Is BRIC Triggering “New Thinking”?

On the eve of BRIC Alliance Summit opening tomorrow in Brasil we are republishing a last-year article by the German observer Michael LIEBIG as an introduction for coming analysis…

The BRIC countries – Brazil, Russia, India, and China – are no longer content with being invited to the G20 and G8 summits by the West. They just held their own BRIC summit in Yekaterinburg. And the London Economist has discovered that the BRIC economies have “decoupled” from the crisis in the West. Indeed, they have decoupled, but not just in economic and financial terms.

A little bit more than one year ago (article originally published by Solon-Line in June 2009 – OR), on May 16, 2008, the first “stand alone” foreign ministers meeting of the BRIC states – Brazil, Russia, India, and China – took place in the Russian city Yekaterinburg. In the international mainstream media the BRIC meeting remained mostly unnoticed. Three days before the BRIC meeting, German foreign minister Steinmeier had also been in Yekaterinburg, where he had talks with his Russian colleague Lavrov and delivered a noteworthy speech. In reference to Alexander von Humboldt, Steinmeier spoke of a “new surveying” of international politics: „New power centres have emerged; in Asia, in the Gulf, in Latin America, even in Africa. The weights are shifting in the world. Compared to the last century, more states and regions will influence and shape the world.”
Eleven months later, on June 16, 2009, the first summit of BRIC heads of state took place in Yekaterinburg, attended by Luiz Ignacio Lula da Silva, Dimitry Medvedev, Manmohan Singh and Hu Jintao. Two days earlier, also in Yekaterinburg, the 9th summit of the “Shanghai Cooperation Organization” (SCO) had taken place. Full members of the SCO are Russia, China, Kazakhstan, Kirgystan, Uzbekistan and Tajikistan; India, Pakistan, Iran and Mongolia have observer status.
Again, the interest of the western mainstream media in the SCO and BRIC summits was subdued – with notable exceptions, as we will see in a moment.
Alexander Rahr from the German Society for Foreign Affairs (DGAP) told Bloomberg on June 15: „Very few people take SCO and BRIC seriously. One day the West will wake up and find out that it has slept though a historical development“.
Often, the SCO is dismissed as a mere “regional” enterprise – the states involved with about 1.5 billion citizens are covering “only” about half of the Eurasian land mass, one may add. With BRIC, such a view becomes even more absurd, its member states are on three continents and have about 2.8 billion citizens – or about 40% of the world population. The geopolitical weight of the BRIC states on the world scene is undeniable and BRIC’s share in the world economy stands at roughly 25% – combined with an essentially unbroken growth dynamic, in spite of the supposedly “global” financial- economic crisis.
The “Others” Get Together
The unease, to put it mildly, with which Western politics and media treat SCO and BRIC is probably due to the fact that these are non-western cooperation formats. The USA, European Union and Japan are simply not involved. And exactly that makes the Yekaterinburg SCO and BRIC summits so special: No West there.
That’s a new and disturbing challenge for the western mind, as demonstrated by the way the Frankfurter Allgemeine Zeitung has covered the BRIC summit: By reporting about a conference of the Deutsche Bank Foundation and the Brookings Instiution – in Washington. The FAZ summed up the results of this conference in following, somewhat puzzling fashion: It is doubtful „whether the rise of these [BRIC-]countries will indeed continue unbroken?“ And, „this power shift is mostly relative: The West, above all the United States, is merely loosing power and influence in relative terms… [I]n absolute terms, they are still ahead of the others.“: However, immediately thereafter, the FAZ claims that the BRIC states pursue „neoimperial dreams“ and “big power politics”, while refusing to accept the “responsibilities” of global governance.
There are some basic political-epistomological patterns in the western mind: How could there be anything of importance in international affairs, if the West is not actively involved? After all, since 1492, one has been accustomed to the fact that all significant events – even in the most distant corners of the globe – are ultimately determined by Europe and/or America. This has been world political ontology for half a millennium. That the “others” get together now – without the West – is indeed a new and irritating experience.
Not surprisingly, such a mental challenge generates a defensive reflex: What shall not be, cannot be. So one simply adds up the internal problems of the different BRIC states (and they do have many), further adds a list of their putative problems then emphasizes the diversity and/or differing interests of these four powers – and the world is back “in order“.
