Month: September 2016

Brics Summit in Goa: Ahead of 8th conference, the bloc must focus on institution-building

Original link is here

When India hosts the 8th Brics Summit in Goa next month, it will need to be the ‘B’ along with the ‘I” in Brics. The ‘bright spot’ that infuses direction, ideas and momentum into a collective whose individual members have certainly seen better days. With a relatively strong economic performance and a vigorous and imaginative foreign policy (on most counts), India has the capacity to help the Brics plurilateral discover a new ethos that will channel cooperative sentiments into concrete objectives, durable institutions and constructive internationalism.

For the Indian Brics presidency to achieve this, it would need to get all members to agree on the need for creating new and agile institutions that can help the group and others respond to the current economic and political realities, and the visceral gridlock that plagues multilateralism and global governance generally.

In a recent article penned by the authors, two organising principles had been proposed as being fundamental to the Brics regimes even as they seek to reform, reshape and steer the contemporary geopolitical and geo-economic environment. The first was the principle of ‘sovereign preponderance’ and the second the principle of ‘democratic equity’. As per the former principle, the state remains the primary and inviolable unit in the international system and its imperatives override all other concerns in setting the international agenda. Intra-state cooperation is possible insofar as such cooperation leads to greater state agency. This higher agency is then channelled to meet the unique developmental needs of each country and, through it, the global community.

(from left)  Michel Temer, Narendra Modi, Xi Jinping, Vladimir Putin and Jacob Zuma ahead of the 8th Brics Summit. Twitter @BRICS2016

The principle of democratic equity holds that the international order, in the economic, political or security spheres, should be shaped equitably after taking due cognisance of the increasing heft and aspirations of emerging powers and economies. These two principles do indeed shape various Brics regimes that contexualise developmental and economic goals, both within the member-states and in the international system at large. They also motivate the stated ambition of this group to redress unfairness (perceived and real), intrinsic to the extant global political and economic governance architectures. With these organising principles as the basis, it becomes apparent that ‘institutions’and ‘institutionalisation’ are imperative for the collective-action plans of the Brics.

The very act of institutionalisation within Brics gives the Brics regimes lives of their own, even while there is contest and conflict on some issues among member states. Institutionalist literature and studies have recognised this aspect. This literature suggests that institutions persist, since the costs of setting up new institutions are often much higher than the benefits that would accrue by dissolving them. Sunk costs (into building institutions) also lock institutions into a path of dependence that leads to increasing (as opposed to decreasing) returns over time.

Institutions codify cooperation and convergence of expectations. They also specify limits to cooperation by delineating formal agreements on some instances and looser norms of cooperative behaviour on others. The former is, by definition, binding while the latter allows wider sovereign leeway.

Taking a leaf from this body of work, the Brics must seek to further their agenda through the creation of four new institutions and institutional arrangements with varying degrees of formalisation.

The first such formal institution must be the New Development Bank Institute (NDBI), the ideational arm of the NDB and perhaps of the wider Brics project itself. The notion of the NDBI was proposed by Prime Minister Narendra Modi last year who described it as “a bank of ideas, a storehouse of experience and a knowledge powerhouse”. The NDBI must become the institution that defines the pathway for the bank but more expansively becomes the laboratory where Brics produces new narratives, discovers new ideas and develops new solutions for the political and economic future. It must seek to become an OECD-like think-tank of and for the emerging world, where issues of economy, currency, credit rating, political risk, industrial models and development options are agitated and sought to be responded to.

A second key arrangement must be developed for trade and commerce. It is apparent that the Brics, more than any other significant group, is invested in the open and democratic trading system led by the WTO, even as the progenitors of the WTO are seeking to subvert the system with mega free trade agreements involving group of similarly placed economies and some others with little choice or agency. One area within this rubric would be the setting up a body that would develop and set Brics-wide standards and benchmarks. While a Brics free trade agreement appears far-fetched, a body that sets benchmarks and standards is in everyone’s interest. It allows Brics to engage on an aspect that decisively shapes global trade and would contribute to strengthening the multilateral trading regime, even as it furthers intra-Brics trade without a formal FTA.

The very act of institutionalisation within Brics gives the Brics regimes lives of their own, even while there is contest and conflict on some issues among member states.

