Geopolitics Stymies Investors

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Geopolitics and international developments

Geopolitical volatility is shaping tax policies. Tax policies are shaping geopolitics.

While the world’s geopolitical environment is never stable, the volatility we see today is unprecedented, especially as geopolitics affect policies on taxation and trade. The uncertainty of the current political landscape is having a greater impact on businesses than they have seen for many years.

  • In Europe, the United Kingdom’s exit from the European Union will profoundly affect how businesses inside and outside the UK structure and conduct cross-border businesses.
  • The United States’ retreat from global trade and its introduction of protectionist tax and trade policies are changing the prospects for the foreign activities of US businesses and of non-US companies that invest or do business there.
  • Rising protectionism in the US and many other countries is diminishing the influence of multilateral projects and institutions.
  • The rising civil interest in how much tax large corporations pay and the global project to curb tax base erosion and profit-shifting has sparked a wave of tax reforms worldwide as countries seek to shore up their tax bases and improve their ability to compete for foreign investment.

Perhaps the most significant geopolitical force is the continuing rise of China as an economic and politically influential power, especially as multilateral institutions decline in power. In the future, China’s soft power will likely become increasingly important, and its state-owned enterprises is expected to have different objectives and operations than conventional multinationals.

For example, consider China’s massive Belt and Road Initiative (BRI) to promote investment in developing infrastructure and trade along the historic Silk Road trade routes. The BRI will likely spur significant cross-border economic activity between more than 70 countries across Asia, Europe, the Middle East and Oceania. It will open new trade routes and connections between China and many developing countries, especially in Eurasia.

Grant Wardell-Johnson

Head of Australian Tax Centre

KPMG in Australia

So as some other countries focus inward and erect new barriers to investment and trade, China is investing enormous sums on an infrastructure that will likely put it at the center of a vast new web of business relationships.

One of the most jarring aspects about the current geopolitical situation is that, in many cases, rational economic logic is taking a back seat to other imperatives where tax and trade are concerned. This makes geopolitical analysis essential for today’s business.

Companies need to focus on how geopolitical trends will play out in the short, medium and long terms. Many companies are taking steps manage their exposure by consulting specialists to help them better understand potential threats. They are also spending more time on scenario planning – considering what’s likely, what alternatives are credible, what’s unlikely and what’s worst case – so they can chart their best course forward. Where broader geopolitical trends were once on the periphery of business thinking, they are now high on the radar.

Tax factors are an important part of geopolitical analysis. How a country establishes its tax settings – what and how much economic activities are taxed and whether and how the tax system delivers social benefits – are fundamental to the long-term fiscal stability of a nation. These settings need to be viewed in the context of demographics, cultural predispositions and the structure of the economy, including its international exposure.

The best settings are those that cohere with the international order. However, that cohesion is diminishing as multilateral institutions decline and unilateralism continues to rise. Countries are approaching tax reform in various ways, and, from the global perspective, pressures on national budgets will likely lead to businesses shouldering higher tax burdens.

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However the future may unfold, businesses need to keep a close eye on geopolitical trends so they can be ready for the new strategic and operational challenges they may face in the years ahead.

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Geopolitics

Geopolitics attempts to explain international politics in terms of geography—that is, the location, size, and resources of places. It tries to describe the relationships between geographic space, resources, and foreign policy. Several geopolitical theories have fallen into disrepute and are no longer used because they have been used to justify imperialism and wars of aggression. They also tended to emphasize only one material factor to the exclusion of cultural and ideological factors. A deeper understanding of international relations requires consideration of all factors that are pertinent to human life, taking into account historical, social, and spiritual aspects, as well as the physical and geographic nature of each nation.

Contents

Definition

Geopolitics attempts to explain international politics in terms of geography, based on factors such as the location, size, and resources of each area. In the words of Oyvind Osterud: [1] :

In the abstract, geopolitics traditionally indicates the links and causal relationships between political power and geographic space; in concrete terms it is often seen as a body of thought assaying specific strategic prescriptions based on the relative importance of land power and sea power in world history. The geopolitical tradition had some consistent concerns, like the geopolitical correlates of power in world politics, the identification of international core areas, and the relationships between naval and terrestrial capabilities.

History

Swedish political scientist Rudolf Kjellén coined the term “geopolitics” at the beginning of the twentieth century. Kjellén was inspired by the German geographer and ethnographer Friedrich Ratzel, who published his book Politische Geographie (Political Geography) in 1897. The term was popularized in English by American diplomat Robert Strausz-Hupé, a faculty member of the University of Pennsylvania.

