Research, Writing

Global trade after COVID-19: From fixed capital to human capital

Co-authored with Dr. Alexis Crow

Some commentators have trumpeted the “end” of globalization in the wake of rising protectionism over the last half decade, the sudden economic stops wrought by COVID-19, and the corollary disruptions of supply chain activity around the world.

The truth, though, is that for companies and investors involved in the exchange, transmission, and sale of goods, services, technology and finance, globalization is anything but dead. Granted, the landscape has dramatically shifted since the 1990s, and executives will need to be nimble and agile in navigating the new environment, which is currently in a state of flux.

Indeed, more recent developments in the global trade environment including green frameworks, digital protocols and regional partnerships offer a glimpse not of the demise of globalization, but rather, of what global trade may look like in the post-COVID-19 era.

Globalization and its “discontents”

Globalization is defined as the process by which technology and the information and communication technology (ICT) revolution of the 1990s enabled faster transaction times and processes for exchanges of currency, capital, information, innovation, goods and people around the world.

These transmissions of commerce have been facilitated by norms, laws, regimes and treaties governing trade, such as the World Trade Organization at the global level and agreements such as ASEAN at the regional level. At a national level, the creation of free-trade zones further facilitated the ease of trade: for example, a shipping container can move through a seamless logistics corridor in the United Arab Emirates from the Port of Jebel Ali to the Dubai International Airport within four hours.

In financial services, hubs such as the City of London and latterly Singapore have attracted leading talent from across the globe to investment banking, trading, fintech and asset and wealth management, with executives and their teams using these hubs to penetrate the “spokes” of business in the EMEA (Europe, Middle East, Africa) and south/southeast Asian regions.

Unfortunately, the very same global interconnectedness that facilitated wealth creation and economic opportunities also had a dark side that manifested throughout the 1990s and 2000s. Global and transnational risks such as international terrorism (such as the attacks of 9/11), environmental degradation, cyber-attacks, pandemics, human trafficking and financial instability and financial crises ricocheted across the globe. Such risks might pop up in one jurisdiction and by the very same conduits that fostered the “bright side” of globalization easily spread across geographies.

Today, we might say we are dealing with a different shade of discontent within societies— particularly pronounced within advanced economies—for which the process of globalization is often blamed: rising domestic income inequality. While global trade has lifted billions of people out of poverty and sharply reduced inequality at a global level (such as that between China and the West, and southeast Asia and the West), income, wealth and opportunity inequality have been steadily rising within countries such as the United States, the United Kingdom and Italy. Clearly, the benefits of globalization have not been shared by all. Yet, the globalization of labour markets is but one of a number of contributing factor to rising inequality within these societies since the 1980s.

Value of world services exports by category (USD Billions)
Value of world services exports by category (USD Billions) (Image: World Trade Organisation)

Nevertheless, some leaders have found it both palatable as well as politically convenient to point the finger of blame at other countries. Rising income generation and economic advancement in Japan, for example, became a target of ire within certain circles in the United States during the late 1980s and early 1990s. More recently, some activist politicians and commentators have pointed to the economic gains made by certain groups (such as immigrant workers) as a clear causal factor for the erosion of the domestic middle class.

Rising economic nativism has taken various forms within the last few years and has in some cases been accelerated in the wake of the COVID-19 pandemic. Regardless of the underlying causes of domestic inequality and social anxiety, politicians have acted out against trade in the following ways:

  • Ructions against goods. In recent years, some countries have focused on the balance of trade in goods (or the imbalance) as a way to reduce imports or to onshore production. Tariffs became the policy tool of choice as a way of addressing such imbalances, but when implemented, have had mixed results. Data shows that efforts to boost domestic production of goods and services comes at a cost: quite literally, for the governments, companies and consumers.
  • Restrictions on mobility. Responses to the angst felt against global trade have not been limited to goods or volume of merchandise. States have also moved to restrict immigration, vowing to protect domestic workers from a perceived disadvantage. It is important to note that curtailing mobility also comes at a cost—during COVID-19 restrictions, a sharp reduction in migrant agricultural workers within OECD countries has contributed to a sharp rise in food prices, which have reached a six year high.
  • Tech bifurcation. Although countries, companies and individuals are importing and exporting more services than ever before, a bifurcation has developed between the United States and China regarding certain aspects of trade in technology. Indeed, the situation has been referred to this as a “technological Cold War” between the “two greatest powers” in the world.

While some European countries have also passed legislation to restrict inbound investment in specific targets or sectors, the EU-China Comprehensive Agreement on Investment (CAI)—signed at the end of 2020—was designed to improve laws and practices for mutual investment between China and the EU, at a federal level. Although currently on hold, the negotiations did demonstrate a willingness for both sides to convene in order to potentially step up the level of investments within their respective economies.

