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The European Financial Review
Building the New World Order BRIC by BRIC
By Cynthia Roberts
W
hen Russian leaders converted the Goldman Sachs investment idea about the BRICs (Brazil, Russia, India, China),
into a clever diplomatic strategy, international relations
specialists and Western diplomats were dismissive, if they noticed at
all. Diverse economically and politically, these four fast-growing giants are from different regions, geopolitical rivals, and unlikely to ally
against the U.S. Russia, in particular, seemed a BRIC made of straw,
an outlier suffering demographic decline, and an improbable champion of a transgovernmental “network diplomacy” to advance global
governance. Already a member of the U.N. Security council, the G-8,
negotiating to join the WTO, a partner in special relationships with
Euro-Atlantic institutions, and a former superpower with the world’s
largest nuclear stockpile, Russia is hardly a parvenue. So why would
Moscow position itself among developing countries and risk being
outshined and outmaneuvered by the rising Chinese behemoth?
Moscow’s excellent BRICs adventure: Russia
resurgent or eclipsed by China?
The Kremlin officials who launched a diplomatic spinoff of Goldman’s
“Dreaming with the BRICs” were probably opportunists and not motivated by a deep strategic vision. Nonetheless, the BRICs has proved
to be a shrewd, cost-free display of soft power and nimble positioning between established and emerging economies, perhaps one of
Moscow’s smartest foreign policy initiatives in recent years. BRICs di-
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BRICs diplomacy showcases Russia acting as a team player in an innovative
network, making reasonable demands
to reform international institutions while
engaging in peer learning.
plomacy showcases a Russia acting as a team player in an innovative
network, making reasonable demands to reform international institutions while engaging in peer learning. This image contrasts sharply
with Moscow’s reputation for relying on hard power and coercive
energy deals to dominate its neighborhood while enriching Russia’s
rulers and their clans. To acknowledge that they are two sides of the
same coin does not detract from the fact that for the first time in
Russian history, economic power has trumped military power in the
state’s priorities.
BRICs diplomacy also cleverly leverages China’s power to help
lift the status of all four countries, particularly Russia, in the global
rebalancing, highlighting its remarkable economic resurgence, and
positioning it among the rising stars instead of the has-beens. In fact
between 1999 and 2008 Russian economic growth soared, increasing
by an annual average rate of 7.0 percent in real terms, leading to an
expansion of Russian GDP by an average of
27 percent per year, from $196 billion in 1999
to $1.8 trillion in 2008. In this period Russia
was the only BRIC that ran both a fiscal and a
current account surplus. When the economy
contracted 8 percent in 2009 in the worst
downturn among the BRICs, unlike in 1998
there was no risk of default; the Kremlin put
up about $200 billion in credits from its huge
war chest ensuring that none of Russia’s 100
largest firms failed before Russia returned to
growth in 2010.
Russia’s rulers and elites acknowledge
that to avoid stagnation and falling out of
the BRICs, they will have to modernize the
economy and society, gradually shifting
away from reliance on rising oil prices for
roughly one-third to one-half of economic
growth. The trouble is they reap stupendous
gains from the opaque and crooked status
quo. External discipline and investment opportunities from WTO membership would
help strengthen the private sector and boost
growth. Russia’s future depends on developing a basis for greater innovation and higher
total factor productivity, which require credible property rights, speeding further market
reforms, access to advanced technology and
management, and tackling endemic corruption, not greater centralization of the economy in the Kremlin.1
BRICs: A limited but successful partnership
Given the built-in flexibility and limited aims
of the BRICs partnership too much is made
of their differences in regime types, production profiles, and internal rivalries. To be sure,
Russia and China are authoritarian and practice variants of state capitalism while Brazil
and India are large, fractious democracies.
Brazil and Russia are commodities exporters, specializing respectively in agriculture
and natural resources and benefit from high
prices for their products. By comparison,
China dominates global manufacturing and
exports while India specializes in services;
both depend on commodity imports. The
BRICs have had trade, currency and security
disputes. None of these factors, however, is
uncommon in international coalitions.
