THE CONNECTIVITY APPROACH TO INTERNATIONAL POLITICAL ECONOMY

Material prepared for the assignment on the global credit crisis and international reserve currencies. March 12, 2009.

· The ‘Connectivity’ approach to International Political Economy was pioneered by authors Thomas Friedman, the NYT columnist, and Thomas Barnett. The approach seeks to understand the process of globalization from a variety of perspectives: trade and finance, security, the environment, political cultures, etc. In particular, Barnett seeks to ‘create a new language’ to express the reality of today’s interconnected world: networks, system failure, broadband connectivity, content flows, etc. The connectivity approach deals with familiar IPE categories: individuals, classes, nation-states. It also provides a dynamic view of “core-periphery” relations.

. This guide briefly reviews Barnett’s key ideas on: the center-periphery dynamics (Part I), the security angle (Part II), the connectivity approach as IPE (Part III). Additional info on the rule of law and the emerging political culture inside the ‘new core’ (Parts IV & V).

· References. Books by Thomas Barnett. The Pentagon’s New Map. War and Peace in the XXI Century (Putnam, 2004) [info]; Blueprint for Action. A Future Worth Creating ( Putnam, 2005) [info]; Great Powers. America and the World After Bush (Putnam, 2009) [info] . See also his blog.

I. The Core & the Gap

[1] Connectivity. Barnett defines connectivity as “The enormous changes being brought on by the information revolution, including the emerging financial, technological, and logistical architecture of the global economy (i.e., the movement of money, services accompanied by content, and people and materials)”. In more concrete terms, connectivity can be defined as openness to trade flows (WTO membership, free trade agreements), plus openness to foreign direct investment (FDI) flows, plus access to broadband internet connectivity.

[2] A New Approach to Center-Periphery Dynamics. The ‘Functioning Core’ includes those parts of the world that are actively integrating their national economies into the global economy and that adhere to the emerging consensus of free markets and strong political institutions (the rule of law). The Functioning Core at present consists of North America, Europe both ‘old’ and ‘new’, Russia, Japan and South Korea, China (although the interior far less so), India (in a pockmarked sense), Australia and New Zealand, South Africa, and the ABCs of South America (Argentina, Brazil, and Chile). That is roughly 4 billion out of a global population of more than 6 billion. The Functioning Core can be subdivided into the Old Core, anchored by America, Europe, and Japan; and the New Core, whose leading pillars are Brazil, Russia, India and China [the so-called BRIC countries].

‘Gap nations’ are defined as nations “where connectivity remains thin or absent” (Pentagon’s New Map, p. 4) [See Map]. Some benchmarks: [1] Dictatorship. “As soon as a leader declares himself ‘president for life’, disconnectedness becomes a near certainty” (PNM, p. 133); [2] Frequent leadership changes. (Bolivia, Ecuador, Argentina, Thailand); [3] The curse of raw materials. Venezuela, Bolivia, some Arab oil exporters: “Historically speaking, countries whose economic well-being relies extensively on the exportation of raw materials are some of the least connected states in the world.” (*); [4] Theocracies. They have “a dampening effect on connectivity with the outside world”; [5] Transportation problems. Paraguay lacks a good transportation connectivity with the outside world; [6] The treatment of women. (Blueprint for Action, pp. 256-259).

(*) See Thomas Friedman. “The First Law of Petropolitics”, Foreign Policy, May-June 2006.
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. Life in the (Disconnected) Gap: Thomas Hobbes. “In such condition there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short”. [Leviathan, chapter XIII] (Barnett, pp. 161-166). No need to mention too many examples; some cases that come to mind: Guinea-Bissau president assassinated three days ago amid scenes of chaos; slaughter of senior military officers in Bangladesh; rape epidemic in Congo; Angola children tortured as witches. And the list goes on and on.
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[3] Financial Connectivity & the Dollar. The current phase of globalization does have a weak spot: the international monetary system based on the dollar as the key international reserve currency. Barnett:

[REQUIRED READING!]. But the dollar will not remain ‘as good as gold’ forever, if only because the European Union’s euro will invariably rise up as a reserve currency ‘near-peer competitor’. Over the long run, an East Asian equivalent of the euro must inevitably arise, probably a combination of China’s yuan, Japan’s yen, and South Koreas’s won. In short, each pillar of the Core will market its own reserve currency (The Pentagon’s New Map, p. 244).