Up to the escalation of the financial crisis last Autumn, this “world view” seemed almost self-evident. However, when the crisis hit, it cracked, even if many western actors have not realized it yet. The financial crisis and the subsequent economic crisis are “homegrown” – in the West. In the core area of American “world leadership” – finances and economy, which are more important than military power – disaster struck. The psychological and the epistomological consequences of this systemic failure in the West are really huge and will become fully evident only as time passes by.
The “Others” Do It Their Way
Right “after Lehman,” a new defensive reflex set in: The Anglo-Saxon systemic failure was quickly reinterpreted as a “world financial crisis” or “worldwide economic crisis”. Suddenly, the whole world was “sitting in one boat“ – as if the whole world had acted in exactly the same way as the USA, Great Britain or parts of continental Europe.
But the “others” had behaved very differently. The political and economic leaders of Asia, in particular, must have rubbed their eyes on account of this “world financial crisis”. Ten years “before Lehman,” they had pulled the emergency brake and contained the worst Anglo-Saxon finance methods by regulation. They had drawn their conclusions from the “Asian crisis” in 1997 – and since their economies have grown even faster.
At June the 13th an article in the Frankfurter Allgemeine Zeitung gave some insight into the thinking of the Chinese leaders. The article, titled “A Slap in the Face of Western Top Bankers“, covered this year’s conference of the “Institute of International Finance” (IIF), a group of leading international bankers, in Beijing. The Chinese participants scolded the western bankers quite undiplomaticly: “The fish stinks from the head,” said China’s most senior banking supervisor, Liu Mingkang, “China has some good prescriptions; you can get them for free.“ Other Chinese participants spoke of “arrogance”, “irresponsibility” and “hubris” of western top bankers – „up until everything broke down“.
During the past months, I have been surprised more than once how many respectable people have swallowed the thesis of a “global” crisis. “Decoupling” from the (America-centred) crisis was deemed impossible. The USA was the key to solving the crisis and the “rest” depended on President Obama fixing the mess.
In particular in Asia, the situation was perceived in quite different terms: The Chinese knew that their exports – primarily to the USA – would plummet. Already in November 2008, China launched a $600 billion program which flowed mainly into the real economy, strengthening the domestic market. (A far bigger “stimulus program” in the USA is mainly supporting the de facto bankrupt finance sector). The result is that the Chinese economy has grown in the first half-year of 2009 by about 6%. – in spite of a 25% slump in exports. And the Indian economy grows by about 4%. The Brazilian economy might end up with zero growth in 2009, but even the IMF expects the resumption of economic growth in 2010. Russia was hard hit by the steep fall of prices for energy and raw materials in the first half-year in 2009, but also here the trend is shifting.
“Might there be something to decoupling after all?”
So, is there a “decoupling” of the BRIC economies from the American and European-centred crisis with up to two-digit negative growth? Somewhat surprisingly, exactly that seems to be the opinion of The Economist.
In its June 20 edition, the London Economist features a lengthy article on the BRIC summit in Yekaterinburg, titled “Not Just Straw Men.” After the first sentences, one is barely tempted to read through the whole piece. It is claimed that “this disparate quartet signally failed to rival the Group of Eight industrial countries as a forum for economic discussion.” One wonders: Has anything of substance come out of the past years’ G8 summits? With the crisis escalation in 2008, the failure of the US-dominated G8 had become so glaringly obvious that the G8 format had to be changed to the G20 format. The West had to turn to the BRIC states.
The strategic positions of the BRIC states on the reorganisation of the international financial system and the world economy are well known. They were clearly articulated before, at and after the London G20 summit. China and Russia did so offensively, Brazil and India have been a little more cautious:
1. Strict regulation and supervision of the finance markets worldwide.
2. An orderly, phased exit out of a world monetary regime based on the US dollar as a world reserve currency.
Restructuring the IMF and an upgraded role of the IMF’s Special Drawing Rights (SDR) as a transitional world reserve mechanism.
