How the West will meet and ultimately accommodate the BRICS challenge

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The awesome emergence of the BRICS union, comprising nations representing 4 major engines of global economic growth, backed by half the planet’s population already produces nearly 50% of world GDP. The continued expansion of this group – Brazil, Russia, India and China – would eventually relegate into second place the once indefatigable “west” both in terms of production and consumerism. As China consolidates her position as “the factory of the world”, as India could soon outrank all rival consumers, would not this union (drawing on seemingly limitless supplies of Brazilian, Russian and ultimately purchased African commodities and agricultural assets) begin to relentlessly dominate world trade patterns?

The rapidly increasing world population and improving incomes in large countries will double or treble middle class consumerism in due course. This will be particularly noticeable in India and China, but Indonesia, Nigeria and Brazil, as well as a dozen other large nations, will seek the same benefits. The increase in demand will be an eastern phenomenon, but we must not forget that consumer demand will not abate in the west. Americans have historically displayed reluctance to lower their standard of living and the current economic difficulties in the Eurozone and elsewhere have failed to dampen enthusiasm for betterment of conditions, even when it is clearly risky in the middle and long term. Street protests against austerity in Spain, Italy, Greece and France have demonstrated clearly that the ‘haves’ are not willing to be bullied into being “have-nots”.

At this particular point in history (the 2013-2014 “tipping point”), the west is in danger of playing second fiddle (in the coming decade) to the resurgent East as to dictating the terms of production, pricing, supply and demand, even choice of available products, fashions, tastes. (We manufacture more cheaply than you do, faster and on a bigger scale, and, as we are also the biggest customers, we have the last say). If the BRICS were able to speak in one voice and if dozens of other poor or semi-emerging nations were to buttress them, western abilities to influence trading terms, product manufacture, distribution mechanisms, trends and fashions, financial services and globalisation maxims would come under pressure. In the 19th and 20th centuries western powers had the strength, resources and historical momentum to bully other nations. They created empires, acquired assets and set trading terms. Globalisation was alive and well in the decades leading up to the First World War. But it was globalisation on British, American, French, Portuguese and Dutch terms. That is now history. How can you bully a world where one person in five is Chinese, where India is the biggest market and where the majority of the world’s agricultural and mineral assets are in Africa, South America and Russia?

This writer is not levelling criticisms at the western powers’ dominance of political and economic events that took place in the previous two centuries. These nations did no more than accept the historical opportunities which beckoned. One would not wish to waste time today questioning the exigencies of the Persian, Roman or Ottoman Empires. Neither can we blame the BRICS if, with their potential followers, they attempt to dictate economic and ultimately political terms to the west. History may well have designed it this way. Every nation, group of nations or civilisation is entitled to its timely destiny. The British certainly exploited to the full their opulent coal seams! The BRICS must, and will, press home their advantages. I discussed in my last article the question of who will lead this union. Russia, with her largely European heritage, could be a key player. But we cannot discount China with her huge population, work ethic and financial reserves.

Neither should we discount the resistance of the west. Prophets of doom on the subject of the Decline of the West have a plethora of statistics to support their line of reasoning. The current European squabbles, lack of unity and band-aid solutions, as well as the stuttering US economy and its endemic social, welfare, educational and immigration problems give rise to a pessimistic view of progress for the rest of the decade. This writer, however, is of the opinion that it has always been difficult to forecast historical events in economic or military terms. Who would have forecast, in 1900, the emergence of Japan as the world’s second economic power? Who would have backed the Allies, in 1940, to utterly destroy the German and Japanese nations in five short years? Economic and military power tend to be cyclical. The Fortune 500 list of 1914 has only 4 survivors today. The mighty Austro-Hungarian empire of 1914 no longer exists. A nation’s culture, however, is not so whimsical. National culture changes slowly – not in decades, hardly in centuries, sometimes not for millennia. No student of the cultural histories of China, India or Russia could fail to foresee their eventual rise to major roles in world affairs. By the same token, national cultures will play an important role in the interplay between the four BRICS nations.

The West will not take diminishment of their influence on world trade lying down. They can and will resist in a variety of ways; again, cultural considerations will feature to a large degree in their reaction and comportment. Democracies are deceptive in the way they act and defend themselves. Dictators and totalitarian regimes have a tendency to brandish power, by means of military (goose-stepping) parades (Fascist Germany and Italy) or overt threats of aggression (North Korea). They are often quick to act, regardless of risk (Pearl Harbor, Hitler’s Anschluss and occupation of Czechoslovakia, Galtieri’s move into the Falklands). If we contrast these events with America’s tardy intervention in two world wars or the current use of soft power wielded by the European Union, we perceive a different kind of strength, perhaps better described as resilience. Victor Davis Hanson, in his book “How the West Has Won”, gives a convincing account of democratic triumphalism throughout history. Democratic regimes tend to “go through the gears” before attaining momentum (e.g. British “muddling through”) and often delay action until they are seriously under siege. Then at some point they consolidate their power and resources. In the long run, they often prevail.

If we consider that the power of the BRICS and other emerging states will soon put the West under economic siege, in what manner and to what extent can the latter consolidate, and/or achieve equilibrium? Given the slowness of democratic deliberations, how much time do they have? Is the current western economic decline too late to reverse? Where can one find seeds of western optimism?

