Another ‘BRIC’ in the wall? Seeking a new global economic order.

The recently BRIC summit at Yekatinberg raised great expectation. Some analyst see BRIC (Brazil, Russia, India and China) as the new power group in the world, some even argue that it will replace G-8. (the point to note here is that Russia is member of G-8 as well as BRIC, but Russia has always been a sort of an outcaste in the G-8) Such optimism is based mostly on the sustained economic growth shown by the BRIC countries in the current gloom and doom of the economic crisis. But this optimism of BRIC being the next big thing is quite misplaced.

BRIC brings together the most unlikely of the countries having very few commonalities; but with much deeper set of differences. Each country of this group is following a different growth strategy and has its own approach towards the world order. Hence it is a bit naïve to expect the BRIC countries in total concert with each other when it comes to deciding the new world order.

Russia is a declining power. Its economy is in shatters- totally dependent on oil and gas supplies. Putin’s efforts to diversify the economy have failed. The Russian army is rusted and Russia is pale shadow of the actual role it seeks for itself. China while being the fastest growing economy, is intricately linked to the US economy. If US economy sinks, China will go down with it. Hence it is China’s interest that US economy not only survives but also booms. Brazil and India while have maintained a growth momentum, still have a long way to go to emerge as makers of the new world order.

On the other side, the G-8 solely cannot revive the world economy. So at present, the world finds itself in a precarious yet interesting situation. Unlike the past, there is no single super-power or alliances of countries that can put the world economy in order and manage it successfully. Every crisis throws up two sets of powers- the one that is/ are declining and the other that is/are emerging and are ready to assume the leadership role.
E.g. USA took over the leadership of world political-economic order with the end of Second World War as UK’s power faded.
But this economic crisis has created a dilemma. The USA is no longer the leader or hegemon (as per the Realist tradition in International Relations); and at the same there is no country or a group of countries that emerge as leaders and decide the norms of the new world order. The current world order or rather disorder is in a state of flux. And this state of flux will continue for a long time to come.

Norms of the new world order:

Any successful world order should be based on principles which are acceptable to its stakeholders. Any differences will erode the efficacy of the order to enforce itself and command obedience.
The post-Second World order was the Bretton Woods order based on the norms agreed by USA and its European allies. This order was a liberal-capitalist multilateral order coupled with an active state performing welfare and regulatory functions. So, while the international trade and economic system was to be based on free-trade and market principles; the domestic economic system of individual countries was centered around a welfare and active state. This arrangement was referred to as embedded liberalism- a term coined by John Ruggie. There was a broad acceptance to this norm. This consensus wad reflected in the various international economic institutions like- the World Bank (WB) and International Monetary Fund (IMF).

But what about the present crisis? Bretton Woods order has nearly crashed, its stakeholders are in deep mess (USA, UK, France, Germany) and its institutions (WB, IMF) are fast losing their credibility. So what should be way out? What should be the architecture of the new political-economic order? The answers to these questions also depend on the future of capitalism. There is no doubt that capitalism as we know it now will change. But it is unlikely that the world will turn towards socialism or any of its past variants.

The nature of the future world order can be found in the causes of the present crisis. The unbridled and unregulated global financial system has led to this present crisis. The banking, insurance and stock markets are the epicenter of this crisis. These sectors are now totally globalized. States have little control over the flow of finances. What are required now are not just national regulatory mechanisms but global regulatory mechanisms and rules. And there is the catch. Getting the countries to agree to global financial regulations will be difficult (the stalemate in WTO, Climate Change is an ample indication of the deep-rooted disagreements).In this context, BRIC seems awfully lacking to set the contours of the new world order. There is no doubt that individually the member countries of BRIC will play a major role in the future world order, but as group it does not have the cohesion that US and Western European countries had managed in post-1945 period.

This post does not intend to undermine the role of BRIC, but it just wants to caution the unrealistic optimism and expectation surrounding BRIC.

Af-Pak Policy- Mere lexical creativity

Whether they actually achieve anything or no, the American establishment is good at lexical creativity. The latest ‘Afpak’ policy is an excellent example of it. Barring a few cosmetic changes, the Obama administration is committing the same mistakes as the Bush administration did.
Undoubtedly, Afghanistan remains the biggest foreign policy challenge for Obama. He made all the right noises about it just after his elections, and appointing a seasoned troubleshooter- Richard Halbroke as the special envoy to Afghanistan and Pakistan (or Afpak as the term was devised then) was the first and possibly the last right step in dealing with the Afghanistan problem.

