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THE CAUCASUS & GLOBALIZATION
Amil MAGERRAMOV
D.Sc. (Econ.),
Head of the Organization of Customs and Management Chair of Baku State University (Baku, Azerbaijan).
Hajiaga RUSTAMBEKOV
D.Sc. (Econ.),
Head of the International Economic Relations Chair of
Baku State University (Baku, Azerbaijan).
ECONOMIC DIPLOMACY AS A TOOL FOR REALIZING NATIONAL INTERESTS
Abstract
This article studies economic diplomacy as one of the most important instruments by which states realize their national interests. Several aspects of Azerbaijan's foreign economic policy are also analyzed from this perspective. Summing up the positive ex-
perience of economic diplomacy in several countries, it reveals the objectives and tasks of contemporary diplomatic activity as a whole, as well as its close contingency with the country's multilevel system of economic interests in the global economic expanse.
I n t r o d u c t i o n
Diplomacy like politics is the art of the possible, that is, the ability to construct arguments and implement practical measures in a way that yields maximum payoff. But the payoff in this case can only be expressed in the realization of interests, be they tactical or strategic, short-term or long-term, local or systemic. In other words, diplomacy is motivated by interests, while economic diplomacy, correspondingly, by economic interests. Since it is precisely these interests that form the framework within which contemporary international relations are structured, economic diplomacy is becoming particularly pertinent in carrying out research studies and elaborating rational policy.
The global world is stretching the boundaries of the possible in every direction, particularly in the economy, and it is vital to find out how the "art of the possible" is taking advantage of this fact. Will it make it possible for us to construct a thrifty, volatile, investment, and economic component of the country's foreign relations? In this respect, certain aspects of Azerbaijan's foreign economic policy are extremely interesting, since it is aimed at protecting the country's political sovereignty and economic independence while continuing its course toward integration.
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Characteristics of Economic Diplomacy in Globalization Conditions
If the economic component is removed from diplomacy, only its perfunctory and conventional side will be left, which, in turn, will lose all meaning since it will be unable to resolve any of the urgent problems of international relations, including conflict situations. Guy Carron de la Carrière, a well-known researcher of this problem, says that as the economies of certain countries become more open to the outside world and international division of labor intensifies, the role of economic diplomacy will inevitable grow, replacing the traditional, primarily forceful, ways of settling interstate conflicts.1
Nevertheless, economic diplomacy requires special skills and capabilities from the people who engage in it. Priorities must first be identified that proceed from criteria established by national interests. In this respect, both the economic and the political and socio-cultural contexts of common interests are very important. This is achieved by creating a semantic field that is common for all the entities participating in coordinated interaction. This common field of interaction emerges under the influence of the common goals of its participants, without which their single economic motivation loses its bearing and they no longer have a basis for coordinating their action in the global expanse.
This primarily requires precise designation of the macro-objective parameters of national interests within the framework of which economic entities can interact in terms of resource, factor, and institutional values, as well as find an established market, a steady source of income, and, finally, state and legal guarantees of right protection. The country's economic whole serves as the target of national economic interests, which is primarily developed by the efforts of domestic manufacturers and is supported in their interests by the state's economic and social policy. Only with this kind of mechanism of interaction is it possible to ensure economic self-development based on an identified economic model, which is the highest and natural goal of the national economy. However, interests aimed at developing both the whole and the parts of the national economy in the contemporary world cannot be realized by means of unilateral protectionism and require comprehensive economic cooperation on the international arena.
By reinforcing the instruments of traditional diplomatic work with economic factors, economic diplomacy promotes a more profitable solution to international problems. Today the economy is ahead of politics and is achieving the set goals by means of successful competition rather than wars and conquests in order to acquire as large a share as possible of the world GDP. Some states, however, still persist in pursuing a belligerent and aggressive policy, but this approach is less effective than advancing capital, goods, or services into the territory of other countries.
