THE PAPER | When Free Market Keeps the Peace

THE PAPER | When Free Market Keeps the Peace

By Osagioduwa Eweka
Peace and Conflict Studies Programme, Institute of African Studies, 
University of Ibadan, Ibadan, Nigeria

The significance of free market to keeping the peace is glaring in the cases of post-World War II Europe, contemporary US-China economic relations and US-Russia economic relations. Right from the 18th century, Europe was already ravaged with series of wars: the Franco-Prussian war, the Napoleonic wars, the World War I and II. After World War II, European states converged to discuss measures to prevent the outbreak of another war. It should be noted that none of the treaties signed by European states was as effective for keeping the peace as those of free market.

In March 1951, France and Germany cast away their suspicion and began to expediently discuss integration of economic policies which would result in disregard for national sovereignty as far as economic issues are concerned. This was a giant stride from the traditional hostile Franco-German relationship towards a Franco-German rapprochement. That same year, the Paris Treaty was signed to set up the European Coal and Steel Industry. With the participation of other European countries, it became impossible for either France or Germany to exploit the industry for war production as it was now under the control of “The High Authority”. This later led to the Treaty of Rome in 1957, giving birth to the European Economic Community (also known as the Common Market) and the European Atomic Energy Treaty. In 1960, the European Free Trade Association established by the treaty of Stockholm paved the way to better European economic integration such as the Common Agricultural Policy. In 1967, all bodies came under one umbrella called The European Commission.

The objectives of these agreements were a common tariff; harmonization of tariffs vis-a-vis that of foreign and non-member states; to allow for an economically borderless Europe and; ultimately, to ensure the prevention of war and keep peace among European countries. Interestingly, about 80% of European countries subscribed to this move which economic liberals term “commercial peace” and which brought about relative peace to Europe. Apparently, a country with a reason to wage war against another, viewed as an adversary, would most likely change her mind considering what she has to lose economically. Additionally, now that majority of the countries have given up economic sovereignty and control of coal and steel, it would be impossible for any one of them to single-handedly decide on acquisition of nuclear weapons or other high degree weapons.

Another pointer to the indispensability and viability of free market in keeping peace is its utility by China to establish and foster peace between itself and other nations. In this regard, the General Secretary of the Communist Party of China (CPC) asserts that China loves peace and would follow a path of peaceful development, particularly through its diplomatic policies. As exemplarily delineated in its economic relationship with the United States, China offers that free market is capable of presenting itself as a tool for regulating conflict and infusing peace in order to create an international environment essential to socio-economic development regarded as “complex interdependence”. Relations among the major Western powers fit this model of complex interdependence very well. The United States has significant disagreements with its European and Asian allies over trade and policy, but it is hard to imagine a circumstance in which the United States would use military power against any of these allies particularly as attempts at military power has proved futile in the past. In 1995 when America refused to allow the then Taiwan’s president to make a high profile visit to America for diplomatic reasons, China reacted militarily by firing ten unarmed DF-15s into waters off Taiwan. America launched counteractive troops and aircraft-carrier to the region and China quickly backed-off. At this point in time, China was not an economic giant, whereas the US was. In fact, there was a remarkable gap between the US and China in terms of economic abilities. It was probably for this reason that China reached the prudent decision to back off. It is significant to remark that since China assumed its current, acclaimed economic and military status, the US has taken dressing and has not dared to threaten China because, as remarked by Douglas Paal, unofficial American ambassador to Taiwan, the cost of conflict has certainly gone up for America to easily afford. Instead, the United States now relies on economic pressure, negotiations and incentives to achieve its policy aims.

