autonomy — strategic autonomy. This is something that has been invoked in different places and in different ways, but I think it is now making its way in the correct direction, and it's also something that Washington has been trying to promote — for example, in the Indo-Pacific strategy recently put out by the Biden administration, in which there was a direct reference to how, just like Japan, Washington wants to advance such “autonomy”.

In the Pacific, India has recently pursued a course of strategic autonomy. In relation to China, it has pivoted in the direction of the United States; whereas in the current conflict between Russia and Ukraine, it has taken a different line. Also in Europe, the European Parliament has introduced — in its new EU strategy on China — the concept of building partnerships with like-minded partners, fostering strategic autonomy, and defending European interests and values.

This is a moment at which to think about how nation states can be as autonomous as possible in a world of geoeconomic rivalry. It's about how to make sure that, when smaller democratic countries such as Lithuania do engage with the PRC, China cannot exploit governance gaps arising from lack of local awareness about the risks of engagement with Beijing. Likewise, there has long been talk in Washington about the need for capacity building with Latin American partners. Here, some liberal principles can actually do quite a bit of work. But, while capacity building might be the tactic, a good way of thinking about autonomy is that it's the strategy level for the 21st century.

So, to conclude, the question that I leave you with is this. How can we channel national and transnational governance to enhance the autonomy of different states, especially smaller states? Recovering some of the vocabulary of the liberal international order, we need to ask how transnational governance works, and how it interacts with national governance, and then, how we can help to ensure that national governance is sufficiently autonomous to protect things such as democracy and prosperity.

I think this is a liberal and international way of looking at the world today.

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