Halford Mackinder

Geopolitics gained prominence through the theories of Sir Halford Mackinder of England with his “Heartland Theory” in 1904. Mackinder divided the world into two sections, the “World Island” and the “Periphery.” The World Island included the great land mass of Europe, Asia, and Africa, including the Heartland, which included Ukraine, Western Russia, and Mitteleuropa. The “Periphery” included the Americas, British Isles, and Oceania.

The Heartland theory hypothesized the possibility for a huge empire to be brought into existence in the Heartland, which would not need to use coastal or transoceanic transport to supply its military industrial complex, and that this empire could not be defeated by all the rest of the world coalitioned against it. The Heartland contained the grain reserves of Ukraine, and many other natural resources. Comparing countries to cogs in a machine, he theorized that the Heartland was the largest cog, and countries surrounding it were the smaller cogs that moved as it moved.

–> Mackinder’s theory can be summed up in his saying “Who rules East Europe commands the Heartland. Who rules the Heartland commands the World-Island. Who rules the World-Island commands the world.” His doctrine was influential during the World Wars and the Cold War, for Germany and later Russia each made failed attempts to seize and fortify the Heartland.

According to Mackinder’s doctrine, the World Island, which contained sufficient natural resources for a developed economy, could send its navy to destroy or intimidate the nations of the periphery while locating its own industries further inland so the nations of the periphery would have a longer struggle reaching them, and would be facing a well-stocked industrial bastion. Also, the industrial centers of the Periphery were necessarily located in widely separated locations. –>

Influenced by Mackinder’s theory, Adolf Hitler invaded Russia in 1941, which he saw as being necessary for world domination. Hitler did not reckon, however, with the determination and resilience of the Soviet people and the severity of the Russian winter, which combined to deliver a crushing blow to the Wehrmacht and was the beginning of the end for the Third Reich. Mackinder’s theory was further discredited when the Soviet empire, which occupied the Heartland, dissolved into separate republics amid economic chaos and rebellion.

Other Theories

Mackinder’s theory was opposed by Alfred Thayer Mahan who stressed the significance of navies (he coined the term sea power) in world conflict. American scholar Nicholas Spykman argued that it was also important to control what he called the “Rimland,” which consisted of Western Europe, the Middle East, and southern and eastern Asia. These scholars saw naval power as the key to controlling key straits, isthmuses, and peninsulas that intersect ocean trade routes, such as the straits of Gibralter, the Bosporous, the straits of Molucca, the Suez Canal, and the Panama Canal. These strategic chokepoints have been hotbeds of imperial ambitions and intrigue throughout history.

A variation of geopolitical theory that emerged during the Vietnam War was the “domino theory,” the idea that communism would seek to take over adjacent countries one by one, like a row of falling dominoes. This argument was used for U.S. intervention in Vietnam. The theory argued that the line had to be held in Vietnam to prevent Thailand, Indonesia, and eventually Australia from being at risk. This theory is no longer considered valid since the collapse of the Soviet Empire, conflicts between communist countries—such as border disputes between Mainland China and Vietnam—and the adoption of capitalism by China and Vietnam.

After World War I, Kjellen’s thoughts and the term were picked up and extended by a number of scientists: in Germany by Karl Haushofer, Erich Obst, Hermann Lautensach, and Otto Maull; in England by Halford Mackinder; in France Paul Vidal de la Blache. In 1923, Karl Haushofer founded the Zeitschrift für Geopolitik (magazine for geopolitics), which developed as a propaganda organ for Nazi Germany.

Haushofer combined Mackinder’s theory with some of his own and developed geopolitics into a pseudoscience. He argued that oceanic countries would have to grant lebensraum (living space) to the newer, more dynamic continental countries. Lebensraum was a key propaganda slogan justifying Hitler’s invasion of the Sudetenland in Czechoslovakia that set World War II in motion.

Anton Zischka published Afrika, Europas Gemischftaufgabe Tummer (Africa, Complement of Europe) in 1952, where he proposed a kind of North-South Empire, from Stockholm in Sweden to Johannesburg in South Africa.