For a start, let us scrutinize the semi-miracle of the emerging powers’ growth. It was spectacular in China most of all. In the first decade of this century, China established herself as the first global mega-trader since Britain in her imperial hey-day. Double-digit growth was taken for granted; India, Russia and Brazil, though less prolific, were almost as successful. What were the reasons for this decade of growth, which elevated the BRICS’ share of world GDP from 30% to 50%? What enabled 73% of developing countries to outpace growth in the United States? To begin with, population increase made available a huge pool of cheap labour; global poverty decreased, creating more customers; costs of shipping and communication tumbled, resulting in more rapid delivery of goods on a world-wide scale. Interconnectivity made even more cheap labour available: emerging economics added 900 million non-farm jobs between 1980 and 2010. Chinese demand for commodities drove up prices sky-high, enabling fellow-BRICS Russia and Brazil to share the boom.

This startling period of growth set a historical precedent which is unlikely to be repeated, as emerging economies mature and the “catch-up” period comes to an end. In 2013 (the tipping point year for eastern countries) a deceleration of growth in the BRICS quartet is already visible. The four major powers continue to grow at a healthy rate, but the rates of growth have declined. Chinese growth has dropped from 10% plus to 7.5%. India now 5%, Russia and Brazil at around 2.5%. As far as trends go, the writing is on the wall and it is largely pictographic (though also Cyrillic, Hindu and Latin). Nevertheless, the BRICS powers have amassed reserves of almost $5 trillion.

The BRICS economic growth will continue. The boom may be over, but a bust will not necessarily follow. Russians and Chinese are also resilient people. But the threat to the west is being countered in various ways. China faces demographic problems (fewer workers, more pensioners). India and Brazil are experiencing serious inflation; declining commodity prices are affecting Russian income (and America’s shale industries will soon drive down oil and gas prices even more). Mexico is reversing its policy of barring foreign energy companies from exploiting its huge oil (and shale!) reserves, a change that favours the West more than the East. Renascent American ingenuity must sooner or later achieve technological breakthroughs in making energy cheaper, enabling people and companies to save more.

In palpable terms, Obama’s push towards the creation of the Trans-Atlantic Trade and Investment Partnership is the first highly visible move towards Western consolidation. The conclusion of this deal planned for 2014 would establish a huge free-trade zone balancing approximately half of the world’s GDP against that of the BRICS. Nominally a bloc uniting the resources of the United States and the European Union, it is in reality heavily dependent on Germany and the strengthening of her ties to the US. Germany is by far Europe’s main engine of growth with her prolific exports and renowned advanced industries and pool of skilled workers. Allied to this dynamic economic core will be Britain, France, Italy, Spain, Poland, Austria, Slovakia, the Czechs and the four Scandinavian countries – modest contributors in comparison with the BRICS powers – but substantially outweighing the West’s opponents in Venezuela, Cuba, North Korea and elsewhere.

The eventual success of the Trans-Atlantic Partnership will materialise only if the 30-odd states involved achieve a significant degree of cultural harmony. (The BRICS powers face a similar challenge). Were cultural differences to be reconciled (and the EU is not finding this easy) then the increased economic opportunities are breathtaking. Washington’s aim of doubling US exports and increasing investment and consumption would be facilitated as American shale gas, biotechnical devices, computers, micro-processors and IT accessories would pour into Germany and other European countries. These would themselves export German cars, machine tools, medical equipment, British financial services, Italian and Scandinavian designs to the US. Economists calculate the creation of over one million jobs over a decade and at least 0.5 per cent increase in GDP on both sides of the Atlantic. Business amounting to $30 trillion would be achievable. China, despite her different economic agenda, will nevertheless continue, for years to come, to be the West’s star customer. In order to pay for the 10 million barrels of oil she uses every day, as well as for technologies she does not yet possess, she will need to export massively, mainly to the West. This is in itself a guarantee of a degree of continued peaceable relations with China.

In the end, culture will play a decisive role. Both the BRICS and the West have a jig-saw-like puzzle to solve. The cultural gaps are more awesome in the former case, but the Europeans have to deal with 28 different national aspirations, not to mention languages. Western leaders, particularly in recent economic crises, have hardly starred in shows of reconciliation – they will have to improve. Paradoxically, however, leadership in democratic states, as well as understand-thy-neighbour motivation, often emanates from the society itself. A totalitarian state usually has a powerful interventionist government and strong families, with sparse social fabric in between. China and Cuba, Mussolini’s Italy are good examples. Democratic countries have limited-power governments, weaker family structures, but a vigorous social fabric in between. These are largely voluntary associations such as charities, music and drama groups, parent-teacher associations, Boy Scouts, clubs (tennis, golf, martial arts), church-goers, Red Cross, YMCAs, Rotary, Lions, professional and trade groups arts and craft societies, private schools etc. This body of societal fabric is, as a whole, vibrant, active, positively-oriented, moral, and, ultimately influential. It embodies what we referred to earlier as Western resilience. It is also persuasively durable and self-perpetuating. This middle-class phenomenon, particularly visible in the US, Britain, Canada, Finland, Germany, Australia, the Netherlands, Belgium, Switzerland and the Scandinavian countries, will ultimately guide the West in its amicable accommodation with China, Russia and the other BRIC members and supporters.

This article first appeared in The St. Petersburg Times

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