Economics for the Global Economic Order: The Tragedy of Epic Fail Equilibria

Abstract

This paper casts within a unified economic framework some key challenges for the global economic order: de-globalization; the rising impracticability of global cooperation; and the increasingly confrontational nature of Great Power competition. In these, economics has been weaponised in the service of national interest. This need be no bad thing. History provides examples where greater openness and freer trade emerge from nations seeking only to advance their own self-interests. But the cases described in the paper provide mixed signals. We find that some developments do draw on a growing zero-sum perception to economic and political engagement. That zero-sum explanation alone, however, is crucially inadequate. Self-serving nations, even when believing the world zero-sum, have under certain circumstances produced outcomes that have benefited all. In other circumstances, perfectly-predicted losses have instead resulted on all sides. Such lose-lose outcomes—epic fail equilibria—generalize the Prisoner’s Dilemma game and are strictly worse than zero-sum. In our analysis, Third Nations—those not frontline in Great Power rivalry—can serve an essential role in averting epic fail outcomes. The policy implication is that Third Nations need to provide platforms that will gently and unobtrusively nudge Great Powers away from epic-fail equilibria and towards inadvertent cooperation.