Three emerging paths forward

Within a turbulent geopolitical context, the shape of a post-COVID-19 trade landscape is becoming clearer, particularly regarding the digital, green and regional spaces.

  1. The digital realm

A multilateral framework is… the need of the hour to avoid any more trade wars that the pandemic-stricken world economy cannot bear.

Data protection and securing user privacy in the digitized world has been a major issue of cross-border friction. But here we are seeing concrete efforts being made. To this end, the EU General Data Protection has offered a common template that has even inspired the California Consumer Privacy Act.

This is not to say that all contentious issues have been resolved. One complicated issue has been the taxation of digital services. Although there has been an attempt by the OECD to devise a framework for digital taxation, a multilateral solution has not evolved so far. Against this backdrop, the United Kingdom, France, India and Italy among other countries have started levying taxation on digital services, with the United States taking subsequent action under Section 301 of its trade law. A multilateral framework is, therefore, the need of the hour to avoid any more trade wars that the pandemic-stricken world economy cannot bear.

The fact that there is some early convergence on contentious issues is a positive dynamic and suggests that even though an overarching framework governing the digital realm is elusive so far, consumer interest will be the guiding force in determining the nature of regulation.

  1. The green space

Increasingly, at least in the developed world, “going green” is the new industrial and growth strategy.

Climate action is the base on which economic policies of the twenty-first century are likely to be formulated—increasingly, at least in the developed world, “going green” is the new industrial and growth strategy.

To be sure, there are challenges. Recent discussions on the EU’s carbon border adjustment mechanism, essentially an emissions-related import tariff, are the first sign of movement towards a global “carbon club”, shutting out exports from countries that may not comply. But the current moment presents a historical opportunity for cooperation. As climate commitments strengthen across the globe, economies of scale have led to rapidly falling costs for green energy and technology.

  1. A region-based approach

As efforts are underway at reforming the global trading system, regional or bilateral agreements are helpful in providing building blocks for greater cohesion.

While many Western countries have been contending with populist movements in the years leading up to COVID-19, and then resurgent strokes of economic nativism in the wake the pandemic, countries in Asia signed the largest trade agreement in history—the Regional Comprehensive Economic Partnership (RCEP) in November 2020.

Effectively, RCEP incorporates some rich income Asian countries within the ASEAN community; and in a historic step, it is the first framework to include China, Japan and South Korea together within a trade agreement. While some commentators argue that RCEP is less comprehensive than other deals such as the Trans-Pacific Partnership agreement, the convening of RCEP signatories signals Asia’s continued commitment to connect “multiple factory floors” at a regional as well as a global level.

The cementing of RCEP—with the participation of some of the fastest growing economies in the world—raises the question: do regional trade agreements help or hinder the global trading landscape? With variegated standards on data privacy, green and carbon, and with countries at various stages of economic growth and employment, a global architecture might be elusive. It can therefore be argued that as efforts are underway at reforming the global trading system, regional or bilateral agreements are helpful in providing building blocks for greater cohesion.

Reaping the benefits of a global division of labour and capital

Even though the global trading architecture has taken severe knocks from both populism and the pandemic, nearly one-third of the world’s population and one-third of global GDP have recently been incorporated in a historic trade agreement.

And even amidst the “great lockdown” of 2020, the contraction of global trade in goods was less than half of that of the trough of 2009, in the wake of the global financial crisis. Moreover, an asynchronous regional recovery from COVID-19 has meant that many companies have been able to make up for the loss demand in one region (such as Europe) by the growth in demand in another region (such as China). And uneven sectoral activity, such as the working-from-home dynamic, is propelling demand for critical goods such as semiconductor chips, which is propping up export markets for countries such as South Korea. The growth of the electric vehicle industry and the commitments by governments to “build back greener” are also contributing to cross-border flows of metals and materials.

Nevertheless, as policy-makers set their priorities on rebuilding their societies, the lure—or mystique—of self-sufficiency remains strong. Indeed, the COVID-19 pandemic has caused severe losses to income for both advanced as well as emerging economies—the former experiencing a loss of 11% of income of 2019 levels, and the latter nearly double, at 20%. Yet, the way out of economic desolation is not via isolation, or constructing a fortress nation.

The way out of economic desolation is not via isolation, or constructing a fortress nation.

The way out of economic desolation is not via isolation, or constructing a fortress nation.

Laudably, within some advanced economies, COVID-19 relief measures have catalyzed the implementation of policies, including those designed to address housing affordability and access to childcare, that are meant to combat systemic income inequality. As countries transition from relief to recovery, and policy-makers weigh up prospects for bolstering domestic employment, it goes without saying that demand for many jobs within tradeable services is implicitly connected with the viability of export markets.

