On Some Peculiarities of Modern Economic Security


An Unusual Introduction...

The 1886 short story "How Much Land Does a Man Need? " was written by the famous Russian writer Leo Tolstoy. The main character of the story, a poor peasant, dreams of becoming a landowner. In response to this dream, fate puts him to the test. He buys a plot of land with borrowed money and then sells it profitably. With the proceeds he buys other plots of land, but even this is not enough for him, and he turns his attention to the land of a neighboring community. And there he is given this condition: in exchange for a small amount of money, they will give him as much land as he can walk in a day so that he can return before sunset... He agrees and sets out on his journey. However, the farther he goes and therefore gains more land for himself, he cannot get enough. Meanwhile, the sun has shifted to the west and the peasant is tired. He hurries back, but fatigue does its work. The main character of the story is sweating, his heartbeat is getting faster and faster. Although he reaches the neighboring community before sunset, and the head of the community, seeing him, shouts that he has acquired a lot of land, but these words lose their meaning, because the main character of the story falls down and dies. And the neighboring community has no choice but to dig a small grave for the peasant. This is all the land, - concludes the author of the story, - that a man needs.

The general moral of this story is less relevant to us in this case. It is much more interesting to analyze this small work from an economic point of view, in particular, to see it through the prism of "behavioral economics". Accordingly, it is possible to relate the character's seemingly understandable economic motive in making decisions of economic content with moralistic considerations, including considerations of sufficiency, reasonable distribution, and necessary balance. The presence or absence of these and other limitations in economic thinking, as well as their quality, laid the groundwork for the institutionalization of the various schools. And the endless struggle between these schools has left the economic community with the writings of many outstanding economists, be it Maynard Keynes, Milton Friedman and others.

We decided to cite this particular story as an introduction to the main topic.

On Certain Trends in the Global Economy

At the very beginning of this chapter, we would offer the reader this characterization: what is happening in the world economic system today is not the result of an orientation toward prudent judgment and cooperation, but rather of a "policy" of economic influence dictated by brute force and material constraints. Various sources refer to this policy as "Phase four globalization," "the new Bretton Woods system," and other exotic names. However, in our view, today's relations have little to do with systematicity and even less to do with globalization. Moreover: as we have said in the recent past, today we are even in the conditions of a kind of first world economic war.

The requirement of objectivity makes it necessary to note the moderate optimism of the International Monetary Fund for the current year. In order not to overload this article with individual numerical parameters, let us conclude by saying that the International Monetary Fund indicates that the world economy is "particularly resilient" and that despite a series of crises (pandemic, record inflation, unusually high interest rates, protracted conflicts, etc.), it turned out still possible to move it into a "soft landing" mode. The International Monetary also refers to the promising functioning of a number of system-forming national economic systems (USA, China, India, Brazil, etc.). However, despite the short-term economic "upswing", according to the assessment of the International Monetary Fund, there are also signs of their "downswing" on the near horizon of economic processes, which is connected with global geopolitical processes and increased competition (and in some places competition "without rules") in industrial policy between leading countries and arm-twisting in trade relations.

Yet, in terms of the overall picture, it should be emphasized that the liberalization of business relations globally has not had the desired effect - establishment of such an order of relations in trade and business on the basis of coincidence of interests, which would prevent systemic conflicts or wars. Accompanying symptoms of the aforementioned economic warfare around the world should also be considered:

(a) The crisis of economics based only on the interests of corporate capital, on so-called capitalist democracy;

(b) The inability of global economic institutions to properly manage current processes, and

(c) The resurgence of economic nationalism.

Together, all these three factors have made it extremely difficult to synchronize the world's economies and to allocate the time and resources necessary to effectively overcome existing contradictions.

Along with all other possible negative phenomena, the economic policy devoid of rationality and cooperation, its unmanageability on a global scale, and self-isolation have exacerbated another extremely dangerous syndrome - the so-called "enemy from within". Instead of searching for and investigating objective causes, “obstruction and sabotage” of both internal and external origin were identified as the source of inequality and social imbalance caused by the vices of economic governance. This approach was considered politically more "safe" and "acceptable" than critically evaluating oneself and looking for the real reasons in one's own political writing.

It is also worth noting that calls for a global renewal of the economic order, especially after the dysfunction caused in 2008, have never subsided. However, two things have usually been missing to realize these calls: actionable ideas and courageous leaders. Given the absence of these two, the assertion of populism and radicalism in the domestic political process of a number of countries, the close convergence of geopolitics and economics, and the revealing of deep problems as a result of renewed Russian aggression in Ukraine, have turned the following issues into central problems: How ready is an economy based only on capital and corporatism for new challenges? Does it have enough will and desire to rebuild in time? And in case of negative answers to the first two questions: How and by what means can we all continue to develop and coexist in the conditions of the created economic and social disorder?

The "Davosization" of Economic Thinking?    

In modern conditions, one of the flawed features of politics in general, including economic politics, is its detachment from reality, its fulfillment with a look in a "crooked mirror". The corresponding result is here, before our eyes, in our daily lives.

