By Dragan Vitorovic
The Impossible Trinity is well-known consideration of policy responses to international capital flows, stating that the open economy cannot be combined with the regime of targeting the exchange rate, while at the same time central bank maintains its independence from the full-fledged political circles.
In some circles, this phenomenon is called the “policy trilemma.” While being useful for the emphasis of trade-offs faced by decision-makers on the central-state levels, policy trilemma could also be used as a metaphor for the blueprint of the foreign policy of the Republic of Serbia. There are several reasons for this approach.
First, foreign policy and policy on capital flows are strategic policies of every country. Both components set the trajectories for the long-term orientation, in an economic sense, and simultaneously convey the political messages towards the international system. There is no need to mention the level of interdependency between the economic design of a country and its perceived alliance in the global political arena.
Second, there are not many parallels drawn in the literature between the two strategic policy dimensions. It could be interesting to adapt the observation from the monetary theory, developed by Mundell and Fleming, for purposes of the foreign policy analysis.
Finally, there are numerous approaches to the analysis of foreign policy, and it could be hypothesized that Serbian foreign policymaking, along with other intellectual platforms, heavily relies on cognitive mapping approach. Arguably, the complexity of international relations, and Serbian geographical and historical positions, had positioned the foreign policy of Serbia around the notion of the Impossible Trinity.
The Foreign Policy through the Lenses of Cognitive Mapping
Cognitive mapping, according to the research paper of Tetlock and McGuire, Jr, is a methodological approach used by policymakers, reliant on their cognitive representations. Decision-makers generally have more beliefs than they can manage, so they must simplify the environment. In doing so, they rely on past experiences and previous knowledge structures, when attempting to make a decision that is rational, relevant, and possesses a certain level of confidence in the correctness of the decision. Finally, it should be precisely communicated with the other stakeholders.
Cognitive maps consist of two elements: concepts, marked as points, and casual beliefs that link the concepts. Causal beliefs are represented as arrows connecting the points. Cognitive maps are relatively simple tools, where values have been assigned to concepts, and causal beliefs may switch between concepts relatively easy. It is a circumstances-driven platform.
Certainly, the task of applying the cognitive mapping to the real world is far from being straightforward, and policymakers need to adopt the positive heuristics when addressing the strategic issues, even within this simplified tool. Given the complexity of issues, a multitude of biases, and psycho-cognitive challenges, policymakers are often faced with tasks that have no clear-cut response.
The foreign policy analysis requires much more tools and platforms then presented in this brief report, however, cognitive mapping deserves to be mentioned as a tool that might be adopted in the environment of heightened uncertainty.
Global Trends in Military Expenditures
Global military expenditure sees the largest annual increase in a decade, reaching 1917 USD billion in 2019, according to the SIPRI report from April this year. In percentage terms, and in constant prices of 2018, it makes 2.2 percent of the global Gross Domestic Product. Given the specific period, 3.6 percent are year-on-year increase, where 62 percent of the overall expenditure is attributed to the US, China, India, Russia, and Saudi Arabia. Overall, this is 7.2 percent higher than in 2010. What might be seen as interesting is that the increase in Europe is led by Germany, which increased its expenditure for 10 percent.
In percentages, and in constant prices of 2018, the military spending has reached 2.2 percent of global Gross Domestic Product. While it will be interesting to see numbers next year, concerning the pandemic, there is no doubt that the composition of military expenditure per country has an important political dimension. It becomes increasingly difficult to disentangle the security dimension from the political alliances when it comes to military spending and its overextended implications.
As recent events show, countries tend to make purchases of highly sophisticated systems, despite the structural deficit of trained personnel at home, so that they can receive political concession from the Great Powers.
Serbia has a long tradition of military spending and military development. It is placed as the third country in the world concerning the transparency of statistics on small guns and light weapons, and 36th in the world when the integration levels between the society and military are considered. Additionally, Serbia has increased its police and military spending tenfold, within a period from 2015 to 2019. Security spending makes 1.1% GDP of Serbia. It is a significant part of the aggregate capital investments, according to Serbian specialized magazine Nova ekonomija.
What Military Expenditure can tell us about Serbian Impossible Trinity?
In terms of military and security alliances, Serbia declared its neutrality in 2007. Serbian foreign policy is exposed and susceptible to at least three Great Powers: the EU/ USA, Russia, and China. From the aspects of finance, trade, and economic integration, Serbia is dependent on partners originating from the Euro-Atlantic bloc. However, given the political challenges that Serbia faces, arguably the most pressing being the issue with Kosovo, Serbia must balance its policy accordingly, meaning that it should account for strong influences coming from Russia and China, two Great Powers commonly described as the challengers in the international system.
Until recently, the Serbian security component was reliant on domestically developed and Russian-based military systems. It tends to change since Serbia has recently received reconnaissance drones from China (six CH-92A), and this, in combination with announced purchase of Chinese anti-aircraft missile system FK – 3, raised many eyebrows in the EU, USA, and even Russia.
Such perplexing move maps Serbia as the first European country which purchased/received the advanced Chinese military technology, and currently it has provoked various, carefully worded reactions from other Great Powers. As expected, both Russia and the EU/USA interpreted this move of Serbia primarily as a political message.
Despite the significant probability that the multipolar international order will emerge as the prevalent structure in a relatively close future, small states are still not in a position to pursue diversification of their security and finance designs. Unlikely as in finance, diversification in political and security domains may exacerbate the looming risks that small countries face.
In the Serbian case, while the EU/USA may occasionally express their mild understanding towards Serbian military neutrality, the presence of Chinese military technology may have repercussions, most likely in some form of the soft economic embargo. Additionally, the Russian perspective on possible developments may be cold as well, given that Russia and China have much less in common than is often presented in media.
Instead of Conclusion
The strategic choices made by policymakers are often blurry and, in some cases, the impossible trinity is less “impossible” if micro-policy responses can temporarily mitigate geopolitical risks (under general circumstances, similar tactical moves buy additional time, at best). Unfortunately, positive heuristics and cognitive mapping are not nearly enough to address complex and multilayered political challenges. Decision-makers are in constant search of intellectual tools that would assist them in constructing well-informed, forward-looking decisions.
Although both the foreign policy and the economic policy on capital flows are vital for the proper functioning of the state system, not many theories are drawing parallels between the two. It may appear that the policy alignment of a specific state is not that frequently discussed in public, for reasons that are possibly both country-specific and confidential. However, it would be possible to conduct an intellectual experiment and to hypothesize that the foreign policy of a country bears similarities with the policy on capital flows, although in a less visible manner.
Serbian foreign policy is conditioned by several aspects. However, given the specific geopolitical situation of Serbia, the domestic policy will remain an important, even disproportionate component embedded in the overall design of the Serbian foreign policy.
(The opinions expressed in this article are solely those of the author and do not necessarily reflect the views of World Geostrategic Insights).