Thus, the ability to underpin and renew export ties with dialogue—such as that recently conducted between the US and the EU—is integral to sustainable domestic growth. Additionally, in the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital. Amplifying competitiveness and improving productivity in both tradable and non-tradable sectors can also be enhanced by infrastructure spending and investment, in hard and soft sectors.

In the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital.

In the realm of non-tradable services, creative policies to incentivize corporate and private investment in reskilling, upskilling and learning for working are absolutely critical – in essence, segueing from investing in fixed capital to human capital.

As countries increase investment in non-defense related R&D in sectors such as biotech and electric transport, it is important to consider that innovation is implicitly tied to immigration. In the United States, this has been the case throughout the 19th and 20th centuries, and with immigration as one causal factor of the blossoming of cutting-edge technology businesses and the growth of entrepreneurship in the country. Thus, data shows that the vitality of human capital is inherently cross-border and reliant on immigration. Recognizing this is a requisite component of any industrial, or rather, post-industrial policy, for advanced economies and for emerging and developing economies that are shifting from old to new economic growth.

Originally published https://www.weforum.org/agenda/2021/05/the-global-trade-map-after-covid-19-from-fixed-capital-to-human-capital/

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Research, Writing

The Global Trade Map After COVID-19: Where to for Global Companies and Investors, and Policymakers?

Co-authored with Dr. Alexis Crow

In the wake of rising protectionism over the last half decade, the sudden economic stops wrought by COVID-19, the corollary disruptions of supply chain activity, and shocks to supply and demand, commentators from across the globe have trumpeted the ‘end’ of globalisation.  Indeed, even predating the populist movements in the UK—culminating in the Brexit referendum—and in the US, resulting in the Trump era of tariffs and US withdrawal from trade agreements—some economists had forecasted a plateauing and eventual tapering of globalisation. With the shift from the old to the new economy—that is, growth in services activity and employment—experienced by many advanced economies (including the US, the UK, and the Netherlands), less goods—or volume of merchandise—are being moved around the world.

This carries with it certain implications, as the manufacturing and industrial eras associated with the production of goods have significantly boosted national incomes within domestic borders.  Additionally, competitive export of these goods to foreign markets has further contributed to both domestic as well as global economic growth.  Looking beyond goods, cross-border exchanges of services (such as travel, IT, and legal and professional services), as well as flows of finance, and exchanges of human capital have been integral components of the globalised business landscape, critical for building business, profit, and generating returns.

With the future of trade hanging in the balance, what’s in store for corporate executives and investors? For many businesses—even those with a predominantly domestic sales base—have often relied upon the process of globalisation in order to create wealth, ultimately translating into boosting economic growth and employment.  Will ongoing trade tensions—as well as reactions by governments to onshore production in the wake of the COVID-19 pandemic—actually prove to be the end of the multi-decade process of globalisation as we know it?

<object class="wp-block-file__embed" data="https://samirsaran.files.wordpress.com/2021/06/orf_specialreport_137_globaltradepostcovid.pdf&quot; type="application/pdf" style="width:100%;height:600px" aria-label="Embed of ORF Special Report No. 137 – The Global Trade Map after COVID-19: Where to for Global Companies and Investors, and Policymakers
ORF Special Report No. 137 – The Global Trade Map after COVID-19: Where to for Global Companies and Investors, and Policymakers
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In this episode of The Director’s Chair, Michael Fullilove speaks with Dr Samir Saran, President of the Observer Research Foundation (ORF), a leading Indian think tank.

Michael and Samir talk about India’s devastating second wave of COVID, the time it will take for India to recover from the crisis, and what the pandemic means for US-China relations. Samir speaks about his own experiences with the virus and analyses how the crisis may affect India’s position in the world.

Original post published here: https://www.lowyinstitute.org/publications/director-s-chair-dr-samir-saran-india-s-covid-crisis-and-future-globalisation

The world is in a state of disorder.

As we approach the end of the second decade of the twenty-first century, all about us is chaos. The rise of the East is viewed with scepticism and fear by the West. The international liberal order is facing a moment of crisis. With Darwinism (or the survival of the strongest and fittest) having guided the construction and management of international systems of governance for seven decades, it is no surprise that as sweeping change overtakes the world, there are no longer many takers for these arrangements. Globalization is confronted by economic nationalism. Strong leaders are exploiting the grievances of citizens (whether imagined or real) to discard global ideals and champion local interests. And the prospects of a ‘global village’, of the world coming ever closer together, seem to be in reversal. A zero-sum approach to development and the securitization of growth are creating new potential for conflict at a time when the institutions of global governance are weaker than ever before.

