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Important disclosures appear at the end of this document.
Dreaming With BRICs: The Path to 2050
Dominic WilsonRoopa Purushothaman
1st October 2003
Global EconomicsPaper No: 99
� Over the next 50 years, Brazil, Russia, India and China—the BRICseconomies—could become a much larger force in the world economy. Wemap out GDP growth, income per capita and currency movements in theBRICs economies until 2050.
� The results are startling. If things go right, in less than 40 years, the BRICseconomies together could be larger than the G6 in US dollar terms. By 2025they could account for over half the size of the G6. Of the current G6, only theUS and Japan may be among the six largest economies in US dollar terms in2050.
� The list of the world’s ten largest economies may look quite different in 2050.The largest economies in the world (by GDP) may no longer be the richest (byincome per capita), making strategic choices for firms more complex.
EconomicResearch from the
GS Financial Workbench®
at https://www.gs.com
Many thanks to Jim O’Neill, Paulo Leme, SandraLawson, Warren Pearson and our regionaleconomists for their contributions to this paper.
Global Paper No 99 2 1st October 2003
SUMMARY� Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a much
larger force in the world economy. Using the latest demographic projections and a model of capitalaccumulation and productivity growth, we map out GDP growth, income per capita and currencymovements in the BRICs economies until 2050.
� The results are startling. If things go right, in less than 40 years, the BRICs economies together could belarger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Currentlythey are worth less than 15%. Of the current G6, only the US and Japan may be among the six largesteconomies in US dollar terms in 2050.
� About two-thirds of the increase in US dollar GDP from the BRICs should come from higher real growth,with the balance through currency appreciation. The BRICs’ real exchange rates could appreciate by up to300% over the next 50 years (an average of 2.5% a year).
� The shift in GDP relative to the G6 takes place steadily over the period, but is most dramatic in the first 30years. Growth for the BRICs is likely to slow significantly toward the end of the period, with only Indiaseeing growth rates significantly above 3% by 2050. And individuals in the BRICs are still likely to bepoorer on average than individuals in the G6 economies, with the exception of Russia. China’s per capitaincome could be roughly what the developed economies are now (about US$30,000 per capita).
� As early as 2009, the annual increase in US dollar spending from the BRICs could be greater than that fromthe G6 and more than twice as much in dollar terms as it is now. By 2025 the annual increase in US dollarspending from the BRICs could be twice that of the G6, and four times higher by 2050.
� The key assumption underlying our projections is that the BRICs maintain policies and developinstitutions that are supportive of growth. Each of the BRICs faces significant challenges in keepingdevelopment on track. This means that there is a good chance that our projections are not met, eitherthrough bad policy or bad luck. But if the BRICs come anywhere close to meeting the projections set outhere, the implications for the pattern of growth and economic activity could be large.
� The relative importance of the BRICs as an engine of new demand growth and spending power may shiftmore dramatically and quickly than expected. Higher growth in these economies could offset the impact ofgreying populations and slower growth in the advanced economies.
� Higher growth may lead to higher returns and increased demand for capital. The weight of the BRICs ininvestment portfolios could rise sharply. Capital flows might move further in their favour, promptingmajor currency realignments.
� Rising incomes may also see these economies move through the ‘sweet spot’ of growth for different kindsof products, as local spending patterns change. This could be an important determinant of demand andpricing patterns for a range of commodities.
� As today’s advanced economies become a shrinking part of the world economy, the accompanying shiftsin spending could provide significant opportunities for global companies. Being invested in and involvedin the right markets—particularly the right emerging markets—may become an increasingly importantstrategic choice.
� The list of the world’s ten largest economies may look quite different in 2050. The largest economies in theworld (by GDP) may no longer be the richest (by income per capita), making strategic choices for firmsmore complex.
The world economy has changed a lot over the past50 years. Over the next 50, the changes could be at
least as dramatic.
We have highlighted the importance of thinkingabout the developing world in our recent globalresearch, focusing on key features of developmentand globalisation that we think are important toinvestors with a long-term perspective. A majortheme of this work has been that, over the next fewdecades, the growth generated by the largedeveloping countries, particularly the BRICs (Brazil,Russia, India and China) could become a much largerforce in the world economy than it is now—and muchlarger than many investors currently expect.
In this piece, we gauge just how large a force theBRICs could become over the next 50 years. We dothis not simply by extrapolating from current growthrates, but by setting out clear assumptions about howthe process of growth and development works andapplying a formal framework to generate long-termforecasts. We look at our BRICs projections relativeto long-term projections for the G6 (US, Japan, UK,Germany, France and Italy)1.
Using the latest demographic projections and amodel of capital accumulation and productivitygrowth, we map out GDP growth, income per capitaand currency movements in the BRICs economiesuntil 2050. This allows us to paint a picture of how theworld economy might change over the decadesahead.
The results of the exercise are startling. They suggestthat if things go right, the BRICs could become a veryimportant source of new global spending in the nottoo distant future. The chart below shows that India’seconomy, for instance, could be larger than Japan’sby 2032, and China’s larger than the US by 2041 (andlarger than everyone else as early as 2016). TheBRICs economies taken together could be larger thanthe G6 by 2039.
Our projections are optimistic, in the sense that theyassume reasonably successful development. But theyare economically sensible, internally consistent andprovide a clear benchmark against which investorscan set their expectations. There is a good chance thatthe right conditions in one or another economy willnot fall into place and the projections will not be
Global Paper No 99 3 1st October 2003
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
UK US
France Germany Japan
G6
Italy France Germany
Italy
Germany Japan
Russia
Brazil
India
China
BRICs
Overtaking the G6: When BRICs' US$GDP Would Exceed G6
Italy
France
*cars indicate when BRICs US$GDP exceeds US$GDP in the G6
GS BRICs Model Projections. See text for details and assumptions.
Germany
1 Any decision to limit the sample of countries is to some extent arbitrary. In focusing on the G6 (rather than the G7 or a broader grouping), wedecided to limit our focus to those developed economies with GDP currently over US$1 trillion. This means that Canada and and some of theother larger developed economies are not included. Adding these economies to the analysis would not materially change the conclusions.
realized. If the BRICs pursue sound policies,however, the world we envisage here might turn out tobe a reality, not just a dream.
The projections leave us in no doubt that the progressof the BRICs will be critical to how the worldeconomy evolves. If these economies can fulfil theirpotential for growth, they could become a dominantforce in generating spending growth over the next fewdecades.
A Dramatically Different World
We start with some key conclusions that describe theway the world might change over the next 50 years.The big assumption underlying all of theseprojections is that the BRICs maintaingrowth-supportive policy settings. The chartsthroughout the text illustrate these points. Ourconclusions fall under five main topics: 1) economicsize; 2) economic growth; 3) incomes anddemographics; 4) global demand patterns; and 5)currency movements.
Economic Size
� In less than 40 years, the BRICs’ economiestogether could be larger than the G6 in US dollarterms. By 2025 they could account for over halfthe size of the G6. Currently they are worth lessthan 15%.
� In US dollar terms, China could overtakeGermany in the next four years, Japan by 2015and the US by 2039. India’s economy could belarger than all but the US and China in 30 years.Russia would overtake Germany, France, Italyand the UK.
� Of the current G6 (US, Japan, Germany, France,Italy, UK) only the US and Japan may be amongthe six largest economies in US dollar terms in2050.
Economic Growth
� India has the potential to show the fastest growthover the next 30 and 50 years. Growth could behigher than 5% over the next 30 years and close to5% as late as 2050 if development proceeds
Global Paper No 99 4 1st October 2003
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2000 2010 2020 2030 2040 2050
BRICs
G62025: BRICs
economies
over half as
large as the G6
By 2040:
BRICS
overtake
the G6
BRICs Have a Larger US$GDP Than the G6
in Less Than 40 YearsGDP
(2003 US$bn)
GS BRICs Model Projections. See text for details and assumptions.
BRICs Share of GDP Rises
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2000 2010 2020 2030 2040 2050
G6 share ofcombined BRICsand G6 GDP
BRICs share ofcombined BRICsand G6 GDP
28% 33% 39%45%
50%
56%
60%
GDP
(2003 US$bn)
GS BRICs Model Projections. See text for details and assumptions.
The Largest Economies in 2050
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Ch US In Jpn Br Russ UK Ger Fr It
GDP
(2003 US$bn)
GS BRICs Model Projections. See text for details and assumptions.
successfully.
� Overall, growth for the BRICs is likely to slowsignificantly over this time frame. By 2050, onlyIndia on our projections would be recordinggrowth rates significantly above 3%.
Incomes and Demographics
� Despite much faster growth, individuals in theBRICs are still likely to be poorer on average thanindividuals in the G6 economies by 2050. Russiais the exception, essentially catching up with thepoorer of the G6 in terms of income per capita by2050. China’s per capita income could be similarto where the developed economies are now(about US$30,000 per capita). By 2030, China’sincome per capita could be roughly what Korea’sis today. In the US, income per capita by 2050could reach roughly $80,000.
� Demographics play an important role in the waythe world will change. Even within the BRICs,demographic impacts vary greatly. The declinein working-age population is generally projectedto take place later than in the developedeconomies, but will be steeper in Russia andChina than India and Brazil.
Global Demand Patterns
� As early as 2009, the annual increase in US dollarspending from the BRICs could be greater thanthat from the G6 and more than twice as much indollar terms as it is now. By 2025 the annualincrease in US dollar spending from the BRICscould be twice that of the G6, and four timeshigher by 2050.
Currency Movements
� Rising exchange rates could contribute asignificant amount to the rise in US dollar GDP inthe BRICs. About 1/3 of the increase in US dollarGDP from the BRICs over the period may comefrom rising currencies, with the other 2/3 fromfaster growth.
� The BRICs’ real exchange rates could appreciateby up to 300% over the next 50 years (an average
Global Paper No 99 5 1st October 2003
China Overtakes the G3; India Is Close
Behind
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
2000 2010 2020 2030 2040 2050
China
India
Japan
US
Germany
GDP
(2003 US$bn)
GS BRICs Model Projections. See text for details and assumptions.
India Shows Most Rapid Growth Potential
of the BRICS
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Brazil
China
India
Russia
GS BRICs Model Projections. See text for details and assumptions.
real GDP
growth (%yoy)
$521
$1,594
$4,517
$1,137
$656$470
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2010 2030 2050
BRICs
G6
Annual increase
in US$GDP
(2003 $USbn)
Incremental Demand From
the BRICs Could Eventually
Be Quadruple G6 Demand
GS BRICs Model Projections. See text for details and assumptions.
of 2.5% a year). China’s currency could double invalue in ten years’ time if growth continued andthe exchange rate were allowed to float freely.
How Countries Get Richer
Our predictions may seem dramatic. But over aperiod of a few decades, the world economy canchange a lot. Looking back 30 or 50 years illustratesthat point. Fifty years ago, Japan and Germany werestruggling to emerge from reconstruction. Thirtyyears ago, Korea was just beginning to emerge fromits position as a low-income nation. And even over thelast decade, China’s importance to the worldeconomy has increased substantially.
History also illustrates that any kind of long-termprojection is subject to a great deal of uncertainty.The further ahead into the future you look, the moreuncertain things become. Predictions that the USSR(or Japan) would overtake the US as the dominanteconomic power turned out tobebadly off the mark.
While this makes modeling these kinds of shiftsdifficult, it is still essential. Over 80% of the valuegenerated by the world’s major equity markets willcome from earnings delivered more than 10 yearsaway. Developing strategies to position for growthmay take several years and require significantforward planning. The best option is to provide asensible framework, based on clear assumptions.
As developing economies grow, they have the
potential to post higher growth rates as they catch upwith the developed world. This potential comes fromtwo sources. The first is that developing economieshave less capital (per worker) than developedeconomies (in the language of simple growth modelsthey are further from their ‘steady states’). Returns oncapital are higher and a given investment rate resultsin higher growth in the capital stock. The second isthat developing countries may be able to usetechnologies available in more developed countriesto ‘catch up’ with developed country techniques.
As countries develop, these forces fade and growthrates tend to slow towards developed country levels.In Japan and Germany, very rapid growth in the 1960sand 1970s gave way to more moderate growth in the1980s and 1990s. This is why simple extrapolationgives silly answers over long timeframes. As a crudeexample, assuming that China’s GDP growthcontinued to grow at its current 8% per year over thenext three decades would lead to the prediction thatChina’s economy would be three times larger thanthe US by 2030 in US dollar terms and 25 times largerby 2050.
Countries also grow richer on the back ofappreciating currencies. Currencies tend to rise ashigher productivity leads economies to converge onPurchasing Power Parity (PPP) exchange rates.There is a clear tendency for countries with higherincome per capita to have exchange rates closer toPPP. The BRICs economies all have exchange ratesthat are a long way below PPP rates. These large
Global Paper No 99 6 1st October 2003
Japanese GDPGrowthDeclinedAsthe
EconomyDeveloped
10.4%
5.0%
4.0%
1.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1960-70 1970-80 1980-90 1990-00
Average
yoy%growth
BRICs Exchange Rates Could Appreciate
By Close to 300%
289%
281%
208%
129%
0% 50% 100% 150% 200% 250% 300% 350%
China
India
Russia
Brazil
Real exchange rate appreciation (%)GS BRICs Model Projections. See text for details and assumptions.
differences between PPP and actual exchange ratescome about because productivity levels are muchlower in developing economies. As they develop andproductivity rises, there will be a tendency for theircurrencies to rise towards PPP. The idea thatcountries experiencing higher productivity growthtend to appreciate is an important part of both ourGSDEER and GSDEEMER models of equilibriumexchange rates.