3. The creation of a new world reserve currency based on a basket of raw materials and currencies in the longer term.
Also with regard to the stimulation of the real economy, the strengthening of domestic markets and infrastructure investments there is much agreement among BRIC states. And this is also valid for trade and currency relations within the BRIC group (and towards third states). Intra-BRIC trade relations are to be expanded and financial transactions should increasingly be settled in BRIC currencies.
More importantly, the Chinese and Russian governments do not just talk about their financial and economic reform projects. No, the reform aims of the BRIC states are being implemented. That may happen mostly in rather unspectacular ways, but these apparently „small steps“ add up to a new reality in world financial and economic affairs. Could one have imagined five years ago that China would become the biggest trading partner of India or Brazil? Who would had thought that more and more international commercial contracts are no longer denominated in US dollars?
But, let’s come back to the Economist’s coverage of the BRIC summit: It acknowledges that “the biggest emerging economies are rebounding, even without recovery in the West.” That seems puzzling, because “one would expect that there would be less decoupling because of globalization.” In reality however, “the BRICs are recovering.“ Thus, the Economist cannot evade asking the question “Might there be something to decoupling after all?” And then answers affirmatively by referring to a study of Ayhan Fondling of the IMF, Christopher Otrok from of the University of Virginia and Eswar Prasad of Cornell University. The study, written already in mid-2008, came to the conclusion that “the business cycles of rich and emerging markets had decoupled.”
The “Economist” Discovers “Deeper Tends” in the BRIC States
The Economist tries to explain why it ignored the study for a year: “When this study came out in mid-2008 the worldwide crash seemed to render it instantly obsolete. Yet the sheer size of the meltdown may temporarily have swamped deeper trends that are now reasserting themselves as the initial shock recedes.”
These “deeper trends,” explains the Economist, “mean not simply that emerging markets tend to grow faster than rich industrial ones, although that is certainly true; it implies that to some extent the two groups dance to different tunes, with emerging markets growing or shrinking autonomously, not just under the influence of the rich ones.”
The Economist then tries to find the reasons for the “autonomy” of the BRIC economies: First, they are far less dependent on exports and for more oriented towards domestic markets than generally assumed. „Brazil and India export less than 15% of their GDP. Also China exports less than many people believe.“ The big BRIC economies can turn „to the millions of local consumers,” if foreign markets fail. Today, the Chinese auto market is as big as America’s, just three years ago US car sales were 50% higher than China’s. Not only is the “size” of the BRIC economies key, they „are also much more diversified“ than most people think. India, for example, exports „not only textiles or cheap electronics, but … ships, petrochemical products, steel and business services“, tells us the Economist. Well, who would have thought that?
And, notes the Economist, the BRIC states were „carefully with the liberalisation of their financial systems“, which is why they are affected “far less by the western financial heart attack”. Finally, the BRIC governments have “dramatically increased government spending” – primarily towards the real economy, one should add. And these government programmes are not only big „but also effective,“ admits the Economist.
What the Economist is telling us here, is not particularly original. That the Economist would now tell us all of this, is, however, quite remarkable. I would suspect that the BRIC summit in Yekaterinburg has indeed triggered some peculiar thought processes.
And this might be quite relevant for this year’s G8 summit which will take place on the 8th-10th of July in the Italian provincial town of L’Aquila. It might indicate a veiled symbolism that 10 months “after Lehman”, the “Annual World Economic Summit” is held in a town devastated by an earthquake. However, in L’Aquila there won’t be a “traditional” G8 summit – the leaders of the BRIC states will all be there. And, they won’t be sitting at the summit’s side table as in recent years. Some clever western strategists might think that giving the BRIC states the “status” of belonging to the “club” would make them happy and content. They haven’t understood yet that the BRIC states have “decoupled” from the West not just in economic terms. And that’s why they got together for their own summit in Yekaterinburg.

Source: Solon-Line (Germany)

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