All four rising powers are sovereignty
hawks, and face strong domestic impulses
to shape and harness globalization, to mini-
mize political and economic adjustment
costs, and to ensure domestic stability. They
have resisted many Western liberal policies
from humanitarian interventions to financial
liberalization, are prickly about American attempts to constrain their autonomy, and object to conditionality requirements imposed
by Western institutions. Although wary
about provoking a backlash from the United
States, they seek dominance in their own regions, even as they tread on one another’s
markets and spheres of influence, and generally aspire to be global rule-makers instead
of rule-takers. Such preferences naturally
dovetail with Moscow’s resistance to Western institutions that formalize international
enforcement of rules and norms.
observers as inflated but by focusing on concrete policy issues, BRICs diplomacy started
to emerge as a serious factor in international
relations. Even Goldman’s Jim O’Neill, the
BRIC’s originator, weighed in that they should
play a larger role in global governance.
By the time of their second summit in
Brasilia in 2010, the global economic and financial crisis had created what Indian Prime
Minister Manmohan Singh called “a new relevance for BRIC.” The Brasilia summit communiqué declared that the IMF and World Bank
“urgently need to address their legitimacy
deficits,” and called for changes in voting
power and quota reform before the next G20
Summit in November. Despite intra-group
differences, the statement also underscored
All four rising powers have resisted many Western liberal
policies from humanitarian interventions to financial liberalization, are prickly about American attempts to constrain
their autonomy, and object to conditionality requirements
imposed by Western institutions.
So with no fanfare, Russia invited BRIC foreign ministers in 2006 to regular gatherings
on the sidelines of the U.N. and other international fora. Two years later BRIC finance
ministers, central bankers and other government officials began frequent meetings to
discuss how to coordinate approaches to international problems, particularly the global
financial crisis. Their appeals for reforms to
better reflect emerging economies’ rising
share of global output, trade, and financial
flows helped elevate the role and authority
of the G20 (in place of the Group of 7 rich
countries) and include emerging economies
in an enlarged Financial Stability Forum, renamed the Financial Stability Board. Then in
June 2009, amid growing pressure from the
quartet to reform the post World War II Bretton Woods monetary system, BRIC heads of
state held their first summit in Ekaterinburg,
Russia. Russian president Dmitry Medvedev
described the inaugural BRIC summit as “an
outstanding or even historic event” marking
the emergence of a new format for addressing global problems, including the global
financial crisis, whose resolution “very much
depends on the decisions made by these
four countries.” Such comments struck many
their support for the aspirations of India and
Brazil “to play a greater role in the United Nations.” The position of the dollar was still foremost in BRIC concerns but near-term moves
to diversify would adversely affect their own
substantial holdings. With their own bilateral
trade rising, BRIC officials signaled an intention to experiment using their local currencies for trade settlements.
In short order, the BRICs engineered
agreement on a redistribution of IMF voting
power, shifting more than 6 percent (slightly
less than BRIC demands) of quota shares
to emerging economies and 6 percent to
under-represented countries. The new allocation, which is coupled with a doubling of
subscriptions to about $755 billion, gives the
ten largest voting shares to the United States,
Japan, the four BRICs – China, Brazil, India
and Russia – and France, Germany, Italy and
Britain. China overtakes Germany, France and
Britain to become the third most powerful
member of the IMF, Russia’s representation
remains the same while Europe, reflecting
its over-represented positions, surrenders
two seats on the fund's 24-strong Executive
Board. Other reforms are inching forward
to make the G20, IMF and World Bank more
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representative but there should be no illusions that the “rearrangement of chairs and
shares”2 will reliably overcome traditional
collective action problems and mitigate the
influence of competing domestic interests to
usher in improved global governance. In fact
such progress has done little to dampen the
“currency wars” involving China’s renminbi
exchange rate policy, which some observers consider equivalent to a 20-25 percent
export subsidy, or the controversy over the
Federal Reserve’s “quantitative easing” (QE2),
which is criticized for steering the dollar artificially lower, not to mention Japan’s massive
forex interventions to drive down the yen
from a 15 year high and new capital controls
on “hot money” flows into emerging economies such as Brazil and South Korea.3
“The West no longer holds all
the cards”: Economic power
shift to large fast-growing
countries
The global financial crisis did not spawn the
BRICs but it brought three developments
into high relief:
• First there could no longer be any doubt
that the quartet is riding the wave to a sea
change in global economic power from advanced countries to fast-growing emerging
economies, a group that also includes Turkey,
Indonesia and South Korea (already a highincome near developed country). According
to the U.S. National Intelligence Council, “[i]
n terms of size, speed, and directional flow,
the transfer of global wealth and economic
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According to 2010 IMF figures (PPP), China not only
surpassed Japan to become the second largest economy
and the world’s largest exporter; all four BRICs now rank
in the top ten: China (2), India (4), Russia (6), and Brazil (7).
