The BRICs, US 'Decline' and Global Transformations

R. Kiely

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137499974
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

The author examines the rise of the BRICs and the supposed decline of the United States. Focusing on the boom years from 1992 to 2007, and the crisis years after 2008, he argues that there are limits to the rise of the former and that the extent of US decline has been greatly exaggerated.

1

Introduction

There is a growing perception that the international order is undergoing a process of transformation. There are two closely related (but far from identical) contentions used to back up this assertion: first, recent years have seen the growth of emerging powers, which is part of a more generalized rise of the South (OECD 2010a; World Bank 2011a; UNDP 2013); second, and not unrelated to the first point, the United States has entered a period of decline (Moran 2012). The force of these arguments has actually intensified since the onset of the global financial crisis of 2008, based on a contrast of two worlds, “a resurgent South…where there is much human development progress, growth appears to remain robust and the prospects for poverty reduction are encouraging, and a North in crisis where austerity policies and the absence of economic growth are imposing hardship on millions of unemployed people and people deprived of benefits as social compacts come under intense pressure.” (UNDP 2013: 1) The rise of the so-called emerging powers, and the BRICs in particular is in many respects undeniable (O’Neill 2001, 2007; Young 2010). Brazil, Russia, India, and above all China have enjoyed high rates of growth both prior to and after the financial crisis, and their share of global output has increased while the US’ has declined. Jim O’Neill (2013: 3), formerly of Goldman Sachs, and the person responsible for the term ‘the BRICs’ in 2001, has argued that in fact it is really after the 2008 crisis that “the BRIC thesis really came of age.” Though O’Neill himself suggests that the rise of the BRICs is good news for all countries, as their growth represents new market opportunities for established companies, others link their rise to the decline of the West. More specifically, this is the main reason why some argue that the US is in decline, and convergence (in the sense of ‘catching up’ with the developed world) is taking place between parts of the global South and the developed world (Pape 2009).

In the words of Parag Khanna (2009: x), the new second world of emerging powers is “where the action is. Wall Street flies to Abu Dhabi for bailouts from its delinquent loans. OPEC is once again a confident cartel shaping the energy market. Turkey brokers Arab-Israeli negotiations…The second world shapes global order as much as the superpowers do.” However, the rise of the BRICs/BRICS¹ is not simply a story of the rise of a handful of emerging powers. It is good news for the global South as a whole, for “the second world’s rise might be the best thing to happen to the third world….Booming second world demand for third world commodities, investment by second world giants in Africa and other chronically underdeveloped regions, and rapidly growing ‘south-south’ trade have all contributed to unprecedented world-wide economic expansion.” (Khanna 2009: x) There is thus much talk for example of an ‘emerging Africa’, of ‘Africa rising’ and even of ‘Africa’s moment.’ (Radelet 2010; Rotberg 2013; Mahajan 2008; Severino and Ray 2013) This point about the emergence of the South as a whole is all the more significant since the outbreak of the global economic crisis in 2007–08. The 2007–08 crisis did not have such an adverse impact on developing countries as previous major financial crises, such as in 1873, 1929 and 1981–2 (UNCTAD 2011). Indeed, rapid recovery and high rates of growth since 2007–08 in many countries in the global South, and not just emerging powers such as the BRICs, has led to the argument that these have become ‘de-coupled’ from dependence on the West, and indeed China is becoming a new hegemonic power, particularly for the countries of the South. Moreover, as the quotes from Khanna above make clear, it is not only the BRICs that have experienced high rates of growth, but other countries in the (former) Global South, beneficiaries of a new order of trade taking place between Southern nations. This is reinforced by China’s growing international influence, and the rise of what has various been described as the Beijing Consensus (Ramo 2004; Halper 2010), the China model (Zhao 2010), or just state capitalism (Bremmer 2009), all of which challenge the US-centred, neoliberal Washington Consensus. Even some proponents of market liberalism see this as a possible state capitalist challenge to western hegemony (The Economist 2012).

