Whether greater economic interdependence leads to peace and greater inter-state cooperation or to higher possibilities for conflict remains contentious, with evidence for either sides of the arguments. Largely, as this debate seems to be presented, the distinctions for the two cases are steeped in ideological leanings: some purport that trade does (or ideally should) lead to peace while pointing to the post 1945 era, while others insist that it does not (or would not) because not all national interests are ensconced within economic ones while pointing at examples of their own such as extra-state (extra-systemic) actors in recent years.

My interest is to problematize the underlying economic assumptions which harden the standoffs to produce their contradictory conclusions. That is, I do not see the contradictions as irresolvable – they are in my view the result of a failure to properly conceptualize a macroeconomic meta-model which could explain either outcomes. I will insert, as I develop my argument, additional terms which I think have further obscured possible resolutions to the debate.

To begin with, China and the United States, recent times notwithstanding, are examples of two great powers which have largely cooperated with each other albeit within the evolving affordances of the power differences of their relationship. France and Germany are another example of previously hostile states cooperating through the economic (and political) integration of the European continent. Russia and China also cooperate with each other, and more ostensibly demonstrate a willingness to strengthen each other’s relative economic and diplomatic advantages internationally. But Russia and the European Union have had a complicated relationship of suspicion. (This is made more interesting by the Russian and German relationship which has managed to distinguish itself from the broader complexities between Russia and the EU in spite of Germany being the most important and powerful state in the same EU.) So, what are the economic underpinnings that provide for the different outcomes despite the trade and economic interdependence at the international economics level?

I propose the following, that such underpinnings are factors that have to do with the spending power derived directly from value-addition production of primary commodities, or value-addition derived spending power obtained from extensive labor underpricing — or both. This means that the taxation function levied on the production of goods at the primary levels of production as well as their profits which are acquired on the domestic and international markets from processed commodities (raw materials) is a potentially robust linkage between economics and state power in its different forms (further down, state power is expressed in military form largely for purposes of illustration). This is the most direct route between economic production and the generation of state power, because it demonstrates a quantifiable revenue stream from its source to the state. Secondly, this provides a practical distinction between this revenue stream (which is a taxation function on value-addition and profits of commodity related production and the productivity as well as value addition of underpriced labor) and secondary as well as tertiary levels of production and their related taxation functions. The reason is this; secondary and tertiary level production are entangled within transnational processes of production and finance because the latter (tertiary) speaks of services and the former (secondary) speaks of decentralized inter-state economic production chains as seen in mega-companies like Airbus (which manufacture across several European territories).

While revenue streams in non-commodity secondary and tertiary level sectors are much higher because of the higher value-addition margins in production, they represent a doubled-edged sword because their taxation functions do not exclusively provide revenue streams to a single state. They are thus proofs of state cooperation and interdependence but not strong determinants of peace or conflict to the same extent as commodity (or primary) levels of production which are in comparison much more “state exclusive” though their value addition margins are lower. Primary production goods for purposes of state power generation must therefore be essential and monopolistic goods (goods with few international sellers — read: states — so that sellers can control supply and therefore their general international price level).

This distinction is very important because it perhaps indicates why Germany, despite its towering influence in the European Union as well as its history of aggression especially with France, does not elicit physical insecurity from other European states — Germany is not a supplier of such an essential, monopolistic good.

China and Russia however whose footprints have also grown tremendously in trade with the same European Union have a different production function which is commodity-based (Russian natural gas and oil exports are exactly such a good) and commodity-cum-labor based (such as steel and mass produced goods and services by cheaper workforces in China which subsidize production costs).

This means that these two countries can directly plug their revenues acquired through their exports through their respective taxation functions to bolster state power without the Germanic or French entanglements brought about by secondary and tertiary levels of decentralized multi-state production from their control of an essential good and it’s supply (Russia) and their ability to control the national price level of labor (China).

This could also explain why China and Russia are keen on continued economic interdependence with each other and the EU provided their primary productive functions are kept separate from their secondary and tertiary entanglements with each other and the EU (at the moment, both countries are rather aggressively providing loans to distressed states while partnering with their respective corporations to subvent the sunk costs of said corporations in large investment ventures in foreign territories as a second prong of this economic production bifurcation).

My argument is therefore this: differential benefits as functions of direct taxation on international trade proceeds or revenues can predict conflicts between states for the following fundamental reasons;

  • therein are found quantifiably differentiable trade arrangements illustrated by the respective taxation functions of different states, such that
  • where high primary level production of essential monopolistic goods and labor underpricing are prevalent, there should be predictable and associative growth of state power which is independent of economic entanglement with other states.