Breaking Down Growth
To translate these two processes into actualprojections, we need to develop a model. The modelwe use is described in more detail in the Appendix butthe intuition behind it is quite simple. Growthaccounting divides GDP growth into threecomponents:
� Growth in employment
� Growth in the capital stock
� Technical progress (or total-factor productivity(TFP) growth).2
We model each component explicitly. We use the USCensus Bureau’s demographic projections to
forecast employment growth over the long term,assuming that the proportion of the working agepopulation that works stays roughly stable. We useassumptions about the investment rate to map out thepath that the capital stock will take over time. And wemodel TFP growth as a process of catch-up on thedeveloped economies, by assuming that the larger theincome gap between the BRICs and the developedeconomies, the greater the potential for catch-up andstronger TFP growth.
We then use the projections of productivity growthfrom this exercise to map out the path of the realexchange rate. As in our GSDEER framework, weassume that if an economy experiences higherproductivity growth than the US, its equilibriumexchange rate will tend to appreciate.
By varying the assumptions about investment,demographics or the speed of catch-up, we cangenerate different paths for annual GDP, GDPgrowth, GDP per capita (in local currency or USdollars), productivity growth and the real exchangerate.
Because both the growth and currency projections arelong-term projections, we ignore the impact of theeconomic cycle. Effectively, the projections can beinterpreted as growth in the trend (or potentialgrowth) of the economy and the currencies’ path as anequililibrium path. Where economies peg theirexchange rates (as in China), it is even moreimportant to view the exchange rate projections as anequilibrium real rate. In practice, real exchange rateappreciation might come about through acombination of nominal appreciation and higherinflation, with different mixes having differentimplications. We abstract from inflation, expressingall of our projections in real terms (either 2003 localcurrency or 2003 US dollars).3
Generally speaking, the structure of the models isidentical across the four economies. We make twominor alterations. We assume that the ‘convergencespeed’ of TFP in Brazil and India is slower than in
Global Paper No 99 7 1st October 2003
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
-6 -4 -2 0 2
Deviation from purchasing power parity*
GDP per capita relative to the US*
Higher Income Per Capita Moves Exchange Rates
Closer to PPP
*expressed in logs
2 We do not explicitly allow for increases in human capital (education), which are implicitly picked up in the technical progress/TFP term inour model.
3 Higher inflation in the BRICs would raise nominal GDP forecasts in local currencies and nominal exchange rates, but would not change theforecasts of real GDP or of US dollar GDP under the standard assumption that higher inflation would translate into an offsetting depreciationin the currency.
Russia and China for the first twenty years, largelybecause of lower education levels and poorerinfrastructure (more on these factors below), butgradually rises from 2020 onwards (as thesestructural problems are addressed) so that all of theBRICs are ‘running’ at the same convergence speed.We also assume that China’s investment rategradually declines from its current levels of around36% to 30% (close to the Asian average) by 2015.
We use GS forecasts until 2004 and begin thesimulations in 2005.
A More Detailed Look at the BRICs’ Potential
We have already highlighted some of the moststriking results, though there are many otherintriguing aspects. The tables and charts set out thekey features of the projections, summarising them in5-year blocks. They show average GDP growth rates,income per capita in US dollars, the real exchangerate and the main demographic trends.
In each economy, as development occurs, growthtends to slow and the exchange rate appreciates. Bothrising currencies and faster growth raise US dollarGDP per capita gradually and the gap between theBRICs and developed economies narrows slowly.
The impact of demographics varies, with labour forcegrowth contributing relatively more to growth in
India and Brazil and detracting from growth inRussia, where the US Census projections show thelabour force shrinking quite rapidly. Where labourforce and population growth is rapid, income percapita tends to rise more slowly as higher investmentis needed just to keep up with population growth.
To illustrate the shift in economic gravity, we also makecomparisons with the G6. To do that, we use a lesssophisticated version of the same model to project G6growth. We assume a common 2% labour productivitygrowth rate across the G6, so differences in projectedGDP growth are purely a function of demographics(and real exchange rates remain roughly stable). Ashrinking working age population appears to be thebiggest issue in Japan and Italy, whose growth rates arelower than the others, and the smallest issue in the US,which maintains the fastest growth.
Our G6 projections allow us to compare the paths ofGDP and GDP per capita in the BRICs with that of themore advanced economies in a common currency.The shift in GDP relative to the G6 takes placesteadily over the period, but is most dramatic in thefirst 30 years. The BRICs overtake the G6 throughhigher real growth and through the appreciation ofBRICs’ currencies. About 1/3 of the increase in USdollar GDP from the BRICs over the period maycome from rising currencies, with the other 2/3 fromfaster growth.
We also look explicitly at where new demand growthin the world will come from. While it takes some timefor the level of GDP in the BRICs to approach the G6,their share of new demand growth rises much morerapidly. Because it is incremental demand thatgenerally drives returns, this measure may be
Global Paper No 99 8 1st October 2003
% Brazil China India Russia
2000-2005 2.7 8.0 5.3 5.9
2005-2010 4.2 7.2 6.1 4.8
2010-2015 4.1 5.9 5.9 3.8
2015-2020 3.8 5.0 5.7 3.4
2020-2025 3.7 4.6 5.7 3.4
2025-2030 3.8 4.1 5.9 3.5
2030-2035 3.9 3.9 6.1 3.1
2035-2040 3.8 3.9 6.0 2.6
2040-2045 3.6 3.5 5.6 2.2
2045-2050 3.4 2.9 5.2 1.9
GS BRICs Model Projections. See text for details and assumptions.
BRICsReal GDP Growth: 5-Year Period Averages
WorkingAge PopulationProjectedTo
Decline
50
52
54
56
58
60
62
64
66
68
70
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
%of total
population
Brazil
Russia
India
China
G6
working age population =share
of population aged 15-60
Global Paper No 99 9 1st October 2003
Brazil China India Russia France Germany Italy Japan UK US
2000-2005 -9.8 9.2 3.7 7.0 2.2 1.4 2.7 1.1 3.0 2.6
2005-2010 6.3 11.2 7.5 10.3 1.5 2.0 1.6 0.9 1.9 1.7
2010-2015 6.4 9.2 7.4 8.1 1.5 1.6 1.7 1.2 1.9 1.3
2015-2020 6.2 7.8 7.2 7.5 1.6 1.3 1.7 1.8 1.6 1.3
2020-2025 4.6 7.3 7.4 6.1 1.6 0.9 1.2 1.8 1.2 1.4
2025-2030 4.7 6.9 8.2 6.2 1.6 0.9 0.9 1.5 1.3 1.7
2030-2035 5.2 6.5 8.9 5.2 1.6 1.7 0.8 1.0 1.7 1.9
2035-2040 5.3 6.3 8.9 4.3 1.9 2.0 1.3 1.2 2.0 2.0
2040-2045 5.0 5.9 8.3 3.6 1.9 1.9 1.8 1.6 1.8 1.9
2045-2050 4.9 5.4 7.6 3.4 2.0 1.8 2.1 2.0 1.7 1.9
GSBRICs Model Projections. See text for details andassumptions.
Projected US$ GDP Per Capita Growth: 5-Year Averages
Average
%yoy
BRICs G6
Brazil China India Russia France Germany Italy Japan UK US
2000 4,338 854 468 2,675 22,078 22,814 18,677 32,960 24,142 34,797
2005 2,512 1,324 559 3,718 24,547 24,402 21,277 34,744 27,920 39,552
2010 3,417 2,233 804 5,948 26,314 26,877 23,018 36,172 30,611 42,926
2015 4,664 3,428 1,149 8,736 28,338 29,111 25,086 38,626 33,594 45,835
2020 6,302 4,965 1,622 12,527 30,723 31,000 27,239 42,359 36,234 48,849
2025 7,781 7,051 2,331 16,652 33,203 32,299 28,894 46,391 38,479 52,450
2030 9,823 9,809 3,473 22,427 35,876 33,898 30,177 49,944 41,194 57,263
2035 12,682 13,434 5,327 28,749 38,779 37,087 31,402 52,313 44,985 63,017
2040 16,370 18,209 8,124 35,314 42,601 40,966 33,583 55,721 49,658 69,431
2045 20,926 24,192 12,046 42,081 46,795 44,940 36,859 60,454 54,386 76,228
2050 26,592 31,357 17,366 49,646 51,594 48,952 40,901 66,805 59,122 83,710
GSBRICs Model Projections. See text for details andassumptions.
Projected US$GDP Per Capita
2003US$BRICs G6
Brazil China India Russia France Germany Italy Japan UK US BRICs G6
2000 762 1078 469 391 1,311 1,875 1,078 4,176 1,437 9,825 2,700 19,702
2005 468 1724 604 534 1,489 2,011 1,236 4,427 1,688 11,697 3,330 22,548
2010 668 2998 929 847 1,622 2,212 1,337 4,601 1,876 13,271 5,441 24,919
2015 952 4754 1411 1232 1,767 2,386 1,447 4,858 2,089 14,786 8,349 27,332
2020 1333 7070 2104 1741 1,930 2,524 1,553 5,221 2,285 16,415 12,248 29,928
2025 1695 10213 3174 2264 2,095 2,604 1,625 5,567 2,456 18,340 17,345 32,687
2030 2189 14312 4935 2980 2,267 2,697 1,671 5,810 2,649 20,833 24,415 35,927
2035 2871 19605 7854 3734 2,445 2,903 1,708 5,882 2,901 23,828 34,064 39,668
2040 3740 26439 12367 4467 2,668 3,147 1,788 6,039 3,201 27,229 47,013 44,072
2045 4794 34799 18847 5156 2,898 3,381 1,912 6,297 3,496 30,956 63,596 48,940
2050 6074 44453 27803 5870 3,148 3,603 2,061 6,673 3,782 35,165 84,201 54,433
GSBRICsModelProjections. Seetext for detailsandassumptions.
ProjectedUS$GDP
2003$USbnBRICs G6
particularly useful to assess the extent ofopportunities in these markets. We measure that newdemand growth as the change in US dollar spendingpower in the various economies, so again itincorporates both growth and currency effects. Onthese measures, the BRICs come to dominate the G6as a source of growth in spending power within 10years.
Taking each of the economies in brief:
� Brazil. Over the next 50 years, Brazil’s GDPgrowth rate averages 3.6%. The size of Brazil’seconomy overtakes Italy by 2025; France by2031; UK and Germany by 2036.
� China. China’s GDP growth rate falls to 5% in2020 from its 8.1% growth rate projected for2003. By the mid-2040s, growth slows to around3.5%. Even so, high investment rates, a largelabor force and steady convergence would meanChina becomes the world’s largest economy by2041.
� India. While growth in the G6, Brazil, Russiaand China is expected to slow significantly overthe next 50 years, India’s growth rate remainsabove 5% throughout the period. India’s GDPoutstrips that of Japan by 2032. With the onlypopulation out of the BRICS that continues togrow throughout the next 50 years, India has the
potential to raise its US dollar income per capitain 2050 to 35 times current levels. Still, India’sincome per capita will be significantly lower thanany of the countries we look at.
� Russia. Russia’s growth projections arehampered by a shrinking population (anassumption that may be too negative). But strongconvergencerateswork toRussia’sbenefit, andby2050, the country’s GDP per capita is by far thehighest in the group, and comparable to the G6.Russia’s economy overtakes Italy in 2018; Francein 2024; UK in 2027 and Germany in 2028.
Although we focus on the BRICs, as the four largestdeveloping economies, we do not mean to suggestthat development elsewhere is not important. In thebox on p11, we look at what our approach says forSouth Africa and the African region and other largerdeveloping economies could also become important.
Are the Results Plausible?
The projection of a substantial shift in the generationof growth towards the BRICs is dramatic. Is itplausible?
We have looked at three main ways to cross check theforecasts, all of which give us broad comfort with theresults.
First, the forecasts for GDP growth in the next 10years are not out of line with the IMF’s assumptions
Global Paper No 99 10 1st October 2003
Projected Population Growth Rates
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2001 2008 2015 2022 2029 2036 2043 2050
%
Brazil
China
India
Russia
G6
China's Income Per CapitaGrowing
Share of US Income Per Capita
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2000 2010 2020 2030 2040 2050
2003
US$bn
US GDP PerCapita (US$bn)
China GDP PerCapita (US$bn)
17% 21% 26%32%
37%
GSBRICs Model Projections. See text for details and assumptions.
Global Paper No 99 11 1st October 2003
With Asia, Europe and Latin America representedin the BRICs profile, some readers will noticeAfrica’s absence. The BRICs are chosen becausethey are the four largest developing economiescurrently. Still, it is interesting and important tolook beyond at the potential for Africa, andparticularly South Africa, the largest economy inthe region, toplay apart in the same kind ofprocess.
We have already published a 10-year outlook onSouth Africa using detailed econometric work toproject the same components of growth(employment growth, capital stock growth andtechnical progress) that underpin our methodologyhere (see Global Economics Paper #93, SouthAfrica Growth and Unemployment: A Ten-YearOutlook). The study showed that South Africacould achieve 5% growth over the next decade if theright policies were put in place. The emphasis ongetting the conditions for growth right is one that isimportant for the BRICs also.