As we have mentioned, even the global economy has not been able to escape this crooked approach. This problem can be conditionally called "Davos disease" - that is, a situation when, in order to talk about overcoming global challenges, a certain representative forum (say, in Davos) gathers people who in many ways personally contributed to the creation of these challenges. One visible manifestation of this flawed approach is the significant disconnection between the corporate world and the inclusive development agenda. Such a disconnection, in turn, creates fertile ground for social upheaval, which ultimately undermines the foundations of security, including social integrity and cohesion.

It is clear that "Davosization" in its modern version will find its explanation, which has for many years been linked to the impressive economic effect of the so-called Washington Consensus in the world economy. At some point, however, the reins of the process were lost in this regard as well, the proper focus dispersed, and the capacity for critical evaluation diminished. The result was a single and universal standard for all categories of the economy - whether developed or developing - the essence of which was an excessive focus on profit at the expense of social cohesion and resilience. Later, this standard was transformed into extremely dangerous forms for global or national security, such as populism, radicalism, and extremism.

Thus, since the 2004 meeting that Samuel Huntington called "The Men of Davos," the pressing economic and at the same time national security issue is still finding the right balance between the role of the state and market deregulation. The proper answer to this question is likely to be one of taming cheap populism and irresponsible nationalism, which threaten the balance of the global system more than wars, and instead of the stability of international relations based on the so-called "four freedoms" (freedom of movement of goods, movement of people, movement of services and capital), lead to deeper fragmentation and disintegration.

At the Same Time…

...World economic war I is entering a new phase of confrontation between geographic centers. The outcome of this confrontation will largely depend on:

(a) Control of financial flows;

(b) Access to modern technologies;

(c) Control of information (including personal information) data traffic over transmission cables; as well as -

(d) Advancement in the field of intellectual property.

We mentioned the changing face of military conflict, and today we can also speak equally of the new character of economic rivalry. It is a given when, for instance, currency is no longer just a means of payment, energy is no longer just for industrial development, and food supply is no longer characterized only by the characteristics of commodity-trading transactions - both the first, the second and the third (together with other instruments of economic influence) will be used for the tasks of dominating global relations, spatial influence and imposing their own geopolitical will.

When considered on a practical level, the dividing line of global rivalry today is between the United States and the People's Republic of China. The relative advantage at this stage is on the side of the US, which, briefly speaking, can be explained by several circumstances. One of them is the status of the US dollar as the world currency. Besides, settlements in dollars are made using bank deposits in the same currency, which essentially means that virtually every bank in the world must have access to the US Federal Reserve system. As a result, a problem-free relationship with this system is a prerequisite for normal business relations with the rest of the world. Related to the same topic is the fact that after the terrorist attack of September 11, 2001, the famous SWIFT system shares data with the US authorities. Given the above, the excitement over promoting another currency as an alternative to the US dollar is unsurprising.

The situation with data transmission cables is also very interesting. In particular, when some cable crosses the US territory, the flow of transmitted information is "doubled" with the help of a special appliance: one flow continues to the final recipient of information, and the other one reaches the relevant US agencies. This and related topics (including domestic law prohibitions on the transfer of personal data on national security grounds) relate to a new type of challenge in today's global economy - digital sovereignty. The role of technology companies with “quasi-sovereignty” in global processes, a powerful new category of international relations, should also be noted here.

For now, the US also has an advantage in the intellectual property arena, which, inter alia, extends to modern technology - semiconductors.

This and other considerations explain efforts to advance another settlement currency as an alternative to the dollar, the scandal surrounding China's Huawei, making industrial espionage the "norm," etc.

That is why today, more than ever, "economic security" and "economically secure country" are categories of equal importance and relevance, regardless of the scale and characteristics of a country and its economic system.

"Democratic Economics" - a New Category of Security

At first glance, "democratic economics" may seem strange. However, apart from the factor of the interconnectedness of economics and politics, without sound, fair and equal economic opportunities, political stability and national security are virtually impossible to achieve. This is the lesson of global processes; the same lesson should serve us Georgians a necessary favor for building our own security on the right economic formation.

Accordingly, the reservation of the requirement of "democracy" to the economy in general and to the market economy in particular is not accidental. It has been pointed out many times - here and in other publications - that declining incomes of citizens, poverty and contemporary general cultural changes create a strong basis for growing inequalities and threats in society. This development is accompanied by a hundredfold increased risk for countries where, in the context of a deficit of political dialogue and institutional development, and even more so in an unfriendly geopolitical environment, national security is particularly vulnerable.

As to vulnerability, we would note that the exceptional "weakness" of a country at such times is the erosion of its state institutions. One of the unfavorable symptoms of the same process is the alienation of citizens, hopelessness, sometimes aggression and a general loss of trust in institutions. The entry into the deepest phase of the national state security crisis is the consequential continuation of the loss of trust. Such a crisis is an excellent opportunity for internal or external destructive forces to deepen the created cracks by "soft" or "hard power" and - if not on paper, at least in deed - put an end to statehood.