The New World Disorder and the Indian Imperative is a major study of this new world order. In tracing the roots of our current predicaments to the inequity of the post-war international structure, it explains the situation that obtains at present. The book identifies the new actors and ideas that will emerge from the remnants of the old dispensation to script the architecture of the twenty-first century. India, the authors argue, has a major role to play in shaping the regimes of the future given its size, growing clout, and stake in practically every major multilateral organization. India’s sustained commitment to constitutional democracy and its unique identity as a non-hegemonic global power will be central to its leadership role.

In today’s multipolar, contested, and uncertain world, India may well be the only country with the credentials and capability to script an equitable ethic for a new international order.

Books, Writing

The New World Disorder and The Indian Imperative

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Books / Papers, BRICS

A LONG-TERM VISION FOR BRICS

Original link is here 

The objective of this document is to formulate a long-term vision for BRICS. This in turn flows from substantive questions such as what BRICS will look like in a decade and what the key priorities and  achievements will be. It is true  that  BRICS is a nascent, informal grouping   and   its   agenda   is  evolving   and   flexible.   Therein  lays  the uniqueness of BRICS. The BRICS leaders have reiterated that  BRICS will work  in  a gradual,  practical and  incremental manner. Nonetheless, the grouping  needs  a long-term vision  to  achieve  its  true  potential for two reasons: (1) to dove-tail  the tactical and individual activities into  a larger framework and direction; and (2) to help in monitoring the progress of the various sectoral initiatives in a quantifiable manner.

The  Track  II BRICS dialogue,  under  the  chairmanship of India  in 2012, has been robust. On March  4th  – 6th,  2012,  academics and experts  from the five BRICS nations—Brazil, Russia,  India,  China and South  Africa— assembled  in  New  Delhi   for  the   4th   BRICS  Academic   Forum. The overarching theme was “Stability, Security  and  Growth.” This  theme is useful for understanding the motivation and ethos of BRICS as a platform for dialogue and cooperation on issues of collective interest.

The  dialogue  led to the drafting of a comprehensive set of recommendations for BRICS leaders  (Annexure 1). The  17  paragraphs that  capture the  recommendations to  the  BRICS leaders  were  reached through a consensual process between  60 academics and experts from the five countries. Forum  delegates  contributed a number of research and policy papers  that  formed  the basis for the enriching discussions. Each of these  papers  highlighted key  areas  for  cooperation, within the  overall construct of the BRICS agenda.  This  research led to a significant build-up of knowledge on BRICS. This  long-term vision document is an attempt to aggregate the dialogue and research that  has fed the Track II process so far and to build upon it.

Broadly speaking, the document is divided into four sections. The first, on ‘Common Domestic Challenges’, aims to pinpoint multiple areas in which sharing experiences and best practices within the BRICS Forum  will help to respond to common problems. For example, BRICS nations have vastly differing levels of educational attainment and healthcare policies. As large developing   countries with  significant  governance challenges,  but  also ‘demographic dividends’ and  other  drivers  of growth  to reap,  BRICS can greatly benefit from innovative ideas emanating from similarly positioned nations.

The  second  the  matic section focuses  on  ‘Growing  Economies, Sharing Prosperity’. Given  the  huge distance that  the  BRICS nations have yet to cover   in   tackling  poverty   and   providing   livelihoods  to   their   rising populations, there  is no option other  than maintaining and  accelerating economic growth.  This  section outlines the necessity of deepening intra- BRICS  and  worldwide   trade   and  economic synergies.   Additionally,  it documents growing energy needs and discusses how the economic growth imperative affects the BRICS discourse on climate change.

The third section, titled ‘Geopolitics, Security and Reform of International Institutions’, outlines an enhanced role for BRICS within an increasingly polycentric world  order.  Within the  United  Nations  (particularly the Security  Council), enhanced BRICS representation can institutionalise a greater  respect  for  state   sovereignty and  non-intervention. In  Bretton Woods Institutions, like the IMF and World Bank, BRICS seeks to reform voting  shares   to  reflect  the  evolved  global  system, different  from  that forged in the immediate aftermath of World War II. Finally,  as leaders  in the   developing   world,   BRICS  nations  seek  to  create   a  development discourse that better represent their aspirations.

The  fourth thematic section, on the  ‘Other Possible  Options for Cooperation’, outlines possible  developments to further collective engagement once the necessary prerequisites are achieved. At the present juncture, it  may  be  too  early  to  think of  BRICS  becoming a  formal, institutionalised alliance. However,  it  is important for the  grouping  to envision a commonality of purpose, continuity of operation and dialogue beyond annual summit meetings.

There are five prominent agendas  of cooperation and  collaboration that emerge from this  vision document. These themes are integral to the very idea of long-term engagement between  the  BRICS nations and provide  a framework for accelerating momentum and  increasing significance over the long term:

1.         Reform of Global Political  and Economic Governance Institutions: This  is the centrepiece of the BRICS agenda,  which  in many  ways resulted in the  genesis  of the  grouping. With  the  move  towards a polycentric world order,  BRICS nations must assume a leadership role in the global political  and economic governance paradigm and seek greater equity for the developing world. Over the coming years, they  must continue to  exert  pressure for  instituting  significant reforms within institutions—such as the United Nations Security Council (UNSC),  the World Bank, and the International Monetary Fund  (IMF). Various  suggestions outlined in this  report  provide  a constructive framework for enabling substantive reforms.