A third key Brics institutional framework that must be created, is for the digital economy where Brics members are already key stakeholders. Currently, the Atlantic powers are embarking on a major programme to shape the norms that will govern the digital space. The proposed ‘Digital 2 Dozen’ principles of the Trans-Pacific Partnership, and the digital regulation initiatives of the European Union are examples of this. As leading consumers as well as creators of digital technologies, products and solutions, Brics needs to be influential voices in the norms-making space. They must act to shape the discursive space around the digital world and inform debates around contentious issues such as encryption, supply chain integrity, data management and data flows and appropriate stakeholder models to manage these aspects.

Finally, Brics must formalise institutional collaborations that explore the unique opportunities and challenges lying at the intersection of the twin imperatives of economic growth and sustainable development. The Brics development agenda should be one that promotes the latter without sacrificing the former. This could be tasked to a standing conference on development partnership, an initiative to discover and promote a Brics development agenda. It would also catalogue experiences of member states and others, diffuse lessons learned to those who seek it, and track progress unobtrusively within a voluntary and democratic framework.

It will follow and measure Brics’ implementation of the ambitious multilateral agreements pertaining to sustainability and climate action, but in a way that does not constrain imperatives of states as they chart their unique developmental trajectories. This new ethos of managing development and assisting others in their own endeavors correspond to both the organising principles of sovereign preponderance and democratic equity.

Samir Saran is vice-president and Abhijnan Rej is a fellow at the Observer Research Foundation. This article is drawn from a forthcoming monograph by the authors titled Thinking BRICS: A Theoretical Inquiry Into Emerging-Powers Plurilateralism

If India wants to become a superpower, it has to stop trying to become the next China

Original links are : ORF and Quartz India

India is currently in the midst of two large but different endeavours.

The first is to complete the unfinished agenda of the previous decade, providing the country with the modern infrastructure, rural amenities, social services, and connectivity that any developed economy needs. And the second, the most ambitious of the two, is to create jobs, wealth, and value to accommodate a young and aspiring population, eradicate poverty, and boost GDP growth.

But these two projects are being undertaken at a time when global headwinds are deeply unfavourable. Today there are five hurdles that stand between India and its ambition to join the club of developed economies.

The first is the advent of this new age where the open, free, and democratic global trading system has become a pale shadow of its previous self. The multilateral trading system — and the preference for this kind of model — has waned considerably. It is being replaced by free trade arrangements between smaller groups of countries and regions, where a handful of stakeholders are able to decide the terms of trade.

This is coupled with a stagnation in global financial flows, because of weak growth, and the growing disquiet over globalisation, curiously enough, in the developed world. From the EU to the UK to the US, politicians are using globalisation as a convenient culprit for all that ails domestic economies and societies.

It’s against this backdrop that India has to discover new markets, new sources of funding, and new trading arrangements.

Second, the advance of technology and the expansion of the digital economy, along with robotisation, is in many ways closing the window for export-led manufacturing growth. They have significantly eroded the advantages that cheap labour typically provide for developing countries. Industrialisation, when seen through the narrow prism of manufacturing, therefore already looks improbable, if not impossible.

Manufacturing, Globalisation, Digital India, Labour

Emerging economies will be stuck with the traditional disadvantages of weak governance, cumbersome bureaucracies, quality and competence issues, fragile supply chains, and a lack of skilled labour even as they compete with machines and machine learning. Large labour pools are unlikely to provide any competitive advantage unless the labour force is reoriented, retrained, and reimagined.

That’s going to make things difficult for India. Even though the country might benefit in the next five to 10 years from weak energy prices, industries exiting China, and inflows of foreign direct investment, it’s going to get harder to compete in manufacturing.

Large labour pools are unlikely to provide any competitive advantage unless the labour force is reoriented, retrained, and reimagined.

A case in point is the relocation of textile and garment production to the developed world. This was previously a sector most sensitive to cheap labour and therefore the first to be off-shored to the developing world. Today, it’s now returning to robotised factories in the US and the EU.

Indeed, it can be argued that with 3D printing and artificial intelligence, manufacturing as we know it may be coming to an end. Whatever form that manufacturing takes in the future, we can safely assume that it will based on high competencies in design, material science, resource management, super-computing, and precision engineering, all delivered by machines or sets of machines and requiring minimal labour.

Third, energy derived from fossil fuels may no longer be a given in any new industrialisation effort. In a “climate-aware” world, it is apparent that there is a willingness to compromise with low incomes and poverty but little appetite to allow the developing world too much carbon space.