At the beginning of the 21st century, ideological contradictions in relations among states have been receding into the background, while the role of the economic component in foreign policy is increasingly rising. Diplomacy is being made economic by countries taking more active part in the international division of labor and by greater integration of their national economies in the world economy in the context of globalization.2
In the contemporary world, economic diplomacy is one of the most effective ways to realize national economic interests. We can only agree with the opinion that "economic diplomacy" implies diplomatic efforts concentrated on confirming the country's economic interests at the international
1 See: G. Carron de la Carrière, Ekonomicheskaia diplomatiia. Diplomat i rynok, Rosspen, Moscow, 2003, p. 27 (G. Carron de la Carrière, La diplomatie économique—Le diplomate et le marché, Economica, Paris, 1998).
2 See: D. Degterev, Ekonomicheskaia diplomatiia zarubezhnykh gosudarstv v Zapadnoi Afrike, dissertation of Ph.D. in Economics, Moscow State Institute of International Relations, Moscow, 2008, 189 pages : 61 09-8/510.
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level.3 In this respect, it is very important to use national competitive advantages, as well as specialization and cooperation of production to achieve the country's overall strategic and current interests. States, especially those that formed after the collapse of the Soviet Union, are finding it easier to join the current and relatively balanced system of international economic interests, first, by virtue of their own economic opportunities and, second, by participating in specific regional and international organizations. These organizations serve not only as a source of funding, but also as a means of adaptation to the international economic environment. This environment is largely institutionalized today and joining it in efficient ways requires keeping the balance of forces among the competing global centers in mind. The main task of economic diplomacy is to achieve optimal, from the viewpoint of achieving national interests, focusing of the interests of these centers on the country's economic potential and geo-economic position. In other words, economic diplomacy is needed for realistically evaluating one's own opportunities and elaborating methods for handling the competitive advantages that are available. These are primarily factor advantages, among which raw material sources and production potential consequently come forward as interchangeable priorities for countries with a transition economy.
Economic diplomacy must be carried out with respect to all areas and vectors of international economic relations,4 since national economic interests reflect the reproduction process in which all the economic entities are involved. So it is legitimate to subdivide the diversity of economic diplomacy tasks into two levels of implementation—macro- and microeconomic. Whereas microeconomic diplomacy implies support of certain enterprises, the macroeconomic level covers questions of analytical elaboration and defense of the national position (interest) when resolving problems relating to integration of the country's economy into the world economy and is concentrated on the interaction among national economic systems.5 In this context, it is very important to, first, present economic diplomacy with scientifically substantiated, rather than imaginary objectives that could ultimately lead to irretrievable losses and, second, anticipate events that could pose threats to the realization of national economic interests from the outside.
Today, we can talk about the achievements of economic diplomacy from the viewpoint of finding a balance of interests that can be reached where the objectives of individual states or their economic integration intersect, and not from the perspective of pressure or discrimination. In this system each country follows its own interests, but they are only achieved to the extent that the country's internal potential and capabilities make this possible. Given that each country's production opportunities are limited, G. Haberler talked about how the extent they are taken advantage of depends on the efficiency of economic diplomacy.
In economic diplomacy, it is important to find factors that will yield the greatest payoff both today and tomorrow, in the short term and in the long term. At the time it acquired its independence, raw energy resources were that factor for Azerbaijan. The objective need for their maximum use was also understood. It was more difficult to decide how this should be achieved. And how to do it in such a way so as not to become unilaterally dependent in the future on the export of oil. Much also depended on evaluations of the oil factor from the political viewpoint, keeping in mind the balance of power in the region in the West-Iran-Russia triangle. Strategic calculations of "oil diplomacy" were compiled—a widely used concept that today covers not only international, but also domestic economic policy. Here it is appropriate to recall the terms "dollar diplomacy," "textile diplomacy," and others, which, being oriented toward the outside, were ultimately used to resolve the economic problems of the countries that pursued them. In this respect, economic diploma-
3 See: P. Baranai, N. Filini, "Sovremennaia ekonomicheskaia diplomatiia," available at [http://www.proza.ru/2010/ 10/30/706].
4 See: D.A. Degterev, D.U. Musaev, "Diplomat, a takzhe 'economist, kommovoiazher, reklamnyy agent'," Mezh-dunarodnaia zhizn, Nos. 2-3, 2009, pp. 84-95.
