“The world economic order is headed for chaos” warns an American economist using the example of Uber and Google

“Instead of being in a transitional phase to a calmer and more orderly system, we find ourselves in a deeply troubled new world where destabilization has become the norm,” believes Eswar S. Prasad, professor of trade policy and economics at Cornell University in the US.

• The analysis, published by promarket.org, is a short excerpt from his book “The Doom Loop: Why the World Economic Order Is Spiraling into Disorder”.

Economists see competition as a positive in almost all areas, certainly better than the alternative of an uncontrolled monopoly, explains Eswar S. Prasad, professor of trade policy and economics at Cornell University in the US.

However, he points out that the basic notions of economics do not always apply in the complex world of geopolitics, and the current situation perfectly demonstrates this.

“Uber's Competition with Lyft”

The professor from Cornell begins his argumentation by providing an example of the success of Uber, the ride-sharing application also present in Romania, which revolutionized a field dominated until then by taximetry.

“Uber's technology to connect people looking for transportation with people willing to provide it has been remarkable, but it is the competition that has forced the company to evolve.”

“Uber's competition with Lyft and other ride-sharing apps in different countries keeps prices low for passengers and forces these companies to continuously innovate and manage costs,” argues Professor Prasad.

This is also true for American tech giants like Apple or Microsoft. If the two companies were able to compete fiercely in the market, “Google's dominance as a search engine and for other services arguably gives it undue power that is not in the best interests of consumers.”

Why the situation is different in geopolitics

The professor from Cornell, one of the most prestigious American universities, starts from this comparison regarding the “domination of Google” in explaining the geopolitical reality.

“The logic behind this idea—that power concentrated in the hands of one or a few is less beneficial to society than a system where power is shared among many—is the driving force behind the democratic principles that the West holds so dear. However, a unipolar world is not without its advantages,” he explains.

Only the fact that so many states that want nuclear weapons, because they no longer have the security of a stable international system, tells us something.

When the dominance of a responsible state can be beneficial

If the economists cited at the beginning of the argument talk about the need for competition on the economic market, Professor Prasad points out that global politics presents other characteristics.

“A hegemonic power willing to exercise leadership and use its influence to maintain a rules-based system can contribute to stability. For most of the post-World War II period, the United States has willingly accepted this role, but its aggressive approach to maintaining order has drawn legitimate criticism,” he says.

What changes when we no longer have a hegemon

This decades-old US interest shows signs of changing under President Donald Trump, argues the professor who also presents how geopolitics can change if we move from a hegemon to a competition between states.

“The shift from a unipolar world, in which the United States and its Western allies dominate in all areas of global competition and influence, to one in which new powers such as China and India are asserting their presence should provide opportunities for greater stability as countries use their power constructively for fear of losing influence. At least, that's the theory. The reality turns out to be quite different,” he explains.

A downside to this global shift is that intensifying competition among states to dominate the global order “fuels destabilization and tribalism as the world moves toward a new order in which instability appears to be commonplace.”

“Some may find solace in the hope that this turmoil is simply the result of the world adjusting to a reconfiguration of economic and financial power, and that eventually things will settle into a new and more stable equilibrium. However, this is not the case. In fact, I argue that the forces that should be pushing the world toward balance are deepening divisions and inciting disorder, rather than fostering stability,” adds Eswar Prasad.

What are the effects of competition in geopolitical terms

The professor recalls that this collaboration, rather than competition, between states has led American firms to invest heavily in China as they build their global supply chains. For its part, China has benefited from the technology brought by these companies. The companies were thus in a position to plead before both governments for policies that would contribute to maintaining good relations between the two parties.

But after the USA was no longer hegemon and the world moved to a competition, everything changed substantially.

Amid rising bilateral tensions and growing hostility from the Chinese government, American companies have begun pulling out of China. Similarly, Chinese firms operating in the United States have come under tighter scrutiny.

Here, he gives the example of the TikTok app, where the US administrations, both Biden and Trump, campaigned for a switch from a China-based owner to one in the US.

“Furthermore, it is not just American and Chinese companies that are changing their behavior in the face of the growing hostility they face in each other's countries. Global trade in intermediate goods, final consumer goods, and even technology is being reorganized as firms seek to manage their supply chains through friendlier countries that have established better relations with their home countries. Financial capital flows are similarly reorienting along geopolitical fissures, deepening rather than ending these fractures,” he explains.

What the future looks like

“Globalization, the expansion of international trade and financial flows, which took off in the mid-1980s, has brought many benefits,” explains the Cornell professor.

“The countries saw a future of shared prosperity, with improved living standards, which not only supported the transition to open and democratic societies, but also gave political leaders a reason to reduce geopolitical tensions that could have harmed economic and financial integration.”

Recent changes are causing the links between economics, domestic politics and geopolitics to spin out of control and become destructive on all fronts. Also, the populist appeal that is registered in more and more states has brought to power leaders who have undermined democratic institutions and are hostile to globalization.

“Therefore, the prospects of a multipolar world create new dangers, instead of removing the old ones. The forces that should promote stability, I argue, have been perverted and become instruments of instability. Instead of being in a transitional phase towards a calmer and more orderly system, we find ourselves in a deeply disturbed new world, where destabilization has become the norm”, concludes the professor.