You don’t have to accept the whole Martin Jacques thesis about China ruling the world to see that the balance of economic power is significantly shifting and that a group of “southern” countries is likely to play a more significant role in future global affairs, challenging the traditional hegemony of the west.
Last week saw the first summit meeting of the newly formed Brazil, Russia, India, China (Bric) bloc, where they discussed, among other things, the need to reform the International Monetary Fund (IMF); their demand for more say in global policymaking; and a plan to switch some of their foreign-currency reserves out of dollars and into IMF bonds. Following the meeting, Brazil’s foreign minister, Celso Amorim, told an American journalist that while Bric did not intend to “rule the world” it was going to bring an end to the period “in which groups of [western] countries were a sort of aristocracy in world politics”.
China and Brazil already set the global price for steel through a bilateral agreement because they are the biggest respective consumers and producers of it. The two now believe that their currencies are strong enough to be used in international trade – which would have been unthinkable only a few years ago. In fact, as Amorim acknowledged, the main obstacle to replacing the dollar with a new reserve currency is that they first need to get their own savings out without weakening it further. Brazil’s president, Luiz Inacio Lula de Silva, visited Beijing in May to discuss the issue in more detail and Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, are expected to come up with a more detailed plan soon.
Brazil was one of the last major economies to dip into recession and the signs are that it is going to be one of the first out of it. The current issue of Le Monde Diplomatique mocks Lula for saying, last October, that while the west had been hit by a financial tsunami, the wave that reached Brazil would not be even big enough to surf on.
However, all the most recent data seems to confirm his claim. Brazil’s gross domestic product fell slightly in the first quarter of this year, but it is growing faster than the Latin American average and could even return to its pre-crisis level next year. The country’s finance minister, Guido Mantega, recently noted that there had been a marked increase in foreign investment in recent months and that the economy was exceptionally well placed to both attract and productively use a new influx.
India and China are also continuing to experience high economic growth rates – albeit from a much lower level than Brazil – and the Economist recently concluded that “the recession may mark another milestone in a worldwide shift of economic power away from the west”. It noted that while the shock of the worldwide crash last autumn initially seemed to have discredited the theory of “decoupling” – that the emerging economies depend on the rich world to sustain their economic growth – this obscured a broad trend increase in south-south trade and investment. Almost 60% of all the increase in world output that occurred in 2000-08 happened in developing countries; and half of it took place in the Brics.
While the end of the “American empire” is obviously going to have profound implications for future international relations, western policymakers would be well advised to wake up to this reality and start figuring out what they can learn from economies that are now outperforming theirs.
Brazilians have noted with satisfaction that Barack Obama’s new project to overhaul the regulation of America’s financial system is partly based on a number of measures that have been in place here for years: capital ratio reserves are much higher than in the west; the regulators require information on every trade by every client, who must be registered and identified; and naked short-selling is effectively banned.
Many of these regulations are a legacy of Brazil’s turbulent financial history and some are quite burdensome – as anyone who has ever worked in the country can testify – but they do point to a workable system from which other countries can learn. Meirelles was treated to a standing ovation by his colleagues at the last international banking regulation conference in Basel in tribute to his financial stewardship of the Brazilian economy.
None of which is to understate the problems that the social, economic and environmental problems that the emerging countries face or the potentially catastrophic consequences for the planet of failing to address these. Although Brazil has bucked the global trend by managing to reduce levels of inequality under Lula’s government, it is rising fast in India and China. All three countries also face extremely challenging dilemmas about how to balance economic development with preserving their natural environment.
What it does mean, though, is that rich western countries are going to have to get used to the fact that the days in which they can lecture the rest of the world are coming to an end. Getting agreement on a new trade round will have to involve serious cuts in the subsidies they give to their farmers and the existing architecture of global governance will have to be redesigned to reflect the new global realities. After the catastrophic damage of the Bush and Blair era there are at least some encouraging signs that Obama’s administration gets this. It is widely rumoured that his first choice for the next governor of the World Bank is Brazil’s President Lula.