Faulty Understanding:

The much-hyped Afpak policy, which was unveiled last week, betrays any sincerity of purpose and lacks creativity. The new policy is based on an extremely faulty understanding of the situation. By stating that there is convergence of USA’s and Pakistan’s interests in Afghanistan, the Americans have began on a wrong track. While for the Americans stabilizing Afghanistan is the main goal; Pakistan still nurses its dream of having a ‘strategic depth’ in Afghanistan. And Pakistan would be fine with having a fundamentalist Islamic regime in Afghanistan. The Americans are either unable to see this divergence or they are choosing to ignore it. In both cases, it is a dangerous thing for
the stability and security of the entire region.

Outsourcing the policy:

The other element of the ‘Afpak’ strategy was the massive 7.5 billion dollars aid that USA will give to Pakistan, and along with the additional military aid in terms of resources and hardware. This clearly, is outsourcing of the Afghanistan policy to Pakistan. It is amazing to see to Pakistani establishment has consistently managed to fool the Americans while dealing with Afghanistan. The Pakistanis are able to extract huge aid without delivering anything concrete. And this time also, Obama with all his tough talk seem to be hoodwinked by the Pakistanis.

The American policy in Afghanistan needs a major overhaul. The first crucial mistake was committed by Bush, when he abandoned the war in Afghanistan to go after Saddam Hussein. This indicated that America was not very serious about stabilizing Afghanistan. The already jittery Hamid Karzai government was weakened further, and it rapidly lost any credibility that it ever enjoyed.

Any policy towards Afghanistan will have to give an important place to political solution. The distinction made by Obama administration between ‘moderate Taliban’ and the ‘extremist Taliban’ is too immature and simplistic. A comprehensive political strategy has to be evolved, and the excessive dependence on Pakistan has to be reduced. As of now, the Americans seem to be merely engaging in semantics, with no serious consideration of the ground realities.

Book Review - Regulating Globalisation: Critical Approaches to Global Governance

Book Review
Regulating Globalisation: Critical Approaches to Global Governance
Pierre de Senarclens and Ali Kazancigli (eds); United Nations University Press, 2007


A vast amount of literature is produced on the issue of Globalisation. But most of it ends up limiting itself to either being a votary of globalisation or takes a critical view of globalisation and argues in favour of the wider category called the ‘anti-globalisation’ movement. The book Regulating Globalisation: Critical Approaches to Globalisation moves beyond this limitation. It undertakes a rigorous theoretical engagement with Globalisation and its interface with the categories of state, citizenship, regionalism, governance and global governance.

At the outset, the title of the book appears paradoxical. How can something as widespread, diffused and free-flowing thing like globalisation be regulated? But the paradox is resolved as we go through the various essays in this book. The book does not question the process of globalisation, it rather sees it as an inevitable phenomenon. Based on this assumption, it argues that the root of globalisation is political. And it is through ‘politics’ that globalisation can be ‘managed’, the inequalities that it creates can be mitigated. This forms the main argument of this book.

The arguments made in this book become all the more relevant in the current financial crisis. When the G20 convened in December to deal with the financial crisis, two diverse views dominated the proceedings. The EU, led by the enthusiastic French President Nicholas Sarkozy, argued for creating global regulatory mechanisms that would help curb irregularities in financial matters (specifically in case of capital movement). The other view was espoused by USA, which was averse to any global regulatory mechanism and wanted national regulators to deal with the financial matters in their respective countries. Between this debate are the core concerns regarding the role of state, the growing importance of non-state actors and rising dominance of private capital. In all this the ‘global’ space is becoming less and less democratic, common citizens are being left out.

This is dealt by Virgile Perret in his essay- ‘Financial Globalisation, “global governance” and the erosion of democracy.’ He argues that ‘global governance[1]’ discourse is used to conceal the erosion of democracy.’ Perret argues that the ‘embedded liberalism’ that emerged after the Second World War slowly gave away to a ‘internationalisation of banking’ fuelled by the 1973 oil shocks. This process was accompanied by ‘disintermediation, securitisation and the rise of private institutional channels of credit.’ Disintermediation refers to the decline of the traditional role of the banks as intermediaries between borrowers and lenders, whereas securitisation broadly describes the process by which financial intermediation has been moving banks to capital markets. Specifically, securitisation refers to transformation of traditional bank assets like mortgages into marketable instruments- this rings the bell of the origin of the current financial mess, the sub-prime crisis in USA. In such cases the role of rating agencies becomes important, and this business is dominated by handful of firms, the main being Moodys and S&P. All this has aided financial globalisation, and this given ‘structural power’ to private bodies argues Perret. States now compete with each other to attract capital and thus get dictated by private capital interest- more so the developing countries. The short term movement of capital undermines the roots of democracy. Moreover, the market forces privilege the already privileged-the elite. Perret makes a forceful and theoretically sound argument to expose the ‘undemocratic’ nature financial globalisation.