II. The Security Angle

[4] State-on-State War: a thing of the past. Barnett believes that wars between great powers and even state-on-state wars are extremely unlikely to happen. There are three reasons for this: (1) Nukes (the principle of MAD, or Mutually Assured Destruction); (2) the United States military superiority (America’s defense budget is many times greater than that of any other great power); (3) Connectivity (the financial cost of war).

[REQUIRED READING!]. “The migration of violence downward, or below the level of the nation-state, is fairly easy to express and track. Basically, wars between states have disappeared over the past half century, but especially since the end of the Cold War. Nukes effectively ended great-power war following the Second World War, giving the world as a whole a wonderfully long respite from system-level war that I believe will never end. Meanwhile, state-on-state wars have gone the way of the dinosaur in recent decades. When wars occur now, they are almost exclusively internal wars, where some subsection of a state wishes to break off from the whole or where social violence between groups within a state erupts into full-blown civil war” (The Pentagon’s New Map, p. 85).

Illustration: state-on-state and financial connectivity – the Russia-Georgia mini-war. See Judy Shelton: “The Market will punish Putinism”, Wall Street Journal, September 3, 2008:

Since the attack on Georgia began in early August, the decline in Russian financial markets has accelerated sharply. The benchmark RTS Index of leading Russian stocks has slumped to its lowest level in two years. The ruble has registered its biggest monthly decline against the U.S. dollar in more than nine years as foreign investors rush to retrieve their capital -- some $25 billion in the last three weeks, according to French investment bank BNP Paribas. The amount of debt raised by Russian companies in August has fallen 87% from July levels. The issuance of new equity has come to a virtual halt -- a mere $3 million was raised in August compared to $933 million in July. To combat the alarming magnitude of capital desertion, officials at Russia's central bank have scrambled to raise interest rates, allowing the yield on domestic ruble bonds to increase by 150 basis points. But complaints about the tightened credit situation have already begun among Russia's powerful industrial oligarchs.

In other words: new information altered the behavior of those who supplied loanable resources in Russian credit markets. See also Jonathan Kirschner: “Globalisation, American Power, and International Security”, Political Science Quarterly, Vol. 123, No. 3, 2008, pp. 363-389:

… financial globalization also makes the resort to arms by states less likely (ceteris paribus) because the macroeconomic discipline demanded by world financial markets, lending institutions, and powerful credit agencies is incompatible with military adventurism.

If you open up your financial markets to the world, that connectivity can go both ways. As soon as the Russia-Georgia crisis deepened, the supply of loanable resources collapsed. Credit became scarce; interest rates shot up. Barnett: “I am glad to see the Obama administration seek to reengage Russia now that it's been dramatically weakened by the capital flight after the Georgia smackdown and the general decline in its finances caused by the drop in oil and the financial crisis”.
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[5] Disconnectedness Defines Danger. “Disconnectedness is the ultimate enemy” (PNM, p. 124). “Once isolation is ended, and broadband connectivity is achieved for the masses, the forces of terror and repression can no longer hold sway” (PNM, p. 193). “Disconnectedness defines danger, so connectedness defines safety” (PNM, p. 331).

. Conflicts and per-capita income. “Of the thirty-seven major conflicts spread around the world in the 1990s, thirty-four occurred in countries with annual per capita GDP totals of less than $2,936. So it is basically the case that when a country rises above the $3,000 mark, they seem to get out of the mass violence business” (PNM, p. 239, see footnote on p. 411 for details) (*).