power now under way—roughly from West
to East—is without precedent in modern history.” Focusing on three of the BRICs, the RICs,
it concluded that “[n]o other countries are
projected to rise to the level of China, India,
or Russia, and none is likely to match their
individual global clout.”4 Goldman Sachs and
McKinsey & Company are among those who
predict a tipping point this decade in fundamental rebalancing that will leave Western
advanced economies with a smaller share
of global GDP in 2050 than in 1700. The
four BRIC countries stand out as the largest
emerging economies and the only ones with
annual economic output over $1 trillion.
• Second, despite three decades of phenomenal growth, the economic crisis and relative Western decline crystallize the enormity
of China’s rise, which dwarfs the other BRIC’s
combined economic output. BRIC diplomacy
as a result appears more purposeful – to give
China cover in a group of rising powers attentive to concerns of developing countries
on issues ranging from climate change to
rising food prices. Although created by the
Kremlin, the BRIC bloc fits Deng Xiaoping’s
strategic maxim, tao guang yang hui [hide
brightness, nourish obscurity] meaning to
“hide one’s capabilities and bide one’s time.”
If China pivots from its strategy of peaceful
rise and pragmatic engagement to a path of
greater assertiveness, as in its recent clashes
with Japan in the contested East China Sea,
the BRICs may lose one of its principle raisons
d’etre.
• Third, the BRICs rapid rise contrasts with
the speed of Europe’s relative decline and
near strategic irrelevance, as many European
countries are shackled with ballooning debts
and preoccupied by severe constraints on
growth. Although China’s economy remains
only a third the size of the European Union’s,
it is booming and rapidly moving up the
production cycle. Meanwhile America also
struggles with a huge debt and competitiveness. The shock from the crisis that “the
west no longer holds all the cards”5 is starkly
reflected in the seismic shift of sovereign
wealth empowering emerging non-Western
countries in the 21st century.
BRICs rise into the top ten
economies
Compared to 2000 when advanced economies dominated the international economy
accounting for almost two-thirds of global
GDP (in purchasing power parity), their share
is now about half and is steadily declining.
More than 85 percent of developing countries’ economies grew faster that the US
economy from 2002-2008, helping emerging
economies, including the BRICs, South Korea
and others, to catch up with the developed
world. Since the onset of the financial crisis
in 2007, the BRICs as a whole contributed 45
percent to global economic growth. In the
last decade, the BRICs alone among emerging
economies contributed over a third of world
GDP growth (PPP) and leaped from one-sixth
of the world economy to almost one-fourth.
Goldman Sachs projects that BRIC GDPs as an
aggregate will surpass the US by 2018. By the
start of next decade, the BRICs are forecast
to account for a third of the global economy
(PPP) and contribute about half of global
GDP growth. According to 2010 IMF figures
(PPP), China not only surpassed Japan to become the second largest economy and the
world’s largest exporter; all four BRICs now
rank in the top ten: China (2), India (4), Russia
(6), and Brazil (7). China surpassed Germany
in 2010 as the world’s largest trading nation
and the BRICs also have increased trade with
one another, so that in 2009 China replaced
the US as Brazil’s largest trade partner and despite geopolitical rivalry became the leading
trade partner of India and South Africa.
Money is power
For 65 years after the Second World War,
the United States was “simultaneously a system maker and a privilege taker.” 6 With the
dollar as the world’s principle reserve currency, the US built and maintained the liberal
order that allowed widespread prosperity in
the West and then emerging economies to
exploit globalization and achieve phenomenal growth. Domestically, American hegemony involved conciliating key domestic
interests and strengthening institutions like
the presidency and the military essential to
the projection of power without being constrained by the usual tradeoffs among guns,
butter, and growth. In fact American preponderance and willingness to provide security
for its allies allowed it considerable leverage
in passing adjustment burdens to them.
Now many of these allies face financial and
economic crises of their own and America is
less able to call the shots in the transition to
multipolarity.