To provide comparison, we applied our projectionmethods for the BRICs to South Africa. Themethod is simpler than that in our paper on SouthAfrica, but does provide a longer-term outlook. Thetable sets out the main results in terms of growth.Projected growth over the next decade is a littlelower than the 5% projected in our more detailedstudy (around 4% here), but the main thrust of the
outlook is similar. The differences arise largelybecause the demographic projections we assume muchsharper shrinkage in the labour force (around 1% peryear) than did the more detailed exercise. Both inSouth Africa, and in the region more generally, thechallenge of AIDS and the impact it will have onlabour force and population dynamics is an importantrisk and challenge that has no direct counterpartelsewhere.
Our longer-term projections show South Africagrowing at an average rate of around 3.5% over thenext 50 years, comparable to our predictions for Russiaand Brazil. With declining population growth rates,per capita incomes under these projections would risesignificantly more rapidly. We find under theseprojections that South Africa’s economy would besignificantly smaller than the BRICs in 2050 (aroundUS$1.2bn compared to US$5.9bn for Russia, thesmallest of the BRICs economies), though itsprojected GDP per capita would actually be higher.
South Africa and the Challenge for the African Continent
SouthAfricaProjectedReal GDPGrowth
3.4%
4.4%
3.6%3.3%
3.1%3.3% 3.3% 3.3% 3.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2000-
2005
2005-
2010
2010-
2015
2015-
2020
2025-
2030
2030-
2035
2035-
2040
2040-
2045
2045-
2050
Average yoy%
growth
GSBRICs Model Projections. See text for details and assumptions.
ProjectedIncomePerCapita
0
10,000
20,000
30,000
40,000
50,000
60,000
2000 2010 2020 2030 2040 2050
India
Brazil
China
SouthAfrica
Russia
GDPpercapita
(2003US$)
GSBRICsModelProjections. Seetext for detailsandassumptions.
2003US$bn SouthAfrica Brazil China India Russia
2000 83 762 1078 469 391
2010 147 668 2998 929 847
2020 267 1333 7070 2104 1741
2030 447 2189 14312 4935 2980
2040 739 3740 26439 12367 4467
2050 1174 6074 44453 27803 5870
GSBRICs ModelProjections. Seetext for details andassumptions.
ProjectedUS$GDPLevels
of potential growth in these economies (roughly 5%for Russia, 4% for Brazil, 8% for China, 5-6% forIndia). With the exception of Brazil, our projectedgrowth rates are also close to recent performance.Brazil’s performance would have to improve quitesignificantly relative to the past.
Second, although the implied changes in GDP andcurrencies may look dramatic on an absolute basis,they are significantly less spectacular than what someeconomies actually achieved over the last fewdecades. In Japan, between 1955 and 1985 real GDPincreased by nearly 8 times (from initial levels ofincome per capita not unlike some of the BRICs) andreal industrial production increased tenfold. Between1970 and 1995—the yen appreciated by over 300% innominal terms against the US dollar. In the morerecent past, Korea’s GDP in 2000 increased by nearly9 times between 1970 and 2000. Next to theseexperiences our projections look quite tame.Although the projections assume that economiesremain on a steady development track, they do notassume ‘miracle-economy’ growth.
As a final check on our estimates, we applied anentirely different approach to generate long-termgrowth projections based on cross-countryeconometric research. We took a well-knownexisting econometric model from Levine and Renelt(LR) that explains average GDP growth over the nextthirty years as a function of initial income per capita,investment rates, population growth and secondaryschool enrollments4.
Although the technique employed is very differentand a year-by-year path cannot be generated, themodel has close parallels to our own approach. Initialincome per capita drives our productivity catch-up,investment drives capital accumumulation, and thelevel of education can be thought of as helping to
determine the speed of convergence. Projectionsusing the LR equation are not identical to our own, butclose enough to reassure us that we are makingsensible assumptions. Our own models are a bit moreoptimistic about growth prospects in general, but notby much.
A Look Back In Time—What Would We HaveSaid in 1960
We mentioned earlier that the world has changed a lotin the last fifty years. One further check on theplausibility of our projections is to go back in time,apply the same methods that we have used here andlook at how our projections of GDP growth thenwould have compared with subsequent reality.
To do that, we looked at a set of 11 developed anddeveloping countries (US, UK, Germany, France,Italy, Japan, Brazil, Argentina, India, Korea andHong Kong) starting in 1960 and projecting theirGDP growth for the following 40 years (dataavailability meant we could not easily do a full 50year projection).
We applied the same methodology, modeling capitalstock growth as a function of the starting level ofcapital and investment and technical progress as acatch-up process on the US. Because we did not havedemographic projections for 1960 (as we do now forthe next fifty years), we used actual population datafor the period as the basis for our labour force growthassumptions (effectively assuming that this part ofthe exercise was predicted perfectly).
The results of that exercise are generallyencouraging. In general, the projected averagegrowth rates over the period are surprisingly close tothe actual outcomes. For the more developedcountries, where the growth path has been steadier(France, Germany, UK, US, Italy) the differencesbetween projected and actual growth rates are small.
For the developing countries (and Japan, which in1960 was a developing country that was significantlypoorer than Argentina) the range of outcomes iswider. For those countries where policy settings werenot particularly growth-supportive—India, Brazil
Global Paper No 99 12 1st October 2003
30 year average
real GDPgrowthOur Projections Levine-Renelt Model
Brazil 3.7 3.3
Russia 3.9 3.5
India 5.8 5.3
China 5.6 5.8
Comparing Our Projections With the Levine-Renelt Model
4 Levine, Ross & Renelt, David, 1992. “A Sensitivity Analysis of Cross-Country Growth Regressions,” American Economic Review, Vol. 82(4) p942-63.
Global Paper No 99 13 1st October 2003
A set of core factors—macroeconomic stability,institutional capacity, openness and education—canset the stage for growth. Robert Barro’s influentialwork on the determinants of growth found that growthis enhanced by higher schooling and life expectancy,lower fertility, lower government consumption, bettermaintenance of the rule of law, lower inflation andimprovements in the terms of trade. These corepolicies are linked: institutional capacity is requiredto implement stable macroeconomic policies, macrostability is crucial to trade, and without price stabilitya country rarely has much success in liberalizing andexpanding trade. We briefly view some of the mostrecent findings on these ingredients here:
Macro Stability. An unstable macro environmentcan hamper growth by distorting prices andincentives. Inflation hinders growth by discouragingsaving and investment. Accordingly, a key focus isprice stability, achieved through fiscal deficitreduction, tighter monetary policy and exchange-raterealignment. Within the BRICs, macroeconomicindicators reflecting policy divergence show wideswings: through the 1990s, Brazil averaged aninflation rate of 548% and a government deficit of21.2% of GDP, against China’s average inflation rateof 8% and government deficit of 2.3% of GDP.
Institutions. Institutions affect the ‘efficiency’ of aneconomy much in the same way as technology does:more efficient institutions allow an economy toproduce the same output with fewer inputs: Badinstitutions lower incentives to invest, to work and tosave. ‘Institutions’ in this broad sense include thelegal system, functioning markets, health andeducation systems, financial institutions and thegovernment bureaucracy. Recent research argues thatpoor political and economic policies are onlysymptoms of longer-run institutional factors—a line
of reasoning that could help explain the disappointingresults of developing countries‘ adoption ofmacroeconomic policy reforms in the 1990s.
Openness. Openness to trade and FDI can provideaccess to imported inputs, new technology and largermarkets. Empirical studies of trade and growth fallinto three buckets. First, country studies documentthe economic and political consequences ofimport-substitution policies and export promotingpolicies. Second, much work uses cross-section orpanel data to examine the cross-country relationshipbetween openness and growth. This has producedmixed evidence, but in general it demonstrates apositive relationship between openness and growth.Third, sector, industry and plant-level studiesinvestigate the effects of trade policy on employment,profits, productivity and output at a micro-economiclevel. There appears to be a greater consensus herethan in the cross-country work about theproductivity-enhancing effects of tradeliberalization.
Education. As economies grow rapidly, they mayface shortages of skilled workers, meaning that moreyears of schooling are a prerequisite for the next stageof economic development. Enrolment rates haveincreased dramatically over the past 30 years, onaverage over 5% per year, particularly in highereducation (around 14%). Among the BRICs, Indiareceives low marks for education indicators,particularly at the primary and secondary levels.Many cross-country studies have found positive andstatistically significant correlations betweenschooling and growth rates of per capita GDP—onthe order of 0.3% faster annual growth over a 30-yearperiod from an additional one year of schooling.
The Conditions for Growth
and Argentina—actual growth fell below what wewould have projected. But for the Asian economiesthat had an unusually favourable growth experience,our method would have underpredicted actual growthperformance in some cases quite significantly.
Overall, the results highlight that our method ofprojection seems broadly sensible. For the BRICs tomeet our projections over the next fifty years, they donot need ‘miracle’ performance—though it isimportant that they stay on the right track inmaintaining broadly favourable conditions forgrowth.
Ensuring the Conditions For Growth
This historical exercise highlights a critical point.For our projections to be close to the truth it isimportant that the BRICs remain on a steady growthtrack and keep the conditions in place that will allowthat to happen. That is harder than it sounds and is themain reason why there is a good chance that theprojections might not be realised. Of the BRICs,Brazil has not been growing in line with projectionsand may have the most immediate obstacles to thiskind of growth. It provides a good illustration of theimportance of getting the necessary conditions inplace (see box on p.15).
Research points to a wide range of conditions that arecritical to ensuring solid growth performance andincreasingly recognises that getting the rightinsitutions as well as the right policies is important.5
These are the things that the BRICs must get right (orkeep getting right) if the kinds of paths we describeare to be close to the truth. The main ingredients(more detailed discussion of the evidence is providedin the box) are:
� Sound macroeconomic policies and a stablemacroeconomic background. Low inflation,supportive government policy, sound publicfinances and a well-managed exchange rate canall help to promote growth. Each of the BRICshas been through periods of macroeconomicinstability in the last few decades and some facesignificant macroeconomic challenges still.Brazil for instance has suffered greatly from theprecariousness of the public finances and theforeign borrowing that it brought about.
� Strong and stable political institutions.Political uncertainty and instability discouragesinvestment and damages growth. Each of theBRICs is likely to face considerable (anddifferent) challenges in political developmentover the next few decades. For some (Russiamost obviously), the task of institution-buildinghas been a major issue in recent growthperformance.
� Openness. Openness to trade and foreign directinvestment has generally been an important partof successful development. The openness of theBRICs varies, but India is still relatively closedon many measures.
� High levels of education. Higher levels ofeducation are generally helpful in contributing tomore rapid growth and catch-up. The LR growthestimates above are based on a strong connectionbetween secondary schooling and growthpotential. Of the BRICs, India has the most workto do in expanding education.
Global Paper No 99 14 1st October 2003
0
1
2
3
4
5
6
7
8
Arg Br Fr Ger HK In It Jp Ko UK US
Actual
Predicted
Projected average annual GDP growth, 1960-2000 (%)
How Our Model Fares in Gauging Growth 1960-2000
GS BRICs Model Projections. See text for details and assumptions.
5 Because of this, the catch-up process is often described as a process of ‘conditional convergence’ where the tendency for less developedeconomies to grow more rapidly is only evident after controlling for these conditions.
Global Paper No 99 15 1st October 2003
Of the BRICs, Brazil is the only one where recentgrowth experience has been significantly lower thanour projected growth rates. This suggests that moreneeds to be done to unlock sustained higher growth inBrazil than is the case elsewhere and that ourconvergence assumptions for Brazil (though alreadylower than in China and Russia) may still prove toooptimistic without deeper structural reforms.
Over the last 50 years, Brazil’s real GDP growth rateamounted to 5.3%, but the chart below shows thatgrowth has been declining sharply since the debtcrisis of the 1980s. Following a growth surge betweenthe late 1960s and the early-1970s on the back ofeconomic liberalization, growth rates fell—in partbecause of a series of external shocks combined withpoor policy response amidst of a political transitionfrom a military regime to a democracy.
Over the last decade, real GDP growth amounted to2.9%, compared to an average of 5.3% since 1950.The excessive reliance on external financing anddomestic public debt during the oil crisis and duringthe Real plan has rendered this adjustment effortparticularly difficult, in part explaining the markeddrop in growth rates.
The adjustment process has also reduced investment,which contributed to a depreciation of the capitalstock, particularly in infrastructure, with importantconsequences for productivity. Even so, temporarysurges in external financing or statistical reboundsmay push growth higher temporarily, but for Brazil tobreak the historical downward trend in GDP growthand attain the kind of path set out in our projectionshere will take more.
The Lula Administration is making some progress.Macro stabilization is a key precondition ofsuccessful reform and is now clearly underway. Theresult of that stabilization is likely to be animprovement in growth over the next year or two thatis reflected in our current forecasts of about 3.5% ayear. On its own, though, stabilization will beinsufficient to raise and sustain Brazil’s growth rate tothe kinds of levels that are set out in the projections in
this paper. If that goal is to be achieved, substantialstructural reforms will also be needed.
Comparing Brazil with China and the other Asianeconomies gives a sense of the relatively largerobstacles that Brazil currently faces.
� Brazil is much less open to trade. The tradablegoods sector in China is almost eight times largerthan in Brazil, when measured by imports plusexports.
� Investment and savings are lower. Savings andinvestment ratios are around 18-19% of GDPcompared to an investment rate of 36% of GDP inChina and an Asian average of around 30%.
� Public and foreign debt are much higher.Without a deeper fiscal adjustment and lowerdebt to GDP ratio (currently at 57.7% of GDP ona net basis and 78.2% of GDP on a gross basis),the private sector is almost completely crowdedout from credit markets. China’s net foreign debtand public debt are both significantly smaller.