2.         Multilateral Leverage: There are multiple formats for engagement and cooperation in order to leverage the BRICS identity at the global high  table.  The  outcome of the  BRICS officials  meeting on  the sidelines of the  November 2012  G20  in  Mexico,  where  it  was decided  to  create  and  pool  a currency reserve  of up  to  USD  240 billion   is  one   instance  of  enhanced  intra-BRICS cooperation. Similarly, the  Conference of Parties, the  United Nations, and  the World  Trade   Organisation are  existing   cooperative frameworks,

within which BRICS countries can collectively position themselves by fostering  intra-BRICS consensus on issues  of significance. The United Nations is central to a multilateral framework, and there  is significant potential for BRICS to collaborate and  assume a more prominent  role   in   global   political   and   economic  governance, conflict  resolution etc.,  through institutions such  as the  Security Council.

3.         Furthering Market Integration: Global  economic growth  has  been seriously  compromised in the years following the Global Financial Crisis. Each percentage point  reduction in global growth  leads to a significant  slowdown  of  economic development within  BRICS which hinges  upon  a necessary component of economic growth.  In this   regard,   market  integration within  BRICS,  whether in  the context of trade, foreign investments or capital markets, is a crucial step  to  ensure that  the  five countries become  less  dependent on cyclical trends in the global economy.

4.         Intra-BRICS  Development   Platform:  Each   BRICS  nation  has followed a unique development trajectory. In the post-Washington Consensus era, developing  economies within BRICS must set the new development agenda, which in turn must incorporate elements of inclusive growth,  sustainable and  equitable development, and perhaps most   importantly,  uplifting those  at  the  bottom of the pyramid. The  institution of BRICS-specific  benchmarks and standards, as  well  as  more  calibrated collaboration on  issues  of common concern including the rapid pace of urbanisation and the healthcare needs of almost half the world’s population represented by BRICS, must be prioritised.

5.   Sharing of Indigenous and Development Knowledge and Innovation Experiences  across   Key  Sectors:   Along   with   the   tremendous potential for resource and technology sharing and mutual research and development efforts, coordination across  key sectors—such as information technology, energy generation, and high-end manufacturing—would prove immensely beneficial for accelerating the BRICS development agenda. Moreover, the BRICS nations must share  indigenous practices and experiences to learn and respond to the immense socio-economic challenges from within and outside. This  vision document contains multiple suggestions for instituting such  sharing mechanisms through various  platforms and cooperation channels.

This   document  analyses  the   above   themes  in   detail.   Each   section concludes with  recommendations specific  to  the  chapter’s theme. The final  section contains synthesised suggestions which  serve as an outline/framework for enhancing intra-BRICS cooperation and collaboration. The  official declarations/statements of BRICS leaders  are available in Annexure (s) 2 to 5.

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BRICS, Columns/Op-Eds

Why BRICS is important to Brazil

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Original article can be found here

Brazil has a prominent role to play in the global governance architecture. The country has sustained structural economic growth on the back of favourable demographic drivers, growing middle class consumption and broad scale socio-economic transformation. As a result, the business environment in the country has steadily improved; and the number of people living in extreme poverty have halved over the last decade. It is time for the country to place commensurate emphasis on consolidating its position as a regional leader; and as a key stakeholder on the global governance high table. BRICS provides the perfect platform to marry the dual imperatives.

                       

HOT TOPICS: BRICS

Brazil boasts of one of the world’s largest domestic markets and a sophisticated business environment. It ranks 53rd on the World Economic Forum’s Global Competitiveness Index (2001-12), and is ahead of the rest of the BRICS nations in the availability of financial services among other key indicators of financial market penetration. Brazil’s upwardly mobile middle class and its elite have inexorably embraced the liberal globalisation framework, promoted by the developed world. Consequently, since the 1990’s they have shown a greater willingness to engage with the international system, and accept transnational regulations and norms.

As a willing signatory to international norms, ranging from those around mitigation of climate change to preventing nuclear proliferation, Brazil has often broken its own historical typecast of being defensive. What superficially seems to represent a systemic re-prioritisation – requires deeper investigation. According to the Economist’s Economic Intelligence Unit, domestic savings rates in the country are below 20 percent. Mid-sized industries still largely rely on external markets for raising money and channelling investments. By default, international perception about the Brazilian economy is an important component of national strategy. Concomitantly, the Latin American identity is one that successive governments have strived to shed.

