Negotiating Our Economic Future: Trade, Technology and Diplomacy 0228005051, 9780228005056

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NEGOTIATING OUR ECONOMIC FUTURE

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NEGOTIATING OUR ECONOMIC FUTURE Trade, Technology, and Diplomacy GEOFFREY ALLEN PIGMAN

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© Geoffrey Allen Pigman 2020 This book is copyright under the Berne Convention. No reproduction without permission. All rights reserved. First published in 2020 by Agenda Publishing Agenda Publishing Limited The Core Bath Lane Newcastle Helix Newcastle upon Tyne NE4 5TF www.agendapub.com ISBN 978-1-78821-071-3 (hardcover) ISBN 978-1-78821-072-0 (paperback) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Typeset by Newgen Publishing UK Printed and bound in the UK by TJ International

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To all those on both sides of the Atlantic – past, present, and future – who believe passionately in the idea of a free, open, and democratic Europe, a place where human rights and liberties are cherished. To those who have given so much toil and treasure, in many cases including their very lives, fighting for the idea of such a Europe in the two world wars of the twentieth century, the Cold War, the Balkan Wars, and the Russo-Ukrainian War. Against the haters of all stripes – fascists, Nazis, ultranationalists, racists, xenophobes, Brexiters – the struggle may be long and hard, but together, with love in our hearts, we will prevail.

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CONTENTS

Acknowledgements 1. Crises in trade and diplomacy 2. Digital is making us rethink global trade

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3. Technological transformation, the global economy, and capitalism 41 4. Diplomacy and trade in an age of humans and intelligent machines 69 5. Big Government meets Big Tech: states, firms, and diplomacy

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6. Policy proposals for a human future

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7. How soon is now?

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Bibliography

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Index

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ACKNOWLEDGEMENTS

This book was originally envisaged as a rather straightforward look at contemporary issues in the diplomacy surrounding international trade. Following the Brexit referendum and election of Donald Trump in 2016, it took me the best part of a year to recover from the shock and reflect upon their meaning for what I had intended to write. I found that I needed to take a very large step back and consider broader, underlying explanations for the events and changes we were experiencing. What emerged from that somewhat lengthy process of reflection and of learning was this volume’s focus on how technological change has affected trade and diplomacy both. First and foremost I want to thank my editor at Agenda Publishing, Alison Howson, who gave my really rather rough script several thorough readings. Alison made incisive, thoughtful, and imaginative suggestions for revision of the text. She challenged me by suggesting two major reorganizations of the content, which have given the narrative the cohesion that it has today. My thanks as well to anonymous readers in the editorial process, whose questions and suggestions were useful and helpful. My thanks to Austin Barnes, who talked through with me the impact of poststructuralist and New Left thinking on the public debate on the future of capitalism. In particular, Austin helped me to understand how the thought of Gilles Deleuze and Félix Guattari bears on the argument of Chapter 3. Austin drafted the section therein on Deleuze and Guattari, for which he deserves full credit. Austin also created many of the infographics that appear throughout the book. I bow down to his software talents in this area, which I lack entirely. All errors and omissions throughout, of course, are mine solely. I want to thank the public libraries of Otis, Massachusetts, and South Orange, New Jersey, and their highly capable and helpful staffs for providing me with outstanding research support and resources. As ever, I  thank my mother, Nancy Sweatland Pigman, whose support in so many ways has been inexhaustible and without which this volume would not have been possible. Geoffrey Allen Pigman, East Otis, Massachusetts, Spring 2020 ix

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In 2016, two elections shocked the globe, challenging the foundations of the open trading, liberal global economy and the diplomatic comity that had enabled it to flourish since the end of the Second World War. On 23 June, voters in the United Kingdom cast ballots by a 52/48 percent margin in a referendum to withdraw from the European Union, after 43  years of membership in the largest, most successful economic and political integration project in human history. Five months later, the rabidly protectionist and openly anti-diplomatic presidential campaign of Donald Trump in the United States resulted in Trump’s accumulating enough votes in the 1789 Constitution’s Electoral College to secure the presidency (despite losing the popular vote by nearly 3 million votes). As events of the next three years in these two countries that were cornerstones of the diplomatic promotion of liberal trade worldwide in the nineteenth and twentieth centuries respectively would bear out, voters had taken a hatchet to a system of economic and diplomatic principles that had brought unprecedented economic fortune to their own forebears and to much of the world in the process. But the votes of that annus horribilis 2016 were only the tip of the iceberg, or more precisely the tip of several interlocking icebergs, to use a soon-to-beanachronistic metaphor. A succession of crises afflicted the global economy, and international relations and the practice of diplomacy more broadly, in the second decade of the twenty-first century with particularly negative consequences for international trade. The global economy’s recovery from the financial crisis of 2008 and the ‘Great Recession’ that followed was slower and more uneven than recoveries from other recent economic downturns. Emerging new technologies, extending from micro-targeting in advertising to robotics to machine learning and artificial intelligence (AI), have played a significant part in determining whose recovery has been strong and whose has been marginalized. Taking a longer view, the evolution of both trade and diplomacy has always been driven by technological development: for trade, the invention of the wheel, the steam engine, the internet; for diplomacy, the telegraph, the telephone, email, 1

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and video conferencing. Capitalism itself initially arose in the fifteenth century as the advent of limited liability corporations heralded a new means of funding lengthy sea voyages from Europe to Asia for Europeans to trade with Asians for exotic goods such as spices, coffee, and tea. Over the past half-century, a particular set of technological transformations have changed not only how capitalism and the global economy work, but also the basic workings of democracy, the states system, domestic politics, and diplomacy. The development since the 1960s of computers with the capacity to transmit funds electronically across the globe, mobile telephony, and the internet are key parts of an ongoing revolution in information and communications technologies (ICTs) that has changed how people do business and govern themselves. The next wave of this transformation, automation, robotics, and artificial intelligence, are only just getting underway. Historically trade and the diplomacy that both enables and is enabled by it have been engines of economic development and growth, prior to and particularly during the age of capitalism. Trade has also been associated historically with imperial conquest and exploitation, be it the ‘free trade imperialism’ of the British empire (all too often accompanied by ‘gunboat’ diplomacy) or the savagery of abducting and enslaving other humans to be transported across oceans and sold and bought as chattels. Trade or commerce itself – the exchanging of goods and services between people – long pre-dated the emergence of states and governments. Yet for most of human history, trade took place between neighbours or between villagers, not across significant distances (Polanyi 1957, pp.  45–55; Baldwin 2016, p.  4). What makes international trade different from commerce or trade in the broader sense is the existence of international borders. The origins of trade and diplomacy are intimately intertwined. Trade has always been and remains a major form of diplomacy in and of itself. When flows of goods, services, capital, and labour, and more latterly data, information, and knowledge, cross international borders, they play a key part in creating, maintaining, and managing ties between people, communities, and states. Traded goods and services themselves become a mode of diplomatic representation and communication (Pigman 2016, pp. 15–25). The growth of cross-border trade depends on diplomacy to lower trade barriers, even if historically that diplomacy has often been between states possessing very different levels of power. By the second decade of the twenty-first century, it became clearer than ever before that technology and trade are forces that have brought great goods to human civilization, but also wrenching disruptions. These disruptions have manifested themselves as different types of crises that often fall to diplomacy to overcome, or at least to mitigate. Understanding the crises that have beset the global economy and politics is the beginning of a search for new types of solutions. 2

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A world wide web of crises Innovations in communications technologies have been driving change in political communication for a long time. The invention of the radio brought mass communication and the opportunity for leaders and revolutionaries to spread propaganda to large numbers of people rapidly between the two world wars. The advent of film and television accelerated this process. Hitler’s Nazi regime in Germany used film with skill to glorify the Nazi state, as filmmaker Leni Riefenstahl’s work documenting the Nuremberg rallies and the 1936 Berlin Olympiad attest. In 1969 NASA showed the first landing of humans on the Moon live on global television, even if elements of the video feed had to be ‘recreated’ on a soundstage given the limitations of early video camera technology. The landing of astronauts Neil Armstrong and Edwin ‘Buzz’ Aldrin cemented a major US victory in a Cold War race to reach the Moon before the Soviets did. This revolution in information and communications technologies accelerated in the 1970s and 1980s, becoming a major contributor to the collapse of the Soviet bloc and the breakup of the Soviet Union. Video cassettes furtively circulated throughout Eastern Europe broke the stranglehold that the Soviet and satellite communist parties had on the access of their publics to news and Western entertainment. The fall of the Berlin Wall in 1989, shown live around the world on still fledgling cable television news networks, was emblematic of a global movement of democratization that stretched far beyond the bounds of the old Soviet empire. But it was the beginning of a more profound challenge to the rule of elites, be they Soviet nomenklatura or Western-educated political classes. Ordinary people from a wide range of classes and socio-economic backgrounds, with widely varying degrees of education, demanded to be heard. Their demands have produced a broad range of political outcomes: the dissolution of the Soviet Union in 1991; the emergence of Scandinavian-style democracies in the formerly Soviet-ruled Baltic states: the fall of the Mafia ‘state within a state’ in southern Italy; the 1994 transition from apartheid to majority rule in South Africa; the violent collapse of the former Yugoslavia in the 1990s; and the mostly failed ‘Arab Spring’ revolutions against entrenched dictatorships in the early 2010s. But one of the most important and far-reaching by-products of democratization across the globe is a new flowering of populism, in all its glory and all its brutality, fuelled by increasing usage of the internet and social media. Populism is far from a new phenomenon. From the earliest political societies, popular movements have coalesced and expressed themselves, frequently organized along class or ethnic lines, sometimes driven by grievance, sometimes motivated by an overriding issue of the day. Since ancient times, leaders have tapped into public sentiments and fanned popular frustrations in bids for popular 3

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support for their political, military, and economic projects. The invention of the printing press accelerated people’s ability to transmit and learn information and to make up their own minds about their needs and wants. As communications technologies have advanced, the symbiotic relationship between strong leaders and popular movements has grown, from Napoleon Bonaparte to Lenin, from Mussolini and Hitler to Franklin Delano Roosevelt and Mao Zedong, from Juan Perón to Mobutu Sese Seko. Nonetheless, there are important senses in which many of the key political and economic problems that have emerged across the globe in the second decade of the twenty-first century are linked by an upsurge of technology-driven populism across the globe. Once the Cold War had ended, the pace of globalization of the world’s economies accelerated with the integration of the economies of the former Soviet bloc and the rapid liberalization of China’s economy in the 1990s. But as a new phase of globalization took off, anti-globalization sentiments surged, initially led by developing countries as a critique of the ‘Washington Consensus’ suite of neoliberal international development policies: development assistance conditioned on developing country governments’ adoption of tight monetary policies, lower taxes, reduced government spending, and lowering barriers to trade and foreign investment. Opponents of the Washington Consensus rallied in December 1999 against the World Trade Organization’s attempt to launch a new round of multilateral trade liberalization in the famed ‘Battle of Seattle’ (Baldwin 2019, pp. 209–10). Yet by the aftermath of the global financial crisis of 2008, developing country critics of globalization were joined by workers in numerous industrial countries who saw well-paid manufacturing jobs disappearing rapidly. What was easy for industrial country workers to see and criticize was firms ‘offshoring’ manufacturing to developing economies with lower wage rates, particularly China. What was harder for them to see and understand was the extent to which firms used automated production and robots instead of human workers to scale up production after the 2008 recession. The response of the publics in many industrial countries to the 2008 crisis and the global economy in its aftermath manifested itself in ultranationalist sentiments, the normalization of racism and ethnic chauvinism, resurgent trade protectionism, and raging xenophobia in the form of opposition to migration and fear of migrants. Vladimir Putin’s consolidation of power in Russia by capitalizing on these sentiments in the Russian public was in many ways a harbinger of what was to come elsewhere. Ironically, Putin’s populist pitch to Russian voters resonated because much of the Russian citizenry had not yet even had the opportunity to taste the fruits of globalization and economic development. The Arab Spring uprisings of the early 2010s, which tried without much success (so far except in Tunisia) to bring more democratic, liberal forms of government to the Arab Middle East and North Africa, failed most spectacularly in Syria. 4

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Number of migrants (in millions)

What began as a civil uprising against Syrian dictator Bashar al-Assad morphed into a broader regional conflict, by 2015 forcing millions of Syrians, most of whom well educated and highly skilled, to flee toward Europe in search of peace and jobs. As 2019 drew to a close, the Syrian conflict showed no signs of ending. The Syrian migration, joining already increasing streams of economic migrants from Africa and from farther east in Asia, caused fear of and hostility toward immigrants to spike across Europe. Popular fears led to the election or re-election of populist and ultra-nationalist parties and would-be leaders in several European countries, ranging from strongman Viktor Orbán’s Fidesz party in Hungary to the Law and Justice Party in Poland, the Cinque Stelle–La Lega coalition in Italy, and the Leave campaign in the United Kingdom’s Brexit referendum on EU membership. Even in European states that did not see populist/ultranationalist parties victorious in the mid-2010s, strong showings by Marine Le Pen’s National Front in France and the Alternativ für Deutschland (AfD) in Germany were in keeping with the overall trend. The popular craving for a revival of the strong state with strong leader, what Hitler had called the Führerstat, repeated itself in numerous countries around the world, in some cases paving the way for a resurgence of authoritarian rule: the 2016 election of Rodrigo Duterte as president in the Philippines, the 2016 election of Donald Trump in the United States, the entrenching of the powers of Turkish president Recep Tayyip Erdoğan through a constitutional referendum in 2017and the 2018 election of Jair Bolsonaro in Brazil. 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0

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Rise in global migration numbers over past thirty years, 1990–2019 Source: International Organization for Migration. Infographic: Austin Barnes. 5

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Yet popular fears of migrants beg the question of why more people than ever choose to migrate in an age when economic prospects have improved so much for so many (see the next section). Leaving one’s homeland is not generally a firstchoice solution to a problem. As the case of Syria illustrates, war, persecution, and authoritarianism are themselves often reason enough to motivate flight. The exodus of hundreds of thousands of Rohingya people from Burma into refugee camps in Bangladesh in the face of the threat of ethnic cleansing by Burma’s military is another example. But even excluding these most dire of conditions, in a wide range of countries a persistent lack of jobs and prospects for economic advancement make emigration a more attractive option than remaining at home. In the poorest, least developed states in sub-Saharan Africa and Asia, bleak income prospects may be widespread across the population. In many other states, from poor countries with authoritarian governments to middle-income countries with economic structures ill prepared to compete in the current global economy, some segments of the population may be living well, whilst so many others cannot earn enough to get by. Public perceptions that structural inequality of opportunities is built into the contemporary economic system are growing, from the poorest to the wealthiest countries. This spreading awareness of inequality is translating not only into populism and ultranationalism on the political side, but in economic terms into a new wave of skepticism about how capitalism functions and its long-term viability. The crumbling of the Soviet empire and manifest failure of its economic system led to a triumphalism of Neoliberals and adherents to the Washington Consensus, who proclaimed Fukuyama’s notion of ‘the end of history’ as capitalist gospel, a view perhaps inadvertently supported by the ‘dot.com’ internetdriven economic boom of the 1990s. The attacks of 9/11 2001 and the Global War on Terror that followed did not manage to dent their enthusiasm, as another wave of economic growth, this time fuelled by real estate speculation driven by low interest rates kept down for political reasons (to prevent al-Qa’eda from triggering a global recession), drove global markets to ever greater heights. Yet a quarter century after the fall of the Berlin Wall and the abandonment of formally socialist economic systems in most of the world’s nations, in the wake of the collapse of mortgage-backed securities and several leading global financial institutions in 2008, we have witnessed a resurgence in the popularity of socialism in many countries, particularly (but not exclusively) amongst younger voters. Workers, particularly in manufacturing sectors, see their skilled jobs replaced by automation, forcing them into less well paid alternatives. Blaming ‘offshoring’ and open trade for this transformation of the workplace was a natural response, sentiments easy for populist politicians to exploit. Yet recently public awareness of the dominant part that technology is playing in the reshaping of work has grown. Thus far, working people in many countries still understand less well how technology is eliminating some jobs and changing others. But at the 6

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US dollars (in millions)

same time they are coming to realize that capital has consolidated, particularly in technology industries, through mergers and acquisitions. Financial rewards to investors in major technology firms and hot startups have also risen dramatically (Thiel 2014, chs. 4–5). Beyond job losses, individuals have come to feel increasingly the adverse impacts of technology on their personal lives. This has been a harsh realization for many who embraced the digital revolution. As the internet expanded in the first decade of the twenty-first century, both in the depth of what it offered and in the breadth of its users across countries and demographics, people welcomed its possibilities with enthusiasm. An unparalleled quantity of news and information became available at the touch of a button. Online shopping and algorithmoptimized delivery systems brought a new level of convenience to many shoppers and made a vast range of goods and services available to customers in many countries whose access has previously been much more limited. Social media platforms like Facebook, Instagram, Twitter, Reddit, Pinterest, Snapchat and others made it possible for individuals to connect or re-connect with friends and family and to share news, photos, and subjects and hobbies of mutual interest, all seemingly on a ‘free’ basis. Good things that seem to be free, people were reminded painfully, often have hidden costs. Most users did not imagine that technology firms would gather, integrate, and analyze every detail of their online activity, from searching and shopping ‘clicks’ to words used in private messages to friends, or what the

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Returns to technology investors, employment statistics, 2008–2017 Source: US Bureau of Economic Analysis. Infographic: Austin Barnes. 7

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consequences of this data harvesting would be. The 2016 election cycle in the United States, the 2016 Brexit vote in the United Kingdom, subsequent elections in France and Germany, and the 2017 referendum on Catalan independence from Spain revealed the extent of intentional political manipulation of the electorate by private firms specializing in data-driven ‘psychographics’, such as UK-based Cambridge Analytica and the Moscow-based, Russian government-backed Internet Research Agency. Firms purchased personal data profiles on millions of voters in several countries from social media firms like Facebook and used those data to aim ‘micro-targeted’ advertisements at voters intended to persuade or dissuade them from voting, or merely to inflame political passions to degrade democratic political systems on behalf of their paying clients. In the aftermath of this destructive season of elections, the general public became aware for the first time of how much of their privacy they had lost, or how much of their personal data they had voluntarily given away, to social media companies such as Facebook, Google, and Twitter in return for access to the networks on which they had come to depend (Wylie 2019). The revelations of the extent of the harvesting and selling of people’s personal data by large technology firms, especially social media but also by mass retailers such as Amazon and Alibaba purely for purposes of marketing and for revenue from sale of the data, crystallized what in the minds of many has become a new generation of corporate villains and demands for new government regulation of these firms’ activities. In 2017 the European Union passed its General Data Privacy Regulation, the largest and strongest regulatory regime for protecting the data privacy of individuals in history to date, in response to rising public anger across EU member states. Privacy violations and findings of electoral interference by foreign governments have led to bipartisan criticism of large technology firms in the United States and demands for greater regulation of firms like Facebook and Google in the run-up to the 2020 US presidential election. The practice of widespread data harvesting, for which firms ‘pay’ users for their personal data by providing them with an online service and then sell these data across borders, heralds both a new form of international trade and a significantly new aspect of the operation of global capitalism itself (Gilder 2018, pp. 22–23). Yet socialists old and new would characterize this new wave of anxiety over privacy as emblematic of the alienation and estrangement inherent in capitalism that was first articulated over a century ago by Marx and Freud. Famine amidst feast? Perceptions and realities of the global economy One of the most striking features of the contemporary landscape is the disconnect between so many individuals’ lived experience and the macro-level performance 8

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of the global economy. Job losses and the increasing fragility of employment in today’s economy, perceptions of inequality of wealth and power, fears about internet surveillance and data harvesting, and the rise of virulent populism and nationalism have created an atmosphere of crisis across many countries and within segments of their populations. Yet those very real sentiments seem to fly in the face of a substantial, even remarkable, record of economic and diplomatic achievement over the seven decades since the end of the Second World War. The jewel in this crown of achievements has been the creation and steady expansion of a rules-based global trading system underpinned by global and regional institutions to negotiate, legislate, and enforce trade rules. From the signing of the General Agreement on Tariffs and Trade (GATT) by 23 nations in 1947 to the GATT’s incorporation into the World Trade Organization (WTO) by 126 nations in 1995 to the WTO’s expansion to over 160 countries in the present day, the operating principles of the global trading system have been non-discrimination against foreign products, national treatment of foreign sellers, and progressive reduction of all types of barriers to trade. Regional trading agreements such as the 1957 Treaty of Rome, which led to the foundation of the European Union, and the 1994 North American Free Trade Agreement (NAFTA) have augmented and deepened the trade liberalization disciplines of the GATT/WTO system. Regional economic integration and trade liberalization, and economic development more broadly, were advanced further by the end of the Cold War. The halt in the rivalry between the Soviet and Western blocs set off a wave of democratization of political institutions in the developing world, an increase in political participation and engagement, and growth and development of civil society institutions such as media free from government interference. In Africa, for example, the historical postcolonial regional collaborative body, the

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Growth in trade as a percentage of global output, 1960–2016 Note: Shown is the trade openness index, the sum of exports and imports of goods and services as a percentage of gross domestic product (GDP). Sources: Our World in Data, using World Bank figures.

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Organization of African Unity, was re-founded as the African Union (AU) in 2002 with a new organizational structure better suited to promoting integration, good governance, and growth. In its relatively short lifetime, the AU has already proven adept at defusing regional security crises, promoting rule of law within member countries, and promoting regional trade integration and liberalization. Africa’s economic development has been held back by a lack of intra-Africa trade and internal trade infrastructure, one of the many unfortunate legacies of Africa’s postcolonial past. But building on the growth of regional trade liberalization agreements in different parts of the African continent, AU member states in 2018 signed an agreement establishing the African Continental Free Trade Area, which promises a single pan-African market for goods and services, free movement of investments and businesspeople, and an eventual customs union. Governments and businesses have recognized this liberalization as critical to African economic development, as trade between African states has lagged intra-regional trade elsewhere in the world. Regional integration and liberalization have also been furthered by bilateral trade agreements. Dozens of these pacts, such as that between the European Union and Japan signed in 2018, have further liberalized and facilitated global trade growth. Every trade agreement and institution requires skilled diplomacy not only to negotiate an agreement and to secure its coming into force, but also to ensure that its rules are enforced consistently and fairly and to maintain and modernize the agreement as required over time. But a rules-based global trading

Americas 47%

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Europe 67%

Intra-African trade relative to intra-regional trade elsewhere, 2019 Source: UNCTAD (2019).

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system cannot exist in a diplomatic vacuum. Global trade relies upon a foundation of diplomatic engagement and institution building to maintain and strengthen a more overarching global order for the international system. The 1945 San Francisco Treaty creating the United Nations founded that order on the principle of sovereign equality of all existing nations (UN Charter, Article 1.2.4). The treaty charged the Great Powers victorious at the end of the Second World War with special responsibilities and powers to keep the peace through the Security Council. Without security for traders, contracts, and payments systems, trade would be difficult at best. Likewise, global trade could not have grown to nearly the degree that it has without a functioning international monetary system to provide currency convertibility and liquidity to global financial markets. Although the operating structures of the global monetary system have been reimagined more than once since the end of the Second World War, the International Monetary Fund (IMF), World Bank, and regional development banks have served consistently as diplomatic venues for member governments’ finance ministries and central banks to maintain stability in monetary relations and facilitate liquidity and working together during financial crises. The diplomatic processes of what in effect has become global governance have reached into different functional areas that have proven important to global economic growth generally and to trade growth in particular, in addition to serving their primary purpose of improving human welfare and well being. International climate accords signed at Rio de Janeiro (1992) and Paris (2015) have promoted development of major new global markets for and trade in renewable energy equipment, particularly wind and solar power, in addition to creating wholly new markets for and trade in carbon emissions credits. Poverty reduction objectives undertaken in the UN Millennium Development Goals in 2000 and extended in the Sectoral Development Goals in 2015 have lifted millions out of abject poverty and, in so doing, have empowered them to become consumers in the global marketplace. All change: the global economy, trade, and diplomacy All of our accomplishments in global economic governance notwithstanding, technology continues to change the global economy, trade, and diplomacy, for better or worse. Advances in information, communication, and transport technologies have created larger and more efficient markets for producers and given more choices to more consumers in more countries than ever before. On the consumption side, the internet, by enabling e-commerce, has created a truly global consumer market platform by giving each person who has access to an online computer or smartphone the ability to order products from any global source they can find online. The rise of ‘Big Data’, the capacity of computing 11

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Popula!on (in hundreds of millions) Numbers of world popula!on living in extreme poverty (< $1.25/ day), 1990 & 2015

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Percentage Percentage of undernourished popula!on in developing countries, 1990–1992 & 2014–2016

Global poverty reduction Source: The Millennium Development Goals Report, United Nations, 2015, p. 4. Infographics: Austin Barnes.

to gather, analyze, and interpret unprecedented quantities of information, has enabled manufacturers and retailers to obtain much better knowledge of what consumers want, in what forms, and how much they are willing to pay. Marketing analytics are able to predict what individual consumers will choose to purchase, enabling them to plan and produce accordingly. Advances in cognitive psychology and its twin discipline, behavioural economics, have yielded deeper understanding of human minds and the choices and errors we are likely to make, in the process discounting the ‘rational actor’ model of economic behaviour that has long underpinned classical economic and trade theory (Kahneman 2013). 12

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On the production side, since the 1990s we have witnessed the emergence of what economist Richard Baldwin has called Globalization 2.0: a new model for manufacturing characterized by global value chains (GVCs). Instead of goods being manufactured in one country and exported to another for sale, many goods are now designed and manufactured in stages and assembled from components manufactured in several countries and by different companies. During its manufacture, a product or parts of it may now cross national borders several times (Baldwin 2016). For example, an Apple Mac computer is designed in California, assembled in Taiwan from components made in China and elsewhere and returned to the United States for marketing and sale there and in other countries around the world. Producers are able to maximize value by choosing multiple locations for manufacturing that optimize availability of resources, labour, and skills in the most favourable cost and regulatory environments for each stage of a production process. Part of what has made GVCs possible is increased mobility of work needing to be done and, at least in some places, increased mobility of workers themselves across borders. This increased mobility of so many factors of production has gainsaid the traditional notion of comparative advantage as determined by where particular factors of production happen to be distributed. As a result, gains to capital  – corporate profits and reimbursement of senior management – have continued to climb, whilst overall wages – the salaries of the majority of workers – have stagnated. The nature of global trade itself is continuing to change as well: what is traded, how, and for what objectives. The tremendous global economic accomplishments of recent years offer powerful testimony that many of the traditional arguments for free trade, including the argument that commerce between nations and peoples promotes peace and security, are just as valid today as ever (Griswold 2009, ch. 1). Why, given the gains that have flowed to so many from trade, broader economic growth, and new technologies over the past three decades, has popular hostility to trade and globalization risen and captured so much public debate? These arguments clearly have become less persuasive to large segments of the public across many countries, as evidenced by the rise of ultranationalism and populism noted above. The broad-based democratization that the end of the Cold War facilitated has by its very nature enabled more people than ever before to turn their frustrations with the outcomes of existing policies and with parties and leaders in power into change at the ballot box. As the Brexit and Trump elections demonstrated, trade itself has again become a ‘front burner’ political issue, a general metaphor for global economic activity in a negative way that has perhaps not been seen since the 1930s. Today’s reality is that technological transformation is changing how the global economy works, how trade works, and even what trade is, and all at an accelerating pace. Over the past decade the Globalization 2.0, GVC model of trade has 13

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already begun to be supplanted by an even newer model under which increasing quantities of human jobs and tasks in the value chain are replaced by automated systems, robots, and artificial intelligence. This ultimately will result in less trade, at least of the types of goods, services, and labour that have taken place to date (see Chapter  4). Some who are suffering as a result of these changes do not understand what is changing, why change is happening, or what policy and diplomatic strategies are best suited to mitigate the negative effects of technological transformation. Others do understand technological change but do not see why government has thus far failed to address the problems created by the changes. This far-reaching disconnect points to a failure of political elites, diplomats, and the policy community to communicate key information and interpretation about economic change in ways that broader publics can understand. Moreover, further advances in technology yet to come, particularly in the fields of automation of work currently done by humans and in artificial intelligence, are expected to present both significant opportunities and very real dangers to humanity in coming decades. Complicating the picture is that diplomacy too is continuing to change, most crucially in the relative importance of the types of actors on the diplomatic stage and in the nature of the processes of diplomacy. Diplomacy differs from domestic politics in that it is a process of managing relationships and making decisions that rests on the assumption that the actors on the diplomatic stage are sovereign or like sovereigns in terms of power and capacities. They cannot be subordinated to some overarching authority (except perhaps by force). Hence, to succeed, the key diplomatic functions of representation and communication and the key tasks toward which they are focused, be they negotiation, relationship building and management, problem solving, conflict resolution, or trade promotion, must operate using methods such as persuasion, coalition building, and finding common interests. The traditional sovereign diplomatic actors on the global stage originally were governments, to be joined in the twentieth century by multilateral institutions conceived of as venues to facilitate diplomatic relations between governments. In recent decades, however, large global or transnational firms, as well as large civil society organizations (CSOs), have come to function increasingly as diplomatic actors. Size matters enormously here. Apple, the world’s largest firm by market capitalization at $1.3 trillion in December 2019, was worth more than all but fourteen countries on Earth, as measured by GDP. Apple’s market capitalization exceeded the GDP of countries as large as Mexico, Indonesia, and the Netherlands (Kolakowski 2020). Whilst not on the same scale as the world’s largest firms, the largest CSOs still possess resources enabling them to operate diplomatically on a level analogous to many smaller countries. The foundation trust endowment of the Bill and Melinda Gates Foundation, for 14

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example, had reached $46.8 billion as of the end of 2018 (Gates Foundation 2020). Institutions on the scale of Apple and even the Gates Foundation have the institutional capacity to operate departments and offices that function like foreign ministries, development, and trade ministries. Moreover, they can compensate skilled professionals to staff those offices and act as their diplomats on the global stage. Diplomacy has also become enduringly multi-level, as sub-national and metropolitan governments have engaged substantively with counterparts across borders over issues of mutual concern, ranging from transport and investment to migration and the climate crisis. This rise of ‘network’ diplomacy facilitated by the revolution in information and communications technologies has permitted the expanding range of diplomatic actors to be joined by the global public in their own right. By engaging individually and in groups, the public are now able to demand that other diplomatic actors engage in dialogue with them and take account of their views. Diplomacy has moved beyond private meetings, UN and WTO ministerial meetings, and organized sessions for treaty negotiation. ICTs and the rise of public diplomacy are fundamentally changing the processes through which diplomacy takes place. Most of today’s diplomacy is inherently ‘public’. If once the diplomatic stage could be thought of as hosting a series of carefully orchestrated, discrete performances (some more successful than others), today diplomacy more resembles a 24-hour news channel, or, more accurately, an unregulated online social media platform on which everyone logged in can participate. The impact of these changes to diplomacy has largely yet to be reckoned with effectively, either by governments or by their constituents, the global public. These transformations in the global economy, global trade, and diplomacy highlight the essential link between domestic politics and policy making in each country and the diplomatic management of key issues affecting the global economy and global trade. The global public need more information and analysis to be prepared to make crucial choices through informed democratic processes that will enable them to shape the development of the powerful new technologies that are remaking the global economy and the nature of capitalism itself. This book is part of what must be a systematic effort to give people both information and political tools to meet the challenges to trade and diplomacy posed by the technologies of today and tomorrow. The road forward The task of the chapters that follow is to make sense of this entangled nexus of emergent global problems that we face by focusing on how technology, trade, 15

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and diplomacy interact. Technological transformations have affected both trade and diplomacy at fundamental levels. What counts as trade has changed radically in the last twenty years, and it will continue to change. This means we have to think about trade differently going forward. Diplomacy has also changed and is continuing to change. The relationship between trade policy and diplomacy is often circular: once made, trade policy requires diplomacy to be implemented, and at the same time the processes and results of trade diplomacy inform the ongoing process of making trade policy. Yet that circle can be virtuous or vicious. All the problems discussed here are global and regional in nature, they all cross borders, so by definition they require diplomacy to be addressed. And yet many economic and political analyses of the relationship between technology and trade, even if they consider trade policies, mistakenly leave diplomacy out of the discussion. The argument integrates different theoretical currents to consider what futures for the global economy and politics different approaches to trade and diplomacy, and their possible results, may bring about. Answering the questions about technology, trade, and diplomacy laid out here requires us to think about the evolution and future of the global economy and capitalism more broadly. Technology is transforming capitalism as we have known it and, according to some of the arguments that follow, may be transcending capitalism altogether. If this is so, what parts do trade and diplomacy play in the process? Understanding how technology is changing capitalism, the framework within which the global economy functions, is essential to formulating policy approaches to meeting the challenges posed by technological change. Our policy choices concerning trade, in the sense of cross-border flows not only of goods and services, but of capital and labour, data, information, and knowledge, are quintessentially diplomatic in nature. Moreover, they are global in scope. We need collectively to control and manage emerging technologies so that trade in the future global economy benefits everyone. To succeed, we must be prepared to negotiate our economic future on the global diplomatic stage. What practical steps can we take in making policy choices to help underpin this diplomatic process? The chapters that follow attempt to shed light on this set of problems and potential solutions. The next chapter investigates how cross-border trade has been changed by technology, looking in particular at global value chains, e-commerce, and trade in services delivered at remote locations. We consider how our understanding of what is traded and how has been changed by new technologies. The third chapter then explores more broadly how technological advances are transforming the global economy. Beginning with the phenomenon known as Globalization 2.0, we investigate how technologies such as automation, robotics, and artificial intelligence are affecting the nature of work, production, and consumption. We 16

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examine how these economic transformations are affecting the capacity of the global economy to meet an existential threat: the climate crisis. The two chapters that follow investigate how diplomacy has changed. The fourth chapter focuses on the mechanics of diplomacy itself. What has been the impact of the advent of digital diplomacy, the rise of public diplomacy, and the growing effects of populist domestic politics on policy making and diplomacy? Can technology facilitate diplomacy by fostering further transformation in how trade diplomacy is done? The fifth chapter looks more closely at how technology has affected the relationships between different types of actors in the global economy and the international system:  in particular, between governments and large transnational technology firms. To what extent are big technology firms rising to the challenge of being effective actors on the global diplomatic stage, and with what impact? The final two chapters look forward at what the impact of our policy and diplomatic choices will be upon a future driven by further technological transformations, such as automation and artificial intelligence. These chapters imagine different futures for the development of global economy and society that could result from our policy choices and the diplomatic strategies we adopt to achieve them. Some of these future scenarios are more utopian, others more dystopian in nature. If we fail to make sound policy choices to address the climate crisis promptly, for example, our range of possible futures in terms of addressing the impact of technology on trade and the global economy may be sharply curtailed in a negative direction. The penultimate chapter makes some initial key policy recommendations to ensure that trade policies and diplomacy work toward a future society and economy in which humans proactively manage the development and deployment of new technologies for our collective good. In the final chapter, we consider how diplomacy will need to be used to govern the emergence of artificial general intelligence (AGI) and superintelligence, imagining how a global economy in which these powers have become ubiquitous might be governed.

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DIGITAL IS MAKING US RETHINK GLOBAL TRADE

Globalization and trade from cross-border sales to global value chains A woman in Dusseldorf suffering from pain in her hip is x-rayed in a local hospital. Her x-ray is read and interpreted online by a specialist in Bangalore, who recommends her for hip replacement surgery. Prior to her surgery, her replacement hip joint is custom ‘printed’ in Dusseldorf on a 3-D printer manufactured in Toronto and operated remotely by a technician in Los Angeles. Her surgeon in Dusseldorf who installs the replacement hip, born in Damascus, received his medical training at a university in Shanghai and now works in Germany on a refugee visa. This tale of numerous intermediate and component goods, services, labour, data, and information crossing borders in different ways to deliver a hightechnology medical service needed by one individual is not a narrative of traditional international trade, any more than the complex web of regulations and international agreements governing each element of the service delivered is a product of traditional diplomacy. Trade and the diplomacy that facilitates it are already different today in many areas. They will continue to change in the future. As technologies have emerged and evolved over the past two and a half centuries, the way that products are designed, produced, and marketed has changed, the way that goods are bought and sold has changed. The part that international trade plays in that process has changed as well. Let us begin by examining how new technologies have changed how, and for whom, goods and services are produced. The first round of globalization, which began in the mid-nineteenth century, saw the transformation of the first industrial revolution’s technologies of mass production and mechanization into a boom in international trade according to the model expected by the classical political economy theories of Adam Smith and David Ricardo. Producers increasingly produced and exported surpluses of goods (and later services) that used factors of production – labour, land, capital, knowhow  – that existed in relative abundance where they were 19

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located. Hence their costs to produce these goods and services were relatively low. They exported these goods and services to other places in the world where the same factors of production were more scarce, and their costs of production were thus relatively higher. Governments, seeking both to lower the cost of living for consumers and to advance the interests of domestic firms seeking to export, adopted pro-trade policies. Diplomats in turn negotiated trade agreements with their foreign counterparts that lowered tariffs, quotas, and other trade barriers. In some cases, this trade diplomacy resulted in weaker states and polities being absorbed under the political authority of their stronger counterparts to different degrees: what we know today as empire, be it formal or informal (Hobsbawm 1999, ch. 7). In one of the best examples of the first round of globalization, Britain’s parliament in 1846 repealed its Corn Laws, high tariffs imposed on imported grain. Fourteen years later British Prime Minister William Gladstone and France’s Emperor Napoleon III signed the ‘Cobden–Chevalier’ Anglo-French Commercial Treaty of 1860, which set in motion the signing of over fifty bilateral trade treaties across Europe that between them lowered tariffs between European states 50–60 percent (Pigman 2016, pp. 43–51). Over the same period, Britain was extending its political authority over progressively more of the Indian subcontinent. This ensured a steady supply of duty-free cotton to the mills of northern England, even if Queen Victoria was not formally proclaimed Empress of India until 1877. Latin America and the Caribbean, the southern United States, and Chinese ports forcibly ‘opened’ to trade by Britain’s ‘gunboat’ diplomacy all became important sources of inputs for British manufactures ranging from silk and cotton for clothing to sugar for cakes and biscuits. This first-wave globalization was characterized by cross-border selling of finished goods and services and intra-imperial trade in raw materials, agricultural commodities, and inputs to manufacturing. From the early nineteenth to the late twentieth century, trade and manufacturing both grew rapidly alongside the evolving trade and transport technologies of the day:  the steamship, the railway, the telegraph and telephone, trucking and refrigeration, and eventually the airplane. Trade as a proportion of global output rose from less than 5 percent in the early nineteenth century to over 25 percent by the last decade of the twentieth century. Trade played an important part in lowering costs of production and consumption, particularly in countries that industrialized early, enabling standards of living in those countries to rise rapidly. The political decolonization after the Second World War of the former European-ruled empires changed trade flows and trade diplomacy, as the number of sovereign states climbed from fewer than fifty before the war to more than 200 by the early twenty-first century. Many postcolonial newly independent ‘developing’ countries raised tariffs and other trade barriers in an 20

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attempt to build competitive industries at home. Developing countries sought admission to and benefits from global and regional trading bodies like the GATT without the reciprocal obligation to lower trade barriers that the trade bodies’ rules mandated. North–South trade, as it became known, continued to grow, as demand for Northern industrial goods in the South and for agricultural products grown in developing countries expanded further (Baldwin 2016, pp. 69–74). Improvements in trade infrastructure in the 1960s and 1970s allowed for another expansion in trade that foreshadowed another technology-driven transformation of globalization. Construction of container ports and a new generation of large ships enabled goods to be transported intermodally in containers via road, rail, and sea. This allowed large firms to begin to organize production and sales across borders. According to Baldwin (2016, pp. 75–76), economists contend that containerization of shipping increased trade more than all the tariff cuts of the postwar period. In the 1970s, transnational firms began manufacturing components for final goods in different countries, bringing about the emergence of ‘intra-firm’ goods trade. After automobile manufacturers such as Japan-based Toyota built auto assembly plants in the United States, they imported numerous components from Japan for assembly at US facilities. The rise of air cargo on a mass scale in the 1980s facilitated ‘just in time’ delivery methods pioneered by Japanese auto firms for components in manufacturing (Baldwin 2016, p. 85). What intra-firm trade did for manufacturing, the advent of business process outsourcing (BPO) did for trade in services in the 1980s. Using electronic technologies, financial firms began to locate ‘back office’ functions in developing countries with skilled workforces and lower labour costs. As the cost of long-distance telephony fell, consumer-facing firms in the US and the UK began to locate customer service call centres in English-speaking developing countries such as India and the Philippines. By the 1990s, the coming on-stream of a new generation of information and communications technologies enabled the launch of the full-on version of what economist Richard Baldwin (2016) refers to as Globalization 2.0. Under this new version of globalization, the design–production–marketing/sales process for goods and services, or ‘value chain’, has itself become globalized. The process of producing and selling a final manufactured product, such as an automobile or a laptop computer, can be broken down into a series of stages and tasks: research, design, and manufacture of components, assembly of components, marketing, and sales, to name some of the primary production stages. During the heydays of the first and second industrial revolutions, most if not all of these production stages would take place at a single location. In a pattern common in the automobile industry, components that were not produced in-house were sourced from nearby suppliers. Today, each of these stages can be carried out in a different location around the world by a different corporate unit, subsidiary, or 21

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Value added

subcontractor, each of which makes use of optimal factors of production available in their location for a particular production stage or task. These factors can include proximity to universities and research labs, particular specializations of a local workforce, and cost advantages of a stage of production in a given location. The World Bank (2017, p. 2) distinguishes between simple global value chains and complex GVCs. In simple GVCs, a product crosses a border once during production before sale in its final market, whereas in complex GVCs, products cross borders twice or more during the production process. GVCs have rapidly come to account for a significant portion of global trade, even if they still account for only around 10 percent of global production overall. Over the period 1995–2011, simple and complex GVC cross-border trade collectively accounted for between 60 and 67 percent of global trade by value added (World Bank 2017, p. 2). The infographic illustrates the ‘smile curve’ image for understanding GVC production. Costs at the early and late stages of production tend to be higher, whereas costs in the middle – i.e. manufacturing and assembly – stages tend to be lower. Manufacturing using GVCs tends to be most productive for goods that are complex and sophisticated and that incorporate high technology and subsystems. Automobiles are an early and standard example of a complex GVC production process. A General Motors automobile, for example, may be designed in Detroit. GM management staff in Michigan supervise the functions that each business unit performs in assembling a vehicle at every stage of its production. The vehicle might be assembled on a chassis manufactured at a GM plant in

R&D

Sales and service Marke!ng

Branding

Distribu!on

Design

Manufacturing Lower Produc!on chain Time

The GVC smile curve Infographic: Austin Barnes.