Unless significant progress is made in removing orreducing these obstacles, the projections set out here(which still show much lower growth than Brazil’spost-war average) are unlikely to be achievable andthe slide in trend growth could continue.
Brazil: Challenges in Setting the Conditions For Sustained Growth
-10
-5
0
5
10
15
1948 1958 1968 1978 1988 1998
Real GDP
growth
Real GDPGrowth Trend
GSBRICs Model Projections. See text for details andassumptions.
Brazil'sTrendGDPGrowthRate Is
Declining
Real GDPGrowth
Growth (%yoy)
How Different Assumptions Would ChangeThings
In our models, the effect of these conditions forgrowth can be thought of as operating through ourassumptions about the investment rate and the rate ofcatch-up in TFP with the developed economies. If theBRICs economies fail to deliver the kinds ofconditions that are broadly necessary for sustainedgrowth, our assumptions about investment andconvergence will prove too optimistic. For Brazil andIndia, in particular, if they succeed more quickly thanwe expect, investment rates might actually be higherthan our projections and convergence more rapid.
To illustrate in a simple way the point that theassumptions that we have made—and the underlyingconditions that determine them—are important, weshow briefly what happens if we change them:
� Catch-up. Because the convergence ratecaptures a broad range of factors that determinethe ability to ‘catch up’, altering it can make asignificant difference to projections. Forexample, if we lower China’s ‘convergence rate’by a third, our projections of average GDPgrowth rate over the 50-year period fall to 4.3%from 4.8% and our projected 2050 US$GDPlevel drops by 39%. In our baseline model, ratesof convergence are generally slower for India andBrazil than for China and Russia. If we raised ourconvergence rates in India and Brazil to those ofChina and Russia, India’s 2000-2030 averageGDP growth rate would rise to 7.4%, against5.8% originally. Brazil’s GDP growth rate wouldrise as well: to 4.3% from 3.7%.
� Investment. The assumed investment rates areless important, but substantial differences fromour assumptions would certainly alter the mainconclusions. Lowering our assumptions ofChina’s investment rate by 5 percentage pointsslightly lowers China’s average 2000-2030 GDPgrowth rate to 5.5% from 5.7%. Cutting 5percentage points off of investment rates acrossthe BRICS would reduce their GDP levels onaverage by around 13% by 2050.
� Demographics. The demographic assumptionsmay also turn out to be incorrect. For instance,
Russia’s demographics might not turn out to beas negative as the US census projections, anddeclining fertility and rising mortality may turnout to have been a temporary feature of thetransition from communism. Shiftingdemographic trends might also be partly offsetby attempts to raise participation or to extendworking ages, neither of which we currentlycapture.
Sensitivity to these kinds of assumptions clearlymeans that there is significant uncertainty around ourprojections. The advantage of the framework that wehave developed is that we now have the tools to look atthese and other questions in much more detail. We alsohave a clear baseline against which to measure them.
Implications of the BRICs’ Ascendancy
Each of the BRICs faces very significant challengesin keeping development on track. This means thatthere is a good chance that our projections are notmet, either through bad policy or bad luck.
Despite the challenges, we think the prospect is worthtaking seriously. After all, three of thesemarkets—China, India and Russia—have alreadybeen at the top of the growth charts in recent years.They may stay there.
If the BRICs do come anywhere close to meeting theprojections set out here, the implications for thepattern of growth and economic activity could bevery large indeed. Parts of this story—theopportunities in China, for instance—are wellunderstood. But we suspect that many otherparts—the potential for India and the other marketsand the interplay of aging in the developedeconomies with growth in the developing ones—maynot be.
We will be using the tools developed here to look indetail at different kinds of scenarios and to flesh outthe links between our growth projections andinvestment opportunities, but we set out some briefconclusions here:
� The relative importance of the BRICs as anengine of new demand growth and spendingpower may shift more dramatically and quickly
Global Paper No 99 16 1st October 2003
than expected under the right conditions. Highergrowth in these economies could offset theimpact of greying populations and slower growthin today’s advanced economies.
� Higher growth may lead to higher returns andincreased demand for capital in thesemarkets—and for the means to finance it. Theweight of the BRICs in investment portfolioscould rise sharply. The pattern of capital flowsmight move further in their favour and majorcurrency realignments would take place.
� Rising incomes may also see these economiesmove through the ‘sweet spot’ of growth fordifferent kinds of products, as local spendingpatterns change. This could be an importantdeterminant of demand and pricing patterns for arange of commodities.
� As the advanced economies become a shrinkingpart of the world economy, the accompanyingshifts in spending could provide significantopportunities for many of today’s globalcompanies. Being invested in and involved in theright markets—and particularly the rightemerging markets—may become anincreasingly important strategic choice for manyfirms.
� The list of the world’s ten largest economies maylook quite different in fifty years time. Thelargest economies in the world (by GDP) may
also no longer be the richest (by income percapita) making strategic choices for firms morecomplex.
� Regional neighbours could benefit from thegrowth opportunities from the BRICs. With threeout of the four largest economies in 2050potentially residing in Asia, we could seeimportant geopolitical shifts towards the Asianregion. China’s growth is already having asignificant impact on the opportunities for therest of Asia. Sustained strong growth in the otherBRICs economies might have similar impacts ontheir major trading partners.
Are you ready?
Dominic Wilson and Roopa Purushothaman
Global Paper No 99 17 1st October 2003
GDPSize andRelative Income Per Capita
LevelsWill Diverge Over Time
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Ch US In Jp Br Russ UK Ger Fr It
2003US$bn
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
US$GDP US$GDPper capita
2003US$
GSBRICs Model Projections. See text for details andassumptions.
Growth Model
We provide detail on the underlying assumptions ofour models. The model relies on a simple formulationof the overall level of GDP (Y) in terms of a) labour(L) b) the capital stock (K) and c) the level of“technical progress” (A) or Total Factor Productivity(TFP).
We assume that GDP is a simple (Cobb-Douglas)function of these three ingredients:
where a is the share of income that accrues tocapital.
We then need to describe the process by which each ofthe different components (labour, the capital stockand TFP) change over time.
� For, L, we simply use the projections of theworking age population (15-60) from the USCensus Bureau.
� For K, we take the initial capital stock, assume aninvestment rate (investment as a % of GDP) and adepreciation rate to calculate the growth in thecapital stock:
� For A, the description of technical progress, weassume that technology changes as part of aprocess of catch-up with the most developedcountries. The speed of convergence is assumedto depend on income per capita, with theassumption that as the developing economies getcloser to the income levels of the more developedeconomies, their TFP growth rate slows.Developing countries can have faster growth inthis area because there is room to ‘catch up’ withdeveloped countries:
where� is a measure of how fast convergence takesplace and 1.3% is our assumed long-term TFP growth
rate for the US.
The assumptions needed to generate the forecasts aresummarised below:
� Labour force and population, from the USCensus Bureau projections
� Depreciation rate (�) assumed to be 4% as in theWorld Bank capital stock estimates
� Investment rate assumptions based on recenthistory, for Brazil (19%), for India (22%) forRussia (25%) for China (36% until 2010,declining to 30% thereafter).
� Income share of capital assumed to be 1/3, astandard assumption (�) from historicalevidence
� US long-run TFP growth assumed to be 1.33%,implying steady-state labour productivitygrowth of 2% - our long-run estimate.
� Convergence speed for TFP (�) assumed to be1.5%, within the range of estimates fromacademic research.
Exchange Rate Model
Our model of real exchange rates is then calculatedfrom the predictions of labour productivity growth.Specifically, we assume that a 1% productivitydifferential in favour of economy A relative to the USwill raise its equilibrium real exchange rate againstthe US dollar by 1%, where our long-run assumptionfor US productivity growth is again 2%.
This assumption that the relationship is one-for-oneunderpins our GSDEER models and the coefficienton relative productivity terms in our GSDEEMERmodels is generally also clustered around 1. We makethe simplifying assumption that over the long term,only productivity differentials play a large role indetermining real exchange rates.
Global Paper No 99 18 1st October 2003
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Global Paper No 99 19 1st October 2003
Brazil China India Russia France Germany Italy Japan UK US BRICs G6
2000 762 1,078 469 391 1,311 1,875 1,078 4,176 1,437 9,825 2,700 19,702
2001 601 1,157 466 383 1,321 1,855 1,093 4,032 1,425 10,082 2,607 19,808
2002 491 1,252 474 379 1,346 1,866 1,114 4,358 1,498 10,446 2,595 20,628
2003 461 1,353 511 430 1,387 1,900 1,155 4,366 1,565 10,879 2,754 21,253
2004 435 1,529 554 476 1,455 1,966 1,212 4,366 1,647 11,351 2,994 21,998
2005 468 1,724 604 534 1,489 2,011 1,236 4,427 1,688 11,697 3,330 22,548
2006 502 1,936 659 594 1,520 2,059 1,257 4,498 1,728 12,041 3,691 23,104
2007 539 2,169 718 654 1,547 2,102 1,277 4,536 1,762 12,348 4,079 23,572
2008 579 2,422 782 716 1,572 2,141 1,297 4,556 1,797 12,656 4,499 24,019
2009 622 2,699 853 780 1,597 2,178 1,317 4,573 1,836 12,966 4,953 24,466
2010 668 2,998 929 847 1,622 2,212 1,337 4,601 1,876 13,271 5,441 24,919
2011 718 3,316 1,011 917 1,649 2,246 1,358 4,638 1,918 13,580 5,962 25,389
2012 771 3,650 1,100 990 1,677 2,282 1,381 4,683 1,960 13,883 6,512 25,866
2013 828 4,002 1,196 1,068 1,706 2,317 1,403 4,736 2,004 14,184 7,094 26,349
2014 888 4,371 1,299 1,149 1,736 2,352 1,425 4,795 2,046 14,486 7,707 26,840
2015 952 4,754 1,411 1,232 1,767 2,386 1,447 4,858 2,089 14,786 8,349 27,332
2016 1,019 5,156 1,531 1,322 1,799 2,418 1,469 4,925 2,130 15,106 9,028 27,847
2017 1,091 5,585 1,659 1,417 1,832 2,448 1,492 4,999 2,170 15,427 9,752 28,367
2018 1,167 6,041 1,797 1,518 1,865 2,476 1,513 5,074 2,209 15,750 10,524 28,887
2019 1,248 6,538 1,945 1,626 1,897 2,502 1,534 5,146 2,247 16,083 11,357 29,410
2020 1,333 7,070 2,104 1,741 1,930 2,524 1,553 5,221 2,285 16,415 12,248 29,928
2021 1,397 7,646 2,278 1,829 1,963 2,544 1,571 5,297 2,321 16,765 13,150 30,462
2022 1,465 8,250 2,470 1,924 1,996 2,562 1,588 5,372 2,355 17,133 14,109 31,006
2023 1,537 8,863 2,682 2,028 2,029 2,577 1,603 5,443 2,389 17,518 15,110 31,559
2024 1,613 9,517 2,916 2,141 2,062 2,591 1,615 5,509 2,422 17,918 16,187 32,117
2025 1,695 10,213 3,174 2,264 2,095 2,604 1,625 5,567 2,456 18,340 17,345 32,687
2026 1,781 10,947 3,459 2,395 2,128 2,619 1,634 5,641 2,491 18,803 18,582 33,316
2027 1,873 11,732 3,774 2,533 2,163 2,634 1,644 5,696 2,528 19,293 19,913 33,958
2028 1,971 12,555 4,123 2,679 2,198 2,652 1,653 5,740 2,567 19,801 21,327 34,611
2029 2,076 13,409 4,508 2,828 2,233 2,672 1,662 5,778 2,607 20,319 22,821 35,271
2030 2,189 14,312 4,935 2,980 2,267 2,697 1,671 5,810 2,649 20,833 24,415 35,927
2031 2,308 15,260 5,407 3,131 2,300 2,727 1,678 5,835 2,692 21,371 26,107 36,603
2032 2,436 16,264 5,930 3,283 2,333 2,763 1,686 5,851 2,740 21,946 27,911 37,319
2033 2,572 17,317 6,508 3,434 2,367 2,806 1,692 5,861 2,791 22,554 29,830 38,072
2034 2,716 18,428 7,147 3,585 2,404 2,854 1,699 5,869 2,845 23,187 31,877 38,858
2035 2,871 19,605 7,854 3,734 2,445 2,903 1,708 5,882 2,901 23,828 34,064 39,668
2036 3,033 20,845 8,621 3,881 2,490 2,953 1,719 5,902 2,961 24,492 36,380 40,516
2037 3,201 22,152 9,453 4,028 2,535 3,002 1,733 5,930 3,023 25,168 38,833 41,389
2038 3,374 23,522 10,352 4,175 2,580 3,051 1,748 5,961 3,085 25,852 41,423 42,276
2039 3,554 24,949 11,322 4,321 2,625 3,100 1,767 5,998 3,144 26,542 44,147 43,175
2040 3,740 26,439 12,367 4,467 2,668 3,147 1,788 6,039 3,201 27,229 47,013 44,072
2041 3,932 28,003 13,490 4,613 2,711 3,192 1,810 6,086 3,258 27,929 50,038 44,987
2042 4,128 29,589 14,696 4,756 2,754 3,238 1,834 6,136 3,317 28,654 53,171 45,933
2043 4,336 31,257 15,989 4,891 2,801 3,285 1,859 6,187 3,377 29,399 56,473 46,908
2044 4,560 33,003 17,371 5,022 2,849 3,333 1,885 6,239 3,437 30,170 59,955 47,913
2045 4,794 34,799 18,847 5,156 2,898 3,381 1,912 6,297 3,496 30,956 63,596 48,940
2046 5,031 36,636 20,421 5,289 2,946 3,428 1,941 6,362 3,554 31,761 67,378 49,993
2047 5,276 38,490 22,099 5,417 2,995 3,473 1,971 6,431 3,611 32,592 71,281 51,074
2048 5,527 40,420 23,886 5,552 3,045 3,516 2,001 6,506 3,668 33,437 75,385 52,173
2049 5,789 42,408 25,785 5,701 3,097 3,559 2,031 6,586 3,725 34,297 79,684 53,296
2050 6,074 44,453 27,803 5,870 3,148 3,603 2,061 6,673 3,782 35,165 84,201 54,433
GSBRICs Model Projections. See text for details andassumptions.
