March 14, 2022 ☼ The Intersection ☼ geoeconomics

The closing of the Moscow McDonald’s is bad news for the global economy. Whatever the military outcomes of Vladimir Putin’s war on Ukraine, its geoeconomic consequences are negative for just about every country on the planet. Even if major economies — India included — manage to absorb some of the immediate shocks created by disruptions and sanctions, the global response to the war will shift public policies around the world in a regressive direction. I hope McDonand’s exit from Russia does not mark the end of the period of global growth and prosperity — India’s included — that began with the arrival of the golden arches at Moscow’s Pushkin Square in January 1990. But I fear it does.

Simply put, the partisan behaviour of multinational firms and trans-national technology platforms have undermined the argument that they are more-or-less geopolitically agnostic, and good corporate citizens of the country they do business in. While multinational corporations of the 1990s and 2000s were prepared to face domestic criticism for their political non-positions in foreign countries, the current generation has ditched the balanced approach. Not only have they taken the side of their home countries, they have advertised their stance as a form of corporate virtue signalling. Since exiting the Russian market with uncertain prospects of return is costly, their political signals have more credibility than if they were to employ mere rhetoric.

You might applaud their principled stand and sacrifice if you, like a lot of people arould the world, believe that Putin and Russia ought to be punished for violating international norms and imposing suffering on the Ukrainians. The problem is, policymakers around the world will now perceive foreign companies as extensions of foreign governments and treat them accordingly. Indeed, what is the difference between TikTok or Huawei who we rightly see as instruments of the Chinese state and YouTube and Cisco, who have acted in accordance with the US government’s foreign policy? If Western firms have acted as the coercive front end of American and European policies against one country Russia, how can we presume they won’t do the same with other countries?

If good relations with the West are the condition to expect good behavior from Western companies, nation-states are bound to limit foreign investment in their economies. You don’t even have to be an ideologue of autarky to arrive at this position. A simple risk management approach will suggest greater caution towards foreign investment. This will, no doubt, compound the challenges of global economic recovery in the wake of the US-China trade war and the pandemic disaster. Starting with data localisation and greater regulation of technology platforms, we can expect governments to privilege national champions in critical sectors like defence, banking, finance, telecommunications and media.

A global backlash against globalisation, open economies and free trade is on the cards. It is unclear if the leaders of the world’s biggest economies have the conviction, capability or political leeway to make a G-20 like attempt to find a cooperative route to prosperity out of this. After all, they created this mess in the first place. We do not have Reagan, Thatcher, Kohl, Deng and Yeltsin in charge today. My Takshashila colleague and fellow Mint columnist Narayan Ramachandran tells me, we are in for a period of economic Balkanisation, restricting access and driving up costs of technology, energy and food. Planetary scale cooperation — such as tackling climate change, stewarding an energy transition and combating pandemics — will be much harder. I must admit that I am under pressure to retract my bold prediction, made in 2020, that Covid-19 will be the world’s last pandemic. Not because we won’t have the technology for it, but because we humans are stupider than I believed.

A world dominated by economic nationalism cannot escape political conflict. After all, there are only two ways to get what you want: trade or theft. Countries that cannot obtain what they want through trade will have incentives to take them by force. Critics of globalisation never quite understood that the free movement of goods, capital, people and ideas across national borders actually maintained world peace without claiming to do so.

At times like this, it bears repeating that high economic growth is India’s national interest. It is the only known way to shift our people from poverty to prosperity. The strongest engines of our economy require an open world and good relations with the West. As does our ability to defend ourselves against the biggest military threat. So how New Delhi plays its geopolitical cards has a material bearing on our future prosperity and national security. India must champion global economic reconnection. In a world where foreign investors are wary of risks from emerging markets, it is India’s interests to position itself as a stable, secure and promising economy. The emerging geoeconomic suggests that India create a middle path between improverishing autarky and risky laissez-faire.

We already have policy frameworks for the middle path. Promoting competition and preventing firms from dominating the market is good economics and good strategy. Broadening and deepening trade with energy and defence suppliers can mitigate political coercion. Creating “bubbles of trust” with countries with who we share both interests and values can help manage geopolitical risks. But it is going to be hard work.

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