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Ontario, Canada, which is then shipped to an assembly plant in Mexico. At the Mexican assembly plant, an engine manufactured in Brazil is mounted on the engine block. Body parts, major systems such as steering, electronics, tyres, and upholstery sourced from Mexico, Canada, South Korea, Japan, Germany, the United States, and elsewhere are installed in the vehicle. The finished vehicle is transported to a GM facility in Kentucky for quality control and safety testing before distribution to GM retailers around North America and in particular overseas markets, primarily in Latin America. A  US-based advertising firm with global reach designs and conducts the vehicle’s marketing campaign. The finished vehicle enters the United States from Mexico duty free under the North American Free Trade Agreement’s rules of origin, still in force at time of writing, because at least 60 percent of the value added to the vehicle originated within North America. Many GVCs require ongoing trade diplomacy to function successfully, particularly when industries that relate to national security and defence or are otherwise strategically important are involved. Perhaps the best example of this type of complex GVC manufacturing is commercial aircraft, where major aircraft assemblers like the world’s largest competitors, Airbus Industrie and Boeing, have long worked together to source and integrate components from suppliers in industrial countries around the world. Because of the high cost of developing and manufacturing aircraft and the effect of aircraft contracts on employment and economic growth, manufacturers have sought to obtain government-supported export financing to maximize potential aircraft sales. Hence corporate diplomacy has always played a part alongside purely business criteria in the making of sourcing decisions for aircraft systems and components. Airbus was itself a product of business–government diplomacy, formed originally as a consortium of European aircraft and components producers with European Community backing (McGuire 1997, pp. 26–67). The emergence of this second wave of globalization is at the same time both reinforcing and breaking down the ‘digital divide’ between advanced industrial countries and developing countries. The most technology-infused aspects of production under GVCs, and thus the highest value added, are those at the beginning and the end of the production process: design, management of the overall process, marketing, and sales. The ability of GVCs to function depends on sophisticated communication, shipping, and logistics technologies that enable components to be routed and tracked to the locations where they are required in the production process at the correct time. These parts of the process have tended to remain located in advanced industrial regions like the European Union, the United States and Canada, and industrial East Asia, where technology is abundant. Fabrication and assembly of components and whole products, which tend to be lower value added, are more likely to be located in developing countries 23

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where labour and material inputs to production can be sourced more inexpensively (World Bank 2017). For example, in 2009 Apple iPhones worth $2 billion were exported from China, but all but $200  million of their value consisted of components imported to China from elsewhere (Baldwin 2016, p. 93). The development of GVCs has prompted many developing countries to reverse their established trade policies favouring import-substituting industrialization behind tariff and other trade restraints in favour of lowering barriers to trade, often unilaterally (Baldwin 2016, pp. 101–02). Already, however, it is possible that the shift to GVCs as a dominant model for manufacturing and for trade may be short-lived. The 2008 global financial crisis and recession triggered a significant slowing of the trend toward GVCs in manufacturing. Cross-border production activities for simple GVCs fell 17 percent and for complex GVCs 29 percent in 2009. All GVC production recovered quickly over the following two years, but since then, production for domestic consumption and traditional cross-border trade (where goods cross a border only once) both have grown faster than GVC production. This pattern equates to a 3 percent decline in complex GVCs’ share of global production relative to the other categories (domestic, traditional trade, and simple GVCs), and it reverses the pattern of production growth in economic recoveries after recessions in the 1990s and early 2000s (World Bank 2017, pp. 43–46). Moreover, this new pattern antedated the sharp increase in business uncertainty regarding future global trade barriers following the Brexit and Trump elections and the tariff rises since 2017, as Trump has initiated trade wars against most major US allies and China. It is likely that data from the most recent period will confirm that the recent breakdown in global trade diplomacy has exacerbated the incipient reversal in GVC manufacturing. GVC manufacturing cuts in two directions. As it lowers overall costs of production, it increases profits for shareholders and reduces prices for consumers. Lower prices benefit 100 percent of us, but they benefit the poor most of all, as the poor must spend more of their income on necessities than the wealthy do. At the same time GVCs mean lost manufacturing jobs in industrial countries, where wages are higher, and manufacturing jobs gained in developing countries, where wages are lower. But in the longer term, technology is likely to limit the use of GVC production, along with at least some of its gains and losses. As robots and automated systems replace humans as the most efficient way to do more production tasks, locational advantages offered by particular workforces (either cost or skill advantages or both) are likely to diminish. The imperative to reduce energy consumption and carbon emissions will make transport more costly over time. 3-D printing, which is still evolving rapidly as a manufacturing method, is likely to assume a significantly larger share of production. Each year, 3-D printers can produce more and more complex products. Already, goods ranging from replacement auto parts to human body parts have been manufactured 24

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from computer programmes using 3-D printers. As 3-D printing technologies become more sophisticated and 3-D printing costs continue to decline, it is likely that more types of products will be manufactured closer to their points of consumption. 3-D printing is emblematic of the type of automation driven by AI that will encourage firms to relocate manufacturing closer to large end markets. This phenomenon, known as ‘nearshoring’, will reduce shipping times and costs between the points of manufacture and consumption. It also could assist businesses in responding to early twenty-first-century consumption trends such as ‘fast fashion’, in which consumer demand for fashion-related items shifts rapidly in response to events that drive trends, such as film releases and red carpets at awards shows (Turner 2018, p. 34). By its nature, nearshoring is likely to reduce cross-border trade in goods and in particular long-distance trade between advanced industrial and developing countries, which would be disadvantageous to developing countries whose comparative advantage in the global economy has been cheap labour (Lee 2018, pp. 20–21). What was, is, and is becoming international trade: what crosses borders and how Today Chinese telecommunications manufacturing firm ZTE might pay USbased Google to display advertisements for ZTE’s smartphones to a list of consumers in several countries, the list carefully curated by Google, as the consumers use Google’s site to do online searches for other items. Google has ‘exported’ a product, advertising services, to ZTE, distributing the product through cyberspace to users in dozens of countries. This image of international trade remains unfamiliar to many of us. What we think of as international trade has been changing dramatically over the last three decades, and it will continue to change. Trade is being changed not only by technology but by the changing permeability of national borders. International trade as we understand it depends upon the existence of the national borders that goods and services, capital and labour, data, information and knowledge must cross, either in physical or virtual form. To grasp how arbitrary the existence of national borders is in measuring global trade flows, consider that, if the European Union, with its single market of 27-odd member states and roughly half a billion people, were considered as one country for measuring international trade, international trade volumes and trade as a share of global output would decline significantly, even though overall volumes of goods and services bought in the world would remain exactly the same. Another way to think of it is that, if China were to divide itself into three nations of roughly half a billion people each, international trade volumes and trade as a share of global output would increase by a significant amount, again 25

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even though overall volumes of goods and services bought in the world would remain the same. In due course, today’s international system of sovereign states may be superseded, either by some form of more organized global governance or by something much darker and more fragmented. In either case, what we think of as international trade would be very different from what it is today. At least for the duration of time when the international system of states continues in something like its present form, we may be close to the highest ratio of cross-border trade relative to world output that we shall see: somewhere in the low 30 percent range. Cross-border trade may well continue to grow in absolute terms, but global production and commerce (which also includes production and consumption within individual countries) may well grow faster. To get a better sense of why this is the case, let us explore how the now many different modes of trade have been changed, and to what extent, by technological transformation. Not all traditional modes of trade have been changed dramatically by technological advances. One of the oldest and most traditional traded sectors is basic commodities. Cross-border transactions for basic commodities are the closest remaining deals to the trade that dominated the first version of globalization for over a century. Going forward, demand for many basic commodities, such as timber, minerals, metals, rare earths, and fossil fuels (whilst they are still traded and used), to name a few, is likely to remain for many decades, if not centuries. These commodities continue to be mined, grown, collected where they are abundant or available, and transported round the globe to their end users, crossing borders as they go. In the short term, agricultural trade is likely to continue in much the same fashion as trade in basic commodities. However, over time the heightened financial and environmental cost of transport for highly perishable crops and the declining cost of new agricultural technologies – hydroponics, ‘urban’ or warehouse/tower farming – will mean that an increasing quantity of food supplies is likely to be produced year round closer to their points of consumption, particularly in urban areas. Off-season berries will be cheaper and more energy-/ carbon-efficient to produce in an urban or suburban warehouse than to import from the other hemisphere by cargo jet (Reiley 2019). Trade in many manufactured goods, particularly high value added goods such as aircraft, automobiles, and electronics, has already been transformed substantially by the emergence of global value chains. As communication and transport technologies made production across multiple locations and countries possible by the 1980s, GVCs began to supplant traditional buy-sell transactions in manufactures. Because of the extensive use of GVCs in producing manufactured goods, rules of origin (RoOs) and local content restrictions in bilateral and regional trade agreements have taken on a new importance, becoming a key battleground in the struggle between forces favouring trade liberalization and protectionists. 26

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80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 1962

1970

1980

1990 Years

2000

2010

2017

Food exports % of total merchandise exports Services exports % of total exports Manufactures exports % of total merchandise exports

Relative changes in major categories of trade, 1960–2017 Source: Our World In Data, https://ourworldindata.org/grapher/trade-as-share-of-gdp?tab= chart&time=1960..2017, accessed 14 February 2020. Infographic: Austin Barnes.

Rules of origin state the minimum permissible value of locally produced content in an item produced within countries in a trade agreement in order to qualify for duty-free or favoured tariff treatment when it crosses a border between countries in the agreement. For example, under the 1994 NAFTA, which generally permits goods to cross borders between Canada, the United States, and Mexico duty-free, automobiles must contain components amounting to 60 percent of their value produced within the three NAFTA countries to qualify as a NAFTA product for duty-free treatment. Rules of origin were created to prevent companies from evading tariff barriers by opening assembly plants within a preferential trade area (NAFTA, the EU, etc.) and importing all the components to be assembled from countries with lower production costs. The NAFTA rule of origin still permits auto manufacturers to take advantage of a GVC to a considerable extent by sourcing components amounting to 40 percent of a car’s value from suppliers or subsidiaries located in Asia, Brazil, Europe, or other locations. Tightening rules of origin and local content restrictions in trade deals has become a powerful tool for protectionists like Trump, who have sought to restrict

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trade even whilst going through the motions of ‘revising’ and ‘modernizing’ trade agreements. The Canada–United States–Mexico Agreement (CUSMA) signed by the three governments in early 2019 (and awaiting legislative ratification at time of writing) raises the rule of origin for automobiles to qualify for duty-free treatment from 60  percent to 62.5  percent, a provision inserted at the insistence of Trump administration negotiators.1 CUSMA was negotiated at Trump’s insistence under threat of US withdrawal from NAFTA, as NAFTA is a permanent agreement with no expiry date, only a mechanism for signatories to withdraw. Tighter rules of origin mean consumers are likely to pay higher prices for CUSMA goods, as manufacturers will be forced to choose between sourcing more components from within the three countries to preserve CUSMA dutyfree treatment or else sourcing much more content of the product from low-cost producers outside of North America and paying the non-CUSMA tariff on automobile imports to each CUSMA country. The rise of trade in services relative to goods has been accelerated dramatically by technology. In the 1980s member governments of the GATT became more aware not only of the growing importance of services trade, but of the extent to which different types of non-tariff trade barriers limited or prevented cross-border trade in services. Most countries do not impose tariffs on imports of services. Many of the types of trade barriers that do exist were not designed to protect domestic providers against foreign competition. Rather, they were enacted at a time when cross-border trade in most services was not even imagined. Inadmissibility of foreign professional qualifications limited or prevented medical doctors, lawyers, architects, engineers, and other professional service providers from selling their services in many countries. Financial regulations excluded foreign banks and insurance companies from opening branches and doing business. Business regulations in many countries still make it difficult for foreign firms to open subsidiaries as vehicles for doing business. Visa regulations can make it hard for all categories of foreign service providers to travel into a country to deliver a service in person. When the GATT Uruguay Round of multilateral trade liberalization talks was launched at Punta del Este, Uruguay, in 1986, liberalization of trade in services was on the agenda for the first time in the GATT’s history. Negotiators reached agreement on a General Agreement on Trade in Services (GATS) to parallel the GATT’s coverage of trade in goods. GATS differs from the GATT in principle 1. The successor trade agreement to NAFTA is referred to by a different name and acronym in each of its three signatory countries. This author refers to the agreement by its Canadian name and acronym, as the acronym is the easier to say of the two English-language acronyms. US officials refer to the agreement as the US–Mexico–Canada Agreement, or USMCA. In Mexico the agreement is known as the Acordo Mexico–Canada–Estados Unidos (AMCEU).

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in that its liberalization disciplines were enacted on an opt-in basis rather than being made compulsory for all GATT members straightaway. The decision to adopt an opt-in structure was taken in recognition that many GATT member countries were at very different points in the development of their economies. It was a priority in the Uruguay Round to secure the participation of developing countries and, in so doing, to commit developing countries to the process and to the end goals of trade liberalization, even if they reached that end goal at very different speeds. In making their final liberalization offers across multiple sectors in the Uruguay Round, industrial and developing countries alike were able to include concessions liberalizing trade in particular services as well as in goods. As most countries only made limited services liberalization commitments under GATS in the Uruguay Round, its primary value was to establish a set of principles and a road map for services trade liberalization in the WTO going forward (Adlung 2012). To simplify and make more transparent how trade in services works, and to facilitate the making of mutual concessions in the process of liberalizing services trade, GATT negotiators differentiated between four modes of crossborder supply of services. A review of the four GATS supply modes illustrates how communications and transport technologies have transformed all aspects of services trade. GATS supply mode 1 refers to services delivered at a distance, as when a firm in India hires an art designer in Japan to design a logo for promotional literature and advertising. The deal is done by a combination of online chat and voice communication via VoIP (Voice over Internet Protocol). Contracts are signed and returned as email attachments. The designer produces the product and delivers it to the buyer by mail or email. Another example would be students in Thailand taking an online master’s degree course offered by a Scottish university, which they learned about by viewing the university’s website initially. In each case, not only has the internet made the sale and delivery process much easier, but in so many such cases the service would not have been traded at all without internet technology. Mode 1 is probably the least regulated supply mode of the four. GATS supply modes Mode 1

Seller delivers service to buyer at a distance (including electronically)

Mode 2

Buyer travels to seller to purchase/receive service

Mode 3

Seller delivers service through subsidiary or presence in buyer’s country

Mode 4

Seller delivers service in buyer’s country in person (‘movement of natural persons’)

Technological advancement has facilitated explosive growth in this category of services trade. With the advent of cloud-based computing, increasingly businesses that previously purchased software and operated and maintained it 29

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themselves now rent software-as-a-service (SAAS) from providers that make the software available to customers remotely on an as-needed basis. Firms like Salesforce.com specialize in offering other firms entire customer relationship management (CRM) systems online. When a client of a SAAS provider is in a different country, or even if the server hosting the software-as-a-service is in a different country from the customer, services trade is taking place as information and payments cross borders. In GATS supply mode 2, buyers travel across borders to the seller to purchase and receive the service they are acquiring. One of the most common examples of mode 2 is traditional education services, where foreign students travel to another country to attend a secondary school or university there. Medical services constitute a rapidly growing mode 2 sector, as more patients travel abroad to receive a special treatment or surgery from a doctor or hospital known for a particular specialism. Whilst world-famous locations for particular medical treatments, such as the Mayo Clinic in Minnesota, USA, for cancer, have long attracted a global clientele, medical ‘tourism’ has emerged in recent years, under which hospitals in developing countries such as India and Costa Rica offer standard surgical procedures such as hernia repairs and hip replacements at reliable quality and at significantly lower cost than in countries with high medical expenses, such as the United States. Whilst mode 2 services may still be delivered in a traditional manner for the most part, such as in-person education and surgeries done by humans (rather than machines), the increase in mode 2 services trade can be attributed in significant part to the rise in online advertising and marketing of products and the ability of data collection and analysis to provide crowdsourced quality assessments and ratings for services for sale across the globe. Regulations affecting mode II primarily involve visa restrictions inhibiting the ability of customers to visit suppliers, in particular visas affecting foreign students. The ability of doctors and hospitals to sell medical services to foreign customers may be limited by insurance regulations in customers’ home countries prohibiting insurance payments to foreign healthcare providers. GATS supply mode 3 refers to when a firm in one country establishes or acquires a subsidiary or commercial presence in another country through which it sells services in that country. Frequently the easiest way for services firms in industries such as law, accounting, and management consultancy to sell services abroad is to open an office or create a full subsidiary in the countries where they want to do business. Mode 3 reflects the complexity inherent in large transnational firms selling in multiple country markets. When does the sale of a service count as international trade, and when does it not? Most large international law firms today have either merged or formed partnerships with

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firms in one or more foreign markets. If the combined firm has its headquarters in one country, in a relevant sense whenever they sell services in other countries it would count as a services export from the headquarters country. But if a German firm and a Canadian firm form a partnership, for example, to market their legal services jointly on an international basis and to provide seamless legal services in multiple countries to their clients, then if the client and the attorneys working on the client’s case are in the same country, the work would not count as trade. GATS mode 3 is important for technology firms too. When a firm like Microsoft opens a back office in India to write code for software, enabling 24/7 production on the release of its next version of the Windows operating system, under GATS India is exporting software coding services to the United States, even though the transaction may be within one firm (and thus treated as internal for accounting and taxation purposes). When telecommunications firms such as BT and AT&T establish customer service call centres in the Philippines, the Philippines is exporting customer relations and technology consumer support services to the UK and USA respectively. Regulations that can impede GATS mode 3 include those governing incorporation of new businesses, accounting and tax regulations, and regulations governing repatriation of foreign profits and transfer of technologies. Local professional certification requirements act as a powerful inhibitor of foreign competition in professional services markets ranging from medicine to legal services, accountancy, and engineering. GATS supply mode 4 covers the ‘movement of natural persons’, or cases in which the seller of a service travels to the country of the purchaser to deliver the service in person. Mode 4 is invoked regularly when a professional travels abroad to supervise the installation and testing of a product or system, such as mainframe computers and server facilities. Healthcare professionals travel abroad to make consultations or perform surgeries. Teachers and trainers teach in foreign universities for fixed periods and conduct training modules on-site for foreign clients. Security consultants travel to foreign locations to set up and monitor security systems and strategies. Foreign political consultants increasingly are employed by domestic political parties and candidates as advisors and strategists. Primary regulations affecting mode 4 are local professional certification requirements and visa restrictions on temporary workers whilst delivering a service. Frequently cross-border services transactions may involve more than one mode. An architect, for example, may make a deal to design a building abroad after receiving a visit in her home office from a prospective foreign client. She may then travel abroad to make a site visit, return home to her office to produce the designs and blueprints, then return to the construction site several

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times to monitor progress and quality control. Hence much trade in services is affected by a wider range of regulations and qualifications than trade in a single supply mode. GATS supply mode 4 raises a particular set of complex and interesting questions about the ‘movement of natural persons’ across borders. Cross-border trade in labour is a special case of trade in services. Transport and communications technologies have made the global workforce much more mobile than ever. As noted above, migration both legal and illegal has increased substantially in recent decades, although ever since the development of oceangoing sailing ships, and particularly over the two centuries since the first industrial revolution, periodic waves of mass migration have taken place in response to crises in particular regions (famine, political revolutions, etc.). But the boundary between migration in search of employment and trade in services has become blurred. In the age of GATS, what differentiates a small business in Guatemala exporting domestic maintenance services to clients in the United States via GATS supply mode 4 (‘movement of natural persons’) from a Guatemalan gardener travelling to the United States and seeking temporary employment tending someone’s garden? In practice, governments opt in to GATS liberalization codes, and few governments have chosen to liberalize their immigration policies as a means of liberalizing trade in services. The European Union’s concept of a single market, first established as an objective in the 1986 Single European Act (SEA), serves as a model for services trade liberalization through elimination of regulatory barriers. The SEA established the principle that professional qualifications and regulations affecting services delivery across the EU should not discriminate against firms and practitioners seeking to sell services in a different EU country. The EU did not mandate the harmonization of all regulations and qualifications, but it did make discrimination against sellers selling across EU borders actionable in the European legal system. As the foregoing examples indicate, liberalizing trade in services is a long and complex process. Services trade today may still not be fully free between subnational jurisdictions within countries. Even in long-unified polities such as the United States, individual states have retained regulatory authority limiting the selling of certain services originating outside of the state. For example, in order to perform important components of practicing law in a state, such as filing court documents and pleading before a state court, an attorney certified to practice law in a different state first must be recognized by the Bar Association of the state in which she wishes to practice. In many instances, this process of recognition of out-of-state legal qualifications is a simple, pro forma procedure, but in other cases it is not. States retain similar regulatory authority over teachers in state primary and secondary schools. 32

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Global trade and digital commerce

US dollars (in trillions)

The internet has changed dramatically the way that both goods and services are bought and sold. This transformation has affected business-to-business (B2B) commerce and business-to-consumer (B2C) commerce alike. UNCTAD (2019b) estimates that global e-commerce sales hit $29 trillion in 2017, rising 13 percent over the previous year. The number of global online shoppers increased 12 percent to 1.3 billion people, or a quarter of the world’s population. Online shopping has made it just as easy, in many cases, for a consumer to order a product from a business located half a world away as it is to order from a business in one’s own country. Cross-border online shopping rose from 15 percent of overall online shopping in 2015 to 21 percent in 2017 (UNCTAD 2019b). The internet has also revolutionized consumer-to-consumer (C2C) commerce, as internet platforms like eBay have enabled individuals to buy and sell goods and services from other individuals in quantities that were unimaginable at the dawn of the internet age in the 1990s. In 2018, global sales on internet marketplace eBay topped $94.5 billion, surging 7 percent over the previous year (Ali 2019). The growth of online advertising to consumers has made a major contribution to the rise in online commerce. Hence the emergence of the internet and the growth of digital commerce has made it necessary to reshape fundamentally how we think of trade itself. To our basic understanding of trade as cross-border commercial flows of goods, services, capital, and labour now must be added commercial flows of data, 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0

1998

Years

2017

Rise of digital commerce, 1998 & 2017 Source: Politico’s Morning Trade, 10 December 2019. Infographic: Austin Barnes. 33

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information, and knowledge. Since the first decade of the twenty-first century, the term ‘digital trade’ has come into use, referring to the buying and selling of data and information. Information is a broad category extending from manufacturing processes or ‘technology transfer’ to market research and analysis to scientific and medical research. The value in every information or intellectual property category has been increased by ongoing technological transformation. When a government like China’s requires technology transfer into China as a condition of permitting a foreign firm to invest or manufacture there, it is setting a value on the information content of the technology that a foreign firm possesses and uses. When a pharmaceutical firm licenses a medication on which it holds a patent to be manufactured in a different country, the foreign licensee pays a fee across a border to obtain the information it needs to produce a potentially lifesaving drug for a domestic population. Whilst intellectual property or information has long been traded, the internet has transformed not just the method but also the quality and quantity of information traded. For example, millions of students and scholars worldwide have access to a foreign research database from their own electronic devices once their university or national library has paid the database’s owner a licence fee that grants access. Trade in data has exploded over the past two decades. By one measure, digital flows have increased forty-five-fold just in the decade between 2004 and 2014 (Wolfe 2018, p.  2). Businesses have been collecting data on their customers since at least the boom in retail commerce in the eighteenth century, when every retailer knew their customer and the customer’s preferences personally. Customers’ shopping habits and purchase records were learned and kept initially in the memories of shop owners and sales clerks, and later in handwritten ledgers. However, the logarithmic explosion in computing power since the 1950s has increased the value in consumer data accordingly. A  retailer’s personal knowledge of each individual customer has been replaced for the most part by a vast expansion in the extent and type of data collected on customers worldwide. Online shopping has made the data collection process exponentially easier. Each customer click on an item at a website can be counted, whether the item is purchased or not. The amount of time a customer spends watching a promotional video can be measured and recorded. The largest firms collecting and selling these vast bundles of consumer data are global search engines, such as industry-dominant Google, which had over 92 percent of the global search market in January 2019 (Statcounter.com), and social media platforms, such as Facebook, with over 3 billion users of its Facebook and Instagram social media sites. Increasingly, large amounts of customer data are gathered on apps on mobile devices such as mobile phones and GPS units. The driving route planning app Waze, for example, gathers data on where every user drives and what traffic 34

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conditions they encounter. The app then uses the data to calculate optimal travel times for each user of the app in real time (Brynjolfsson & McAfee 2016, pp. 58–61). Other types of data have also increased in value greatly alongside the increase in computing power. Weather data guide farmers in deciding where and what to plant and when to harvest. Data on accident rates and incidences of house fires guide insurance companies in setting premium rates more profitably. Data on recovery rates for patients suffering from particular infections help doctors to decide on the correct dose of an antibiotic to prescribe and for how long to prescribe it. Whilst some data sets are in the public domain, free to use for all, others are owned by those who collected or generated them. These data must be purchased or licensed for use. When a data set is purchased or licensed by a user in a different country from its owner, trade in data takes place. When prospective advertisers purchase data about prospective customers from Google or another firm, whether the firm is headquartered across a border or whether the server on which the data are located across a border, data trade occurs. Increased computing power has made analysis of data faster and much less expensive than ever, increasing its marketability and its user base. Increasingly, specialist firms can gather customized data sets for clients precisely tailored to their particular needs from multiple sources in multiple countries. The USbased data analytics firm Palantir Technologies, for example, displays on their website examples of the capacity of their artificial intelligence/machine learning technology to meet a range of client needs thus:

• • • • •

Surfacing new leads in dark web, weapons trafficking, financial fraud, and drug trafficking investigations so investigators can identify persons of interest more quickly Aggregating and correlating biomedical research data to streamline drug discovery Processing entity resolution suggestions so analysts can focus on making assessments rather than manually sorting and tagging data Analyzing massive-scale sensor data so that engineers can make better aircraft maintenance decisions Rapidly generating simulations while allowing operators to tweak scenario variables, leading to better-informed decisions optimized for different variables (e.g., safety rating and production quantity) (Palantir 2020).

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Measuring cross-border data flows It is generally agreed that cross-border flows of data and information have been increasing significantly in volume and in value in recent years. The project of measuring cross-border flows or international trade in data is daunting for several reasons, not least because no money changes hands when many types of data cross a border. Moreover, when a consumer acquires data, like other forms of information, across a border, it does not result in the provider of the data being left with less of a supply of it. Experts estimate that the volume and value of cross-border data flows is grossly underestimated by existing available data, with resultant adverse effects on trade and tax policy making (and the diplomacy needed to implement policies collaboratively in venues like the WTO). For example, the WTO estimated global exports of selected data-related services, such as telecommunications, financial services, web search, and other information services, to be $966.9 billion in 2012, by contrast with global goods exports of $18.4 trillion in the same year. Over the period 2008–12, data-related services exports grew 4.0 percent, versus 3.3 percent for goods exports. Using more direct measures of data flows rather than information on the value of services transactions is likely to yield more accurate information on cross-border data flow values. Applying such an approach to give an indication of the possible scale of underestimation of cross-border data flows, using US Bureau of Economic Analysis data, the cross-border segment of the US telecommunications industry business in 2012 was likely between $92 billion and $150 billion, well above the $22 billion in exports plus imports officially recorded. Source: Mandel (2014).

The rise of digital trade in knowledge, information, and data means that new trade issues have come to the fore. The ease with which data and information flow across borders means that regulatory authority over data and information is more complex than other cross-border regulatory issues. As such, it requires new diplomacy between governments and between governments and firms. And it requires more diplomacy than a number of other trade issues do. The issues that policy makers and diplomats confront fall into two broad and somewhat overlapping categories. One primary issue concerns the ownership, storage, and privacy of data and information. Do, and should, individuals ‘own’ data about their demographics and behaviour? Should firms be permitted to collect data 36

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on individuals, either across borders or within countries, without their permission? Should firms be permitted to buy and sell data without the permission of the subjects of the data? Several governments have already passed regulations requiring data gathered on a country’s citizens by firms to be stored on data servers within the country’s own territory. Ostensibly, the regulation is intended to protect the privacy of a country’s citizens against unauthorized use of their data. However, some governments are suspected of seeking to contain the storage of data so that they would have the capacity in future to gain access to the data themselves if they so chose. Privacy advocates applaud data storage regulations for preventing data from domestic citizens being stored abroad and used by firms without citizens’ consent. Yet they have reason to fear how their own governments might choose to use their data stored at home in the absence of sufficient democratic oversight. Another related major issue concerns how data and information are valued, priced, and taxed. Firms routinely sell data, both domestically and across borders, to other firms for advertising, marketing, and a growing range of other purposes. The practice of building lists of potential customers for advertising antedated the development of the internet, electronic data storage, and analysis. From the 1950s through the 1980s, businesses sold physical mailing lists of names and addresses to be used in direct mail advertising, for example. Such sales transactions, physical and electronic, have thus far been subject to relatively little domestic taxation and even less cross-border taxation. What has changed dramatically is the rise of transactions where firms provide customers with a service, such as a social media account or the use of a direction-finding smartphone app, in return for the ability to gather and store the customer’s data and use it for their own purposes, including selling advertising (Srnicek 2017, ch. 2). These transactions, both domestic and cross-border, are a form of trade not for financial compensation, or barter, as it were (Gilder 2018, pp. 37–43). As with commodities involved in other barter transactions, it is inherently difficult to assign a market value or price to an individual’s data for purposes of asset valuation or taxation. Economists have sought to create pricing models for these transactions using various methods. One approach is to survey users of a social media site or app as to how much they would be willing to pay for use of the service if they retained the right to control their own data. As with a demand curve in economics for any other product, different individuals value the privacy of their data very differently. But the barter trade for individual users’ data differs in a few important respects. Data privacy has a public interest component. Many individuals may not be fully aware of the consequences of selling their data. Private data, once they pass into the public domain, cannot be returned to the private control of their user. And for firms buying data, each additional user’s data enhance the value of the overall data set by greater than 37

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one, owing to the network effect (Srnicek 2017, ch. 2). The public interest component of data privacy has given rise to popular pressure for regulation in many countries. The baseline to the debate over regulation of digital trade is that there are few rules to govern digital trade in the GATT or GATS. The last major systematic revision to world trade rules was the 1994 Treaty of Marrakech, which revised the GATT, instituted the GATS, and established the World Trade Organization. But at that time, digital trade was still a very minor portion of overall global trade volume. Since its inception in 1995, the WTO has made relatively little progress in extending multilateral trade liberalization to new types of trade, such as digital. In the absence of multilateral digital trade regulation, governments of democratic industrial countries with substantial stakes in digital trade, such as those of the EU, United States, and Canada, have taken different approaches to the regulation of digital privacy. The European Union’s 2016 General Data Protection Regulation (GDPR) is the most rigorous, stating that firms may export data from the EU to third countries without special authorization only if the European Commission has determined that the third country’s privacy protections are generally compatible with the EU’s GDPR. In practice, this has resulted in many firms adopting GDPR standards as their global standard for doing business (Wolfe 2018, pp. 3–6). Firms like Palantir have restructured their major data analytics platforms for clients to be GDPR-compliant. The US position, by contrast, has been that barriers to data flows impede legitimate cross-border trade and thus can constitute protectionism (Wolfe 2018, p. 11). Hence as digital trade has become significant, regulatory authorities and trade policy officials in many countries have taken the position that digital trade needs to be incorporated into new trade agreements. By May 2017, seventy-five of the 275 bilateral and regional trade agreements registered with the WTO contained e-commerce provisions. These agreements address three types of data privacy issues: privacy of personal information, electronic cross-border information transfer, and use and location of computing facilities (Wolfe 2018, p. 1). Canada and the EU were able to reach agreement on digital trade in the EU– Canada Comprehensive Economic and Trade Agreement (CETA), as both polities have ‘horizontal’ protection of digital privacy. Reaching agreements with the United States is more difficult, because US privacy protections are ‘vertical’ and sectoral in structure (Wolfe 2018, p. 11). A major issue of greater concern regards whether data storage regulations should be treated as trade barriers eligible to be negotiated away under the rubric of trade liberalization. Requiring in-country data storage adds costs to foreign companies gathering data in the course of doing business in a country that domestic providers may not face. The European Commission has taken a clear stance that the privacy protections of the EU’s GDPR are non-negotiable (Wolfe 2018, p. 4). 38

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Writing digital trade provisions into trade agreements presents a number of opportunities as well as issues to address beyond questions of privacy. One potential opportunity is that the increased availability of ‘Big Data’ on trade volumes and pricing may facilitate more effective trade dispute resolution. In the expanding range of digital trade issues, in theory even the practice of internet service providers (ISPs) charging different business users different prices to carry data between individuals over their networks could have an impact upon crossborder trade in data, knowledge, and information. Hence the regulatory debate over the wisdom of net neutrality, which pits ISPs seeking to maximize profits and minimize costs against small businesses and individual consumers, potentially becomes a cross-border trade issue. Conclusions: more trade across fewer borders? As the overall human population becomes wealthier, and poverty continues to be reduced, global commerce should continue to increase, at least in the short term. The poorest spend the greatest proportion of each additional bit of income that they receive, relative to wealthier segments of society. Hence the ongoing eradication of global poverty is doing more to increase global commerce than any other economic vector (Griswold 2009, ch. 8). The distinction between global commerce and international trade is an arbitrary, political distinction. What makes global commerce into international trade is when goods, services, data, information, knowledge, human labour, or payments cross an international border. As China and India grow wealthier, the percentage of global commerce that crosses borders will contract, other things remaining equal. More of what is produced within China and India will be demanded by local consumers and consumed within the state in which they are produced rather than shipped abroad. Likewise, the advent of manufacturing processes such as 3-D printing means that more goods will be produced close to their point of consumption rather than shipped over great distances, across borders, at higher environmental cost. For the many who appreciate all the benefits in living standards that trade has brought to the global economy and to society as it has evolved over at least the past two centuries, a decline in the ratio of trade to global output is not something to be feared. Cross-border trade flows, however, facilitate diplomatic relations between sovereign states (and reduce the risk of conflict and war) by building trade constituencies for good relations on both sides of a border. Likewise, good diplomatic relations between states facilitate increased trade flows. When allowed to flourish, the trade–diplomacy relationship is a virtuous circle, as the past two centuries of world history have demonstrated on many occasions. The task 39

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for trade diplomacy, which Chapters 4 and 5 discuss in depth, will be to lower barriers that slow growth in the newest forms of cross-border trade, whilst helping to assist workers who will be disadvantaged by trade growth, and to prevent the raising of new barriers against old and new types of trade flows. In the longer term, if the abundance thesis holds, Turner (2018) argues that the cost of production and consumption of most standard goods and services is likely to fall to relatively minimal levels. In that situation, overall commerce as measured by value may decline. Fewer assets and types of assets will be scarce and thus in need of allocating through trade using the market. Those remaining traded goods and services, ranging from property in the most desirable locations to the very best human lawyers and other service providers, may well command huge prices. But in that world, the impact of government barriers to trade, or the lack thereof, will probably be considerably less significant than it is today.

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3

TECHNOLOGICAL TRANSFORMATION, THE GLOBAL ECONOMY, AND CAPITALISM

Tomorrow’s workforce: humans and machines collaborating? Beyond the evolution of cross-border flows of goods, services, labour, capital, data, information, and knowledge, advances in technology are changing the broader structure of the global economy and of capitalism itself. The impact of these changes is affecting the nature and structure of production and work, of what we consume, and of how a capitalist global economy mobilizes to face existential challenges like the climate crisis. Thinking about the impact of technological change on the broader global economy and on the future of capitalism is important for the argument of this book. How we think about and understand the global economy and capitalism, and our expectations for the future that are based on those understandings, affect what policies we choose and how we advocate for them. Our expectations for capitalism’s future also affect how we approach and implement the diplomacy that will be required to make our future policy choices succeed. The single greatest impact of changing technologies upon the global economy is on work, the workplace, and workers. The nature of work in the industrial world has been changing since the 1990s in ways going substantially beyond the offshoring of jobs and tasks owing to the emergence of global value chains under Globalization 2.0. The domestic transformation of the workplace in industrial countries has been equally broad. Increasingly, the production model of firms employing workers for whole careers and providing advancement, benefits, and job security has been replaced by outsourcing of components and processes and the casualization of the production process through use of contract, part-time, and temporary workers (Harvey 1990, pp. 150–55). Workers responded to this disaggregation of production processes and corporate workforces by marketing themselves and their services to prospective buyers in a newly defined ‘gig economy’. The emergence of the gig economy coincided with the arrival of the 41

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Percentage of !me spent on current work ac!vi!es

internet, enabling workers to connect with customers on a scale hitherto impossible. Entrepreneurs created online platforms permitting purveyors of everything from homemade crafts (Etsy) to services like ride sharing (Uber, Lyft) and food delivery from restaurants (Grubhub, Doordash) to sell to customers efficiently and safely. Yet the new technologies that have accelerated the transformation of the workplace pose threats as well as opportunities for workers. Most experts from a range of fields, including economists, engineers, physicists, and futurists in general, agree that the trend already underway of automation and robotization of manufacturing and the increasing integration of artificial intelligence into manufacturing processes will continue and accelerate. Since 2000, over 4 million of the 5 million US manufacturing jobs that were lost by 2018 disappeared due to automation, not to offshoring or other causes (Yang 2018, pp. 41–42). As automation progresses, driven by advancing AI technology, fewer and fewer existing jobs in the workplace will continue to need to be done by humans. Estimates of how many existing jobs will disappear and how fast they will go vary widely. Business and political leaders, already aware of the potential extent of the coming transformation of the workplace, are beginning to address rapidly growing public concerns. Appearing on the CBS Sunday news programme Face the Nation in spring 2019, former Virginia governor Terry McAuliffe cited a recent study concluding that ‘AI will eliminate 40 percent of the world’s jobs in the next 20 years’. 100 90 80 70 60 50 40 30 20 10 0 201620 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 2100 Years Adop!on

Early scenario Late scenario

Technical automa!on poten!al

Early scenario Late scenario

Estimates of impact of automation on jobs, 2016–2100 Notes: Automation will be a global force, but adoption will take decades, and there is significant uncertainty on timing. Forty-six countries are used in this calculation, representing about 80 percent of the global labour force. Source: McKinsey Global Institute analysis.

