By leveraging its ties with non-western powers, BRICS can check US hegemony
Leaders of the five BRICS countries (Brazil, Russia, India, China and South Africa) held their sixth annual meeting on 15-16 July in Fortaleza, Brazil. The major deliverable from the summit was economic in form and content, but its significance is primarily geopolitical. From a turn of phrase by Jim O?Neill of Goldman Sachs in 2001, a grouping was born in 2009. It is not the product of diplomatic negotiations based on shared political values or common economic interests. They make up 40 percent of world population, 20 percent of world GDP, 15 percent of world trade and account for two-thirds of world growth. They enjoy the competitive edge in different areas from abundant natural resources to strengths in manufacturing, it and biotechnology.
By 2025, the G-8 ? the world?s eight biggest economies ? is likely to be, in order, the US, China, India, Japan, Germany, UK, France and Russia. BRICS serves as the key tag of the major emerging markets whose economic growth will outstrip and anchor the rest of the world. But it has been viewed with scepticism because of the diversity and spread of continents, political systems, values and economic models.
The natives are getting restless
Last October, President Dilma Rousseff was to be the first Brazilian leader in two decades to attend a White House dinner. Instead, angered by revelations that her personal phone calls and emails had been intercepted by the US National Security Agency (NSA), she became the first leader to cancel a State dinner hosted by a US president, lambasting American surveillance as a violation of international law and a ?totally unacceptable? infringement of Brazil?s sovereignty. Russia?s President Vladimir Putin is routinely demonised these days by American political leaders and media commentators as the second coming of Hitler (the downed Malaysia Airlines plane won?t help). Narendra Modi was on the US visa denial list for nine years (2005-14). It takes a particular skill to position oneself offside with leaders of three of the most important emerging powers.
Russia is being subjected to sanctions for its annexation of Crimea ? which was Russian for several centuries and was voluntarily ?gifted? to the Ukraine by Nikita Khrushchev ? despite the very concrete threats to its Russian-speaking population and to Russia?s core vital national security interests, a referendum whose margins of results may be questioned but not the overall outcome, and not one fatality.
The countries censuring Russia and imposing sanctions on it were responsible for the 2003 Iraq War whose legal and security justification was far more tenuous, the theatre was geographically distant not contiguous, and whose humanitarian and geopolitical consequences were far more horrific and destabilising.
Last December, a junior Indian diplomat, Devyani Khobragade, was arrested and strip-searched over labour laws and wage disputes in a deliberate subordination of international conventions to domestic US law, when American diplomats posted abroad have been muscularly shielded from domestic laws even when they have killed host nationals. Chinese officials have been charged with cyber-espionage after the public revelations of the industrial-scale mass surveillance activities of the NSA. Beijing is told to solve its maritime disputes in accordance with the United Nations Convention on the Law of the Seas ? to which Washington is not party.
The hubris and arrogance of the US-led West is so breathtaking as to be scarcely believable, as though they are blind or indifferent to how others see them.
BRICS-5 as a counterpoint to G-7
That same contempt for others? voices, values and interests lies behind the creation, consolidation and evolution of the BRICS and their key decisions at the Fortaleza summit. The term was coined as a shorthand proxy to describe the shift in market power and geopolitical clout from the developed economies of the G-7 towards the large and populous emerging market economies. As last year?s?Human Development Report?put it, ?The rise of the South is unprecedented in its speed and scale.? Moreover: ?For the first time in 150 years, the combined output of the developing world?s three leading economies ? Brazil, China and India ? is about equal to the combined gdp of the long-standing industrial powers of the North ? Canada, France, Germany, Italy, the United Kingdom and United States.?
BRICS is among the confetti of ?G? groups that dot the contemporary international political, security and economic landscape. In the constellation of G groups, the G-7 is the body that brings together the big rich economies (Canada, France, Germany, Italy, Japan, the UK and the US); BRICS brings together the big emerging powers; the G-77 is the international trade union equivalent of the poor developing countries; and the G-20 tries to ensure that the big countries from the global North and South work collaboratively rather than confrontationally to address common global challenges. In its logic, although not in practice, the G-20 is meant to be the forum of the countries of the world with global clout: all countries that have global clout and only those countries with clout.
The BRICS comprise those emerging powers whose rapidly growing economies, substantial populations, military capabilities and expanding diplomatic reach translate into rising power profiles. They pose a challenge to the US-dominated global architecture comprising the United Nations, World Bank and IMF trinity. On the eve of the first summit in Russia in 2009, Brazil?s then president, Lula da Silva, wrote of ?broken paradigms and failing multilateral institutions?. The deficiencies have eroded the legitimacy and credibility of the international institutions and fostered mistrust between the global North and South. However, can the BRICS morph from a countervailing economic grouping to a powerful political alternative? Or is BRICS a construct of the social media-driven marketplace of ideas ? an attention-grabbing glib phrase in which speed is a substitute for and trumps quality and depth of analysis?
