In a graduate-level course on international business, a professor sketched out the political-economic philosophy of international business, whose mantra is that if two or more countries have enough trade and foreign direct-investment, those countries would be less likely to go to war. In short, economic interdependence, thanks to international business, can render war obsolete and thus greatly enhance the human condition. Decades after I had taken that course, a business professor at the same university wrote extensively on the role that business can play in facilitating peace. Unfortunately, that economically-sourced theory of international relations downplays or ignores that the reasons or rationales for going to war and the decisions taken by a government for military-strategic reasons during a war can trump the (especially immediate) economic benefits from international business, whether in terms of imports, exports, or foreign direct-investment by foreign firms at home or by domestic firms abroad. This can occur even though revenue from taxes or state-owned enterprises having to do with trade and foreign-direct investment can help a government in fighting a war. The case of Ukraine cutting off Russian natural gas from traveling through Ukraine in pipes to the E.U. as of January 1, 2025 is illustrative of vulnerability in the theory of international business as a way to world peace.
In not allowing the 2019 transit deal between the Kremlin-owned gas company, Gazprom, and Ukraine’s Naftogaz to be renewed for 2025 and beyond, the Ukrainian government faced “the loss of some $800 million a year in transit fees from Russia, while Gazprom [stood to] lose close to $5 billion in gas sales.”[1] At the time, Russian forces were making further incursions in eastern Ukraine, so the Ukrainian military could have used the military hardware that $800 million could have bought, especially with isolationism soon to gain a foothold in the White House. Furthermore, that Gazprom had “recorded a $6.9 billion loss, its first in more than 20 years, due to diminished sales to Europe,”[2] suggests that Putin’s decision to invade Ukraine, largely for a noneconomic, imperial reason, had come with some economic costs. Put another way, Putin’s regime could have used the $5 billion in gas sales to the E.U. to help finance the invasion. International business was clearly not foremost two either government in the war. Rather than the pipeline reducing the chances of war when it broke out in 2023, the international commerce would become a casualty of war. Although international business benefits states, to reduce state interests in political realism to economics misses a lot and thus can lead to bad predictions regarding war and peace.
As for the E.U., at first
glance it would seem that Europe would be less supportive of Ukraine in its war,
including financially and in terms of sending military hardware because the Ukrainian
government had just cut off Russian gas from reaching the E.U. in the middle of
winter. Fortunately, the E.U. had anticipated the geopolitical strategic move
by seeking out other sources of natural gas, such as the U.S., so the Russian
gas through Ukraine only “represented about 5% of the European Union’s total
gas imports, according to Brussels-based think tank Bruegel.”[3]
A spokeswoman for the European Commission said at the time, “The European gas
infrastructure is flexible enough to provide gas of non-Russian origin to (central
and eastern Europe) via alternative routes . . . since 2022.”[4]
Taking into account the continuing pipeline through Turkey, the E.U. had reduced
“Russia’s share of its pipeline gas imports down from over 40% in 2021 to about
8% in 2023, according to the European Council.”[5]
I submit that even if the E.U. had not prepared for the rather obvious decision
of Ukraine’s government not to renew the transit deal with Russia in the midst
of the Russian invasion, non-economic, geopolitical interests would have continued
to fuel the E.U.’s desire to support Ukraine militarily, for fear of Russian
inroads in eastern and even central Europe can easily be understood to trump
even the economic benefits from international trade and foreign direct-investment
with Russia.
In short, states are foremost
political entities; not that they and the people who run them are not motivated
by the economic benefits arising from international trade and foreign
direct-investment, and these can admittedly make a difference on close calls on
whether to go to war, but geopolitical considerations are primary. War and the
effects thereof go beyond economics and business. A town being occupied,
whether in Ukraine or Gaza, has existential implications for the people therein
that extend beyond how trade is being impacted. In fact, as Israel has
demonstrated toward Gaza, economic resources can be weaponized such as by withholding
food and other humanitarian relief so as to kill off a population. Such a goal
is not economic in nature, and international business is not sufficient to
override such ideological goals, or even hatred itself. The limits to peace
through economic interdependence stem from precisely this point: hatred goes
beyond economics, so the latter can only go so far in constraining the former.
The problem, in other words, is not that international trade and business haven’t
been extended sufficiently to insure world peace, but that hatred can override
economic self-interest.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.