(*) As usual, Thomas Friedman puts it more succinctly: “No two countries that both have a McDonald's have ever fought a war against each other” (Thomas L. Friedman: “Foreign Affairs Big Mac I”, New York Times, December 1996).
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[6] Intra-Core Cooperation. Old Core and New Core powers will cooperate, albeit reluctantly, to ease disconnectedness inside the ‘Gap’. Barnett: “The United States cannot simply shrink the Gap by itself” (PNM, p. 58). Case in point: the Somali pirates. According to some sources, piracy off the Gulf of Aden has already cost $15bn (the figure is hotly disputed: some say it’s much less than that); insurance rates are increasing. A large number of nations have announced efforts to combat piracy: the USA (12 warships from the US 5th Fleet in Bahrain), China (2 destroyers, one depot ship), India, Malaysia, Russia. In addition, the EU has launched EUNAVFOR Atalanta, the first naval operation ever conducted under the banner of the EU. Among the participants: UK, France, Germany, Greece (the operation will be run by a UK and a Greek admiral). In late February 2009, both Norway and Switzerland announced they were also send ships and soldiers.

From the connectivity approach perspective, the story affords many insights. The only way to keep trade flows open is through what Barnett calls ‘comprehensive maritime security cooperation among the world’s great powers’. The numbers tell the story: if a thousand ships are necessary to combat piracy on a global basis (Gulf of Aden, Persian Gulf, Malacca Straits, etc.), then it is pretty clear that the US cannot afford to go it alone. Cooperation is bound to take place, albeit reluctantly. There is a diplomatic angle to the story as well: Resolution 1851 of the UN Security Council authorizes the states to “take all necessary measures that are appropriate in Somalia” to suppress “acts of piracy and armed robbery at sea”. And there is a the legal dimension as well:

Arrested pirates could pose a legal problem for the navy that apprehends them, because the EU terms of engagement state that they should be handed for trial to the country where the attacked vessel is registered. This will not always be possible, given the international nature of shipping registration and the block on EU prisoners being sent to countries with capital punishment. Germany said that the EU was in negotiation to hand captured pirates to Kenya for trial but called for debate on whether the United Nations should set up a new court for pirate trials. Moreover we are in favour of reviewing whether the United Nations could use existing international courts or found a new one to conduct such criminal proceedings.

Finally, there’s the unavoidable question about nation-building. Here’s General John Craddock, Nato’s top commander: “You do not stop piracy on the seas. You stop piracy on the land”. In other words, the common enemy is disconnectedness! (Sources: [1], [2], [3]).

III. The Connectivity Approach as IPE

[7] Unit of Analysis: Individuals. The faceless homo economicus of neo-classical economists has vanished; his place has been taken by real-world entrepreneurs and leaders. The emphasis is on: (a) poor people inside the Gap, increasingly able to connect to the world economy; (b) entrepreneurs and innovators of all countries, races, gender, social standing; (c) social leaders: India needs a Bill Gates, i.e. a tycoon who retires and fights poverty and disease; China needs an Erin Brockovich to fight for the environment; (d) founders of nations: successful founders of nations are endowed with a rare combination of ruthlessness (to get things done) and capacity for self-command (to resign voluntarily from power and set a lasting example). Barnett praises Deng Xiaoping – whom he deems more important than Ronald Reagan, Margaret Thatcher and Pope John Paul II together. Less praise for Vladimir Putin, who could have become Russia’s George Washington by declining to act as prime minister after his two presidential terms.

Individuals as entrepreneurs inside the Gap:

. Online micro-lending: www.kiva.org. Note: (a) borrowers are called entrepreneurs: this is a credit market, not an aid agency!; (b) most Kiva entrepreneurs are women. The whole point is to empower people at the very bottom of the pyramid! Question: what do you think is happening here in terms of the supply of loanable resources?

