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Throwing BRICS at G-20?

G-20 must find cooperative solutions to economic shocks and underlying shifts of power

Written by Sanjaya Baru |
March 29, 2012 3:45:23 am

G-20 must find cooperative solutions to economic shocks and underlying shifts of power

Days before the leadership summit of Brazil,Russia,India,China and South Africa (BRICS) decides to announce the creation of a BRICS development bank,the United States chose to depart with tradition to name an Asian American as its candidate for the top job at the World Bank. Shying away from the six-decade-old practice of picking CEOs from Wall Street or politicians from the Washington DC beltway,US President Barack Obama named a Korea-born American health specialist Jim Yong Kim for the presidency of the bank.

Quite understandably,this US gesture does not address the real grievance of the BRICS countries; namely,that the World Bank (Bank) — International Monetary Fund (Fund) shareholding do not represent the current global distribution of income and power and should be restructured to do so.

The geo-political implications of these shifts in economic performance and power across the world were the subject of an international conference on: “A new era of geo-economics: assessing the interplay of economic and political risk”,organised by the International Institute for Strategic Studies (IISS) at its Middle East office in Bahrain earlier this week.

If the original architects of the Bretton Woods institutions (Bank and Fund) do not concede a restructuring of vote shares,BRICS nations may seek to exert pressure by starting a parallel Bank. Some Asian economies have long considered the idea of an Asian Monetary Fund (AMF) — as a regional rival to the IMF. With the European Central Bank jealously guarding its role in the management of Europe’s financial and debt crisis,are we seeing growing regionalism in the management of the global economy? Does such regionalism and conflicting geo-political interests in the management of the global economy increase economic and political risk? That’s a question the conference sought to address. Participants at the conference included academics like Jeffrey Frankel of Harvard University,Jin Canrong of China and Robert Skidelsky,the biographer of John Maynard Keynes,policymakers like Kurt Lauk of Germany,Jean Claude Mallet of France,Arvind Virmani of India and Kamal Ahmed of Bahrain; private sector leaders like Deven Sharma,president of Standard & Poor’s,John Ellison,chairman KPMG Forensic and Manu Bhaskaran of the Centennial Group,Singapore; and strategic analysts like Robert Blackwill of the US,Dato Michael Yeoh of Malaysia and John Chipman of IISS.

The conference made a distinction between long-term geo-economic “shifts” underway and the unexpected economic “shocks” that tend to either accelerate or decelerate these shifts. The “shift” in the locus of manufacturing from the developed market economies (DME),the G-7 economies,to the emerging market economies (EME),is a long-term phenomenon. However,this “shift” may have been accelerated by a series of economic “shocks” that may have rendered the DMEs less competitive vis-à-vis EMEs.

Four factors seem to determine the magnitude and pace of geo-economic shifts — demographics and investment in knowledge and skills; agrarian transformation and access to natural resources; social and political change,urbanisation and the rise of entrepreneurial and middle classes; and,fiscal stability and the fiscal and technological base for the development of military capability.

The last quarter century has witnessed a gradual spread of these capabilities across the world,with Asian economies performing better than most DMEs and EMEs. This is the basis of the “power shift” from the West to the East.

Economic and political “shocks” have made a difference to these more gradual processes. These include the implosion of the Soviet Union,largely as a consequence of its economic failures,the rise of China as both an exporting and importing power,oil and food price shocks and debt,fiscal and external payments crises and political instability in the Middle East.

If the Asian financial crisis had the impact of accelerating China’s rise,the transatlantic financial crisis has had the effect of accelerating Germany’s rise. China and Germany are important geo-economic powers that have been able to bolster their geo-political and even military power,thanks to the opportunity provided by their geo-economic rise. Lord Skidelsky and other participants warned that if the great powers of our time do not increase their ability to cooperate and implement cooperative solutions,the political economy of globalisation will “start to fragment”. It is a warning worth noting on the eve of the BRICS summit.

If the US and Europe pursue policies aimed at protecting themselves from the consequences of economic shocks and the geo-economic shift under way,the rising powers may seek to craft their own,individual or collective,response. In the 1990s and the first decade of the 21st century,regionalism was seen as a building block of globalisation. Is it possible that in the coming decade regionalism could hurt globalisation?

In their anxiety to deal with the challenges they face at home,are all the world’s major powers pursuing explicit or implicit “beggar-my-neighbour” policies that may end up hurting all? Finally,is the rising profile of BRICS a signal that the G-20 experiment may have failed?

The G-20,with all its inadequacies,is a mixed group of the world’s rising and risen powers. If cooperative solutions are not found to economic shocks within the G-20 framework,and if the world’s major powers are not able to “manage” the economic,political and social consequences of the geo-economic shifts,then regionalism may strike roots,striking at the root of multilateralism.

Clearly,the way forward has to be a return to the perspectives that defined the creation of the G-20 — responsible and balanced global management of global shifts and shocks.

The writer is director for geo-economics and strategy,International Institute for Strategic Studies

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