Recent Developments

Geopolitics in the past has focused on world conflict, based on the premise that the world contains a limited amount of space and all countries struggle among themselves to get enough to survive. Geopolitics, however, can also be used to foster peace between nations, as Former Secretary of State Henry Kissinger said, by geopolitical, I mean an approach that pays attention to the requirements of equilibrium. [2]

Since then, the word “geopolitics” has been applied to other theories, most notably the notion of the “Clash of Civilizations” by Samuel Huntington. At the same time historian William H. McNeill in his book The Rise of the West wrote about the influence of the Silk Road in linking global civilizations together. Stretching 5,000 miles from eastern China to the Mediterranean Sea and flourishing from 100s B.C.E. to 1500s C.E., that key trade route, named after the caravans of Chinese silks that traversed it to be sold in the West, effected what McNeill calls the “closure of the ecumene”: his term for the great community of civilization, linked together from extreme East to farthest West, in which there have been no entirely independent civilizations since.

–> Gradual advances in maritime technology made sea routes safer and more convenient, leading to the demise of the Silk Road by the 1500s and the rise of maritime powers. A modern version of a land route linking the world together, however, has been proposed in creating a series of bridges and/or tunnels across the Bering Strait, linking Alaska in the United States and Siberia. This would be a vital link in the great project of creating a single land transit route spanning the globe from the tip of South America to England. The concept of an overland connection crossing the Bering Strait goes back at least a century. William Gilpin, first governor of the Colorado Territory, envisioned a vast “Cosmopolitan Railway” in 1890 linking the entire world via a series of railways. In the following years several other proposals were developed by others, including Joseph Strauss, designer of the Golden Gate Bridge, engineer T. Y. Lin, who like Gilpin, envisioned the project as more than simply a bridge but as a symbol of international cooperation and unity, and Russian railway engineer Anatoly Cherkasov soon after the end of the Cold War. The most recent proposal includes a global highway and rail system proposed by the Universal Peace Federation founded by the Reverend Sun Myung Moon.

As the world became smaller in the sense of global transportation becoming faster and easier, and neither sea lanes nor surface transport are threatened in a more peaceable world, all countries are effectively close enough from one another physically to mitigate the influence of geographic space. It is in the realm of the political ideas, workings, and cultures that there are differences, and the term has shifted more towards this arena, especially in its popular usage.

Notes

  1. ↑ Osterud, Oyvind. “The Uses and Abuses of Geopolitics,” Journal of Peace Research, no. 2, p. 191, 1988
  2. ↑ Kissinger, Henry. Colin S Gray, G R Sloan. Geopolitics, Geography, and Strategy. Portland: Frank Cass Publishers, 1999.

References

  • Diamond, Jared. Guns, Germs, and Steel. 1997.
  • Kissinger, Henry. Colin S Gray, G R Sloan. Geopolitics, Geography, and Strategy. Portland: Frank Cass Publishers, 1999.
  • O’Loughlin, John and Henning Heske. From ‘Geopolitik’ to ‘Geopolitique’: Converting a Discipline for War to a Discipline for Peace. In: Kliot, N. and Waterman, S. (ed.): The Political Geography of Conflict and Peace. London: Belhaven Press, 1991.
  • O’Tuathail, Gearoid, etal. The Geopolitics Reader. New York: Routledge, 1998. ISBN 0415162718.
  • Spang, Christian W. “Karl Haushofer Re-examined–Geopolitics as a Factor within Japanese-German Rapprochement in the Inter-War Years?,” in: C. W. Spang, R.-H. Wippich (eds.), Japanese-German Relations, 1895-1945. War, Diplomacy and Public Opinion, London, 2006, 139-157.

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Geopolitical Realism

Geopolitics and International Relations

Geopolitics is completely separate science, based on its own principles and methodologies. However, the geopolitics and the International Relations studies the processes of the international sphere, that’s why both science have quite a big number of common issues. The geopolitics like the International Relations was founded in the begging of the XX century in Anglo-Saxon sphere, but its scientific institutionalization was developing in the different way and tuned out to be quite problematic. However, there is a number of authors that are considered both in the geopolitics and in International relations, even from different positions and perspectives.

The first definition of the geopolitics was given by the Swedish political scientist Rudolf Kjellén, calling it as the “science on the relations between the State and the space”; and if all the authors strictly follows the interpretation, the geopolitics would be the part of the International Relations, as the science studies the interaction and territorial aspects of them can become an independent brunch of it. But the first geopolitical works (H. Mackinder) showed that the sciences is much more than just an International Relations brunch and claims for its own structure and objects for studying, turning into new level of such a generalization, that’s makes new coordinate system. That’s why, to tell the truth, the geopolitics must be regarded as completely independent science, being on the crossroad of the political science, military strategic, economic geography, sociology and civilizational researches.

