The Hindu Business Line : Can BRIC play the leading role?

The ‘realist’ conception of hegemonic transition builds on the relative economic standings of different States which help to transform the international system to reflect their respective national interests and concerns.

The dominant power continues to exercise its political and economic hegemony to ensure that the transformation is delayed. In this, conflicts are natural consequences as declining powers resist processes that diminish their relative position. Having established complete hegemony in 1945, the US took leadership position in most world affairs, be they economic or in maintaining global peace and security.

In 1947, notwithstanding the important contribution from British and Canadian negotiators, it was the US that assumed the role of key negotiator to create the Bretton Woods institutions and the GATT protocol. Subsequently it also ensured the continuance ofprogressive trade integration and tariff liberalisation despite the economic turbulence in the 1960s and 1970s.

The basis for this economic dominance lay in the fact that the US emerged relatively unscathed from the two world wars and, more importantly, suffered limited damage to its economic and industrial structures which gave abnormally favourable export opportunities and competitiveness to its products in Europe and Asia.

Also, the US economic and political hegemony in the 20th Century was largely non-territorial in character and dependent on issue-based regional alliances with pliant states — in other words, a coalition of likeminded (developed) countries; it was the hegemony emanating from favourable economic conditions which allowed the US to obtain the support of other powers of the time.

Declining dominance

However, this dominance has slowly declined since the 1970s whereby US export competitiveness no longer remains unchallenged; in this new century we are past any semblance of US economic hegemony.

However, going by the realist school of hegemonic theory of regime-change, the US started using various non-tariff protectionist measures for its domestic industries, whose underlying comparative advantages were eroding in the face of the rising East Asian economies. The developing country coalitions in the Uruguay Round of trade negotiations were also unable to match the combined firepower of the G-2 (the US and the EU).

But by the turn of the century, many more developing countries are deemed to have emerged as contenders for a share of the dominant position. The rise of emerging economies in Latin America,

Asia and even Africa has analysts worrying that, like in the 1970s, challenges to US dominance may now come from developing countries, in particular the BRIC (Brazil, Russia, India and China) coalition.

Since the middle of this decade, the rise of BRIC (particularly China) has been the focus of speculation in different quarters; economists, political analysts and international relation theorists are debating how BRIC might replace the US-led hegemonic coalition.

Will BRIC take over?

More specifically, analysts argue that the economic crash of 2008 has eroded financial resources as well as the economic credibility of the US and the EU to play a leadership role in global affairs, at least in the medium term.

The most-recurring theme now seems to be whether the BRIC, and in particular China with its huge foreign exchange reserves, will take this opportunity to topple the declining hegemony? Can BRIC provide effective leadership in global financial and trade governance, and the much-needed institutional reforms?

The joint communiqué issued at the June 2009 BRIC Summit at Yekaterinberg in Russia has added to the confusion, as there was no clear indication of any intent to assume leadership.

The BRIC nations seemed to indicate that for the moment they are focussed on reducing their exposure of US dollar, rather than taking a leadership position in altering the global financial landscape or restructuring global economic and governance systems.

Weak linkages

Further, the link among the BRIC countries has always been weak, and intra-group cooperation is tenuous at best because of the huge differences in their industrial bases, economic systems and overall progress, which limit their ability to adopt common positions.

They also need to reform critical parts of their respective domestic economies before they can hope to provide credible alternatives/solutions to the global macroeconomic imbalances. BRIC, therefore, has not yet emerged as the new economic hegemony, nor can it speak for and/or encourage or influence other developing countries to participate in the global trading regime.

What then is the basis for this obsession with potential BRIC aspiration for hegemony, especially in crafting a new financial architecture?

The BRIC heads-of-state probably understand that it is too premature for them to conceive of any real global hegemony in the near future; hence the restraint evident in the Yekaterinberg communiqué on the reserve currency issue.

The academic hyperactivity on the subject is possibly a result of fear-mongering and paranoia on the part of the declining hegemon and its key beneficiaries.

(The author is a Visiting Research Fellow with the Institute of South Asian Studies, National University of Singapore. Her views are personal. blfeedback@thehindu.co.in)

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