ProjectedUS$GDP
BRICs G62003US$bn
Appendix II: Our Projections In Detail
Global Paper No 99 20 1st October 2003
Brazil China India Russia France Germany Italy Japan UK US
2000 4,338 854 468 2,675 22,078 22,814 18,677 32,960 24,142 34,797
2001 3,381 910 457 2,633 22,143 22,545 18,895 31,775 23,860 35,373
2002 2,726 979 458 2,611 22,461 22,659 19,224 34,297 25,003 36,312
2003 2,530 1,051 486 2,976 23,047 23,059 19,920 34,322 26,042 37,470
2004 2,364 1,181 520 3,305 24,080 23,856 20,881 34,290 27,333 38,735
2005 2,512 1,324 559 3,718 24,547 24,402 21,277 34,744 27,920 39,552
2006 2,668 1,478 602 4,142 24,968 24,986 21,629 35,292 28,509 40,346
2007 2,835 1,646 647 4,570 25,321 25,512 21,960 35,587 28,986 41,004
2008 3,015 1,827 695 5,013 25,650 25,998 22,300 35,751 29,492 41,655
2009 3,209 2,023 748 5,470 25,975 26,452 22,649 35,917 30,043 42,304
2010 3,417 2,233 804 5,948 26,314 26,877 23,018 36,172 30,611 42,926
2011 3,640 2,453 864 6,453 26,682 27,312 23,407 36,516 31,201 43,550
2012 3,875 2,682 929 6,981 27,069 27,767 23,816 36,942 31,808 44,142
2013 4,124 2,922 998 7,540 27,470 28,224 24,234 37,442 32,413 44,715
2014 4,387 3,171 1,071 8,126 27,892 28,674 24,656 38,016 33,007 45,283
2015 4,664 3,428 1,149 8,736 28,338 29,111 25,086 38,626 33,594 45,835
2016 4,957 3,696 1,233 9,389 28,807 29,534 25,522 39,292 34,161 46,440
2017 5,266 3,981 1,321 10,092 29,282 29,936 25,964 40,032 34,700 47,035
2018 5,594 4,283 1,416 10,845 29,762 30,321 26,407 40,795 35,218 47,630
2019 5,939 4,613 1,516 11,655 30,242 30,678 26,833 41,561 35,731 48,247
2020 6,302 4,965 1,622 12,527 30,723 31,000 27,239 42,359 36,234 48,849
2021 6,562 5,346 1,739 13,212 31,211 31,296 27,628 43,186 36,709 49,496
2022 6,838 5,747 1,867 13,959 31,709 31,572 27,995 44,023 37,154 50,182
2023 7,133 6,153 2,007 14,777 32,208 31,824 28,335 44,845 37,593 50,902
2024 7,447 6,587 2,161 15,674 32,701 32,058 28,628 45,648 38,031 51,652
2025 7,781 7,051 2,331 16,652 33,203 32,299 28,894 46,391 38,479 52,450
2026 8,136 7,542 2,517 17,697 33,718 32,555 29,152 47,287 38,958 53,348
2027 8,514 8,068 2,723 18,809 34,251 32,830 29,413 48,037 39,466 54,306
2028 8,919 8,621 2,949 19,983 34,796 33,135 29,671 48,709 40,013 55,297
2029 9,352 9,198 3,199 21,194 35,339 33,483 29,922 49,350 40,585 56,294
2030 9,823 9,809 3,473 22,427 35,876 33,898 30,177 49,944 41,194 57,263
2031 10,320 10,454 3,776 23,674 36,406 34,378 30,417 50,483 41,823 58,281
2032 10,852 11,138 4,110 24,926 36,938 34,938 30,657 50,966 42,534 59,384
2033 11,421 11,859 4,477 26,191 37,493 35,605 30,884 51,400 43,301 60,560
2034 12,030 12,623 4,882 27,470 38,101 36,332 31,126 51,826 44,124 61,786
2035 12,682 13,434 5,327 28,749 38,779 37,087 31,402 52,313 44,985 63,017
2036 13,364 14,293 5,808 30,030 39,518 37,857 31,730 52,868 45,898 64,292
2037 14,075 15,201 6,326 31,323 40,278 38,628 32,116 53,499 46,858 65,581
2038 14,813 16,157 6,884 32,636 41,049 39,408 32,548 54,180 47,827 66,875
2039 15,576 17,159 7,482 33,966 41,834 40,195 33,036 54,924 48,758 68,165
2040 16,370 18,209 8,124 35,314 42,601 40,966 33,583 55,721 49,658 69,431
2041 17,191 19,315 8,810 36,684 43,363 41,727 34,169 56,591 50,569 70,713
2042 18,037 20,443 9,544 38,057 44,151 42,499 34,787 57,507 51,509 72,040
2043 18,935 21,635 10,326 39,386 44,998 43,291 35,442 58,448 52,470 73,401
2044 19,904 22,892 11,160 40,706 45,893 44,110 36,133 59,419 53,434 74,805
2045 20,926 24,192 12,046 42,081 46,795 44,940 36,859 60,454 54,386 76,228
2046 21,964 25,530 12,988 43,463 47,706 45,759 37,627 61,583 55,331 77,680
2047 23,040 26,891 13,988 44,832 48,640 46,559 38,430 62,774 56,275 79,171
2048 24,152 28,321 15,050 46,280 49,601 47,346 39,237 64,035 57,211 80,677
2049 25,318 29,810 16,174 47,871 50,589 48,142 40,061 65,376 58,169 82,196
2050 26,592 31,357 17,366 49,646 51,594 48,952 40,901 66,805 59,122 83,710
GS BRICs Model Projections. See text for details and assumptions.
2003 US$BRICs G6
Projected US$GDP Per Capita
Global Paper No 99 21 1st October 2003
Brazil China India Russia France Germany Italy Japan UK US
2000 4.2 8.0 5.4 10.0 4.2 2.9 3.3 2.8 3.1 3.8
2001 1.5 7.3 4.2 5.0 2.1 0.6 1.7 0.4 2.1 0.3
2002 1.5 8.2 4.7 4.3 1.2 0.2 0.4 0.1 1.9 2.4
2003 1.1 8.1 5.6 6.1 0.5 0.0 0.6 2.7 1.8 2.7
2004 3.5 8.4 5.9 4.4 2.9 1.9 2.4 1.7 2.9 3.5
2005 4.2 7.9 6.2 5.8 2.3 2.3 2.0 1.4 2.4 3.1
2006 4.1 7.6 6.2 5.3 2.1 2.4 1.7 1.6 2.4 2.9
2007 4.1 7.3 6.1 4.8 1.8 2.1 1.6 0.8 2.0 2.6
2008 4.1 7.1 6.1 4.5 1.6 1.9 1.5 0.4 2.0 2.5
2009 4.2 6.9 6.1 4.3 1.6 1.7 1.5 0.4 2.2 2.5
2010 4.2 6.6 6.1 4.1 1.6 1.5 1.6 0.6 2.2 2.4
2011 4.1 6.4 6.0 4.0 1.7 1.6 1.6 0.8 2.2 2.3
2012 4.1 6.0 6.0 3.8 1.7 1.6 1.6 1.0 2.2 2.2
2013 4.0 5.8 5.9 3.7 1.7 1.6 1.6 1.1 2.2 2.2
2014 4.0 5.5 5.9 3.6 1.8 1.5 1.6 1.3 2.1 2.1
2015 3.9 5.2 5.8 3.5 1.8 1.4 1.6 1.3 2.1 2.1
2016 3.9 5.1 5.8 3.4 1.8 1.3 1.5 1.4 2.0 2.2
2017 3.8 4.9 5.7 3.4 1.8 1.2 1.5 1.5 1.9 2.1
2018 3.8 4.8 5.7 3.3 1.8 1.2 1.5 1.5 1.8 2.1
2019 3.7 5.1 5.6 3.3 1.8 1.0 1.4 1.4 1.7 2.1
2020 3.7 5.0 5.5 3.3 1.7 0.9 1.3 1.4 1.7 2.1
2021 3.7 5.2 5.6 3.3 1.7 0.8 1.2 1.5 1.6 2.1
2022 3.7 4.9 5.7 3.3 1.7 0.7 1.0 1.4 1.5 2.2
2023 3.7 4.1 5.7 3.4 1.7 0.6 0.9 1.3 1.4 2.2
2024 3.8 4.2 5.8 3.5 1.6 0.5 0.7 1.2 1.4 2.3
2025 3.8 4.2 5.8 3.6 1.6 0.5 0.6 1.0 1.4 2.4
2026 3.8 4.1 5.9 3.6 1.6 0.6 0.6 1.3 1.4 2.5
2027 3.8 4.3 5.9 3.6 1.6 0.6 0.6 1.0 1.5 2.6
2028 3.8 4.1 6.0 3.6 1.6 0.7 0.6 0.8 1.5 2.6
2029 3.8 3.9 6.0 3.5 1.6 0.8 0.5 0.7 1.6 2.6
2030 3.9 3.9 6.1 3.4 1.5 0.9 0.5 0.6 1.6 2.5
2031 3.9 3.8 6.1 3.3 1.5 1.1 0.5 0.4 1.6 2.6
2032 3.9 3.9 6.1 3.1 1.4 1.3 0.4 0.3 1.8 2.7
2033 3.9 3.8 6.2 3.0 1.5 1.6 0.4 0.2 1.9 2.8
2034 3.9 3.8 6.2 2.9 1.6 1.7 0.4 0.1 1.9 2.8
2035 3.9 3.9 6.2 2.8 1.7 1.7 0.5 0.2 2.0 2.8
2036 3.9 3.9 6.1 2.7 1.8 1.7 0.6 0.3 2.0 2.8
2037 3.8 3.9 6.1 2.6 1.8 1.7 0.8 0.5 2.1 2.8
2038 3.8 3.9 6.0 2.5 1.8 1.6 0.9 0.5 2.1 2.7
2039 3.7 3.8 5.9 2.5 1.8 1.6 1.0 0.6 1.9 2.7
2040 3.6 3.7 5.8 2.4 1.7 1.5 1.2 0.7 1.8 2.6
2041 3.6 3.8 5.8 2.3 1.6 1.4 1.3 0.8 1.8 2.6
2042 3.5 3.4 5.7 2.2 1.6 1.4 1.3 0.8 1.8 2.6
2043 3.5 3.5 5.6 2.1 1.7 1.4 1.4 0.8 1.8 2.6
2044 3.6 3.5 5.5 2.0 1.7 1.5 1.4 0.8 1.8 2.6
2045 3.5 3.3 5.4 2.0 1.7 1.4 1.5 0.9 1.7 2.6
2046 3.4 3.1 5.4 1.9 1.7 1.4 1.5 1.0 1.7 2.6
2047 3.4 2.8 5.3 1.8 1.7 1.3 1.5 1.1 1.6 2.6
2048 3.3 2.9 5.2 1.9 1.7 1.2 1.5 1.2 1.6 2.6
2049 3.3 2.8 5.1 2.0 1.7 1.2 1.5 1.2 1.6 2.6
2050 3.4 2.7 5.1 2.1 1.7 1.2 1.5 1.3 1.5 2.5
*indicative projections made only on the model assumptions described in the text. Not GS official forecasts.
GS BRICs Model Projections. See text for details and assumptions.
BRICs G6*
Projected Real GDP Growth
%yoy
We have used the US census’ population estimates,which are based on the cohort component populationprojection method, which follows each cohort ofpeople of the same age throughout its lifetimeaccording to mortality, fertility and migration.
First, fertility rates are projected and applied to thefemale population in childbearing ages to estimatethe number of births every year (see chart). Second,each cohort of children born is also followed throughtime by exposing it to projected mortality rates.Finally, the component method takes into accountany in-migrants who are incorporated into thepopulation and out-migrants who leave thepopulation. Migrants are added to or subtracted fromthe population at each specific age.
In setting levels for mortality and fertility, availabledata on past trends provide guidance. For mortality,information concerning programs of public healthare taken into account. For fertility, factors such astrends in age at marriage; the proportion of womenusing contraception; the strength of family planningprograms; and any foreseen changes in women’seducational attainment or in their labor forceparticipation are factored into the analysis.Assumptions about future migration are morespeculative than assumptions about fertility andmortality. The future path of international migrationis set on the basis of past international migrationestimates as well as the policy stance of countriesregarding future international migration flows.
Global Paper No 99 22 1st October 2003
Appendix III:Demographic Projections:The Cohort Component Method
Total FertilityRate
1
1.5
2
2.5
3
3.5
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 205
%
Brazil
China
India
Russia
Global Paper No 99 23 1st October 2003
Paper Title Date Author
97 How China Can Help the World 17-Sep-03 Jim O'Neill & Dominic Wilson
96 EU Enlargement: Grow th Impetus or Governance
Nightmare?