On the other hand, it could be argued that the rise of these countries represents not so much a challenge to, but rather a triumph for, the West. The rise of these countries owes less to state capitalist deviations from neoliberal prescriptions which originated in the West, and more to the embrace of globalization friendly policies. Seen in this way, whatever the geopolitical implications might be, the rise of ‘the Rest’ is a developmental triumph for the West, demonstrating the superiority of market friendly policies which embrace the opportunities presented by globalization. The South is rising through the growth of manufacturing in some locations, commodity market booms caused in part by the rise of those same new manufacturing powerhouses, and with that a massive reduction in the numbers of people living in absolute poverty. At the same time, this leads to new opportunities for the West, and not its imminent decline (O’Neill 2013: 6). In the words of the centre-right British magazine The Spectator, the year 2012 was ‘the best year ever’ as “people are being lifted out of poverty at the fastest rate ever recorded”, and globalization “means the world’s not just getting richer, but fairer too.” (The Spectator 2012; O’Neill 2013: 232) In stark contrast to the pessimism emanating from some versions of the US decline thesis, this is a far more upbeat story; indeed it is a tale of global convergence, one caused by the adoption of policies promoted above all in western countries, and the US in particular. These are essentially market friendly, or neoliberal, policies.

In these two accounts of the rise of the South then, we can see some differences in interpretation and in terms of normative implications. Some argue that the rise of state capitalism in the BRICs represents both a geopolitical and developmental challenge to western dominance, as China in particular becomes a new pole of attraction for developing countries. For some this is a cause for regret, as state capitalism is associated with authoritarian politics, neglect of human rights and ultimately the undermining of individual freedom (Halper 2010; The Economist 2012). Others welcome this development, suggesting that state capitalism represents a challenge to the market friendly, neoliberal policies that have undermined the development of the former Third World (Ramo 2004; Arrighi 2007). On the other hand some argue that the real reason for the rise of emerging powers is their adoption of market friendly policies, and while any geopolitical challenge to the West might be cause for concern, more significant is the developmental triumph of new emerging powers, and this triumph has its roots in pro-western, market friendly policies (World Bank 2002).

Whatever the differences between these interpretations, there are some shared analytical assumptions. Most notably, all agree that there has been a significant rise of emerging powers. This may or may not lead to the decline of the US (compare Mearsheimer 2005; Nye 2011), but the rise does represent some kind of tendency towards convergence in the international order. This book takes a more sceptical position. It does not deny that there have been significant recent changes in the international order, and that we can refer to something called the rise of emerging powers. However, it also suggests that the rise of these powers has been exaggerated, and has real limits.² This point applies even more to the South more generally, and is particularly sceptical about its supposed rise, both developmental and geopolitical. Moreover, it is not only the rise of the South which has been exaggerated, but also the decline of the United States. The argument is made above all through an approach which draws on international political economy and especially an examination of the reasons for the rise of the South, which are traced back to the global economic boom from 1992 onwards, and which ended with the global financial crisis of 2007–08. This crisis is also examined in great depth, in terms of both its causes and consequences, above all for the rise of the South and the decline of the US. This focus on the international political economy of the period from 1992 to 2014 is not however at the expense of a consideration of geopolitics and the question of the geopolitical rise of a ‘new South’ (Alden et al 2012), which is also investigated in some depth, though how this relates to political economy questions will also be central to the argument.

The rest of the book considers these issues in seven chapters. Chapter 2 outlines the arguments briefly considered here in more detail. In particular it identifies five positions which will be considered throughout the book. The first position is that there is some kind of (state capitalist, Chinese model, or Beijing Consensus) challenge to US hegemony, and that this is a cause for concern. The second position is that emerging powers are rising and this is transforming the international order, which carries with it a set of dangers, based on competition between rising and falling hegemonic powers. The third position is that there is a Beijing consensus, or China or BRICS model, but this is something to be celebrated. The fourth position is that insofar as there is a rise of emerging powers in the developing world, this should be seen as a triumph for the West, and convergence is occurring because of the increased promotion of market friendly policies. The fifth and final position is that the rise of emerging powers is limited, and US hegemony persists. This final position is the closest to the one taken in the rest of the book. However, this does not mean that all of the other positions are rejected wholesale, and it will become clear in the empirically grounded analysis that follows that some specific points made by the other perspectives are useful. In particular, and on the face of it somewhat paradoxically, the first and third positions do have some valuable – though also limited – insight to offer, particularly where the fifth position tends to overstate its case.

