November 12, 2021geopoliticseconomics

Cautious re-globalisation through bubbles of trust

The Quad must take a strategic approach to economic interdependence and take a middle path between the extremes of technological sovereignty and laissez-faire globalisation

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This is the unedited draft of an invited essay that I wrote for the inaugural Sydney Dialogue.

The current global retreat away from free movement of goods, services, capital, people and ideas across national borders is not so much a consequence of globalisation itself, but of its skewed pattern over the past four decades. It was the world’s wilful acquiescence of an asymmetric globalisation favouring China above all that allowed Beijing to accumulate the power that it is now using to undermine liberal democratic values around the world.

Even before General Secretary Xi Jinping formally required Chinese firms to follow the political agenda of the Chinese Communist Party, private businesses there were never non-state corporate entities in the way they are in liberal democracies. It was never possible to tell where private ownership ended and the party state began. Nor was the Chinese market ever open to foreign companies in the way foreign markets were to Chinese firms. This is particularly true in the information and communications technology sector: foreign media, technology and software companies have always been resolutely walled out of Chinese markets. Meanwhile, Chinese firms rode on the globalisation bandwagon to secure significant market shares in open economies around the world.

To get things into balance, the Quad countries must not only stop seeing engagement with China through the prism of free trade and globalisation. They must lay the foundations for a genuinely free and equitable global economic community. Without such a project, Quad’s geopolitical and security agenda will stand on tenuous foundations.

The Quad’s answer cannot be a reflexive retreat towards an autarky that is isolationist and impoverishing, and therefore counterproductive from a strategic perspective. Rather, what is needed is a strategic approach to economic interdependence. To be clear, the roots of prosperity and power of every member of the Quad lie in international trade. It will be to their advantage to create a new format of economic cooperation that is consistent with the laws of economics and their geopolitical interests.

This is especially true in the area of critical and emerging technologies, where no single country, no matter how advanced, can replicate the combined genius of the world. The popular backlash against China and the economic disruptions caused by the pandemic crisis have pushed Quad governments towards pursuing policies of self-reliance. Reorienting and de-risking global supply chains is one thing, but the pursuit of technological sovereignty is a self-defeating exercise. Worse, inward-looking policies often acquire a life of their own even as they contribute towards geopolitical marginalisation.

My raw notes on the idea of bubbles of trust”

There is a better way. Quad countries are uniquely placed to envelop their economies inside bubbles of trust, starting with the technology sector. Convergence of values and geopolitical interests creates the trust, and complementarities in capabilities powers innovation, growth and prosperity. The United States is a global leader in intellectual property, Japan in high-value manufacturing, Australia in advanced niches like quantum computing and cyber security, and India in across-the-board human capital. This configuration of values, interests and complementary capabilities offers unrivalled opportunities.

My Mint column on why creating bubbles of trust is in India’s interests.

A bubbles of trust approach is a cautious middle path between the extremes of technological sovereignty and laissez faire globalisation. Unlike trading blocs that tend to be insular and exclusive, bubbles have a natural tendency to expand organically, attracting and including new partners that share values, interests and economic complementarities. Such expansion is necessary for the Quad’s strategic purpose cannot be served merely by holding a defensive line against authoritarian power.

The newly formed Working Group on Critical and Emerging Technologies is well-placed to develop the proposal for a bubbles of trust framework for adoption at the next Quad summit. For a start, the scope of the cooperation can be limited to information industries encompassing semiconductors, network infrastructure & connectivity, operating systems, platforms and content. Such an approach can avoid the long and complex negotiations that typically characterise trade agreements.

To create bubbles of trust, the Working Group’s agenda must strengthen geopolitical convergences, increase faith in each other’s judicial systems, deepen economic ties, and boost trust in each others’ citizens. An enabling policy environment is necessary for private investment, innovation, entrepreneurship and markets to come together and form thriving ecosystems in critical and emerging technologies. There is a role for governments beyond this: to finance accelerated investment in technology infrastructure and to adopt a common front in the battle for standards.

Two sectors — cybersecurity and semiconductors and cybersecurity — require closer government-to-government cooperation and greater government-to-industry policy support.

The Quad’s approach to cybersecurity should move beyond its narrow focus on securing networks to containing the cyberspace Sinosphere. We need a common approach to counter the hacking of minds, more than the mere hacking of devices.

Pranay Kotasthane has detailed recommendations on how to make semiconductor cooperation happen.

In semiconductors, instead of fiscal support for self-sufficiency, Quad governments are better off encouraging R&D cooperation, allowing preferential access to design tools and reinforcing intellectual property protections.

While there is a fundamental difference between authoritarian and liberal democratic approaches to the policy issues of the Information Age, there is no consensus among the latter either. The Quad should not allow differences of approach on privacy, data governance, platform competition and the digital economy to widen.

Here is a version of this essay published in The Hindu as part of the Sydney Dialogue’s media outreach.

China is the biggest trading partner of most Quad countries. Each imports more from China than from the other three put together. This fact offers both the inspiration for and the limitation of the Quad’s agenda. Substituting China is neither practical nor desirable. The bubbles of trust approach allows Quad countries the ability to manage dependencies on China and its Indo-Pacific policies, while charting a course for a new vision for the global economy.

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