The decline and modification of the state as an institution forms an important part of studies on globalisation. The liberal approach to International Relations has even termed state sovereignty as anachronous, challenging the basic realist postulate of primacy of state in world affairs. The growth of NGOs, MNCs, Inter-Governmental Organisations (IGOs) and the overwhelming power of 3 Ms- Market, Money and Media have severely encroached on the jurisdiction of the state. The essay by Kazancigli challenges this view without taking the realist position. He categorises states as regulatory states (prioritising social issues), competitive states (prioritising market forces) and failed states (lacking regulatory and competitive capacities). Kazanciglis argues that states –regulatory and competitive- have retained their internal and external capacities to exercise their sovereignty as they participate in global governance. The capitalist system and subsequent globalisation were driven by the state. The global space now is structured around two spaces- interstate space (ISS) and the transnational public space (TPS), these two spaces share a dynamic relationship.

The ISS comprises of sovereign states-as the principle agents and intergovernmental organisation as dependent agents. The TPS is a newly emerged heterogeneous space comprising of MNCs, NGOs and other bodies of global civil society. This space is characterised by questions of legitimacy, high degree of inequality and issues of representation. Both ISS and TPS work in cooperative and conflictual manner. Kazancigli after thorough analyses of these two spaces argues that multilateralism as developed in post-1945 phase is no longer relevant. He calls for a transformative approach rather than reformist approach to make global governance more effective and democratic. The transformative approach would entail involvement of actors (from ISS and TPS) at various levels- sub-state, state and regional level.
Kazancigli’s suggestions of a transformative approach are based on sound theoretical framework. But seem a bit vague when we seek them to apply. Global Governance is based on three factors – norms, institutions and mechanisms. Norms organise, facilitate, constraint and determine the interaction among the actors. Institutions in global governance work at different levels- from sub-state to regional to global. These include IGOs, NGOs, MNCs, the sovereign states and local networks at the sub-state level. Mechanism refers to how actors interact in accordance with the norms. Kazancigli’s proposition does not dwell about how the ‘transformative approach’ will incorporate these three factors.
Pierre de Senarclens in his essay argues that reforming the United Nations offers the best chance to have democratic and transparent global governance. Most of the suggestions (like expanding the UNSC and better mandated Trusteeship Council) made by Senarclens have already been made by various UN reform committees, notably the reform suggested by Kofi Annan. But he does make some new points, like replacing the G8 negotiations with a new body called Economic and Social Security Council which will have representation on regional basis. The Council would be entrusted with the responsibility of increasing international liquidity, harmonize regional monetary systems, oversee balance of payment difficulties and manage the debt crisis. This recommendation echoes the views expressed at the recent meeting of G20. It is evident that G8 has been effectively challenged by G20, but setting up a Council in place of it would be politically difficult. Nonetheless, the idea of the Council, may be with some modifications is a valuable suggestion in wake of the current financial crisis.

L. Fawcett emphasises the role of regional organisations in evolving an effective structure for global governance. He argues that states tend to favour regional groupings instead of international bodies, as regional organisations provide them more manoeuvring space and also help them exercise better control. International Organisations can become unwieldy at times, paralysing the entire decision making process. Fawcett’s arguments have some validity to them, but regional organisations can end up being impediments to global governance. The constant failure of WTO talks and concurrent rise of regional economic agreements indicates that while states are uncomfortable with international norms and institutions, they are willing to cooperate with other states in a limited framework that regional groupings provide. Thus the path of reaching the goal of effective global governance through regional organisations may be slippery and protracted.

Jean-Marc Coicaud in his essay deals with the tricky of question of can and how can globalisation and its governance be made legitimate. He says that legitimacy requires coherence between norms and agency in global governance. And the criterion for this is human rights. Human rights are seen as benchmarks for good global governance and also as a framework for good policy making. Coicaud performs the crucial task of raising the question of legitimacy of globalisation and global governance. But the criterion he puts forward is bereft with problems. Various strands in liberal school of International Relations Theory have seen human rights as a universal principle and consider it as duty of humanity to safeguard them irrespective of the sovereign state system. Human Rights as a principle have often been viewed with suspicion by the non-Western world. The principle of human rights has often turned into a political tool of convenience.

Overall this collection of essays is one of the most theoretically sound work produced on globalisation. It attempts to bring out the subtle theoretical concerns of domestic-international divide, state-citizens relations, role of civil society and the question of legitimacy all in context of globalisation. This book contains ample material that will stimulate further research and this perhaps is the most important contribution of the book.

[1] The Commission on Global Governance defines global governance as involving intergovernmental relationships, NGOs, citizens movements, MNCs and the global capital market.