An Overture to Geofinance: Global Finance, Geopolitics, and the Wielding of Power
Geofinance is about a way of seeing the world. Indeed, the world of today can no longer be analyzed and understood solely from the perspective of finance, economics, political sciences, or geography. This silo mentality is no longer compatible with the complex world in which we are living. We need a holistic approach that builds bridges among various research fields and helps us understand the complex nature of a phenomenon. That phenomenon is geofinance, as it combines the world of global finance with the realm of geopolitics.
Intuitively, many among you already perceive not only how geopolitics affect the world of global finance but also how international finance affects world events and their stakeholders, be they governments, businesses, or individuals. An Overture to Geofinance explains contemporary global power struggles, the global-finance actions of the Great Powers, the persistence of nationalist conflicts fueled by finance, the changing influence of borders on finance, the impact of the financialization of the global economy on world events, and the new geopolitics of finance.
The way of thinking also explains how the realm of global finance bears a lot of similarities to geography in the strictest meaning of the word: namely, with Mother Nature. Geofinance explores how both spheres (i.e., the financial sphere and the biosphere) are complex and dynamic but also chaotic, and it proposes paths to understand and apprehend this complex nexus between geopolitics and global finance.
Financial investors worry about (geo)politics because (geo)political choices decisively influence financial returns and volatility. But, the opposite is also true: (geo)politicians need worry about financial markets, as:
1. Asset prices have major implications for voters & key societal groups, and hence influence popular evaluations of policymaker performance.
2. Financial crises (banking~, currency~ or sovereign debt~) are a major source of sharp political conflicts over distributive outcomes. F.ex. losses in equity valuations, currency depreciations, and spikes in sovereign bond yields require governments & central banks to implement policies aimed at restoring investor confidence. The GFC & Eurodebt crisis provide cases in point showcasing a distributive conflict between private sector & taxpayers.
3. Financial markets trigger wars: in 1920-1930s the world’s great powers waged currency wars (& trade wars) and stumbled into a catastrophic shooting war.
4. Excessive debt could push a madman to pursue war as a means of reducing a country’s debts (cf. debt forgiveness is not atypical after a war).
Geofinance reflects that multi-faceted nature of the complex relationship between global finance and geopolitics in its broadest sense. In the Western world, the logic of geofinance is a process that the nation-state does not control since it is driven chiefly by private-sector financial initiatives on a global scale. In other parts of the globe, the state is more heavily involved in economic activities. Thus, in Beijing or Moscow, for instance, it is the Chinese or Russian government itself that is in the driver’s seat when Chinese or Russian companies move into new regions—such as, for example, Africa, Asia, and South America. Washington, DC, on the other hand, is the capital of a country that is close to what we could call a corporate state. But both China and Russia on the one hand and the United States on the other hand are administered while taking into consideration a geofinancial rationale: that is, the financial and political leadership in all three countries are entirely aware that a national competitive edge can be obtained only through a wide range of financial freedoms conferred on private-sector actors.
The amount of state control and intervention differs from country to country, but there is an understanding in all nation-states that the state’s representatives have a responsibility to govern in such a way that the country remains powerful and competitive (i.e., in a fashion similar to what companies do). However, power and competitiveness as objectives might be replaced in the future with resiliency and sustainability. Indeed, populations from advanced economies as well as large developing countries gradually become aware or (more likely) are compelled to realize that their material development is limited; therefore, they ought to be aware of the consequences of this need for power and competitiveness so that their world remains habitable. But this awareness has not yet fully taken hold.
For nation-states, geopolitics has been a much more straightforward paradigm to address. While geopolitics was in the ascendant, primarily in the late eighteenth, nineteenth, and twentieth centuries, a state reached a sovereign competitive advantage mainly through its own initiatives and decisions, chiefly and ultimately by going to war. At the turn of this new century, nation-states are coming to see that war is no longer the only viable plan for remaining in command. The best evidence of this is the set of wars conducted by the United States and the Soviet Union since WWII. These wars have mostly been failures, not just from a humanitarian perspective but financially, too.