Equating aggregate economic performance to state power is insufficient; rather economics in a globally entangled world can provide a basis for conflict if there is a production asymmetry of a particular kind, namely, primary level production of essential monopolistic goods, and labor underpricing. These types of asymmetry cannot be summarized into general economic aggregates presented as GDP growth rates, international divisions of labor, and productive efficiencies because they do not provide clear delineations among different streams of revenue and their impact on state power, especially military power.

Additionally, if power is to be seen as military might – then we necessarily have a quantifiable variable which can be shown in terms of military spending, military recruitment, infrastructural development, quantities of various military installations and equipment, and so on. But to do this we must be able to show a strong linkage between economic performance and the revenues that feed the military variable in its various expressions.

Secondly, that these revenues should be generated out of particular forms of economic activity which are not entangled with the broader programs of economic interdependence or integration. Examples of these include the explosion of US military might during the World War 2 period through the selling of goods of war, and then through the subsequent Marshal Plan which dumped, in today’s money, around $750 billion into the rebuilding efforts of Europe after World War 2. Those dollars returned to the US as aggregates of demand in the exports-imports function (a process which is also sometimes referred to as Surplus Recycling), and stimulated economic productivity in the US domestic economy. This is not unlike the growth models of prior empires as well which involved searching for commodities abroad before transforming them into finished goods at home to be sold internationally, thereby creating directly taxable revenue streams for the fiscus vis-a-vis the military component of the state.

Recall also the Berlin Conference and the carving up of the African continent: the economic rationale was that commodities harvested and processed were to come from colonies which did not overlap in territory, thereby ensuring that each state had a direct revenue source which was both taxable and independent of the vagaries of economic integration. While trade was becoming increasingly integrated among economic centers in the Global North, the colonies remained delimited and separated from each other as exclusive zones for the extraction of severely underpriced commodities and the exploitation of inhumanely under-compensated labor in the Global South.

Through this conception we can also understand defensive and offensive positions undertaken by states: states can act defensively or offensively depending on the proximity of economic interdependence to the dissolution of their productive bases for [military] power. There is a theory for example that says Russia’s true motivations for intervening in Syria are to defend a state (led by Assad) which would make it impossible for the European Union or other actors to build energy supplying pipelines through parts of Syria. This is also exemplified through Russia’s recent obsession with Turkey, and its succeeding attempts so far to court China through soft long term energy deals.

Venezuela too is a recent example with its extremely vast oil deposits which, if exploited by a state hostile to Russia, such as the USA, would undermine the asymmetric economic production which enables Russia to sustain its state power trajectory via a monopolistic international energy market in which price levels speak directly to taxable primary production revenue streams for the Russian state. Perhaps this is why Russia is willing to incur tremendous costs in sanctions and strained diplomatic relations to protect a production asymmetry which is a basis for generating and sustaining its state power.

In development economics, especially under dependency perspectives, the two world wars are severally classified as “Wars among Northen Powers for the Colonies” which is also further to this argument: that, Northern Powers fought to maintain and/or retain exclusive access to commodities and cheap labor in the colonies.

In closing, understanding the taxation functions of various states could provide greater clarity on potential conflict if the state has a large primary production sector of an essential monopolistic good and a severely underpriced labor force – because it is these that finance military might and other forms of state power in a direct way. If there is a significant bifurcation of the primary versus the secondary and tertiary levels of the economic production, the concerned state has a greater level of independence and as such a greater capacity to insulate the instruments for pursuing its interests from the interventions of other states.

Additionally, should the said state perceive threats to these two economic sources of its power, it should take preemptive defensive or offensive postures to safeguard them thereby increasing the potential for conflicts with other states.

So economic integration on its own is not a sufficient precursor for peace or cooperation. Rather, the nature of the integration and the extent to which macroeconomic asymmetries (primary production and labor underpricing) bolster the concerned states’ abilities to enhance their power relative to other states might provide a firmer basis for anticipating conflict.

Note: A similar analysis can be undertaken to explain the current tensions between PR China and the US, by focusing on the role of labor markets and labor productivity, buttressed by a substantial primary production sector enabled by China’s reach into especially resource-rich sub-Saharan Africa. Coupled with corporate and financial instruments such as Public-Private-Partnerships, currency devaluations as well as long term loans to cash-strapped states, China has sustained a trade surplus with the US and other jurisdictions, and has been able to channel a lot of those resources into state power building via the importation of technologies and expertise, the dolling out of grants and loans, as well as the expansion of their military whose actual expansion rate and rates of expenditure, many think, are grossly underreported. Production bifurcation as described above thus seems apparent in the Chinese economy — as well!



Mphatso Moses Kaufulu is a political and cultural sociologist from Malawi concerned with questions about social epistemology in Southern Africa. He is a PhD student at the University of KwaZulu-Natal in South Africa. He is interested in the idea of culture as “play”, culture as history, and culture as power.

Image courtesy of Wikipedia

The views expressed in this article are the author’s own and do not necessarily reflect iAffairs’ editorial stance.

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