Money Matters

Foreign policy influences

Money Matters
By Sirajuddin Aziz
Mon, 06, 21

The need is to recognise, the significance of the interplay between foreign and economic policies. When these are not in harmony, there is a loss of opportunity to grow and strengthen the economy. Leaders must integrate the two. The cornerstone of this approach is the promotion of trade and investment for realising a peaceful world. The perpetuity of the need for engaged humanity is best served by its furtherance.

The need is to recognise, the significance of the interplay between foreign and economic policies. When these are not in harmony, there is a loss of opportunity to grow and strengthen the economy. Leaders must integrate the two. The cornerstone of this approach is the promotion of trade and investment for realising a peaceful world. The perpetuity of the need for engaged humanity is best served by its furtherance.

“The progress of diplomatic theory, has been from the narrow conception of exclusive tribal rights to the wider conception of inclusive common interests.”

History informs us that casus belli, of all wars and battles, since times immemorial, have been a vested economic interest. The pursuit of explorers and the expansionist designs of kings, emperors, rulers, had at the centre of their initiatives, a need to enrich themselves. The possibility of hitting an Eldorado remained a guiding principle – it continues to do so, even today.

Arguably, human society has evolved towards greater civility in the last 100 – 200 years, but the quest to own and capture economic assets has not diminished. The only difference is the format adopted and its related distinctive manifestation. The British invaded and ruled the sub-continent through its corporate entity "The East India Company". Sir Thomas Roe did not come to the court of Emperor Jahangir, to merely deliver a message of goodwill of the Royal Court, or to buy spices, but had a bagful of economic and political agenda to initiate. Rest is history.

The current war theatres globally are representative of the new methodology adopted to pursue the old principle of depriving the local populace of its economic assets, for the enrichment of the aggressor. Governments are not free agents. International facts...... prevent them, often in the most unexpected ways (Butler 1973:84).

The term foreign policy has been defined in various ways by scholars; however, they are certain that is concerned with the behaviour of a state towards other states. Hermann, for instance, defined foreign policy as, “the discrete purposeful action that results from the political decision of an individual or group of individuals (Foreign policy and diplomacy with special reference to India – open access Journal). It is the observable artefact of a political-level decision. It is not the decision, but a product of the decision”. Hermann sees foreign policy as the behaviours of States.

Foreign policy by definition is a process through which a state undertakes to pursue its national interests in relation to the comity of other countries at an international level. Diplomacy is the management of these relationships, largely by negotiations and with a focus on avoidance of military engagements. Diplomacy and diplomats are the raison d’etre for the maintenance of peace and harmony between the nation-states. The instruments deployed to achieve this objective are usually economic treaties, agreements, alliances blocs, and engagement with other multilateral agencies, where the objective is to find unanimity in the purpose of economic development. Foreign policy is a set of fundamentals and principles that determine the basis to deal with other countries ie “it is about what it does”; and diplomacy is ‘how it does it’ (Jonsson)

In Hill’s Insight, “foreign policy is the hinge of domestic and international politics” (Yitan L (2008) Domestic vs international determinants of foreign policy: An empirical investigation of the case of China-Taiwan, 1991 – 2000). There is also consensus among scholars that foreign policy serves as an intersection point of domestic and international politics. Thus, the foreign policy of every state is influenced by mainly two determinants; international or external and domestic or internal (The study of Foreign Policy in International Relations, BoJang AS).

The trade and investment policy of any country must find its reflection in its foreign policy. If the two are detached, it would obviously impair seriously, the induction of overseas capital flows into the country; ultimately hampering economic development. When states indulge in serious protectionism, they do to the disadvantage of others. It took years of international persuasion for Japan to abandon, not in entirety but only partially, its strict protectionism laws, which were instituted to safeguard the prospect and growth of their local industries. The movement towards liberalisation helps the promotion of trade and capital flows.

Morgenthau (1949) propounded on the desirability to place reliance on well-trained leaders and diplomats as independent variables, in the area of foreign policy decisions (Morgenthau (1949) argued that only the workman-like manipulation of diplomacy in a realist way could achieve the national interest (recognised as power) and the potential transformation of international politics). The idea was to have diplomats who would be well versed in areas of trade and investment.