Fourth, global finance is increasingly agnostic, if not outright unfriendly, to the idea of traditional industrial growth. An IMF working paper suggests that “investors such as pension funds, insurance companies and mutual funds, and other investors such as sovereign wealth funds hold around $100 trillion in assets under management.” This study estimates the infrastructure-funding gap between $1 trillion and $1.5 trillion each year, with the deficit significantly higher in developing countries. This paper and other studies have argued that this stems from a lack of financial instruments and a lack of appetite to invest in the industrial ventures of the past. Global capital and even local commercial capital in developing countries are being crowded away from investing in infrastructure.

Fifth, innovation itself has a spatial flaw. Discovery and invention are still the preserve of the Atlantic system while consumption and absorption are witnessing greater uptake in the Asian economies and in Africa. This new innovation divide, when combined with restrictive intellectual property regimes set up for the benefit of Western corporations, is bad news for developing countries. It’s likely that they will merely transform from being labour sources, marginal consumers, and resource-rich spaces to markets for innovation, sources for the data that drives the process, and part of a value chain where the largest wealth will still be created in the old economies.

Discovery and invention are still the preserve of the Atlantic system while consumption and absorption are witnessing greater uptake in the Asian economies and in Africa.

This will ensure that their purchasing power remains low. Without large-scale, export-driven manufacturing, and without the revenues that would accrue to the owners of technology, there is a high possibility that developing countries that are not yet middle-income will remain trapped in a low-productivity, low-wage spiral.

The better way forward

So what should India do, given these five trends in global economic development?

First, India must get its own house in order. One-fifth of humanity is a market and a productive base in and of itself. But for the country to take advantage of its size, it must sign a free trade deal with itself.

Currently the 30-odd states and union territories that comprise the Republic of India are nominally a single economy. But in reality, they’re less integrated than the economies of Europe. India’s states and union territories often have sharply different regulations and incompatible tax systems. As a result, trading across state boundaries is a nightmare and India really needs to focus on creating a trade association among these regions.

As a single tax, the GST is the first step in the right direction as it will allow new manufacturing units set up under the “Make in India” programme to have access to multiple markets.

Manufacturing, Globalisation, Make in India, Labour

And there are other government policies that also fit well with this endeavour: “Digital India” knits markets together, allowing for vast e-commerce and business-to-business opportunities, and “Start-up India” gives new entrepreneurs access to the finance and incubation required for them to take advantage of these opportunities.

Secondly, the attitude towards informal employment needs to change. It’s time to stop thinking of the informal economy as a bad thing, particularly since an overwhelmingly large number of Indian workers (over 90% by some estimates) are currently employed in the sector. The government should instead focus on creating support systems that will allow for India’s vast informal workforce to become more secure, productive, and, where feasible, more entrepreneurial.

Finally, India must think big. It must consider the possibility that it will have to leapfrog over the industrialisation process itself. It must imagine itself becoming the epicentre of the robotics and AI world, much like Japan become the hub for electronics, Germany for automobiles, and China for manufacturing everything at a tenth of the cost.

To prosper in a world that is suffering from the absence of growth and the disruption of old models, India must strive to become the principal stakeholder of the digital revolution — and ensure that its teeming millions partake in it gainfully, even if informally.

This commentary originally appeared in Quartz India.

BRICS, globalisms, and the return of the state

Samir Saran and Abhijnan Rej

Original link is here

As New Delhi gets ready to host the 8th BRICS Summit in Goa in October, both the sceptics and believers are tentative in their support or criticism of the BRICS project. Commentators are also unable to comprehend or explain the nature of the grouping and the regimes it seeks to promote. In order to understand the means-ends logic of BRICS, we must situate it within the longer arc of contemporary history while seeking a better explication of the evolving relationship between liberalism, multilateralism and multipolarity.

This is crucial if we are to make sense of this unlikely grouping and its role in a world that now resembles 19th century Europe, post the Congress of Vienna in 1815. The order that emerged then was starkly driven by national interests of a constellation of powers, and arranged according to balance-of-power principles. As such, it was one of the earliest historical examples of how great powers could “cooperate under anarchy,” to riff a term from late 20th century institutionalist literature. What we are witnessing now is a similar reassertion by states and return to balance-of-power politics at a time when multipolarity and multilateralism are in an uneasy relationship.