03-Sep-03 Erik Nielsen
95 Getting Globalization Right: Meeting the Challenge of the
Century
23-Jul-03 Jim O'Neill, Sandra Lawson &
Roopa Purushothaman
94 Globalization and the Challenge of Reducing World Poverty -
A role for the International Financing Facility?
08-Jul-03 Lord Griffiths of Fforestfach, Jim
O’Neill & Mike Buchanan
93 South Africa Grow th and Unemployment: A Ten-Year
Outlook
13-May-03 Carlos Teixeira & Rumi Masih
92 The ECB’s Monetary Strategy Review : Aligning Words With
Actions
06-May-03 David Walton & Kevin Daly
91 Will Germany Avoid Deflation? 05-Mar-03 Dirk Schumacher & David Walton
90 Can the UK Achieve a Smooth Transition to EMU? 21-Feb-03 David Walton & Ben Broadbent
89 The Challenge of the Century: Getting Globalization Right 24-Jan-03 Jim O’Neill & Roopa
Purushothaman
88 New Directions in EU Merger Policy 18-Dec-02 David Walton
87 Will the UK Consumer Boom End in Bust? 11-Dec-02 Ben Broadbent & Kevin Daly
86 Forecasting Sw iss Interest Rates: A Hybrid Approach 04-Nov-02 Inês Lopes & Nicolas Sobczak
85 Germany - Euroland's Dragging Anchor 29-Oct-02 Dirk Schumacher & David Walton
84 The Equity Risk Premium From An Economics Perspective 25-Oct-02 Jim O’Neill, Dominic Wilson &
Rumi Masih
83 Housing and the US Consumer: Mortgaging the Economy’s
Future
07-Oct-02 Jan Hatzius
82 Central European Equities: Further Outperformance Ahead 06-Oct-02 Jens J. Nordvig-Rasmussen
81 Europe's Stability Pact: In Need of New Clothes 30-Aug-02 David Walton
80 Fact or Fiction? Estimating the Probability of UK EMU Entry
from Financial Markets
28-Jun-02 Ben Broadbent & Kevin Daly
79 Adjusted GS-ESS: A User's Manual for Dedicated Investors 21-Jun-02 Alberto Ades & Demian Reidel
78 In Defence of Efficiencies in Mergers 14-Jun-02 David Walton
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Final version in ASIAN PERSPECTIVE, Vol. 31, No. 4, 2007, pp. 742.
The BRICs Countries (Brazil, Russia, India, and China) as Analytical Category: Mirage or Insight?*
Leslie Elliott Armijo Portland State University
leslie.armijo@cal.berkeley.edu
Revision of November 1, 2007*
American hegemony has passed its peak. The twenty-first century will see a more multi-polar international system. Yet Western European countries may not be the United States’ main foils in decades to come. Four new poles of the international system are now widely known in the business and financial press as the “BRICs economies” (Brazil, Russia, India, and China). Does the concept of “the BRICs” have meaning within a rigorous political science framing? From the perspective of an economic liberal employing neoclassical assumptions to understand the world economy, the category’s justification is surprisingly weak. In contrast, a political or economic realist’s framing instructs us to focus on states that are increasing their relative material capabilities—as each of the four is. Finally, within a liberal institutionalist’s mental model, the BRICs countries are a compelling set, yet one with a deep cleavage between two sub-groups: large emerging powers likely to remain authoritarian or revert to that state, and those that are securely democratic.
* This version presented at the Annual Meeting of the International Studies Association, San Francisco, March 25-29, 2008.
The BRICs Countries (Brazil, Russia, India, and China) as Analytical Category: Mirage or Insight?
In 2003 the institutional investment firm Goldman Sachs issued a research report that coined a catchy acronym: the “BRICs economies,” or Brazil, Russia, India, and China.1 At the time of writing the four large emerging economies collectively represented only 15 percent of the gross national production (GDP) of the six major advanced industrial economies: the United States, Japan, Germany, Britain, France, and Italy. Economists Dominic Wilson and Roopa Purushothaman, however, predicted that “in less than 40 years” the BRICs were likely to catch up to the six, providing the world’s principal “engine of new demand growth and spending power,” which could “offset the impact of graying populations and slower growth in the advanced economies.”2 Since then the international financial press has run with the label, which has caught the imagination of investors much as the term emerging markets did a few years back. This paper critically examines the “BRICs countries” concept.
These four countries are not an obvious set. Their internal politics and economics are dissimilar. Although all are federal states, only India and Brazil are well-institutionalized democracies, one of which is parliamentary and the other presidential. Russia is a declared democracy moving toward authoritarianism, while China is a Marxist people’s republic. Each of the four embodies distinct cultural and linguistic traditions, though they share the characteristic of having been recognizable political entities for centuries. All four possess modern industrial sectors, with ever deepening links to the global capitalist economy, along with large areas of the economy that operate informally, outside the reach of regulators and tax collectors. Their stock market capitalization to gross national product (GDP) ratio varies from 35 percent for China (mainly in Hong Kong and Shanghai), to 60, 69, and 72 percent for Brazil, India, and Russia, respectively.3 Russia and China are significantly globalized, with trade/GDP ratios of 48 and 64 percent respectively, the latter quite extraordinary given China’s large absolute economic size.4 India and Brazil are less globally integrated, with trade/GDP ratios in 2005 of 29 and 25 percent respectively. Although three of the four BRICs countries have substantial and reasonably secure trade surpluses, India has a persistent trade deficit. The three trade surplus BRICs--Brazil, Russia, and China--each have external debts with net present values in the $200 billion range, while India’s foreign debt is about half this. Russia’s exports are extraordinarily concentrated in natural gas and other energy products, while the other three have more diversified export profiles. Finally, each of the quartet faces looming challenges that could choke its economic progress: corruption, pollution, and shortages of natural resources in China; India’s woeful physical infrastructure and contained yet nasty communal conflicts; Brazil’s
1 I thank Vinod Aggarwal, Melvin Gurtov, Christine Kearney, Karthika Sasikumar, Aseema Sinha, and Anthony Spanakos for helpful comments. Remaining mistakes are of course mine.2 Dominic Wilson and Roopa Purushothaman, “Dreaming with BRICs: The Path to 2050,” Global Economics Paper No. 99, New York: Goldman Sachs, October 1, 2003, p. 2. 3 Unless otherwise noted, all figures in this paragraph and the next are from The Little Data Book 20O7, Washington, DC: The World Bank.4 For comparison, the United States’ trade/GDP in 2005 was 21 percent.
inability to grow rapidly despite today’s favorable international environment of high commodity prices; and Russia’s corruption and vulnerability to the “natural resource curse” of ample public funds even sans good government for its citizens and firms.
These are neither the same strengths nor extremely similar development challenges across the group of four countries. Examined from the perspective of either domestic politics or economic structure, it would seem more sensible to group Brazil with Argentina, Mexico, Chile, Colombia, or Venezuela; India with Pakistan and Bangladesh; and so forth. The notion of the BRICs countries as a set thus appears forced. However, an alternative and equally valid way to approach the question might be to ask whether the BRICs countries form a set because they have a similar type of influence in, or equivalent implications for, the international political or economic system. Do they alter the conditions of international interactions for other players—whether states, firms, or international organizations—in parallel ways? It is in this latter sense that the set of the “BRICs economies” or “BRICs countries” may have merit as an analytical category. The remainder of the paper explores the concept with the aid of three alternative frameworks for conceptualizing the workings of the global economy: economic liberalism, realism, and liberal institutionalism.5
I. Economic Liberalism and the BRICs
Capitalist investment firms writing research reports and newsletters for clients generally operate within an economic liberal’s view of the international political economy. The mental model of economic liberalism assumes that the international economy operates roughly as modeled by neoclassical economics. World markets are mostly globalized, decentralized, and competitive; capitalist firms are the key actors; and governments are important only insofar as they provide good or bad economic institutions, which can help or hinder the firms that invest and produce within their borders. Firms decide whether to participate in the global economy based on their expectations of profit. State boundaries are significant principally because states possess unlike endowments of human, physical, and financial capital, as well as natural resources. National governments also provide national frameworks for economic governance, some of which are more friendly to the private sector than others. However, within the economically liberal worldview, governments cannot materially affect the competitive position of home country firms, for example, by enacting economically nationalist regulations such as tariffs, subsidies, or intentionally undervalued exchange rates.
The BRICs category is significant within the economic liberal’s framing if these four countries offer unique or exceptional opportunities for foreign investors. This might be the case were they all exceptionally high growth economies, and many have assumed
5 For a fuller analysis of the ways in which these three framings yield alternative yet convincing visions of the international political economy see Leslie Elliott Armijo and John Echeverri-Gent, “The Politics of Global Markets: Mental Models of Trade and Finance in an Unequal World,” Chapter in Report of the APSA Task Force on Inequality and Difference in the Developing World, Washington, D.C.: American Political Science Association, September. Available at: http://www.apsanet.org/section_557.cfm.
that this is what the BRICs category implies.6 Instead their 2000-2006 growth rates vary widely, from Brazil’s modest 3.1 percent, below the world growth rate of 3.3 percent, to the 6.7 percent logged by both India and Russia, to China’s astonishing 9.4 percent. In any case, high national growth rates do not necessarily result in high returns to private investors. William J. Berstein observes that, “[J]ust as growth stocks have lower returns than value stocks, so do growth nations have lower returns than value nations—and they similarly get overbought … Between January 1988 and April 2006, the returns for emerging-markets equity and the S&P 500 were 18.78% and 12.07%, respectively. However, … the lion’s share of the emerging-markets return was earned before 1994, when there was little international interest in them. Begin the analysis on January 1994 and numbers change to 7.76% for emerging markets and 10.72% for the S&P 500.”7
Bernstein attributes disappointing returns in emerging markets to problems with corporate governance, such as unwarranted share dilution.
The Goldman Sachs team called the four prospective “engines of growth,” suggesting that there were excellent investment opportunities within the four economies, perhaps because of their large domestic markets, expected to grow rapidly as the growth of the middle class created new consumers, and thus rapid demand growth, for example, in automobiles, electricity, and local capital markets.8 Risks to investors also should be lower in larger as contrasted to smaller emerging market economies because, other dimensions being equal, larger economies will be less trade dependent and globally integrated than smaller economies, and thus less exposed to exogenous economic shocks. However as noted above both China and Russia are heavily trade dependent. The four also are seen as future competitors of the US and other advanced industrial countries. Subhash C. Jain writes, “After the collapse of the Soviet Union, the US became the lone superpower of the world. But it may not be able to hold this dominant position for long. ..US companies must train their current and future managers to compete with firms in the BRICs.”9 In the end, the core argument in the business and financial literature about why the BRICs countries are significant or important rests on the relative economic size of the four countries, both at present and in the near future, and the implicit (and possibly dubious) assumption that large size implies economic dynamism. The central organizing principle for the BRICs category is not growth rates, nor opportunities for investor profits, but rather sheer economic size. In a recent edited volume on the BRICs, the only one of the nineteen papers, almost all written by business school faculty, that explicitly makes the case for why we should investigate these countries as a set is the original paper by the two Goldman Sachs economists, which has been included in the volume.10
6 For example, “High-growth economies make a siren call to multinationals,” Financial Times, February 8, 2006, p. 10 of London edition.7 William J. Bernstein, “Thick as a BRIC,” Efficient Frontier Online Journal, August, 2006. At www.efficientfrontier.com8 Jim O’Neill, Sandra Lawson, and Roopa Purushothaman, “The BRICs and Global Markets: Crude, Cars and Capital,” CEO Confidential, October 2004.9 Subhash C. Jain, ed., Emerging Economies and the Transformation of International Business, Cheltenham, UK: Edward Elgar, 2006, p. xv.10 Jain, Op. Cit.
This leads to two observations. The first is that the growth predictions are plausible if not assured. As shown in Table 1, China has grown very rapidly since 1980, while the other three BRICs have steadily if incrementally increased their share of the global economy, such that the four together represent about 12 percent of world output. In fact, if we use the purchasing power parity (PPP) measure of gross domestic product (GDP), arguably more appropriate for comparisons of advanced industrial with developing economies, then China’s economy already is three-quarters the size of that of the US, and the world’s four largest economies are the US, China, India, and Japan. Moreover, Brazil and Russia already are similarly-sized economies to Germany, Britain, France, and Italy. Table 2 projects future growth. According to the Wilson and Purushothaman model, the BRICs countries could account for a share of world production equivalent to that of the six industrialized democracies (referred to as the Group of Six or G6) by 2040.11 Their predictions of future growth are reasonable though unverifiable. Interestingly, they anticipate steady, cumulative growth in Brazil and India of just under 4 and 6 percent respectively through mid-century, but steadily declining rates of expansion in China and Russia, falling to about 3 percent in the former and 2 percent in the latter by 2050.12 They do not explicitly consider the possible political consequences in China or Russia were growth to slow dramatically.
Table 1. Economic Power Today(percent of world production)
GDP at Market Exchange GDP in PPP 1980 1990 2000 2006 1980 1990 2000 2006
US 25.2 26.4 30.7 27.4 21.3 21.3 21.5 19.8Japan 9.6 13.8 14.6 9.0 8.1 8.7 7.2 6.2
Germany 8.3 7.8 6.0 6.0 6.0 5.2 4.7 3.9Britain 4.9 4.5 4.5 4.9 4.0 3.7 3.5 3.2France 6.3 5.9 4.2 4.6 4.2 4.0 3.5 4.1Italy 4.2 5.2 3.5 3.8 4.1 3.8 3.3 2.7G6 58.5 63.5 63.5 55.7 47.4 46.6 43.7 38.8
China 1.7 1.6 3.8 5.5 3.1 5.6 11.0 15.0India 1.7 1.5 1.5 1.9 3.3 4.3 5.3 6.4Brazil 2.4 2.6 2.2 2.6 3.4 2.9 2.7 2.6Russia .. 2.4 0.8 2.0 .. 4.6 2.3 2.6BRICs .. 7.8 8.1 11.7 .. 17.3 21.3 26.5
Calculated from World Bank, World Development Indicators (WDI), accessed online September 2007.