Emerging economies account for twothirds of total foreign exchange reserves,
which have grown from $1.3 trillion (5 percent of world GDP) in 1995 to $8.4 trillion
(14 percent) in 2010.7 The BRICs account for
about 40 percent of total global reserves with
China’s super-sized share of over $2.85 trillion
dwarfing the rest, reflecting capital controls
and an undervalued renminbi. The United
States, by comparison, is the world’s largest
debtor with a $14 trillion national debt and
its net international investment position
plummeted to –$3.5 trillion in 2008 or about
one quarter of GDP. According to the OECD,
China holds more than one fourth of US
Treasury securities and overall by the end of
2009 more than half were held by non-OECD
member countries. Never before in the era
of American primacy have the principal international creditors of the U.S. and some of its
European partners been non-allied surplus
countries outside the West.
The BRICs account for
about 40 percent of total global reserves with
China’s super-sized share
of over $2.85 trillion
dwarfing the rest, reflecting capital controls and
an undervalued renminbi.
“How long can the world’s biggest
borrower remain the world’s biggest power?” 8
Former US Treasury Secretary Lawrence Summers’ query may turn on not just the size of
the debt but whether particular American behavior provokes its creditors. Many American
officials are confident that US creditors such
as China have too much at stake to risk a dangerous spiral of miscalculations into “mutual
assured dollar destruction.” Later on, however,
if the US stagnates, it faces not only the risk of
a sovereign debt crisis9 but also asymmetrical vulnerabilities, particularly if China has already taken steps to make its currency more
flexible and its capital account more open. In
a crisis, the U.S. could be subject to predatory
currency manipulation similar to that Washington used against Britain during the Suez
Crisis. In 2008 Russian officials suggested to
the Chinese a joint sell off of large blocks of
their Fannie Mae and Freddie Mac holdings
in a bid to force a US bailout. According to
to replace it with the yuan, and had launched
its first yuan-denominated bond on international markets in 2009. But Hu acknowledged
that it would be a "fairly long process".
The dollar still accounts for 60 percent
of the currencies held in national reserves
– and remains the principal instrument for
most commodity trade and global financial
transactions, 88 percent of which are in dollars. However, given that the US accounts
for only 24 percent of global GDP – while its
fast growing rival China is already at 13 percent – the yuan looms on the horizon as a
second significant reserve if China develops
deep and liquid financial markets. American
resilience, innovative capacity, and political
will have repeatedly put to rest premature
predictions of absolute US decline, but this
time the global shift in wealth is inexorable.
Although the implications are not yet clear,
a recent book title paints an unenviable picture: The End of Influence: What Happens
When Other Countries Have the Money.11
The BRICs countries have repeatedly called for diversifying global reserves away from the dollar towards a global
currency or new basket of primary reserve currencies.
They also started experimenting with using their own currencies for regional commerce.
then Treasury Secretary Henry Paulson, after
China declined to embrace this “disruptive
scheme,” which would have rocked the capital markets, Russia sold all $65.6 billion of its
Fannie and Freddie debt in 2008.10
Signaling their preferences, the BRICs
countries have repeatedly called for diversifying global reserves away from the dollar
towards a global currency or new basket of
primary reserve currencies. They also started
experimenting with using their own currencies for regional commerce. In March 2009
China’s Premier Wen Jiabao insisted that
the U.S. “maintain its good credit, … honor
its promises and … guarantee the safety of
China’s assets.” Then Chinese President Hu
Jintao, in interviews ahead of his state visit to
Washington in January 2011 declared China
had determined that the international currency system dominated by the US dollar is a
“product of the past.” Beijing was taking steps
Power and responsibility
Given that states tend to expand their interests and ambitions as their power rises,
it is unsurprising that the BRICs would seek
increased voice and decision-making roles.
Global governance institutions lose legitimacy and credibility when powerful states,
which enjoy rewarding outside options, go
it alone or are excluded from positions of
authority. That the BRICs could quickly kickstart long delayed changes in the composition of ruler-makers in international financial
organizations indicates that the necessary
adjustment process is under way. This does
not prevent occasional irritating opportunism, such as Brazil’s schemes to support
Iran’s nuclear enrichment program. More
fundamentally, BRICs remain wary about
becoming “responsible stakeholders” or partners in maintaining the Western order. It is
doubtful they will invest significant resources
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About the author
Cynthia Roberts (Ph.D. Columbia) is an Associate Professor at Hunter
College, City University of New York and an Adjunct Associate Professor and Senior Associate at the Saltzman Institute of War and Peace
Studies at Columbia University. Her most recent study is a monograph
on Russia and the European Union: The Sources and Limits of ‘Special
Relationships’ (2007). She also edited and authored two articles for a
special issue of the U.S. journal Polity on Challengers or Stakeholders?