5 See: Ibidem.
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cy is the integral component of economic policy and, on the contrary, these two elements are inseparable in the structure of factors for realizing national interests. From this viewpoint, diplomacy, which is based on raw material advantages, including "oil diplomacy," looks extremely acceptable and is widely used.
It is a foregone conclusion that the oil factor occupies a predominant position in Azerbaijan's economy and foreign economic relations. It can be evaluated in different ways, but it is more pertinent to identify how it can be positioned in the interests of the nation. After all, every nation moves ahead using the factor advantages it has. So there is no point in complaining about "the resource curse." The main thing is to make the country's energy resources a national-communicative means for ensuring economic growth and citizen wellbeing rather than accepting them as natural-presupposed "givens."
Oil is a raw material, the production yield of which is generated in combination with the technology used. But history has seen to it that raw material sources are mainly concentrated in economically underdeveloped areas of the world, while technical-technological capabilities are found in the industrially developed countries. Consequently, the flow of raw material to the centers of its intensive use is an objective process. Accompanied by the reverse movement of goods often manufactured using this raw material, energy and industrial cycles appear to complement each other in today's international economic system. Countries that are able to carry out both of these cycles, thus developing the national economy, will naturally ensure the most favorable opportunities in economic and social development and in self-assertion in the widest geo-economic sense of this word. Self-assertion in the world economy is a necessary prerequisite of progress in all spheres in contemporary conditions, whereby "during international cooperation, the nation will either acquire the stimulus to develop or collapse, there is no third alternative."6
In this case, the stimulus to develop consists in prerequisites that ensure the country's self-assertion in the expanse of world economic cooperation. These are primarily natural-raw material and production prerequisites. Second, they are political and ideological indicators of predictable stability. However, the mental aspect and characteristics of the population in terms of how it perceives other people's life values and culture also play a significant role in the country's self-assertion in the international economy. The conducive factors should be widely exposed in the representative activity of diplomatic services that characterize the country's image and its propensity for cross-cultural cooperation, which plays an important role in establishing and developing business cooperation.
International Experience of Economic Diplomacy in the Vector of National Interests
The development of economic diplomacy and the ways it is carried out can be traced based on the example of different countries. They include both developed and developing states. Every country has its own approach to understanding economic interests and economic diplomacy. While some countries proceed from historical factors in the description of these interests and political-diplomatic methods of achieving them, others rely on ideological imperatives, while still others are aimed at pragmatics. This implies pragmatic goals of preserving or achieving leadership, protecting the coun-
6 Natsionalnaia ekonomika, ed. by Prof. P.V. Savchenko, Ekonomist, Moscow, 2005, p. 112.
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try's sovereignty and territorial integrity, carrying out reforms, and ensuring socioeconomic wellbe-ing. The last alternative appears to be the most effective, where the main postulates of diplomacy, and foreign policy as a whole, are not dogmas of mythical grandeur or precepts advanced by theological imperatives, but an increase in national production and standard of living.
The people's real interests and the economic means for achieving them can be institutionalized in a civil society, as well as with the help of democratic regulations. In this way, prerequisites of sociopolitical stability in the country and national consent are acquired, and, in the end, the possibility of independently solving both internal political, economic, and social tasks and realizing national interests on the international arena. As a result, a compromising, rather than confrontational, view of the outside world is formed, while diplomacy acquires weightier arguments and is supported by public opinion. However, much here also depends on the country's geo-economic position, the tasks it puts forward on the world arena and, to a great extent, the nature of the political structures and people in power.