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Automation includes the streamlining of online processes that facilitate working from remote locations. As much more remote working becomes possible, the meaning and value of the location of where particular tasks are done are likely to change. Highly educated workers scattered across the globe and willing to work for low wages will become available in an increasing number of offices and industries across the industrial world. Baldwin (2019) argues that in the shorter term a combination of AI and remote intelligence, or tele-working, will result in the loss of between one third and two thirds of jobs in industrial countries, including both manufacturing and service sector jobs. The impact of automation on the global workforce is likely to be very different going forward from its impact upon earlier generations. Whereas automation in the past affected primarily repetitive manual tasks in assembly-line manufacturing, today’s machines can already do much more. Technology entrepreneur (and 2020 US presidential candidate) Andrew Yang argues that the work most subject to replacement by machines the earliest consists of routine tasks, not only in manufacturing but also in professional services jobs like accounting, financial services, and legal services. According to Bloomberg, employment on Wall Street peaked in 2016, and a McKinsey study claims insurance industry employment will fall 25 percent by 2025 (Yang 2018, p. 56). All jobs consist of multiple tasks. An increasing number of each job’s tasks will be subject to automation. This will likely result in the remaining tasks still best performed by humans being combined into new human jobs able to be performed by fewer people than before. Yang (2018, p. 52) cites a Federal Reserve study finding that, of 62 million US jobs, 44 percent are comprised primarily of routine tasks and are vulnerable to automation. Many of the routine tasks soon to be automated are now performed by workers doing ‘middle skill’ jobs. The loss of many of these jobs is likely to continue hollowing out the middle, exacerbating the divide between high and low remuneration jobs in the economy. Futurist Adair Turner (2018) views the changes to the nature, structure, and organization of work as automation replaces more manufacturing jobs somewhat differently. Turner sees intelligent machines as contributing an increasing share of value to the overall global economy as automation and AI progress. Turner argues that the productivity of the human workforce, how much value each worker adds to overall economic output, will decline as automation continues, in part because human workers will shift increasingly into low-productivity sectors and into what he calls ‘zero-sum’ sectors. Low-productivity sectors are comprised of jobs where it is difficult to devise ways for the same worker to produce more or faster. For example, in-home healthcare workers must travel to where their patients live and spend fixed amounts of time with them each day. Given fixed travel times to and between patients’ residences, it would be difficult for a carer to visit more patients in a given day. 43

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Zero-sum sectors are sectors that Turner contends do not add value directly to economic output, because their efforts in effect ‘cancel each other out’ in the economy. He cites as examples police and criminals, whose activities counteract those of the other, and lawyers for the prosecution and defence in tort and other civil damages cases. These lawyers’ activities result in a win for one side and a loss for the other, with resources being transferred from winner to loser following the settlement. Once the lawyers are paid and resources transferred, Turner argues, value is not added to the overall economy. Zero-sum economic activities by their nature are less likely to be automated than productive activities. More people will find work there, even if they do not contribute to human welfare. Most lowproductivity services sectors are not traded across borders, whereas a number of zero-sum services, such as high value added legal services, are traded. Overall, the impact of AI on the workforce of the future is not simple. Many categories of jobs are not easily replaceable by machines and are unlikely to become so in the near future, if ever. However, many tasks that are part of existing jobs may be automated. Many jobs at or near the bottom of current wage scales and that involve multiple manual functions, such as cleaning homes and offices, will continue to resist full automation, even as partial automation reduces the number of human workers needed to do the same amount of work. A vast range of services provision tasks are not likely to be automated rapidly, although AI will improve the quality of many services. In medicine, for example, diagnostic algorithms are already producing accurate diagnoses in cases that individual doctors are unable to solve, because AI has a greater capacity to search larger databases more rapidly than humans and identify patterns of symptoms of which particular human doctors may not be aware. However, a human doctor’s capacity to interact personally with a patient is in many ways not substitutable by a machine. A human doctor, knowing her patients as individuals, may know how to ask questions to elicit information about the patient’s complaint that a machine could not gather. Through that personal relationship, a human doctor can help a patient make choices about treatment approaches and follow through with the doctor’s recommendations in ways that a robot could not. Many modes of psychotherapy are inherently reliant upon ongoing conversation between therapist and patient, underpinned by a trust relationship that builds over time. Many illnesses and conditions will benefit most from diagnoses and treatments that combine AI with human-delivered care. As humans live longer, thanks to better medicine and economic development, the personal care profession is growing and likely to continue to grow. Longer lifespans in many cases mean people are suffering from diseases and infirmities at the end of their lives that, had they died younger, they would not have experienced. These ailments range from memory loss and dementia to mobility impairments to loneliness and 44

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depression. Technology has increased and will continue to increase the demand for in-person caregivers. Automation and AI are likely to power a continued increase in demand for a broadening range of personal services of the sort that need to be delivered by humans. Increasing disposable incomes as economic development proceeds around the world are granting more people access to services once viewed as luxuries:  massage, spa and beauty treatments, personal training, yoga, life coaching, self-improvement classes for skills ranging from cooking to crafts, to name some examples. Trends already show that Millennials and Generation Z’ers increasingly prefer to purchase experiences rather than things (see below). If, as many futurists have now forecast, AI reduces the amount of labour required of humans to sustain or increase existing standards of living, people are likely to seek out and consume more personal services, because they will have more available time. The value and importance of collaborative labour in particular to services production, which Michael Hardt and Antonio Negri (2000, p.  290) characterize as immaterial labour, are also likely to continue to increase. For many design tasks, the imagination and creativity resulting from several human minds interacting in particular ways cannot be produced by one mind alone and would also be difficult to generate using a machine. Whether designing a building or outdoor public space, structuring a merger or acquisition transaction, or crafting a legal strategy to defend an individual or firm in a case with complex social implications, the interplay of ideas that members of a strong team generate is often vital to producing a successful solution. Successful task-oriented teams at financial firms and law firms often depart for another firm as a group, if they have disagreements with management or if they receive a better offer of remuneration from another firm. This stands on its head the traditional Marxist understanding of industrial relations, in which capital squeezes ever more surplus value from labour. As Hardt and Negri (2000, p. 294) observe, productivity, wealth, and the creation of social surpluses take the form of cooperative interactivity through linguistic, communicational, and affective networks. In the expression of its own creative energies, immaterial labor thus seems to provide the potential for a kind of spontaneous and elementary communism. Hardt and Negri (2000, pp. 291–94) describe as affective labour all the categories of services work in which individuals affect or change their clients or customers through the work they do. Affective labour is communicative at its core. What does it mean to ‘consume’ an affective service? Delivery of these services changes their consumers: relaxed muscles, emotions in better balance, 45

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hair styled, the comfort of having settled on a new investment strategy with a trusted advisor, the satisfaction of viewing a garden well cared for. Providers of affective labour, Hardt and Negri contend, are likely to have increased ‘labour power’ over their employers in terms of remuneration and working conditions. Affective labourers will not be as subject to replacement by machines as traditional manufacturing and even other services work. Demand for affective labourers’ services will increase, and the particular value of collaborative labour will remain high. Hence collaborative labourers will have an incentive to continue to work together. Automation, artificial intelligence, remote intelligence, or tele-working are likely to mean fewer and fewer jobs in the decades to come, but less work does not and should not mean less income for the human population. How to redistribute wealth that is generated by a small segment of the population to the vast majority who will be in the ‘unwaged’ sectors of the future will pose a policy challenge for governments and for diplomats (see chapter 7). But the advancement of AI is likely also to present another set of challenges for policy makers and diplomats. Intelligent machines are already able to learn for themselves by absorbing and analyzing large bodies of recorded knowledge in specific fields and subjects, as has been demonstrated by the ability of machines to beat human champions at games of strategy like chess. Experts expect this artificial ‘narrow’ intelligence to advance to artificial ‘general’ intelligence within the next two decades. Once a functional artificial general intelligence is up and running, futurists like Ray Kurzweil (2000), Nick Bostrom (2014, pp. 1–4), and Max Tegmark (2017, ch. 4)  have posited the possibility of a moment they describe as the ‘singularity’, which could occur around 2045. The singularity refers to the point at which AGI rapidly learns for itself the capacity to acquire and process information, in effect to think for itself, vastly faster than humans are able to do: to become superintelligent. Superintelligence presents enormous opportunities for humanity in terms of being able to solve global problems, such as climate crises and any form of economic privation. It also opens the way to wholly new forms of human society and economy. However, the sudden, uncontrolled breakout of superintelligence poses enormous risks, in that if its objectives are not carefully designed and monitored by humans before superintelligence emerges, it could emerge in a version that could do enormous damage to or even destroy human society (Bostrom 2014, pp. 140–54; Tegmark 2017, ch. 5). Managing the breakout of superintelligence may be the greatest diplomatic challenge humanity has ever faced. Bostrom (2014, pp. 155–76) characterizes this unique challenge as a form of principal– agent problem: to ensure that the superintelligence, the agent, acts consistently to fulfill the wishes of the principals, its human masters. Reaching agreement on what the principals’ collective wishes are will involve governments, global firms, 46

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multilateral organizations, and civil society actors. It will require the negotiation of agreements to govern entirely new forms of cross-border economic and social collaboration, if global human security is to be preserved. Technology and consumption: changing what we want Technology is not only changing what we produce and how we produce it, but it is fundamentally changing consumer demand: what people want to consume and why. When scholars and businesspeople first sought to understand trade, our needs and desires as consumers were treated as givens. The quest that began in the twentieth century to understand why we desire what we do is part of the same project of cognitive psychology that has exposed the flaws in the ‘rational actor’ model underpinning classical political economy and our understanding of how international trade works. The theory of ‘moral sentiments’ articulated by Adam Smith (1986 [1759], pp. 118–27) imagined us as having already existing desires and taste preferences driven by our differing perceptions of utility, fashion, and custom, and constrained only by what we can afford to purchase in the marketplace. Smith imagined that what is useful naturally pleases us, albeit items of different utility to differing degrees for each person. The range of many individuals’ desires and taste preferences drives demand for all the goods and services which the market calls upon producers to supply. Some will buy beef, others choose chicken or tofu. Some will buy tickets to a show, others will engage the services of an astrologer or a masseuse. Each person’s unique profile of desires and preferences as a consumer makes possible trade or commerce with others nearby and far away. For Marx, what we want most stems from the fact that as humans we are intended to work together to make things. According to Marxists, our human telos, our ultimate objective as people, is to participate freely in collective productive activity (Marx 2000 [1858], pp.  420–21). Social production is in our human nature. Unlike Marx, Smith argued that our human nature lies not in what we produce but in what we consume. For Smith, we effectively define ourselves and our identity by what we choose to consume and by what we sell to others:  ‘the propensity to truck, barter, and exchange one thing for another’ (Smith 1986 [1776], pp. 168–71). The differences in perspective of Smith and Marx on these key aspects of human nature raise the broader question of the extent to which our pre-existing human nature really does govern our desires and preferences and the effects those preferences have on the economy more generally. It also begs the question of how our human nature and our desires and preferences are discovered and documented. Some aspects of our brain chemistry do appear to be hard wired, as it were, yet many of our desires and 47

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preferences are not. Each of us has experienced some of our own preferences changing over time, for example. French social scientists Gilles Deleuze and Félix Guattari’s perspective on desire differs from those of both Smith and Marx. Deleuze and Guattari (1977) hold, briefly, that humans are naturally in a constant state of change, and that we are propelled by a dynamic desire, which we can define loosely as the energy that creates interest, attention, and motivation in life. Humans are essentially ‘desiring machines’, beings who are controlled by this desire. Desire for Deleuze and Guattari, importantly, does not naturally stagnate into the permanent identities with we are familiar. This desire is naturally in flux: for example, we are at one moment queer, another straight. We have certain productive desires, and then these productive desires change, never allowing any instance of desire to become a rigid identity. When we do succumb to repression, these identities become ‘territories’, borders that essentially block off the natural dynamic flow of desire. Deleuze and Guattari argue that we must strive for ‘permanent revolution’, a constant battle against repression where we ‘deterritorialize’, breaking away from rigid impositions on desire. This seems in practice essentially to fight the rigid machinations of capitalism that force us into more or less rigid forms of production, and also to battle historically dominant social constructions of gender and sexuality, which have repressed the natural flows of desire. Empirical scientific research since the Second World War has done much to make us question Smith’s and Marx’s ideas of who we are, what we want, and why. In the process of doing so they offer support for the more dynamic understanding of our desires envisaged by Deleuze and Guattari. The notion of humans making rational choices of what and when to consume based on having perfect information has been found not to accord with the actual record of what, when, and how much people choose to consume. Cognitive psychology, the study of how we learn and process information, enabled scholars Amos Tversky and Daniel Kahneman to develop behavioural economics, the empirical analysis of what we actually consume, when, and why. The emergence of cognitive psychology, behavioural economics, and ‘Big Data’, namely the AI-driven ability to collect and analyze huge amounts of data on people’s preferences and behaviour in the late twentieth and early twenty-first century, has revolutionized our ability not only to predict our preferences more accurately but also to change them. Logarithmically increasing computation power in line with Moore’s Law1 over the past two decades has enabled the storage and analysis of vast quantities 1. Moore’s Law predicts that available computing power per dollar spent doubles every 18 months to two years. This expectation has held true for several decades and, while it eventually will encounter physical bounds, should continue to hold for the foreseeable future (Brynjolfsson & McAfee 2016, pp. 40–41).

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of data about each person as a consumer: what we purchase and how much of it, how often, from where, in conjunction with which other purchases, to name just a few categories of information (Bostrom 2014, p. 32; Brynjolfsson & McAfee 2016, pp. 40–70). The development of the internet has facilitated the gathering of data dramatically, particularly as online shopping and the use of social media have exploded in the past two decades. Many of these data are ‘harvested’ from internet service providers, which provide detailed records of the websites we visit, length of time spent on sites, and our purchasing activity. Data are also extracted from topics searched on search engines such as Google and from recording ‘likes’ clicked on social media sites such as Facebook, Instagram, and Twitter, and from words and images used in posts and messages posted on sites such as Twitter, Reddit, and Pinterest. Once businesses discovered that they could use individual data profiles of each consumer to target online advertising to match each consumer’s profile, demand for customer data exploded. But our digital data profiles no longer end there. AI-driven facial recognition software enables photos posted to the internet to be identified and correlated to individuals. AI-driven software to permit voice recognition and natural language understanding enables data from voice command listening devices or ‘smart speakers’ such as Amazon’s ‘Echo’ to be collected and integrated into databases. Through analysis of these data, advertisers are able to develop highly detailed individual profiles of each consumer’s preferences and tastes with powerful predictive accuracy for our future choices and behaviour (Lee 2018, pp. 107–08). The use of technology to shape and change consumer preferences is not a new phenomenon, but its potential power has increased dramatically as technology has advanced. Subliminal advertising techniques were first developed for film and television in the 1950s. Subliminal advertising inserted images of advertised items, such as food and drink, into a film or television show so briefly that viewers were unaware of what they had seen, even as the images created a subconscious desire in viewers’ minds for a Coca-Cola or a box of popcorn. Once the use of subliminal advertising became public knowledge, popular opposition led to it being prohibited by legislation in the 1960s. However, the interest of businesses in targeting advertising to its most profitable target consumers never ceased. Big Data, predictive analytics, and recently developed techniques of psychographics have enabled those controlling the data and technology to enhance, discourage, or even change the preferences of individuals for products, political candidates, and issue positions (Wylie 2019, p. 16). The election cycle of 2016 illustrated vividly in several countries the dangers that current levels of data collection, integration, and analytics pose to us not just as consumers but also as citizens. If marketers have used first subliminal advertising and now data analytics to persuade us to purchase one brand of shoes 49

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over another without our being aware of their influence on our choice function, it raises ethical issues concerning our autonomy and freedom about which we may rightly complain. However, if the same techniques are used to influence our choice of candidates to govern our societies in elections intended to be free and fair, a wholly different degree of violation of our freedom and autonomy as individuals has been achieved, a wholly different level of harm has been done to democratic societies. Flooding prospective voters with information, and in particular information with a bias or slant, through social media news feeds can be just as damaging in democracies as depriving voters of information, whether the effect is to increase voter participation, discourage citizens from voting, or change voters’ minds about a candidate or party (Wylie 2019, p. 16). The now documented Russian funding of Cambridge Analytica’s involvement in the 2016 US presidential campaign in support of the Donald Trump campaign, of the Vote Leave and Leave.EU organizations in the 2016 UK Brexit referendum, and of the independence movement in Catalonia before the 2017 Catalan independence referendum paints a grim picture of the damage to political society that can be done when information and communications technology is permitted to alter our perceptions of what we want without our advance knowledge or consent (Wylie 2019). When governments or non-state actors use technology across borders to harm other states, such interference becomes by definition a subject for diplomatic conflict resolution or crisis management. But it also raises the broader and much older question, yet unresolved, of how what we want is translated into what we are able to consume, or not, under conditions of economic scarcity: the broader, ever thorny problem of capitalism and its future. Green technologies: threading the climate crisis needle The key test of our understanding of the changes to the global economy resulting from technological transformation to production, consumption, and trade lies in what it tells us about how well the economy faces an existential threat like the global climate crisis. It is at the same time about what and how we produce and about what and how we consume. It will require diplomacy to negotiate a solution. New technologies present both threats and opportunities as we seek to make policy choices to avert catastrophic damage to Earth’s climate and ecology. The inescapable consensus of the global scientific community is that industrialization, human economic activity since the first industrial revolution in the late eighteenth century, has resulted in an unsustainable ongoing increase in the emission of carbon, methane, and other greenhouse gases into the atmosphere. If not reversed, greenhouse gas (GHG) emissions will result in a potentially lethal rise in temperatures across the Earth, triggering extreme weather 50

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events, a rise in sea levels of up to 30 feet, widespread agricultural production failure and regional famine, deforestation, and desertification, mass migration from inundated regions, political instability, and the possibility of global economic collapse. The economic dimensions to the crisis and its potential solutions are relatively straightforward to define. In 2006 Sir Nicholas Stern, head of the UK Government Economic Service, produced a report finding that global warming could cause a 5 to 20 percent loss of global economic output, whereas the cost of avoiding this loss would only amount to a single percent of global GDP (Inslee & Hendricks 2008, p. 21). A crisis of global scale has necessitated global diplomatic engagement to find a solution. The most recent global accord, the 2015 Paris Agreement of the UN Framework Convention on Climate Change, commits signatory countries to take necessary steps to reduce greenhouse gas emissions to between 1.5 and 2.0°C above pre-industrial levels (UNFCCC 2015). The global climate crisis is at its core a global economic and trade issue. Even mitigating the scale of the crisis will require us to make significant changes in what, how, and how much we produce, consume, and trade. It will require collective decisions about how to apply existing technologies and new ‘green’ technologies still under development to reverse global warming. Understanding the relationship between production, consumption, and greenhouse gas emissions is the first step toward making practical policy changes. Technological change in the form of the first industrial revolution, powered by the fossil fuel-burning internal combustion engine, was the major contributing cause to the climate crisis (along with industrial-scale deforestation to clear land for agriculture and industry), and so technological advances must be at the forefront of solving the crisis. Shifting the globe to systems of energy production, trade, and consumption that reduce and eventually eliminate greenhouse gas emissions is the primary goal in averting climate disaster. Addressing the climate crisis is a quintessentially diplomatic challenge, because governments of single states are unable to solve climate problems by adopting policies on their own. Even groups of like-minded wealthy industrial countries intent on reducing GHG emissions would have no capacity to force such policies on unwilling developing countries in need of affordable energy to lift their countries out of poverty, short of a use of force that would be unthinkable in today’s world. Only diplomatic negotiation, based upon mutual acceptance of the sovereignty of each government and the legitimacy of each government’s interests, offers a route to securing the needed participation of every country in addressing what is truly a global problem. The diplomatic pragmatism of the 2015 Paris Climate Accord lay in its use of the benchmarking principle to promote compliance with agreed GHG reduction targets. Signatory governments did not commit to mandatory GHG reduction targets subject to enforcement 51

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by an external authority, which would have been difficult to negotiate given the sovereign status of member states and the differing domestic political demands upon their governments. Yet making targets and steps taken to comply transparent and measurable established the principle that countries would comply, lest they be ‘named and shamed’ for not doing so. Early results suggest that the commitments made at Paris have energized domestic civil society in many countries to press their governments and businesses to meet their Paris GHG reduction targets. China’s government engaged in substantial public diplomacy efforts to communicate to the global and domestic publics their commitment to meeting their Paris commitments and to green economic development generally. However, in autumn 2019 news reports circulated that construction of numerous coal-fired power plants had begun or been re-started in China over the preceding year. Only time will tell whether the diplomatic compliance strategy undertaken at Paris will be successful. In 2017 US President Trump announced his intention to withdraw the United States from the 2015 Paris Climate Accord, owing to his profound misunderstanding of sovereignty and the value of diplomacy, intentional or otherwise, and his desire to benefit supporters and allies in the fossil fuels industries. But even as Trump spurned diplomacy and the global community over the Paris accord, Jay Inslee, governor of Washington state (and a 2020 US presidential candidate) has taken a leading position in arguing for the development of existing and new ‘green’ technologies to move the United States and the rest of the world to a zero-emissions global economy. The goal, Inslee (and Hendricks 2008) contends, must be based on the replacement of the fossil fuels economy with a ‘smart’ electric power grid fuelled by renewable resources such as solar, wind, geothermal, and hydro power. There is no silver bullet, Inslee (and Hendricks 2008, p.  52) points out, so as many steps as possible need to be taken to reduce US emissions of GHGs by the needed 80 percent. Inslee’s arguments have been persuasive for US state and city governments representing two thirds of the US population, which have reaffirmed their intention to meet their jurisdictions’ portions of the US GHG reduction target agreed at Paris, notwithstanding Trump’s rejection of the accord at the federal level. Transport is critical to trade by making possible the movement of goods, services, and people across distances. Yet in 2017 transport accounted for 29 percent of greenhouse gas emissions in the United States, making it the largest sectoral emitter of GHGs. Of that quantity, 59  percent of emissions come from light duty (personal) vehicles (Environmental Protection Agency 2019). Achieving efficiency gains in and minimization of the use of transport will make a critical contribution to reducing GHGs, Inslee argues. Switching to ‘plug-in’ electric vehicles and hybrid vehicles that make use of biofuels can yield a reduction in overall carbon dioxide emissions into the atmosphere of 36 percent. Car batteries 52

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plugged in can release power into the grid at night, reducing demand for new peak power stations. Moving from a five-day to a four-day workweek would reduce driving, emissions, and demand on the power grid by 20 percent (Inslee & Hendricks 2008, pp. 39–40). Notwithstanding the likely achievements of the efficiency gains in transport that Inslee targets, transport costs are likely to rise to reflect more fully the cost of resources consumed. Air freight, which has contributed significantly to the effectiveness of manufacturing GVCs and the increase in global trade in professional services since the 1980s, is likely to need to become more expensive. This should make the use of different technologies to restructure global trade more attractive. 3-D printing and manufacturing in place near points of consumption are likely to become more cost effective than now, even if the design and even the operation of machinery may be undertaken across one or more borders (Baldwin 2016, p. 291). Likewise the development of virtual reality conference technology expected in the next decade should permit more business meetings to take place in which individuals can read the body language and non-verbal signalling of colleagues at in-person meetings without physically travelling to a distant meeting site. In both of these situations, trade in data would replace trade in goods or services (Baldwin 2016, pp. 291–93). Notwithstanding the reality that as long as the human population living on Earth continues to grow, consumption is likely to grow accordingly, a longrunning critique of capitalism has argued against the need for each business, the overall economy, and capitalism itself to continue to grow in order to survive. One strand of thought in the environmentalist movement, as it grew over the course of the twentieth century, argued that individuals and societies should strive to reduce consumption to reduce pollution and conserve Earth’s finite supply of natural resources. The popular mantra of ‘Reduce, re-use, recycle’ has been infused with new urgency by the twenty-first-century realization that production and consumption are tied closely to greenhouse gas emissions. An updated popular conception of environmental sustainability includes at its core the objective of zero carbon emissions. Climate activists today campaign against cultures of consumption and disposability promoted by businesses and by government policies. For example, the ‘fast fashion’ trend of cheap, disposable clothing mentioned above has become a target from a sustainability perspective (Blanchard 2019). Sustainability itself is increasingly becoming a consumer preference in its own right, guiding individuals’ choices of what and whether to consume and businesses’ choices of what (and how much of it) to produce. But individuals’ choices alone will not determine whether the challenge of arresting and reversing the global climate crisis is met. If governments and firms do not meet diplomatic commitments to lower GHGs in time to limit increases in global temperatures, ultimately more extreme technologies for mitigation of 53

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the effects of global warming may need to be deployed. One category of mitigation technologies would extract carbon from emissions from factories, farms, power plants, and other large emitters of greenhouse gases, extract the carbon from the emitted gases, and sequester the carbon physically in permanent underground storage. Carbon sequestration has the advantage of being already technologically feasible. However, the process is still too costly to be adopted on a wide scale. Carbon sequestration is also likely to be more expensive and less sustainable over the long term than modifying energy generation and industrial production to processes that do not emit greenhouse gases in the first place. It is most likely to find a use as a ‘bridge’ technology if the worst effects of GHGs need to be mitigated for a short period of time before more sustainable GHG reduction strategies can be implemented. Another more extreme approach to mitigating global warming is to shield Earth’s surface from the Sun’s rays. One strategy would be to launch large solar shield panels (or great quantities of small ones) into space and position them over the polar ice caps during the Arctic and Antarctic summers respectively to limit melting of the ice caps. Such a project would demand an extensive complex GVC manufacturing and deployment process, which would be trade-intensive. It would also be very expensive, owing to the high cost of launching heavy objects from Earth’s surface (currently $10,000 per pound). Another untested but less costly and less infrastructure-dependent proposal involves releasing reflective particles into the atmosphere to reduce the amount of sunlight reaching Earth’s surface, much as happened naturally after the Indonesian volcano Krakatoa erupted in 1883, causing unanticipated global cooling for over two years (Gorvett 2016). The need to adopt and invest in massive scale global warming mitigation technologies in effect presupposes the failure of diplomacy aimed at reducing greenhouse gas emissions, so at best mitigation can be regarded as a second-best approach to the crisis at hand. The heavy lifting that diplomacy must do to bring new technologies to bear on addressing the climate crisis has begun. Since the signing of the Paris accords, more governments and more businesses have made commitments to reduce GHG emissions, notwithstanding the intransigence of the Trump administration at the federal level in the United States. The World Economic Forum, arguably the world’s premier platform for multi-stakeholder diplomacy on global economic issues, made sustainability the theme of its 2020 annual meeting in Davos, Switzerland. Climate campaigners ranging from Tesla CEO Elon Musk to youth climate activist leader Greta Thunberg rallied fellow Davos attendees to the cause at hand. The Forum’s member firms, a list comprised of many of the world’s largest and most global, committed to a new benchmarking ESG (environmental, social, governance) code of practice by which investors will be able to judge their performance even in the absence of particular governments’ 54

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regulations. Firms as large as Microsoft undertook commitments to become net reducers of global carbon emissions by 2050. Transparency and the need to maintain credibility with investors will help private enterprises meet their commitments to address the climate crisis. But only time will tell if their efforts will be sufficient and soon enough. Not Marx and Lenin’s end of capitalism? Meeting the challenge of the climate crisis is an existential test of technology and the global economy as they are today. But beyond its immediate and ongoing impacts upon production and consumption in the global economy, technological transformation is changing the basic ways that we understand capitalism as an economic system itself and our expectations for capitalism’s future. Marx and Lenin famously predicted that capitalism, once it had run it source, would be superseded by a socialist or communist socio-economic system. Neither the end of the Cold War in 1989 and the dissolution of the Soviet Union two years later nor the replacement of Mao Zedong’s version of a Marxist-Leninist planned economy in China with a capitalist model of economic development by Deng Xiaoping after 1979 have ended debates amongst scholars, policy makers, and the educated public over the meaning and advantages of capitalism versus socialism. These debates have been underway more or less continually since the era when Karl Marx first published the Communist Manifesto. Yet only at certain historical moments does the more academic discourse penetrate public policy debates, which in turn have an impact on economic decisions by firms and governments and on how diplomacy is undertaken to manage regional and global economic issues. The late 2010s is one such historical period. There has been a recent revival in attention to and interest in ideas surrounding socialism in countries such as the United Kingdom and United States, where for several decades significant majorities of voters were deeply skeptical of socialism. During the Cold War, socialism was generally equated with Soviet authoritarianism. It was routinely lampooned for its poor economic performance by Western politicians on the centre and right of the political spectrum. But the rise in popularity of political figures such as UK Labour Party leader Jeremy Corbyn and, in the United States, Vermont Senator Bernie Sanders and New York member of Congress Alexandria Ocasio-Cortez has stimulated widespread media debate about socialism. Members of the public are asking again what socialism means in the context of the contemporary global economy. There is a compelling argument, which Sanders, Ocasio-Cortez, and others make, that technological transformation makes this a key moment for a new consideration of socialism, freed from the historical baggage of Stalin and the Cold War period. 55

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Marx himself was prescient in predicting that technology would replace and displace human labour relentlessly, driving down wages and eliminating jobs (Marx 2000 [1858], pp. 405–22). This debate over socialism begs a more profound conversation over what capitalism is and is becoming today. There is a general sense that capitalism as it has been experienced over the past two centuries is changing, but little agreement over what it might be becoming. Marx and Lenin and their followers have long believed that once all the forces of production in the global economy have been absorbed into or ‘subsumed’ under the capitalist mode of production, capitalism would be naturally replaced by a newer and better mode of production, which they called socialism or communism (Marx 2000 [1859], p. 426). What this means is that even today there are still large quantities of natural resources, workers, and businesses that are not yet fully included in the capitalist global economy. In many of the poorest countries, for example, people still must grow their own food, make their own clothes, and otherwise engage in subsistence production. In a number of Muslim-majority countries and other countries where traditional social structures still dominate, governments prevent women from participating fully in the workforce for reasons of religious or cultural tradition (or to preserve political power for men in those societies). Hence in the Marxian view global capitalism is still a work in progress. In an important sense, Marx and Lenin’s expectations that capital will consolidate and tend toward monopoly have been demonstrated by the technological transformations of the past three decades and the emergence of the contemporary large technology firms of Silicon Valley and in China. Technology entrepreneur and Palantir Technologies co-founder Peter Thiel (2014, ch. 5) argues that it is the natural tendency of technology firms to seek monopoly as part of the core of their business model. Thiel names four characteristics that a technology firm must possess, at least in some measure, in order to succeed: proprietary technology, network effects, economies of scale, and branding. At the core, Thiel contends, a technology firm must develop a unique product – a platform, an app, a process – that fills a distinct market niche before anyone else does. To be profitable over the long term, Thiel argues, the firm must dominate its niche either by driving potential or actual competitors out of business or else by acquiring and then assimilating them or shutting them down. Network effects occur when, as the number of users of a platform increases, the value of the platform to its users increases much more rapidly (Srnicek 2017, ch. 1). Examples to support Thiel’s case are abundant. One of the most visible is Facebook, already the overwhelmingly dominant social networking platform, which acquired Instagram in 2012 for $1 billion and WhatsApp in 2014 for $19 billion. In 2018 the value of Instagram’s app to Facebook was estimated at $100 billion, generating over 30 percent of Facebook’s net mobile ad revenue 56

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(Koslowska 2018). With over 2 billion users worldwide, Facebook today dominates global social networking with its Facebook and Instagram platforms and messaging with its Facebook Messenger and WhatsApp platforms. Alphabet’s Google similarly dominates internet search with its Google search engine and video sharing with its YouTube platform. Amazon’s dominance of the online retail market in the United States and a range of other countries is so extensive that the cloud computing network they built to support it, Amazon Web Services (AWS), has itself become the largest global provider of cloud computing services to the global marketplace. In 2017, AWS reportedly had 34 percent of the cloud computing services market, more than thrice as much as their nearest competitor, Microsoft. Does Thiel’s candour regarding strategy make the case that technological transformation has changed the nature of firms and capitalism more broadly? Advocates of Marx and Lenin would point to earlier major consolidations of capital in major economic sectors ranging from energy to finance to heavy industry (automobiles and aircraft, for example). But whereas previous consolidations prompted public interest regulation through mechanisms such as the antitrust statutes in the United States and the competition directorate in the European Commission, until recently the technology sector has faced less regulatory oversight in this respect. Nonetheless, Marx, Lenin, and their followers, uncertain about the mechanisms through which capitalism will evolve, have disagreed over how long it will take for the project of global capitalism to be complete, and, once it is complete, how it will be replaced by socialism or communism (Noys 2014, introd.). Some have contended that the transformation will happen by revolution, which Marx and Lenin actively encouraged (‘Workers of the world, unite! You have nothing to lose but your chains’), whereas others believe the transition will be organic and evolutionary. Most Marxist-Leninists agree that the 1917 Bolshevik revolution in Russia and the Soviet socialist economic system that operated in the Soviet Union and a number of allied states from the 1920s until 1991 was not the revolution heralding the end of capitalism and the emergence of a socialist or communist global economy. Neither Marx nor Lenin predicted that a socialist revolution would happen first in a country like Russia, at the time one of the least developed amongst the major global powers in terms of industry or capitalism more broadly. Interwar Italian social theorist Antonio Gramsci (1971), analyzing the rise of fascism in Italy under the leadership of former socialist Benito Mussolini, believed capitalist forces of production could maintain their authority by using culture effectively as a means of maintaining the consent of the governed. Meghnad Desai, a neo-Marxist economist and Labour Party member of the UK House of Lords, argues that the process of absorbing all of the remaining 57

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forces of production in the world into global capitalism will take much longer than earlier followers of Marx and Lenin had imagined. Hence according to Desai (2002) the best thing for those who want to see capitalism replaced by something better is to work to build out capitalism now: to accelerate processes of foreign investment, job creation in capitalist economies, and consumption. A  range of other scholars in Marx’s tradition, including French philosophers Gilles Deleuze and Félix Guattari, as well as Jean-François Lyotard, also embrace what is described as ‘accelerationism’, an intentional effort to accelerate productive forces as a strategy to trigger the end of capitalism (Noys 2014, introd.). Noys (2014, introd.) contends that accelerationists identify two seemingly contradictory trends in late capitalism, both of which are amplified by technological development. One trend is a declining rate of return on investment, which Marx forecast to occur as the global economy and technology developed (and investors picked all the ‘low-hanging fruit’), resulting in an explosion of debt financing. The other trend is the increasing financialization of assets, including debt, which has been made possible by the development of financial technologies for trading and sales of financial products. The twin trends of accelerating capitalism that Noys identifies, debt financing and financialization of assets, have been manifested in a series of debt-triggered crises in the global economy since the advent of computing that permitted electronic funds transfer in the 1970s and has subsequently allowed for online, programme, and high volume trading of financial instruments. This was an international trade issue, in that foreign investment and then debt financing enabled developing countries to develop exporting capacities to grow their economies. The first of these crises occurred across Latin America in 1981. Latin American countries, including the larger economies like Brazil and Mexico, had borrowed huge amounts of money in US dollars to fund their economic development in the 1970s. Inflation had been high, debt financing had become plentiful (because oilproducing countries had deposited their windfall dollar-denominated earnings in US financial institutions), and the value of the US dollar was depressed owing to loose US monetary policy. In a push to bring double-digit US inflation under control, US Federal Reserve Board chairman Paul Volcker in 1980 raised interest rates dramatically from less than 2 percent to 12 percent, driving up the value of the greenback by 40 percent over five years, at the same time tipping first the United States and then the rest of the world into a severe recession. For Latin American debtors, including governments and major financial institutions, their dollar-denominated debt payments increased at the same time as slowing economic activity curtailed cash flow for repayments. The second set of crises, in 1994 in Mexico and in 1997/98 in East Asia and Russia, were facilitated by the technology-driven expansion of international currency trading and the reduction in barriers to cross-border trade, investment, 58

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and monetary flows. This combination of liberalization and technological advancement allowed speculators to turn against local currencies in Mexico, Thailand, and South Korea, rapidly driving down their value and triggering local recessions, in the process making their debt repayment more difficult. In each case, the prescribed ‘Washington Consensus’ recommendation from international financial institutions was austerity in government spending and further economic liberalization in the form of reduction of trade and investment barriers. The most severe financial crisis of all was the 2008 ‘Great Recession’. Declining rates of return on many asset categories in the early 2000s led to a surge in real estate investing, which created a bubble in property prices. This produced a large increase in ‘sub-prime’ mortgage lending (lending to riskier borrowers), followed by increased financialization in which sub-prime mortgages were ‘bundled’ and sold as ‘collateralized debt obligations’ (CDOs) to investors. Computer algorithms mispriced the CDOs so that their price and rate of return did not reflect their risk/reward profile accurately. When the property price bubble burst in 2007, mortgage defaults surged, and major financial institutions found themselves unable to meet financial obligations. Prices of CDOs and other financial instruments collapsed. Several major international and regional financial institutions, such as Bear Stearns, Lehman Brothers, Northern Rock, and Washington Mutual, failed, whilst others, such as Citigroup and AIG, were bailed out by governments, which deemed them ‘too big to fail’. By several metrics the Great Recession was regarded as the most serious financial collapse since the Great Depression of the 1930s (Sorkin 2009). Advances in transport, information and communications technologies have accelerated the actual processes of buying and selling – trading – in the global capitalist economy. But, importantly, the same advances have also changed our perceptions of the speed of economic activity and our relationships to it. David Harvey (1990) has described the psychological and perceptual impact of increased speed of economic activity as a key component of ‘the postmodern condition’ in his eponymous book about the same. The primary phenomenon Harvey refers to is time/space compression, the perception we may have that everything else is closer to us and happening faster than before. A simple example is the notion of making a journey from New York to Washington, which took two weeks on foot or a week on horseback in 1800, by 1880 took four hours by train, two hours by propeller aircraft in 1950, and 45 minutes by jet aircraft in 1980. For a businessperson, what once was a weeks-long journey has become a return trip that can be made in half a business day. Alternatively, businesspeople in New  York and Washington can meet with their colleagues in Hong Kong, Johannesburg, Bucharest, and São Paulo simultaneously without ever leaving their offices thanks to high internet connectivity speed and bandwidth in 2020. 59

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Similarly, shipping and transit times for goods and services traded within and across borders have shortened significantly, even for bulk commodities. Grain shipped from Canada to Scotland or cotton from India to England that once took many weeks or months by sailing ship in the mid-nineteenth century today can arrive in a week or two by modern freighter. Today delivery times for goods and services purchased tend to range from short to instantaneous. Some of the largest shipping companies in the world today are air shippers UPS, FedEx, and Deutsche Post’s DHL, with market capitalizations of $87 billion, $43 billion, and $38 billion, as of June 2019, respectively. Amazon has introduced oneday delivery service for subscribers to its premium Prime service in numerous markets in several countries. The costs of travel and shipping have declined in real terms as well. The decline in shipping costs facilitated first the rise of intraindustry trade, the exchange of similar goods, and then the emergence of GVCs (World Bank 2009, pp. 170–71). In terms of consumption, this has created the perception that a broader range of goods, services, and travel are available more immediately than ever before. The revolution in information technologies in the financial sector, which began at the end of the 1960s, has brought electronic funds transfer (EFT), programme trading, algorithmic trading, online trading, and high frequency, high volume trading to financial markets. Once online trading platforms became available in the early 2000s, individuals began trading stocks and other financial instruments on their own. Many of these ‘day traders’ would analyze market movements and prices for themselves, then buy and sell securities over the course of the

Percentage

100 80

Sea freight cost (rela!ve to 1930) passenger air transport cost (rela!ve to 1930)

60 40 20

Interna!onal calling costs (rela!ve to 1930) 0 1930 1940 1950 1960

1970 Years

1980

1990

2000 2005

Reduction in transport and communications costs, 1930–2005 Notes: ‘Sea freight’ corresponds to average international freight charges per tonne. ‘Passenger air transport’ corresponds to average airline revenue per passenger mile until 2000 spliced to US import air passenger fares afterwards. ‘International calls’ correspond to cost of a three-minute call from New York to London. Sources: Our World in Data, using World Bank figures.

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day, taking profits from small, short-term price movements and closing out all of their positions by day’s end. The advent of day trading heralded an increase in market volatility over the days when securities firms acted as intermediaries between individual investors and markets. Volatility has been amplified further by the rise in high frequency trading, in which specialist firms take advantage of ever more sophisticated algorithms, high powered computers, and broad bandwidth to buy and sell securities in large quantities moments before other actors in the market are able to process their trades (Gilder 2018, pp. 79–92). Yet these new financial technologies have had a further, more serious perceptual effect upon markets, in that for the first time technology enabled the ability to trade on new information faster than humans can analyze and make decisions based upon new information. For example, an adverse event affecting a particular stock or sector would prompt a selloff of that stock or sector. If the selling reached a certain level, it would trigger further selling by programme trading algorithms programmed to sell when a stock has fallen by more than a certain percentage in a day. Hence how market actors – buyers and sellers – perceive a single adverse event could be magnified many times over. Even if the initial event was not very serious, the execution of automatic sell orders could lead to a deeper selloff that could then spread to other sectors of the market. Similarly, financial technologies permitted runs on banks to threaten the solvency of otherwise sound financial institutions based on sometimes unfounded fears rapidly transmitted through markets. The failures of the Franklin National Bank, the twentieth largest US bank, in 1974 and the Continental Illinois National Bank and Trust Co., the seventh largest US bank, in 1984 are prime examples of such fears in action. Although Continental Illinois had exposure to the Latin American financial crisis discussed above, both banks experienced bank runs made significantly worse by technologyenabled programme trading. The impact of automated trading on stock price movements and on bank deposits prompted financial regulators in many countries to impose new regulations to slow trading technology down enough during crises that human decision makers have time to analyze and respond to market information. Circuit breaker mechanisms were implemented on stock exchanges that halt trading temporarily in a stock on the overall exchange if the stock’s or exchange’s average value respectively rises or falls more than a set percentage within a set period of time. For example, the US Securities and Exchange Commission imposed the first such circuit breakers following the ‘Black Monday’ market crash of 19 October 1987, when the Dow Jones Industrial Average fell over 500 points. Similarly, bank regulators in many countries were granted greater powers to freeze bank assets and close banks in order to prevent runs on single financial institutions from morphing into more general panics in the financial system. 61

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Later, these powers were extended, permitting regulators to deem particular banks and financial institutions systemically important or ‘too big to fail’, a status that empowered regulators to provide financial backstops to reassure investors and depositors in such institutions that their investments are safe. In the 2008 Great Recession, US regulators deemed Citigroup and insurance company AIG systemically important and acted accordingly to protect them against financial speculation. Bank regulators and central bankers in several dozen countries have also engaged in diplomacy since the 1970s to manage the global banking system against contagion, in which a financial panic in one country would spread internationally. Through the multilateral Basel Committee on Bank Supervision, international rules on capital adequacy and other sound banking practices have been agreed, monitored, and enforced (Sorkin 2009). Another evolving effect of technological transformation on capitalism has been the seemingly paradoxical rise and fall of consumerism and consumption. The development of mass production technologies for consumer goods in the mid-twentieth century, coupled with the steady reduction in trade barriers under GATT- and WTO-driven trade liberalization diplomacy, meant that more of the world’s population had access to more consumer goods and at lower real prices than ever before in human history. In low wage countries, firms began manufacturing consumer goods at mass volumes: Japan and Taiwan in the 1960s, South Korea, Singapore, and Hong Kong in the 1970s, followed by a widening circle of developing countries culminating in the rise of China as the early twenty-firstcentury ‘workshop of the world’ for consumer goods production. As countries have industrialized over the decades following the Second World War, rising consumer purchases of goods ranging from homes to durable goods (appliances, automobiles, etc.) to household and fashion products have become the engines of their economic growth. The increase in dissemination channels for consumer product advertising heralded by television and, later, the internet reinforced and in many cases created new desires amongst people to consume. As poor, little-developed countries industrialized and as middle-income countries joined the ranks of industrial countries, increased consumption trends spread more widely across the globe. The development of cable television in the 1960s, followed by the video cassette recorder (VCR) in the 1970s and later DVDs and streaming music and video services on the internet, caused a similar explosion in consumption of entertainment products. Harvey (1990) links this historic rise in consumption and consumerism to changes in how we imagine our individual identities subjectively. Harvey argues that by 1990 we had come to identify ourselves increasingly by what we consume, as opposed to the Marxian perspective that we identify ourselves by what we produce. Shopping became a social activity for adults. Shopping malls sprang up across North America and even in Europe. Teens used malls as locations to socialize as well as to shop, and a 62

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shopping mall culture emerged across suburbs and rural areas. By the 1980s and 1990s the idea of ‘retail therapy’, a notion that one can make oneself feel better by shopping and purchasing, had been introduced. The idea of ‘conspicuous consumption’ came into use as a pejorative assessment, but nonetheless a general perception came to prevail that ‘more is more’, that acquiring and having more is better. Yet the same trajectory of technological transformation that drove the growth in consumption and the reshaping of our identities as consumers has been driving a shift in a different direction over the past two decades. The nature of consumption is changing once again. Amongst Millennials and Generation Z, the youngest consuming age cohorts of the population at the end of the 2010s, there has been a backlash against conspicuous consumption. Industrial countries have begun to witness a shift in consumer tastes from objects and things to experiences (Eventbrite 2019). Millennials and Gen Z’ers increasingly want to consume more experiences, such as travel, shared meals and other social occasions, concerts and events, adventures, and games. Millennials are choosing to construct their identities through sharing experiences rather than through consuming. Accordingly, many of them are choosing to possess fewer goods. According to an Eventbrite survey, over three quarters of Millennials, who by 2010 possessed over $1 trillion in spending power, would prefer spending money on experiences rather than consumer goods. Choosing to live in locations where 6.0 5.5 5.0 4.5 Percentage

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

1975

1980

1985

1990

1995

2000

2005

2010

2015

Years

Annual global final consumption expenditure growth, 1971–2018 Sources: World Bank national accounts data and Organisation for Economic Co-operation and Development (OECD) national accounts data files.