Such a presentation of geopolitical theories and main authors is introduced in a special books, monographs and reading-books on the geopolitics proper, and in the context of the realism in the International Relations, only some sides of the geopolitical theories may be useful, which are directly introduced inti the context of the school, i.e. studying the interaction structure between the States.

Alfred Mahan: Seapower

An American admiral Alfred Mahan (1840-1914) didn’t use the term “geopolitics”, but prepared conceptually the appearance of the science. It was him who introduced the “seapower” term that was turned by Mackinder into the main concept of the geopolitics.

Mahan believed that Manifest Destiny of the USA is consisted in the becoming of the world sea empire that have to get the batalon from the Great Britain. That’s why the main objective of the American politics is the developing of Navy and establishment of the control over the World Ocean. According to Mahan, only global expansion may provide the security and maintenance of the US national interests. During the expansion, the USA, soon or later, will face the States that will resist the global domination as it was in case of Napoleon’s France of Bismarck’s Germany, on the one hand, and England and, on the other hand. But every time the winner is that who control the Sea as the most privileged space of the World Trade. That’s why, as soon the US will realize its global destiny and the mean to gain it thought the control over the Sea, the more efficient beat down its rivals (as land Russia, first of all) and reach the planetary hegemony.

Halford Mackinder: Sea VS Land

The founder of the geopolitics is a British geography, diplomat and political activist, a co0-founder of the London School of Economics, sit Halford Mackinder (1861-1947). It was Mackinder who introduced the terms the “Sea” and the “Land” as the fundamental categories of the geopolitics. He understand the “Sea” as the sea empire, in the case, the Great Britain, and the “Land” – land continental State, first of all, Russia. The fight between the Sea and the Land was a key to decode the “Great Game” that was played by the UK and the Russian Empire in the XIX-XX centuries and drew in the space form Baltia, East Europe, Black Sea, Caucasus to the Central Asia, Far East and Pacific Ocean. Most likely, the dualism of both civilizations, the Sea and the Land, the thalassocracy and the tellurocracy, was discovered by Mackinder as the fundamental geopolitical law, on the basis of the systematic comprehension of the strategic contest that the “Great Game” is played within its framework.

Mackinder is often added on the list of the realists in the International Relations as he believed that the confrontation between thalassicracy and tellurocracy, i.e. between the Sea and the Land is the objective historical processes connected not to the particular circumstances, political regimes, cultural codes or religious differences, but with the special arrangement of the space that is shown in in the society structure and its fundamental tendencies and that reviled in the biggest periods of time and most notably in the confrontation with the other form of the arrangement. Thus, Mackinder shared with the other realists the principle of potentially military confrontation between the State as it is usual for the for standard and natural environment where the all International Relations exists. But, on the contrary to the classical realists, Mackinder explained it not by the chaos and anarchy caused by the sovereignty, but by the principle dualism of the geopolitical orientations and fundamental contradictions between the geopolitical strategical interest if the Sea and the Land. In practice, Mackinder and his followers were usually fallen within the realist’s squad (however, there is some exceptions, for example the Atlantist geopolitical liberalist Zbigniew Brzeziński), i. e. they were skeptical on the possibility of the deep and transformation qualitative of the society that were in the opposite geopolitical families. No ideological changes in the Land States could help to come nigh unto the Sea States structure, so the geopolitical contradictions must be regarded as something unchangeable, permanent and more fundamental than political systems and regimes fluctuations.

Mackinder, being the British High Commissioner in Southern Russia in the period of the Russian Civil War, regarded the Bolsheviks, controlling the Heartland of former Russian Empire as the direct followers of the Russian emperors geopolitics, and called upon to support the White Army in the different ways which could help to break down Russia as the Land civilization – the permanent enemy of the British Empire, representing the Sea civilization. In general, the analysis of the Russian Civil War by H. Mackinder and by E. Carr were quite similar, but the conclusions of the analysis were opposite. The majority of the British politicians and analyst, at that time, were sure that the Bolsheviks is something different for Russia, so their governing would have no chances to be for long time. Mackinder, as well as Carr and some Eurasianists (particularly, P. Savitsky) regarded the Bolsheviks as the direct successors of the Land civilization, the Russian continentalism and predicted their win in the Civil War and further might. However, if Carr offered to London just accept it as the fact and build the pragmatic and constructive relations with the USSR as with the future Great World State for the very begging, Mackinder, on the contrary, found the same prediction as the threat for the British Empire and urged London to do everting possible to do no end of mischief to the Bolsheviks. Carr brought pressure to the authorities in the completely different way. Thus, two realists, basing on the same analysis of the particular historical situation, made two completely different conclusions. The example shows quite graphically how different the spheres of the scientific ascertaining and creation on its basis of the recommendations on the sphere of particular policy. The same analysis, made within the framework of the same science, can bring to the completely opposite conclusions.

