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Reflections on the concept of economic warfare

The contemporary capitalist world should not be confused with a realm of free competition, transparency and performance based on talent and meritocracy. Today, the business space is organized in terms of power relations in which the geopolitical and geo-economic dimensions assert themselves. Economic warfare is real: it is not an invention of essayists desperately seeking a catchy concept to attract media spotlight.

October 2017
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Executive Summary

It has long been known that economists’ “pure and perfect” market hardly describes the real business world. We must recognize that the sphere of economic activities was never separate from the rest of human existence. Cultural matrices, political configurations and the spectrum of ideas help shape business, which is never merely a commercial activity. It commits resources and raises issues that are not only economic, but also normative and political. Business is one dimension of power. And it finds in power part of its resources, as well as some of its objectives.

Beware of the words. “Globalization” suggests an economic space at the worldwide level, in which businesses would in some way be disconnected from the countries they originated from. Moreover, it is a recurrent criticism. But also an illusion. Indeed, this so-called “globalized” economy is in fact organized around a few large markets which, with the exception of the European Union, are also states. The most powerful States exercise a form of imperialism: think of the Silk Road project imagined by Beijing to colonize distant markets, the extraterritorial character of American justice, sudden increases in gas prices or brutal increases in tariffs as practiced by Moscow to regain control of its “near abroad.”

In a world fraught with tensions, companies form an integral part of the balance of power between States. Let us drop our usual perspective, which reduces this relation to what is discreetly called economic diplomacy i.e. minor violations of neutrality. Such a perspective is irenic: it sees only a world in peace. To understand the game States and businesses are playing, we need to reverse the perspective and adopt a strictly opposite view i.e. economic war.

Smart power

In its own way, this view is just as false as that of globalized peace. But it helps disclose other realities, and that is why it deserves to be kept.

Military warfare has shown its limits during the first half of the 20th century. Since the 1950s, it has become clear that the brutal confrontation of interests could only lead to the final extermination of the human species. In the nuclear age, any armed escalation would lead the protagonists to annihilation.

Hence, war is sublimated into different agonistic spaces between nations and political blocs (NATO and the Warsaw Pact). In this sense, the Cold War was an introduction to the “unrestricted warfare” described by Liang Qiao and Xiangsui Wang. We learned about “disarmed” warfare during the confrontation between East and West. The intelligence world, sports competitions, culture, cinema… all became spaces of “peaceful” (i.e. non-military) and yet ruthless confrontation.

The end of the global confrontation between liberalism and communism has fully implemented this logic of omnidirectional combat that avoids armed confrontation. What is the purpose of the game since the 1990s? To develop power in the economic (industrial, commercial, financial), technological, normative and cultural sphere.

This does not detract from military power (global arms sales in 2016 were at the level of the end of the Cold War). But it shifts its role: today, military power is more modestly asserting itself as the deterrent instrument that determines the achievement of goals in other fields of acquisition of comparative advantages mentioned above.

Armies no longer serve to conquer physical territories – at least among Western nations. They are dedicated to guaranteeing the integrity of the national sanctuary, to projecting themselves on external battlegrounds where the fundamental interests (geopolitical and geo-economic) of their states are threatened, to control flows (thus allowing the regulation of human, material and immaterial exchanges). In short, they are part of a more global strategy that also includes soft power, normative power, judiciary power, and what could also be called smart power: the global capacity of a nation to position itself favorably on the international scene.

Economic warfare

As a consequence, spaces of confrontation between the various public and private players have multiplied, and one specific form of conflict plays a crucial part: business competition!

Economic warfare is therefore far from being an easy catchphrase for journalists or essayists tempted by sensationalism. The problem is to consider it from a reasoned angle, rather than a caricature. This was the thesis defended by Edward Luttwak in The Endangered American Dream (Simon and Schuster, 1993). Pascal Lorot adopted the same approach by promoting the development of geo-economics. How does he define it? As “the analysis of economic strategies – especially commercial ones – designed by States within the context of those policies aimed at safeguarding national economies and some of the elements inherent to them, mastering certain key technologies or conquering certain sectors of world market regarding the production or marketing of a sensitive product or set of products which provides its holders (State or domestic company) with some power or international projection and contributes to reinforcing their socioeconomic power.”

