The recent years spent by the global community in battling the pandemic have elicited some success in overcoming the economic decline sustained in 2020. Notwithstanding the lack of international cooperation in economic policy coordination, within the raft of anti-crisis measures launched by governments and Central Banks new approaches and instruments of economic policy have been employed to address the unprecedented blow to the economy.

       But while on the economic front the global economy has recovered from the lows of the pandemic-driven decline, in the sphere of international relations and international diplomacy the crisis has only further deepened leading to calls for new approaches and tools to be employed. Could some of the policy rules and strategies be carried over from the tested grounds of economic policy into the increasingly unstable arena of international relations?

       One of the successes in economic theory in the past several decades was to advance the superiority of economic policy rules over discretionary (ad hoc) policy. This Nobel prize winning principle in Economics in essence espouses the benefits for policymakers to commit to a certain policy rule/strategy – something that reinforces market expectations and trust in the measures implemented by governments and Central Banks. Similarly, in international relations countries that have a clear-cut long-term strategy on the international stage are more predictable and accordingly more valued as potential partners in international alliances. One such policy rule or policy anchor could be the decision to adopt a “neutral status” that would significantly boost the credibility and predictability of the country and relieve its diplomacy of the vicissitudes of trying to take sides in the clashes among regional and global powers.

       Another aspect of economic policy that may prove to be useful for international diplomacy is anti-trust, namely limiting the scale of market power of the largest monopolies to the benefit of smaller and more agile companies. In the sphere of international relations this may involve the allocation of quotas and the creation of representative groups designated for small economies in international organizations and fora. There may also be a case for creating an international platform that would bring together some of the leading small open economies with a significant weight on the international arena. Thus far, however, the inexorable trend in international relations was the increasing “market power” and weight of the large countries – something that is readily observed in the formation of such groupings as the G20, the BRICS, the QUAD, etc.

       Perhaps most importantly economic theory in recent decades has placed particular emphasis on the need for countries to develop their human capital in order to boost productivity growth and innovation. This principle is perhaps even more topical in international diplomacy today, whereby a significant portion of the sores and divisions in international relations stems from the lack of qualified diplomatic corps and specialists in the political/economic systems of counterparties. This lack of “human capital” in international diplomacy comes on top of the growing deficit of IT professionals, doctors and teachers that is experienced in advanced and developing countries across the globe.

       There may be many other parallels to think of in borrowing the tools of economic analysis and “optimizing” the approaches of international diplomacy. In particular, there may be a case for devising longer term policy goals and strategies in international relations – both across countries as well as regions/regional arrangements. This would allow for extended time horizons, predictability and greater scope for cooperation in line with the indications of game theory . There may also be a need to devise early warning systems, “counter-cyclical” tools as well as “automatic stabilizers” (in the form of dispute resolution mechanisms as well as ex-ante rules and commitments at the country and regional level) that could attenuate the acuteness of the early stages of international conflicts/tensions. Estimating the scale of “externalities” in international relations and finding ways of minimizing their adverse effects across countries (including via dispute settlement mechanisms and compensation) would raise the capability of the international system to resolve conflicts. Expanding communication lines (to match increased demand for mediation and negotiations with supply) via raising the role of regional arrangements and their institutions may also serve as an important reserve for raising the effectiveness of international diplomacy.

       Finally, there is one simple truth that is dawning upon economists and economic policy – that qualitative outcomes (happiness and quality of life) are more important than quantitative targets such as GDP growth. Hence the emergence of new strands of economic theory, such as the “economics of happiness” and the rising importance of environmental agenda in economic policy. This paradigm may also be projected into the world of international diplomacy and its scholarly works as qualitative goals such as international peace and stability as well as the quality of global governance need to take precedence over the numerical calculus of narrow-minded power politics.

       Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.