The large emerging countries have not yet learned to play a leadership role in the rapidly evolving global economy; unless they do that the process of change will remain disorderly
That we will see a major realignment in the global economy is a much written up and even more talked about subject. It has been discussed by analysts such as Fareed Zakaria who predicted some time ago that the centre of gravity of the global economy will shift from the West to the “Rest”. By the rest he meant the large emerging economies in Asia and Latin America. Singapore’s Kishore Mahbubani saw the rapid decline of the economies of today’s rich countries and the equally rapid rise of Asia. Goldman Sachs, the American investment bank, was much more specific in identifying four countries — Brazil, Russia, India and China — that will become the new world’s leading economies.
This led to the coining of a new word — the BRICs — to identify this group. The BRICs themselves went a step further and began to hold summits of their own in parallel to those held by G8, the world’s richest countries and G20. (The twentieth slot in this grouping was given to the European Union.) The BRICs have now become BRICS, with the addition of South Africa to the original four.
How will this transition from the old to the new economies occur? Those who had suggested that such a change had already begun to occur were less specific about the way it would actually happen. During his first visit to Asia as president in November 2009, Barack Obama began to talk about a new group of economic leaders — China and the United States. He didn’t quite call the group G2 but suggested that while these two will give direction to the global economy, the details will be filled out by G20.
In line with this thinking, the strategic dialogue that had already begun between Beijing and Washington was given new importance and large delegations from the two countries began to attend their annual meetings. They were held alternatively in the two capitals.
Obama has an orderly way of thinking and for him a G2, G20, and the rest seemed a neat way of arranging the world in three tiers. But human history tells us that big change is always less orderly. His suggestion that the United States was prepared to surrender its position at the top of the world economic order and accommodate China as an equal partner on the top rung did not go down well with the American right. The conservatives and traditionalists in American society were not ready to give up on the idea of American exceptionalism.
That there was no other country and society like that of America and it was destined to pass on its exceptional values to the rest of the world was a deeply embedded belief in many sections of American society. The rise of the Tea Party movement in the United States lent further fervour to this belief. Under these pressures, President Obama beat a hasty retreat.
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During his second visit to Asia a year later in November 2010 that started with a stop-over in Mumbai, President Obama said emphatically that India was not rising but had already risen. He also suggested that the South Asian superpower should be given a status in the United States system that was equal to the one already granted to China. The suggestion was that India should be given a seat as a permanent member in the United States Security Council. Obama’s visit to India was followed by visits by a number of other world leaders — in particular the prime ministers of China and Russia. With India receiving this much attention, the G2 configuration seems to be headed towards becoming G3.
This process of change, already disorderly, became even more so with three unexpected developments: an earthquake that produced a tsunami in Japan and destroyed one of its nuclear power reactors, sudden financial woes that inflicted heavy economic damage on the periphery of the European Union and the resignation of Dominique Strauss-Kahn from the leadership of the International Monetary Fund (IMF).
The first two events provided further proof that some of the older economies in the world were losing their seats in the front row. The third development offered an accelerated opportunity to the world leaders to provide institutional accommodation to the realignment that was occurring in the structure of the global economy. Unfortunately, it appears that this opportunity will not be realised. That will be for two reasons.
The first is Europe’s unwillingness to recognise that it has lost the economic power it had in the past. Even its larger countries don’t measure up to the dynamism of China, India and Brazil. It may be entitled to a position in the front row provided it can create a United States of Europe out of the European Union. That would mean surrendering a great deal of national sovereignty to a collective body that can guide its economy and politics. Unless that happens, it will not be able to deal with the economic problems on its periphery. It must also address the demographic problem created by declining population sizes. Unless these issues are addressed individual countries in Europe must step out of the way and provide space to India and Brazil.
The second problem is with the large emerging countries. They have to find a way of acting collectively and in their common interest. The leadership vacuum in the IMF presented an opportunity that should have been grasped. There should have been a quickly-reached agreement on a candidate for the Fund’s leader. Failure to reach a consensus on this means that the large emerging countries have not learnt to play a leadership role in the rapidly evolving global economy. Unless they do that the process of change will remain disorderly.
The author is a former finance minister of Pakistan