Several scholars, journalists and politicians have reiterated that the bilateral ties between both countries are strengthened by free market in particular and economic alliance in general. It should be noted that there exist quite a number of Chinese entrepreneurs in the US and vice versa. Also worthy of mention is the fact that the free trade existing between the United States and China is on the increase and the economies of both countries are benefiting so immensely from it that they cannot allow a war to bring it to ruin. For instance, the two countries are largely interdependent for production and marketing of an array of technological gadgets. This is what their bi-lateral ties are basically about.This has been inferred in many instances. As Kerry (2014) , US Secretary of State avers, “China and the United States represent the greatest economic alliance trading partnership in the history of humankind, and it is only going to grow”. He further asserts that both countries seek to strengthen their security relationship which grows out of the economic relationship at the same time. This undoubtedly implies that bilateral trade and free market between both countries have resulted in a military or security relationship which discourages armed conflict of any degree and kind. Although Hitchens (2002) argues that no power has been able to match the US economically and militarily as China, recently, the East Asian Strategic Review (Katahara, 2014: p. 20) indicates that current diplomatic policy among both countries is carrying forward the path of peaceful development through free trade, and this is seen as “a new type of major-power relations upon which both countries have formally agreed”. Similarly, Yang Jiechi of China has put forth the argument that “[...] business not only brings goods and jobs to us, but also mutual understanding and friendship among our peoples”. In concord, Jacob Lew of the US remarks the “people-to-people” engagement that “goes beyond the business world”.

Up to this point, it has been argumentatively and historically ascertained that free market, more than the other identified tools for keeping the peace, has the capacity to uphold relationship between nation states such that peaceful coexistence and collaboration are possible and sustainable, towards the attainment and sustenance of peace among them. This is not to suggest that violent conflict is forcibly inevitable between nation states with the absence of free market relationship or pronounced economic alliance. For instance, the United States has a remarkably insignificant economic alliance with countries such as Brazil, India and Turkey, yet they are not at loggerheads with them. The suggestion here is that such absence or minimization, which is often occasioned and at the same time sustained by rivalry rather than constructive competition, is much likely to make nations prone to violent conflict institutionalization and/or solidification, whereas the reverse is indisputably the case in the presence of free market. In other words, economic competition is peaceably worth more than economic rivalry when it comes to keeping the peace. At this juncture, in order not to be guilty of analytical disequilibrium, it is pertinent to take a critical look at the other side of the coin by giving due consideration to instances where the absence of free market has not only proved itself to be conflictogenic, but also pro-conflict. The United States of America and Russia conveniently fit this description.

The hostile behaviour existing between the US and Russia is not unrelated to their failure to explore free trade with each other. The origins of bilateral trade relations between both countries are traceable to the period antedating the World War II. The peak of these relations dates back to the period between 1941 and 1945, while the period that followed ushered-in the decline of these relations. Since then, the economic relationship between the two powerful nations has been rather remarkably low and intermittently fluctuant. However, it is not as much of significance to this paper to dwell on this issue as it is to discuss the violent conflict effect of the absence of free market between both countries. Russia, by virtue of being a major producer of natural gas and oil, is a vital actor in the international economy being the 4th largest economy in the world since 2013 till date(Russia Insider, 2015) . This implies that the country is quite significant to the global economy. In spite of this pedigree, the overall US-Russia economic relations remain significantly weak to the point that both countries account for an impoverish portion of the international economic activities of one another (Nelson, 2014) . According to the Global Trade Atlas , corroborated by the Bank for International Settlements and the Bank of Russia , Russia housed less than 0.5% of the foreign investment of the US as of 2012. In 2013, export of goods from the US to Russia was estimated at only 0.71% and 1.19% vice versa. In the same vein, at the end of 2013, Russia had an outstanding US bank loan of 1.1%. Similarly, the US accounted for less than 1% of the foreign direct investment in Russia at the end of 2012. In all these, the European Union has managed to remain at the favoured end.

