Monday, 19 September 2016

WORLD: Political-Economic fragility of : ''Emerging Economies''

Assessments of the larger emerging economies--China, India and Brazil--and their global influence have been as volatile as each of their stocks markets. In the wake of the 2008 global financial crisis, the buoyancy of their economies supported both a global recovery and their status as the rising powers in 21st century. Now, the boom decade after 2001 seems a distant memory.

As China's economy slows from supercharged to respectable growth and re-balancing curbs its demand for commodities, growth in commodity-producing countries, Brazil among them, has slumped. Even India, with surpassed China's growth rate for the first time in 2015, confronts a stalled economic reform program under Prime Minister Narendra Modi and faces longer-term obstacles to its ambitions to become a manufacturing powerhouse that would rival China. Current distress in these former dynamos reveals an underlying fragility in these once-rising powers.

The current downgrading of the BRICS' economic prospects and their future goal role has probably overshot reality. Although China's boom is over and its high-growth years unlikely to return, these economies, after a difficult adjustment, are likely to outpace their industrialized counterparts, which face their own demographic and economic barriers to sustained growth. Furthermore, the BRICS's global ambitions--economic as well as political--are unlikely to disappear, even though their economic clout may be temporarily diminished.

Evaluating the future roles of China, Brazil and India in global politics and governance first requires a more realistic assessment of the ambitions and capabilities they demonstrated during the bool years. They did no pose a coherent challenge to the existing global order at the time, due to international and domestic obstacles that persist in the current downturn. Chief among these are each country's difficult shift away from entrenched development models at a time of declining economic threat to their claims to a share of global leadership--and also the greatest risks to a reformed international order.

As the three largest emerging economies, China, Brazil and India share certain characteristics that have shaped their approach to international politics. None has been a US' ally; unlike Europe and Japan, dependence on US security guarantees does not moderate potential economic conflicts with Washington. each has made large bets on opening its economy and breaking with a more autarchic past. Their populations have endorsed the benefits of trade and foreign investment, providing a political base for this turn to the global economy.

At the time, the state continued to play s significant economic role in all three countries, intervening through ownership of or influence over critical sectors, such as finance. Tight links between big business and political elites produced high levels of political corruption, which ranked as a major political issue in China, Brazil and India. Finally, nationalism featured prominently in domestic politics. In the cases of India and China, Prime Minister Narendra Modi and President Xi Jinping linked economic reform to a program of national renovation and global rise.

Despite these shared characteristics , the emerging economic powerhouses did not present a collective challenge to the existing global order. They neither exported state-led models of developments nor exerted pressure for a highly regulated international economy, as some had predicted. Instead, in nearly every issue area, China, Brazil and India can be best described as conservative globalizers. Economic opening had encouraged deeper engagement with global institutions, and the politically popular benefits that resulted made the existing international economic order an unlikely target for a hostile takeover.

Following the global financial crisis, these three countries demonstrated their support for a reformed global order that awarded them a larger role. Of course, they pressed their national and collective interests in those forums, sometimes at the risk of gridlock. The stalemated Doha Development Agenda, a trade negotiation at the World Trade Organization (WTO) that was launched in 2001 but stalled in 2008, was a case in point.

Within existing global governance institutions, China, India and Brazil aimed to reduce what they saw as the disproportionate  influence of the incumbent, industrialized powers. They demanded a reallocation of quota shares and voting power at the Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank. They also gained a prominent role on the newly empowered Group of 20 (G-20). The Financial Stability Board, a fourth pillar of global economic governance--along with the IMF, World Bank and WTO--also awarded the emerging economies new decision making power over the financial reform agenda.

Throughout those conversations, the new economic powers voiced a common criticism: Their growing economic dynamism meant that the old configurations of power--a cartel of industrialized countries--were out of date. The world necessarily become more multi-polar, and emerging economic powers applauded that transition, hoping to have a greater hand i reshaping the rules going forward.

Dramatic change in the substance of those rules, however, seemed doubtful. The emerging powers' stance toward capital controls exemplified this combination of newfound influence in the service of modest reforms. They promoted a new, though hardly revolutionary, international consensus on capital controls--government measures to regulate the international flow of capital previously shunned by the IMF--that recognized their utility as one instrument in the toolkit of macroeconomic management. They did no, however, press for a return to comprehension capital controls: in fact, China and India were gradually removing controls, not tightening them. Brazil's particular circumstances-heightened capital inflows that distorted its exchange rate--let it to implement a financial transactions tax in 2009 to discourage those inflows, a tax suspended in 2013 as capital outflows mounted.

These three countries' position on capital controls, however, reflected not only their greater influence in global institutions, but also theirs aims to maximum policy discretion in dealing with the effects of globalization. As conservative globalizers, they have supported reformed global governance institutions but have been reluctant to cede autonomy beyond those original, embedded institutional bargains, resisting greater oversight of national policies by other economic powers or global institutions. That attitude reached beyond the economic sphere. For example, their skepticism regarding humanitarian intervention and the application of the Responsibility to Protect norm--a loosening of barriers to international intervention in narrowly defined circumstances of mass atrocities--reflected that protective stance.

Many alarmists overstated the challenge that China, India and Brazil posed to the existing economic and political order, because these observers not only misjudged the goals of the emerging powers but also exaggerated their capabilities. In many areas, particularly those in which economic weight brought greater influence, such as trade and monetary governance, the emerging economies could exercise substantial veto to power, producing gridlock but often failing to generate outcomes that reflected their preferences. They could build coalitions to enhance their bargaining leverage, but the diversity of their economic interests and political alignments limited the permanence of those coalitions. Economically and politically, their weight was felt most directly in their respective regions, in which each was the largest economy by a substantial margin.

Even before China's recent economic slowdown and the collapse in commodity prices, however, these three countries faced daunting agendas--economic and social inequality, environmental degradation and political corruption---impeding their rise as a force in global politics and governance. Meanwhile, more-open economies and globalized politics produced an army of actors and audiences with a stake in their external relations, meaning that foreign policy could no longer be managed as a purely elite operation. These limitations on the expansion of their global influence became more apparent with the end of the China-driven boom.

Economic shockwaves emanating from China over the past year have sent a clear signal that its boom is over. They have spread gloom over the emerging economies. IMF Managing Director Christine Lagarde has warned that a ''new reality'' will slow economic convergence between emerging economies and rich countries. As economic growth slows--or goes into reverse in Brazil and other commodity-producing--political leaders face the challenge of instituting economic reforms that were often stalled during the boom years under less favorable economic conditions.

This difficult political and economic environment could produce two possible outcomes:
First, economic failures could be offset by nationalist appeals, distracting potent constituencies with foreign threats or risky adventures. A second and more likely option is a retreat from claims to international leadership by political elites distracted by domestic demands and threats of political unrest.

Instead of challenging the global order, China, India and Brazil would revert to free-riding on the fragile support offered to global order by a politically divided Unites States and a fractured European Union.

Prof Guylain Gustave Moke
International Affairs Expert
Political Analyst/Writer

Photo-Credit: Getty-Images