In the second decade of the 21st century, we entered into the post-post Cold War period, and the nation state is reaffirming itself as the core actor in the global system. Adam Smith and David Ricardo are required reading once again, with the insights they provide on the links between politics and economics - and ultimately, societal well-being. While the "invisible hand" seemed to work best during the 1990s and the beginning of the 2000s, showing that efficient markets can be the outcome of individual decision-making processes, what became evident from the financial crisis of 2007 is that those choices were framed by the political systems in which they were made, just as the political systems were shaped by economic realities. This is a recurring theme of Smith's "Wealth of Nations." In similar fashion, Ricardo's competitive advantage theory appears to stand at the core of international negotiations both within and outside the alliance framework. Taking into account the three power pillars for nation-states - politics, economics and military - classical economists teach us a great deal about the relationship between political and economic life, improving our understanding of the security fundamentals that set the basis for military strategies.
2005-2008: A Pivotal Triennial
Multilateral negotiations on global trade and investment regulation have been put to a halt since 2008, when the Doha round talks in Geneva ended with no result. Instead, regional integration initiatives have picked up. After consultations that began in 2005, the United States and the European Union in April 2007 signed the Framework for Advancing Transatlantic and Economic Integration, the document which led to the first version of the Transatlantic Trade and Investment Partnership, or TTIP, in 2011. In November 2009, U.S. President Barack Obama announced Washington's intention to join negotiations for the Trans-Pacific Partnership, or TPP, an initiative launched in July 2005 as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement by Brunei, Chile, Singapore, and New Zealand. Ironically, both TTIP and TPP are ideas from the year 2005, the presumed and failed deadline for the Doha Round. Negotiations for regional integration have slowly replaced those for global integration, leaving some of the ideals of globalization behind.
In 2008, the financial crisis crossed the Atlantic, first into Europe and then on to Asia. While the crisis was felt more strongly in Europe in 2009-2010, it was in 2008 that it evolved from a national crisis to a global one. It was the aftermath of the financial crisis that installed political economy as the new realpolitik. At its core, the financial crisis was in fact a legitimacy crisis, bringing the financial and the political elites under question for their roles in the capital market. The current evolution of the crisis on the Eurasian continent is shaping geopolitical dynamics. The origins of the financial crisis stand in the risks created by interdependencies. The financial markets being interdependent, the crisis spread very fast - until 2008, no one thought interdependency and global markets could be something bad, because globalization was basically taken as a positive phenomena. However, globalization, especially in the financial markets, meant low or no regulation, and therefore no protection for local and national economies.
The origin of the financial crisis - the subprime meltdown in the United States - has appeared as a consequence of the financial system generating paper assets whose value was dependent on the housing prices, assuming that the prices would either always rise - or whose value, even if fluctuating, could still be calculated.
Instead, when the price of housing declined, the paper asset became indeterminate. The financial crisis broke out in the United States, and, because EU financial institutions also bought the paper assets, it spilled over the Atlantic. The financial elite was perceived at the time as violating principles of social and moral responsibility in its pursuit of profit. At the same time, the political establishment was seen as incapable of setting up the needed regulations to prevent the financial elite from manipulating the financial system to its own benefit in an uncontrollable manner. Thus in the aftermath of the crisis, the legitimacy of the financial and political elite is under scrutiny.