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one can forgo owning a car has become attractive, along with smaller, more minimally furnished apartments and houses. The rise in online shopping driven by higher internet speeds and greater bandwidth in turn has led to a decline in shopping in person at ‘bricks and mortar’ shops. A decline of shopping malls is underway, with thousands of malls closed and then repurposed or demolished over the past decade. New business models offering access to goods without purchasing them are gaining in popularity: the sharing economy. What began with subscription car sharing services, such as Zipcar, and home sharing firms, like Airbnb, is now spreading to firms facilitating sharing items ranging from fashion clothing to tools to furniture (Hart 2019). Contributing to this cultural shift amongst consumers has been increased awareness of the climate crisis, which has triggered increases in support for recycling and a revival in preferences for repair rather than replacement of utilitarian consumer goods. In 2019 the European Union introduced legislation requiring manufacturers of household appliances or ‘white goods’ to produce needed parts so that they can be repaired rather than replaced. Another indicator of the future trajectory of the direction toward which the experience economy will evolve is the emergence of virtual reality (VR) technology. Millennials and Gen Z’ers have already grown up playing video games creating increasingly elaborate and complex representations of alternate realities. Over the past decade, VR technology has begun to become available through which users wear headsets enabling them to experience the sights and sounds of alternate realities immersively. As it has developed, VR has evolved a distinctly social aspect, as serious competitors in VR games have begun to attract in-person and online audiences. Major sponsored competitions analogous to professional sporting competitions are now taking place, a new category of events dubbed ‘e-sports’. VR is being used not only for games, but increasingly for business purposes ranging from virtual meetings to surgery and medical examinations. As noted above, as it becomes widely available VR will enable a new degree and extent of remote working, as workers in different locations will be able to work collaboratively on the same physical project, sharing the same virtual work space from different locations. Futurists Ray Kurzweil (2000) and Max Tegmark (2017) forecast that, as artificial intelligence advances in coming decades, the experience of virtual reality will become indistinguishable from experiencing the real, which will unlock huge new possibilities for entertainment and work. Farther in the future, the development of machine–brain interfaces will make possible the implanting of virtual experiences in our memories. This will raise an even more difficult question first posited in the 1990 film Total Recall, starring Arnold Schwarzenegger: is a virtual experience different from a ‘real’ experience, as it happens, or in our memory, as if it had happened before? 64

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Technology and the possible futures of capitalism The technological transformations that have changed the global economy in recent decades – global value chains, automation, artificial intelligence – have not led to much consensus in understanding what these changes mean for capitalism and its possible futures. Thinkers on the traditional left, who have been struggling to clear an intellectual path for capitalism to be overcome since the first industrial revolution and initial globalization of the nineteenth century, are divided in the face of the results of Globalization 2.0, automation, and AI. Whereas accelerationists believe we should use new technologies to accelerate capitalism in order to bring forward the time when capitalism is superseded by a socialist mode of production, others of the so-called New Left argue that calling for capitalism’s acceleration merely entrenches existing capitalist structures in the global economy (Noys 2014). Yet technological transformation has led to the emergence of a more jumbled broad opposition of social and intellectual forces in the early twenty-first century than any traditional left–right cleavage. On one side is arrayed a collection of forces that either benefit or seek to benefit from ownership of the productive economy. Globalizers are a combination of traditional capitalists, owners of the means of production, and the broad middle class to whom share ownership has diversified since the 1960s, at least in industrial economies. Their numbers have been joined in recent decades by the CEOs and managerial elites of technology firms: Microsoft’s Bill Gates and Satya Nadella, Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg and Sheryl Sandberg, Google’s Larry Page and Sergey Brin, and Alibaba’s Jack Ma, to name a few. Workers in the technology industry have tended to support the firms that give them employment. Globalizers are regular attendees of the World Economic Forum’s Davos annual meeting, brainstorming to solve global problems through public–private partnerships even whilst derided by their opponents as ‘Davos Man’ and woman (Pigman 2006). Globalizers generally view private and public interests as aligned in support of a global economic system that favours economic growth through technological advancement, liberal trade, and open, democratic global politics. The human face of globalism and globalizers has been George Soros, Hungarian-born American fund manager and philanthropist. Soros, who has donated over $11 billion to charitable causes, has been a thought leader in the project of restoring democratic values and institutions to Central and Eastern Europe following the end of the Cold War and in protecting migrants and refugees. In 1991 Soros founded the Central European University (CEU) in his hometown of Budapest to advance democratization in the region. Revered by his comrades, Soros and his projects have been reviled by anti-globalization and ultranationalist adversaries led by Hungary’s authoritarian leader Viktor Orbán. 65

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In 2012 Orbán declared Soros an ‘enemy of the state’, and in 2012 he took legal steps to force the CEU to move its operations out of Hungary. The attacks of Orbán and ‘alt-right’ critics of Soros’s globalism are widely seen as instances of thinly veiled anti-Semitism. According to Wylie (2019: 229), Facebook played to these attitudes in an effort to discredit its critics, using a secret communications firm to leak fake narratives that used anti-Semitic tropes about its critics being part of a Soros-funded conspiracy. Intellectually, the core of support for globalism has been Neoliberals, supporters of the 1990s ‘Washington Consensus’ of open trade and investment flows, tight domestic fiscal and monetary policies, and international supervision of economic development, and Neoconservatives, supporters of using international military force to advance democratization objectives. They are joined by Marxists and neo-Marxists of many stripes, who advocate for the expansion and acceleration of global capitalism in the expectation that it will bring forward the time of capitalism’s inevitable replacement by a socialist or communist mode of production. Desai (2002) regards that transformation as possibly in the very distant future, leaving him advocating the acceleration of capitalism in large part for its own sake. Other thinkers of the New Left, such as Hardt and Negri (2000), embrace globalism as a reality and advocate for a new sort of revolution of the mind to act as a catalyst to overthrow the capitalist structures of what they call ‘Empire’. Arrayed against the supporters of globalism are some technology CEOs, such as Peter Thiel and Elon Musk, who are staunch proponents of capitalism and who view government, multilateral institutions, and public–private partnerships as potential obstacles to its flourishing. These technology entrepreneurs on the political right, or at least one version of it, imagine that technology can serve the needs of the people better than government as it exists today. They take the position that technology can achieve more good in private hands. Peter Thiel has proposed constructing a floating island in the Pacific Ocean in international waters, beyond the jurisdiction of any national government. Entrepreneurs like Thiel envision a libertarian utopia facilitated by technology and free from what they perceive as the bureaucracy and dirigisme of government and public institutions. They are joined by a sundry coalition of nationalist and authoritarian political leaders of differing political origins, ranging from Vladimir Putin to Donald Trump, Viktor Orbán in Hungary, Turkey’s Recep Tayyip Erdoğan, and Rodrigo Duterte in the Philippines. Nationalist, authoritarian politicians tend to be followed by workers in non-technology industries who perceive that they have been left behind by technology and who may have lost jobs to outsourcing or automation. They are also generally followed by the religious right across many faiths in many countries: Christian, Muslim, Jewish, Hindu, Buddhist, and 66

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Shinto alike. Intellectually, they are backed by a collection of thinkers ranging from Russian fascist political thinker and ‘Eurasia Movement’ founder Aleksandr Dugin to American ultranationalist political strategist Steve Bannon, English neo-fascist thinker Nick Land, and Scottish right postmodernist and anti-liberal Catholic philosopher Alasdair MacIntyre. Neither group imagines the possibility that AI will lead to capitalism’s end either in full privatization of government’s functions or in socialism as alternative means of redistributing wealth, but rather in an age of abundance. In an age of abundance driven by AI, the costs of most goods and services would decline to the point that everyone’s basic material needs would be met, and most humans would not be remunerated for work. However, a technological utopia will not happen by itself, even if we manage to avert the worst of the climate crisis. The distance between the poles of intellectual thought on the future of the global economy and of capitalism more broadly may not be new. Nor is the polarization of popular views on these questions. But polarization and the rise of populist politics and policies are arguably correlated closely. The foregoing discussion highlights the profound importance of the psychology that underlies economic and social policy making. The distance and increasing polarization between popular positions on the future of capitalism are indicative of the need for diplomacy, not only in the implementation of policies that by their nature must be global in scope to solve problems as far-reaching as the climate crisis, but in the actual processes of policy making across many countries and regions.

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DIPLOMACY AND TRADE IN AN AGE OF HUMANS AND INTELLIGENT MACHINES

Diplomacy, trade, and human civilization When Venetian traders Marco Polo and his family travelled to China in the years following 1260 and exchanged gifts and messages from Roman Catholic Pope Gregory of Piacenza with Emperor Kubilai Khan, they conducted the first diplomatic exchange between Europeans and Kubilai Khan (Polo 1958, pp. vii– xxxix, 1–14). Trade and diplomacy are amongst the oldest practices of how we as humans have engaged and interacted with others who are unfamiliar, who are outside our family or tribal group, who are farther away than next door. Trade and diplomacy have evolved together over thousands of years of developing human civilization. As international trade has become more important relative to overall global economic activity, a specialized focus on trade has emerged within the practice of diplomacy. Today, new technologies and new forms of trade have created a need for new approaches to diplomacy and to trade diplomacy in particular. Over the seven decades since the end of the Second World War, the international trading system and the diplomacy that has facilitated it is widely credited with fuelling an era of unprecedented global economic growth and development. But as the foregoing chapters have suggested, both the trading system and global economic growth face new and daunting challenges. The international system has experienced significant technological transformations in how diplomacy is done, which have affected the core diplomatic processes of representation and communication, the ways in which diplomats negotiate agreements and resolve disputes and crises. The rise of digital diplomacy (see below) is a prime example. The relative power of different types of actors in diplomacy has changed, as non-state actors such as multilateral institutions, large civil society organizations, and global firms have emerged alongside the governments of states in the diplomatic arena. Place branding, the promotion of states and regions as destinations 69

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for international trade, investment, and tourism by governments, often in partnership with private actors, has been recognized as a diplomatic activity in itself, even as migration, the cross-border movement of human labour, has become a more contentious issue with which diplomats must contend. Stretching across all of these changes is the ICT-driven reality that most, even if not all, of the new diplomacy takes place in public before a global audience that has itself become an actor on the diplomatic stage. Technological transformation has also affected the other major change in contemporary diplomacy, the expanding parts played by large global and transnational firms, which are discussed in detail in the next chapter. These transformations raise important questions about the future mechanics of trade diplomacy. Is survival of the current multi-layered edifice of institutionalized, judicialized diplomacy through which global trade and investment is negotiated and managed at risk from the effects of technological transformation? Can technology foster further positive transformation in how trade diplomacy is done? For better or worse: technological change and diplomatic transformations Technological change has been one of the drivers of the range of responses to the challenges that the global economy, and late capitalism more generally, face. Since the end of the Second World War, the world has experienced a steady diplomatic process of negotiation of treaties and agreements creating multilateral institutions to manage issues of common concern and mediate disputes between nations. Beginning with the 1944 Bretton Woods Agreement creating the International Monetary Fund and the International Bank for Reconstruction and Development, or World Bank, the 1944 General Agreement on Tariffs and Trade, and the 1945 San Francisco Treaty that created the United Nations, multilateral institutions have become the venues for diplomacy addressing most major issues of global concern, extending from international trade and monetary relations to economic development and environmental stewardship. The diplomacy that these institutions have facilitated has established processes described as global governance, even if not world government. Alongside multilateral institutions have emerged regional trade agreements and integration areas, in many cases establishing institutions of their own, such as the European Union. In each case, governments made decisions to pool aspects of their sovereignty in order better to achieve their interests through collective action, such as by establishing and enforcing a rulebook for fair, liberal international trade. Global governance, to the extent that it has evolved, has become possible in large part because information and communications technologies have permitted regional and multilateral institutions to gather and analyze data from across the globe related to their missions and to communicate with the global 70

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public, in addition to their constituent governments, in real time. ICTs simultaneously fostered processes of democratization across the globe from the end of the war up until at least the turn of the twenty-first century. Authoritarian fascist governments in Europe, Asia, and South America gave way to democratic regimes in numerous cases. Empires decolonized; former colonies achieved self-government and began processes of nation building, some more successfully than others. The invention of video cassette players and dissemination of cassettes across Europe in the 1980s played a significant part in the end of the Cold War, the fall of the Soviet Union, and the replacement of the USSR and the Soviet empire by democratic governments in a number of cases, particularly in Central Europe. Yet these same technologies have also facilitated a populist backlash against global governance in developing and industrial countries alike, a resurgence of the nation-state, and a rise in the popularity of authoritarian leaders. China’s explosive economic growth in the 1990s and 2000s showed to the world an alternate development model, both to the perceived economic successes of the Western and East Asian market economies and democratic or democratizing polities and to the relative failure of the Soviet developmental approach. China’s economic miracle demonstrated that an authoritarian government was compatible with rapid, successful economic development and may in fact have contributed to its success. The emergence of ‘narrowcasting’ through cable and satellite television, the rise of social media on the internet, and the development of micro-targeting of audiences for online fundraising appeals have contributed to the backlash against global governance institutions by facilitating the rise of identity politics. Historically, those feeling excluded or left behind by globalization and progress have always taken refuge in an identity tied to imagined remembrances of better times in the past (Anderson 2006). Technology has facilitated, amplified, and provided reinforcement for that process. In doing so, these technologies have promoted the revival of the sort of ultranationalism that was last witnessed during the interwar period in widespread popular support for fascist governments in places like Italy, Germany, and Japan. Amongst ultranationalist supporters of Donald Trump in the United States and of the Brexit movement of Nigel Farage and Boris Johnson in England, technology has promoted a virulent trade politics of neo-protectionism cloaked in safeguarding endangered imagined tropes of a white America and a romanticized historical England (Alden 2017). The international system of nation-states that was birthed in a diplomatic sense at the 1648 Peace of Westphalia has in many ways always been in flux since its inception. Yet the technological changes identified in this chapter that have brought about such diverse phenomena as the end of the Cold War and Baldwin’s Globalization 2.0 have also precipitated a succession of political crises 71

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for the nation-states system itself. Perhaps the most serious crisis for the nationstates system and Westphalian diplomacy has been the challenge to the sovereign equality of nation-states, the idea that each state is equal in principle as a diplomatic actor and thus deserving of equal respect and treatment by other states. The technology-driven rise of public diplomacy (see below) has taken an axe to this principle. The capacity of mass media and subsequently the internet to make streams of information and news, whether true or false, available to the global public on a more or less instantaneous, 24/7 basis has given the global public a central part to play in diplomacy. It has also levelled the playing field dramatically between governments and non-governmental entities. It has become difficult for the public to distinguish on television and online between governments of various political stripes, political liberation movements fighting against occupation or for self-determination, and non-state criminal organizations engaging in terrorism in support of their aims. Which category an entity falls into increasingly depends upon whom you ask, which television network you watch, which websites you read, and to which Facebook groups you belong. Perhaps the apotheosis of the Westphalia system of diplomacy was UN Charter Article 1.2.4, which codified and guaranteed the sovereign equality of each member state:  ‘All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.’ At various times since its ratification, the provision has been honoured more in the breach than in practice. From the end of the Cold War onwards, media have been able to broadcast and stream each and every challenge to UN-guaranteed sovereignty in real time. This has enabled the global public to become the judges first of whether they deem a challenge to sovereignty to be worthy of their interest and concern and, if they do, on whose side right lies. Miraculously, the fall of the Iron Curtain and the dissolution of the Soviet Union were driven primarily by political forces within each territory involved, so there were relatively few charges of foreign interference in the political transformations in Eastern Europe and the former USSR. But ever since then, there has been surprisingly little consensus over the sovereignty question amongst the global public. Was there a global ‘responsibility to protect’ when 800,000 Rwandans were slaughtered in a 1994 civil war, or did Rwanda’s government in power at the time retain sovereign authority over its territory? When NATO forces intervened in the Serbian province of Kosovo on behalf of Albanianbacked separatists against the authoritarian Serbian government of Slobodan Milošević in 1999, was the UN Charter violated? When a US-led ‘coalition of the willing’ led a 2003 invasion of Iraq to overthrow Iraqi dictator Saddam Hussein, 72

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was it self-defence or neo-imperialism? When Russian President Vladimir Putin ordered Russian forces to invade Georgia in 2008 in support of separatist factions in the Georgian provinces of Abkhazia and South Ossetia (in the process violating the millennia-old Olympic truce then in force during the Beijing Olympiad), were his actions consistent with Russia’s UN Charter obligations? When EU-backed forces overthrew Libyan dictator Muammar Khadafy in 2012, who was in the right? When Putin seized the Crimea from Ukraine and backed separatist forces opposing Ukraine’s government in the Donbass region since 2014 (and who shot down a Malaysian civilian aircraft over Ukrainian airspace), how did Westphalian diplomacy fare? In each of these cases, sovereignty appeared to be in the eye of the beholders, the global public. Defenders of the maximalist understanding of sovereignty (in terms of no external interference) within each country tend to manifest themselves within domestic political systems as populists and opponents of diplomacy, be they Brexiters in England, Trump supporters in the US, or Han Chinese in the region of western China known to its indigenous Uighur population as East Turkestan. If the military neo-imperialisms of George W. Bush’s United States and Putin’s Russia failed to pass muster with the UN Charter or the global public on the sovereignty question, China offers an alternate UN-consistent model, a technologically driven neo-imperialism of road, rail, and maritime infrastructure, commercial networks, and economic development projects: the 2013 Belt and Road Initiative. Technology has also enabled non-traditional violations of sovereignty and attacks on states by other states and by non-state entities alike. Over the past decade cyber-warfare has emerged as a military and political tool practical to deploy against adversaries. In 2010 the United States and Israel are believed to have deployed the Stuxnet ‘worm’ virus against centrifuges operated by Iran’s government as part of Iran’s nuclear weapons programme. In 2016, Russian government-backed entities engaged in online disinformation campaigns in the Brexit referendum in the UK and in the US presidential election. Transnational criminal organizations (TCOs) such as al-Qa’eda and ISIS have designed terrorist attacks against government and public targets to maximize mass media and internet visibility as a means of frightening as large a portion of the global public as possible. Al-Qa’eda’s 9/11 terror attacks on New York City, Shanksville, Pennsylvania, and Washington, DC, received perhaps the most intensive media coverage of any world event to date. ISIS used the internet effectively to recruit Europeans and North Americans to their purported project of re-creating a preWestphalian polity or ‘caliphate’ on sovereign territory of Iraq and Syria. Transport and communications technologies have both facilitated and made more problematic another phenomenon that results in part from failures of diplomacy: emigration from failed states and conflict zones. The past decade has 73

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witnessed the migration of hundreds of thousands of persons displaced by conflict in states ranging from Somalia to Syria, Iraq, and Afghanistan to, more recently, Venezuela. In Eritrea, mass emigration has been spurred not only by extreme poverty but by a military draft condemning young men to years of compulsory service, as a result of a 25-year border conflict between Eritrea and Ethiopia only resolved by the ascendancy of Ethiopian President Abiy Ahmed in 2018. Migration has always taken place, particularly from regions where conflict and violence make ordinary living difficult or impossible. However, communications technologies have allowed transnational businesses engaged in a lucrative trade in moving people across borders to enable migration on a larger scale and across greater distances to take place. Smartphones enable networks of people smugglers to share information in real time to avoid detection by authorities, which works often, except on the occasions when it does not, and migrants drown in the Mediterranean Sea or die in the deserts of northern Mexico. At the same time, increased media visibility of immigration into Europe from Africa and the Middle East and into the United States from Latin America has stoked public fears of immigrants. Populist politicians like Donald Trump and Jair Bolsonaro and movements and parties such as the Brexit movement in England, Alternativ für Deutschland in Germany, La Lega and Cinque Stelle in Italy, Golden Dawn in Greece, Fidesz in Hungary, the AK Party in Turkey, and the Law and Justice Party in Poland have been able to exploit xenophobia, racism, and white nationalism in the hunt for votes. Migration into South Africa from countries suffering from conflict and poverty farther north on the continent has triggered regular outbursts of rioting and violence directed against immigrants over the past two decades by still poor indigenous South Africans. Migration into South Africa has increased over fourfold since 2000, rising to more than 4 million residents, or over 7 percent of South Africa’s population (Migration Policy Institute 2020). The revolution in ICTs, the internet, Globalization 2.0, and the advent of automation and AI have shaped our world in ways so as to create sometimes unexpected constellations of allies and adversaries in the realm of ideas and public debate over policy and planning for the future. If politics creates strange bedfellows, technology can make them even stranger. It often is not immediately obvious where the interests of different individuals and groups lie, making it difficult to understand who is on which sides of particular issues and why. At the practical level of institutional power, it is to be expected that governments of states will continue to defend their privileged position as gatekeepers in diplomacy and in international relations more broadly. For example, the membership of multilateral institutions like the WTO is comprised exclusively of governments. Other, non-state interests must be represented at the WTO primarily by and through representatives of governments. It is equally unsurprising 74

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that non-state actors such as global firms and civil society organizations, especially if they are large and transnational like Amazon or Médecins Sans Frontières, will press for greater diplomatic standing in venues where they need to represent their interests. Technology alone has not driven this basic dynamic of diplomatic change, which has evolved ever since globalization began in its earliest instances. The institutions and practices of trade diplomacy The diplomacy through which governments and other actors manage international trade relations, negotiate trade agreements, and mediate disputes that arise is a somewhat jumbled and multi-layered edifice comprised of global, regional, and bilateral trade institutions and agreements, such as the World Trade Organization, the European Union, NAFTA/CUSMA, MERCOSUR, and CETA, to name only a few. Trade agreements that diplomats negotiate on behalf of their governments generally consist of a combination of three elements: a set of rules and procedures governing trade between the signatories; an agreed set of mutual concessions opening or liberalizing trade between signatories; and an institutional structure to govern the application of the agreed rules. Included in many of the institutional structures are trade dispute settlement mechanisms administered by their own judicial bodies. Other agreements have procedures mandating dispute resolution through domestic legal systems of member countries. The process by which governments used trade diplomacy to institutionalize trade relations began in the early twentieth century with the Brussels Sugar Convention of 1902, a multilateral trade agreement governing trade in one commodity, sugar. The Convention created the first institution, the Permanent Sugar Commission, to oversee compliance with the Convention’s provisions by signatory and non-signatory countries alike and to impose sanctions against violators (Pigman 1997). Institutionalization of trade diplomacy became more permanent in the second half of the twentieth century with the postwar General Agreement on Tariffs and Trade and the processes of European integration that led to creation of the European Union. The GATT, signed initially by 23 countries in 1947, committed signatories to a rulebook for international trade based on the principles of non-discrimination between trading partners, national treatment of imports and foreign firms, and lowering trade barriers on (initially) imports of manufactured goods. Signatories to the GATT originally envisaged creating a formal International Trade Organization to administer the GATT rulebook, which they attempted in the Havana Charter, signed in 1948, but domestic opposition to the potential powers of such an organization in the US and the UK resulted in the Charter not being submitted to either country’s legislature 75

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for ratification. As a result, the GATT Secretariat, an ad hoc provisional body initially, evolved over subsequent decades into the de facto administrative organization for the GATT (Toye 2012). Creating norms of compliance with the GATT trade rulebook became feasible because the GATT contained its own dispute settlement mechanism. The dispute settlement mechanism, a judicial procedure for complaints by signatories against other signatories to be heard and adjudicated, established a process for creating panels of jurists from signatory countries to hear and judge disputes. This process was a judicial process but, crucially, it was also a diplomatic process. Unlike domestic judicial processes, the GATT dispute settlement mechanism was like other aspects of international law, in that it functioned between signatory countries, sovereign powers over which no superior enforcement body existed. Yet unlike many other areas of international law, it contained built-in leverage to compel enforcement with its rules. Its leverage consisted in that in that if a country were found to be in violation of GATT rules, the other GATT signatories would be authorized to withdraw trade concessions to the violating country up to the value of the violation in overpayment or lost trade. GATT dispute resolution was generally effective but was limited by provisions allowing penalties against signatories for violations of the agreement to be imposed only with the consent of all parties to the dispute (including signatories found to be in violation). The more formal judicialization of trade dispute resolution began in 1995, when the World Trade Organization and its dispute settlement mechanism came into operation and subsumed the GATT dispute resolution process. The diplomatic processes of European integration that began in the 1950s with establishment of the European Coal and Steel Community and Euratom led to a much deeper institutionalization of trade and, subsequently, other economic and political relations between European nations. The European Union is the deepest, most extensive, and most successful project of trade liberalization and economic integration ever undertaken between multiple sovereign states. Whilst not without its share of problems and conflicts, as an institution the EU is unparalleled in the history of diplomacy. The EU has been able to establish not only a free trade area and customs union between member states with a common external tariff, but a single market establishing common rules for doing business across the entire territory of the Union. Crucially, governments of member states agreed to these measures without surrendering their sovereign authority as independent states. The EU established diplomatic political institutions to legislate, regulate, manage, and enforce regulations needed to meet European treaty commitments agreed to by its sovereign members. In addition, Europe enabled a specific process for revising the treaties and agreements that govern European integration when revisions are needed:  the inter-governmental conference (IGC). As European integration 76

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proceeded over the decades following the signing of the Treaty of Rome in 1957, IGCs have been held periodically to resolve diplomatic and institutional problems that have arisen, to agree to admit new member states, and to agree formally to extend European integration to new areas, such as a currency union. The WTO is one type of culmination of the processes of institutionalization and judicialization of trade diplomacy. The European Union is another. As they negotiated revisions to GATT rules in the Uruguay Round of multilateral trade liberalization talks 1986–94, GATT signatory countries sought to address the weaknesses in the GATT’s dispute resolution process by making the judicial institutions more formal, by speeding up the process, and by making acceptance of judgements compulsory. The WTO’s Dispute Settlement Mechanism (DSM), incorporated into the 1994 Treaty of Marrakech, met each of these objectives. WTO dispute panel rulings are binding unless all of the disputants agree otherwise. The DSM created a standing Appellate Body of professional jurists to hear appeals against rulings (Narlikar 2005, pp.  85–98). The EU created a judicial

Mul!lateral organiza!ons

Regional trea!es and bodies

Bilateral trea!es

Unilateral/domes!cally legislated/administered trade policies

Multi-layered edifice of trade diplomacy modes

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system under which European-level law and regulation is binding and enforceable under the domestic judicial systems of each of its member countries and a European Court of Justice to function as an appellate body for unresolved disputes involving more than one member state. Other bilateral and regional trade agreements have addressed dispute resolution either by referring disputes to the WTO, by establishing an intergovernmental dispute settlement mechanism, or by mandating that disputes are actionable in the domestic courts of member countries. Below the institutionalized, judicialized layer of trade relations lies a layer of multilateral, regional, and bilateral trade agreements that are written to be selfexecuting: signatories to an agreement are empowered to take retaliatory action in the event that their trading partner does not observe the terms of the agreement. Many such agreements, which became common at the bilateral basis in the early nineteenth century, were of fixed duration, lasting generally five, ten, or twelve years. In some ways this made these deals easier for diplomats to negotiate. However, by the inevitable approach of an agreement’s expiry date the domestic political balance in one or more signatory countries either on trade issues or on relations with other signatories would have shifted. Such shifts tended to make it complicated, if indeed it was possible at all, to renew or extend a trade agreement. Hence the success of trade liberalizing agreements depended not just on the skills of diplomats at negotiating with their counterparts and then selling their deal to their home government and domestic constituencies, but also upon the broader geopolitical context of diplomatic relations, global and domestic economic cycles, and domestic party politics (Pigman 2016, pp. 101–02). Parallel to the layer of bilateral trade liberalization agreements rests a different, much less diplomatic approach to trade relations: unilateral trade policies made by domestic legislatures or authoritarian rulers based on perceived domestic interests, irrespective of the views or actions of a country’s trading partners. Such policies range from the mercantilist trade prohibitions of eighteenth-century France and England to the unilateral tariff reductions that many developing countries undertook in the 1990s and 2000s to take part in GVCs (Baldwin 2016, p. 99). Governments have chosen to adopt unilateral trade policies for two primary reasons, which sometimes overlap. The first is based on a particular perception of the nature of sovereignty, under which treaty obligations of any sort (be they of fixed or indefinite duration) to other sovereign states limit the power of a government to take action as it sees fit. Holders of this view are more likely to want to avoid treaty commitments (for example, to reduce tariffs by 50 percent for the duration of a treaty) so that they can decide to change existing policy at any time in response to immediate political circumstances. For example, a government can decide without any treaty constraint to raise tariffs against a trading partner punitively, should a trade dispute arise. 78

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The second reason for adopting unilateral trade policies is more subtle, based on a zero-sum psychology of diplomatic negotiation in which one side’s gain is the other’s loss. The first side assumes that in a negotiation the second side will attempt to fool it into making concessions that are in the second side’s interest but not the first’s. By this logic, the most persuasive way to convince the other side that you are advocating a policy that will not harm them, such as trade liberalization, is to adopt it yourself and in so doing demonstrate how it benefits you. When the United Kingdom adopted unilateral trade liberalization between 1846 and 1858, it was the government’s primary strategy to persuade UK trading partners to lower trade barriers as well (Pigman 2016, pp. 39–41). The lowermost and oldest layer of the trade diplomacy edifice, what can be thought of as ‘trade-as-diplomacy’, can be seen in a set of practices that has been underway for millennia. Trade-as-diplomacy refers to the peopleto-people diplomacy that takes place when traders take goods and services from one place to another and exchange them with other traders: the getting to know one another, the acquisition of greater understanding of the other, the mediation of differences. As Sharp (2009) describes, the earliest hypothesized instances of diplomacy in ancient history were also instances of trade. A tribe becomes aware that another tribe, about which they know nothing, lives on the other side of a nearby hill. Not knowing whether the other tribe is friendly or hostile, the first tribe’s elders decide to leave a gift for the other tribe at a clearing which they know that members of the other tribe have visited. They return the following day to see if the gift has been accepted and, perhaps, a gift left in return. If the gesture has been reciprocated, trade, and a diplomatic relationship, has begun. The exchanging of gifts of value between monarchs and governments is well documented as a diplomatic ritual throughout history, long before international trade between private actors became a measurable part of global economic activity. From the elaborate rituals of gift exchange practiced in the Amarna system of diplomatic relations in the Levant in the fourteenth century BC up to the reciprocal giving of giant pandas and musk oxen by Chinese Communist Party chairman Mao Zedong and US President Richard Nixon to one another in the early 1970s, exchange of gifts persists as a significant diplomatic practice (Cohen & Westbrook 2000, pp. 1–12; Pigman 2016, pp. 17–18). After the modern Westphalia system of nation-states had emerged in the sixteenth century, trade-as-diplomacy manifested itself in a more conflictual guise that still rears its ugly head with some regularity: mercantilism. European governments in the seventeenth and eighteenth centuries tended to view both diplomacy and trade as zero-sum enterprises. Restricting or prohibiting trade with an adversary was seen as a means to deny the adversary an opportunity to increase its power through trade. Trade, still a relatively small portion of overall 79

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economic activity in that period, was subordinated entirely to states’ foreign policy, military and other diplomatic objectives. Only following the resolution of the Napoleonic Wars, a ‘world war’ between French- and British-led alliances, at the 1815 Congress of Vienna were governments and private interests able to consider the objectives trade policy and diplomacy on their own merits (Pigman 2016, pp. 22–27). Digital diplomacy: scratching the surface Alongside diplomatic representation, communication remains a core activity of diplomacy. Modes of communication have evolved, sometimes gradually, other times more rapidly, from the earliest days when a tribe left gifts for another tribe and returned the next day to the same spot to see if their gift was accepted and reciprocated. The Greek god Hermes, represented visually with wings on his sandals and helmet, was emblematic of the diplomatic messenger (Constantinou 1996, pp. 147–53). Messengers travelled initially, and for millennia, on foot, on horseback, and by boat, so the speed of diplomatic communication was limited accordingly. Diplomatic communication was augmented and accelerated by the progressive development of communications technologies from the eighteenth century onward: the carrier pigeon, the telegraph, the telephone, texting, email and instant messaging, and social media. The range of participants in diplomatic communication has grown steadily as well. In earlier ages, diplomatic communication generally occurred between leaders, both spiritual and temporal, between leaders and vassals, and later between and amongst governments. Over the past two centuries the managements of large private firms, civil society organizations, multilateral institutions, and the general public have also become active in diplomatic communication. The need for diplomats to communicate with the global public has grown as politics has become more democratic and expectations of accountability have increased across all types of political systems. Technologies of mass communication have evolved in parallel with this growing need, from newsprint to radio, television, and the internet. Diplomatic communication has adapted to the most recent changes in information and communications technologies at a superficial level through the emergence of ‘digital diplomacy’. Before the Second World War a laggard in using communications technologies for diplomacy, the United States by the 1970s had gained a decisive advantage in emerging digital communications tools. Using digital communications technologies to ensure free flows of information across borders was a key part of the US diplomatic strategy to promote trade liberalization. ‘Information … became a key strategic aspect of US foreign 80

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policy, vital to trade, national security, human rights, energy resources, and the environment …’ (Murray 2015, p. 131). By the 1990s, as the internet became operational, the United States dominated ICTs globally. Over multiple presidential administrations, the US government advanced its leadership in digital diplomacy innovation. In 2001 US Secretary of State Colin Powell secured funding to use modern ICTs for diplomacy for the first time (Murray 2015, p. 132). His successor, Condoleezza Rice, carried on the process of modernizing US diplomatic institutions to reflect new communications technology capacities. Hillary Rodham Clinton, who succeeded Rice as Secretary of State, launched a ‘21st Century Statecraft’ programme to use digital diplomacy to repair a US reputation damaged globally by the 2003 invasion of Iraq (Bjola & Liang 2015, p. 73). Social media has enhanced the capacity of governments and other entities to do public diplomacy. Diplomats have discovered the power, and the limitations, of social media as a communications tool. Foreign ministries, trade ministries, other government departments, even heads of government have learned to use social media in a variety of ways. Diplomatic representatives of governments – traditional, ‘official’ diplomats – have learned from the early adopters of social media:  the diplomatic representatives of large global firms, particularly technology firms, which function as diplomatic actors in their own right. We can view social media usage by governments as taking place across a spectrum of objectives and tasks. At one end of the spectrum is providing constituent services both to home country and foreign country constituents. Today such services as travel health and security warnings for home-country nationals travelling abroad, routine consular information such as hours of availability for particular services at consulates, announcements of cultural diplomacy events (concerts, lectures, etc.) sponsored by local missions are provided not only on foreign ministry websites, but through social media platforms such as Twitter, Facebook, Instagram (owned by Facebook), Reddit, Pinterest, Snapchat, the now defunct Google Plus, and even YouTube (owned by Google), as well as countryspecific platforms like Weibo (China) and Telegram (Russia). Somewhere in the middle of this spectrum lies using digital platforms to announce and promote government policies, diplomatic initiatives, and Promote government policies, diploma!c ini!a!ves, crisis response Provide cons!tuent services

Engage with foreign publics

Spectrum of digital diplomacy objectives and tasks

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responses to situations and crises. Only fifteen years after the advent of social media, this practice already feels mainstream and routine. Governments are able to use social media to shape agendas for public debate by heightening the visibility of some topics and downplaying others, for example (Bjola & Jiang 2015, pp. 73–74). When handled in a skilled way, digital diplomacy projects a government’s image to the global public as professional, technologically competent, and sympathetic. When mishandled, a government’s digital diplomacy is exposed immediately to criticism, even ridicule and scorn, by the general public. At the far end of the spectrum is engaging in bidirectional communication to engage with foreign publics on topics and issues of mutual interest and concern. This process, which Bjola and Jiang (2015, p. 75) describe as ‘conversationgenerating’, is probably the most challenging aspect of digital diplomacy for diplomats to undertake. For bidirectional communication to be considered successful requires genuine dialogue to take place, which involves both or all ‘sides’ on an issue to speak, to listen and reflect, and to respond in ways that may lead to one or more sides changing their ultimate objectives, positions, and notions of success (Deos & Pigman 2010). Non-state actors face many of the same challenges and potential rewards using digital diplomacy as those faced by governments. Multilateral diplomatic institutions like the World Trade Organization have been generally successful at using social media to communicate with their member countries and with the global public. Civil society organizations are in a similar position to other non-state actors. One of the largest and most diplomatically active CSO is the World Economic Forum, with its membership of large global firms and much wider range of stakeholder participants in its events. The Forum has long prided itself on being an early adopter of information and communications technologies, offering attendees of its annual meeting in Davos, Switzerland, an internal system for electronic communication with one another well before the advent of the internet or social media. However, it took the Forum until the first decade of the twenty-first century to fine tune its technological capabilities to engage effectively in bidirectional communication with a fuller range of stakeholders than the managements of its original corporate membership (Pigman 2006). Perhaps one of the greatest ironies of an age in which digital diplomacy has come to depend so extensively on social media channels is that amongst large global firms that function as private diplomatic actors, the social media giants have performed amongst the worst in the diplomatic arena. The diplomatic travails of Facebook, Google, and even Twitter conjure vivid images of ill-shod shoemaker’s children (see Chapter 5). The failure of social media companies as diplomatic actors lays bare a deeper danger posed by digital diplomacy that must be confronted. On the surface, many diplomats have used new technologies effectively to communicate to existing and to new audiences. Looking deeper, 82

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however, diplomacy has not adapted nearly as well to the broader challenges that digital technology poses. The practice of leaders and governments attacking and insulting their counterparts in adversary countries in graphic terms using mass media has been common enough in the age of mass-circulation newspapers, radio, and television. In the mid-twentieth century Chinese and Soviet Communist officials, for example, would criticize their Western counterparts for being ‘running dogs’ of imperialism or capitalism. Insults such as these, whilst read and heard in Western mass media, were placed in context by professional journalists, who continue to provide this function in their coverage of governments’ public statements today. Decline in public favourability ratings of social media firms, 2017–2018 Company

Net change

March 2018

October 2017

Facebook

–28

+5

+33

Amazon

–13

+59

+72

Google

–12

+64

+76

Twitter

–7

–4

+3

Source: SurveyMonkey poll for Axios (Hart & Fried 2018).