. M-PESA. A mobile payment solution created by Safaricom (the Kenyan telco) and Vodafone that enables customers to complete simple financial transactions by mobile phone. M-PESA has been developed by Vodafone, the world’s leading mobile telecommunications group, with the pilot in Kenya operated by Safaricom. M-PESA is aimed at mobile customers who do not have a bank account, typically because they do not have access to a bank or because they do not have sufficient income to justify a bank account. All they need to do is register at an authorised M-PESA Agent by providing their Safaricom mobile number and their identification card.

. University of Grenoble’s Open Educational Resources provides free online courses, with 4,000 online management students from North Africa [Ross Tieman: “France looks to its neighbors to the south”, Financial Times, March 2].

. Dutch website Ne4Kids: an internet market-place for child aid projects. “With Net4kids you choose for concrete child aid rather than anonymous donations. With regular updates we tell you exactly what difference you make through your contribution”. According to founder Loek van den Boog, the site creates an “emotional link” with the kids involved.
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[8] Unit of Analysis: Classes. Unlike Marxism, which focuses on the extremes, the connectivity approach to IPE has its eyes squarely on the middle class. From The Economist special report on “The new middle classes in emerging markets”:

For the first time in history more than half the world is middle-class—thanks to rapid growth in emerging countries. Following the historical examples of Britain and America, they are expected to be the dominant force in establishing or consolidating democracy. As a group, they are meant to be the backbone of the market economy. And now the world looks to them to save it from depression. With the global economy facing the biggest slump since the 1930s, the World Bank says that “a new engine of private demand growth will be needed, and we see a likely candidate in the still largely untapped consumption potential of the rapidly expanding middle classes in the large emerging-market countries.” This special report argues that many of these expectations are broadly justified; that there is indeed something special about the contribution the middle classes make to economic development that goes beyond providing a market for Western consumer goods. The middle classes can, and sometimes do, play an important role in creating and sustaining democracy, though on their own they are not sufficient to create it, nor do they make it inevitable”.

This is, in a nutshell, what Barnett calls ‘the ideology of the global middle class’ (Great Powers, 2009, p. 99). [See also the article by Goldman Sachs’ chief economist Jim O’Neill. “Boom time for the global bourgeoisie”, Financial Times, July 15, 2008: By 2030, 90 million people a year will enter the middle class –defined as households with annual incomes between $6,000 and $30,000. The global bourgeoisie will by then number 2 billion people].
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[9] Unit of Analysis: Nation-States. Competition between nation-states has moved from the military to the economic level. “Competition has left the military sphere”. Nation-states will also compete for prestige: who organizes the best Olympic Games? Who will be the first carbon-neutral economy? Who will be the leading center for Sharia-compliant bonds or sukuks? (Key contenders: Dubai, Malaysia, Singapore, London). On the other hand, Old Core nations will have to cooperate with New Core powers, albeit reluctantly, to shrink the Gap. iant bonds (sukuks): who will be the leader?
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[10] Core-Periphery Dynamics. Some additional points. (a) The financial connectivity between the Old Core and the New Core is currently too unstable; more reserve currencies are needed; (b) The new rule sets that will emerge in the future –in trade, in finance, in security issues, in immigration matters- will show the growing influence of the New Core; (c) The Old Core and the New Core are bound to find themselves either ‘win/win’ or ‘lose/lose’ situations. The so called ‘decoupling’ economic theories appear to make less and less sense. (d) The Core does not benefit from the disconnectedness of the Gap: disconnectedness defines danger!

. Also: compare with Samir Amin’s views on core-periphery dynamics (Goddard & al., chapter 13).

IV. Focus on the Rule of Law

[11] The Rule of Law as an Emerging Consensus. To attract FDI (Foreign Direct Investment), countries will need to improve governance.