The foregoing explains why the two countries have been able to afford enduring, episodic conflicts with one another, with little or no discomfort and hesitation to the extent of periodically arriving at the brink of mutual exchange of nuclear blows specifically by means of threatened proxy wars, latest of which Ukraine and Syria are potential theatres. Both countries seem to directly have nothing economically at stake to make them sheathe their swords. This goes further to explain the nonimpact of economic sanctions and countersanctions periodically imposed by both countries on one another. Noteworthy, these sanctions and countersanctions double as cause and effect of absence and/or weakness of free market between the countries. As Nelson (2014) succinctly posits,

The indicators suggest that the direct effect of US sanctions on Russia on overall trade and investment could be relatively small for the United States and Russia. However, sanctions could disrupt specific economic activities at the firm-and sector-level, improving economic costs on specific US and Russian firms and industries.

It may therefore be argued that if these sanctions have relatively small effect on the United States and Russia, it then continues to widen the gap of peace between them. If this be the case, it would mean that the effect the sanctions would have on the European Union (EU) would be unquantifiable since the EU has also been caught imposing sanctions on Russia, as seen for instance in the Russia-Ukraine conflict of 2014, in spite of it being much economically in tandem with Russia, a situation which has continued to play a major role in keeping the peace among both parties, unlike their US counterpart. There is no disputing the fact that the peaceful rapprochement between Russia and the EU countries (significantly Germany) is deeply rooted in free trade. So, the worry here is whether these sanctions would accordingly bring, or why have they not brought, to an end the peaceful rapprochement between Russia and the EU. This may not necessarily be the case.

The technicalities and motives involved in the degree and manner of sanctions imposed on Russia by the EU differ from those of the US. Arguably, the collaboration of the EU with the US to impose sanctions on Russia can be said to be largely politically orchestrated. If the EU had refused to collaborate with the US in this venture, they would have almost completely, irrecoverably fallen out of the age-long, profitable economic alliance with the US, and such a move would have been economically and diplomatically consequential, yet an unreserved collaboration would have equally spelt doom for them on the Russian side. Hence, it is safe to regard the EU, under this peculiar circumstance, as a victim of circumstance as well as of historical vengeance caught in the inescapable web of multilateral cooperation of politically conventional array of sanctions. Therefore, what the EU tactically resorted to, in order not to be economically and diplomatically irrelevant in the eyes of both Russia and the US, was to courteously but stealthily sit on the fence by indulging in selective sanctioning. This is evidently exemplified in the obvious reluctance, difficulty and tardiness displayed by European leaders in reaching a consensus on sanctions on Russia until it became glaringly unavoidable. It is even further and better exemplified in the selectiveness and economic impoverishment of the sanctions which were again fickly implemented, unlike the case of the US which has been found to be rather relatively annihilative and malicious.

In the presidential statement following the 2014 shooting of a civilian airliner transporting citizens of the Netherlands, Malaysia, Australia and other countries by Ukrainian rebels purportedly backed by Russia (The White House, Office of the US President, 2014) , Barack Obama affirmed that:

Today, and building on the measures we announced two weeks ago, the United States is imposing new sanctions in key sectors of the Russian economy: energy, arms, and finance. We’re blocking the exports of specific goods and technologies to the Russian energy sector. We’re expanding our sanctions to more Russian banks and defense companies. And we’re formally suspending credit that encourages exports to Russia and financing for Economic projects in Russia (Underlining by author).
The president further affirmed that:

At the same time, the European Union is joining us in imposing major sanctions on Russia […]. In the financial sector, the EU is cutting off certain financing to the state-owned banks in Russia. In the energy sector, the EU will stop exporting specific goods and technologies to Russia. In the defense sector, the EU is prohibiting new arms imports and exports and is halting the export of sensitive technology to Russia’s military users (Underlining by author).