11 Adding Canada to include the full membership of the Group of Seven (G7) delays the BRICs countries’ catch up date only by a few years. The Goldman Sachs’ team of Wilson and Purushothaman may have thought 2040 a more memorable date or six an easier number to work with.12 Wilson and Purshothaman 2003, p. 21.
Table 2. Projected Economic Power(percent of combined production of US, Japan, Germany, Britain, France, and Italy, plus the four BRICs)
1990 2006 2020 2030 2040 2050G6 89 83 72 61 50 40
BRICs 11 17 28 39 50 60
Years 1990 and 2006 calculated from WDI, GDP at market rate. Years 2020 to 2050 from estimates of Wilson and Purushothaman 2003, p. 4.
A second observation is that the large or small size of an economy is not really a core concept within neoclassical economics. That is, the economic liberal’s framing on the essential nature of the international economy provides no compelling reason for concluding that any economic advantages possibly inherent in larger size ought to trump those of a faster growth rate or good property rights protection or other economic or financial ratios of interest to private investors. It is not clear within this framing why a rational investor might prefer slower-growing Brazil to faster-growing Korea or Malaysia. And yet the BRICs concept has proven to have legs—it has been repeated often and enthusiastically, both within the investor community and in international policy circles.13 Perhaps the concept’s intuitive appeal cannot be encompassed or understood within the mental model of decentralized global free markets. We may need to look elsewhere to understand why it has resonated so widely.
II. Political “Realism” and the BRICs
The problem may lie in the economic liberal’s mental model, which offers few insights into the role of the relative size of a country. As noted, there are some reasons to believe that the latter proposition might sometimes be true, as with the expected advantages from having a good-sized domestic market. But sheer economic size is far from the only determinant of profitability, and thus “the BRICs economies” is an odd and illogical set. Size also might be important when we consider firms in a market, because of concerns over oligopoly or oligopsony. But this is not normally how we think about countries, with the partial exception of natural resource producers. So what is behind the intuitive appeal of the BRICs category? Perhaps the answer is that even economic liberals recognize that cross-border trade and investment transactions occur within an international political economy.
13 For an example of each, see Grant Thornton International, “Emerging Markets: Brazil, Russia, India, and China,” International Business Report 2007, No. 1; GTZ and German Council for Sustainable Development, “BRICS + G: Sustainability and Growth: A Conference Report,” 2005, available at: www.bricsg.net. The United Nations University’s World Institute for Development Economics Research (WIDER), also recently has funded a large research initiative on the set of countries it optimistically designates “Engines of Growth for the 21st Century” and calls the “CIBS group”: China, India, Brazil, and South Africa.
From the perspective of those who would describe themselves as realist analysts of international relations, the relative size of economies is of fundamental importance, because economic size is an essential clue to the relative capabilities—in other words, the “power”--of countries. Can we make sense of the BRICs concept through a political realist’s framing? Realists see a world of sovereign states, none of whose governments happily yield to the dominance of the others. The essence of international politics is “anarchy,” meaning the absence of a legitimate, effective central authority whose decisions carry the weight of law and are ultimately backed by force. In other words there is no world government. Even when sovereign states agree upon international laws and rules of civilized conduct among them, the lack of international enforcement machinery implies that each sovereign state must look to its own protection and interests. In such a self-help system mutual distrust, the only rational stance for a responsible national government, sadly but inevitably leads to large defense expenditures, arms races, and the potential for instability and even war, as insecure states may be tempted to attack preemptively.14
We have now moved our reference framework dramatically. The economic liberal’s world is one in which transnational investment flows freely across borders. Economic growth requires new technologies and the spread of an open, non-discriminatory, and above all peaceful global political economy. The international relations analog of economic liberalism may be found in the various versions of the “trade brings peace” hypothesis.15 The realist mental model is quite different. Realists understand trade and investment flows as occurring within—and subordinate to—the more significant and enduring structure of interstate relations. It is international peace that permits and enables trade, not the reverse. Moreover, rational and responsible national leaders never lose sight of the fundamentally anarchic nature of the global system. Consequently, where economic liberals stress mutual absolute gains from trade, realists are primed to notice relative gains, in which one party, or one country, benefits more than the other. It is likely that much of the interest generated in the US and Europe by the notion of the BRICs derives from underlying realist fears sparked by the prospect of an ascendant group of mostly non-traditional and non-European major powers. From a realist viewpoint, two questions about the BRICs are paramount. First, are the relative material capabilities of any or all of these four countries significant enough today, or in a plausible near future, to consider them as major powers at the global level? Second, if so, then what might this mean for the interstate system?
We begin with the question of the relative power of the BRICs countries, considered here as independent entities, not as a group. We assume an essentially realist/neorealist world in which the primary players in international affairs are sovereign states. Of course the conceptualization of Russia—a traditional major power in the
14 See Kenneth N. Waltz, Theory of International Politics, New York: McGraw-Hill, 1979; A.F. K. Organski, A.F.K. and Jacek Kugler, The War Ledger. Chicago: University of Chicago Press, 1981; John Mearsheimer, The Tragedy of Great Power Politics. W.W. Norton, 2001.
15 See John R. Oneal, Bruce Russett, and Michael L. Berbaum. 2003. “Causes of Peace: Democracy, Interdependence, and International Organizations,” International Studies Quarterly 47, pp. 371-393. See also this volume’s contribution by Rusko and Sasikumar.
nineteenth century and presumed superpower between 1945 and as recently as 1990—as an emerging power is distinctly odd from a realist perspective. Is Russia a declining major power or a rising BRIC? While this is a legitimate question, we leave it aside here, and treat Russia as a emerging power, assuming the early 1990s as our implicit baseline.
In this section of the paper, I therefore introduce a variety of mostly quantitative evidence in order to evaluate whether any or all of the BRICs are on their way toward becoming major powers. Rather than comparing the six largest members of the Group of Seven industrial countries, as done by the Goldman Sachs economists, I compare the five largest industrial democracies to the four BRICs. As is traditional, I begin with military might. Although there are currently 192 member states in the United Nations, in 2006 the US alone accounted for an astonishing 45.7 percent of world defense spending. Britain, with the next largest share, contributed only 5.1 percent.16 The only other countries that account for 2 percent or more of total world military expenditures are the remaining members of the G5, France, Japan, and Germany, plus three of the four BRIC countries: China, Russia, and India, the latter with 4.3, 3.0, and 2.1 percent, respectively.17 Together the shares of these seven countries total only 26.1 percent of world military expenditure. Militarily, the world is unequivocally unipolar.
Next we turn to the economy. Even analysts explicitly concerned with the security balance pragmatically observe that wealth can be used to purchase or produce weapons. Power transition theorists A.F.K. Organski and Jacek Kugler, for example, have preferred GDP as the single best proxy for national power.18 As discussed above, the four BRICs already figure among the top ten to fifteen economies, depending on the measure employed, and will likely move up this ranking in the coming decades. If economic size is the sine qua non of state power, then the BRICs are a likely set of new major powers by the early mid twenty-first century.
Alternatively, one might construct an index combining several different types of power capabilities. The University of Michigan’s Correlates of War (COW) Project has produced a long time series for their Composite Index of National Capabilities (CINC), whose six components are total population, urban population, iron and steel production, energy consumption, military personnel, and military expenditure. The index takes each country’s share of the world in each of the six categories, then averages them to compute the country’s estimated share of total world material capabilities, as shown in Table 3. The table suggests several trends. First the distribution of national material capabilities relevant to national power has become notably more diffuse and decentralized over the postwar period. While the countries represented in the table accounted for 75 percent of total world capabilities in 1955, their share had fallen to only 56 percent by 2001, more than half of which corresponds to the fall in estimated US capabilities in the first three postwar decades. The dissolution of the Soviet Union also has a dramatic effect, causing that country’s share of global capabilities to fall from 18 to only 10 percent. Nonetheless the US’ supposed “unipolar moment” doesn’t really show up as such: in 1991, the US 16 Economist, “The Hobbled Hegemon,” June 28, 2007, accessed online.17 Brazil, overwhelming dominant in its neighborhood, has no need for a large military. See Sotero and Armijo in this Special Issue.18 Op.Cit., p. 45.
receives a score of 14 percent of total world capabilities, as compared to 11 for China and 10 for Russia. By this index, the BRIC’s total material capabilities were roughly equivalent to those of the G5 as early as 1991. In 2001, the US and China each code as great powers, with all other states far behind.
Table 3. Composite Index of National Capabilities (percent of world total)
1955 1978 1991 2001United States 27 14 14 15Japan 5 5 5 5Britain 5 3 3 2Germany 4 3 3 3France 3 2 2 2G5 42 27 27 27China 9 12 11 13India 5 5 6 7USSR/Russia 18 18 10 6Brazil 1 2 2 3BRICs 33 37 29 29G5 + BRICs 75 64 56 56
Data from Singer, J. David, Stuart Bremer, and John Stuckey. (1972). "Capability Distribution, Uncertainty, and Major Power War, 1820-1965." in Bruce Russett (ed) Peace, War, and Numbers, Beverly Hills: Sage, 19-48. As updated in the National Material Capabilities Dataset, Version 3.02, accessed at www.correlatesofwar.orgon August 2, 2007.
One could object that the COW Index, intentionally created to incorporate data series’ available back to the early nineteenth century, is anachronistic and unrepresentative of important dimensions of national capability at the turn of the twenty-first century. For example, there is no component measuring economic size, and the index includes only indirect measures of industrialization or technological sophistication. Income per capita, also excluded, could be an easy and fairly reliable proxy for technological development. All of the G5 are of course high income, while Brazil and Russia are usually classed as middle income states, and China and India as low income ones. Collecting data on scientific patents applied for, cell phone or internet use per capita, or similar measures would yield results similar to the income per capita ranking. Another arguably significant omission in the relative power index just presented is any mention of natural resource endowments. For example, access to water for both drinking and industrial uses could may prove to be one of the defining issues of the twenty-first century. In this, the G5 possibly excepting Japan, Russia, and Brazil would all seem to be adequately to well endowed, while China and India will confront acute shortages, especially as global warming continues.
Energy capabilities are more difficult to compute, though Table 4 reproduces some relevant indicators. All the G5 are vulnerable, though Britain least so. Although the
US, China, and Russia are all large energy producers, Japan, Germany, and France import more than half their domestic requirements. The US, because it is so energy inefficient, also imports a third of its consumption. It can expect dramatically increased pressure from other countries, including the BRICs, to cut both its consumption and its carbon emissions, both of which are wildly disproportionate to its share of world population.
Table 4. Energy Capabilities and Vulnerabilities
% World Energy
Production
Imports as % Energy Consume
d
Population as % World
Consumption as % World
CO2
Emissions
% World
Emissions/Population
US 15 31 5 24 22 4.4Japan 1 83 2 6 4 2.0
Britain 2 5 1 2 2 2.0German
y1 62 1 4 3 3.0
France 1 51 1 3 1 1.0G5 20 .. 10 39 32 3.2w
China 14 6 21 13 18 0.8India 4 18 17 3 4 0.3
Russia 10 -80 2 10 6 3.0Brazil 2 15 3 2 1 0.3BRICs 30 .. 43 28 29 0.7wG5 +
BRICs50 .. 53 67 61 0.9w
Sources: IEA, Key World Energy Statistics 2006, Paris: International Energy Agency, 2006; and IMF, World Economic Outlook 2006, Washington, DC: International Monetary Fund, April 2006.
The four BRIC countries have extremely varied energy profiles. Although China currently has low energy imports as a share of energy consumption, its government worries greatly about its future energy needs. This imperative drives much of China’s foreign economic policy, as its rulers seeks natural resource leases and long term supply contracts from the Sudan to Venezuela. China’s energy production and use is also profoundly dirty and inefficient; with 13 percent of world consumption, China accounts for 18 percent of emissions. China’s total carbon emissions are only exceeded by those of the US. Among the BRICs, India is the most energy-vulnerable, lacking both large fossil fuel reserves and the comparatively abundant land and water resources that make biofuel production attractive for Brazil. It is also the country among the four with the lowest electricity use given its population size, and thus the greatest pent-up demand. Russia is a very significant energy exporter, accounting for 12 percent of world crude oil production and 22 percent of natural gas production, and exporting energy from all sources equivalent to 80 percent of its home consumption. Russia’s energy challenges have to do
with avoiding the classic institutional problems of natural resource management, ranging from exchange rate overvaluation leading to de-industrialization via a scenario known as the ‘Dutch disease,’ to incentives for corruption and unsustainable economic populism.19
Russia, like the US, consumes five times as much energy as its share of global population would predict. Some portion of Russia’s energy consumption is related to its large-scale production of energy-related exports. But its overall energy profile suggests that engaging Russia in future energy conservation efforts could be problematic. Finally, Brazil is relatively fortunate. Brazil receives an astonishing 83 percent of its energy from hydroelectric power, although it imports both petroleum and natural gas.20 Brazil is also the world’s major producer of both sugar and ethanol, and its comparative efficiency in biofuel production suggest major expansion possibilities for biofuel exports. Biofuels and combustible wastes currently account for about 11 percent of world energy use, as compared to 34 percent for oil, 25 percent coal, and 21 percent natural gas.21 As international publics become more worried about global warming, interest in biofuels should rise, possibly to Brazil’s advantage.22 In general, to the degree that we incorporate an energy vulnerability dimension into a relative power calculation, Russia and Brazil look stronger, and China and India weaker.
