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.