How governments are weaponising the private sector

Con­tem­por­ary geo­pol­it­ic­al ten­sions are no longer con­fined to bor­ders, mil­it­ary alli­ances or tra­di­tion­al dip­lo­mat­ic rela­tions. Rather, they are increas­ingly unfold­ing with­in the very struc­tures of the glob­al eco­nomy, through sup­ply chains, digit­al infra­struc­tures, fin­an­cial net­works and advanced tech­no­lo­gies on which states depend. The restric­tions imposed by the United States on exports of advanced semi­con­duct­ors to China clearly illus­trate this shift in inter­na­tion­al power rela­tions¹. By tar­get­ing Beijing’s access to crit­ic­al tech­no­lo­gies, Wash­ing­ton is no longer rely­ing solely on tra­di­tion­al trade instru­ments, but is instead dir­ectly mobil­ising the com­pan­ies that design, man­u­fac­ture or con­trol com­pon­ents now essen­tial to arti­fi­cial intel­li­gence, high-per­form­ance com­put­ing and mil­it­ary capabilities.

This grow­ing entan­gle­ment between state interests and private infra­struc­tures extends far bey­ond the semi­con­duct­or industry. In Ukraine, Starlink’s satel­lite sys­tems acquired such stra­tegic import­ance that the Pentagon signed an agree­ment with SpaceX to guar­an­tee the con­tinu­ity of Ukrain­i­an com­mu­nic­a­tions². At the same time, US extra­ter­rit­ori­al sanc­tions demon­strate how a state can exert leg­al and fin­an­cial pres­sure on for­eign com­pan­ies oper­at­ing bey­ond its own ter­rit­ory³. Hence, mul­tina­tion­al cor­por­a­tions are no longer purely eco­nom­ic act­ors evolving with­in a rel­at­ively autonom­ous glob­al­ised mar­ket­place, they are pro­gress­ively becom­ing vec­tors of power, instru­ments of coer­cion and, in some cases, act­ors cap­able of influ­en­cing dip­lo­mat­ic and secur­ity bal­ances themselves.

This evol­u­tion is now fuel­ling debates over tech­no­lo­gic­al sov­er­eignty and stra­tegic autonomy; par­tic­u­larly in Europe, where depend­ence on for­eign infra­struc­tures, wheth­er cloud ser­vices, semi­con­duct­ors or satel­lite cap­ab­il­it­ies, increas­ingly appears as much a polit­ic­al vul­ner­ab­il­ity as an eco­nom­ic one⁴. Cor­ne­lia Woll, Pro­fess­or of Inter­na­tion­al Polit­ic­al Eco­nomy at the Her­tie School and spe­cial­ist in the rela­tions between states, mar­kets and mul­tina­tion­al cor­por­a­tions, focuses on the way private com­pan­ies have become cent­ral instru­ments of con­tem­por­ary geo­pol­it­ic­al rival­ries. Her research on the extra­ter­rit­ori­al reach of Amer­ic­an law sheds light on how mul­tina­tion­al firms can become, vol­un­tar­ily or under con­straint, instru­ments of today’s geo­pol­it­ic­al power struggles⁵.

What is often referred to as “eco­nom­ic state­craft”, mean­ing the use of the eco­nomy for nation­al secur­ity pur­poses, is not new. States have always used eco­nom­ic instru­ments as tools of power. Tra­di­tion­ally, con­flicts between states were under­stood through bor­ders or con­ven­tion­al trade wars based on tar­iffs. What we are see­ing now, how­ever, is that the inter­con­nec­ted­ness of the glob­al eco­nomy has itself become an instru­ment of state power. Gov­ern­ments increas­ingly rely on com­pan­ies because these firms con­trol stra­tegic infra­struc­tures, tech­no­lo­gies and flows. These can be domest­ic com­pan­ies as well as for­eign ones.

There is a body of lit­er­at­ure on what is called “weapon­ised inter­de­pend­ence”, mean­ing the use of glob­al eco­nom­ic inter­de­pend­ence as a weapon against rivals. This logic rests in par­tic­u­lar on two mech­an­isms. The first involves choke­points, stra­tegic pas­sages cap­able of strangling the glob­al eco­nomy. A state con­trolling an area such as the Strait of Hor­muz can exert con­sid­er­able pres­sure because a cru­cial share of world trade depends on these mari­time routes. By con­trolling such pas­sages, states can obtain polit­ic­al or eco­nom­ic con­ces­sions from oth­er actors.

Because com­pan­ies con­trol energy infra­struc­tures, data sys­tems, crit­ic­al tech­no­lo­gies or semi­con­duct­ors, they become cent­ral to the exer­cise of state power.

The second mech­an­ism is some­times referred to as the “pan­op­ticon effect”, namely the abil­ity to mon­it­or glob­al eco­nom­ic flows. Through fin­an­cial trans­ac­tions, digit­al infra­struc­tures or data, some gov­ern­ments can know who is exchan­ging with whom and inter­vene dir­ectly in those flows. This enables the imple­ment­a­tion of highly tar­geted sanc­tions, for example. This logic expan­ded sig­ni­fic­antly after Septem­ber 11^th, when the United States developed tools aimed at track­ing fin­an­cial flows linked to terrorism.