Lack of unity, coherence and focus
Similar stances on a few contentious international issues are not enough to offset the crisis of identity caused by differing and sometimes clashing national priorities. The BRICS-5 are far from homogeneous in interests, values and policy preferences that leaves them open to the dismissive comment that the BRICS lack the necessary cement to bind them together. On some issues they have common interests with one another, while on others they compete against one another and collaborate with selected western powers. For example, India might join the US in a hedging strategy against China?s rapidly growing military footprint and assertive behaviour across Asia-Pacific, but team up with China against Europe and the US on greenhouse gas emission targets. The G-7 spread of per capita incomes (purchasing power parity dollars for 2013, using World Bank data) ranges from a low of $34,303 for Italy to $53,143 for the US. By contrast, for the BRICS, the per capita annual income goes from a low of $5,410 for India to a high of $24,120 for Russia, with China, South Africa and Brazil in the $12,000-15,000 range.
The BRICS-5 are totally different countries with separate histories, contexts, political and economic systems, needs, opportunities and development trajectories. In all, domestic priorities and problems trump club solidarity. They are riven with rivalries over borders, resources and status. India and Russia have border problems with China. The anxiety of India and China about rising energy prices must be set against Russia being a beneficiary, while Brazil is both a cause and beneficiary of rising food prices. China?s highly competitive exports inflict material harm on Brazil. Two are authoritarian States. The three democracies have their own subset called IBSA (India, Brazil and South Africa), although they too have a tradition of reticence in global democracy-promotion efforts. Most are stuttering economically. All retain deep and specific ties with the pivotal northern countries and for all, bilateral relations with the US are more critical than with one another.
The most potent source of BRICS cohesion is geopolitical: the common interest in checking US/western power and imperialist impulses by leveraging collaboration with the other nonwestern powers. All have a strong vested interest in protecting strategic autonomy vis-?-vis the US in global affairs. But they are divided on reform of the UN Security Council, with China?s interest lying more in a bipolar than a genuinely multipolar global order, and on the global economic effects of China?s currency value. While strong enough to veto western action, they lack the political clout and economic muscle to remake the status quo. Nor do they always act as a concerted bloc within other institutional settings. Even after the 2012 summit, a European and an American were chosen as IMF and World Bank chiefs.
Unrepresentative, yet representatives of global South
On those issues where there is a shared view among them, the BRICS can exert more significant leverage in combination than separately. Their natural constituency is the global South. Many developing countries remain worried that the forces of globalisation impinge adversely on their economic sovereignty, cultural integrity and social stability. ?Interdependence? among unequals can mean the dependence of some on international markets that function under the dominance of others in setting norms and enforcing rules. The BRICS are anything but representative of the typical developing country in terms of size, area, power, economic weight, interest, capacity and resources. Only India is typical of the levels of poverty, illiteracy, low life expectancy and health indicators, etc. But what the BRICS can do and have done is to reflect and represent the interests and priorities of most developing countries, and leverage their atypical attributes of market power and geopolitical clout to negotiate with the developed countries, on many global challenges. Few other developing countries can match the BRICS in their market size and power, or legal, scientific, research and technology base. In other words, it is precisely the attributes making them atypical ? size of population, GDP, military power, diplomatic reach, intellectual infrastructure ? that gives the BRICS the capacity to represent the views, interests and concerns of the typical developing countries in international forums and negotiations.
But the BRICS do have the ability and will to represent the interests of developing countries on those issues where the global North-South division is salient. They can help to shape a new, post-2015 global development agenda of poverty alleviation, sustainable development and inclusive growth. They can share and learn from one another?s more relevant development experience, from China?s successes in reducing poverty and developing infrastructure to Brazil?s in clean fuel generation. And they can act as a counterweight to the West?s excesses in the UN, WTO, World Bank and the IMF. They reject militarisation of disputes and conflicts, promote political resolutions through diplomatic talks, work to soften the West?s interventionist impulse in the internal affairs of States, and are strongly opposed to infringements of territorial integrity and sovereignty. They share concerns about the financial and geopolitical dominance of the US-led West and support a rebalancing of the current global trade and financial system to reflect developing-country concerns and interests. They can give voice to developing country concerns on new rules for healthcare, pharmaceuticals, intellectual property rights, etc. Most developing countries view environmental, labour and human rights standards as disguised non-tariff barriers to protect uncompetitive western agricultural and manufacturing sectors. On intellectual property, whether it be with respect to generic lifesaving drugs and seeds for agriculture or traditional medicine, they can team up to take on the lobbying power of Big Pharma (e.g. Pfizer) and global agribusiness (Monsanto) to robustly protect the rights of poor people to affordable medicines, of poor farmers to affordable seeds, and of indigenous peoples to retain ownership of their traditional knowledge.