The Oddities of "Economic Modernism" ...

...Among which is a process such as the "de-growth economy" debate, which is no less counterproductive than "Davosization", especially for developing economies.

To summarize briefly, the mentioned process is taking place in the name of a very noble goal - care for the environment. In particular, its leaders argue that the growth of gross domestic product is directly related to the growth of carbon dioxide emissions and, consequently, to the social status and quality of human life. Thus, "opponents of economic growth," while referring to climate degradation as a social problem, at the same time demand a reorganization of the world's economic and social order. At the same time, the relationship of the "rich North" to the "poor South" and the risks posed by this "inequality" to global security are emphasized.

This trend or approach originates from the 1972 Club of Rome report, which, along with the correlation between economic growth and the sufficiency of economic resources to achieve it, referred to the "danger" that rapid economic growth for one or more generations would adversely affect the social position of future generations. The essence of that report was that infinite growth in a resource-constrained environment is both impossible and dangerous. The ideological basis of the uncontrolled "anti-growth economy" or its analogs is difficult to discern, and ranges from "Greens" to "Socialists."

However, the main driving force behind the mainstream economic view is still the following:

(a) The right balance between government regulation and market self-regulation;

(b) Finding free spaces in the context of a "consumer culture", and

(c) A new social contract between the state and society, and between employer and employee.

Otherwise, without a market economy based on openness and social accountability, cooperation and co-participation, the progress of the state will be under the pressure of constant fluctuations and cataclysms, and the realization of a real development agenda will become impossible.

Moreover, these and other concepts point directly or indirectly to the excessive threats posed by the violation of social equality, which threatens security not only within specific countries but also globally.

On the Priority of the Georgian Case

In a domestic process, the source of the crisis can be twofold: it can come gradually from the system itself, or it can be the result of the destruction of that system. In the Georgia context, both bring equally dire results, although there is a certain difference: it is possible in principle to contain the crisis developing inside the system, but the destruction of the system itself, its erosion can develop so quickly that collapse becomes almost inevitable.

This danger inherent in a vulnerable and malfunctioning system - the destruction of the system itself - must be taken into account in assessing both overall national security and its main component, economic security.

Taking all of the above into account, in the context of effective structuring of Georgia's economic security, we will present together some previous opinions. It is clear that each of them needs further elaboration in professional circles. In any case, we believe that discussions on these and other measures should begin immediately in order to strengthen the economic stability and self-sufficiency of our country and its competitiveness. In particular, extraordinary resources should be directed to:

Integrate with developed economies to the highest possible degree. This is important both for the qualitative content of trade and financial relations and for the introduction of advanced technologies and knowledge in the country.

• Expansion and diversification of the export market. It is a fact that sticking to one particular market is very risky for national security. Accordingly, the full development of the state requires more space and choice. Among other practical mechanisms, this goal is achieved through free trade agreements and membership in trade alliances.

Given the growing economic nationalism and bias in today's world, we should also take care of:

Not only quantitative but also qualitative indicators of investment. Given the global and regional threats, it is unacceptable for our country to assess an investment as desirable just because it is about money. Today, we are definitely required to be meticulous about the investment resource, its origin and purpose. Accordingly, the legislative initiative of the mechanism of so-called "screening" for studying investment projects or proposals will be very timely. It should also be noted that many developed economic systems use this mechanism today.

Investment in the country's intellectual security by the state. Without proper "intellectual self-sufficiency" (which, along with other factors, is unthinkable in light of the outflow of valuable people from Georgia), it is hypocritical to talk about our potential for competitiveness.

We believe that together with the above views, the agenda should necessarily include such issues as:

Giving due place to economic security in the national security doctrine of Georgia. There is no doubt that national security cannot be imagined separately from economic self-sufficiency.

Institutional strengthening of the economic security direction in the format of the National Security Council. Possible options include the creation of a separate Economic Security Council or its institutionalization within the National Security Council itself. In addition, it is possible to discuss the expediency of introducing the position of the Minister of Economic Security with appropriate competence and responsibilities in the Government of Georgia.

 From the point of view of Georgia's economic security, placing the main concern on continuous monitoring of risks and threats and their unbiased analysis - irrespective of the institutional solution. We would periodically reflect the results of this process in a document on economic threats. Along with other topical issues, such document would assess short-, medium- and long-term risks to the country's economic security, as well as practical recommendations for their minimization and proper management.

• Implementation of legislation ensuring economic security, such as Georgia's Law on Economic Security, as a complementary measure. Such a special law would address issues such as (1) The coordination of government agencies during crises; (2) The realignment of one supply and delivery system into another on a global or regional scale; (3) Reducing overdependence on one foreign economic system; (4) Promoting modern innovation in critical sectors.

The past century has been a virtually endless struggle between democracy and authoritarianism. Today, this confrontation has gained new strength and transformed into new forms and methods. Due to this and other circumstances, the renewal of the Georgian state should manifest itself in its transformation into a "project state" - it should be concerned about the transformation of society, lead its own citizens to realize its development agenda, and not only govern its society and citizens.