[REQUIRED READING!] Foreign investors need to see rule of law, transparency, and good corporate governance before they will put their money at risk overseas. So the countries with the strongest economic rule sets inevitably attract the greatest amount of FDI (Thomas Barnett. The Pentagon’s New Map, pp. 202-203).

[REQUIRED READING!] The political scientist Francis Fukuyama divides governments along two axes: the scope of their power and the strength of their power. In this manner, we can describe the governance ideal as strong states with limited scope. While state-building in failed states is relatively straightforward, meaning you’re trying to extend both scope and power, the real trick comes in maturing the political systems of emerging markets, where governments are often characterized by too much ambition and on scope and not enough strength in their institutions – in other words, they try to do too much with too little. For most of the go-go nineties, when globalization was rapidly extending itself, the reformist notion held that best way to fix such bad governments was by improving their policies (e.g. the Washington Consensus). The new emerging consensus focuses more on the strength of political institutions (rule of law) than on their particular policies, so more focus on good design than –at first- optimal functioning. As a concept, rule of law has long remained rather fuzzy, with some experts offering a ‘thin’ definition of certain basic good laws (e.g. contracts, property rights) that must be put in place, and others offering a more ‘thick’ definition of an overall culture of respect for legality. What’s important about this growing academic debate is this: We’re beginning to see the rise of a global dialogue on government best practices when it comes to income growth creation. Because the global economy has expanded to include such a variety of players now, we’re starting to enjoy the ability to compare and contrast government policies in the same way that businesses have long done with one another in any sector. The growing diversity of capitalism is becoming one of its global strengths, meaning there’s a growing competition among governments. As such, one of the key components of a global progressive agenda should be further collective research and dialogue on what constitutes good rule of law, a concept –unlike democracy- that enjoys widespread global endorsement because of its focus on efficiency. (Thomas Barnett. Great Powers. Putnam: 2009, pp. 409-410).

[12] Some (partial) statistical evidence. Governance indicators: sources. Two important sources are: (1) The World Bank’s Governance Matters 2008; (2) Fraser Institute’s Economic Freedom of the World 2008 Annual Report. Rule of Law: World Bank - http://info.worldbank.org/governance/wgi/index.asp; Credit Market: IMF - http://www.imf.org/External/Pubs/FT/staffp/2006/03/pdf/burger.pdf
(Total bonds outstanding as a percentage of GDP)

[13] Focus on China & the Rule of Law. Recent academic work on the rule of law in China: Randy Peerenboom, Director of the Oxford Foundation for Law, Justice and Society's China Rule of Law Programme. He's an Associate Fellow at Oxford University Centre for Socio-Legal Studies, and Professor of Law at La Trobe University in Melbourne: China Modernizes. Threat to the West or Example to the Rest? (Oxford University Press, 2007) [info] [review]; China’s Long March Toward the Rule of Law (Cambridge University Press, 2002) [review].

. In 2006 China changed its death penalty law: the country's Supreme People's Court will review all capital punishment cases. The change is "an important procedural step to prevent wrongful conviction. There is still, however, a long way to go. According to Barnett:

China’s legal system needs to clean up its act, because the more China’s economy opens up, the more the global business community is going to demand greater transparency and better avenues for legal redress. A couple of decades ago, China’s courts handled several hundred thousand cases a year. Today that demand is running at more than 5 million cases a year (Thomas Barnett. Great Powers, 2009, p. 174).

. China, Connectivity & Rule of Law. See the innovations in terms of sentencing in China Law Blog: “In China, It's Here Come Da (Computer) Judge”]. China is testing judges using computers to determine criminal sentences. Judges using the software are to enter relevant details of the criminal case, such as the crime and mitigating circumstances, and the system suggest the appropriate sentence. Judges still have the power to overrule the computer and hand down their own sentences. The software covers around 100 crimes and has already been used in over 1,500 cases in Shandong Province.