BRICs and the Liberal World Order (January, 2010).
Notes
BRICs remain wary about becoming “responsible stakeholders” or partners in
maintaining the Western order. It is doubtful they will invest significant resources
for providing global public goods, except
where their interests are concerned.
for providing global public goods, except where their interests are
concerned. Thus, China moved to buy European debt to bolster an
important trading partner and is likely to be dragged into a deeper
intervention in Sudan to protect its investments. BRICs are willing to
combat pirates and help with disaster relief but not shoulder the costs
of climate change. Their primary focus is on domestic needs as their
growing middle classes combined account for almost half of global
consumption growth. Thus, China seeks raw materials in repressive
African countries, India pursues energy deals with Iran, and Russia
bans grain exports after severe drought, driving up world prices.
BRICs enlarging and advancing
Five years since its start, the BRICs are a recognized diplomatic club
with concrete achievements, growing network coordination, and aspirants in the wings, including Turkey and Indonesia. After much lobbying, China reportedly decided after consultations with BRICs governments to admit only South Africa at the annual summit this April
in China. Although its population is dwarfed by the others and $286
billion GDP less than one fourth of Russia’s, expectations run high that
it will be a BRICs gateway to 1 billion consumers on the continent
and vast mineral resources.12 In a coincidence, all five BRICS now hold
seats (three rotating) on the UN Security Council. The logical next
move is for the BRICS to broker a deal on reforming the permanent
membership of the Security Council.
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February - March 2011
1. For comparison of indicators from the World Bank and other organizations ranking BRIC countries on “Ease of Doing Business,” “Regulatory
Unpredictability” and other measurements, see Cynthia Roberts, “Russia's
BRICs Diplomacy: Rising Outsider with Dreams of an Insider,” Polity (2010)
vol. 42, pp. 38–73, Table 1. See also OECD, Innovation and Growth: Chasing
a Moving Frontier (December 2009).
2. Edwin M. Truman, “Rearranging IMF Chairs and Shares: The Sine Qua Non
of IMF Reform,” in Edwin M. Truman, ed., Reforming the IMF for the 21st
Century, Special Report 19, Peterson Institute for International Economics,
(April 2006), chap. 9.
3. See C. Fred Bergsten, “We can fight fire with fire on the renminbi,” Financial Times, October 3 2010; idem, “Protectionism by China Is Biggest Since
World War II,” New York Times Economix blog, October 8, 2010. http://
economix.blogs.nytimes.com/2010/10/08/biggest-protectionism-sinceworld-war-ii/; and Interview With German Finance Minister Schäuble, “'The
US Has Lived on Borrowed Money for Too Long,” Spiegel Online, November 8, 2010.http://www.spiegel.de/international/world/0,1518,727801,00.
html
4. Global Trends 2025: A Transformed World (Washington, D.C.: U.S. Government Printing Office, 2008), iv-vii. See also Cynthia Roberts, ed., Polity
Forum: Challengers or Stakeholders? BRICs and the Liberal World Order
(2010) vol. 42.
5. Martin Wolf, “The West No Longer Holds all the Cards,” Financial Times,
23 September 2009.
6. Michael Mastanduno, “System Maker and Privilege Taker: U.S. Power and
the International Political Economy,” World Politics 61, no. 1 (January 2009), pp.
121–54.
7. The Economist, Nov. 4th 2010.
8. David E. Sanger, “Deficits May Alter U.S. Politics and Global Power,” New
York Times, February 1, 2010, p. A1.
9. Carmen M. Reinhart & Kenneth S. Rogoff, This Time Is Different: Eight
Centuries of Financial Folly (Princeton University Press, 2009).
10. Henry M. Paulson, Dan Woren, On the Brink: Inside the Race to Stop the
Collapse of the Global Financial System (Grand Central Publishing, 2010).
11. Stephen S. Cohen and J. Bradford DeLong, The End of Influence: What
Happens When Other Countries Have the Money (New York: Basic Books,
2010). See also OECD, Shifting Wealth.
12. In a bizarre twist of brand protection, Goldman’s O’Neill came out
against including South Africa, suggesting Nigeria makes more sense.
Goldman Sachs also proposed replacing the term emerging markets with
“growth markets” declaring that this group should include the BRICs, plus
a new list of four – Indonesia, South Korea, Mexico and Turkey, but not
South Africa.