The view of the diplomatic traditions of several countries is interesting from this perspective. The U.S., as the largest entity of the world economy, is the leader of economic diplomacy today. There can be no arguing that Washington does indeed "determine the world's fate and the domestic and foreign policy of many countries" by means of economic methods, its role in international economic organizations, and assistance programs.7 U.S. economic diplomacy has had a significant impact on the creation of the trans-Atlantic community and global economy. According to The Washington Post, around 59% of Americans support this diplomacy, convinced that it is providing the U.S. economy and they themselves with real dividends.8 There can be no doubt that all the main achievements of American foreign policy rest on a solid economic foundation; and economic diplomacy has been very significant in creating this foundation. The financial-economic potential and role of American currency also help the U.S. to carry out economic diplomacy. The latest historical period shows that the U.S. dollar is indeed the "strategic offensive weapon" of the American civilization.9 As the basis of the international monetary system, the dollar has made it possible for the U.S. to maintain its troops abroad and participate in military action far beyond its borders.10
From time to time, economic diplomacy is an instrument for realizing imperial interests. In the 2000-x, this trend could be very clearly seen in Russia's policy toward its so-called Near Abroad. Academic arguments such as, empire-imperial expanse-imperial world-imperial economy-economic empire, are a case in point. "There is nothing bad for Russia either in the nation or in the empire; moreover, with them Russia will only survive, become stronger, and move ahead."11 Admittedly, the author of this quote does not specify what this "ahead" implies, but it becomes understandable at a more specific level of politics, for example, in buying up enterprises and the energy-transportation infrastructure in exchange for their debts and in the use of the country's monopoly position in the energy sphere in favor of geopolitical interests.
Contemporary European diplomacy significantly differs from the previous example. This is primarily related to the existence of the great capabilities of the competitive economy of united Europe and the existence of production micro entities, advanced technology, and scientific-technical achievements in demand in the world markets. Predominating microeconomic diplomacy, which directly assists business and helps to strengthen its export advantages, also proceeds from this.
7 See: A. Plashchinskiy, "Ekonomicheskaia diplomatiia SSHA. Plan Marshala i doktrina Trumena kak elementy odnoi strategii," Belarusian Journal of International Law and International Relations, No. 4, 2003, available at [http:// www.evolutio.info/index.php?option=com_content&task=view&id=908&Itemid=215].
8 Quoted from: A. Plashchinskiy, op. cit.
9 Ibidem.
10 See: Ibidem.
11 Iu.M. Osipov, "Filosofiia khoziaystva kak dostoianie razmyshliaiushchego chelovechestva," Filosofiia khoziaystva, Almanacs of the Center of Social Sciences and Economic Department of Moscow State University, No. 4, 2008, p. 21.
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State subsidies are widely used for this purpose, information offices for foreign trade issues are being formed, and round tables with the participation of representatives of business circles and professional diplomats are being held in foreign countries. These events are aimed at drawing up a global strategy for advancing European business. For example, the Economic Department of the German Ministry of Foreign Affairs formed a working group (Arbeitsstab) as a component of the general reforms, some of the tasks of which are to accompany trade delegations, support various regional business initiatives, and create an image of the country that would be attractive to investors.12
Rotating economic-diplomatic personnel with private businessmen has become widely practiced in France. Work experience with respect to foreign economic cooperation in leading French corporations (Renault, Cardin, Air France) is helping to develop a more profitable approach to realizing the country's economic interests abroad.13
European economic diplomacy can be called conservative in terms of the spirit of the methods it uses, but it is also sufficiently moderate from the viewpoint of its insignificant accents on aggressiveness. It is also stable and appealing to partners, since it does not have a lot of obvious political motivation.
Diplomacy of the economic link between the East and the West is characteristic of Turkey, which is being increasingly designated as the Middle Eastern tiger, outstripping the new industrial countries of the APR in terms of several macroeconomic indices. Its export-oriented and investment-attracting strategy and timely debut on the East European and Eurasian markets of the post-socialist countries have helped to turn Turkey into one of the 20 largest economies of the world. This country's effective economic diplomacy, along with the foreign political doctrine espousing "no problems with neighboring countries," is providing instructive experience on how to quickly react to the changing regional reality and making skilful use of it in national interests.
Azerbaijan's Experience in the Economic-Diplomatic Realization of National Interests
The Azerbaijan Republic also has a certain amount of experience in economic diplomacy, the current stage of which is related to restoring its state sovereignty and policy of national interest protection. The personal factor has played an important role in efficiently servicing these interests. It can play a decisive part in diplomacy and throughout political and social life as a whole. In the difficult conditions of acquiring independence, transition to market relations, the absence of institutional regulators, and military aggression, Azerbaijan found itself surrounded by sacramental problems. Only an experienced statesman with the ability to correctly evaluate the potential, the reality of the objectives, and the effect to be gained from each practical step toward their realization could comprehend these problems and find the only rational measures in domestic and foreign policy to resolve them. This person was president Heydar Aliev, a politician and diplomat well informed about the situation in the country and about the sources of the threats coming from abroad.