. More Judicial Independence? With data from Canadian think tank Fraser Institute, I checked the change in the “Judicial Independence” grade (from 1 to 10) for a group of Asian countries from 2000 to 2006. These are the results:

2000 2006
China 3.34 4.05
Hong Kong 7.68 8.27
Malaysia 4.51 7.06
Singapore 7.35 7.66
South Korea 4.68 6.89

Was the upgrade in judicial independence a response to the financial crisis of 1997-1998? Will Russia, Eastern Europe, and Latin America take note? Can a country’s financial system work properly when human rights activists and journalists are killed? Will the costs of running politicized judiciaries soon become high enough that reforms will be needed? (Mr. Markelow was running the Rule of Law Institute in Moscow.) [Alan Cullison: “Economic Ills Spur Russian Gestures of Openness”, Wall Street Journal, March 2] [Michael Schwirtz: “Leading Russian Rights Lawyer Is Shot to Death in Moscow, Along With Journalist”, The New York Times].
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V. The Emerging Political Culture inside the New Core

[14] The Emerging Political Culture in the New Core
Social Capital: Tocqueville on Democracy in America. See his chapter on civil associations in America (Democracy in America, 1835, Book II, chapter 5; more info). Checks and balances, judicial independence, and the freedom of the press are all very fine and important things; but what gives American democracy its strength is the community spirit of its citizens. Spontaneous associations –public libraries, charities, clubs of all sorts– provide sustained information flows and help to reduce levels of hate; the likelihood of tyrannical governments is thus sharply reduced.

Putnam on social capital. In Bowling Alone (New York: Simon & Schuster, 2000), sociologist Robert Putnam argues that we have become increasingly disconnected from family, friends, neighbors, and our democratic structures-- and how we may reconnect. Putnam warns that our stock of social capital - the very fabric of our connections with each other, has plummeted, impoverishing our lives and communities.

Virtual Social Capital. Although one has to be cautious –people go online just to have fun, and there are things like cyber-bullying, cyber-fraud, porn, pedophiles, and online government propaganda--, there are some reasons to support the view that social capital has moved … online! This appears to be true in times of crisis and unexpected events. Korean researcher Ji-Young Kim coined the words e-social capital and virtual social capital (“The impact of Internet use patterns on political engagement: A focus on online deliberation and virtual social capital”, Information Polity, Vol. 11, No.1, January 2006, 35-49).

. The Sichuan earthquake in July 2008. Although the authorities were initially praised for their prompt response, everybody could see that some schools had collapsed in neighborhoods that had seen relatively little damage. According to Wikipedia:

Liu Shaokun (刘绍坤),, a teacher at Guanghan Middle School, Deyang City, Sichuan Province (四川省德阳市广汉中学), traveled to heavily hit areas after the May 12 Sichuan earthquake, took photos of collapsed school buildings, and put them online. In a media interview, he expressed his anger at “the shoddy ‘tofu’ buildings.

. Egyptian bloggers. Samantha M. Shapiro: “Revolution, Facebook-Style”, New York Times. (Barnett, by the way, is not very optimistic about Egypt).

. The Orange Revolution in Ukraine. See Josh Goldstein: “The Role of Digital Networked Technologies in the Ukranian Orange Revolution”, Berkman Center for Internet & Society (Harvard University), 2007

. More info on Virtual Social Capital. [1] Lucía Liste Muñoz & Indra de Soysa: “The Blog vs Big Brother: Information and Communication Technologies and Human Rights, 1980–2005”, International Studies Association annual meeting in New York, February 15–18, 2009; [2] Patrick Meier: “Impact of ICTs on Repressive Regimes: Findings”, iRevolution, February 2009; [3] Andrew Nachison: “Social Capital in the Connected Society”, Evaluation Exchange, Vol. XI, No. 3, Fall 2005.

. More resources. iRevolution; SmartMobs; Berkman Center (Harvard University); internet & democracy.

THURSDAY, MARCH 5

. The Pentagon's New Map.

. www.Kiva.org

. Somali pirates: map.