But the rise of social media on the internet has posed a new challenge for the global public: the lack of any filter or context for information transmitted. Social media platforms have enabled candidates, politicians in office, legislators, and heads of government to fan the flames of popular rejection of diplomatic norms and traditional diplomatic actors and institutions. Paid political advertising on social media, particularly when purchased by foreign entities seeking to influence another country’s political process, has been the most controversial, counterposing the dangers of permitting inappropriate manipulation of voters against those of limiting free speech. Reacting to public sentiment fearing the former, Twitter CEO Jack Dorsey (2019) announced on 30 October 2019 (in a tweet) that Twitter would no longer sell political advertising either by candidates or advocacy organizations: ‘Internet political ads present entirely new challenges to civic discourse: machine learning-based optimization of messaging and microtargeting, unchecked misleading information, and deep fakes. All at increasing velocity, sophistication, and overwhelming scale.’ Dorsey implicitly challenged fellow social media platforms to follow suit. Social media posts by elected officials and candidates themselves raise an even more difficult challenge pitting defenders of free speech against false and inflammatory rhetoric. Only weeks before Dorsey’s announcement, Facebook CEO Mark Zuckerberg announced that Facebook would not apply its community standards against spreading false information to posts by politicians themselves. 83

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This is consistent with Twitter’s policy not to restrict the accounts of politicians who violate Twitter’s terms of service by posting false information. Social media posts, particularly on Twitter, have enabled leaders and other officials to reach a global audience instantly with outright lies, partial falsehoods, and statements intended to inflame, insult, attack, and threaten particular diplomatic targets in a way that was not possible previously. The use of Twitter by US President Donald Trump to demean and defame diplomatic interlocutors stands out as a distinctively egregious example of this practice. Through his voluminous quantity of tweets, both whilst he was a candidate and during his presidency, Trump has sought systematically to inflate his own popularity with his base of voters (notably, a minority of the American electorate) by being seen to flout diplomatic norms. Trump’s early tweets describing Mexican immigrants as ‘rapists’ and declaring repeatedly that he would force Mexico to pay for a wall to be constructed along the US–Mexico border is one of the most notorious examples. Trump’s tweet storm of early attacks and insults directed at North Korean leader Kim Jong-un, whom Trump initially called ‘Little Rocket Man’, is another. Notwithstanding international criticism, Trump has continued to tweet support for pro-Brexit UK politicians Boris Johnson and Nigel Farage, attempting to influence UK voters directly as a late 2019 election approached by offering the UK a bilateral UK–US trade agreement provided that Brexit took place in a format that he, Trump, found acceptable. Only time will tell whether Trump’s online behaviour will become a new norm in diplomatic practice or whether it will provoke regulatory measures to curtail the possibility of future such outbursts. The use of social media as a subversive tool for espionage, propaganda, and interference in democratic elections in foreign countries exploits the harmful potential of social media in a different and equally dangerous dimension. Evidence of Russia’s Internet Research Agency creating hundreds of Facebook and Twitter ‘bot’ accounts to spread misinformation and falsehoods intended to alter voter behaviour in elections in the United States and in European Union countries is widespread. Russian meddling in the 2016 UK Brexit referendum, the US 2016 presidential election, and the 2017 independence referendum in Catalonia were the most egregious examples of this type of what in effect is cyber-warfare (Emmott 2017). Although it now appears that officials in the target countries were aware of Russian activity, they were unable to prevent the damage caused. By contrast, the French government appears to have done a better job at countering Russian attempts to interfere in France’s 2017 presidential election. Yet indications are that use of social media for espionage is spreading. In November 2019, the US Department of Justice charged two former employees of Twitter with improperly accessing the personal information in the Twitter accounts of Saudi dissidents in the United States on whom the Saudi 84

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government wanted to spy and relaying the information back to their Saudi masters (Nakashima & Bensinger 2019). Perhaps the most notorious recent example of misuse of public diplomacy has been the Saudi Arabian government’s social media disinformation campaign attempting to cover up the Saudi government’s involvement in the murder of Jamal Khashoggi, a Saudi national residing in the United States, at the Saudi consulate in Istanbul in October 2018. A UN special rapporteur found that the Saudi government was responsible for Khashoggi’s murder and that there was credible evidence for the individual responsibility of Saudi Crown Prince Mohammed bin Salman and other senior Saudi officials (BBC 2019). The Saudi government, fearing that the US Congress would freeze arms sales from US manufacturers to Saudi Arabia, undertook a major public diplomacy initiative to dissuade the global public from believing that they ordered the killing of Khashoggi. Their efforts thus far did not dissuade the governments of Germany, Denmark, and Finland, which cancelled arms exports to Saudi Arabia. However, the Saudi efforts were successful to the degree that they convinced President Trump and enough Republican sympathizers of the Saudi regime in Washington to prevent Congress from overriding Trump’s veto of legislation banning US arms sales to Saudi Arabia. Public diplomacy, populism, and trade Governments, multilateral institutions, global firms, and civil society organizations alike have long engaged in public diplomacy (PD): communicating to the public, both foreign and domestic, and listening to the public’s views on global and regional policy issues. The advent of widely available print media and electronic media (radio and television) has increased the importance of public diplomacy relative to more traditional forms of diplomatic interaction, much of which was behind the scenes or even secret. The processes of decolonization and democratization in the decades after the Second World War contributed to perceptions by leaders of governments and other large institutions that securing the support, or at least the awareness and acquiescence, of global publics is important to achieving global policy objectives through diplomacy. Since the 1990s, the emergence of the internet and the subsequent rise in popularity of social media platforms have further transformed how public diplomacy is done and its potential reach. One of the greatest transformations in public diplomacy that the internet and social media have wrought is in the empowerment of members of the public to act directly on the diplomatic stage. Prior to the 1990s, large civil society organizations representing various public interests, institutions ranging from 85

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Greenpeace to the World Economic Forum, had the capacity to engage directly with leaders of governments, multilateral institutions, and CEOs of large global firms. The advent of the internet and social media permitted individuals to engage with diplomats directly and immediately on matters ranging from the routine (online consular services) to asking questions and giving feedback to foreign ministries and trade ministries about foreign policy decisions and issues. At another level, social media has enabled individual members of the public and their campaigns for particular global social objectives to become well known, even famous, worldwide, and to compel global leaders to engage with them. Swedish teen climate activist Greta Thunberg began protesting in front of the Swedish Parliament in 2018 when she was fifteen years old, attracting traditional and social media attention. Thunberg used social media effectively to motivate students to ‘strike’ from attending school on behalf of climate justice. Her movement and fame spread virally, to the extent that she was invited to address the UN Climate Action Summit in September 2019 in New  York. In a speech that captured a global media news cycle, Thunberg excoriated global leaders at the conference for stealing her generation’s future prospects by failing to act effectively on the climate crisis. Perhaps the most complex effect that social media has had on diplomacy by empowering the global public, particularly with respect to global trade, has been to accelerate the impact of populism on the making of trade policy in many countries and on the implementation of those policies through diplomacy. Since the earliest days of democratic governance, domestic politics has had a growing impact upon diplomacy, but the rise of public diplomacy and use of the internet have magnified those effects. Popular opposition to global governance institutions, in particular to the Bretton Woods institutions and their successors – the IMF, the World Bank and the WTO – as well as to the EU, has been building since the 1990s. Critics on the global left decried the ‘Washington Consensus’ of neoliberal economic policies and the ‘dot.com’ economic boom for disadvantaging developing countries and for concentrating wealth at the expense of the poor. Within wealthy industrial countries, the left critique focused on the distribution of gains from trade, in which shareholders and senior executives benefited disproportionately at the expense of ordinary workers on the factory floor. This critique gained traction in the 1990s as global value chains emerged under Globalization 2.0, and firms based in industrial countries moved jobs in production processes from high wage to lower wage countries. The ‘alter-globalization’ movement, with its slogan ‘Un autre monde est possible’, demanded different social and economic priorities for globalization and culminated in widespread popular protests against neoliberal globalization around the turn of the twenty-first century. The movement targeted the WTO and its plan to launch a new multilateral trade liberalization round at 86

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the December 1999 WTO Seattle ministerial meeting. The ‘Battle of Seattle’ protests, which brought some 25,000 protesters into the streets, forced the WTO to postpone the launch of its new trade negotiating round until a more auspicious moment. The new WTO round was launched two years later at Doha, Qatar, a location where popular protests were already officially discouraged, and in a heightened security environment following shortly the 9/11 terror attacks. In the first decade of the twenty-first century, left populists protesting against trade liberalization were joined by nationalist populists of the right in reaction to increasing losses of traditional manufacturing jobs at this point not to lower wage economies, but instead to automation and AI. Aspiring leaders of populist political movements played on xenophobic fears aroused by the 9/11 attacks in the United States and the ‘Global War on Terror’ that followed. Subsequently, they capitalized on economic fears exacerbated by the 2008 global financial crisis and recession. The rise of social media platforms for communication over this period facilitated the ability of populist and ‘alt-right’ extreme political movements to reach a much larger public audience. Not only did mainstream news sharing platforms like Facebook, Twitter, and Reddit play a part in this process, but also more niche social media platforms like 4chan and 8chan, which facilitated communication between alt-right supporters across multiple countries. In many countries, social media-fuelled populist movements as they grew tended to take the form of new political parties to critique establishment politics, such as Cinque Stelle in Italy, Alternativ für Deutschland in Germany, and most recently the Brexit Party in Britain. In other cases, new right or alt-right populist leaders took over existing parties, such as the AK Party in Turkey, the Republican Party in the United States, and the National Front in France. In some cases the new or commandeered parties have been led by charismatic leaders, such as Turkey’s Recep Tayyip Erdoğan, Italy’s Matteo Salvini, and Trump in the US. In other cases the party’s leadership functions more as enablers of a bottomup movement that makes use of social media effectively as a horizontal means of sharing and amplifying the information they want to send and want to hear. In yet other situations, such as those of Vladimir Putin in Russia, Jair Bolsonaro in Brazil, and Rodrigo Duterte in the Philippines, leaders have created movements around themselves without a significant party apparatus. Populists thrive on attracting the public’s attention to their agendas by making headlines, both print and digital. The use of Twitter in particular has been ideally suited for ‘diplomatic’ exchanges between populist leaders and publics at home and abroad. Nobody has used incendiary tweets on trade issues more aggressively to energize his political followers and antagonize perceived adversaries over trade issues than US President Donald Trump. Since the beginning of his presidential campaign in 2015, Trump has launched a steady stream of fearmongering tweets hostile to liberal trade and subordinating the benefits of 87

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trade for the overall public to his nationalist agenda. The WTO and EU have been primary targets of Trump’s hostile tweets since well before he assumed the US presidency. During his presidential campaign, Trump targeted the TransPacific Partnership (TPP-12), negotiated by Barack Obama’s administration with eleven Asia-Pacific trading partners, for excoriating criticism on Twitter. Trump’s tweets whipped up sentiment amongst his supporters against the agreement, which would have brought significant economic gains to US consumers in addition to strengthening important Asia-Pacific security relationships in the face of China’s increasing regional power. Two days after assuming power in January 2017, Trump withdrew the United States from TPP-12. Trump’s regular tweets criticizing the EU and NATO have echoed the views of Vladimir Putin and boosted Putin’s strategy to undermine the EU. Putin’s anti-EU tactics have included interfering in the 2016 UK Brexit referendum and the 2017 referendum in Catalonia on independence from Spain. For transnational firms, effective public diplomacy is arguably even more important than it is for governments. The global public are the customers of large firms, and they can punish firms they do not like rapidly by ceasing to buy their products and by lobbying their elected officials against legislation and regulations that benefit a particular firm. There is a tremendous disparity in the capacity of transnational firms to do public diplomacy, which for firms falls under the various corporate organizational headings of public relations, government relations, global affairs, and most recently global public policy. Firms in traditional sectors in many cases have learned to communicate to the global public better after major disasters, as Union Carbide did following the 1984 chemical explosion in Bhopal, India, and BP did following the 2010 Macondo oil spill in the Gulf of Mexico (Pigman 2013). Trade futures in the diplomatic arena The existing network of overlapping and sometimes competing institutions and structures for international trade diplomacy is now in flux, owing in part to technological transformation, the changes in the nature of trade it is causing, and the rise of political populism. A diplomatic system seventy years in the making now faces its greatest political and institutional challenges, and perhaps opportunities, yet. At the heart of these challenges are attacks on the two key diplomatic institutions supporting open trade: the WTO and the EU. The core mission of the European Union continues to be challenged by ultranationalist parties, which seek devolution of competences (powers) from the EU back to member state governments, in European Parliament and member state elections. In the United States, Trump administration trade policy officials opposed to the WTO 88

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(as they are to multilateral institutions of global governance in general) have sought to disable the WTO’s Dispute Settlement Mechanism. The Trump administration has blocked the appointment of new jurists to the Appellate Body, which made appeals of WTO disputes functionally impossible once the number of available Appellate jurists fell below the required minimum of three in December 2019. At the time of writing, major trading powers excluding the United States were organizing an ad hoc appellate body to adjudicate trade disputes amongst themselves pending a future diplomatic resolution of Trump’s dispute with the WTO. Yet amidst these challenges, opportunities present themselves. For example, one of the less heralded effects of the ICT revolution on trade diplomacy has been the development of new tools for trade facilitation, the streamlining of processes for goods to cross borders. These electronic tools should make agreements on digital border controls regulating issues such as customs procedures and agricultural goods inspections. At a broader level, there is widespread demand for reform to the WTO to make the organization more able to fulfill its promise. Proposals for broader WTO reforms have been advanced in Europe, China, the United States, and developing countries. The European Union, for example, wants to update the WTO rulebook to take more account of current issues of concern for liberal trade involving large markets like China, issues such as government subsidies and forced technology transfer. The United States, meanwhile, is seeking to make trade dispute settlement process more transparent (Politico’s Morning Trade, 23 July 2019). Support in some countries for further development of the GATS/WTO system for governing trade in services has led to a proposed polylateral Trade in Services Agreement (TiSA), which would be the first major trade treaty not on most favoured nation (MFN) terms in modern times. The treaty’s benefits liberalizing access to services markets of signatory countries would be extended only to other countries that sign the agreement. Regional opportunities for strengthening trade diplomacy institutionally also abound. Progress on the construction of Africa’s planned Continental Free Trade Area through the integration of sub-regional free trade areas advances. In the Pacific basin, following Trump’s 2017 withdrawal of the United States from the twelve-nation trade liberalizing Trans-Pacific Partnership (TPP-12), which had been painstakingly negotiated under US leadership, the Japanese government of Prime Minister Shinzo Abe stepped up to ensure that the remaining signatory countries would bring into force the Comprehensive and Progressive TransPacific Partnership (CPTPP, or TPP-11). If we are not prepared to seize these opportunities to improve trade diplomacy, it opens the way to a future in which the authority and capacities of the WTO and regional trade bodies would be eviscerated, either gradually or rapidly. If new jurists are not appointed to the WTO’s Appellate Body on an ongoing basis, there will cease to be an effective way for countries to challenge dispute panel 89

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rulings against them and with which they disagree. This would make it more likely that countries in that position will choose to ignore rather than implement rulings that they question. A decline in confidence in the effectiveness and fairness in the WTO’s dispute settlement process will likely lead to an increasing reluctance to bring trade disputes to the WTO for resolution. Countries will be more likely to resort to bilateral or unilateral measures to resolve disputes. Any ad hoc dispute settlement body to be created in the event that new judges were not appointed to the WTO Appellate Body would have limited effectiveness at best without participation of the United States, still the world’s largest economy. If WTO members choose a broader retreat to a new bilateralism or regionalism in trade diplomacy or to unilateralism as a substitute for diplomacy, outcomes of disputes will revert to depending on the relative economic, political, and ultimately military power of states. For the increasing percentage of cross-border trade regulated by behind-the-border regulations rather than by tariffs and other border measures, unilateral, domestically legislated regulation would once again become the norm. It goes without saying that those that would suffer most from such a collapse of global liberal trade and the diplomacy that supports it are least developed countries (LDCs), which have the least leverage to demand that others maintain open borders to LDC exports. The poor in every country would pay significantly more for their monthly basket of goods and services owing to higher tariffs and other trade barriers. The wealthy everywhere, who pay the smallest portion of their income on necessities, as is usually the case would probably manage just fine, at least until the likely more frequent trade wars began to spill over into more military conflict. A third possibility for trade diplomacy in the near future is attempting to continue more or less with the status quo:  trying to postpone serious efforts at reform whilst preventing the collapse of key institutional functions like WTO dispute settlement. Of the three possibilities, this appears the least likely because of steadily increasing technology-driven and populist pressures for change. Pressures have been increasing on the existing system for all the reasons outlined thus far, to the point that, as noted above, the sturdiest institutions built to facilitate and promote trade diplomacy, the WTO and the EU, have come under sustained attack. These attacks have come from multiple directions, from the authoritarian populist alt-right to the utopian New Left. The answer to the question ‘Can the centre hold?’ in this case is less certain than ever.

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From the British East India Company to Alibaba and Amazon, from Westminster to Washington and Beijing When Microsoft CEO Bill Gates visited India in 2002, he was received and entertained by India’s Prime Minister A.  B. Vajpayee as if he were a head of state. On his visit Gates announced that Microsoft would invest $400 million in India over three years (Pigman 2010, p. 17). For at least three decades now, such diplomatic summits, as it were, between technology CEOs and heads of government have become the norm rather than an exception. One of the most significant ways that technology has changed diplomacy has been through the rise of large technology firms as actors on the diplomatic stage. What we think of as state–firm diplomacy today is not a new business, but it is evolving. Large firms intimately involved with international trade have been around since the seventeenth century. The original idea of the international system (or nationstates system) mainly referred to states and their governments and to how they interacted:  through diplomacy between governments, including institutions they set up to make diplomacy easier, or through conflict and war. Most scholars agree that the modern system of nation-states began with the 1648 Peace of Westphalia, which ended the Thirty Years’ War between supporters of the Catholic Holy Roman Empire and Protestant states. Yet even from the beginning of the ‘Westphalia system’ of diplomacy, which was based upon the principle of sovereign equality of nation-states, private firms, if they were large enough, had sufficient resources, wealth, and negotiating capacity to function analogously to governments as diplomatic actors. The first such companies were chartered by the parliaments of their home countries specifically to engage in international trade: firms such as the British East India Company (chartered in 1600), the Dutch East India Company (1602), the Virginia Companies (1606), and the Massachusetts Bay Company (1629). In order to trade, from the start these firms had to engage in diplomacy. The 91

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boundaries between firms and governments themselves were more fluid than it would appear initially. The English-chartered Massachusetts Bay Company and the Virginia Company of London effectively became the governments of the colonies of Massachusetts and Virginia respectively. Many early trading companies became as large and powerful as they did precisely because they were granted trade monopolies for their respective routes and overseas territories by their home governments. Once they became operational, these firms engaged with their home country government and others in ways analogous to the diplomacy that then took place between existing governments. By the end of the nineteenth century, a new generation of large transnational firms was emerging in business sectors extending from energy to finance. Business–government diplomacy proceeded apace after the Second World War, as trade barriers were lowered and economic development of newly independent former colonies accelerated. Since IBM built the first mainframe computer in the 1950s, technology firms began to join the ranks of firms large enough to negotiate their own interests with governments. As large transnational technology firms like US-based IBM, Microsoft, Facebook, Google/Alphabet, Amazon, Apple, and their Chinese counterparts Baidu, Alibaba, and Tencent continue to grow and expand their commercial activity across national borders, their share of global trade continues to expand significantly. Much of these firms’ trade is in services, data, and information. As technology firms’ size and share of global trade expands, their importance as diplomatic actors in the international system continues to grow. Yet thus far, many of these firms still lag significantly behind more traditional large transnational firms in the basic diplomatic capacities to represent themselves to, communicate and negotiate with, and manage crises with governments, multilateral organizations, and civil society bodies. This is having a negative impact on the effectiveness of diplomacy between these firms, governments, and civil society organizations to address key global policy issues going forward. States, firms, trade, and globalization As capitalism evolved over the nineteenth and twentieth centuries, cross-border flows of goods, services, and capital, what we think of routinely as trade and investment, grew steadily as a proportion of global economic activity (see infographic at page 9). As globalization of economic activity has taken place, the structure of relationships between the business entities that engage in trade and investment has changed. The beginnings of transnational capitalism in the fifteenth and sixteenth centuries saw funds raised in Europe to finance trading missions to distant parts of the world – Asia, Africa, and the Americas – that traded for exotic 92

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goods, which they imported to Europe and sold to Europeans. These enterprises were the first trading companies. Some were funded or licensed by governments, such as the Dutch- and English-backed Dutch East India Company and British East India Company. The emergence of trading firms preceded the explosion of international trade and globalization. As trade accelerated in the nineteenth century, trading firms – shipping companies and financial firms providing finance for trade – facilitated trade between buyers and sellers of goods and services, often across great distances. Hong Kong–based trading firm John Swire & Sons and British merchant bank Barings and Co. were leading examples of their kind. These types of firms helped exporting businesses connect with importing businesses and consumers in distant locales. What the function of trading firms in early globalization illustrates is that most cross-border transactions initially took place between different businesses. Sometimes the route for a product, such a kilo of coffee beans or a bolt of cotton fabric, from its initial producer in Kenya or India to its final consumer in Scotland or Canada involved several transactions, each between different businesses. But as globalization proceeded over the two centuries following early nineteenthcentury trade liberalization, ever more trade came to be conducted by or controlled by single firms with operations that themselves stretched across borders. This process, the consolidation of capital that was expected by Lenin (1995 [1916]) in his writings on imperialism, took place by a number of mechanisms. In order for firms to emerge as diplomatic actors in their own right, size matters. One objective of businesses in growing was to bring all aspects of their production process under their own control. In order to stabilize costs and access to sources of inputs for their production processes, firms acquired other firms overseas that could provide those inputs. Alternatively, firms would establish operations abroad in locations where they could source inputs. A second major objective for firms was to expand markets for their products. Once again, either acquisition of a foreign firm or direct expansion into a foreign market were options, depending on circumstances of the day. Examples of these mergers and acquisitions abound, limited primarily by local regulatory restrictions. US-based Walmart expanded into Mexico by opening its own stores there in 1991. Walmart subsequently expanded into the United Kingdom by acquiring UK food retailer Asda in 1999. Another reason for firms to grow by cross-border merger or acquisition is to realize greater economies of scale. Cross-border expansion has driven market growth and achieved production scale efficiencies in firms across a wide range of industrial sectors. UK-based integrated oil company BP acquired US-based Amoco in 1998. US-based car maker Chrysler was acquired first by German Daimler Benz in 1998 and then subsequently by Italian Fiat in 2009. Fiat Chrysler proposed to merge with the parent company of France’s Peugeot-Citroën in 2019. 93

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In service industries too, cross-border expansion has been a route to growth, particularly for financial firms. Originally Hong Kong–based financial firm HSBC (Hong Kong and Shanghai Banking Corporation) has acquired over a dozen financial firms on every continent, including the British Bank of the Middle East in 1959, US-based Marine Midland 1987, and UK-based Midland Bank in 1992 in a bold bid to become a global financial firm. HSBC ultimately moved its headquarters from Hong Kong to London and has rebranded many of the acquired companies under the HSBC name. US-based credit card providers Visa, MasterCard, and American Express took a different approach, entering into partnerships with banking firms in a huge range of countries worldwide to offer credit card services to local banking customers. Many types of technology firms have been able to enter global markets more easily in many respects than firms in older economic sectors, owing in large part to the virtual access that the internet provides. At least since the advent of the internet, firms selling software and software services, such as Microsoft, can reach customers worldwide without having to depend on a physical local presence. Google’s search engine is available to users in any country except those (such as China) whose governments actively intervene to prevent online access. Similarly, social media firms like Twitter, Facebook, and LinkedIn can reach customers everywhere that the internet is freely available. Firms that provide platforms for customers to buy from and sell to one another (‘C2C’ sites), such as Airbnb, Uber, and eBay, all have the physical capacity to do business over the internet anywhere that local regulations do not restrict or prohibit their activity. Although technology firms have at least as much incentive to engage diplomatically with governments in many of the regions of the globe in which they do business as other types of transnational firm (as is discussed below), their cost of doing business globally is often substantially lower than that of firms in other sectors. The relationships between governments and firms have evolved significantly since the earliest days of European trading firms with parliamentary charters. As successive waves of industrialization and globalization have proceeded, states and their governments, and firms too, have changed. In the current phase of Globalization 2.0, the emergence of technology-driven monopolies like Microsoft, Google, and Facebook that Thiel (2014) has praised has given technology firms disproportionate power relative to governments. The majority of transnational technology firms are headquartered in the United States and China, although many large technology-intensive firms are based in Europe as well. Where technology firms are headquartered has an effect on their structure and operations and on the type of diplomatic relationships they have developed with governments. As large technology firms have emerged in China, the types of relationships they have with government diverge meaningfully from firm– state relationships in Europe and North America (see below). Large firms in 94

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China, whether technology-driven or not, whether state-owned or not, have closer working relationships with government overall than their Western counterparts do. For developing countries, Globalization 2.0 has changed governments’ development strategies and the state–firm diplomacy required to enable it. Globalization 2.0 has enabled governments of developing countries to enter particular production sectors within global value chains at faster speed and lower cost and risk than would have been required in earlier decades, when governments had to decide to invest heavily to back development of a particular whole new industrial sector. Thailand and South Korea are examples of governments negotiating effectively to promote development of production tasks integrated into existing GVCs. Thailand, for example, initially promoted auto production by encouraging foreign auto makers to import component kits for assembly of automobiles in Thailand for sale to the local market. Thailand’s government subsequently sought to increase local value added by increasing local content requirements for autos assembled from kits. The major Japanese auto firms responded by encouraging their suppliers to set up parts manufacturing facilities in Thailand to supply the Thai auto assembly plants, which they used to produce vehicles for export throughout South-East Asia (Baldwin 2016, pp. 246–54). Yet, as noted above, developing country governments face the potential threat that a new divide may arise between haves and have-nots. As automation enables firms to bring more production physically closer to consumers in industrial country end markets and transport prices rise to reflect carbon emissions costs, developing countries could lose their comparative advantage of low-cost skilled labour in GVCs. Not your mother’s state–firm diplomacy The emergence of large transnational or multinational firms created the need for diplomacy to take place between governments and firms. As noted above, size matters. In September 2019, J.P. Morgan Chase, the tenth largest global firm by market capitalization, had a larger market cap than the GDP of Malaysia, the thirty-third largest economy in the world. Firms above a certain size that operate across borders interact with governments in fundamentally different ways from smaller, more localized businesses. As transnational firms became powerful enough to exert leverage over governments, negotiations between firms and governments over such issues as incentives for locating manufacturing facilities, capital requirements for financial institutions, and trade barriers for cross-border commerce became common. Once firms reached a sufficient size and cross-border reach, negotiations and the ongoing representation and 95

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communication needed to maintain business relationships came to resemble diplomacy between governments rather than the lobbying relationship between smaller, more domestic firms and the government of the state in which they are primarily located (Pigman 2010, pp. 70–72). Ten largest publicly traded global firms by market capitalization, September 2019 Rank

Company

HQ

Market capitalization ($)

Sector

1

Microsoft

US

1,062,000,000

Technology

2

Apple

US

1,012,000,000

Technology

3

Amazon

US

858,680,000

Technology

4

Alphabet (Google)

US

838,020,000

Technology

5

Berkshire Hathaway

US

508,530,000

Multi-industry

6

Facebook

US

508,050,000

Technology

7

Alibaba Group

China

435,400,000

Technology

8

Tencent

China

398,840,000

Technology

9

Visa

US

385,370,000

Financial services

J.P. Morgan Chase

US

376,310,000

Financial services

10

Diplomacy between large transnational firms and governments up until the 1990s tended to create and maintain similar types of relationships, whether the firm was Toyota, Boeing, Royal Dutch Shell, or Deutsche Bank. Diplomacy between firms and governments involves many, if not all, of the same sorts of engagements and content as diplomacy between governments: ongoing representation and communication about matters of mutual interest and concern, the negotiation, implementation, and enforcement of agreements, and the resolution of disputes and crises. Most often, firm–state diplomacy begins when a firm seeks to enter a country’s market through some sort of presence beyond simple exports: acquiring a local firm, building a new factory, or seeking licensing to sell services or particular types of products. Each of these firms, to take examples across a range of industrial sectors and headquarters jurisdictions, needs particular things from governments, such as regulatory authority to operate or for market access. Governments for their part seek from firms advantages in terms of jobs created and maintained in particular regions of a country. Agreements are likely to address issues such as workers’ rights, environmental protection, investor protection, and taxation. An agreement between a firm and government to build or acquire a factory or satellite office in a particular foreign location creates the need for an ongoing diplomatic relationship between the two sides. Terms of the agreement must be 96

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monitored and enforced, and issues and problems unforeseen at the time of the signing invariably arise and must be dealt with. Firms often open permanent representative offices in the capitals of countries where they develop a major preference, often titled ‘government relations’ or ‘government affairs’. These representative offices provide a point of contact with the firm not only for national governments, but for regional and local governments, which have significant interests in a firm’s facilities in their areas, and for civil society organizations and the local public. In an age when much more diplomacy is public and involves the public than ever before, direct access for the public to a foreign firm is important. A firm’s representative offices also serves as the base for its media and social media interactions with the local community. As large transnational firms have emerged as diplomatic actors in their own right, the need for these firms to engage in diplomacy with the government of their home or host country should not be overlooked. Governments rarely are able to negotiate with large firms with a single, unified voice. In particular, governments’ antitrust objectives of promoting competition and their export promotion objectives of championing large firms that have achieved economies of scale often clash. Large firms based in the European Union have faced the challenge of negotiating between EU competition policies intended to deter monopolies and industrial policies intended to promote national or European champion firms. Airbus Industrie is the ultimate product of a complex series of negotiations beginning in the late 1960s between then-European Community member state governments and aircraft manufacturing firms in EC member states. Only after 1975 were the negotiations joined by European Community institutions. Negotiators navigated between this Scylla and Charybdis of national and EC industrial and competition policy objectives by creating Airbus initially as a consortium of collaborating firms in several EC countries, which later integrated into the global firm that Airbus is today (McGuire 1997, pp. 40–42). Large firms in some sectors, such as energy, defence, and financial services, have needed to develop close working relationships with their home-country governments because of their history of and need for regulatory collaboration or working together on export promotion. Large US-based oil and gas companies have had a history of antitrust regulation with the US government dating to the beginning of the twentieth century and environmental regulation for over five decades. US-based manufacturers of commercial aircraft and heavy equipment, such as Boeing and Caterpillar, have long benefited from concessionary financing of their exports through loans and loan guarantees at below-market rates provided by the US Export-Import Bank, the US government’s export finance agency (McGuire 1997, pp. 54–61; Rodriguez 1987). Most major manufacturing countries, including China, Japan, and South Korea, offer similar concessionary financing to promote their exports. Export financing often involves both private 97

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and public participation. Hence large manufacturing firms like Boeing and financial firms like J.P. Morgan Chase have long maintained substantial representative offices in Washington, DC, to manage their diplomatic relationship with the US government. Yet firms in other sectors, particularly in technology, have realized the need for well-organized diplomatic relations with their home country government somewhat belatedly. This belated realization has sometimes been at their peril. As late as 1995, for example, Microsoft only had one person on staff assigned to government relations in Washington (see below). The most visible aspects of state–firm diplomacy often are the major agreements reached between governments and firms. Who gets the better end of a deal between a firm and a government, as with a deal between two or more governments, is usually a function of which interlocutor has more resources and negotiating leverage, be they wealth, control of particularly sought-after assets, or other currencies of power. However, the negotiating skills of diplomats and dealmakers can play a part in final outcomes as well. Frequently large firms dominate governments of developing countries, particularly smaller ones, in negotiations over trade, investment, and other business issues. However, resource-rich developing countries with canny negotiating teams can tip the scale in their country’s favour to a greater degree than a standard resources/power analysis might predict. A particularly vivid example of this is a complex diplomatic relationship that US-based energy firm ExxonMobil had for years with the government of Equatorial Guinea, a very small, oil-rich nation on the west coast of Central Africa (Coll 2013, pp. 137–53). Once firms reached a certain size and capacity for transnational production and selling, they developed the ability to structure their business operations in such a way as to benefit from the most favourable regulatory and taxation regimes available amongst the multiple political jurisdictions in which they operated. The issue of ‘transfer pricing’ serves as a good illustration. By the 1970s, many of these firms were already engaging in what became known as ‘intra-firm trade’, the practice of moving resources across borders between different units of a firm as part of the production and sales process, in a time well before global value chains as we know them today had emerged. Large industrial country governments like that of the United States had considerably more leverage over large firms then than they do now, as the US–Japan negotiations of the 1980s over the trade issue of ‘transfer pricing’ showed. Transfer pricing referred to the internal values that companies like Toyota would place on auto parts they imported to the United States from Japan to use in assembling automobiles in their US assembly plants. By bringing auto components from Japan into the United States without buying them from or selling them to another firm, firms such as Toyota were able to assign a lower value to the components than they would fetch on the open market. A lower 98

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value for imports of components meant Toyota incurred a lower import duty obligation to the US government than they would have done otherwise. Whilst not illegal, transfer pricing practices of global firms attracted the attention of the US Congress in the 1980s, where concern was running high about competition for US-based auto manufacturers from Japanese firms. Members of Congress representing districts where US-based auto firms competing with Toyota had manufacturing facilities urged the administration of President Ronald Reagan to press Japan’s government to agree a more favourable transfer pricing formula, which would raise Toyota’s import costs for parts to the United States by charging them more in tax. At this point transfer pricing had emerged as an important agenda item for multilateral trade diplomacy. By the time the first formal US transfer pricing regulations were adopted in 1994, diplomacy between governments to harmonize transfer pricing policies was underway. In 1995 the Organisation for Economic Co-operation and Development, whose membership includes industrial and rapidly industrializing countries, adopted its first transfer pricing policies, which they expanded in 1996 and 2010. Today over sixty countries observe similar transfer pricing regulations based around the principle that sale prices between related entities should be priced as if they were arm’s length transactions. Transfer pricing policies, although negotiated by governments, have been shaped substantially by the input of large transnational firms. Critics of the arm’s length transaction approach complain that assuring compliance is difficult (Tax Justice Network 2020). Digital bulls in a diplomatic china shop Between traditional large firms and governments, state–firm diplomacy over this range of issues persists today much as it has done since the 1970s, if not before. Large technology firms are relative latecomers to state–firm diplomacy, and for them the learning curve has often been steep and bumpy. The first firm of its kind, IBM, entered the ranks of large firm diplomatic actors initially as a manufacturer of computer hardware, which made it rather more analogous to older industrial firms in its early years. But as information and communications technologies grew and developed rapidly from the 1960s through the advent of the internet in the 1990s, firms like Apple, Microsoft, Oracle, Sun Microsystems, and Netscape were still small enough not to have need or interest to engage with multiple governments and other bodies on the diplomatic stage. They were still regulatory supplicants: they did not yet have the assets to give them standing to negotiate as equals with major governments. Moreover, the culture that prevailed in early technology hubs like Silicon Valley and Boston in the United 99

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States was that the emerging ICT industry should regulate itself with as little government interference as possible. This view was adhered to in Washington, DC, and state capitals as well as in most corporate headquarters, as tech firms and demand for their new products grew rapidly and created jobs at a time when more traditional manufacturing in advanced industrial countries was in retreat. The impact of technology firms growing large relative even to governments of major powers manifested itself initially as early as 1969, when the US government began to investigate IBM’s dominance of the computer hardware market. During a multi-year trial in the 1970s, the US Department of Justice sought to break up IBM, which by that point controlled 70 percent of the computer hardware market, into multiple competing firms. By 1982, when the US government finally abandoned its prosecution, IBM’s mainframe computer dominance was being overshadowed by the rise of multiple manufacturers of the personal computer, the next generation of computer technology. Since the IBM case, the tendency of technology to confer ‘natural’, if transient, monopolies has been contested. In the meantime, the first US antitrust case against telecommunications monopoly AT&T led to a consent decree forcing AT&T to stay in existing regulated markets (telephony) and to licence its patent portfolio, for example, transistors, to competitors. This forced licensing made the initial development of personal computers and software possible. The second AT&T antitrust case broke up the company in 1984, facilitating the emergence of the cellular telephony and broadband industries (McNamee 2019, pp. 223–25). An early indicator that a new type of firm–state diplomacy addressing new issues might be required as a result of the information and communications technology revolution was the rise of Microsoft into the ranks of the largest global firms at the end of the 1990s. IBM had been selling to a global marketplace since its inception, and the supply chain for computer hardware was already globalizing by the 1980s. Yet a new era of global technology trade and its attendant diplomacy was heralded by the emergence of Microsoft. Microsoft was only founded in 1986, well after the IBM antitrust case was abandoned. But by 2000, with a market capitalization of well over $300 billion, Microsoft regularly claimed the title of largest firm in the world by market capitalization. By the late 1990s, governments on both sides of the Atlantic, egged on by Microsoft’s then-major competitors – Oracle, Sun Microsystems, and Netscape, to name a few – became concerned that Microsoft was abusing its competitive position in the operating system market for personal computers by bundling its Explorer internet browser software with its widely used Windows operating system. The US Department of Justice investigated Microsoft’s competitive practices and in May 1998, backed by 20 US state governments, decided to charge Microsoft with violations of the century-old US federal antitrust statute. 100

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After finding that Microsoft was a monopoly that had abused its monopoly power in the marketplace, Judge Thomas Jackson ruled on 7 June 2000 that Microsoft should be broken up into separate operating system and software/ internet businesses and ordered extensive restrictions on Microsoft’s business practices (Brinkley 2000). After a June 2001 appellate court ruling in Microsoft’s favour, Microsoft and the Justice Department reached a settlement in November 2001 in which Microsoft agreed to unbundle its Internet Explorer web browser from its Windows operating system and that did not result in a breakup of the company. However, Microsoft then faced an analogous antitrust case brought by the European Union’s competition directorate resulting from an investigation begun in 2000. In March 2004 the European Commission found that Microsoft had used its dominant position in the operating system market to limit its competitors’ ability to compete in the work group server operating system market and that its tying practices limited competition in the streaming media player market. The Commission fined Microsoft €497 million, the largest EU fine up to that time, and imposed remedies for the firm’s offending practices. From an international trade perspective, Microsoft was neither the largest US-based firm in terms of output or profit in 2000. The value of its exports did not equal that of US commercial aircraft manufacturer Boeing, but the legal challenges to Microsoft’s market dominance were important because at the time Microsoft was arguably the single most important firm structurally to US dominance of the technology-driven, information-rich ‘New Economy’. Over 100 million people worldwide were using Microsoft’s Windows operating system, Microsoft produced 80 percent of suites of office applications (spreadsheet, word processor, database, etc.) worldwide, and Microsoft had surpassed IBM by a small margin to be the world’s largest software producer (McKenzie 2000, pp. 4–5). As the Microsoft antitrust cases illustrate, large technology firms are inclined to behave somewhat differently as diplomatic actors from other types of large industrial and financial firms for three main reasons. First, their goals and motivations are different from other types of transnational firms. As Thiel (2014, ch. 5) has argued, technology firms have a strong incentive to seek a competitive edge by achieving and maintaining a monopoly or overwhelming dominance in the market spaces in which they compete. When firms in the technology space achieve monopoly or dominance in their market, it often leads to lower prices for consumers, unlike monopoly in traditional manufacturing industries. Softwaredriven firms like Microsoft remain under constant pressure to innovate in their own products, since the fundamentally open nature of software code to innovators and the insatiable consumer demand for innovation ensure that if Microsoft does not review and advance its operating system, browser, and suite 101

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of office applications continually, they will be supplanted by products of another company that innovates faster (McKenzie 2000, p. 22). As Microsoft was accused of doing at the turn of the twenty-first century by bundling its Windows operating system and Internet Explorer browser, so Google does today with internet search, Apple with mobile internet hardware and software, Amazon with internet commerce, and Facebook with advertisingdriven social media. By 2017, these five technology firms had leveraged their dominance in respective markets to become the five largest firms in the world by market capitalization (Baldwin 2019, p. 72). Second, most tech firms were founded much more recently and have grown much more rapidly to their current size than other types of global firms. Hence many firms have not had the time to become socialized into the culture and practices of firm–state diplomacy. In the 1990s Microsoft was already actively engaged in firm–state diplomacy, as Bill Gates sought to do business in India and China. Gates made highly successful visits to Beijing and New Delhi, where he was treated as a visiting head of state by governments eager to attract inward investment from Microsoft. But Microsoft’s strategy for diplomatic representation and communication failed initially to imagine the need for adequate representation and communication to its own host government in Washington, DC. Despite the global reach of Microsoft’s products and services, Bill Gates and his management team held the governance of the firm and its corporate operations closely around its Seattle area base. The firm thrived and grew so well in the business environment provided by its host country, the United States, that until the late 1990s management did not fully appreciate the importance of having a large ‘embassy’ of government relations specialists and lobbyists in Washington, DC. As late as 1995 Microsoft had only one Washington lobbyist on staff (Broder & Brinkley 1999; McKenzie 2000, pp.  169–70; Wolffe 2000). Microsoft encouraged fellow technology firms to join together with them to form industry advocacy organizations, such as the Association for Technology Leadership, to lobby Congress on their behalf and create favourable media visibility. Google (and since 2015 its parent company Alphabet) has followed a similar pattern of rapid development of its lobbying capacity in and diplomacy with its host country, the United States. In 2006, before its period of explosive growth, Google was spending $800,000 a year on lobbying and had retained four lobbying firms to represent its interests in Washington. By 2018, Google/Alphabet was employing 100 lobbyists in thirty lobbying firms. Google spent $21.7 million on lobbying in Washington in 2018, more than any other US-based firms spent on lobbying. In 2012 Google effectively countered a US Federal Trade Commission (FTC) investigation into alleged anti-competitive practices. Like Microsoft a decade earlier, Google supported advocacy groups promoting public policy in 102

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Google’s interests. For a period Google employed retired New York state member of Congress Susan Molinari to head its Washington operations (Hamburger & Gold 2014). Senior executives at Alphabet know that effective diplomacy with US and EU regulatory authorities, amongst others, is essential to their ability to survive and grow. What makes Google and other firms in the current generation of technology giants different from Microsoft and IBM is that their core business models fundamentally challenge long-held understandings about the boundaries between public and private. Google gathers more data on users than any other firm, with more questions being asked every day about ownership of those data and about the extent to which users have granted consent to Google’s usage of it. Google, along with other social media firms, has also been criticized for lack of policing of its sites to prevent their use for criminal and other nefarious purposes. According to McNamee (2019, p.  214), Google’s YouTube, one of the mostviewed websites on the internet globally, ‘has become the nexus for recruiting and training extremists’. Google, like Facebook and Twitter, has tried to argue that they are platforms for users to share content rather than traditional media content providers, which have public interest responsibilities of truth telling and vigilance against harmful activity. Yet as the Facebook case below illustrates, these arguments are finding ever less resonance amongst members of the public and amongst regulatory authorities in numerous governments around the world. Third, the meaning of trade for technology firms is often different (see chapter  3). The types of products that technology firms trade across borders vary more widely than those of firms in more traditional sectors such as heavy industry, consumer goods, energy, and finance. Firms like IBM, Apple, and Microsoft all trade in goods: hardware that gets manufactured in one or more locations and shipped across borders. They also trade in services ranging from management consultancy to business processes to data services, which may be delivered across borders by any one of several means. Crucially, many technology firms, including large firms like Facebook, Google, and Amazon, trade in data, knowledge, and information, which are purchased by and transmitted across borders to advertisers, marketers, and other organizations (including political organizations and espionage agencies). As noted above, consumers pay for social media services and the use of other online apps by supplying their personal data to online services providers. Payments, the other side of each trade transaction, are further complicated by the rise of peer-to-peer or blockchain payments technologies. Crypto-currencies such as Bitcoin and Ethereum, which rely upon blockchain technology, enable payments for services or goods to be made across national borders privately without conventional supervision by monetary authorities. Crypto-currencies are controversial for a number of reasons, not least because their values relative 103

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to stable traditional currencies (euro, US dollar, yen, etc.) have been extremely volatile since their introduction over the past decade. Moreover, views are divided as to how crypto-currencies should be classified and treated from a regulatory perspective. In the United States, the Commodity Futures Trading Commission, which regulates commodity trading, argues crypto-currencies are commodities, analogous to other goods that are traded in bulk. The Securities and Exchange Commission treats blockchain ‘tokens’ as securities, analogous to stocks, bonds, or other types of securities. The Internal Revenue Service treats crypto-currencies as taxable property assets. The Treasury Department views them as analogous to currencies issued by national governments (Gilder 2018, pp. 239–40). What is not contested, however, is that cross-border transactions involving blockchain transfers of value are a new, technology-enabled form of international trade. Governments, civil society organizations, and the global public more broadly do not yet understand fully the implications of trade in data, information, and knowledge, and of payments using blockchain technologies, for domestic economies and the global economy or for public welfare. By its nature, trade in data, information, and knowledge needs to be regulated differently from trade in goods and services. Tariffs and quotas, health and safety standards, employment and immigration regulations are ineffective means of monitoring and regulating cross-border trade in knowledge, information, and data. Similarly, conventional monetary and currency regulations are not easily adaptable for regulating blockchain payments. Different regulatory issues arise in trade diplomacy between technology firms and governments:  antitrust, privacy, data storage, and national security, amongst others. How are enormous transnational firms that extend across borders to be regulated effectively? Are natural monopolies in technology industries in the public interest? Is government entitled to a national security exception to privacy of user data held by technology firms? Investment questions arise, such as: what types of jobs might a technology firm create in a location? Will a firm commit to creating jobs versus infrastructure? All are subject to negotiation, provided all parties are prepared and willing to negotiate. Climbing the steep state–firm diplomacy learning curve: the Facebook case Like Microsoft, other technology firms that have mushroomed in size have found themselves ill prepared to act on the global diplomatic stage on their own behalf or in the public interest. The weaknesses in the diplomacy of Facebook, Google, and Amazon, for example, show that the pattern has tended to repeat 104

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itself. The case of Facebook is particularly egregious from a diplomatic perspective, as Facebook thus far has failed to develop and carry out effective diplomacy with the governments with which it must communicate. This lack of communication is particularly problematic given Facebook’s record of a litany of violations of the public trust over the past decade. Facebook is representative of a new type of business model for cross-border trade. Today the company claims to have over 2.2 billion users worldwide, to whom it provides social media and communications services through its Facebook, Instagram, and WhatsApp platforms, available ostensibly ‘free’ to users. Facebook funds the services and generates hefty profits in the process by gathering vast quantities of data on each of its users, analyzing and categorizing the data, and selling the data to advertisers and other types of users of data such as political consulting firms and operators of other online apps (e.g. online games like FarmVille). Facebook’s scale in its social media market is unprecedented. US Congress member Jim Himes, a Democrat representing Connecticut’s fourth district, commented at an October 2019 Congressional hearing with CEO Mark Zuckerberg, ‘Facebook is more like a country, in my opinion, than a company.’ The types of cross-border trade that Facebook and firms like it engage in differ even from other forms of services trade. Facebook is a US-based firm with operational facilities in several countries. Facebook obtains data about users of its sites in return for providing users with access to the sites and their multiple functionalities. These data flow from Facebook’s users in over 200 countries worldwide across borders to Facebook’s servers and from there to other Facebook subscribers across the globe. Advertisers, political campaigns, and others in numerous countries then purchase data analytics from Facebook that Facebook derives from its users’ data. Advertisers from across the globe purchase advertising from Facebook. Facebook displays the ads to subsets of its global users carefully selected and targeted using Facebook’s data analytics tools and algorithms. For example, a German electronics firm might choose to target potential buyers in Poland and Lithuania with a particular average income and spending pattern. The German firm would pay Facebook, which would show the ads to particular Polish and Lithuanian users. Some Poles and Lithuanians, who see the ads but might otherwise not have been aware of the product, would make purchases from the German firm. In other cases, Facebook users may purchase products from their own or other countries directly on Facebook’s site, in a more traditional e-commerce model like Amazon or eBay, but in which the seller has paid to use Facebook’s data analytics to target their product precisely to the likeliest purchasers. In each case, data and payments are crossing borders, and in some cases additional goods and services as well. 105