But nations are not equal in their awareness of these stakes, and in this game, Continent States such as United States and Russia, but also big emerging powers animated by a desire for revenge on history, have a head start. For the Americans or the Chinese, the need of extending national power strategy on economic grounds is self-evident. Firstly because they are convinced that the influence of their country depends on the conquest of new markets and on the mastery of international standards and the galloping digitization of industrial, commercial, financial and cultural activities. But also because, unlike the Europeans, who are undoubtedly suffering from a competitive disadvantage, which is further compounded by the difficulty of thinking about an EU-wide industrial policy, they do not call into question the centrality of the national fact. On the contrary, the national narrative supports the construction of a proactive economic identity, oriented towards success.

This leads to a significantly different relationship between businesses and states than in Europe.

In China, the question does not even arise since the economic sphere depends ultimately on the Party. The strategy of the “Middle Kingdom” increasingly combines economic power with a military, political and cultural project, which is probably both nationalistic and civilizational. The Chinese ambition is to achieve the recognition of a “Beijing consensus,” replacing Washington, and it is inseparable from the New Silk Road project, distortions of competition on the national soil, acquisitions of foreign companies with high technological content, or positions in certain sectors of key segments granting them upstream and downstream “control” on the value chain (rare earths are the best known case).

To paraphrase Clausewitz, economic warfare is in fact war carried on with other means.

Among the Americans, we certainly identify a public galaxy and a private sector where the latter does not structurally obey to the first. But recent debates about the troubled relationships between large digital platforms and surveillance agencies such as the NSA have reminded us that even the most dematerialized and globalized companies are caught in a network of relations that turns their digital infrastructure into a projection space for the power of their country of origin.

Conversely, on the American soil, the financial presence of other nations is regulated by a control system of foreign investments in strategic sectors (the CFIUS, which is based on a text: the Exon Florio).

Furthermore, the American claim on the mechanism for the protection of national economic interests must be interpreted as a resolute souverainism on the industrial, commercial, financial, technological and even cultural levels. This does not prevent the United States from remaining an open society while preserving its autonomy of strategic decision-making and capacity to influence the international normative spectrum and shaping the cultural perceptions of a vast part of the world. In short, the US produces a highly effective soft power and perpetuate a global dominance that is hardly challenged, even if multipolarity is gaining ground.

Businesses and governments

Patiently elaborated strategies structure the global balance of power and condition the hierarchy of powers. These strategies are based on what was once called war, and that we no longer dare calling by its name because it has changed its face. To paraphrase Clausewitz, economic warfare is in fact war, carried on with other means. A different war, messier and far less legible. There are also many free riders who often play against each other, despite being on the same side. No one can claim central command, even in authoritarian countries. But in the very complexity of the game with its numerous players, overall strategies are devised to rebuild order in the game and maximize the player’s chances in this confrontation of interests.

Some might argue that competitive clashes take place mainly between companies, rather then national flags. Based on the famous theory that distinguishes “red oceans” from “blue oceans,” the proponents of this position show that economic warfare is raging in the red oceans (saturated markets), while those who venture into the blue oceans (niche markets and new needs) are not subject to the hyper-competition that rages elsewhere. This hypothesis may seem convincing. Nevertheless, it fits the geoeconomic scheme developed above, for a very simple reason. Territories and countries where operators who are doing well in these corporate confrontations are taking root and promoting their influence and power through growth, employment, innovation and accumulated tax revenues. Silicon Valley is emerging as a model of its kind in the field of digital technology (as evidenced by GAFA). Let’s note in passing that the US federal government has promoted this territory through the Pentagon since the DARPA (dedicated organization of the Ministry of Defense) has literally “showered” startups working in NICTs with credits since the 1980s. The starry banner waves on the digital blue ocean…

What can we learn from all this? Not only that economic life doesn’t boil down to a succession of competitive fronts and shocks of power, but that capitalism cannot be reduced to the free play of supply and demand. Trade exchanges, the global productive system, international financial mechanics and consumption logics interact with cultural matrices, political projects, social aspirations and power games that greatly shape the landscape. Economic theories tend to exaggerate the simplification of humanity and individuals: the reality of global power relations, i.e. the intellectual model of economic warfare, provides us with a richer understanding of societies, built on overtly complex human, individual and social behaviors.

Eric Delbecque
Head of Competitive Intelligence Department, Institute of training for local elected representatives