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The world’s geography shows us that with rare exceptions like landfill extensions or China’s artificial islands in the South China Sea, the quantity of land on our planet Earth is fixed. It is simple conventional wisdom that whatever territory one country gains, another must lose. Any exchanges are thus zero-sum. In the marketplace, however, the story is different.The butcher comes to market to sell meat and buy bread, voluntarily. The baker comes to market to sell bread and buy meat, voluntarily. Both are beneficiaries of the voluntary exchange. Both return home better off than when they left home. Their transaction, therefore, is a positive-sum exchange.
This mutually beneficial interaction in the marketplace was not always so. When bands of hunter-gatherers strayed into one another’s territory, there was a decent chance they would come to blows over limited prey. What one band killed and ate, another could not. Later in the evolution, some people satisfied their needs by enslaving others and coercing their labor. Eventually, by fits and starts, people have learned how to trade both labor and goods.
Because few of their trades are as simple as a bilateral exchange between butcher and baker, they invented money, a medium of exchange. The butcher could sell to the baker and buy from the tailor. The baker could sell to the tailor and buy from the butcher. The tailor could sell to the butcher and buy from the baker, and all in various increments rather than in fixed lots. And once again, all would come to market voluntarily and return home happy with their purchases.
Here, there are few simple but very important questions worth to mentioning. Is there a way of bringing this logic to geopolitics? What would be the currency, the medium of exchange? Could we move beyond bilateral conflict to a mutually beneficial multilateral exchange?
The genius of the market, as opposed to centrally planned economies, is its humility when it comes to understanding what consumers want. Past and present experiences vividly indicated that central planners are arrogant in assuming that they know what people want. They determine how many tractors or shovels need to be shipped to which towns and with what frequency. Centrally planned economies, therefore, make themselves stupid by denying themselves the information about consumer preferences that voluntary choices in the marketplace provide.
By analogy, and still working to frame the question, is our current geopolitical system stupid to the extent that it presumes to know what different countries want. Professor Jay Ogilvy of Yale University explained that when we look at, say, the conflict in Ukraine, we see what appears to be a zero-sum standoff of what Russia gains, Ukraine loses, and vice versa. Like central planners, we presume that we know what each country wants: more territory, more control.
Professor Jay Ogilvy noted that moving to another vexed part of the world, the Middle East, it is becoming increasingly obvious that borders need to be redrawn. According to him, Iraq is a mess and should probably be partitioned into a Shiite south, Sunni northwest and Kurdish northeast. The distribution of Pashtun tribes follows no national borders but sprawls across parts of Afghanistan and Pakistan. Syria has utterly lost its integrity as a state. As in the economic marketplace, almost no one will get everything they want in the geopolitical “market”. And perceived wrongs, slights, insults and envies will always lead to violence that will occasionally escalate to warfare.
By analogy with a multilateral marketplace including the butcher, baker, tailor and candlestick maker, might there be something Russia wants that China can provide; something China wants that Japan can provide; something Japan wants that the United States can provide; and something the United States wants that Russia can provide? So the main point in which Professor Jay Ogilvy making in posing this question is not that we should all be nice. Rather, it is quite the contrary.
In his classic book, “The Wealth of Nations”, Adam Smith observes that self-interest makes the economic world go ‘round. Adam Smith stated that “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
According to Professor Jay Ogilvy, the same can be said of the geopolitical arena. If we move away from the primitive world of bilateral, zero-sum conflicts to a complex, multilateral system made up of countries that differ in their perceptions of their self-interests, then it might just be possible to develop a system that generates positive-sum results. To draw again on the analogy of the economic marketplace, just as there are and always will be inequities between the rich and poor, so too will there be relative winners and losers in the geopolitical domain. But just as the aggregate sum of wealth generated in the global marketplace has increased manyfold in the past two centuries, following millennia of grinding poverty for nearly everyone, it is logical to think that a comparable breakthrough in geopolitical relations might be possible.
According to Professor Jay Ogilvy, we can draw yet another analogy between innovation in economic exchange and innovation in geopolitics when we examine cap-and-trade systems for reducing pollution. In a cap-and-trade system, potential polluters are allocated, based on historical data, a cap on what they can emit. Those who reduce their emissions below that cap then receive credits that they can sell to those who exceed their cap. What, sell rights to pollute?! At first glance, it seemed strange.
But after doing the math, anyone can see that if the system devotes more resources to cleaning up the worst polluters and less resources to those who are already running relatively clean, then the system as a whole will be cleaner, and for less investment than would have been required without a cap-and-trade market in place. Rather than leaving cleanup to individual entities acting on their own, or to government bureaucrats exercising command-and-control regulation, cap-and-trade creates a truly systemic solution that produces more bang per buck, a positive sum.
Prior to the 1980s, cap-and-trade, or “emissions trading” as it was then called, was unknown. Richard Conniff put it in an August 2009 article in Smithsonian Magazine, by saying “the Environmental Defense Fund (EDF) had begun to question its own approach to cleaning up pollution, summed up in its unofficial motto: “Sue the bastards.” During the early years of command-and-control environmental regulation, EDF had also noticed something fundamental about human nature, which is that people hate being told what to do. So a few iconoclasts in the group had started to flirt with marketplace solutions: give people a chance to turn a profit by being smarter than the next person, they reasoned, and they would achieve things that no command-and-control bureaucrat would ever suggest.”
Where are the iconoclasts in the realm of geopolitics? What might be the mechanisms for bringing free market logic into the geopolitical realm? What might be the medium of exchange, a currency other than bullets? No one might not have a readymade answer for these questions. But it is just the suggestion of a historical agenda.