Seeing this, the powerful and competitive nations of the future are reallocating their resources toward science, education, production, and trade (SEPT)—what we will refer to as the “golden process” in geofinance. The rationale is pretty straightforward: first, you make scientific progress; then, you teach those scientific advances to others and incorporate the newly acquired knowledge into new products and services that you bring to market, preferably also overseas. You then reinvest the newly gained earnings as a capital expenditure in science. And the cycle goes on.
Some governments get resources transferred back into science by inciting private organizations to donate to research faculties in the way that is common in the United States, the United Kingdom, Canada, New Zealand, and Australia. Others, including a majority of European and many Asian countries, use taxation as a way to fund these investments. The underlying reason that the Anglo-Saxon model seems to be working better in this respect (i.e., eighteen of the world’s twenty leading research universities are American and private) is not because these academic centers of excellence are independent of the government but because they are based on a meritocratic system. But that is a different debate.
The history of geopolitics has been intimately connected with that of the nation-state. The nation-state rose with the Enlightenment and industrialization. Before that—for instance, during the Middle Ages and the Renaissance—ancient societies functioned more according to a geofinancial logic. City-states and local princelings administered their business affairs much like companies do today. This was the case at an early period for Venice, Florence, Milan, and Genova but later also for Antwerp, Amsterdam, Hamburg, and other cities in Europe. In Asia, there was the city-state in the Longshan Phase[1] as well as in Asia Minor[2] (e.g., Tripoli, Byblos, and Carthage). Traders were organized using guilds and put under strict meritocratic supervision.
Each society was, in principle, a harmonious organism governed by a concern for financial growth, at least until it was attacked by another government. The key thing was not only to build a strong army, but also never to use it unless you could be sure of victory. This strategy worked less well when the nation-state became more powerful, as evidenced mainly by the twentieth century with its two global wars. In the twenty-first century, with even more deadly weapons in existence, the disastrous consequences of conflicts between powerful states have become yet more apparent.
This may prevent superpowers in the future from getting involved in large-scale disputes with one another. Sadly, it seems that they will have more than enough to do deterring and intervening in military conflicts within smaller nations, if only because media now makes human suffering more transparent and hence creates immediate public concern. As television shifts to the Internet and 5G and 6G Internet technologies spread, political pressures to intervene are likely to increase.
Both geofinance and geopolitics also explore how power is derived from the management of resources, be they natural or financial. Thus, the end result for nation-states is much the same in both cases. Through the rationale of these disciplines, countries become weaker or stronger politically and financially as a result of how these various resources are managed. In the English-language literature, we call this “the competitive advantage of nations.” This was the premise for the study of finance and economics as advocated by Adam Smith in his 1776 book, The Wealth of Nations.[3] Countries are each seeking a competitive advantage.
At the same time, no one nation or culture has managed to stay ahead consistently in this race. Instead, we repeatedly see one government taking over from another as leader of the competitive pack. The duration during which given cultures or countries have managed to maintain their leadership has varied significantly—from a thousand years or more in some past cases (such as Egypt, India, the Roman Empire, and ancient China) to a hundred years or less in others (the United Kingdom, France, and the United States). The tendency is for it to become ever more challenging to retain the leading position because of a combination of more intense competition and greater individual freedom.
The study of global finance can be an alternative approach for the study of geopolitics when the aim is to understand the competitive advantage of organizations as well as of nations. Geofinance aims to show the relationships among the disciplines of finance, international politics, geopolitics, economics, strategy, intelligence studies, strategic intelligence, business intelligence, economic intelligence, critical theory, and the historical method.
In other words, this overture to geofinance combines the evolving fields of geopolitics, financial markets, and business intelligence with the objective is to instill a greater awareness of the role of global finance prevalent in the world of international politics and business decisions.
The book, An Overture to Gefinance, is on sale on Amazon and was first published in April 2018.
[1] Robin D. S. Yates, The City State in Ancient China (New York: Columbia University, 1958), 71?89.
[2] W. Travis Hanes, “Kingdoms and City-States in Southwest Asia,” in World History Now, 2009, accessed February 20, 2018, https://historyonlinenow.weebly.com/section-4-kingdoms-and-city-states-in-southwest-asia.html.
[3] Adam Smith, The Wealth of Nations (London: William Strahan and Thomas Cadell, 1776).