12 See: "Ausswartiges Amt. Aausserwirts-chatsforderung der Bundesregierung," available at [http://www.auswaertiges-amt/], 18.07. 2000.
13 See: T.V. Zonova, "Ekonomicheskaia diplomatiia," Vneshneekonomicheskie sviazi, No. 1, March 2006, pp. 14-16.
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However, there were not many ways available for organizing both domestic life and the external situation around Azerbaijan. Oil was again the main means, but now the head of the sovereign state was managing it, which had never before been the case in Azerbaijan's more than 200-year history of colonial dependence. An exception was the short period between 1918 and 1920 after the collapse of the czarist regime in Russia, but the Azerbaijan Democratic Republic that formed at that time was destroyed by the Russian revolutionary advance into the territory where the empire had previously reigned. As early as that time, Azerbaijan occupied first place in the world in terms of oil production, and the Bolshevik leaders were particularly intent on seizing Baku. This resulted in the collapse of the ADR before it succeeded in putting its progressive undertakings into practice.
Another upheaval occurred in the changing world of the end of the 20th century—the collapse of the Soviet Union—and this time Azerbaijan's sovereignty proved real and recognized by the world community, but once more not without its problems. Azerbaijan again attracted the attention of the leading states, neighboring countries (apart from Turkey and Georgia) were jealous of its sovereignty, as before, made territorial demands, and waged war to divvy up its incontestable territory. It would seem that in this situation there can be no talk of a positive investment climate or foreign investments in offshore oil production without direct access to international transportation routes and, what is more, in a country squeezed between two of the largest oil nations—Russia and Iran. But it was able to achieve this by virtue of its well-considered diplomacy of mutual compromises and the creation of positive expectations. Moreover, a competitive environment was created around Azerbaijan oil, due to which the largest transnational companies and capital from the most diverse countries that seemed incompatible for economic cooperation (for example, the U.S. and Iran) were drawn into the very first contracts to develop the country's oil supplies.
Signing the Production Sharing Agreement on 20 September, 1994 with respect to the Azeri-Chirag-Gunashli oil field was one of the greatest achievements of the overall economic strategy designating Azerbaijan's advance onto the world economic arena as one of its conspicuous entities. That is, the agreement aroused interest not only in Azerbaijan's resources, but also in its statehood. This was the first time such a thing had happened, and it became the unseen guarantor of international support of the country's legitimacy as a legal entity.
The oil aspect of Azerbaijan's economic diplomacy grew. In the summer of 2006, the Baku-Tbilisi-Ceyhan pipeline with a throughput capacity of 1.2 million barrels a day was officially opened in Ceyhan (Turkey). From the geo-economic viewpoint, the oil pipeline created a new situation in the extensive post-Soviet region, since this was the first case of transporting crude resources to foreign markets without passing through Russia. Moreover, the project was part of the conception about the need to diversify export routes of energy resources and stabilization of the world energy market. This was how an entirely different system of relations independent of the past attachments developed, of which oil strategy was only a part.
It stands to reason that Azerbaijan's economic diplomacy also includes other vectors of foreign economic diversification. For example, significant attention is being given to international transport projects, such as TRACECA, a West-East transport corridor going from Europe along the Black Sea, through the Caucasus and the Caspian Sea to Central Asia. The Nabucco project also looks ambitious, around which a real diplomatic war has unfolded.
Why do what would seem to be exclusively economic processes become part of intense diplomatic contradictions? The thing, in our opinion, is that the South Caucasian region and Central Asia contiguous to it are a target of not only geo-economic, but also geopolitical global demands. Here outmoded imperial and dynamic Euro-Atlantic interests, and perhaps in the future also the interests of the APR nations, are clashing.