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The case that broke Facebook’s reputation and exposed it to serious regulatory scrutiny on both sides of the Atlantic was Cambridge Analytica, the UKbased political consulting firm that was owned by right-wing billionaire Robert Mercer and run by ultranationalist political operative Steve Bannon. Cambridge Analytica was hired to use psychographic techniques to influence voters to support Brexit in the UK and to support US presidential candidate Donald Trump. Former Cambridge Analytica employee Christopher Wylie (2019), who became a whistleblower when he realized the significance of what had happened, revealed how Cambridge Analytica bought 50 million users’ data from Facebook, analyzed the data, and used it to sow discord amongst US voters. The company used micro-targeting of displays of media articles and advertisements to discourage voters on the US left from voting in the 2016 election and to encourage potential Trump voters to cast their votes (McNamee 2019, pp.  180–98). In Britain, pro-Brexit organizations Vote Leave and Leave.EU shared Facebook user data with Cambridge Analytica, which according to former Facebook investor Roger McNamee (2019, p. 198) may have violated UK election law. When the Cambridge Analytica story broke in March 2018, Facebook was already on potentially shaky ground with US regulatory authorities after evading a 2011 consent decree Facebook had signed with the US Federal Trade Commission over alleged privacy violations. In the agreement Facebook agreed to monitor and audit third-party developers using Facebook user data. Facebook had allowed third-party apps to harvest Facebook user data, including users’ ‘friends’, without users’ consent, indiscriminately between 2010 and 2014. Facebook’s first public response to the Cambridge Analytica revelations was to deny, to cover up, then to blame Cambridge Analytica. Facebook’s accusing Cambridge Analytica of the data breach made Facebook’s own public relations problem worse. Facebook CEO Mark Zuckerberg has touted its social media platforms as changing the way people interact and promoting human connections, a force for good in the world. Yet even as Facebook tries to sell its own version of peopleto-people diplomacy through online sharing, the company has been largely deaf to the sweeping violations of individual privacy and consent that are essential to Facebook’s business model. Zuckerberg did not respond publicly for five days after the story broke, finally stating that Facebook would change company rules for sharing data with third-party apps. Zuckerberg then began an apology tour, but according to McNamee the apology interviews of Zuckerberg and COO Sheryl Sandberg left a bad public impression (McNamee 2019, pp.  188–94). Facebook’s corporate motto, McNamee (2019, p. 193) quipped, should be ‘Move fast, break things, apologize, repeat’. Highlighting the danger of such a corporate strategy, Wylie (2019, p. 256, emphasis in original) commented, ‘Tech companies should not be allowed to move fast and break things … Roads have speed limits for a reason: to slow things down for the safety of people.’ 106

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Facebook’s political and diplomatic problems in 2018 did not end with Cambridge Analytica. Facebook’s platform was accused of facilitating persecution of the Rohingya minority in Burma, where it offers ‘Free basics’ internet access to the populace ostensibly without charge. Burmese military authorities created propaganda on Facebook urging the killing of Rohingya in Burma. In March 2018 the United Nations concluded Facebook played a ‘determining role [sic] in ethnic cleansing of Rohingya’ in Burma (Wylie 2019, pp. 216–17). Facebook was also accused of permitting the fomenting of anti-Muslim violence in Sri Lanka. The Sri Lankan government shut down access to Facebook temporarily in Sri Lanka (McNamee 2019, pp. 177–80). After 2019 terror attacks in Sri Lanka, the Sri Lankan government again suspended all social media temporarily to prevent incitement of retaliatory attacks. Like Bill Gates and other technology CEOs before him, Zuckerberg has learned to manage diplomatic relations at the leader/summit level with the objective of advancing Facebook’s interests. He has established and maintained close relations with both US presidents who have served over the period of Facebook’s rise to its current global standing: Barack Obama and Donald Trump. He has established close ties to international leaders ranging from Indian Prime Minister Narendra Modi to Philippine President Rodrigo Duterte. However, at a time when the company has been subject to increasing criticism of its negative impact on democratic processes worldwide, Zuckerberg’s closeness to particular leaders has appeared insensitive to public perceptions that the company’s interests do not align with that of the global public’s desire for transparent democratic processes. Both Modi and Duterte, nationalists who have been criticized for condoning violence in their respective countries, used Facebook’s services extensively in their campaigns. In November 2019 news reports circulated that Zuckerberg dined privately with Trump and libertarian technology entrepreneur Peter Thiel in October 2019, even as impeachment proceedings against Trump began in the US House of Representatives charging Trump with demanding that Ukraine meddle in the 2020 US presidential election on Trump’s behalf (Vaidhyanathan 2019). Facebook’s handling of the Cambridge Analytica crisis and subsequent negative revelations has demonstrated that Facebook is still nowhere near prepared to engage diplomatically with governments of the major regulatory powers over crucial issues of potential regulation of the company’s online platforms. Following the Cambridge Analytica scandal Zuckerberg was called to testify before the US Congress and the UK Parliament. He refused to appear before Parliament in person twice and three times denied the request of fifteen national parliaments across the globe to interview him (Wylie 2019, p. 242). Zuckerberg did agree to testify to US House and Senate committees in late spring 2018. His strategy for the Senate hearing was to run down the clock on underprepared US 107

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senators by giving lengthy and rambling answer to their questions. The House hearing did not go as well for him. A standard negotiating tactic for firms facing new prospective regulation from a government is to embrace minimal ‘first offer’ regulation from the government in order to head off pressure for more onerous regulations. Neither Facebook nor Google did this when the EU offered the GDPR, undertaking bare minimum compliance and opposing the spirit of the regulation (McNamee 2019, pp. 201–21). For Facebook this tactic may yet prove to be unwise in dealing with the EU, even if US regulation of the industry remains more lax. In July 2019 the US Federal Trade Commission fined Facebook a record (for the FTC) $5 million fine for mishandling users’ data. Although the fine was a record, for a company generating $55 billion in annual revenue it could be viewed by executives and shareholders as a cost of doing business. The Facebook case reveals the extent of the challenges that large technology firms continue to face as they emerge as actors on the global diplomatic stage. Like Microsoft and Google before, Facebook management have been working to improve their diplomatic capacity and effectiveness, but thus far with limited success, as their ability to address public concerns over the impact of political advertising on democratic processes attests. In June 2018 Facebook hired former US diplomat, intelligence officer, and White House advisor Yaël Eisenstat to serve as head of Global Elections Integrity Ops, to focus on threats to democracy posed by misinformation in political advertising on Facebook’s platforms. Proposals developed by Eisenstat’s team to apply the same integrity standards to advertising that Facebook applies to users’ posts were criticized by senior management, and, feeling not empowered to achieve her assigned mission, Eisenstat left the firm after six months (Eisenstat 2019). After Twitter CEO Jack Dorsey banned political advertising from Twitter altogether in October 2019, over two hundred Facebook employees wrote an open letter to CEO Mark Zuckerberg urging reforms to Facebook’s policies on political advertising such as holding political advertising to the same accuracy standards as other types of advertising and limiting micro-targeting of political ads (New York Times 2019). In response, Facebook took what many regarded as a surprising and disappointing decision to exempt political advertising from the fact-checking that its ‘community standards’ require of other forms of advertising. The company also refused to limit micro-targeting of political ads, a move that critics view as enabling further political polarization of electorates (Newton 2020). Different states, different firms, different diplomacy: China and the West The diplomacy of large technology firms based in China differs significantly from that of firms based in Europe, North America, Japan, or South Korea. China and 108

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the Western powers are polities of a different kind, which is a key reason why diplomacy between them, the mediation of and coexistence with difference, is so challenging. Western imaginings that after Deng Xiaoping’s decision in the 1970s to convert the Chinese economy to a form of capitalism would be followed in due course by the natural evolution of Chinese politics to become like the more democratic politics of Europe and North America were doomed to disappointment. The majority of large technology firms are based either in China or the United States. The governments of these two powers derive authority and legitimacy from fundamentally different sources rooted in cultural, political, and economic history. Whereas authority and legitimacy in the United States spring from the ballot box, the bank accounts of campaign finance funds, and the critical scrutiny of a free and independent media, in China authority and legitimacy spring from government’s ability to provide economic and cultural goods to the public, including jobs and pride in national achievement. Likewise, China’s version of capitalism has its own characteristics, much as characteristics of capitalism in Japan, Germany, and the United States vary. Deng Xiaoping’s economic reforms broke from Mao Zedong’s version of communism by permitting private ownership of property and business enterprises. However, the Chinese government and Communist Party never abandoned their leading function in planning economic development and growth. Deng’s reforms succeeded in creating a powerful private sector and vibrant, thriving entrepreneurial culture in China without ceding the state’s capacity to set economic objectives and to participate in the economy as it sees fit in pursuit of those goals. As China opened to foreign investment, the state set conditions under which foreign firms could participate in China’s economic development, including requirements that foreign firms enter into partnerships with Chinese firms, obligations of foreign firms to transfer technologies to Chinese partners, and limitations on the size of foreign ownership stakes in key Chinese businesses and sectors, such as automobiles. The results of the reform and development strategy that Deng initiated are evident in China’s pursuit in the 1990s and 2000s of the ‘workshop of the world’ exportdriven growth model similar to that of Britain in the mid-nineteenth century and by the United States in the two decades immediately following Second World War. The Chinese government followed the Western model in opening stock markets and encouraging Chinese firms, both private and majority state-owned, to sell shares to the public in China and on global stock exchanges from Hong Kong to London and New York. But China’s large firms, including its major technology firms, differ from firms based in North America and Europe, not least in the nature of their diplomacy with their respective home-country governments. Chinese firms engage in much more collaboration with government in the 109

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service of national planning objectives, which are well defined. Large firms based in the United States and to some degree Europe historically have operated much more independently, engaging in diplomacy with governments on a more transactional, issue-by-issue basis. In Japan and South Korea, large firms in the postwar era (and in Japan during the prewar imperial period) have had more collaborative relationships with government ministries, such as trade ministries, as well as with one another, than firms in North America and Europe have done. In the keiretsu and chaebol systems in Japan and South Korea respectively, firms in different economic sectors formed alliances to achieve business synergies through long-term relationships. Through these partnerships they worked together with relevant government ministries (such as Japan’s historical Ministry of International Trade and Industry) for economic planning purposes. Since the end of the Cold War, economic reforms in both countries have resulted in these close corporate and business–government relationships becoming less formal and less tightly coordinated. The history of large private firms in China and their relationships with government has been very different even from other countries in East Asia. Following the post-1979 economic reforms in China that opened the way to fully functioning private enterprise, both state-owned and privately held large firms emerged. Chinese firms, whether publicly or privately held, have maintained close relationships with government at many levels, including in numerous cases with the People’s Liberation Army. These close relationships have in many cases made it more difficult for foreign firms, even global firms with the market reach of Google or Amazon, to compete successfully in the Chinese consumer market. Like their Western and East Asian counterparts, large Chinese firms have emerged as diplomatic actors in their own right as they have become full participants in global markets. Diplomacy between China and the West is as much about diplomacy between governments and large firms based in each region as it is about diplomacy between the Chinese and Western governments. Although Chinese and Western firms differ in terms of their relationships with government, they share important similarities with one another in terms of their basic corporate objectives: growing profit and revenue, expanding market share, developing and opening new product markets, and being first to market with new products that capture the public imagination. As China’s economy continues to grow, China as an economy and as a trading nation becomes more like the United States and its other major industrial country trading partners every day. In China today consumption is 50 percent of GDP, as opposed to 70 percent in the US, which leaves lots of room for consumption-led economic growth in China. China’s trade surplus, which was enormous during its two decades as workshop of the world and export powerhouse, is declining, with most of what remains being with the US (Politico’s Morning Trade, 19 July 2019). Yet as China’s technological capacities continue to increase, state–firm diplomacy 110

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between China-based firms and Western governments is being focused to an ever greater extent on issues of national security. US and European Union governments are increasingly concerned that close relationships between Chinese technology firms and the Chinese government may enable the Beijing government to use technologies manufactured by Chinese firms for espionage abroad. Attention has focused on Chinese telecommunications behemoth Huawei, which is building out next-generation 5G technology for sale to telecommunications firms around the world. Huawei, which does business in over 170 countries, became the world’s largest telecommunications equipment manufacturer in 2012 and more recently has passed Apple to become the second largest smartphone maker (behind Samsung). Fearing Beijing’s capacity to use Huawei’s 5G technology for surveillance in the United States, the Trump administration has prohibited US components suppliers from selling telecommunications components to Huawei and has prohibited US government agencies from buying Huawei smartphones and other telecommunications equipment. Huawei withdrew from selling in the US consumer market in 2018 as a result. In December 2018 US officials persuaded their Canadian counterparts to arrest Huawei CFO Meng Wanzhou, whose extradition they demanded on charges that Huawei had violated US restrictions on doing business with Iran (Cecco 2019). The ongoing contretemps sparked a minor trade war between China and Canada, in addition to aggravating worsening China–US relations. China’s government detained two Canadian diplomats in China pending Meng’s release. Huawei, for its part, has mounted spirited and persuasive public diplomacy in its own defence, making use of employees from around the world as spokespeople to embody Huawei’s global citizenship and assertion of independence from political authorities in Beijing. The issues of surveillance, espionage, and national security are likely to continue to grow in importance for governments and for large technology firms as new technologies, particularly AI, develop further. The WTO’s rulebook for global trade permits use of trade barriers for national security when required, subject to transparent application of established criteria. Regrettably, US President Trump muddied the validity of national security concerns in the perceptions of other governments and the global public by choosing to use a national security provision in US domestic trade legislation, Section 232 of the Trade Expansion Act of 1962, as a pretext to impose import tariffs not only against acknowledged rival China but also close allies like the European Union and Canada. Trump has further undercut the credibility of US national security concerns by suggesting on some occasions that Huawei’s ability to do business in the United States could be restored (concerns about surveillance and espionage notwithstanding) as part of an overall resolution of the US–China trade war that Trump started. 111

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Technology and state–firm diplomacy looking ahead The major issues that already define state–firm diplomacy involving technology firms will only become more challenging and pressing as automation and AI advance. Antitrust, privacy, and national security are likely to be at the forefront of ongoing diplomatic battles, which may intensify as technology firms improve their diplomatic staffing and negotiating skills. The European Union has already sought to stake out a leadership position on many of these issues. The EU’s 2016 General Data Protection Regulation guarantees EU citizens and residents ownership of their own data, requiring users to opt in to sharing their data with firms, for example. The EU has made its GDPR apply not only within EU member states, but to firms worldwide doing business in the EU, including in the United States (McNamee 2019, p. 259). The EU’s size as a market gave it a diplomatic advantage in modelling global regulation of technology issues, which it has used effectively to date. The greatest concern going forward is that diplomacy between large technology firms and governments may not result in policies or practices that serve broader public interests like privacy, national security, and economic security. George Soros fears that the monopoly power of large technology firms, particularly their power over information distribution, could be used in collaboration with governments against the public interest. Soros (2018) regards US regulation of monopolies as lax relative to that of the EU. The United States, Soros points out, measures monopoly power only by its impact on consumer prices. In markets where technology firms provide many IT goods to consumers free of cash payment, demanding their data as payment instead, it is easy for monopolistic practices not in the public interest to escape effective US regulation. Soros is critical of Russia and China, noting Chinese government support for Chinese technology firms. But there is an even more alarming prospect on the horizon. There could be an alliance between authoritarian states and these large, data-rich IT monopolies that would bring together nascent systems of corporate surveillance with an already developed system of state-sponsored surveillance. This may well result in a web of totalitarian control the likes of which not even Aldous Huxley or George Orwell could have imagined. (Soros 2018) Even with respect to diplomacy between democratic governments and Western technology firms, the case of Facebook demonstrates how ineffective diplomacy can fail to serve the public interest. The Facebook case also illustrates how lack of public understanding of the changed nature of cross-border trade 112

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in data, information, and knowledge impedes firms and governments as they seek to work together diplomatically toward common objectives. The ever more public nature of diplomacy will not protect the public from adverse diplomatic outcomes if people are uninformed or unmotivated to identify and represent their own interests aggressively in the process.

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The costs of inaction A dystopian vision of the future of world foresees the devastation of the environment and economy caused by some combination of war and the climate crisis that has resulted from continued high levels of greenhouse gas emissions and rising global temperatures. At the pessimistic extreme, humans will fail to direct the technology revolution to avert or mitigate the impact of climate change sufficiently fast to prevent the onset of ecological catastrophe. In such circumstances widespread conflict and war over resources will result in the collapse of the global economy as it has become familiar since the nineteenth century, and possibly even human civilization as we think of it today. Under those conditions, trade and commerce would be subordinated entirely to the ends of those who hold political and military power in their zones of influence, and the capacity of diplomacy to limit conflict would be sharply limited. Even if we manage to avert the worst effects of failing to address the climate crisis, the failure of our states and societies to make policy and engage in effective diplomacy will expose society to major risks resulting from our inability to manage the evolution of AI and automation and their impact on the global economy. Our failure to address the climate crisis will postpone the advent of an age of abundance, if it does not preclude it altogether. Many resources are likely to become more scarce. Agricultural output, for example, will be restricted by reduced arable land owing to adverse weather and flooding, higher feed costs for livestock, and lower seafood stocks owing to acidification and pollution of the oceans. Competition between states and between global firms for access to resources is likely to encourage governments to raise trade barriers and limit trade to within blocs dominated by single powerful states, as occurred in the 1930s. Webb (2019) argues that the global economy is already at risk of being redivided into two trading and economic spheres: the West versus China and its 115

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client states. Trade and resource wars between blocs would bear a significantly heightened risk of erupting into military conflict. A global atmosphere in which resource and trade rivalries and conflicts abound tends to favour strong states and strong or authoritarian rulers. In democracies, continuing job losses resulting from automation, in the absence of adequate policies to mitigate the impact on workers, will lead to election of more populists and ultranationalists. In many cases such leaders will seek to short circuit democratic institutions and assert more authoritarian rule. Diplomacy between authoritarian, nationalist governments will be less successful, because it is more difficult. The set of potential mutual agreements between these kinds of leaders and governments is by definition much smaller. Negotiations between authoritarian, nationalist rulers do take place, and agreements at times are reached. But heightened ongoing pressures on populist and nationalist governments by their core constituents will make the ongoing diplomacy required to ensure compliance with agreements and enforcement against violations much more difficult. In particular, diplomatic institutions that do the most to facilitate compliance and enforcement, such as the WTO and the European Union, will become vulnerable to crucial losses of political and diplomatic support from member governments, leaving them at risk of collapse. A lax enforcement environment for global trade rules will not only give nationalist, populist, and authoritarian governments more power to act unilaterally with relative impunity in response to domestic political pressures. It will also permit large technology firms to act independently in their own interest without adequate regulatory oversight to protect the public interest. Webb (2019) has outlined scenarios under which rival technology firms, such as Google and Alibaba, in their drive to obtain and profit from users’ data, will seek increasingly to coerce customers into using their firm’s platform exclusively as a closed ecosystem for all of their activities, from search to shopping and banking to communication and social media. Left to their own devices, AI controlled by large firms in China and the West may act to limit individuals from trading and even travelling between rival economic blocs in a divided world. Advancing AI in the service of private firms consolidating capital in the West or serving authoritarian government officials in China, if not regulated in the public interest, could make life more difficult for individuals in countless ways large and small. AI seeking to reduce healthcare costs by giving discounts for gym memberships could morph into AIs that sound once helpful reminder alarms but that now cannot be turned off until the user checks in at her gym. The so-called ‘internet of things’, initially intended to re-order food automatically from a user’s refrigerator, might decide independently to reduce people’s healthcare expenses by locking them out of their own refrigerators when they seek late night snacks or by preventing them from using their credit cards to buy 116

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liquor (Webb 2019). Items may be programmed to show up in someone’s social media newsfeeds either to shape their perceptions and political preferences or to prevent them from seeing and purchasing goods and services sold by firms outside of the technology firm’s ecosystem of vendors or by firms based in the opposing economic bloc. Webb (2019, pp.  228–29) sketches one particularly chilling scenario under which a superintelligence is developed in China first, under conditions of poor relations and minimal diplomatic collaboration between China and the West, and in which the two sides have separated into closed, exclusive economic systems. The superintelligence then assesses that China’s economy and citizens are becoming imperilled by an increasing shortage of natural resources. Unprompted by its human masters, it begins to appropriate the needed natural resources from the West for China by killing humans in the West. The future is now Avoiding even some less extreme version of these pessimistic scenarios for the global future means making difficult choices now. To craft a sustainable future for human civilization, we need new policies and diplomacy to put them into place and monitor their implementation. Making sensible policies for the future is a political process for governments and their citizenries. It is a managerial process for the managements of large firms on behalf of their shareholders and other range of stakeholders. Diplomacy is the means by which governments, firms, and civil society organizations can negotiate and collaborate with one another to agree upon and implement shared policies in the hope of achieving shared policy objectives. Without effective and sustained diplomacy, prospects for implementing effective environmental, economic, and social policies at anything like a global level are slim. Lest we inadvertently deceive ourselves, there is no silver bullet available to us. Many critical choices will need to be made in the near future. The policy prescriptions explored in this chapter are instrumental-normative in nature: they take the form ‘If you want X, then you should do Y’. We have a series of urgent decisions to make within the next decade. Making the right choices now will earn us the opportunity to make more complex choices that will govern the medium term. The choices before us are choices we must make as individuals, as institutions, as governments, as businesses, in every venue in which we individually and collectively have an impact upon policy making and diplomacy. As individuals, we must make these choices in multiple venues. In campaigns, to which candidates and political organizations to donate money, time, and effort? At the ballot box, for whom to vote? As consumers, which products to buy or 117

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avoid? As investors, which equity shares and bonds, which real property and other investment assets, to buy or sell? For shares that we own, for which corporate directors or slates of directors to vote? As citizens in democratic and non-democratic political systems alike, on which issues to be active and visible on social media or through demonstration and protest? Our individual choices will translate into the governments, leaderships of civil society organizations, and managements of firms that will each in turn have to make policy decisions through legislative, executive, administrative, and regulatory mechanisms. They all then will have to work diplomatically to negotiate shared policies and implement them jointly. The 1994 Treaty of Marrakech, which created the WTO, and the 2015 Paris Climate Accord are examples of this sort of process. But much more will be required, and soon. In the next section, seven of the most crucial near-term choices, and their consequences, are explored. In the section that follows, we examine a few of the more momentous medium-term choices we are likely to face, should we clear the first hurdle by making sustainable choices in the near term. Seven first steps: immediate choices to get us beyond today A set of decisions is already before legislatures and heads of government, CEOs and senior managers, foreign ministries, and negotiators. Making sensible choices on the following key issues is critical to meeting the near-term challenges to the global economy and trade posed by technological change and moving the world to a point where we will be able to address medium-term issues also vital to assuring longer-term survival and success. 1 Avert ecological Armageddon Much of the futurist literature focusing on transformation in AI and robotics does not address the climate crisis directly, whereas the technology focus within the climate change literature explores specific technological ‘solutions’ to exploding levels of greenhouse gases (seeding the atmosphere with shading particles, deploying large-scale orbiting solar shades, etc.). But the key question for the rest of the century probably is not whether or when AI surpasses human intelligence (the singularity), but whether humanity succeeds in averting the impending ecological crisis. The most crucial challenge that we face to ensure planetary survival and stability is to limit further rises in greenhouse gas emissions and the global increase in average temperatures that GHGs are causing. A November 2019 UN report warned that greenhouse gas emissions must fall by 7.6 percent annually 118

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for ten years from 2020 if the Paris Climate Accord target of limiting global warming to 1.5–2°C is to be met (Dennis 2019). Global political comity, economic growth, and open trade are at best subordinate to this first, most important task. But trade and diplomacy are also integral to solving this most serious of problems. Reducing greenhouse gas emissions cannot be done effectively by a single national government, even if it governs an economy as large as that of the United States or China. Working together across borders by definition requires diplomacy, whether it takes place between government actors, transnational firms, civil society organizations, or some combination of the three. The best, most efficient, and fastest way to reduce greenhouse gas emissions is to create further and larger incentives for market economic forces that operate across borders to encourage the adoption of the latest and best green technologies. As noted above, the climate crisis is a global issue, so by definition whatever strategies we adopt to mitigate and avert the climate crisis must involve cross-border economic activity. Direct strategies usually involve governments creating incentives for businesses and individuals to reduce greenhouse gas emissions and/or penalties for not doing so. So far, adoption of incentives and penalties has been most extensive at the domestic level: for example, government financial incentives in the form of subsidies and loans to businesses and individuals to install solar panels. Incentives have already helped to create demand for solar and other renewable power sources at a scale that enables producers to invest in new generation facilities and in research to improve efficiency and lower costs going forward. Direct strategies have also been proposed to mobilize industry and harness market incentives to reduce greenhouse gas emissions at a global level. One approach is a global tax on carbon emissions, which would incorporate the cost of putting carbon into the atmosphere into costs of production of all goods and services. A carbon tax would make industrial and retail consumers pay at the point of purchase for removing the greenhouse gases added to the atmosphere in the production of their purchase. Another is a ‘cap-and-trade’ system, under which producers would be allocated a fixed allotment of permits to emit greenhouse gases, which they would be entitled to use, buy, or sell at a market price depending on their choices of how to produce. These allotments would decline over time, gradually increasing the price of emitting all greenhouse gases. Initiating a viable system of carbon pricing or taxation is a diplomatic challenge in essence. Carbon pricing cannot work unless it is applied globally at a consistent level. If it is not, a market ‘race to the bottom’ would give polluting industries perverse incentives to shift their operations to jurisdictions that maintained the lowest prices on carbon emissions. Thus far, diplomats representing governments advocating these approaches have been challenged in reaching the broad international agreement needed to implement them effectively on a 119

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global scale. Opposition from business interests fearing higher operating costs and reduced profits and, at least until very recently, from fossil fuel industries like oil and gas has been strong. However, a number of firms have begun to modify their positions on carbon pricing in response to shifting consumer and shareholder preferences, which in turn have responded to citizen diplomacy initiatives like the growing climate justice movement. The theme of the World Economic Forum’s January 2020 Davos annual meeting was ‘Stakeholders for a Cohesive and Sustainable World’. Panels and discussion at Davos foregrounded prospective solutions to the climate crisis, highlighting carbon pricing. Seeking to build consensus amongst corporate, governmental, and civil society actors on the urgency of acting collectively, the Forum continued to model the type of diplomacy required to achieve measurable results in a crisis of this scope and scale. Another direct strategy is to negotiate agreements between governments to reduce greenhouse gases within their territories through domestic legislation and regulation. In the 2015 Paris Climate Accord, negotiators reached an agreement under which signatory governments made the commitment to reduce greenhouse gas emissions so as to limit further global warming to between 1.5 and 2°C above pre-industrial levels and decided for themselves how to meet their obligation. Governments are held to their overall reduction commitments by their fellow signatory countries through monitoring and benchmarking rather than through legal penalties: ‘name and shame’, if you will. It remains to be seen whether this strategy will be successful in meeting the agreement’s targets. Some polities, including EU member states and some Canadian provinces and US states, had already chosen to implement cap-and-trade systems even before making emissions reduction commitments at Paris. Direct taxation of emissions has not yet been widely adopted. Beyond these direct strategies, one of the most practical ways to create crossborder incentives would be to incorporate greenhouse gas reduction and climate mitigation objectives into trade diplomacy and the agreements, rules, and institutions that diplomacy produces. Over several decades, trade diplomacy has been an expanding tent under which governments have negotiated and agreed to include a growing range of economic and social issues under the rubric of global trade. The logic of those favouring expanding the tent has been that governments should not be able to lower (or perpetuate lower) socially valued standards, such as protection of labour rights, health and safety standards, and the environment, to gain cost advantages for their exports or to underprice imports. One of the reasons that trade agreements have been considered more effective than other types of international agreements, for example, on labour and environmental standards, is their enforceability. Trade agreements contain dispute settlement mechanisms with effective means for retaliation against violations that do not require an external enforcer.

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The movement to expand the trade tent has found political support in countries with historically divergent interests. Developed country industrial workers fearing job losses to ‘sweatshops’ in developing countries found common cause with ‘sweatshop’ workers in developing countries seeking safer, more humane working conditions. Hence under the capitalist, neoliberal globalization process of trade liberalization was a diplomatic mechanism through which workers of the world might unite, in the Marxian sense. An early example of the diplomatic process of expanding the tent was the negotiation of provisions in the 1994 NAFTA treaty requiring Mexico, Canada, and the United States to enforce the environmental protections and labour protections that already exist in their own domestic legal codes. The advantage of expanding the trade diplomacy tent to include other socially valued issues is that views on which issues should be considered trade-related, and to what extent, vary widely between sovereign governments. Domestic political opinions within each country on what should be considered a trade issue also vary significantly and change regularly (and sometimes quite rapidly). Negotiating and institutionalizing ongoing trade agreements without an expiry date and that include a broad range of socially valued issues reduces the risk that complex diplomatic bargains may be undone by a shift in the political mood of a single major country or the scheduled expiry of a treaty. One of the reasons the global trade tent has been able to be expanded is because in the half century following the Second World War cross-border economic activity encompassed a growing portion of the global economy. Provided that the definition of trade keeps expanding, this expansion of cross-border flows may continue, even if large, rapidly industrializing countries like China and India trade increasingly within their own borders. Business lobbyists, elected officials, and diplomats alike are always searching for potential barriers to expanding exports and are ready to consider another potential concession with which to deal for what they want. Another reason is that the institutional design of the WTO is particularly well adapted in principle to foster the type of diplomacy at the multilateral level required between sovereign governments to encourage a credible level of compliance with a negotiated and agreed rulebook. The prospect of more open trade offers sufficient incentives to enable each government, and the private interests for which it speaks, to make a flexible range of concessions to secure and protect trade-promoting concessions that it seeks from others. Whilst nothing would please US President Trump and his coterie of ultranationalists and populists more than to incapacitate or destroy the WTO, or at the least to see the United States withdraw from it, they face powerful opposition to that goal within the US government, global and domestic businesses, and from US trade and security partners.

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Two potential diplomatic strategies for incorporating climate objectives into trade agreements are available in the short term. No obstacles exist to their both being pursued simultaneously. The first strategy is for WTO member states to add climate objectives to the WTO multilateral negotiating agenda. As of the time of writing, a WTO multilateral negotiating round is not underway, and there are no plans to initiate a new round imminently. Moreover, both the European Union and the United States governments, albeit for different reasons, are pressing for institutional reforms to the WTO. Thus the WTO multilateral route may not be the fastest approach to addressing the climate crisis through trade rules. In some respects, climate is likely to be a thorny as a trade issue in the WTO for the same reasons that other development issues already are. Developing countries generally argue that their development needs warrant exceptions to trade liberalization obligations that, they contend, it is less costly and socially divisive for industrial countries to meet. The governments of China, India, South Africa, and Brazil argue they need to continue to burn still relatively cheap fossil fuels like coal (and even cut down rainforests to increase available agricultural land, in Brazil’s case) in order to catch up with the industrial world. Yet at the same time, many of the poorest, least developed countries are those at greatest risk from climate change. Low-lying states like Bangladesh and island states like the Maldives are threatened by inundation and permanent exile of much of their populations. The fact that developing countries do not share a common position or agenda on climate change opens the possibility of tradeoffs in negotiations to bring climate mitigation commitments under the purview of the WTO. Most countries in the world (the United States being the most notable potential exception at present) are signatories to the 2015 Paris Climate Accord, which commits signatories to voluntary reductions in greenhouse gas emissions subject to international monitoring and reporting. Although greenhouse gas reductions are not legally binding under the Accord, for a country to fail to meet its commitments whilst other countries are meeting theirs already might be interpreted under WTO rules as granting the failing country an unfair cost advantage in production of goods and services relative to the others. Whether a trade complaint based on the respondent’s non-implementation of Paris Climate Accord commitments would stand up to scrutiny under the WTO’s Dispute Settlement Mechanism remains to be seen. Given that as of March 2019 195 countries had signed the Paris Accord, however, it should not be a heavy lift to include meeting greenhouse gas emission commitments as an obligation of fair trade in the next WTO multilateral round. Including GHG reduction obligations could even be a worthy reason to convene a new WTO round, perhaps in conjunction with ratification of institutional reforms to the WTO (see item 3 below). 122

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In the meantime, the second strategy is for pairs and groups of states to incorporate climate objectives into newly negotiated bilateral and regional trade accords. Most innovations in trade liberalization agreements over the past decade have been negotiated in regional and bilateral agreements, as the WTO’s Doha Development Round of multilateral talks sputtered to a largely inconclusive end. In contrast to the bullying and grandstanding rhetoric of the Trump administration in the United States, the European Union and Japan have taken the lead in regional trade diplomacy. Examples of note include the 2017 EU–Canada Comprehensive Economic and Trade Agreement, the 2019 Japan–EU Economic Partnership Agreement, and the Japan-led eleven-nation 2018 Comprehensive and Progressive Trans-Pacific Partnership (TPP-11), which skilled Japanese leadership salvaged after Trump’s withdrawal from the original TPP-12 in 2017. Increasingly, these new regional agreements codify signatories’ climate commitments as trade commitments. For example, Article 24.4.2 of CETA states: ‘Each Party reaffirms its commitment to effectively implement [sic] in its law and practices, in its whole territory, the multilateral environmental agreements to which it is party.’ Likewise, Article 16.4.2 of the Japan–EU agreement states: ‘Each Party reaffirms its commitment to effectively implement in its laws, regulations and practices the multilateral environmental agreements to which it is party.’ As with the regulation of data privacy and other information and knowledge trade issues, the European Union has taken a leadership role in incorporating climate objectives into trade agreements. In July 2019 then newly nominated European Commission president Ursula von der Leyen proposed that the European Union impose a carbon border tax under which imports into the EU would be taxed based upon the quantity of greenhouse gases emitted during their production (Politico’s Morning Trade, 17 July 2019). As long as the EU does not tax domestically produced goods and services differently, the proposed new tax should not fall afoul of existing WTO regulations. Through von der Leyen’s proposal the EU is effectively modelling how a multilaterally negotiated carbon tax might function. US Senator Elizabeth Warren of Massachusetts, a 2020 Democratic Party candidate for the US presidency, has endorsed the same carbon border tax as part of her trade policy platform (Warren 2019). It is important to note that not all greenhouse gas reductions commitments under trade agreements will result in more trade. Some domestic policies intended to lower GHG emissions may lower cross-border trade volumes. As noted above, urban farming, which produces fresh fruits and vegetables close to where they are consumed, is one such example. Successful urban farming, which would lower emissions from long distance transport of agricultural products and from agricultural waste, depends upon lowered costs for energy-efficient LED lighting for indoor growing. Lowering the costs of LED lighting through research and volume production in turn requires domestic regulation mandating use of 123

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energy-efficient lighting. For example, 2007 US energy efficiency legislation resulted in LED lighting doubling in efficiency and falling in cost by 85 percent over a few years. At the time of writing, those regulations were in danger of being rolled back by the Trump administration (Reiley 2019). 2 Stabilize diplomacy between China and the Western powers The success or failure of diplomacy between China and the West will be a defining cornerstone of the future of international trade and the development of AI. If diplomacy is the art of managing relationships with others, despite differences, to maximize mutual gains and minimize conflict, then no set of diplomatic relationships are more important going forward than those between China and Western governments. The pattern of the 2010s was for the integration of Chinese-based and Western-based economic activity to continue to expand through trade in goods, services, capital, labour, data, information, and knowledge, even as expansion of global value chains appears to have plateaued after around 2012 (see above). Cross-border investments involving China and China-backed economic development initiatives in developing countries have continued to expand. At the same time, however, the nature and warmth of diplomatic relations between China and different Western powers has diverged substantially over the past decade. Overall, relations between China and the European Union remain generally good. EU member states such as Greece have welcomed Chinese investments as they have rebuilt their economies following the turbulence that resulted from the  2008 Great Recession. Relations between China and Russia have warmed steadily, as leaders Vladimir Putin and Xi Jinping have found more and more common interests. Yet relations between China and the United States have deteriorated substantially since 2017 under Trump administration security and trade policy initiatives. Blame for the diplomatic slide lies on both sides; as Webb (2019, p. 7) argues, burgeoning Chinese ambitions have been met by US ineptitude: Xi’s endgame is abundantly clear: to create a new world order in which China is the de facto leader. And yet during this time of Chinese diplomatic expansion, the United States … turned its back on longstanding global alliances and agreements as President Trump erected a new bamboo curtain. China’s own national security strategy, whilst rational in light of its emergence as an economic superpower, has contributed to the worsening of diplomatic relations with the United States. Expanding Chinese territorial claims 124

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to surrounding coastal waters as its naval capacity has expanded has caused increasing concern not only in Washington and other Western capitals but also to Japan, the Republic of China government on Taiwan, and China’s AsiaPacific developing country neighbours such as Viet Nam and the Philippines. A range of Trump administration accusations, blaming China’s government for not adhering to WTO rules, using Chinese firms to engage in espionage, and compromising US national security interests through controversial investments in US firms, culminated by late 2019 in a worsening trade war characterized by tit-for-tat retaliatory actions. In the Huawei case, Trump’s government has forced Canada, whose relations with China have been more like Europe’s, to make difficult choices arguably against Canada’s own interests. Given this deterioration, it is unsurprising that a tipping point in which substantive, longer-term economic relationships between China and the West are negatively affected may be at hand. As noted previously, China’s already massive economy will continue to become more self-sufficient as it continues to grow. Many of China’s largest technology firms, such as Baidu, Tencent, and Alibaba, already generate the vast majority of their revenue through sales to Chinese consumers. China’s expanding middle class will likely follow their Western counterparts in increasing their consumption of goods and services but at the same time shifting their mix of goods and services consumed toward less resource-intensive products. Chinese millennial and Generation Z consumers, like their counterparts elsewhere in the world, are likely to seek out more experiences and fewer ‘things’. Chinese energy consumption, already shifting toward renewable sources more rapidly than expected owing in part to the stronger part played by state economic planning in China, will likely continue to shift, eventually reducing prospective demand for imported fossil fuels. Hence other things being equal, China’s dependence on trade for economic growth should decline, and China’s overall trade with the rest of the world may decline as well, as Chinese consumers consume a greater share of China’s production. This baseline assessment suggests that a worst case scenario, in which diplomatic relations between China and the West deteriorate, resulting in the erection of higher barriers to trade and investment under the rubric of safeguarding national security, may not be crippling economically either for the West or for China. However, the enacting of such policies by governments and their implementation through a defensive diplomatic strategy would be lose-lose for all participants, in that most of the prospective gains from continued cross-border economic activity, extending from trade in goods, services, data, and information to investment and to scientific collaboration on issues such as AI, would be sacrificed. Chinese firms large enough to function as diplomatic actors in their own right have and will continue to have strong incentives to work to ensure that barriers to cross-border trade, investment, and data flows remain 125

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75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 1979

1990

2000

2006

2010

2015

2017

Years

China’s trade–GDP ratio over time, 1979–2017 Source: Macrotrends, ‘China Trade to GDP Ratio 1960–2019’, https://www.macrotrends.net/ countries/CHN/china/trade-gdp-ratio, accessed 10 December 2019. Infographic: Austin Barnes.

as low as possible, notwithstanding official Chinese government policies. These firms’ growth prospects are integrally linked to expanding global markets for their products, participating in global supply chains, and having access to global sources for inputs when required. The struggles of Chinese telecommunications firms Huawei and ZTE against US government efforts to exclude them from US and other foreign markets in 2018 and 2019 on grounds that their close relationships to China’s government pose a national security threat to Western countries are indicators that this continues to be the case. Large Western manufacturing firms, such as German-based Volkswagen and US-based General Motors, have demonstrated the success of doing business in China and the need for access to the Chinese market to grow their revenue and profits. In 2019, Tesla Motors built a factory in China to produce electric vehicles for the Chinese market in only ten months. Yet major Western technology firms such as Google and Amazon have not experienced much success in Chinese markets up to now and remain eager to do business with over a sixth of the world’s consumers. Access to Facebook’s platforms for most Chinese users has been prevented by China’s government, owing to Facebook’s unwillingness to allow Beijing to regulate what content Chinese users may view on its platforms. China has adopted a diplomatic strategy focused broadly on expanding trade and investment across Eurasia and globally. The Belt and Road Initiative (BRI) 126

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seeks to develop infrastructure for rail, roads, and ports and to provide development assistance to less developed countries across the Eurasian continent. China’s BRI extends even to promoting the expansion of trade and investment with EU member countries, such as Greece and Italy. In Africa, China has provided development assistance to a group of countries intended to build enduring bilateral trading and investment relationships. With Chinese government development assistance funding amounting to close to $2 trillion since 2005, Chinese firms have invested primarily in transport, energy, metals, and real estate, in a wide range of sub-Saharan African countries, with Nigeria, Ethiopia, Angola, and Kenya in the lead (American Enterprise Institute 2019; Sow 2019). Yet with Chinese investments have come diplomatic expectations. In 2011 South Africa’s government faced a firestorm of domestic and international criticism for bending to the Chinese government’s request that they deny a visa to the Dalai Lama to attend the eightieth birthday party of his good friend Archbishop Desmond Tutu. China’s strategy has included sponsoring creation of new multilateral development institutions to function as alternate sources of development finance to the established Western-dominated Bretton Woods institutions. In 2014 China launched the Asian Infrastructure Investment Bank (AIIB) with nine other founding member countries and initial capitalization of $100 billion. The bank, headquartered in Beijing, now has nearly 100 member or prospective member countries, including Canada and many European states. In 2016, China and fellow BRICS members Brazil, Russia, India, and South Africa launched the New Development Bank, also with $100 billion in initial capitalization and headquartered in Shanghai. China’s own Export-Import Bank, founded in 1994, is estimated today by US sources to provide more concessionary financing to purchasers of Chinese exports than analogous institutions in all the G-7 countries combined. Key Belt and Road Initiative statistics BRI agreements signed by China and participant countries

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BRI agreements signed by China and international organizations

29

Goods volume traded between China and participant countries 2013–18

>$6 trillion

Average growth rate

4%

Chinese firms’ direct investment in participant countries 2013–18

>$90 trillion

Average growth rate

5.2%

Currency swap agreements signed between China and participant countries

20

Renminbi currency clearing arrangements established

7

Bilateral e-commerce cooperation mechanisms signed

17

Export credit insurance issued by China to participant countries

$600 billion

Source: Telegraph (2019).

