Abraham Newman is a professor at Georgetown University's School of Foreign Affairs and Public Administration. He is a frequent commentator on international affairs and has appeared on news programs ranging from Al Jazeera to Deutsche Welle to NPR. His work has appeared in major outlets including The New York Times, The Washington Post, Nature, Science, Foreign Affairs, Foreign Policy, Harvard Business Review, and Politico.
Henry Farrell is the SNF Agora Professor at Johns Hopkins University's SAIS, recipient of the 2019 Friedrich Siedel Prize for Political Technology, editor-in-chief of The Washington Post's Monkey Cage, and author of the popular academic blog, He is also the co-founder of Crooked. wood. A member of the Council on Foreign Relations, Farrell has written for publications including the New York Times, Financial Times, Foreign Affairs, Foreign Policy, Washington Monthly, Boston Review, Aeon, New Scientist, and The Nation. are doing.
Below, co-authors Abraham and Henry share five key insights from their new book, Underground Empire: How America Weaponized the World Economy. Listen to the audio version read by Abraham on the Next Big Idea app.
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1. Globalization is not what we thought it was.
For decades, there has been a popular narrative about how globalization works. This can probably be easily recognized by looking at Thomas Friedman's book The World is Flat. The image is that globalization will become decentralized, with companies and corporations taking the lead. In this world, nations have been neutralized and marginalized, and corporations have built networks that span the globe to conduct commerce, make money, and increase wealth.
However, the idea of a decentralized network of companies and enterprises is actually just a myth. In many of the core sectors of the global economy, whether the iPhone is made by Apple, the chips inside it are made by Taiwanese semiconductor manufacturer TSMC, or the financial transactions conducted through it. , dominated by just a few companies. Telephones are often provided through only a few banks in the global economy. These core companies have created what we think of as the world's economic choke points. They have centralized the market in order to control it and extract rents. Governments are now beginning to realize this.
2. Governments, most importantly the US government, understand this globalized structure and use it to fight.
Over the past few decades, beginning with the terrorist attacks of 9/11, the U.S. government has begun to consider how to manage a world in which global markets have been turned against them and terrorists have exploited them to attack their own countries. Rather than relying on existing plans, various government agencies are rushing to understand this crisis and introduce new tools to solve the problem.
Agencies like the National Security Agency and the Treasury Department have discovered maps, systems, and structures that can be used to advantage in the global economy. Most importantly, they can use these maps to reveal how their enemies are working, monitor them, and understand their inner workings. That way they can target them. In many cases, they were blocked or excluded from the global economy.
“They were able to use these maps to reveal how their enemy was working, to monitor them and understand their inner workings.”
One important symbol of this effort was the Belgian organization Swift. It's basically like a back office post office for banks, where they share information with each other about what transactions are taking place and why. The U.S. government has begun to exploit this central point in the global financial system, first to understand what terrorists are doing, and second, what adversaries such as Iran and North Korea are doing. Then we started cutting these countries out of this system. This was just the beginning of efforts by governments to use these chokepoints to monitor or try to strangle their enemies.
3. The global economy is a battlefield, and businesses need to be prepared.
Previously, when companies thought about political risk, the solution was to go to faraway countries for fear of having their investments taken away by the government or nationalized. Therefore, until now, companies' main concern has been the host government.
There are now new types of political risks and new concerns facing businesses are the very channels they use to enter global markets. Production networks that spread manufacturing systems across countries have created new forms of political risk, which have been evident during the coronavirus crisis.
Moreover, the systems and networks they use, whether information technology or financial architecture, are conduits for this political risk. Companies like Deutsche Bank, TSMC, and Apple are increasingly becoming foot soldiers. They are called upon by the government to take action and continue the fight. So companies must now face the question of what to do in this new world and how to protect their business models.
4. The use of these infrastructures of the world economy by states actually happened by chance, rather than in a large-scale, comprehensively coordinated plan.
Why is that important? The reason is that this came out of crisis response, the response to 9/11. The crisis then escalated as the government faced new crises, nuclear threats from countries such as Iran and North Korea, and Russia's invasion of Ukraine.
“The rapid proliferation of these new economic weapons has the potential to undermine the world economy and globalization as we know it.”
At such a critical moment, governments took advantage of these new tools and built on them, but they didn't have time to seriously think about the consequences. So what does it mean to use these tools? What does it mean for the enemy? What does that mean for our friends? What does it mean for the global economy? The ceiling we thought was possible has become a new floor. The gradual proliferation of these new economic weapons has the potential to undermine the world economy and globalization as we know it. Our concern is that, as well as an escalation strategy, we are seeing a fragmentation of globalization and that many countries may retreat. These countries may look more closely at home and no longer engage in the global markets that have brought so much wealth and prosperity to communities around the world.
5. Globalization itself may be at risk unless we create new languages that maintain stability.
When nuclear weapons came out, they didn't come with a rulebook. People didn't know how to use them responsibly or prevent them from having unintended consequences. To that end, academics and policymakers have come together to develop a new language and system to prevent the use of these types of weapons of mass destruction. Something like Mutually Assured Destruction (MAD) had to be invented. It is now the basis of how the nuclear age works.
But at first, people didn't know what the rulebook was. We are in a similar period right now. We need a new set of guidelines, guardrails, and tools to understand when to use these tools and what the risks are of using them. Most importantly, provide these ideas to policymakers so that they can use sanctions, export controls, investment screening, and other economic weapons in a responsible way that guarantees our security. It is necessary.
These economic weapons can also be used to make the world a better and safer place. One of the areas we are focusing on is climate change. We can also imagine leveraging some of these tools, such as sanctions, to promote our future sustainable planet, one in which we can all live and thrive in the future.
To hear the audio version read by co-author Abraham Newman, download the Next Big Idea app now.