Being part of the BRICS grouping has helped Brazil to leverage its ‘emerging market’ identity and de-hyphenate from its Latin American identity (which had its own convoluted dynamics in any case). This is evident both in the global economic and political spheres. BRICS has provided Brazil with a platform to engage with the international system more progressively. It can now navigate the international rules based architecture, with greater bargaining power and seek greater representation in institutions of global economic and political governance. Using the BRICS identity, Brazil no longer has to drive a wedge between its development and growth imperatives. It can shield its poor from international regulations, without fear of its ‘investment worthiness’ being diluted. It can participate at the global high table, while simultaneously catering to nuanced regional imperatives.

The recent death of Hugo Chavez was termed “an irreparable loss” by Brazilian President Dilma Rousseff. This serves as an example of the ideological flexibility, which the country employs to engage with a neighbourhood that is strictly divided on the Venezuelan President’s legacy. Indeed fine balancing tactics are not new to Brazilian foreign policy, also termed ‘a study in ambivalence’. The pluralistic construct of BRICS fits perfectly with Brazil’s strategic outlook on its neighbourhood and the world. Brazil has taken on more regional commitments over the same twenty year period during which it has enhanced its engagements with the international system. This is evidenced from increased participation in regional working group meetings, official summits and informal gatherings by the government.

There are numerous accounts of Brazil’s deployment of regional priorities as a bargain chip. Through MERCOSUR (Southern Common Market), Brazil has been able to successfully negotiate trade agreements in favour of its national interests. It is a pivotal founder member of the five-member trading bloc, which recently included Venezuela within its fold. In the on-going negotiations for a Free Trade Agreement with the European Union (EU), Brazil has pulled out all the stops, shielding its local industries from cheaper foreign made imports; with support from other members including Argentina. Similarly, common interests rather than common ideologies dictate the BRICS agenda. Brazil’s membership of the grouping is in complete consonance with its regional and global strategic imperatives.

Aside from the adaptive flexibility that the informal BRICS grouping offers, it allows Brazil great latitude in bringing specific agendas around innovation, intellectual property rights and green growth at its core. Brazil is home to nearly half of the world’s biodiversity; the overarching sustainable development agenda is not surprisingly a national priority. Similarly, Brazil has the opportunity to use mechanisms such as the BRICS Exchange Alliance for attracting investments. While the current framework enables investors to trade in cross-listed futures indices, if there is political will, the mechanism could eventually encompass various products with different underlying assets including equities. Another relevant sector specific example is commercial aerospace cooperation, where Brazil has unmatched expertise within the grouping.

There are in fact multiple opportunities for Brazil within BRICS, not limited to the economic sphere. In many ways, the grouping brings Brazil from the left corner of the world map to the centre, where the geopolitical theatre is most active; in Asia and the Indo – Pacific. However there are two oddities in the Brazilian agenda which would require circumnavigation if Brazil is to be brought to the heart of the geopolitical discourse. The first is to moderate its insistence on pursuing ‘euro-styled’ agendas such as interventionist doctrine ‘responsibility to protect’ (R2P), with an ambiguously defined alternative ‘responsibility while protecting’. Sovereignty matters to other BRICS and there is some time before supra-national initiatives would pass muster. And the second is to shed its reluctance on the agenda for creation of a BRICS led Development Bank. In this instance Brazil, with its considerable Development Bank experience, can help shape a credible institute that will empower billions south of the equator.

Vivan Sharan is Associate Fellow and Samir Saran is Vice President at the Observer Research Foundation (ORF), New Delhi.

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BRICS, Columns/Op-Eds, Uncategorized

Generosity within BRICS offers China passport to power

The original article is available here

panda

George Orwell once remarked “Whoever is winning at the moment will always seem to be invincible.” China’s long-running growth juggernaut has resulted in a steady conversion of China skeptics into believers, so much so that a Pew Global Attitudes report released in July 2011 indicated a widespread perception that China has either replaced or will replace the US as the world’s sole superpower, with the Americans themselves just about equally divided on the subject.

For the Chinese establishment, even as being the preeminent global power remains their ultimate aspiration, China’s own outlook has been far more pragmatic.

There is a realization that the critical vectors that fuelled China’s impressive growth have either played out or are near to playing out their potential.

Exports are slowing, and the near double-digit growth in domestic consumption leaves little room for additional growth without triggering unbridled inflation.

Compounding this is fast depleting surplus labor in China’s rural backyard and steady increase in wage costs, which have grown at an annual rate of 15 percent over the past years.

This and stagnating Western demand for goods are impacting China’s growth algorithm built around the premise of inexpensive labor and competitive exports.

China’s redemption as the preeminent global power is hinged as much on its capacity to sustain its economic momentum as in its ability to influence the principles, values and rules that define global institutional mechanisms and frameworks.