Chapters 3 through to 6 then present the empirical arguments in considerable depth. At points in the chapters, these are related back to the five positions outlined in Chapter 2, but much of the analysis focuses in considerable depth on empirical material and analysis derived from this material. Chapter 3 does this through a discussion of the rise of the BRICs in particular, relating the debate over their rise to earlier debates over the rise of the first tier newly industrializing countries in East Asia (South Korea, Taiwan, Singapore and Hong Kong), and questions of the developmental state as against market friendly intervention. This debate is then used to inform the current debate over state capitalism in the South, and the reason for the rise of the BRICs. The argument made in the chapter is that the rise of these emerging powers cannot be explained by the fourth position outlined in Chapter 2 (a ‘market friendly intervention’ triumph of the West), and so in this regard – and whatever their differences over the implications – positions 1 and 3 are more convincing.

However, the chapter also concludes by suggesting that a fully convincing analysis of the rise of these new powers needs to examine the international political and economic reasons for their emergence, and this is considered in Chapter 4. This chapter examines the international factors that facilitated the emergence of these countries, locating these within the ‘long 1990s’ (Schwartz 2009) from 1992 to 2007. This chapter clearly shows not only evidence of the growth of these powers, but also how this led to new configurations in the international order, such as growing interdependence between the US and China, which was reflected in US deficits, Chinese purchase of US debt, and highly lucrative US direct foreign investment overseas (including in China). At the same time, by the late 1990s/early 2000s, Chinese development led to increased demand for primary products from the South, which facilitated growth elsewhere based on high demand and high commodity prices.

Chapter 5 takes up the story by focusing on the causes and consequences of the financial crisis. While the chapter starts by providing a relatively straightforward narrative account of the reasons for the crisis, it then focuses on its international causes, rooting them in the breakdown of the boom years of the 1990s. However, while moving to focus on the consequences of the crisis, a seeming paradox emerges, which is that if international factors were so important in facilitating the emergence of new powers in the South, then why did these same countries recover so quickly from the crisis? Indeed, their recovery seemingly strengthens the case for the argument that the South is rising and the US declining. Through a more detailed examination of the consequences, this argument draws – implicitly at least – on the idea that the South has decoupled from dependence on the West, and that this decoupling will increase in years to come. This argument is however questioned and with it the idea that the continuing rise of the South is sustainable. An alternative account of Southern recovery is proposed, which focuses on the success – and limits – of stimulus programmes in the South, and above all in China, and the impact of this on commodity prices, but also continued dependence of receiving capital from the West, in part as a consequence of quantitative easing policies.

Chapter 5 concludes by suggesting that (national, international and global) inequality were significant factors in causing the crisis, and these issues are addressed in their own right in Chapter 6. Once again, the argument that we are witnessing a rise of the South is considered in some detail, though this chapter also notes that the ‘small-print’ in some of these accounts, such as the OECD (2010a, b) report, Shifting Wealth, is far more nuanced than is usually suggested. The chapter then moves on to examine inequality within countries and finally global inequality. The argument made in this chapter is that for all the overblown talk of global convergence, those at the bottom end of the scale are still overwhelmingly concentrated in the South. Moreover, in focusing on two concrete issues – that of the changing international division of labour, and that of food – the contradictions and social tensions associated with the rise of the South are examined.

Chapter 7 shifts the focus to a more explicit examination of geopolitical issues. In addressing the history of ‘Third Worldism’, it examines whether the ‘new South’ is emerging as a major actor in the international order. Relating the discussion back to calls for a new international economic order (the NIEO) and non-alignment, it is argued that we are witnessing a return to these debates, albeit in a radically different context. In particular the NIEO called, among other things, for guarantees on commodity prices, which in effect, China’s rise has facilitated (for now at least). Non-alignment called for foreign policy independent of the superpowers, and the BRICS, among others, have called into question the promotion of liberal interventionist foreign policies by western powers, and above all the US. The chapter relates these issues back to the five positions briefly outlined above and discussed in more depth in Chapter 2. In doing so it argues again for a perspective most influenced by position 5, but one which recognizes the utility of parts of positions 1 and 3.