The underlined words and phrases in the above extract of the US president’s statement reveal the contrast between the intensity, motive and level of involvement in the imposition of sanctions on Russia by the US and the EU. In the first quote, the underlined words and phrases depict nihilism, malice, rivalry as well as unwillingness of the US to firm-up any economic, bilateral tie with Russia, let alone establish free trade with it. Contrastively, the underlined words in the second extract here-above depict hesitation, indecision, reluctance, prudence and unwillingness of the EU to discontinue economic, bilateral ties and firmly sustain the existing free trade with Russia. In clear terms, it can be safely implied from the foregoing that while the EU may have gotten involved in the sanctions on Russia because of expediency in international politics and conventions, the US may have reeled out its own sanctions for two basic reasons apart from deterrence. First is that it was found economically inconsequential and secondly, the military and politico-economic rivalry unchangingly characterising the relationship between both nations was conspicuously overboard, thus the US considered show of power as expedient if Russia must not grow to become an untameable threat. Same can be said about Russia coming up with its countersanction activities. This standpoint is evident in the following extract from the aforementioned statement of the president of the US:

[…] the sanctions that we’ve already imposed have made a weak Russian economy even weaker. Foreign investors already are increasingly staying away. Even before our sanctions today, nearly $100 billion in capital was expected to flee Russia. Russia’s energy, financial, and defense sectors are feeling the pain. Projections for Russian economic growth are down near to zero.

The summative inference extractable from the above is that it is easy and convenient for countries to imprudently engage in a sanction and countersanction parade where both countries do not have much economic leverage over each other and, as such, mutual exchange of sanctions would not necessarily impact economic interests. Otherwise, economic ‘pain’ would be avoided for being contagious.

Relative to other countries with which the US practices Free Trade, certain factors are responsible for the economic alienation of US-Russian trade culminating in strengthening protracted, intermittent uprisings among themselves. Firstly, the US does not grant Russia permanent normal trade relations (NRT) status. Secondly, Russia is not a member of the World Trade Organisation (WTO) and OECD. Thirdly, there is a lack of a ratified bilateral investment treaty among the two countries (Deutsche Bank Research, 2009) . Recognising the import of free trade in keeping the peace, Charap & Kuchins (2009) postulate that economic ties are important in their own right, but may in addition help to provide the broader bilateral relationship. This postulation buttresses the thesis of this study that deep economic ties in form of free trade, as exemplified in the case of Russia and Germany as well as France and Germany, is highly efficient in bringing about peace through stable political cum diplomatic relationship. The hostile relations evident between Russia and the United States cannot be said to outweigh those of Russia and Germany or France and Germany prior to their decision to sacrifice their hate, malice, jealousy and rivalry on the altar of revolutionary economic collaboration (free trade). If the US and Russia decide to chart this same productive course towards attainment of peace, violent conflict among them and by extension among their numerous allies―is most likely to reduce to its barest minimum, and, judging from the Russia-Germany/France-Germany experience, the feasibility of resurgence appears to be quite slim. If on the contrary they continue to shun the exploration of mutual free market, their hostile relations and alienation of peace would likewise continue to be nurtured.

Nevertheless, there are limits to the concept of free market as a tool for keeping the peace. Two shall be briefly discussed here. First, there may be instances where religious or racial issues may hinder free market. Two clear examples are the experience of the Jews in the 20th century France and Nazi Germany when the Jews were persecuted purportedly for being commercially prosperous. The commonest instance is the case of Alfred Drefus (Affaire Drefus), a Jewish accused of treasonable offences such as espionage and divulging of French government’s secret documents to the German government. In the end, the accusation was discovered to be false in its entirety. Given such a situation, there may arise the possibility of retaliation from the government of the accused person, either by devising measures of hindering the commercial activities of the nationals of the accusing country, or simply launching a retaliatory accusation. In either case, the end result may be full-blown armed conflict. Another limit may be that countries may not be willing to go into economic alliance with other countries, either for historical reasons or for reasons of reward divide as played out in the case of Russia and the US after the Cold War.

Publication Details:

This article is an excerpt from a technical paper, titled - "Exploring Essentials for Keeping the Peace" published at Open Journal of Political Science, Vol.06 No.01(2016), Article ID:62567,15 pages  10.4236/ojps.2016.61003

Copyright © 2016 by authors and Scientific Research Publishing Inc.
This work is licensed under the Creative Commons Attribution International License (CC BY).

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