Without doubt this European analogy is imperfect. After all, the re-emergence of the ‘sovereign imperative’ in the 21st century, under contemporary conditions of interdependence, is unlike the 19th century. It has more to do with the excesses of the unipolar moment that began with the fall of the Berlin Wall in 1989 and ended with the global financial crisis of 2008. What transpired then is crucial to understanding the beginnings and relevance of the BRICS.

Recent Western engagement in the Middle East tells part of the story. The first Gulf War of 1991 saw the US intervene to secure its energy interests by leveraging the UNSC. By the second Gulf War in 2003, the US saw the UNSC as an impediment. Thereafter, American, French and British interventions in Libya, Syria and elsewhere institutionalised subversion of the UN led multilateral order under the garb of ‘Responsibility to Protect’. State assertiveness was not limited to the politico-military sphere alone. Germany rode out of the global financial crisis with a new zeal for geoeconomic statecraft, raking up huge surpluses often at the expense of EU partners. The German idea of “Gestaltungsmacht” (a shaping power) is predicated not on a principled adherence to liberalism but on the fungibility of economic power. Witness the German willingness to let Greece leave the Eurozone in 2015 (and risk a Eurozone-wide crisis) but unwillingness to write off some of the Greek liability.

BRICS 2016, Multilateralism, Multipolarity, Geoeconomics, Geopolitics, Gulf War
Protests against the Gulf War, Bristol, 1991 | Courtesy: Christopher Bulle/CC BY 2.0

BRICS is a child of this era — when liberal democracies subverted multilateralism and the economic order was reduced to serving interests of a few. It was indeed a moment ripe for sovereign reassertion. It should be no surprise then that BRICS puts a premium on Westphalian sovereignty as an organising principle for the international order, and seeks new norms that would make that order more representative. Put differently, the regime-complex around BRICS is built on two principles: that of ‘sovereign preponderance’ and of a ‘democratic equity’.

The principle of sovereign preponderance holds the state is paramount, independent and inviolable, and inter-state cooperation is possible where trade-offs between autonomy and cooperation result in greater ‘state’ agency. Indeed it is this principle that allows China and Russia to come together in a forum with three democracies. For each of them, the ideology of global capitalism is not an end in itself, but only a means to meet developmental objectives of the state. Their objections to interventions in regions that are outside their own core interests and neighbourhoods must also be seen in this light.

By promoting norms around democratic equity in the international architecture, BRICS seeks to find space in structures and institutions that are increasingly seen as subservient to Atlantic powers. These powers have subverted multilateral institutions whenever they saw these institutions as impediments to furthering their agenda. A case-in-point is the multilateral trading regime with the World Trade Organization (WTO) at its center. The United States, by promoting new and exclusive mega-regional trade regimes like the Trans-Pacific Partnership as well as the Trans-Atlantic Trade and Investment Partnership, has dealt a serious blow to the WTO’s raison d’être. By persistently objecting to the WTO grant of “market economy status” to China, the United States has shown that the multilateral trading architecture — at its core — remains bound to the hegemon’s perception of fair practices. Norm-setting remains a predominantly western exercise.

It is here that BRICS differs from the democratic and equitable order that was sought to be promoted by the Non-Aligned Movement or the G77. Instead, this current impulse stems from varying degrees of disaffection of each BRICS member with the global marketplace of norms. BRICS strives to restore balance-of-power in the agenda-setting space. And as it attempts to do this, it is indeed ironic that the task of democratisation of the international system has become a central endeavour of a group that has two large authoritarian countries as members.

Herein lies the central paradox at the heart of contemporary geopolitics and geoeconomics. Liberal democracies are undermining multilateralism whereas ‘illiberal states’ are rallying behind it, and both are doing so out of self-interest. Individually BRICS states realise they need the multilateral architecture since the pursuit of other arrangements requires both political and economic heft, which all BRICS members lack. As a collective, BRICS seeks to leverage each of its member-states’ significant geopolitical and geoeconomic strengths to preserve the multilateral system, albeit in a way that recognises the significant stakes of emerging powers. In other words, plurilateralism becomes a pathway to the preservation of multilateralism. At the end of the day, this is what unifies BRICS.

This post is part of a forthcoming monograph by the authors. A short version appeared in the Economic Times.