Nicholas Spykman: Who Does Control Rimland?

Mackinder made a great influence on the American geopolitical scientist Nicholas Spykman (1893-1943), the co-founder if American geopolitics and also the representative of the US realism in the foreign politics. Spykman made a revision of the Mackinder’s geopolitical ideas stressing the intermediate “coastal zone” (Rimland), i.e. the territory from the West Europe thought the Middle East to the Asia and Pacific zone. Spykman believed that the area was crucial in the fight if the Sea and the Land. Mackinder stated that “who rules Eurasia, rules the World”, Spykman changed the formula in the way that “who rules the Rimland, rules the World”.

Spykman is thought to be the main creator of the “containment” theory that became the main US strategy toward the USSR in the Cold War period. It means not to allow the expansion of the Soviet influence that was the main competitive world hegemon, far from the Heartland and establish direct and indirect control over the Rimland; first of all, to establish direct American domination over the West Europe, not allowing Germany to strengthen its positions. Then it was important to Turkey entering NATO, to redirect some Arabic countries toward the USA. To receive the loyalty to the US from the Iran. To strengthen its position in Pakistan without breaking-off with India. To separate China and Russia supporting Japan, occupied by the West after 1945.

Carl Schmitt: Order of Great Spaces

Carl Schmitt (188-1985), the German jurist and political theorist, made a great contribution to the geopolitics, as well as the International Relations. The Schmitt theories covers the wide range of the issues connecting with the different sides of politics, including the international one, and many of his concepts and definitions became classic. In the term of the geopolitics, he offered to make the philosophical basis of the Mackinder concepts of the Sea and the Land, describing the sociological and political differences between thalassicracy and tellurocracy comprehended as the different civilizational systems. The Sea is a trade system, individualism, commercialization, disposing the technical development, industrialization, modernization and social dynamic. The Land is the conservative hierarchical social system, hierarchy, values of self-sacrifice, service, fidelity and honor; it is more traditional society. Thanks to Schmitt geopolitics gained the great social base taking into account cultural and social codes.

Simultaneously, Schmitt developed the theories if the legal registration of the “order of great spaces” that he was studying carefully from the Jus Publicaum Europeum to the English Admiralty law, American Monroe Doctrine and the legal grounds of the Treaty of Versailles. Schmitt shows that the concept of the “great space” (Grossraum) isn’t directly political or legal concept, but is the strategic project of the global and regional arrangement respecting the national interest of one or another Great Power or alliance. He correlates it with the concept of the “Empire”, including different political forms, even the whole States. One or another global arrangement of the political space is called by him the “Nomos of the Earth”.

Schmitt believes that any Great Power aims to take privileged place in the Nomos or to create a new one. It cases the global geopolitical transformations, wars, colonization, block organization ect.
Schmitt follows Hobbes in the State comprehension which he consecrated several works. He believes that the State is the social expression of the world religious interpretation. Hierarchical and monotheist religions build the vertical political systems. The polytheism favors the dispersion of the decision-making centers on the different institutional levels (subsidiarity).

The Schmitt ideas are fundamental arsenal for the International Relations as they give the tools for detailed philosophical analysis, as well as legal content of the international processes and its connection to the politics, the State and social systems. At the same time, in the term of the geopolitical approach, Schmitt unites any issue consideration with space factor.

Schmitt can be added to the realist because of his convictions that the political changes and, respectively, the State are the important characteristic of the human society, and any attempt (liberal and communistic) to question on the withering away of the State is demagogical cover to establish “potestas indirecta” that is able to turn into the dictatorship. Instead of it, Schmitt offers to recognize openly the inevitability of the political (he determines “political” as the sphere where there is the division on friends/enemies) and discuss all its aspects, including the dictatorship, openly and responsibly.

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