The narrowing of geographic distances between nations as a consequence of continuous improvements in technology, particularly, transport technology, that is now more than ever before efficient in the movement of goods and services, has resulted in ‘critical interdependence’ between countries (Interdependence, most simply defined, means mutual dependence.... where there are reciprocal (although not symmetrical) costly effects of transaction, there is inter-dependence (Koehane and Nye – 1977).

Diplomacy based on the charisma of economic empowerment, is powerfully seductive and when deployed over a long period of time reaps results in a sustainable manner. Countries who engage with tact and envisage continuous returns and deploy discretion in their outlook are beneficiaries for long-term gains. One manifestation of this thought is developing trade links, promoting economic integration, and creating interdependencies to attain and achieve economic emancipation.

Politics and economics are so closely intertwined, that any nation that wishes to progress, has to necessarily develop policies that are complementary to political exigencies and economic well-being. Any forward-looking state cannot afford to have a mutually exclusive, domestic and foreign policy.

Domestic economic policies impact foreign policy. They overlap and hence cannot be compartmentalised or separated, on a mutually exclusive basis. They are like Siamese twins. No ‘independent’ state is free from the impact of what other nations do; today's global environment is an era of complex interdependence. A case in point, withdrawal of GSP plus status for Pakistan by The European Union (EU) will severely hit its exports, particularly textiles and home textiles.

Domestic policies are determined on what are the local populace demands - the power of the electorate many times drives local economic policy; it is also true that not all domestic policies are based on the fundamentals of economic principles of cost vs return, they instead are subject to political expediencies. The formulation of ideas by experts, who are blessed with foresight, is critical, in the development of foreign policy. Both economic policy and foreign policy are made for the long-term, never for the short term. They must therefore remain in sync at all times.

By the late 1950s, the close relationship between domestic politics and foreign policy making received greater recognition. Economic policy has important consequences on the material interests of societal groups such as industry, organisations, and labour unions. Taking trade policy, for instance, imports can provide both a positive and negative impact on the domestic economy. They can offset local shortages of goods and services, and provide competition to local import-competing industries. This can lead to efficient production and marketing locally. Societal groups try to influence policymakers to seek measures that will serve their interests. In this pluralistic approach, foreign economic policy can be a consequence of an ongoing competition between domestic societal groups and political groups. For policymakers, it remains a challenge to create policies in deference to political or social pressures (Jiro Okamoto, IDE APEC Study Center Working Paper Series 96/97 - No 3 1997).

It, therefore, follows that “the policy preferences and actual choice of state can often differ from the demands of interest groups because private interests tend to be narrow without considering the state’s economic strategy and rarely take the economic policies of other states into account. Furthermore, state policymakers are in a position to be able to make links between the foreign economic policy of their own and other states, and tie certain policy issues to a larger set of international issues. By doing so, they can bargain to realise the state’s overall interests”. (Ikenberry 1988)

The demands of domestic economic policy must reign supreme in the formulation of a state’s foreign policy. If these remain out of step, the economic damage to the country is always severe.

The political leadership alongside economic managers and gurus, must develop a blueprint, that must have in focus, a long-term view, and strategy to reach out to overseas markets for strengthening the local economy.

If we take for instance China’s foreign policy and economic relations, it proves beyond doubt, that a well-defined and solid domestic economic policy can drive a country's foreign policy. China attracted billions of dollars of investments from countries that traditionally were considered as ‘enemy countries’. Japan is the eighth largest investor in the economy of the Shanghai district. China's One Belt, One Road (OBOR) initiative serves as a good example of the twinning of domestic and foreign policy. CPEC is an offshoot of OBOR; only this route gives China, an advantage of reduction of almost 40 percent Maritime cost for shipments to the Middle East and Africa. OBOR will give China a distinct advantage over all other countries of the region and outside, as well. It is indeed unfortunate that Pakistan's foreign policy and its economic pursuits have largely remained out of step with each other. We inherited a dismal economy, and have maintained a southward journey.

The need is to reckon the importance of the integration of these two policies, both at the government (political) and bureaucratic levels (establishment) – that's the only way to achieve economic independence.

The writer is a senior banker and a freelance columnist