However, China’s stellar economic engagement with the world has not resulted in commensurate political weight or perceptional dividends within global institutions.

To realize its aspirations, China urgently needs to find a way around this predicament, and BRICS offers it a plausible option and opportunity.

BRICS is today the most promising entente of high growth economies. BRICS’ national economic and political transformation agendas are fuelling huge domestic demand for newer types of products and services. China is uniquely positioned to gain enormously from this dispensation.

Standard Bank estimates China is party in over 85 percent of intra-BRICS trade flows, which have grown by about 1,000 percent over the last decade to over $300 billion, and are estimated to reach $500 billion by 2015.

While intra-BRICS trade accounted for close to 20 percent of BRICS’ total trade in 2012, it remains disproportionately weighed in China’s favor. Hence in any BRICS growth story, China will be the biggest net gainer.

While the BRICS nations have formed a close bond between themselves, they haven’t consummated any traditional model of interstate alliance.

The model affords sufficient space to accommodate intra-group differences and independent strains of national discourse.

It is still bilateral relationships rather than allegiance to group ethos that predominantly inform the intra-BRICS economic and political dynamic.

Group identity and collective consciousness will result from co-creating and co-managing institutions and instruments. A BRICS development bank, a stock exchange alliance and a BRICS fund are all vital next steps.

For China to unleash and benefit from the full potential of the group, it needs to work on such initiatives. These will offer it a new economic landscape and will also help take the edge out of bilateral relationships.

However, for China to command the moral weight to realize its power ambitions through BRICS, it needs to morph from a trading partner seeking profits to a strategic ally helping shape a common world.

As the partner that stands to benefit the most from any expanded BRICS play, China needs to be singularly more magnanimous and mindful in accommodating the legitimate interests and aspirations of other member states.

A disproportionate generosity, whether it is in resolving bilateral disputes or legacy issues, or, sharing of power at BRICS institutions, independent of economic contribution and effort, will reap very rich political and economic dividends, while also permanently insulating China from the politics of power imbalance within the group.

Samir Saran is vice president at Observer Research Foundation and Jaibal Naduvath is a communications professional in the Indian private sector. opinion@globaltimes.com.cn

 

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BRICS, Columns/Op-Eds

Column in SAFPI: More than just a catchy acronym: six reasons why BRICS matters

by Samir Saran and Vivan Sharan
Please find here the link to the original article.

New Delhi: There have been heated discussions over the role of BRICS recently. Ian Bremmer, President of the Eurasia Group, a political risk consulting firm, wrote an eye-catching article in the New York Times in late November, proclaiming that BRICS is nothing more than a catchy acronym. The BRICS nations represent over 43 percent of the global population that is likely to account for over 50 percent of global consumption by the middle class – those earning between $16 and $50 per day – by 2050. On the other hand, they also collectively account for around half of global poverty calculated at the World Bank’s $1.25 a day poverty line. What, then, is the mortar that unites these BRICS?

First, unlike NATO, BRICS is not posturing as a global security group; unlike ASEAN or MERCOSUR, BRICS is not an archetypal regional trading bloc; and unlike the G7, BRICS is not a conglomerate of Western economies laying bets at the global governance high table. BRICS is, instead, a 21st-century arrangement for the global managers of tomorrow.

At the end of World War II, the Atlantic countries rallied around ideological constructs in an attempt to create a peaceful global order. Now, with the shifts in economic weights, adherence to ideologies no longer determines interactions among nations.

BRICS members are aware that they must collaborate on issues of common interest rather than common ideologies in what is now a near “G-0 world,” to borrow Bremmer’s own terminology. Second, size does not matter and it never has. Interests do and they always will. Intriguingly, Bremmer expresses his concern over China being a dominant member within BRICS. Clearly, Bremmer has chosen to ignore the fact that the US accounts for about 70 percent of the total defense expenditure of NATO countries or that it contributes nearly 45 percent of the G7’s collective GDP.

Third, BRICS is a flexible group in which cooperation is based on consensus. Issues of common concern include creating more efficient markets and generating sustained growth; generating employment; facilitating access to resources and services; addressing healthcare concerns and urbanization pressures; and seeking a stable external environment not periodically punctuated with violence arising out of a whim of a country with means.
Fourth, it is useful to remember that the world is still in the middle of a serious recession emanating from the West. As Bremmer himself points out, systemic dependence on Western demand is a critical challenge for BRICS nations. Indeed, it is no surprise that they have begun to create hedges. The proposal to institute a BRICS-led Development Bank, instruments to incentivize trade and investments, as well as mechanisms to integrate financial markets and stock exchanges are a few examples.

