Economic Diplomacy: Tips and tricks

Today the thoughts of a guest blogger: Jan-Hein Chrisstoffels

The initiator of this blog referred me to a 2008 co-authored article called "Economic diplomacy and economic security".

An interesting piece. Useful as a kick-off for thinking in a structured manner about the importance of diplomacy for economic life.

The authors - rightly, in my view - emphasize the public good nature of "secure economic production", including secure economic and trade relations across international borders (economic security). They propose economic diplomacy as the means to help protect this public good.

Halfway through the article (pages 8 and 10) the authors try to think about some implications for the existing order (OECD world) faced by the rise of China and other developing economic powers.

As they point out: "It is relevant that the combined share of the US and EU (trade), the auctors intellectualis of the rules for the WTO, will reduce to about one third of world trade by 2025. Clearly this can not remain without consequences."

Later on in the text they state: "The implications of these trends for economic diplomacy are not yet fully clear, but no doubt the decision making processes will become more complex since the number of players increases, as does heterogeneity. (...) The emergence of new economies with very different institutions and cultural background will change norms and values and this will have an impact on international trade."

The authors thus identify clear trends of change. The outcome of the trends is of course by definition uncertain. But we can be certain that developing economies will integrate into existing systems, but while they do so they will change the system and its norms, institutions and what-not with it.

Will OECD governments be succeful in adapting to these changes of instutions for which they initially wrote the rule-books? How should they prepare for these shifts in relative global economic power, and the expected changes in the context and frameworks for economic diplomacy?

It seems that a long list of ideas could be proposed. Let me throw down three initial suggestions:

1. linguistics. Diplomats and other officials rely on communication. Understanding each other`s language is the beginning and end. Don`t rely (overly) on interpreters as this will severely impede relation building.

2. norms and cultural background. Knowledge and understanding of the cultural background of developing economies is crucial to anticipate how existing institutions and norms may start to change in coming years. Anticipation means a chance to get ahead of the pack.

3. economic motivation of the developing economies. Understanding the economic history, current economic hazards (not just strengths), current aims, designs, desires and concerns of developing economies (its people and governments) will make for much more succesfull economic diplomacy. Failure to do so on the other hand may give rise to misunderstandings.

Final thought: for an inspired book on cross cultural (military) diplomacy and more check out Robert D. Kaplan`s "Imperial Grunts" (Random House, 2005)

Not on Economic Diplomacy: Just an other stunning figure on the crisis

Conference board statement:

The recession is losing steam. Confidence is rebuilding and financial market volatility is abating. Even the housing market appears to be stabilizing. If these trends continue, expect a slow recovery beginning before the end of the year.

So the recession is not over yet. This means things will get a bit more severe.

Just one more number indicating the depth of the crisis. Underutilisation of industrial capacity in the US now is a stunning 35%.

If time allows it I will give of full oversight on recessions stats in the near future.

Economic Diplomacy: The French and Germans take it seriously

Global economic interdependence urges states to put economic diplomacy at the forefront of their foreign policy agenda. Here are two quotes which indicate the importance of economic diplomacy to the French and the Germans:
1) “the era of globalisation significantly raised the importance of economic diplomacy even as much depended on the level of its economic interactions with the rest of the world.” Which are the words of the German Ambassador in India
2) "the two main tasks of our ambassy are circulation of relevant information to French CEOs about investment opportunities and facilitating greater direct, practical dialogue between French and Indian business partners who would be able to identify new areas of cooperatio."" According to the French Ambassador to India: Bernard de Monteferrand.

Both quotes taken from the Indian newspaper The Hindu.

These quotes reveal the world in which modern diplomats operate. Commerce has becoms one of their more important day tasks. In the future the role of economic security will be another important part of diplomat life.

What is economic diplomacy?

Bergeijk en Moons (2008), Economic Diplomacy and Economic Security, in C.Costa (ed.), New Forntiers of Economic Diplomacy, Lisboa discribe economic diplomacy as:

Building on the definition of Baine and Woolcock (2003, p.3) we can define the new economic diplomacy a set of activities (both regarding methods and processes for international decision making) related to cross border economic activities (export, import, investment, lending, aid, migration) pursued by state and non-state actors in the real world. Typically economic diplomacy consists of three elements:

• The use of political influence and relationships to promote and/or influence international trade and investments, to improve on functioning of markets and/or to address market failures and to reduce costs and risks of cross border transactions (including property rights). Typically this subfield of economic diplomacy comprises commercial policy, but also many activities of non governmental organisations (NGO’s) are relevant under this heading
• The use of economic assets and relationships to increase the cost of conflict and to strengthen the mutual benefits of cooperation and politically stable relationships, i.e. to increase economic security. This subfield both contains structural policies and bilateral trade agreements (aimed at achieving specific geographic trading patterns) and the political distortion of trade and investment as in the case of boycotts and embargoes.
• Ways to consolidate the right political climate and international political economic environment to facilitate and institute these objectives. This subfield covers multilateral negotiations and is the domain of the supranational organizations and institutions such as the World Trade Organization, the Organization for Economic Cooperation and Development and the European Union

I tend to agree with that view.

The new balance

In the comming decade the emerging markets will be the main source of economic growth, counting for as much as 80% of the total increase in world output. Given this pace of development China will take over the US as the worlds largest economy between 2020 and 2025. What will this mean for our free market economy? And can we some adjust to this new reality.

Yes we can by using economic diplomacy to create economic security. Economic security is defined as security that is based on and or builds on international economic relations (such as trade in goods and services and capital flows). Economic diplomacy has a visible role to play and may provide a risk management system for critical international situations and the new global realities. Economic diplomacy could be a system of the follow three pillars:
1) the use of political influence;
2) the increase of cost of conflict;
3) the consolidation of the right international political and economic environment.

Starting economics and diplomacy

On this blog I will post messages on the progress in the field of economic diplomacy. Hopefully this will be many. Economic diplomacy is one of the most interesting fields of economics which is in strong need of further development and recognition. This because it won't be long before we are in a world which is fundamentally different from today. China will be the worlds leading economy. International relations and economics as we know it may now longer apply.