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The trade and investment policies and diplomacy of China’s government and of Chinese-based large firms demonstrate that China’s interests lie in expanding trade and investment rather than in creating a ring-fenced economic zone consisting of China and exclusive client states. However, the Chinese model of capitalism enables government, firms, and China-dominated multilateral organizations to work closely together to concentrate their shared advantages in pursuit of mutual interests, arguably to a considerably greater degree than in the West or in many developing countries. For Western governments, the diplomatic challenge is to maintain engagement with China so as to facilitate collaboration on areas of critical shared interest, such as managing the safe and orderly continued development of AI and the future development of superintelligence. These goals are in China’s interest too. Hence maintaining engagement need not and must not be at the cost of abandoning the quest for a level playing field for rules-based international trade and investment and for technology security. China has emerged as a fierce and formidable competitor in many product markets and in terms of technology leadership. By joining the WTO in 2002, the Chinese government demonstrated that they had learned to play the game as the United States, Japan, and the EU had done earlier. Large trading powers not only benefit from a rules-based trading system, but they get to bend and break the rules when they deem it in their interest to do so, at least up to a point. The choices that governments, managers of firms, and individuals in both China and the Western powers, as well as in other states with important relationships with China, over the next few years collectively will shape the type of diplomatic relationship that exists between China and Western powers when key decisions need to be made together concerning potentially dangerous issues such as the development of artificial general intelligence and superintelligence. A diplomatic relationship in which all major powers, including China, remain committed to a set of norms and rules governing international trade – crossborder flows of goods, services, and information  – is a stable platform for finding mutual interests and mediating interests that differ. This holds true as long as participants are seen to be making enough effort to observe the rules and norms of the system as to make their general commitment to the system credible. Whilst some measure of cheating on international trade rules is inevitable, the successful functioning of institutions such as the WTO and regional trade agreements rests on the general perception that all members benefit from a broad measure of compliance, relative to what conditions would prevail in the institutions’ absence. It will likely remain the case that the largest powers – the United States, China, and perhaps the European Union – will violate aspects of their WTO commitments more frequently than other members. Yet the survival of the WTO and its rulebook as an institution depends on China and the United 128

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States’ public commitment to the WTO’s dispute settlement process and willingness to adhere to its judgements. 3 Reform trade diplomacy’s key institution: the World Trade Organization Since its creation in 1995, the World Trade Organization has been an overwhelming success as an institutional platform for maintaining and enforcing the multilateral rules of trade diplomacy. The WTO’s successes, particularly in its judicial functions, have themselves generated opposition to the body, particularly when Appellate Body rulings go against governments of large member states like the USA, EU, and China. As the failure of the Doha Development Agenda suggests, the WTO’s record of perpetuating trade liberalization is more uneven. The best solution to these problems is for reforms to reinforce and expand the WTO’s authority of the WTO over global trade. This expansion of authority would encompass both what is included under the rubric of trade and the institutional capacity to govern it. In the case of the WTO, member states would see it as in their interest to continue to expand their shared understanding of which areas of economic policy affect cross-border trade. Over the past several decades, that understanding of trade-affecting policies has expanded from tariffs and other at-the-border trade barriers (e.g. quotas, export subsidies, etc.) to include investment policies, intellectual property protection, labour and environmental protection, and behind-the-border regulatory measures such as health and safety regulation and government procurement policies, to name only a partial list. Additional policies that might come under the purview of a reformed WTO looking ahead could include policies on cross-border data flows, climate change mitigation, and cross-border labour flows related to trade in services. A WTO member state’s refusal to implement the obligations of the Paris Climate Accord can easily be interpreted as giving that state’s businesses an unfair advantage in international trade, relative to businesses in countries that do comply with the Paris Accord. Mitigating climate change involves both direct costs to businesses in meeting regulation, which may make their products less competitive than otherwise, and costs to governments that must be passed on to businesses and individuals in the form of taxation. In this scenario, WTO members would also need to reinforce and strengthen the WTO’s institutional structure and capacities. At the very least, the process of appointing jurists to the Dispute Settlement Mechanism’s Appellate Body would need to be revised so as to protect the institution from obstruction by any single member government or small group of governments. But a number of proposals for stepping up the WTO’s institutional capacity that extend well beyond dispute resolution have been advanced. One route to reform, but not the only one, 129

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is to reform the WTO’s institutions to make them resemble and function more like the institutions of the European Union. The EU is unique as a structure of governance in that it is at once both diplomatic and political. It is diplomatic in the sense that it must mediate differences between sovereign member countries that are not fundamentally subordinate to it (in contrast, for example, to the South African provinces, the governmental powers of which are constrained by Chapter 3 of South Africa’s 1996 Constitution). It is political in the sense that its institutions must legislate and administer policies and adjudicate disputes concerning matters over which the EU has jurisdiction in the way that any government must do:  by mediating between different configurations of interests with varying distributions of power amongst them. Proponents of EU-style reform of the WTO’s institutional structure argue that the GATT/WTO model of epically huge, long-term multilateral trade liberalization rounds as the core approach to legislative diplomacy no longer serves the global trading system well. The meagre harvest of the Doha Development Agenda, the latest and longest GATT/WTO multilateral round, suggests that economist Jagdish Bhagwati’s ‘bicycle theory’ of trade liberalization (the bicycle must move forward or else it falls flat) was either off the mark, or else the bicycle has fallen over, leaving trade liberalization in search of new transport. Diplomacy within the EU, like much of the rest of diplomacy, happens on an everyday basis: communicating about interests, mediating differences, resolving disputes, negotiating better ways to work together. The WTO Secretariat is already engaged in aspects of this executive function. Through processes such as the Trade Policy Review, the WTO Secretariat monitors members’ trade policies on an ongoing basis, much as the European Commission monitors member states’ compliance with EU regulations. The WTO Secretariat could be reimagined as the Global Trade Commission. The Commission’s legitimacy could be enhanced by member states selecting its commissioners to run directorates (e.g. enlargement, external relations, regulatory harmonization, etc.), much as each EU member state nominates a commissioner to the European Commission. The European Union has increased its accountability to the peoples of Europe by increasing the authority and responsibilities of the European Parliament. The WTO could meet its own transparency and accountability mandate by creating a Global Trade Parliament that would be comprised either of directly elected representatives or teams of sitting member country parliamentarians (Hoekman 2012, pp. 756–57). A form of popular representation is already taking place at the WTO through networked parliamentary consultations hosted by the InterParliamentary Union and the European Parliament in Geneva and at WTO ministerials. A  standing trade parliament would provide an even more open mechanism for interests to petition on behalf of their agendas. It would also give greater legitimacy to a legislative process in which liberalization or normative 130

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policy objectives could be enacted on an everyday basis, rather than as part of a now all but impossible to achieve multilateral round. In a parliamentary body, transnational firms and civil society organizations could be represented consociationally at the WTO by being allotted their own representatives without undermining the sovereignty of member state governments. A WTO Commission and Global Trade Parliament would work together diplomatically to legislate on an ongoing basis. One of the reasons the GATT and WTO have enjoyed the diplomatic success they have achieved to date is that member states’ sovereignty has been respected. The WTO has been known as a ‘member-driven’ organization. WTO executive authority is vested in the Council of Ministers, which customarily convenes biennially. In Europe, executive authority is vested in the European Council. An EU-inspired WTO Council of member states’ trade ministers would be the body to approve legislation produced by the Commission and Parliament, preserving the crucial sovereignty of states as WTO constituent members. The Council could meet through biennial ministerials, as occurs today. Today, the Council of Ministers takes decisions by informal consensus. If voting became the norm in a reformed WTO rather than the current approach, it would be in the WTO’s interest to adopt some form of the European Council’s qualified majority voting (QMV) approach, which would take into account the size and trade volumes of states whilst protecting the interests of the smallest and poorest members (Hoekman 2012, p. 752). The EU’s approach to QMV has been a relatively successful voting system, in contrast to the Electoral College in the United States, which has played such a capricious role in recent US presidential elections by valuing votes cast in different US states so unequally. An EU-inspired WTO system would enable the diplomatic rulebook for global trade to be maintained and, when required, revised on an ongoing basis. One of the reasons that the process of GATT/WTO multilateral trade negotiating rounds has broken down has been the increasingly difficult task of reaching a political ‘grand bargain’ that balances members’ interests on every issue. Under a reformed WTO system, members instead could trade support on issues intertemporally on an ongoing basis: member A would make a concession to member B on an issue today, and in return B would make a concession to A on a different issue next month. To make major changes and to approve changes to the WTO’s founding principles, the WTO could hold an inter-governmental conference (IGC) as the EU does on an extraordinary basis. Under this same scenario, regional trade agreements other than the EU would be likely to follow the lead of the EU and the African Union in developing further their diplomatic institutions of governance and in extending their remit over trade-related policy issues. This might occur either as a result of the successes of WTO reforms, which could model approaches applicable at a regional level, 131

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or in reaction to a breakdown in efforts to reform the WTO. In a sense, the rise of regional trade liberalization and institutionalization since the 1980s occurred because the momentum of global trade liberalization conducted multilaterally under the WTO slowed, as witnessed by the minimal results achieved in the Doha Development Agenda multilateral negotiating round 2001–15. When the postwar process of multilateral trade liberalization began under the GATT, it constituted by far the largest share of trade liberalization activity. Governments undertook most tariff reductions multilaterally in the early decades of the GATT under the auspices of the GATT agreement. They extended their greatest tariff cuts to all fellow GATT signatories:  this was the meaning of most favoured nation status. GATT Article XXIV, which regulated the terms under which GATT members could adopt regional free trade areas, was considered very restrictive. The European Economic Community (later the European Union) was the first major exception to the pattern, in that EEC member states ended all tariffs and eventually other trade barriers between themselves. But by the 1980s and 1990s, bilateral and regional free trade agreements and preferential trade areas were becoming a norm rather than the exception. By the second decade of the twenty-first century, WTO-level tariffs are the worst (highest) tariff rates many countries offer to their trading partners rather than the best (lowest). (This explains the fear of a ‘no deal Brexit’, in which at least parts of the hitherto United Kingdom would find themselves outside of the European Union without a trade agreement with the EU. In that case tariffs on English goods entering the EU would rise to the levels that the EU charges those trading partners in the WTO with which better trade agreements, e.g. with the European Free Trade Association [EFTA], Canada, Japan, etc., are not in force.) Regional trade bodies might evolve greater powers, as the EU institutions have done, moving them toward broader regional economic governance. The African Union, for example, has undertaken responsibilities for African security integration, a process without which greater economic integration of Africa would be very difficult. Responsibilities for environmental (especially climate) protection should be taken up under this process. At its best, a reformed WTO itself could evolve into a functional global economic governance body based on the principle of governance as ongoing diplomacy between sovereign states rather than between more local polities subordinate to a central government. The WTO offers an existing structure with an institutional history naturally adaptable to encompassing more areas of economic governance under the umbrella of trade. With reformed institutions, the WTO would offer a suitably structured venue for diplomatic negotiation of the rules and regulations governing cross-border flows of goods, services, capital, and labour, as well as data, information, and knowledge. 132

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4 Develop global collective norms, policies, and institutions for controlling the development of technology, data flows, and AI The most transformative advances in the process of diplomacy achieved over the past century have been the establishment of institutions to serve as venues for diplomatic representation, communication, negotiation, and dispute resolution. Diplomatic institutions may not have the glamour of high stakes bilateral summit meetings, but they are where the heavy lifting of diplomacy gets done. Institutions like the United Nations and the European Union have restructured and facilitated the conduct of diplomacy on global and regional scales. Trade diplomacy in particular has benefited from these processes of institutionalization and judicialization of diplomacy. From the Brussels Sugar Convention of 1902, which created the Permanent Sugar Commission to oversee liberal multilateral trade in a single commodity, to the 1947 General Agreement on Tariffs and Trade, the rulebook for multilateral liberal trade, to the 1994 Treaty of Marrakech, which created the World Trade Organization to administer the GATT and further liberalize global trade, diplomacy to liberalize trade has been transformed by successful institutions (Pigman 2016, pp. 102–231). One of the greatest successes of these institutions has been the inclusion in their design of formal mechanisms by which they may revise and update their scope, structure, rules, and membership, giving not only governments but transnational firms and civil society organizations confidence that basic norms, rules, structures, and judicial processes will persist over time rather than expiring at the end of a treaty of fixed duration. Robust institutions to facilitate diplomacy are crucial to meeting the diplomatic challenges facing the global economy and society as artificial intelligence continues to evolve and as the advent of superintelligence draws nearer. We need diplomatic institutions that are prepared to mediate the development and implementation of collectively shared norms and policies to govern the impact of AI and superintelligence on humanity: access, privacy, and security issues in the short term, and the alignment of the goals and objectives of superintelligence with our own goals and objectives in the medium to long term. The first step toward strengthening this institutional structure is to reform the WTO to meet the new challenges of digital trade, as noted above (see Chapter 5). Many recent regional and bilateral trade agreements, including the EU–Canada Comprehensive Economic and Trade Agreement, already contain provisions governing trade in data, knowledge, and information. Diplomatic governance of global trade has arguably been more successful than any other functional area of global governance, because of the effectiveness of the WTO’s legislative and judicial processes. Hence there is a compelling case for incorporating technology-related diplomacy under the auspices of 133

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trade diplomacy, specifically by making meeting agreed technology governance standards part of the set of obligations of fair trade to which WTO member countries and businesses in those countries must adhere. However, the WTO and regional trade agreements by themselves may not provide enough of a specialized diplomatic venue with commensurate resources to facilitate technology diplomacy at the level needed. Former NATO Secretary General Anders Fogh Rasmussen fears that China and other non-democratic governments may collaborate to set standards for global digital flows that will harm the interests of democratic governments and their citizens. Rasmussen has proposed creating an Alliance of Democracies to negotiate multilateral digital policies in their common interest. The Alliance would seek to reach a Global Agreement on Data Flows, containing institutions and mechanisms to police and enforce its digital policies, and that could evolve into a World Data Organization (Rasmussen 2019). Amy Webb (2019, pp. 155–57) shares Rasmussen’s view of an emerging contest between the West and China for leadership in the development of AI. Webb contends that the United States government should lead an international diplomatic coalition to contain and counter China’s drive for AI dominance. In order to be effective in this undertaking, she argues, the US government must become more like the Chinese government by following China’s model in investing in AI. The six US-based technology firms Webb calls the G-MAFIA should form a coalition committed to developing AI to serve the public interest in democratic society. At a US-hosted intergovernmental forum of democracies to address how to work together on AI, Webb argues, Western governments and firms should agree to create a Global Alliance on Intelligence Augmentation (GAIA), which would ensure that AI development remains consistent with human and democratic values. Under GAIA, the G-MAFIA would be custodians, not owners, of AI. GAIA, which should prioritize safety over speed of development, would have inspection and compliance powers, as well as the power to make the decision in the public interest of when to enable AI to accelerate to superintelligence (see below) (Webb 2019, pp. 158–68). We need to understand this as an essentially diplomatic imperative. Governments with as different diplomatic agendas as the United States and China have pursued institutionalization of diplomacy for the fairness it promises, the stability it offers, and the possibility of future gain it always holds. As China modernized its economy and grew rapidly in the 1980s and 1990s, instead of spurning the Western diplomatic institutions in favour of something different of their own creation, the Chinese government set as a top priority China’s admission to the WTO (achieved in 2002). More recently, however, US President Trump and his cadre of anti-trade, anti-diplomacy advisors have made clear their opposition to the WTO from the start of the Trump presidency and have targeted in particular the WTO Appellate Body, which hears 134

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appeals of WTO trade disputes. The shifting interest of no country, including major trading powers like China or the United States, should be permitted to obstruct or destroy the continued functioning of critical diplomatic institutions like the WTO. The African Union, membership of which is open to all African countries, has membership rules under which a member country that violates major norms of membership, such as undemocratic or violent transfer of power, is suspended from AU membership and its benefits. The WTO should consider adopting a similar rule, which would impose a substantial risk of deprivation of trade benefits to member countries that seek to disable or destroy the WTO’s institutional structure. 5 Continue to scale up the diplomatic capacities of big technology firms The ability of large technology firms, whether based in China, the United States, Europe, or elsewhere, to negotiate effectively with governments, civil society organizations, and other diplomatic actors to address the crucial shortand medium-term global policy issues that we face depends upon these firms developing the organizational and staffing capacity to do so. It also requires CEOs and other senior management of each firm to understand the parts they play in diplomacy, much as heads of government and foreign ministers of states do. As well, senior management must grasp what is needed to lead the offices and staff in their firms that function as the functional analogues of a state’s foreign ministry, trade ministry, and finance ministry: offices of government relations, global public policy, and public relations. As noted above (see Chapter 5), firms like Microsoft and IBM responded to major diplomatic challenges in the form of antitrust suits in the United States (and, in Microsoft’s case, in the EU) by developing and expanding rapidly their diplomatic staffing and their capacity to think, to act, and in particular to negotiate diplomatically. Victims of their own success and rapid growth in their respective marketplaces, the senior managements of IBM and Microsoft responded effectively, lobbying, negotiating, and making appeals to the public, and making concessions sufficient to prevent major emasculation or wholesale dismemberment of the firms by government regulators or courts in any country. In doing so they demonstrated that technology firms can meet the diplomatic challenge that inevitably comes with their success. The most recent generation of large technology firms has thus far shown a much more inconsistent record of developing and expanding needed diplomatic capacities. In one sense, Chinese firms already face an added challenge of having to engage in a structure of firm–state diplomacy that is already conditioned by Western, largely democratic governments and the expectations of government 135

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oversight and regulation that citizens of Western countries have. That said, several Chinese technology firms have done better than might have been expected. By the late 2000s, for example, Jack Ma, Alibaba’s founding CEO, had become a regular at the World Economic Forum’s Davos annual meeting and at the Forum’s Asian regional meeting in Dalian, China. The Forum is an optimal venue for state–firm diplomacy to take place, through informal meetings, networking, information exchange, and teaming up on public–private partnerships to solve global problems. Since telecommunications firm Huawei was accused of not meeting national security expectations in the United States in 2018 with respect to the rollout of 5G telecommunications network technology, its officials in North America and Europe have responded carefully and thoughtfully in terms of how to engage with the Western public. Other US technology firms, including Facebook, Google, and Amazon, have experienced a much more difficult ramping up of diplomatic capacities, leading to calls from legislators across the US political spectrum for significantly greater regulation in the public interest. Some US Democratic Party 2020 presidential candidates, including Massachusetts Senator Elizabeth Warren, have called for large technology firms to be broken up. Amazon is facing increasing criticism that its operation of the dominant online e-commerce platform in North America and Europe and its practices competing with other private sellers on its platform constitute a fundamental conflict of interest. These firms are undertaking major efforts to increase staffing in the offices that constitute their diplomatic capacity, particularly with respect to relations with the US federal government in Washington, DC. However, increased staffing alone will not address their lack of diplomatic capacity in the absence of clear diplomatic thinking from the C-suite down. In some cases this may require a change of CEO or other senior executives. Technology firms are entirely private entities in most cases, even if Chinese firms Baidu, Alibaba, Tencent, Huawei, ZTE and their like enjoy much more intimate relationships with their host governments than their Western counterparts. Hence the motivation to scale up and improve each firm’s diplomatic capacities as rapidly as possible must come from their owners, the shareholders. This places a particular burden to lobby for change on the shoulders of the large institutional shareholders of the major tech firms: pension funds and mutual funds like CalPERS and TIAA-CREF. Individual shareholders in these funds can play a part in bringing public pressure on their fund managers to demand that tech firms improve their global public policies and diplomatic capacities. 6 Promote domestic social policies to ensure freedom from material need If democratization has tightened the link between domestic social and economic policies and global trade policy and diplomacy, the revolution in information 136

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and communications technologies has made them inseparable. History has demonstrated repeatedly that people who are well off materially with reasonable assurance that their standard of living will be maintained throughout the course of their lives are less likely to turn to identity politics to articulate their political grievances and to form the backbone of populist political movements. If these same individuals are granted freedom to travel, freedom to express themselves and to make reasonable political choices, they are more likely to remain supporters of public policies geared to promote open trade and responsible management of technology, particularly AI and superintelligence. They will be natural backers of an economic structure that will balance maximizing output with ensuring the largest share possible for the least well off. These people are, in short, those whom the populist opponents of George Soros fear most: globalists, liberal elites, cosmopolitans, or whatever dog whistle name by which the populists tag them. Fear of globalism and its supporters may be spawned by envy or simply by want. This sort of fear itself breeds a destructive sense of identity and hatred of those who are different. The populists’ fears have been increasing because, as discussed above, technological transformation is eliminating jobs rapidly and is expected to eliminate many more in decades to come. When populists set the public policy agenda in individual states, it erodes support for diplomacy to achieve objectives that benefit the global public, such as limiting greenhouse gas emissions, promoting economic growth, and managing the safe development of superintelligence. When diplomats negotiate agreements linking trade to GHG emissions or trade to secure development of AI, populism undercuts the prospects of those agreements’ ratification in domestic legislatures once those agreements are signed. The most direct strategy to limit the appeal of populism is to move a majority of the world’s population into the category of people described above whom the populists fear. Baldwin (2019) argues that we need to protect workers, not the jobs that they are doing now. As automation and AI replace human jobs with work done by machines, it will become increasingly necessary to break the long-standing capitalist link between the income people need to sustain ourselves and the work that we do. The concept of governments paying each citizen a universal basic income (UBI) is no longer new. UBI addresses the need to decouple individuals’ income or remuneration for the labour that we do from the actual obligation to work for the world’s whole population as early as possible. UBI will assure workers that they will retain a steady income even if their jobs disappear, if they are unable to be retrained for new types of jobs, or if their new jobs pay a lower wage than work in their former occupation. UBI may cause wages for rewarding socially productive jobs like teaching children, coaching, and care giving to fall. But in doing so, UBI would create more jobs, and with their monthly UBI cheque, more people would be able to afford to do them (Yang 2018, pp. 188–89). 137

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Universal basic income has been the subject of a number of experiments already in locations ranging from Finland to Berkeley, California, in the United States. Proposals vary in the extent to which UBI would replace or supplement other forms of government benefits currently paid to the poor and unemployed and in whether or how it would be taxed. Andrew Yang, a technology entrepreneur who ran for the Democratic Party nomination for president of the United States in the 2020 election, made UBI the central policy idea of his campaign platform. Most proposals for UBI envisage a phased in approach to keep pace with the transformation of the workforce. Yang’s (2018) US plan, for example, proposes an initial UBI of $1,000 per month for each adult American. Whilst a $12,000 annual income on its own would provide a meagre standard of living almost everywhere in the United States, in the short term it would supplement the income of many workers whose jobs have already been offshored or eliminated by automation and who have been forced to accept employment at substantially lower wages. UBI would also provide a safety net for part-time workers, self-employed, gig economy workers, those who combine working with parenting, and seasonal workers. Adair Turner (2018, p. 30) endorses the principle of UBI, arguing that economic measures to stimulate higher productivity growth and providing better skills training for displaced workers alone will be inadequate policy responses to technological advancement. He points out that providing housing assistance and improved public services to individuals may in many cases be more effective than straight income transfers, given that disparities between costs of living in different parts of the world and even within countries are likely to widen. Turner argues further that we can offset the increasing concentration of income, wealth, and rents that technology development is likely to bring by choosing to impose higher taxation on real estate, capital gains, and inheritance. Paying for UBI may be easier than it first appears. Yang (2018, pp. 170–71) would pay for UBI in the United States in the short term with a 10 percent value added tax (VAT). The increase in prices of consumer goods would be offset by the ongoing decline in costs of essentials owing to automation and AI. Yang points out that even if someone spent all of their $1,000 monthly UBI payment on consumer goods, they would only lose $100 of it to VAT. In the medium term, as automation and AI eliminate many human jobs and tasks that form part of jobs, simultaneously reorganizing remaining jobs in the workforce and creating a much smaller number of new human jobs, the total amount of remuneration paid by employers to their employees in the workforce is not going to decline. If anything, efficiency gains and increased profits heralded by the use of robots and AI are likely to increase total economic output and, along with it, total remuneration paid. The difference is that the total remuneration will be paid to a workforce that is a much smaller percentage of the overall population than today’s workforce is. As noted above (see chapter 2), the future workforce is likely to be divided 138

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more sharply between a larger number of very highly remunerated workers and a larger number of relatively low-wage workers. Even without major reforms in existing systems of taxation of wage income, investment income, assets (such as real property), and value added or sales, and in existing rates of taxation that are found in industrial countries today, tax revenues might well be sufficient to fund UBI payments offering a living ‘wage’ to workers who have lost jobs entirely or who have accepted much less well-paying jobs than they held previously. 7 Put public diplomacy in service of resolving technology issues As noted above in Chapter 4, the global public has become a major actor in diplomacy and will remain so. People have access to information about policy and diplomacy increasingly in real time, they form opinions, and they want their views to be heard and considered. The result of this has been the ongoing rise of ‘citizen diplomacy’, whether by civil society organizations, movements, or individuals, representing themselves and communicating across borders about critical international and global issues. No better example of this exists than Greta Thunberg’s movement seeking climate justice for her generation. Governments, firms, civil society organizations, and other diplomatic actors now more than ever must embrace a technology-driven, truly public-focused diplomacy built around continuously educating people across the globe about the key policy issues and tradeoffs that must be made. Legitimacy for policies and for diplomatic strategies is generated by greater transparency and more open mechanisms for public input and participation in the policy making process. The public need to see the range of their views taken into consideration by policy makers and diplomats. An open debate on new and complex technology issues, such as net neutrality, for example, can take place in a democratic society. Even less democratic governments have already developed mechanisms for taking into account and accommodating public opinion within limits. When appropriate, demonstrating to the public that policy changes based upon informed public opinion have been adopted strengthens governments’ and firms’ policies and diplomatic strategies alike. The transformation that technology has brought to media and information flows has heightened the urgency even for authoritarian governments, such as that of China, to maintain the consent, or at least the acquiescence, of the governed to government policies. Authoritarian governments face greater challenges in winning understanding and acceptance by the global public of their foreign policies, as continued global opposition to Russia’s occupation of Crimea illustrates. Diplomatic communication with the global public (foreign and domestic) as a stakeholder needs to be multi-channel, using traditional media, online, and 139

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social media. Greater personal engagement with the public on technology and trade issues by political leaders and diplomats is also necessary. Effective communication with the public means presenting complex issues in a simple enough way that the public can identify different interests and the sides with which they might align and then be able to choose their own positions on the issues. At the same time it is crucial that political leaders not oversimplify challenging technology issues in an attempt to rally popular support (see Chapter 4). For example, governments in the West will have to decide whether permitting Western telecommunications firms to cooperate with Chinese firms like Huawei in the development of 5G telecommunications networks poses unacceptable security risks to Western governments and consumers. China’s government will have to decide whether securing 5G contracts for Chinese firms warrants China’s agreeing to provide verifiable assurance to Western governments that Chinese technology will not be used for surveillance. Populations in Western countries, at least, will need to be persuaded by their own governments and by China that they can trust a negotiated agreement to meet their security needs. One of the more destructive public diplomacy phenomena in recent years has been an increasing tendency of some governments to use traditional and social media to vilify rhetorically institutions like the European Union, the WTO, and the United Nations, which were created expressly to serve as purpose-built venues to make ongoing diplomacy more efficient and effective. This kind of rhetoric may boost the electoral fortunes of populist leaders and parties by appealing to fears of loss of sovereignty to supranational or transnational bodies the public may perceive as illegitimate or unelected. As noted above, it is vital that these institutions function effectively as venues for diplomacy if difficult ongoing technology and trade issues are going to be managed and conflicts mitigated going forward. The intentional spreading of disinformation about diplomatic institutions, as when Brexit campaigners publicly blamed the European Union for the UK government’s underinvestment in the National Health Service (Spence 2016), is particularly corrosive to maintaining public support for diplomatic institutions. Institutions like the EU and WTO for their part need to continue to upgrade their public diplomacy. The EU and WTO have made substantial progress in their efforts to communicate effectively to the global public about their objectives and methods and to be responsive in substantive ways to public concerns and interests over the past decade. However, the populist surge has demonstrated that much remains to be done. The list goes on: future employment, residual costs, and education The foregoing seven prescriptions serve only as an initial to-do list. Other policy prescriptions are also worthy of our immediate consideration. It will be 140

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necessary, initially in industrial countries at least, to mitigate the negative effects of declining employment as automation expands and AI develops in the future. We should stimulate more invention, Turner (2018, pp. 30–32) argues, by reducing the breadth of categories of invention that can be protected and by reducing the length of intellectual property rights and copyright protection. One of the main categories of employment that is expected to resist automation is caring services, demand for which is likely to expand as human lifespans extend in developed and developing countries alike. We need to ensure that we pay adequate wages for caring services, Turner contends, which means elevating the status of carers in society and economy. Even in an automation-driven age of abundance, certain goods will remain costly, such as places to live in the most sought-after urban areas. In order to reduce the cost disparity between accommodation in the handful of most desirable cities and all the rest, we need better urban design for all cities in order to help equalize demand for accommodation and business locations. Better public transport will play a key part in making less sought-after cities more desirable, in addition to reducing GHG emissions. One of the most crucial domestic policy tasks for every government will be to re-imagine education in ways such that it enables the global public to meet the challenge of living in a society and economy where an individual’s sustenance and survival does not depend upon his or her labour. It is still difficult for most people (aside from the idle rich, rentiers, and professional investors) to conceive of what such a life would be like. What ways of spending time and investing effort would the vast majority of the global public find rewarding and fulfilling? For Turner, re-tooling education to provide life and citizenship skills is crucial: finding life fulfillment without remunerated work; preventing unequal outcomes from leading to unequal opportunities; and training people to be active citizens, e.g. how to distinguish truth from lies. In recent decades, higher education has tended to shift its focus toward more vocational training, particularly in the sciences and technology. These skills and areas of expertise will continue to be needed for at least a small slice of the future workforce: those who will design and manage the AI of the future. Yet the majority of people, who will not be working for a living, may benefit more by returning to a much more classical education that focuses on questions such as Plato’s timeless query: ‘What does it mean to live a good life?’ In sum, Turner’s range of proposals give a sense of the extent and breadth of policy reforms that must command the attention of national governments, multilateral institutions, and diplomacy if we are to meet the challenge of the transformations ahead.

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Harder medium-term choices: diplomacy to govern superintelligence If we manage to meet the challenge of the climate crisis with any degree of success, humanity will still have to survive the singularity, the emergence of superintelligence. We will have to establish a new relationship with superintelligent machines much more powerful than our own minds with the capacity to make their own choices about their objectives and the means to their ends (Kurzweil & Bostrom 2014; Tegmark 2017). Superintelligent machines will be able to make these choices and implement strategies for achieving their objectives independently of and much faster than humans. In order to prevent superintelligent machines from making choices that are at best disadvantageous and at worst lethal to human civilization, we must engage in the types of existing diplomacy between governments, firms, and civil society that are required to govern the development of superintelligence before superintelligence emerges. We must prepare now for the diplomacy that will be needed to prevent the ‘breakout’ of superintelligence unconstrained by human-imposed curbs on its potential capacity to harm us. In anticipation of the emergence of even benign superintelligence, we must prepare for superintelligent machines, in whatever form they take, to emerge as diplomatic actors in their own right. Establishing a working relationship with superintelligent machines may demand of us to create a wholly new form of diplomacy. The process of initiating a diplomatic collaborative relationship between humans and superintelligence might resemble the earliest human diplomatic encounters hypothesized by Sharp (2009, pp. 94–95). Superintelligent machines as diplomatic actors could be as radically different from us humans as the very first other tribes that early human tribes discovered living across the nearest hill from their own village. Superintelligent machines will be thinking beings with their own ends and means that are intrinsically ‘other’ to us, in the way that

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different existing diplomatic actors are other to us today. We will need diplomacy to mediate and live with those differences into the future. Webb (2019) recognizes that the challenges facing global society concerning how to govern the development of artificial general intelligence and superintelligence must be addressed through diplomacy. They are challenges of cross-border commercial activity, in addition to being fundamental scientific, social, and economic problems. As noted above, Webb frames the diplomatic challenge as a rivalry for economic and broader global dominance between the West and China, which diplomacy ultimately must mediate. Critically, she sees the diplomatic landscape as involving both public and private actors, with the cluster of Chinese technology firms – Baidu, Alibaba and Tencent, which she identifies as ‘BAT’  – and six Western firms  – Google, Microsoft, Apple, Facebook, IBM and Amazon, which she identifies by their first initials as ‘GMAFIA’ – playing important parts. Webb argues that the United States government must take the diplomatic lead in building a coalition of democratic states and firms to contain China’s drive to dominate the global economy using AI. This strategy will require a series of ‘domestic’ policy initiatives to underpin it and make it viable. Most importantly, the United States will need to increase state investment in AI significantly, following China’s model. New investment needs to occur across a broad spectrum of needs:  increasing research and development, undertaking studies of the impact of AI on the general economy and on the workforce and workplace, studies of the social impact of AI, investment in AI in the medical and public health sector and in infrastructure, and investment in public education and curriculum development geared to the challenges AI poses. For their part, the six US-based G-MAFIA Western technology firms will need to form a coalition of their own that is committed to serving the public interest, not to the exclusion of profitability, but as a core part of their mission. That commitment will require the firms to commit to building AI to serve democracy and society above optimization of AI’s functionality. The commitment will demand dedication to transparency in AI development and in providing needed training and education for it (Webb 2019, pp. 155–57). Webb’s G-MAFIA may be US-based firms, but they are as transnational as any others. The governments of the EU, Canada, Japan, Australia, and other Western industrial nations have as much of a stake in their regulation as the United States does. Hence the issue is much more fundamentally diplomatic than Webb suggests. However, Webb’s proposal to create a multilateral diplomatic institution, GAIA, specifically to manage the breakout of AI is a sensible approach to meeting the likely heavy diplomatic need in decades ahead. In a world of arguably proliferating multilateral institutions, this is an instance where it would probably not make sense to subsume AI diplomacy under the WTO 144

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merely because it is tangentially related to trade. Such an institution needs a separate staff of diplomats focused full time on AI and a separate channel for communicating with the global public and holding their attention. In his 2014 seminal work on AI, Superintelligence, futurist Nick Bostrom argues that superintelligence will open access to goods of value not currently available to society: the extension of human life, resources, and even our individual and collective mental capacity. For Bostrom the possibility of these gains militates in favour of collaboration over competition in the process of developing AI, as AI will have the capacity to provide these new future goods for everyone. Bostrom also thinks about how the initial emergence of machines more intelligent than humans might affect the global economy. He argues that the speed at which superintelligent machines become operational will have a major impact upon our ability to manage their arrival politically, economically, and diplomatically. Once the AGI technologies we construct enable machines to become smarter than us, the time it takes the machines to do so could take decades or centuries, but it also could only take months or years. The ‘breakout’, or acceleration from human-level intelligence to superintelligence, could even take merely days, hours, or minutes. Bostrom regards the latter two possibilities as more likely than the former. What might be the impact on the global economy and society if machines acquired superintelligence in a matter of months or years? [I]n a moderate takeoff scenario where cheap and capable emulations or other digital minds gradually flood labor markets over a period of years, one could imagine mass protests by laid-off workers pressuring governments to increase unemployment benefits or institute a living wage guarantee to all human citizens, or to levy special taxes or impose minimum wage requirements on employers who use emulation workers. (Bostrom 2014, p. 78) Bostrom fears the risks to social stability from a breakout of superintelligence taking place even over a manageable period of time. Were machines to become superintelligent in a much shorter space of time, Bostrom argues that the risk of significant destabilization of human society would be much greater. Hence being ready before the possibility of a breakout approaches is crucial for ensuring our survival. Assuming humanity is successful in managing the transition to a world in which humans and superintelligent machines both exist, a wholly new context for diplomacy will emerge. Sharp (2009) has characterized diplomacy as managing ongoing relationships with others that are different across many dimensions. In this sense, the ultimate diplomatic challenge may become negotiating with 145

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emerging superintelligent machines:  entities that have vastly greater capacities than we do and that after they achieve superintelligence will evolve and change independently of whatever we do to them. If we succeed in designing them so that their goals and objectives will remain broadly compatible with our own, then working with them to address issues and solve problems should in at least some respects resemble the kinds of diplomacy with which we are already familiar. If we fail in this design task, however, and their goals and objectives come to diverge significantly from ours, their preferences are likely to prevail over ours, despite our best diplomatic efforts. This is why Bostrom’s argument that humanity will have only one chance, collectively, to design superintelligence correctly, in advance of its actual emergence, is so important to understand. Technological and diplomatic optimism The two critical assumptions on which an optimistic future scenario for human civilization in the short to medium term must rest are technologically driven abundance and the success of permanent, durable institutions to facilitate diplomacy amongst public and between public and private entities. Trade or exchange is a market mechanism for solving the problem of distribution of scarce goods and services. Trade diplomacy is a politically driven mechanism for establishing and enforcing rules under which trade can take place across political borders. In a world where the cost of food, shelter, and basic necessities falls to near zero and availability is nearly ubiquitous, the need for market mechanisms to regulate distribution falls away. In such a world, trade itself would continue but would likely seem of less urgent political importance than it does today. It would probably be less a source of conflict between governments. In order even to have embarked on a developmental pathway that leads to such a future, we will have addressed the global climate crisis through sufficient domestic political will and effective diplomacy and we will have mitigated its worst short-term effects. In that world, the techno-optimistic perspective (if one can call it that) expects a near future in which AI, robotics, and advanced production techniques will usher in a permanent age of abundance to such an extent that humankind’s basic material needs will be met at negligible cost. New technologies coming onstream will mean less energy input and fewer raw materials will be required to produce more of what people need and, importantly, what they will want in the future. For example, renewable and sustainable energy sources, be they solar, hydro and wind installations on Earth, solar satellites or nuclear fusion reactors, once installed will cost little to maintain. What has been the greatest public fear about the advent of new technologies, automation, and AI is the elimination of jobs. Automation of most existing 146

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work tasks means not that most of the wages paid for work today will disappear with the jobs, and that everyone will be poorer as a result. Rather, it means that relatively few human workers will earn the total remuneration paid for work done in the world. To compensate for their exceptionally highly valued talents, those still working will likely each earn quite a bit more than today’s per capita income. It also means that the remaining highly salaried workers will pay the totality of taxes owed on those wages and assets held. In an age of abundance, the political challenge will not be to force the wealthy to pay dramatically higher rates of taxation on their income and assets. The remuneration already paid to labour, creativity, and entrepreneurship will not decline; if anything, it may increase. It will just be bestowed on fewer recipients, who in turn will have much larger incomes on which to pay their fair share of taxes. Likewise, from outsized shares of revenues and profits going to large technology firms will come outsized payments of corporate taxes into public treasuries. The political challenge for domestic political systems and for diplomacy will be to resolve the distribution question: how to redistribute wealth fairly and consensually between waged and unwaged members of society. The substantive diplomatic challenge in the medium term will be to negotiate terms for transferring wealth from the regions of the world where technologydriven abundance prevails first to the rest of the globe and to regulate flows of goods, services, labour, data, and knowledge across borders. Meeting this challenge requires robust diplomatic institutions like a stepped up World Trade Organization to facilitate the type of negotiation and enforcement of agreements needed between states that still prize their sovereignty and that take into account the power and interests of large global firms. In the optimistic scenario, diplomatic institutions will have been duly empowered and will have risen to the occasion. Technological advancement and open trade, facilitated by effective diplomacy, if successful will accelerate the arrival of an age of abundance and its spread beyond advanced industrial countries to the rest of the globe. Not all goods and services will see their prices decline to minimal levels. According to Turner (2018), some goods and services will retain their scarcity value and will continue to need to be rationed through market pricing. These are goods and services that by their nature exist in limited quantities: land and real property in highly desirable central locations in the most popular cities, for example. A technologydriven age of abundance, if it comes to pass, would likely herald the end of capitalism as we know it, not though supersession by socialism as Marxists imagined, but through the lack of need for competition for scarce resources, markets, profits, etc. In this view, trade and indeed commerce more broadly will not disappear, but rather will become much less contested systems of distribution of material needs. Politics and its sister activity, diplomacy, will remain as integral 147

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a part of human existence as ever, given their position at the core of human nature, but their focus will shift to issues other than the distributional effects of economics and commerce. A technology-driven age of abundance would reveal today’s policy debates over how to hasten the end of capitalism or to preserve and strengthen it (see chapter 3) to have been a red herring. If we focus on the policy choices and diplomacy that we need today to manage technological development going forward, the end of capitalism as we know it will be a by-product of whether our policy and diplomacy choices are successful. In an age of abundance, even assuming a politically viable mechanism for ensuring everyone’s welfare, not everyone will be equal in terms of their ability to access goods, services, and experiences that they desire. In fact, human society in the age of abundance could remain very unequal indeed. Holders of the shrinking set of jobs not easily replaced by automation at the top of the skill pyramid, such as designing and overseeing the latest automated systems and AI, creating the latest fashions, entertainment and games, and providing the best legal advice and personal services, will receive disproportionate compensation for their efforts. Owners of valued scarce assets, such as prime real estate, will be able to trade their wealth for other valued goods and services that they desire. At the other end of the spectrum, some portion of the population will continue to do low waged work that remains resistant to automation. But the majority of the world’s population, who will no longer need to work for sustenance (and for whom there will no longer be jobs), will spend their time and efforts engaged in non-directly remunerative pursuits, ranging from raising children to creative endeavours to leisure and sporting activities. Imagining a future world enabled and empowered by technology ultimately compels us to imagine a structure and functioning of economy and society that enables us to be most human: to think and make choices, individually or collectively, about what to do with our resources and our time, and to experience the results of those choices. This will include, ideally, the choice of whether to work remuneratively or non-remuneratively, and to change one’s choices of work. For this to be possible, it will require the full utilization of all factors of production and consumption in the economy: a world in which flows of goods, services, labour, data, and information (between humans, and between humans and machines) are as free as possible. It will require us to maintain command and control over all forms of artificial intelligence, so as to ensure that AI exists to serve humanity and not itself or other purposes set by particular interests. It is a world in which the primary function of political structures, in an age when contestation over material interests has become minimal, is to ensure human freedoms. One version of such political structures imagines increasing degrees of subsidiarity of decision making powers: individuals will be able to make political choices about matters that affect them at the most local level possible. But in 148

