To BRICS or not to BRICS?

To BRICS or not to BRICS … Michael R. Krätke Lancaster, IAS / Amsterdam, IISH

What are the BRICS and why worry about them ?

• First an idea for big investors ….• An economic reality – four distinct trillion dollar plus economies (and there is more)

• Distinct variety of capitalism opposed to the Anglo-Saxon model - the rise of new forms of state led / coordinated capitalism

• The Brics against the sicks (capitalism versus capitalism)

• Then a political project (within the G-20) • Eventually a new pole – changing / replacing the ‘triad’ of globalization as we knew it

Who is afraid of emerging economies?

Not the developed countries

• Chimerica and beyond – creating and maintaining economic interdependencies (in a capitalist world market economy – no one can grow on his own)

• Developed countries are the thriving thanks to the expansion of the capitalist world economy (emerging economies as markets)

• Developed countries are profiting in various ways (from cheap labour, cheap manpower, cheap brains, cheap energy, cheap resources, cheap manufactured goods, cheap foodstuff, cheap services)

• The rise of the emergent economies depends upon the “West” (free trade, free market model)

How dangerous are these people?

The logic of intra-BRICS cooperation

• Only, if and as far as they are actually joining forces! • What emerging economies share – population / potential / resources / the need to catch up / the lack of high technology / the lack of research & development capacities / the lack of capital

• Growth patterns – very high growth rates are normal in the beginning, during the catch up periode, but not sustainable

• Vulnerabilities - exhaustion of resources / exhaustion of work force / expansion without innovation, improvement / environmental damage / urban sprawl and deterioriation of the habitats in Mega-cities

• Growth rates (acceleration / slowdown of economic growth) are for a large part policy induced

Why the BRICS can become a serious rival

• When and as far as they pursue joint projects: • Joint projects 1: the rise of intra-BRICS-trade (increasing number of bilateral / multilateral trade treaties, increasing volume of intra – BRICS-trade of more than $ 320 billion in 212, volume of intra-BRICS – trade growing at a pace of 28% per annum)

• Rapid increase of trade volume between BRICS and other developing countries (at 25% p.a.)

• Joint projects 2: the rise of intra-BRICS-FDI – both Outward and Inward FDI (more than 30% of world FDI coming from developing and transition economies, the BRICS clearly dominating)

• Rapid growth of outward FDI into the developed world (triad) - with the BRICS in the lead

• Rapid growth of intra-BRICS – M&A (inbound deals are at their peak now)

• Rapid growth of EMNCs and increasing importance of EMNCs from the BRICS in the world top league of MNCs

How real is the challenge to USA hegemony?

• A new beacon / a shining example to the developing world

• An alliance between very unequal partners • A bloc in the making? Or just junior partners to the existing great powers bloc?

• A non-Western / anti-Western bloc in the making? Or just business as usual – capitalism versus capitalism?

• How many divisions do the BRICS have? Where is the flag? Who is in charge?

• What is the counter hegemonic project / narrative? Do the BRICS have a common project of their own?

Disturbing the Post-Cold War World Order

Living with Crisis – the USA as Crisis Manager

• The Great Crisis (the Fourth Great Depression in the history of modern capitalism)

• This time the Great Crisis is different! • 2009 – first BRICS summit at the deepest point of the world financial crisis

• USA (Treasury and Fed) in action – leading a series of joint actions of a core group of triad central banks

• The ultimate humiliation / triumph: the BRICS offering help to the great powers of the developed world (China, Brazil in particular)

Core challenges to the Dollar/Wall Street regime

• The BRICS (plus their allies) starting to use their own currencies in intra-BRICS-trade (and in trade with other developing countries)

• The BRICS create the largest development bank of the global South ( in addition to smaller, regional development banks) – potential impact of the BRICS Bank of the South (November 2012 / $ 240 billion)

• BRICS central banks replacing their $ assets by gold and/or financial assets in each others currencies

• BRICS central banks / banks buying and holding each others government bonds

• Long term Chinese project: to establish the Renminbi as a world reserve currency (rivalling the Dollar and the Euro)

Size is not enough, but it matters

Overtaking the G6

High Tech, research and innovation

Not only the Brits,

but also the BRICS !

The USA against the BRICS

Adapting to a multipolar world or not

• Several chessboards to play on (not levelled at all)• First: military game in an unipolar world (with the US as the only world power)

• Second: multipolar economic game – with the US, EU, Japan and China as the four major players (China gaining importance, thanks to the BRICS)

• Third: transnational game with a multitude of nonstate actors amongst which power is widely diffused

• The US have not yet given up its claim to world-leadership (number one, second to none, the indispensable nation)

• The US regard the BRICS as a challenger (lead by China) • The US still pursues a grand strategy (“Whereever the American flag was planted, there tyranny must disappear” , Walter Lippman, 1943)

The US against the BRICS

• Never treat the BRICS as a bloc – deal with each of them separately

• Strategic goal: Separate China as the core / centre / potential leader of the group from the rest

• If you cannot join them, beat them! If you cannot seduce them to join you (or stay with you), beat them!

• Isolate Brazil from China, isolate Brazil from its partner countries in Latin America

• Treat Russia as a regional power (potential ally)• Treat India as a regional power• Focus upon the weaknesses of the group / diversities and disparities between the member countries

• Pursue variegated / specialized strategies for each of them

• Never forget the real challenger – China

BRICS Projects – regional freetrade zones

• ASEAN plus – China’s most recent success (third largest free trade zone in the world)

• ACFTA – since 2010 (first with 6 Asean countries, 4 more to follow until 2015)

• 3rd largest Free trade zone in the world (i.t. of GDP / trade volume – more than 400 billion USD in 2012)

• ASEAN – China railway became operative this month (february 2013)

• Expanding ACFTA - who will join next?

TAFTA – a new alliance in the making?

USA – Towards a New Grand Strategy?

• Several grand strategies – from the start (an anticolonial revolution against the British empire)

• American Grand Strategy in the 19th century: Preserving its zone of influence, defending against the European empires

• American Grand Strategy after WW I: Supporting a new world order – as arbitrator in the background

• American Grand Strategy after WWII: Containing the Soviet empire and rebuilding a capitalist world economy under US leadership

• American Grand Strategy after 1989/90: Building global capitalism under US leadership (the ‘ civilizing mission’ again)

• Recent change: Transform the world according to the US model of democratic capitalism (some varieties are accepted)

A new world order ?

• Conventional thinking: Hegemonic cycles – the eternal rise and fall of rival hegemonic powers

• Accordingly the question asked: Who will dominate the world during the second of half of the 21st century?

• US – shift towards soft power (while still carrying the biggest stick)

• US – ruling the world via gentlemen’s clubs • Reorganize the G7-8/G20 structure – towards the G4 – G14 (neutralizing and integrating the BRICS under US leadership)

• Never think the unthinkable: A Post-American world order!