In this situation, balanced, multivectoral, economic diplomacy is becoming particularly important for the long-term manifestation of national economic interests. It must be kept in mind that
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possessing large oil and gas resources (Azerbaijan's potential hydrocarbon resources amount to 27 billion tons)14 and keeping in mind their higher level of liquidity in the world markets, the country's strategic economic development course is characterized by utilizing the absolute advantages in natural factors in order to modernize all the components of the economy and diversify and restructure the technological production base and create its competitive advantages. As a result, Azerbaijan has become a leading state in a region of substantial size and mega-economic significance (3/4 of the Southern Caucasus' GDP is produced in Azerbaijan).
New areas of direct manifestation of Azerbaijan's national economic interests have appeared in the Caspian basin, the Caucasus, the Middle East, the Mediterranean region, and the European economic expanse. The main energy and transport corridors of Eurasia, which pass through the country along the West-East and North-South axes, have strengthened sovereignty and increased Azerbaijan's integration into the global economy. The adoption of economic-diplomatic decisions, based on the current reality, is leading to more independent steps, since the range of possibilities has widened. In our view, this is manifested in several vectors, particularly in resolving the question of Azerbaijan joining the WTO.
The negotiation process is continuing in this vector, including with the U.S., the European Union, Switzerland, Norway, and Japan. Many of the problems here are related to membership status in the organization, assistance in developing the non-oil sector of the country's economy, and diversification of production along the entire perimeter of the national economy.
Head of the EU Representative Office in Azerbaijan Roland Kobia believes that joining the WTO will have a strong impact on business in Azerbaijan, including on increasing GDP.15 But everyone knows that there are also difficulties involved, in particular with respect to the emergence of competitive pressure on the developing branches of end product manufacture.
Azerbaijan's economy overcame the consequences of the world financial crisis with relative ease. The International Monetary Fund recognized the anti-crisis policy of Azerbaijan's Central Bank as one of the most effective in the post-Soviet expanse.16 Of course, hydrocarbons form the basis of economic prosperity, but it should be noted that far from all countries with large energy resources have been able to recover from the crisis with ease. Azerbaijan has succeeded in doing this, and now the republic accounts for more than 80% of all the currency reserves of the South Caucasian region.17
All of these achievements are directly or indirectly related to the oil factor and economic oil diplomacy. Nevertheless, Azerbaijan faces a rather difficult transition to the diplomacy of a multi-branch and competitive economy. The thing is that the economic growth we are seeing today is to a significant extent the result of the interaction among technology, formal (market) and informal (adapted traditional) institutions, and international competitiveness. The country's success depends on whether this interaction is constant and fortifying, with respect to which a corresponding multi-factor flow sheet of economic growth is presented (see p. 62).
This flow sheet could also serve to elaborate a model of stage-by-stage use of resources for the purpose of national economic development. The first stage—the high share of raw material in the export product is leading to an increase in consumer goods and investments due to export earnings; the second stage—an increase in investments in production intended for internal consumption and the development of technology; the third stage—an increase in the manufacture of competitive products leading to an increase in the export of finished products. A smooth transition from the first to the second and third of these stages has ensured Azerbaijan tactical steps of
14 [http://www.ng.ru/energy/2008-06-10/20_azerbaijan.html].
15 See: Expert on Azerbaijan joining the WTO, available at [http://news.day.az/economy/254629.html].
16 See: A.V. Vlasov, "Azerbaidzhan—itogi 2010 goda," Nezavisimaia gazeta, 24 December, 2010, available at [http://www.ng.ru/ cis/ 2010-12-24/ 6_azerbaijan2010.html].
17 See: Ibidem.
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Figure
development accompanied by the economic-diplomatic measures necessary for the fuller realization of national interests.
C o n c l u s i o n
Knowledge of the fundamental principles and methods of economic diplomacy is pertinent not only for diplomats as such. The objectives, tasks, and instruments of economic diplomacy are important for all entities and functionaries of economic policy with its different aspects and vectors.
Using Azerbaijan's experience, it can be seen that the method for engaging in economic diplomacy is very closely intertwined with the understanding of national interests in their multifaceted manifestations. In so doing, it must be noted that only by acquiring diplomatic skills can a civil servant or participant in international economic relations protect his own and national interests.