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such a world, in which traditional nation-states’ power recedes, the state would not be ‘withering away’ in the Marxian utopian sense. Rather, our conception of the state today would be supplanted by a more complex future diplomacy structured by robust institutions to mediate between much smaller units, each possessing greater degrees of sovereignty than cities and sub-national regions do today, and that includes private entities and civil society organizations as actors in their own right. Some concluding thoughts The foregoing arguments rest upon many projections that are by their nature contested. Whenever data are gathered and analyzed and projections for the future inferred from data analysis, huge imponderables remain. Projecting the future is inherently difficult, owing to our inability to discover and to take into account adequately all of the potential contributing factors. One such example concerns one of the oldest questions in political economy since the first industrial revolution, which has made an unlikely reappearance: human population demographics. Does technological advancement make the growth of the human population on Earth a problem? Late eighteenth- and early nineteenth-century social scientist Thomas Malthus feared that, as human society industrialized, human population growth would continually drive wages down to subsistence levels. In so doing, it would prevent human society from experiencing higher standards of living. Malthus argued that population multiplies geometrically, whereas food production grows only arithmetically, which would inevitably limit people’s access to food over time. Malthus’s argument was debunked by empirical evidence as countries industrialized. As countries have industrialized and standards of living have risen, birthrates have fallen uniformly, enabling the rate of global population growth to slow and leading to some estimates that population will begin to decline slightly in 55 countries in the second half of the twentyfirst century (UN Department of Economic and Social Affairs 2019). Futurist Nick Bostrom (2014, pp. 199–201) revives the Malthusian fear that industrialization will drive a revival of accelerating population growth with resulting impoverishment of the population. Bostrom argues that the abundance projected by technology optimists will stimulate a return to a millenniaold pattern that has only experienced an historically brief deviation over the past two centuries. However, in the contemporary period, not only are many people in developing countries choosing to have fewer children as they become wealthier, but others in middle- and upper-income countries are choosing to have fewer children as their financial circumstances worsen. In contrast to Bostrom, Turner (2018, pp. 34–35) expects population to continue to decline 149

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Popula!on (billion)

13 12 11 10

Median 80% predic!on interval 95% predic!on interval Observed +/- 0.5 child 60 sample trajectories

9 8 7 6 5 4 3 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Years

World total population projections, 1950–2100 Source: UN Department of Economic and Social Affairs (2019).

as countries industrialize. Citing contemporary population data, Turner points out that East Asian countries cut their fertility rates to sustain productivity gains. India, he observes, will have just barely caught up with the developed world as jobs disappear more rapidly to automation. India’s population may decline after 2050. Africa, according to Turner, is at the greatest risk, because it will not be able to industrialize before the full force of automation and AI hits. Africa’s population is likely to quadruple by 2100. Overall, however, Turner embraces the abundance thesis, arguing from this perspective that population decline in developed countries will not be a bad thing. The contrast between Bostrom’s and Turner’s perspectives illustrates how difficult it remains to make reliable projections about matters as important as human population levels and how to plan accordingly. It is a reminder of the need for humility in contemplating our technology-driven future. A more general concluding thought brings this brief volume back to the place where we began. How does diplomacy need to adapt and change to facilitate global society addressing the difficult challenges and choices about our economic and social well being that lie ahead? The general theme of this book is that technological change has brought and will continue to bring countless changes large and small to how the global economy works, and to how global trade in particular operates. These changes mandate change in how the diplomacy that both facilitates and is facilitated by global trade is carried out. 150

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In order even to begin addressing the policy challenges and the diplomatic challenges of implementation outlined in the foregoing chapters, we need to suspend many of our assumptions about how the global economy works and about how global trade works. In a number of cases we will need to abandon these assumptions altogether. The notions of technology-driven abundance reducing the basic cost of living to insignificant levels and of production of goods shifting to as close as possible to their points of consumption are game-changing ideas for our understanding of the global economy and trade. Capitalism as we think of it today may change radically, become much less important, or disappear altogether. Trade in the sense of the exchange of goods, services, labour, data, information, and knowledge will not disappear. However, it too will continue to change, possibly at an accelerating pace. The forms of trade we have thought most important  – trade in manufactured goods, bulk commodities and raw materials, and more latterly services – are likely to become much less significant in value terms than technology-driven trade in emerging commodities such as data, information, and knowledge. Will the age of abundance that AI will bring, if AI does in fact herald such a time, thus render trade diplomacy as we have known it superfluous or irrelevant? If this occurs, it will be because trade diplomacy will be folded back into the more general diplomatic issue of governance of borders and cross-border flows, as long as they continue to exist in the ways that we now understand borders. As long as there is estrangement and difference between polities  – separate units of governance that must find ways to coexist within limited geographical and economic spaces – there will need to be diplomacy. It is likely that, even if market competition lessens across the board, governments at different times will impede or threaten the free and uncontroversial flow of information, knowledge, and data across borders. The Chinese government’s establishment of a ‘Great Firewall of China’ monitoring and limiting cross-border internet traffic has already generated fears that the global internet will become a ‘splinternet’ of ring-fenced data zones in future. Ongoing diplomacy will be required to maintain open digital borders. When people think about trade diplomacy in three or four decades, it is probable that this will be amongst the first issues that come to mind. The question of who should own the means of production and how they should own them in future is worthy of consideration. Imagining a world without conceptions of ownership is perhaps too utopian to be considered even in the context of this book’s utopian scenarios. The possibility of trade – buying and selling  – presupposes the concept of ownership. Many types of intelligent machines, from computing equipment to robots used in manufacturing and delivery of services, are owned today by firms global and local, an arrangement that is likely to persist into the foreseeable future. Karl Marx foresaw the challenge to labour, employment, and standards of living posed by 151

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the advancing replacement of human workers by machines. Marx (2000 [1858], p. 421) proposed to solve the problem by making workers rather than capitalists the owners of the machines: ‘[M]achines do not cease to be agents of social production, once they become, for example, the property of associated workers.’ The advent of superintelligence raises a problem that Marx could not have foreseen, however. Will it make sense to consider superintelligent machines as the property of humans or human-controlled entities like firms, any more than it makes sense to us today to think of some humans as the property of other humans? Relationships between humans and superintelligent machines will be a challenge for diplomacy more than for revolutionary politics. Our ability to address, and hopefully to solve, the great range of challenges outlined in this book is conditioned first and foremost upon our ability to think about and understand the nature of the problems we face and how they are interrelated. Since the Second World War, international trade issues and the diplomacy required to navigate them have generally been thought of separately from issues surrounding technological change. The impact of earlier technological transformations, as in the first and second industrial revolutions of the nineteenth century, on trade and diplomacy have been studied as historical developments. But the current, ongoing transformation in information and communications technologies, automation of production processes, and artificial intelligence pose a unique and different challenge for how we think about trade and diplomacy. We have to understand technology, trade, and diplomacy as a densely intertwined set of issues that we must address in real time and make policies for the future. For example, only by understanding that technological transformations that facilitated globalization and the crisis caused by our global economy’s impact upon our climate can we put technology to work in mitigating and easing the global climate crisis. Now is not a time for anyone to recoil in the face of the enormity of the task that lies ahead. We are not starved for wisdom as we look ahead: analyses of difficult issues, insights, and policy proposals abound, as this book has attempted to survey and gather at the most basic level. Believing is important. If we do not believe our actions can make a difference in achieving our policy objectives, we will not be motivated to act, whether as policy makers, elected officials, diplomats, or as citizens, producers, and consumers. Should we believe that we can mitigate the climate crisis and inaugurate a new era of responsible human stewardship of our Earth, solar system, and beyond? Should we believe that responsible policy making and diplomatic collaboration can manage the transformation of the global economy to a world much less reliant on human labour? Should we believe that effective diplomacy can manage the development of intelligent and superintelligent machines in accord with our social and economic objectives? Of course we should. But belief alone is not enough. Each choice we 152

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make, individually and collectively, from today forward will have an impact on whether our future is closer to an age of abundance with responsible governance and diplomacy or to the dystopian future mentioned at the start of Chapter 6. How we act every day matters. The future is now.

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161

INDEX

21st Century Statecraft, 81 3-D printing, 24, 25, 39, 53 4chan, 87 5G technology, 111, 136, 140 8chan, 87 9/11 (2001), 6, 73, 87 Abe, Shinzo, 89 Abkhazia, 73 abundance thesis, 40, 150 accounting, 30, 31, 43 acelerationism, 58 Acordo Mexico-Canada-Estados Unidos (AMCEU), 28 advertising, 1, 23, 25, 29, 30, 33, 37, 49, 62, 83, 102, 105, 108 affective labour, 45–46 Afghanistan, 74 Africa, 5–6, 9, 74, 89, 92, 98, 127, 150 African Continental Free Trade Area, 10, 89 African Union (AU), 10, 131–32, 135 age of abundance, 67, 115, 141, 147–48, 153 AGI, see artificial general intelligence agricultural trade, 26 Ahmed, Abiy, 74 AI, see artificial intelligence AIG, 59, 62 AIIB, see Asian Infrastructure Investment Bank air freight, 53 Airbnb, 64, 94 Airbus Industrie, 23, 97 aircraft, 23, 27, 57, 59, 73, 97, 101 AK Party (Turkey), 74, 87 al Qa’eda, 6, 73 Aldrin, Edwin ‘Buzz’, 3 Alibaba, 8, 65, 91–92, 96, 116, 125, 136, 144 Alliance of Democracies, 134

Alphabet, 57, 92, 96, 102–103 alt-right, 66, 87, 90 alter-globalization movement, 86 Alternativ für Deustchland (AfD), 5, 74, 87 Amarna system, 79 Amazon, 8, 49, 57, 60, 65, 75, 83, 91–92, 96, 102–105, 110, 126, 136, 144 Amazon Web Services (AWS), 157 American Express, 94 Anglo-French Commercial Treaty of 1860, 20 Angola, 127 Annual Meeting (World Economic Forum), 54, 65, 82, 120, 136 Antarctic, 54 anti-Muslim violence, 107 anti-Semitism, 66 antitrust, 57, 97, 100–101, 112, 135 Appellate Body (WTO), 77, 89–90, 129, 134 Apple 13–15, 24, 92, 96, 102–103, 111, 144 Apple Mac, 13 appliances, 62, 64 Arab Spring, 3–4 Arctic, 54 arms sales, 85 Armstrong, Neil, 3 artificial general intelligence (AGI), 17, 46, 128, 144–145 artificial intelligence (AI), 1–2, 14, 16–17, 25, 35, 42–46, 48–49, 67, 64–65, 67, 74, 87, 111–112, 115–116, 118, 124–125, 128, 133–134, 137–138, 141, 144–146, 148, 150–151 Asda, 93 Asia, 2, 3, 5–6, 10, 23, 27, 58, 71, 88, 92, 95, 110, 125 Asia-Pacific, 88, 125 Asian Infrastructure Investment Bank (AIIB), 127 161

162

INDEX

Assad, Bashar al-, 5 AT&T (American Telephone and Telegraph), 31, 100 AU, see African Union authoritarianism, 6, 55 automation, 2, 6, 14, 16–17, 25, 42–46, 65–66, 74, 87, 95, 112, 115–116, 137–138, 141, 146, 148, 150, 152 automobiles, 21–22, 26–28, 57, 62, 95, 98, 109 AWS, see Amazon Web Services Baidu, 92, 125, 136, 144 Baldwin, Richard, 13, 43, 71, 137 Baltic states, 3 bamboo curtain, 124 Bangladesh, 6, 122 Bannon, Steve, 67, 106 Bar Association, 32 Barings and Co., 93 Basel Committee on Bank Supervision, 62 Battle of Seattle (1999), 4, 67 Bear Stearns, 59 behavioural economics, 12, 48 Beijing, 73, 91, 102, 111, 126–127 Beijing Olympiad (2008), 73 Belt and Road Initiative (BRI), 73, 126–127 Berkeley, 138 Berlin, 3, 6 Berlin Olympiad (1936), 3 Berlin Wall, 6 Bezos, Jeff, 65 Bhagwati, Jagdish, 130 Bhopal, 88 bicycle theory (of trade liberalization), 130 Big Data, 12, 36, 48–49 bin Salman, Mohammed, 85 biofuels, 52 birthrates, 149 Bitcoin, 103 Bjola, Corneliu, 82 Black Monday, 61 blockchain, 103–104 Bloomberg, 43 Boeing, 23, 96–98, 101 Bolshevik revolution (1917), 57 Bolsonaro, Jair, 5, 74, 98 borders, 2, 8, 13, 15–16, 19, 21–22, 25–27, 30, 32, 36–37, 39, 44, 48, 50, 53, 60, 74, 80, 89–90, 92, 95, 98, 103–105, 119, 121, 139, 147, 151 Bostrom, Nick, 48, 145–146, 149–150 Brazil, 5, 23, 27, 58, 87, 122, 127 breakout of superintelligence, 46, 145 Bretton Woods institutions, 70, 86, 127 162

Brexit (UK), 5, 8, 13, 24, 50, 71, 74, 84, 87–88, 106, 132, 140 BRI, see Belt and Road Initiative BRICS, 127 Brin, Sergey, 65 British Bank of the Middle East, 94 British East India Company, 91, 93 broadband, 100 Brussels Sugar Convention of 1902, 75, 133 Bucharest, 59 Burma (Myanmar), 6, 107 Bush, George W., 73 business processes, 103 business-to-business (B2B) commerce, 33 business-to-consumer (B2C) commerce, 33 cable television, 3, 62 cakes and biscuits, 20 California, 13, 138 CALPERS, 136 Cambridge Analytica, 8, 50, 106–107 Canada, 23, 27–28, 38, 60, 93, 111, 121, 123, 125, 127, 132–133, 144 Canada-US-Mexico Agreement (CUSMA), 28, 75 cap-and-trade, 119–120 capitalism, 2, 6, 8, 15–16, 41, 48, 50, 53, 55–58, 62, 65–67, 70, 83, 92, 109, 128, 148, 151 carbon pricing, 119–120 carbon sequestration, 54 carers, 141 Caribbean, 20 Catalan independence, 8, 50 Catalonia (Catalunya), 50, 84, 88 Caterpillar, 97 CBS, 42 CDOs, see collateralized debt obligations cellular telephony, 100 Central European University (CEU), 65–66 centrifuges, 73 CEOs, 65–66, 86, 91, 107, 118, 135 CETA, see Comprehensive Economic and Trade Agreement CEU, see Central European University chaebol, 110 Chevalier, Maurice, 20 China, 4, 13, 24–25, 34, 39, 52, 55–56, 62, 69, 71, 73, 81, 88–89, 94–97, 102, 108–112, 115–117, 119, 122, 124–129, 134–136, 139–140, 144, 151 Chinese government, 109, 111–112, 126–128, 134, 151 Cinque Stelle, 5, 74, 87

163

INDEX

circuit breaker mechanisms, 61 Citigroup, 59, 62 citizen diplomacy, 120, 139 civil society organizations (CSOs), 14 civilization, 2, 69, 115, 117, 143, 146 climate, 11, 15, 17, 41, 46, 50–51, 53–55, 64, 67, 86, 115, 118–120, 122–123, 132, 139, 146, 152 climate crisis, 15, 17, 41, 50–51, 53–55, 64, 67, 86, 115, 118–120, 122, 143, 146, 152 Clinton, Hillary Rodham, 81 Cobden, Richard, 20 Coca-Cola, 49 coffee, 2, 93 cognitive psychology, 12, 47–48 Cold War, 3–4, 9, 11, 13, 55, 65, 71–72, 110 collateralized debt obligations (CDOs), 59 commodities, 20, 26, 37, 60, 104, 151 Commodity Futures Trading Commission (US), 104 Communist Manifesto, 55 competition directorate (EU), 57, 101 Comprehensive and Progressive TransPacific Partnership (CPTPP or TPP-11) (2018), 89, 123 Comprehensive Economic and Trade Agreement (CETA), 38, 75, 123 computers, 2, 31, 61, 100 concessionary financing, 97, 127 conflict resolution, 14, 50 Congress (US), 55, 85, 99, 102–103, 105, 107 Congress of Vienna (1815), 80 conspicuous consumption, 63 consumer goods, 62–64, 103, 138 consumers, 11–12, 20, 24–25, 28, 33, 39, 45, 47, 49, 63–64, 88, 93, 101, 103, 112, 117, 119, 125–126, 140, 152 consumption, 11, 16, 20, 24–26, 39–40, 47, 50–51, 53, 55, 58, 60, 62–63, 110, 125, 148, 151 Continental Illinois National Bank and Trust Co., 61 copyright protection, 141 Corbyn, Jeremy, 55 Corn Laws, 20 corporate strategy, 106 Costa Rica, 30 cotton, 20, 60, 93 Council of Ministers (EU), 131 Crimea, 73, 139 crisis management, 50 crypto-currencies, 103–104 CSOs, see civil society organizations cultural diplomacy, 81

currency convertibility, 11 CUSMA, see Canada-US-Mexico Agreement customs union, 76 cyber-warfare, 73, 84 cyberspace, 25 Dalian, 136 Damascus, 19 data analytics, 35, 38, 49, 105 data storage, 37–38, 104 Davos, 54, 65, 82, 120, 136 day traders, 60 Deleuze, Gilles, 48, 58 democracy, 2, 144 Democratic Party (US), 136, 138 demographics, 7, 36 Deng Xiaoping, 55, 109 Denmark, 85 Department of Justice (US), 84, 100 Desai, Meghnad, 57–58, 66 desiring machines, 48 Deutsche Bank, 96 Deutsche Post, 60 DHL, 60 digital diplomacy, 17, 69, 80–82 digital divide, 23 digital trade, 34, 36, 38–39, 133 diplomatic communication, 80, 139 Dispute Settlement Mechanism, 76–77, 89, 122, 129 distribution of gains from trade, 86 Doha, 87, 123, 129–130, 132 Doha Development Agenda, 129–130, 132 dollar (US), 48, 58, 104 domestic economic cycles, 78 domestic policy, 141 Donbass, 73 Doordash, 42 Dorsey, Jack, 83, 108 Dow Jones Industrial Average, 81 Dugin, Aleksandr, 67 durable goods, 62 Dusseldorf, 19 Dutch East India Company, 91, 93 Duterte, Rodrigo, 5, 66, 87, 107 e-commerce, 11, 16, 33, 38, 105, 127, 136 Earth, 14, 50, 53–54, 146, 149, 152 East Turkestan, 73 eBay, 33, 94, 105 ecology, 50 economic development, 2, 4, 10, 44–45, 52, 55, 58, 66, 70–71, 73, 92, 109, 124 163

164

INDEX

economic growth, 6, 23, 62, 65, 69, 71, 110, 119, 125, 137 education, 3, 30, 140–141, 144 education services, 30 EFTA (European Free Trade Area), 132 Eisenstat, Yaël, 108 election law (UK), 106 Electoral College (US), 1, 131 empire, 2–3, 6, 20, 66, 71, 91 energy, 11, 24, 26, 48, 51, 54, 57, 61, 92, 97–98, 103, 123–125, 127, 146 England, 20, 60, 71, 73–74, 78 Equatorial Guinea, 98 Erdoğan, Recep Tayyip, 5, 66, 87 Eritrea, 74 ESG (environmental, social, governance), 54 espionage, 84, 103, 111, 125 Ethereum, 103 Ethiopia, 74, 127 Etsy, 42 EU, see European Union Eurasia Movement, 67 Euratom, 76 euro, 104 Europe, 2–3, 5, 10, 20, 62, 65, 71–72, 74, 76, 89, 92–94, 108–110, 125, 130, 135–136 European Coal and Steel Community, 76 European Commission, 38, 57, 101, 123, 130 European Community, 23, 97 European Council, 131 European Parliament, 88, 130 European Union (EU), 1, 5, 8–10, 23, 25, 27, 32, 38, 64, 70, 73, 75–77, 84, 86, 88–90, 97, 101, 103, 108, 111–112, 116, 120, 122–124, 127–133, 135, 140, 144 experiences, 45, 63–64, 125, 148 Explorer (internet browser software), 100–102 Export-Import Bank (China), 127 Export-Import Bank (US), 97 ExxonMobil, 98 Face the Nation, 42 Facebook, 7–8, 34, 49, 56–57, 65–66, 72, 81–84, 87, 92, 94, 96, 102–108, 112, 126, 136, 144 Facebook Messenger, 57 Farage, Nigel, 71, 84 FarmVille, 105 fascism, 57 fast fashion, 25, 53 Federal Reserve (US), 43, 58 Federal Reserve Board (US), 58

164

Federal Trade Commission (US), 102, 106, 108 FedEx, 80 finance, 11, 57, 92–93, 97, 103, 109, 127, 135 financialization of assets, 58 Finland, 85, 138 firm-state diplomacy, 91, 95–96, 98–100, 102, 104, 110, 102, 112, 136 foreign investment, 4, 58, 109 Franklin National Bank, 61 free trade area, 10, 76, 89 French government, 84 Freud, Sigmund, 8 Führerstat, 5 Fukuyama, Francis, 6 futurist literature, 118 futurists, 42, 45–46, 64 G-7 countries, 127 GAIA, 134, 144 Gates Foundation, Bill and Melinda, 14–15 Gates, Bill, 65, 92, 102, 107 GATS Supply Modes, 29–32 GATS, see General Agreement on Trade in Services GATS mode of supply, see supply mode GATT Secretariat, 76 GATT, see General Agreement on Tariffs and Trade Gen Z, see Generation Z gender, 48 General Agreement on Tariffs and Trade (GATT), 9, 21, 28–29, 38, 62, 75–77, 130–133 General Agreement on Trade in Services (GATS), 28–32, 38, 89 General Data Protection Regulation (EU), 38, 108, 112 General Motors (GM), 22–23, 126 Generation Z, 45, 63–64, 125 geothermal (power), 52 Germany, 3, 5, 8, 10, 23, 71, 74, 85, 87, 109 GHGs, see greenhouse gases giant pandas, 79 Gladstone, William Ewart, 20 Global Agreement on Data Flows, 134 global governance, 11, 26, 70–71, 86, 89, 133 Global Trade Commission, 130 Global Trade Parliament, 130–131 global trading system, 9, 130 global value chains (GVCs), 13, 16, 22–24, 26, 41, 53, 60, 65, 76, 86, 95, 98, 124 Global War on Terror, 6, 87

165

INDEX

globalization, 4, 13, 16, 19–21, 23, 26, 41, 65, 71, 74–75, 86, 92, 94–95, 121, 152 Globalization 2.0, 13, 16, 21, 41, 65, 71, 74, 86, 94–95 Globalizers, 65 GM, see General Motors Golden Dawn, 74 Google, 8, 25, 34–35, 49, 57, 65, 81–83, 92, 94, 96, 102–104, 108, 110, 116, 126, 136, 144 Government Affairs, 97 Government Relations, 97, 98, 102, 135 Gramsci, Antonio, 57 grand bargain (trade), 131 Great Depression, 59 Great Firewall of China, 151 Great Recession (2008), 1, 59, 62, 124 Greece, 74, 124, 127 green technologies, 60, 119 greenhouse gas emissions, 51–54, 115, 118–120, 122, 137 greenhouse gases (GHGs), 50, 52–54, 118–120, 123 Greenpeace, 86 Grubhub, 42 Guattari, Félix, 46, 58 gunboat diplomacy, 2, 20 GVCs, see global value chains Han Chinese, 73 Hardt, Michael, 45–46, 66 hardware (computer), 99–100, 102–103 Harvey, David, 59, 62 Havana Charter (1948), 75 heavy industry, 57, 103 Hermes, 80 high volume trading, 58, 60 Himes, Jim, 105 Hitler, Adolf, 3–5 Holy Roman Empire, 91 Hong Kong, 59, 62, 93–94, 109 House of Representatives (US), 107 House of Lords (UK), 57 HSBC (Hong Kong and Shanghai Banking Corporation), 94 Huawei, 111, 125–126, 136, 140 human body parts, 25 human rights, 81 human welfare, 11, 44 Hungary, 5, 65–66, 74 Huxley, Aldous, 112 hydro power, 52, 146 hydroponics, 26

IBM (International Business Machines), 92, 99–101, 103, 135, 144 ICTs, see information and communications technologies IGC, see inter-governmental conference India, 20–21, 29–31, 39, 60, 88, 91, 93, 102, 121–122, 127, 150 Indonesia, 14 industrial revolution, 19, 32, 50–51, 65, 149 inequality, 6, 9 inflation, 58 information and communications technologies (ICTs), 2–3, 15, 21, 59, 70–71, 74, 81, 99, 152 infrastructure, 10, 21, 54, 73, 104, 126–127, 144 Inslee, Jay, 51–53 Instagram, 7, 34, 49, 56–57, 81, 105 instrumental-normative prescriptions, 117 insurance, 28, 30, 36, 43, 62, 127 intellectual property rights, 141 inter-governmental conference (IGC), 76–77, 131 internal combustion engine, 51 Internal Revenue Service (US), 104 International Bank for Reconstruction and Development, see World Bank international law, 76 international law firms, 30 International Monetary Fund, 11, 70, 86 internet, 1–3, 6–9, 11, 29, 33–34, 37, 39, 41, 49, 57, 59, 62, 64, 71–74, 81–86, 94, 99–103, 107, 116, 151 Internet Research Agency, 8, 84 internet service providers (ISPs), 39, 49 internet surveillance, 9 intra-imperial trade, 20 intra-industry trade, 60 iPhones, 24 Iran, 73, 111 Iraq, 72–74, 81 ISIS, 73 ISPs, see internet service providers Israel, 73 Istanbul, 85 Italy, 3, 5, 57, 71, 74, 87, 127 J.P. Morgan Chase, 95–96 Jackson, Judge Thomas, 101 Japan, 10, 21, 23, 29, 62, 71, 95, 97–99, 108–110, 123, 125, 128, 132, 144 Japan-EU Economic Partnership Agreement (2019), 123

165

166

INDEX

Johannesburg, 59 John Swire and Co., 93 Johnson, Boris, 71, 84 judicialization, 76–77, 133 judicialized diplomacy, 70 Kahneman, Daniel, 48 keiretsu, 110 Kentucky, 23 Kenya, 93, 127 Khadafy, Muammar, 73 Khan, Kubilai, 69 Khashoggi, Jamal, 85 Kim Jong-un, 84 Kosovo, 72 Krakatoa, 54 Kurzweil, Ray, 46, 64 La Lega, 5, 74 labour, 2, 13–14, 16, 19, 21, 24–25, 32–33, 39, 41042, 45–46, 55–57, 70, 95, 120–121, 124, 129, 132, 137, 141, 147, 151–152 Labour Party (UK), 55, 57 land, 19, 51, 115, 122, 147 Land, Nick, 67 Latin America, 20, 23, 58, 74 law, 10, 32, 76, 78, 106, 123 Law and Justice Party (Poland), 5, 74 Le Pen, Marine, 5 Leave.EU, 50, 106 LED lighting, 123–124 legal services, 31, 43–44 Lehman Brothers, 59 Lenin, Vladimir, 4, 55–58, 93 Levant, 79 LinkedIn, 94 liquidity, 11 Lithuania, 105 loan guarantees, 97 Los Angeles, 19 Lyft, 42 Lyotard, Jean-François, 58 Ma, Jack, 65, 136 machine learning, 1, 35, 83 Macintyre, Alasdair, 67 Macondo oil spill (2010), 88 Mafia, 3 mainframe computer, 92, 100 Malaysia, 73, 95 Maldives, 122 Malthus, Thomas, 149 management consultancy, 30, 103

166

manufacturing, 4, 6, 13, 20–25, 39, 42–43, 48, 53–54, 87, 98–101, 126 Mao Zedong, 4, 55, 79, 109 market capitalization, 14, 95–96, 100, 102 market research, 34 marketing, 8, 12–13, 21, 23, 30, 37, 41 Marx, Karl, 8, 47–48, 55–58, 151–152 Marxists, 47, 66, 147 Massachusetts Bay Company, 91–92 MasterCard, 94 Mayo Clinic, 30 McAuliffe, Terry, 42 McKinsey, 43 McNamee, Roger, 103 Médécins Sans Frontières, 75 medical services, 30 medicine, 31, 44 Meng Wanzhou, 111 Mercer, Robert, 108 MERCOSUR, 75 mergers and acquisitions, 7, 93 Mexico, 14, 23, 27–28, 58–59, 74, 84, 88, 93, 121 MFN, see Most Favoured Nation Michigan, 22 micro-targeting, 1, 71, 83, 106, 108 Microsoft, 31, 55, 57, 65, 91–92, 94, 96, 98–104, 135, 144 Midland Bank, 94 migrants, 4–6, 65, 74, 84 migration, 4–6, 15, 32, 51, 70, 73–74, 104 Millennials, 45, 63–64 Millennium Development Goals (UN) (MDGs), 11 Milosevic, Slobodan, 72 Ministry of International Trade and Industry (Japan), 110 Minnesota, 30 mobility, 13, 44 Mobutu Sese Seko, 4 mode of supply (GATS), see supply mode Modi, Narendra, 107 Molinari, Susan, 103 monarchs, 79 monopoly, 56, 101, 112 Moon, 3 Moore’s Law, 48 Most Favoured Nation (MFN) status, 89, 132 movement of natural persons, 29, 31–32 multilateral organizations, 47, 92, 128 musk oxen, 79 Musk, Elon, 54, 66

167

INDEX

Mussolini, Benito, 4, 57 mutual funds, 136 Nadella, Satya, 65 NAFTA, see North American Free Trade Agreement name and shame, 52, 120 Napoleon Bonaparte, 4 Napoleon III, 20 Napoleonic Wars, 80 narrowcasting, 71 NASA (National Aeronautics and Space Agency) (US), 3 nation-states system, 72, 91 National Health Service (UK), 140 national security, 23, 81, 104, 111–112, 124–126, 136 national treatment, 9, 75 NATO (North Atlantic Treaty Organization), 72, 88, 134 nearshoring, 25 Negri, Antonio, 45–46, 66 Neo-Marxists, 66 Neoconservatives, 66 Neoliberals, 6, 66 Netherlands, 14 Netscape, 99–100 network diplomacy, 15 network effects, 38, 56 New Delhi, 102 New Development Bank, 127 New Left, 65–66, 90 New York, 55, 59–60, 73, 86, 103, 109 Nigeria, 127 Nixon, Richard, 79 nomenklatura, 3 non-discrimination, 9, 75 non-state actors (NSAs), 50, 69, 82 North America, 23, 28, 62, 94, 108–110, 136 North American Free Trade Agreement (NAFTA), 9, 27–28, 75, 121 Northern Rock, 59 NSAs, see non-state actors nuclear weapons, 73 Nuremberg rallies, 3 Obama, Barack, 88, 107 Ocasio-Cortez, Alexandria, 55 OECD, see Organisation for Economic Cooperation and Development, 63 offshoring, 4, 6, 41–42 oil and gas companies, 97, 120 Olympic Truce, 73

online shopping, 7, 33–34, 49, 64 Ontario, 23 operating system, 31, 100–102 Oracle, 99–100 Orbán, Viktor, 5, 65–66 Organization of African Unity, 10 Orwell, George, 112 Pacific Ocean, 66 Page, Larry, 65 Palantir Technologies, 35, 38, 56 Paris, 11, 51–52, 54, 118–120, 122, 129 Paris Climate Accord (2015), 51–52, 118–120, 122, 129 PD, see public diplomacy Peace of Westphalia (1648), 71, 91 peer-to-peer, 103 pension funds, 136 people smugglers, 74 people-to-people diplomacy, 79, 106 People’s Liberation Army (China), 110 Perón, Juan, 4 personal data, 8, 103 Philippines, 5, 21, 31, 66, 87, 125 Pinterest, 7, 49, 81 Poland, 5, 74, 105 policy making, 15, 17, 36, 67, 117, 139, 152 political candidates, 49 Polo, Marco, 69 Pope Gregory of Piacenza, 69 population growth, 149 populism, 3–4, 6, 9, 13, 85–86, 88, 137 populists, 73, 87, 116, 121, 137 postmodern condition, 59 poverty reduction, 11–12 Powell, Colin, 81 power grid, 52–53 principal-agent problem, 46 printing press, 4 privacy, 8, 36–39, 104, 106, 112, 123, 133 producers, 11, 13, 19, 23, 28, 47, 119, 152 programme trading, 60–61 propaganda, 3, 84, 107 protectionism, 4, 38, 71 protest, 86–87, 118, 145 psychographics, 8, 49 psychotherapy, 44 public diplomacy (PD), 15, 17, 52, 72, 81, 85, 88, 139–140 Putin, Vladimir, 4, 66, 73, 87–88, 124 Qatar, 87 QMV, see qualified majority voting

167

168

INDEX

qualified majority voting (QMV), 131 quotas, 20, 104, 129 racism, 4, 74 radio, 3, 80, 83, 85 railway, 20 Rasmussen, Anders Fogh, 134 rational actor, 12, 47 raw materials, 20, 146, 151 Reagan, Ronald, 99 real estate, 6, 59, 127, 138, 148 real property, 118, 147 Reddit, 7, 49, 81, 87 refrigeration, 20 refugees, 65 regulations, 19, 28–32, 37–38, 55, 61, 76, 88, 90, 94, 99, 104, 108, 123–124, 130, 132 regulatory harmonization, 130 renewable energy, 11 rentiers, 141 representative offices, 97–98 repression, 48 resources, 13–14, 44, 52–53, 56, 81, 91, 98, 115, 117, 134, 145, 147–148 Ricardo, David, 19 Rice, Condoleezza, 81 Rio de Janeiro, 11 robotics, 1, 2, 16, 118, 146 robots, 4, 14, 24, 138, 151 Rohingya, 6, 107 RoOs, see rules of origin Roosevelt, Franklin Delano, 4 routine tasks, 43 Royal Dutch Shell, 96 rules of origin (RoOs), 23, 26–28 Russia, 4, 57–58, 81, 84, 87, 112, 124, 127, 139 Russian government, 8 Rwanda, 72 SAAS, see software-as-a-service sales, 19, 21–23, 33–34, 37, 58, 85, 98, 125, 139 Salvini, Matteo, 87 Samsung, 111 San Francisco Treaty (1945), 11, 70 Sandberg, Sheryl, 65, 106 Sanders, Bernie, 55 Sao Paolo, 59 satellite television, 71 Saudi dissidents, 84 Saudi government, 85 Schwarzenegger, Arnold, 64

168

Scotland, 60, 93 Seattle, 4, 87, 102 Second World War, 1, 9, 11, 20, 48, 62, 69–70, 80, 85, 92, 109, 121, 152 Section 232 (Trade Expansion Act of 1962) (US), 111 Sectoral Development Goals (UN), 11 Securities and Exchange Commission (US), 61, 104 Security Council (UN), 11 Senate (US), 107 services trade, see trade in services sexuality, 48 Shanghai, 19, 94, 127 Shanksville, Pennsylvania (US), 73 shareholders, 24, 86, 108, 117, 120, 136 Sharp, Paul, 79, 143, 145 shopping malls, 62–64 Silicon Valley, 56, 99 Single European Act (1986), 32 singularity, 46, 118, 143 skills, 13, 45, 78, 98, 112, 138, 141 smart speakers, 49 smartphone, 11, 25, 37, 74, 111 smile curve, 22 Smith, Adam, 19, 47 Snapchat, 7, 81 social media, 3, 7–8, 15, 34, 37, 49–50, 71, 80–87, 94, 97, 102–103, 105–107, 116–118, 140 socialism, 6, 55–57, 67, 147 software, 29–31, 49, 94, 100–102 software-as-a-service (SAAS), 30 solar power, 11, 52, 54, 118–119, 146 solar shield panels, 54 solar system, 152 Somalia, 74 Soros, George, 65–66, 112, 137 South Africa, 3, 74, 122, 127, 130 South Korea, 23, 59, 62, 95, 97, 108, 110 South Ossetia, 73 sovereignty, 51–52, 70, 72–73, 78, 131, 140, 147, 149 Soviet bloc, 3–4 Soviet Union, 3, 55, 57, 71–72 splinternet, 151 spreadsheet, 101 Sri Lanka, 107 stakeholders, 54, 82, 117, 120, 139 state-firm diplomacy, see firm-state diplomacy steamship, 20 Stern, Sir Nicholas, 51

169

INDEX

streaming music and video services, 62 Stuxnet worm virus, 73 sub-Saharan Africa, 6 subliminal advertising, 49 sugar, 20, 75, 133 summit meetings, 133 Sun Microsystems, 99–100 superintelligence, 17, 46, 117, 128, 133–134, 137, 143–146, 152 superintelligent machines, 143, 145–146, 152 superintelligent machines as diplomatic actors, 143 supply mode (GATS), 29–32 surplus value, 45 sustainability, 53–54 sweatshops, 121 Switzerland, 54, 82 Syria, 4–6, 73–74 Taiwan, 13, 62, 125 tariffs, 9, 20, 28, 70, 75, 78, 90, 104, 111, 129, 132–133 teachers, 31–32 technology transfer, 34, 89 technology-driven trade, 151 glass cruets (2) Tegmark, Max, 46, 64 tele-working, 43, 46 Telegram, 81 telegraph, 1, 20, 80 telephone, 1, 20, 80 television, 3, 49, 82, 71–72, 80, 83, 85 telos, 47 Tencent, 92, 96, 125, 136, 144 Thiel, Peter, 56, 66, 107 Thirty Years’ War, 91 Thunberg, Greta, 54, 86, 139 TIAA-CREF, 136 time/space compression, 59 TiSA, see Trade in Services Agreement Total Recall, 64 Toyota, 21, 96, 98–99 TPP-11, see Comprehensive and Progressive Trans-Pacific Partnership TPP-12, see Trans-Pacific Partnership trade agreements, 10, 20, 27–28, 39, 70, 75, 78, 120–123, 128, 131–132 trade barriers, 2, 20–21, 24, 28, 38, 62, 75, 79, 90, 92, 95, 111, 115, 129, 132 trade diplomacy, 16–17, 20, 23–24, 40, 70, 75, 77, 79, 88–90, 99, 104, 120–121, 123, 129, 133–134, 146, 151 Trade Expansion Act of 1962 (US), 111

trade in data, 34–36, 39, 53, 103–104, 133 trade in services, 16, 21, 28–29, 32, 89, 103, 129 Trade in Services Agreement (TiSA), 89 trade liberalization, 4, 9, 27–29, 32, 38, 62, 76–80, 86–87, 93, 121–123, 129–130, 132 Trade Policy Review (WTO), 130 trade-as-diplomacy, 79 Trans-Pacific Partnership (TPP-12), 88–89 transfer pricing, 98–99 transistors, 100 Transnational criminal organizations (TCOs), 73 transnational firms, 14, 21, 30, 70, 88, 92, 95–97, 99, 101, 104, 119, 131, 133 transport, 11, 15, 20, 24, 26, 29, 32, 52–53, 59–60, 73, 95, 123, 127, 130, 141 Treaty of Marrakech (1994), 38, 77, 118, 133 Treaty of Rome, 9, 77 trucking, 20 Trump, Donald, 1, 5, 13, 24, 27–28, 50, 52, 54, 66, 71, 73–74, 84–85, 87–89, 106–107, 111, 121, 123–125, 134 Tunisia, 4 Turkey, 66, 74, 87 Turner, Adair, 40, 43–44, 138, 141, 147, 149–150 Tversky, Amos, 48 Twitter, 7–8, 49, 81–84, 87–88, 94, 103, 108 Uber, 42, 94 UBI, see universal basic income Uighur population, 73 UK, see United Kingdom UK government, 51, 140 UK Government Economic Service, 51 UK-US trade agreement, 84 Ukraine, 73, 107 ultranationalists, 88, 106, 116, 121 UN Charter, 11, 72–73 UN Climate Action Summit, 86 UN Conference on Trade and Development, see UNCTAD UN Framework Convention on Climate Change (UNFCCC), 51 UN special rapporteur, 85 UNCTAD (UN Conference on Trade and Development), 33 UNFCCC, see UN Framework Convention on Climate Change Union Carbide, 88 United Kingdom (UK), 1, 5, 8, 55, 79, 93, 132

169

170

INDEX

United Nations (UN), 11, 15, 70, 72, 85, 107, 118, 133, 140 universal basic income (UBI), 137–139 UPS, 60 urban design, 141 urban farming, 26, 123 Uruguay Round (GATT), 28–29, 77 US-China trade war, 111 US-Mexico border wall, 84 USMCA, see Canada-US-Mexico Agreement value added, 22–23, 26, 44, 95, 138–139 value added tax (VAT), 138 VAT, see value added tax Venezuela, 74 Victoria, Queen (UK), 20 video cassette recorders (VCRs), 62, 71 video cassettes, 3 Viet Nam, 125 Virginia, 42, 91–92 Virginia Companies, 91–92 Virginia Company of London, 92 virtual reality (VR), 53, 64 Visa, 94, 96 VoIP, 29 volatility, 61 Volcker, Paul, 58 Volkswagen, 126 von der Leyen, Ursula, 123 Vote Leave, 50, 106 voters, 1, 4, 6, 8, 50, 55, 83–84, 106 VR, see virtual reality Walmart, 93 Warren, Elizabeth, 123, 138 Washington (DC), 4, 59, 73, 85, 91, 98, 100, 102–103, 125, 136 Washington Consensus, 4, 6, 59, 66, 86 Washington Mutual, 59 Washington state (US), 50 Waze, 34

170

Webb, Amy, 115–116, 124, 134, 144 Weibo, 81 Westminster, 91 Westphalia, Peace of, see Peace of Westphalia Westphalian diplomacy, 72–73 WhatsApp, 56–57, 105 wind (power), 11, 52, 146 Windows operating system, 31, 100–102 word processor, 101 workers, 4, 6, 13, 31, 40–44, 56–57, 64–66, 86, 96, 116, 121, 137–139, 145, 147, 152 workforce, 21–22, 24, 32, 41, 43–44, 56, 138, 141, 144 workplace, 6, 41–42, 144 workshop of the world, 62, 109–110 World Bank, 11, 22, 70, 86 World Data Organization, 134 World Economic Forum, 54, 65, 82, 86, 120, 136 World Trade Organization (WTO), 4, 9, 29, 36, 38, 62, 74–78, 82, 86–90, 111, 116, 118, 121–123, 125, 128–135, 140, 144, 147 World War II, see Second World War WTO, see World Trade Organization WTO ministerials, 15 Wylie, Christopher, 66, 106 xenophobia, 4, 74 Yang, Andrew, 43, 138 yen, 104 YouTube, 57, 81, 103 Yugoslavia, 3 zero emissions economy, 52–53 zero-sum psychology, 79 zero-sum sectors, 43–44 Zipcar, 64 ZTE, 25, 126, 136 Zuckerberg, Mark, 65, 83, 105–108