Finally, Chapter 8 provides an extended conclusion which puts the argument in a wider framework. It emphasizes both the reality of the rise of emerging powers but also their strict limits, and questions US decline. However it does so not only by summarizing the argument of the book, but also by putting these arguments in a wider framework. It does this by first examining and updating theories of development, and then making these more concrete by examining theories of innovation, and emphasizing their limits in the most ‘advanced’ of the emerging powers. It then moves back to a consideration of the international by engaging with the question of international transformation, and questioning whether this has taken place.

The book is very much in the tradition of ‘big picture’ academic work (Tilly 1989), drawing on a number of resources to make the argument. Given its macro nature, it does not rely on resources such as interviews, but instead relies heavily on official sources such as trade, GDP, and investment data, combined with country specific and secondary material to formulate the argument. Such is the nature of the data that the book has to rely on existing official material, using this in a critical and productive way to make an original argument, based on a ‘critical synthesis’ of existing primary and secondary material. Country specialists are unlikely to find much in the discussion which will aid their understanding of say, Brazilian national development. What they might find useful is the way that this development has been located within an international political economy framework, and how this can be utilized to explain recent international and national events. Of course, simply pointing to an IPE framework is not sufficient, as a (sub)discipline is not the same as a theoretical framework, a conflation that is sometimes made by some IPE literature (see for instance Payne 2005; Phillips 2005). It should also be stressed that the five positions outlined above and in the next chapter actually cut across theoretical traditions – for example, Marxists might identify with positions 2 and 5, and liberal internationalists with 4 and 5, and possibly also 1. What follows draws on various radical traditions in political economy, including a non-dogmatic Marxism (Kiely 1995; 2010), alongside work inspired by (among others) List, Keynes and Polanyi, as well as some work that draws inspirations from the idea of dependency (Kay 1989). It also draws on non-orthodox Marxist traditions of geopolitics, which owes some debt to the work of Kautsky (Panitch and Gindin 2012; Kiely 2010). At the same time however, the empirical work that follows is developed in a constructive dialogue with these theoretical approaches, and is not intended to fit into pre-conceived theoretical boxes. Indeed, while there is a good deal of analysis throughout the book, the wider theoretical approaches are only implicit throughout. Finally, and most importantly, is the significance of the argument. What is argued in this book is that the idea that there is a new rising South should be treated with some scepticism, as should the alleged decline of the West and the US in particular. This argument is made by considering in depth the reasons why some have argued that there is a new rising South, and suggesting why these arguments are flawed, and by presenting an alternative, and more sceptical account of the limited rise of a new South. It should be stressed that this argument is analytical, and the contention that the decline of the US and the West has been exaggerated does not imply a simple normative commitment to US or western hegemony, still less to those neoliberal policies promoted by the West in recent years.

2

The Rise of the South: Rising BRICs, Declining US?

This chapter develops further one of the themes of the introduction and provides a more in depth account of the rise of the South and related arguments. The first section provides a basic narrative account about the rise of the South, and of the BRICs, firstly focusing on the OECD report Shifting Wealth (2010a), and then the work of Jim O’Neill and other researchers at Goldman Sachs, the investment bank that first used the term. Other works produced by Goldman Sachs’ rivals will also be b...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• Acknowledgements
• 1 Introduction
• 2 The Rise of the South: Rising BRICs, Declining US?
• 3 The BRICs, State Capitalism and Globalization: Challenge to or Triumph of the West?
• 4 The BRICs, the South and the International Economy, 1992 to 2007
• 5 The South and the Causes and Consequences of the Financial Crisis, 2007–14
• 6 Global Inequality and the Rise of the South
• 7 The South and Geopolitics: From Bandung to the BRICS?
• 8 Conclusion: Development, Innovation and the Limits of International Transformation
• Notes
• References
• Index