Global economic governance
The BRICS are at the forefront of demanding changes to both the institutions and the rules regulating the global economic order, including greater voice and vote in writing the rules and designing and controlling the institutions. They profess a shared vision of inclusive global growth and the rapid socio-economic transformation of their own nations in which no village is left behind. They come to the global governance table with a mutually reinforcing sense of historical grievances and claims to represent the interests of all developing countries. They share a commitment to State sovereignty and non-intervention. They proclaim the need for a rules-based, stable and predictable world order that respects the diversity of political systems and stages of development.
The biggest common interest of the BRICS is in global economic governance. There is an unsustainable disconnect between the highly indebted but politically dominant industrialised economies and, following that, between the distribution of decision-making authority in the existing international financial institutions and the realignment of economic power equations in the real world. Or, to put it another way, in the emerging new global balance of power, the old global political imbalances need to be readjusted to the new global economic imbalances.
The BRICS called for more responsive, flexible and rapid financing to low-income countries to help them ward off the contagion effects of the global financial crisis and shore up their national developmental objectives. They also called for reforming the international monetary system, to consider diversifying beyond the dollar as the de facto global currency, to take gradual steps in expanding the role of the IMF?s Special Drawing Rights as a supplemental global reserve asset option, and to give increased voice and vote on issues of global finance to developing countries. The G-20 had tried to redress the IMF?s democratic deficit by agreeing in 2009 to a 5 percent quota shift from developed to developing countries, which would have raised the latter?s share to 48 percent. The proposal has languished in the US Congress for five years and counting, effectively also sabotaging the planned further review and revisions of quotas that was to have begun in January 2013.
The New Development Bank
The system that privileges western powers and their biases is trapped in the old paradigm and out of sync with the new realities. Developing countries have noted how Europe was treated much differently during the Eurozone crisis from the harsh medicine meted out to Asia and Latin America in earlier crises. At the summit in New Delhi in 2012, BRICS advanced from being simply an expression of frustrated entitlement to sketching the outlines of an alternative configuration of global governance. The criticisms of the voting formula, funding priorities and executive directorship of the IMF and World Bank reflect both frustrations at how they are run, and growing self-confidence in their own roles as responsible stakeholder-managers of the system of global economic governance. They underlined the urgency of enhancing ?the voice and representation of emerging market and developing countries? in the Bretton Woods institutions in order to ?better reflect economic weights?. One critical test of whether BRICS can make the transition from a critic of the West-led system of global economic governance to a leader-cum-manager of an alternative system of, by and for developing countries, would be whether the idea of a BRICS bank floated for study in New Delhi bore fruit.
The BRICS move to set up their own development bank was a reaction to the West?s doublespeak. In 2012, Lula da Silva bluntly said the global financial crisis ?was created by white men with blue eyes?. At the 2013 Durban summit, South Africa?s then finance minister, Pravin Gordhan, remarked that the ?roots of the World Bank and the IMF still lie? in the post-1945 equations. The five could not agree on the amount of seed money to start the bank nor on its location. South Africa put in a strong bid based on physical and financial infrastructure strengths, including corporate governance, auditing and accounting.
At Fortaleza, the five leaders reached consensus on the objectives, functions, capital subscription size, distribution among the member countries, governance structure and operational mechanisms. Four issues were up for discussion about the proposed bank: name, location, presidency and shareholding. It will be called the New Development Bank. It will be headquartered in Shanghai (with an African Regional Centre to be based in Johannesburg). The inaugural president will come from India, which claims credit for having first floated the idea. And the five countries agreed to equal shareholding. The bank is to be capitalised initially at $50 billion (and subsequently at double that amount), with each country contributing $10 billion over the next 7-8 years. It will give priority to loans for developing countries to finance infrastructure projects, industrialisation and productive, inclusive and environmentally sustainable development.
In addition, there will be an emergency reserve pool, called the Contingency Reserve Arrangement, with a $100 billion capital, of which $41 billion will come from China, $18 billion each from Brazil, India and Russia, and $5 billion from South Africa. Its purpose will be to help developing countries avoid short-term liquidity pressure, strengthen the global financial safety net, complement existing international arrangements, and foster more cooperation among the BRICS. Developing countries will be able to draw on the reserve if they face balance of payments crises or if their currency is under pressure. Russia and Brazil get the chairmanships of the two supervising boards.
The New Development Bank is bound to create competition for the World Bank and similar regional funds like the Asian Development Bank. The World Bank?s numerous critics are quick to charge that the institution has failed to lift any country out of poverty and instead has generally deepened poverty and created dependency. Only foreign creditors have done well from its projects. The original core missions of the IMF and World Bank targeted financial stability, employment and development. As the Washington Consensus of deregulation, liberalisation and privatisation held sway after the 1980s, the conditionality attached to the ?assistance? provided by the two Bretton Woods institutions inflicted significant economic cost and often grave political damage on many developing countries in trouble. Their operations and governance structures came to be seen as rigged against the voice, vote and interests of developing countries and skewed towards the industrialised bloc.
Jim O?Neill rightly commented that the establishment of the BRICS New Development Bank highlights the problems with the current system of global assistance and governance. Global governance just got a lot more interesting.