Fifth, through the war on Iraq, some countries undermined the UN framework. The interventions in Libya reaffirmed that sovereignty is neither sacrosanct nor a universal right. While imposing significant economic costs on the world, they failed to produce the desired political outcome. By maintaining the centrality of the UN framework in international relations, BRICS is attempting to pose a counter-narrative.
Sixth, in the post-Washington Consensus era, financial institutions such as the IMF and the World Bank are struggling to articulate a coherent development discourse. BRICS nations are at a stage where they can collectively craft a viable alternative development agenda.

In the Fourth BRICS Summit in New Delhi in March 2012, there was clear emphasis on sharing development knowledge and further democratizing institutions of global financial governance within the cooperative framework. BRICS is a transcontinental grouping that seeks to shape the environment within which the member countries exist. While countries across the globe share a number of common interests, the order of priorities differs. Today, BRICS nations find that their order of priorities on a number of external and internal issues which affect their domestic environments is relatively similar.

BRICS is pursuing an evolving and well thought out agenda based on this premise. And unlike Bremmer, we are not convinced that they are destined to fail.

* Samir Saran is vice president and Vivan Sharan an associate fellow at the Observer Research Foundation, New Delhi.

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BRICS, Columns/Op-Eds

Article in ‘Global Times’: More than just a catchy acronym – six reasons why BRICS matters

by Samir Saran and Vivan Sharan
Please find here the link to the original article. 

There have been heated discussions over the role of BRICS recently. Ian Bremmer, President of the Eurasia Group, a political risk consulting firm, wrote an eye-catching article in the New York Times in late November, proclaiming that BRICS is nothing more than a catchy acronym. 


The BRICS nations represent over 43 percent of the global population that is likely to account for over 50 percent of global consumption by the middle class – those earning between $16 and $50 per day – by 2050. On the other hand, they also collectively account for around half of global poverty calculated at the World Bank’s $1.25 a day poverty line. 

What, then, is the mortar that unites these BRICS? 

First, unlike NATO, BRICS is not posturing as a global security group; unlike ASEAN or MERCOSUR, BRICS is not an archetypal regional trading bloc; and unlike the G7, BRICS is not a conglomerate of Western economies laying bets at the global governance high table. BRICS is, instead, a 21st-century arrangement for the global managers of tomorrow.   

At the end of World War II, the Atlantic countries rallied around ideological constructs in an attempt to create a peaceful global order. Now, with the shifts in economic weights, adherence to ideologies no longer determines interactions among nations. 

BRICS members are aware that they must collaborate on issues of common interest rather than common ideologies in what is now a near “G-0 world,” to borrow Bremmer’s own terminology.

Second, size does not matter and it never has. Interests do and they always will. Intriguingly, Bremmer expresses his concern over China being a dominant member within BRICS. 

Clearly, Bremmer has chosen to ignore the fact that the US accounts for about 70 percent of the total defense expenditure of NATO countries or that it contributes nearly 45 percent of the G7’s collective GDP.

Third, BRICS is a flexible group in which cooperation is based on consensus. Issues of common concern include creating more efficient markets and generating sustained growth; generating employment; facilitating access to resources and services; addressing healthcare concerns and urbanization pressures; and seeking a stable external environment not periodically punctuated with violence arising out of a whim of a country with means.

Fourth, it is useful to remember that the world is still in the middle of a serious recession emanating from the West. As Bremmer himself points out, systemic dependence on Western demand is a critical challenge for BRICS nations. Indeed, it is no surprise that they have begun to create hedges. The proposal to institute a BRICS-led Development Bank, instruments to incentivize trade and investments, as well as mechanisms to integrate financial markets and stock exchanges are a few examples. 

Fifth, through the war on Iraq, some countries undermined the UN framework. The interventions in Libya reaffirmed that sovereignty is neither sacrosanct nor a universal right. While imposing significant economic costs on the world, they failed to produce the desired political outcome. By maintaining the centrality of the UN framework in international relations, BRICS is attempting to pose a counter-narrative.

Sixth, in the post-Washington Consensus era, financial institutions such as the IMF and the World Bank are struggling to articulate a coherent development discourse. BRICS nations are at a stage where they can collectively craft a viable alternative development agenda. 

In the Fourth BRICS Summit in New Delhi in March 2012, there was clear emphasis on sharing development knowledge and further democratizing institutions of global financial governance within the cooperative framework. 

BRICS is a transcontinental grouping that seeks to shape the environment within which the member countries exist. 

While countries across the globe share a number of common interests, the order of priorities differs. Today, BRICS nations find that their order of priorities on a number of external and internal issues which affect their domestic environments is relatively similar. 

BRICS is pursuing an evolving and well thought out agenda based on this premise. And unlike Bremmer, we are not convinced that they are destined to fail.

Samir Saran is vice president and Vivan Sharan an associate fellow at the Observer Research Foundation, New Delhi. opinion@globaltimes.com.cn

 

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