Because com­pan­ies con­trol energy infra­struc­tures, data sys­tems, crit­ic­al tech­no­lo­gies or semi­con­duct­ors, they become cent­ral to the exer­cise of state power and inev­it­ably find them­selves caught in con­tem­por­ary geo­pol­it­ic­al ten­sions. As a res­ult, com­pan­ies oper­at­ing in sec­tors such as semi­con­duct­ors, energy, infra­struc­tures or data are now deeply embed­ded in geo­pol­it­ic­al con­flicts because they have become cent­ral to the exer­cise of state power.

Over the past two dec­ades, and even more so dur­ing the last ten years, it has become increas­ingly clear that states are will­ing to use mul­tina­tion­al cor­por­a­tions stra­tegic­ally because of the role they play in geo­pol­it­ic­al com­pet­i­tion. My work focuses in par­tic­u­lar on cor­por­ate crim­in­al law and the way it is used extra­ter­rit­ori­ally to pres­sure com­pan­ies. A mul­tina­tion­al cor­por­a­tion can be tar­geted even when it oper­ates out­side the ter­rit­ory of the state impos­ing the sanctions.

For example, if the French bank BNP Pari­bas oper­at­ing in Switzer­land con­ducts busi­ness with Iran, the US gov­ern­ment can still pro­sec­ute it under Amer­ic­an law. A com­pany that does not cooper­ate puts into danger its glob­al oper­a­tions and all activ­it­ies in the US mar­ket. This is essen­tially how sanc­tions work. Gov­ern­ments tell com­pan­ies not to do busi­ness with cer­tain coun­tries and threaten pro­sec­u­tion if they do. This mech­an­ism already exis­ted in the past, but com­pan­ies were able to escape this kind of pres­sure, for example by set­ting up sub­si­di­ar­ies. Today, mul­tina­tion­al cor­por­a­tions know that states can effect­ively reach them through leg­al instru­ments and fin­an­cial sanctions.

Stra­tegic autonomy remains more of an ambi­tion than a real­ity in Europe today. European gov­ern­ments increas­ingly recog­nise the import­ance of hav­ing their own tech­no­logy com­pan­ies, their own satel­lite sys­tems and energy sup­plies that can­not eas­ily be dis­rup­ted by extern­al act­ors. But achiev­ing stra­tegic autonomy is dif­fi­cult. One pos­sible approach is to strengthen nation­al or region­al com­pan­ies that gov­ern­ments con­sider more reli­able or easi­er to influ­ence. Anoth­er essen­tial strategy is diver­si­fic­a­tion. When a state depends on a single com­pany for crit­ic­al infra­struc­tures such as satel­lite sys­tems, it becomes vul­ner­able regard­less of that company’s nation­al­ity. If that com­pany stops cooper­at­ing, the prob­lem imme­di­ately becomes critical.

The risk lies pre­cisely in the trans­fer of essen­tial state func­tions to private act­ors that are not demo­crat­ic­ally account­able. At the same time, I think it would prob­ably be unreal­ist­ic today to ima­gine that all these activ­it­ies could be entirely man­aged by pub­lic struc­tures alone, as may per­haps have been con­ceiv­able sev­er­al dec­ades ago. Private com­pan­ies will there­fore con­tin­ue to play a major role, some­times in part­ner­ship with pub­lic author­it­ies and some­times in com­pet­i­tion with them. The cent­ral issue is there­fore to ensure suf­fi­cient diver­si­fic­a­tion and pre­vent any single private com­pany from gain­ing excess­ive con­trol over stra­tegic state func­tions. This dir­ectly relates to the broad­er object­ive of stra­tegic autonomy.

Oper­at­ing across sev­er­al geo­pol­it­ic­al regions rep­res­ents both a risk and a form of pro­tec­tion for mul­tina­tion­al cor­por­a­tions. For busi­ness lead­ers, this geo­graph­ic diver­si­fic­a­tion helps reduce expos­ure to instabil­ity in any single mar­ket. If geo­pol­it­ic­al ten­sions become too severe in one region, com­pan­ies may still rely on oth­er areas to main­tain their activ­it­ies. At the same time, this situ­ation also raises sig­ni­fic­ant issues in terms of demo­crat­ic account­ab­il­ity, because these com­pan­ies oper­ate between com­pet­ing polit­ic­al sys­tems and stra­tegic interests.

I prefer to remain optim­ist­ic. There is now a stronger aware­ness of the need to mon­it­or and reg­u­late the bal­ance of power between states and cor­por­a­tions, and I see this as a pos­it­ive devel­op­ment. States already remain act­ive par­ti­cipants in sev­er­al of these areas. I am par­tic­u­larly inter­ested in digit­al cur­ren­cies and the efforts being made in Europe to main­tain reg­u­lat­ory con­trol over future digit­al pay­ment sys­tems. I believe this pub­lic involve­ment is important.

At the same time, it is pos­sible that extremely power­ful private act­ors will con­tin­ue to gain influ­ence, par­tic­u­larly in the tech­no­logy and data sec­tors. Since these com­pan­ies are not polit­ic­ally account­able, states must remain cap­able of reg­u­lat­ing these stra­tegic spaces. But this remains an ongo­ing struggle, and we will have to see how this bal­ance evolves in the years ahead.

Interview by Aicha Fall