Another way to compare the G5 and the BRIC countries is through their international financial power. By several significant measures, the US’ world financial hegemony has diminished in recent decades. We look first at the currency composition of total foreign exchange (FX) holdings. The US dollar no longer dominates central banks’ holdings of official reserves to the extent that it once did. The US dollar, which accounted for almost all FX reserves held by central banks in the early post Second World War period, by 1989 had fallen to only about 55 percent of allocated official reserves. In the 1990s the US dollar share of official FX reserves rose briefly, probably because of a “flight to quality” associated with global financial crises, by 1998 accounting for about 70 percent of the total. But from the turn of the century its structural decline began again. The US dollar share in official FX reserves had fallen to 66 percent by the third quarter of 2005, while euro holdings rose to 24 percent, causing concern in Washington, D.C.23 In addition, central banks today are a great deal more secretive about their foreign exchange holdings: in 1989 only 7 percent of reserves were reported as “unallocated” reserves, while by 2005 over 32 percent were.
19 On the natural resource “curse,” see Xavier Sala-I-Martin and Arvind Subramanian, “Addressing the Natural Resource Curse: An Illustration from Nigeria,” IMF Working Paper 03/139, Washington, DC: The International Monetary Fund.20 World Bank, World Development Indicators Online, consulted September, 2007. Available at www.worldbank.org. On Brazil’s energy profile and promise see also Sotero and Armijo in this issue.21 International Energy Agency, Op. Cit., 2006, p. 6.22 Not all biofuels are clean to produce or use, but Brazil’s profile is relatively good on this dimension. See Sotero and Armijo in this Special Issue.23 Barry Eichengreen and Donald J. Matthieson, “The Currency Composition of Foreign Exchange Reserves: Retrospect and Prospect,” IMF Working Paper 00/131, Washington, D.C.: International Monetary Fund, 2000, p. 20; Ewe-Ghee Lim, “The Euro’s Challenge to the Dollar: Different Views from Economists and Evidence from COFER (Composition of Official Foreign Exchange Reserves) and Other Data,” IMF Working Paper 06/153, Washington, D.C.: International Monetary Fund, 2000, p. 17.
A second indicator of global financial power is who has a large hoard of cash and liquid financial assets, useful for protecting one’s home currency and economy against attack, intervening to staunch financial crises abroad--or for threatening disinvestment or lack of access to one’s home financial markets as a quid pro quo in interstate political negotiations. In recent decades, US official holdings of other countries’ currencies—the foreign exchange reserves held by the central bank—have diminished dramatically. At the end of the Second World War the US held by far the largest share of global FX reserves, mainly the British pound and other Western European currencies, plus monetary gold. But there has been an enormous structural shift since about 1980. Today, although the US economy accounts for 28 percent of world production, US government holdings of official FX reserves represent only 1 percent of global reserves, as shown in Table 5. If FX reserves plus monetary gold are calculated instead, the US share rises to 4 percent, still far inferior to that of either China or Japan at 21 and 18 percent, respectively; slightly less than either Taiwan and Korea with 6 and 5 percent each; and close to the shares of Russia, India, Singapore, and Germany, at 4, 3, 3, and 2 percent each.24 This share is hardly enough, one might imagine, to backstop the US’ accustomed role as global financial leader through its dominant positions in world markets, the G7, the International Monetary Fund, the World Bank, and other fora for global financial governance.25
In fact, all of the G5 together hold only 21 percent of global FX reserves, while the BRICs control 35 percent. Stocks of foreign direct investment (FDI), also shown in Table 5, are a third indicator of financial attractiveness (inward) and clout (outward). Though the G5 continue to be the most attractive destinations for FDI, the BRICs’ share has been increasing; China, Russia, and Brazil each have larger stocks of inward FDI than Japan. Outward FDI from multinational firms based in the BRICs economies also has been growing, although the 52 percent of global FDI owned by the five wealthy democracies still dwarfs the 2 percent owned by the four BRICs. However, as FDI stocks cumulate slowly over time they are lagging indicators of power. Annual flows, not shown, reveal faster convergence.
24 World Bank, World Development Indicators, consulted August 2007.25 On the political economy of global financial governance see Leslie Elliott Armijo, “The Terms of the Debate: What’s Democracy Got to Do with It?,” in L.E. Armijo, ed., Debating the Global Financial Architecture, Albany, NY: SUNY Press, 2001.
Table 5. Financial Power, 2005(percent of world)
Foreign ExchangeReserves
Inward FDI, Stock Outward FDI, Stock
United States 1.1 16.0 19.2Japan 17.3 1.0 3.6Britain 0.8 8.0 11.6
Germany 0.8 5.0 9.1France 0.8 5.9 8.0
G5 20.8 35.9 51.5China 23.8 2.0 0.4India 3.4 0.4 0.0
Russia 5.8 1.3 1.1Brazil 1.7 2.0 0.7BRICs 34.7 9.7 2.2
G5 + BRICs 55.5 45.6 53.7
* FDI from UNCTAD, World Investment Report 2006. Figures for 2005.* FX reserves from IMF Statistics Online, “Total Reserves Minus Gold.” Figures for 2006.* Memo: Eurozone FX reserves: 3.9; Developing Asia: 44.6.
Not surprisingly, there is an active debate over whether these structural global financial shifts matter. For example, one reason for the steady shrinking in US foreign exchange holdings is American use of the seiniorage privilege enjoyed by the key currency country. When a country’s home currency is in demand abroad as a store of value and for international transactions purposes, then that country can issue larger amounts than are demanded for domestic use. So long as foreigners are prepared to absorb dollars, the US government can print, and spend, without any automatic restraint. Moreover, given the enormous investment of virtually all foreign central banks, not to mention their private business communities, in dollar-denominated assets, a dramatic dollar devaluation is feared by all sovereign players--though not perhaps by terrorists. Essentially freed from foreign exchange constraints by its control of dollar seiniorage, the US has become a major international debtor country. The US’ enormous trade deficits are matched by equivalently large inflows of foreign capital, as foreign central banks typically invest their dollars in US Treasury securities. Harvard economists Ricardo Hausmann and Federico Sturzenegger assert that US international accounts have been misunderstood and miscalculated and actually reflect great productivity and strength.26
But if the shift in measured holdings of foreign exchange reserves matters, then the new power holders are Japan, developing nations in Asia, and oil exporters. In early August 2007 brief but real global market turmoil followed China’s announcement that it
26 Ricardo Hausmann and Federico Sturzenegger, “Global Imbalances or Bad Accounting? The Missing Dark Matter in the Wealth of Nations,” Unpublished paper, Cambridge, MA: Kennedy School of Government, December 2005.
might begin to invest a small portion of its massive dollar reserves not in US government securities, but rather in higher-yielding though riskier private securities, including corporate equity and bonds.27 Governments in Asia and the Middle East, prominently including China, are estimated to control $2.5 trillion in these new investment vehicles, known as sovereign wealth funds (SWFs).28 Although it was the US Treasury Secretary and other American financial officials that played leading roles in the financial crises of the 1990s, could China and other developing countries, along with Japan, hold a preponderance of the financial cards in years to come? The largest holders of SWFs include one oil-producing advanced industrial country, Norway; three Middle Eastern OPEC members, United Arab Emirates, Saudi Arabia, and Kuwait; and three emerging market economies, Singapore, China, and Russia. Some estimate that sovereign wealth funds could reach $10 trillion in ten years. “At that size, ‘they are the global financial system,’ says former IMF chief economist Kenneth Rogoff.”29
This section thus far has examined the category “the BRICs countries” in the light of a realist framework emphasizing the relative power of individual sovereign states. China looks quite consequential, India and Russia somewhat less so, and Brazil still less so, although the order depends significantly on the specific metric employed. We conclude that it is certain that China is or soon will be a major power, eventually second only to the US, and reasonable to anticipate that the other three also soon could be major powers.30 On several relevant dimensions each of the four soon will outstrip the US’ traditional Western European allies—although this judgment would change dramatically if the Western European countries were to move toward close political union. Though the US remains overwhelmingly first among equals, multipolarity is increasing.
Our second question for this section concerns the likely systemic consequences of rising multipolarity, including a new set of challenger countries, from within a realist understanding. We begin by reminding ourselves of how many realists understand the status quo. Some propose that the break up of the Soviet Union, and Russia’s economic and military weakness, generated unipolarity in the international system. In 1990 Charles Krauthammer wrote, “It has been assumed that the old bipolar world would beget a multipolar world with power dispersed to new centers in Japan, Germany (and/or “Europe”), China, and a diminished Soviet Union/Russia. … The immediate post-Cold War world is not multipolar. It is unipolar. The center of world power is an unchallenged superpower, the United States, attended by its Western allies.”31 A decade later he emphatically reasserted his thesis:
27 Richard McGregor, “China affirms dollar’s global reserve status,” Financial Times, August 13, 2007; see also Jeffrey Garten, “We need rules for sovereign funds,” Financial Times, August 8, 2007.28 Tony Barber and George Parker, “EU demands more transparency over sovereign fund investments,” Financial Times, September 28, 2007. 29 Bob Davis, “How Trade Talks Could Tame Sovereign Wealth Funds,” Wall Street Journal, October 29, 2007, p. A2.30 For a provocative corrective to worries that China is quickly catching up to the US in overall capabilities, see Steve Chan, “Is There a Power Transition Between the US and China? The Different Faces of National Power,” Asian Survey, 45:5, 2005, pp. 687-701.31 Charles Krauthammer, “The Unipolar Moment,” Foreign Affairs: America and the World, 1990/1991.
When I first proposed the unipolar model in 1990, I suggested … that, if America did not wreak its economy, unipolarity could last thirty or forty years. That seemed bold at the time. Today it seems rather modest. The unipolar moment has become the unipolar era. It remains true, however, that its durability will be decided at home. It will depend largely on whether it is welcomed by Americans or seen as a burden to be shed.32
Neoconservative foreign policy analysts including Krauthammer thus announced the US’ ability and duty to lead, which they expected to last decades into the future. The initial years of the twenty-first century have been a period of American self-assertion, as illustrated by the activist foreign policy of President George W. Bush. But if China or others of the BRICs might be catching up, then the realist perspective gives one reasons to be concerned—or relieved—at the imminent demise of America’s unipolar moment. Some realists suggest that a period of particular danger for interstate war occurs when the former hegemon is declining and a new one rising.33 Tellingly, however, many realist analysts worry about the emergence of China—and the reemergence of Russia—as major powers in the current century, but seem unconcerned about Japan, India, and Brazil. Perhaps this is because China and Russia appear to pose a greater military threat, as both are long-declared nuclear states with large standing armies. But there is more to the argument than simply a concern over rising material capabilities among countries that were weak following the Second World War. What many realist scholars actually fear is the rise of a powerful anti-Western and anti-liberal-values coalition, led by China but possibly also including Russia.
What is emerging is a "World Without the West." This world rests on a rapid deepening of interconnectivity within the developing world--in flows of goods, money, people and ideas--that is surprisingly autonomous from Western control, resulting in the development of a new, parallel international system. …The rising powers have begun to articulate an alternative institutional architecture …. [that] proposes to manage international politics through a neo-Westphalian synthesis comprised of hard-shell states…Inviolable sovereignty in the World Without the West rejects key tenets of "modern" liberal internationalism and particularly any notion of global civil society or public opinion justifying political or military intervention in the affairs of the state.34
China and Russia represent a return of economically successful authoritarian capitalist powers, which have been absent since the defeat of Germany and Japan in 1945, but they are much larger than the latter two
32 Charles Krauthammer, “The Unipolar Moment Revisited,” The National Interest, Winter 2002/2003, p. 17. For a counter-argument that nonetheless relies on an essentially realist logic see Layne, Christopher Layne, “The Unipolar Illusion Revisited: The Coming End of the United States’ Unipolar Moment,” International Security, 31:2, Fall 2006, pp. 7-41.33 For example, Ronald L. Tammen, “The Impact of Asia on World Politics: China and India Options for the United States,” International Studies Review, 6, pp. 563-580.34 Nazneen Barma, Ely Ratner, and Steven Weber, “A World Without the West,” The National Interest, 90, July/August 2007.
countries ever were…. As it was during the twentieth century, the US factor remains the greatest guarantee that liberal democracy will not be thrown on the defensive.35
The result of the end of America’s unipolar moment, in other words, may be the opportunity for a China-centered authoritarian yet increasingly capitalist bloc, with Russia left to decide on pure power-balancing criteria whether it wishes to fortify itself vis-à-vis the West (thus looking to the East for alliance partners) or China (thus cautiously turning West).36 But let us return to the mental model of realism. A pure realist framing suggests that rational alliance choices in a non-hierarchical system are made solely on the basis of countries seeking to prevent one unit (country) or alliance system from attaining sufficient capabilities to pose a plausible threat to other units. One may thus wonder why is China perceived by many analysts throughout the advanced industrial democracies as unusually threatening, given that any conceivable military threat from China is at best several decades in the future. What probably has happened is that once again some analysts’ intuitions about what matters in the international system have outrun their conscious mental model, a point to which I return below.
This section began with two queries. We asked whether it was reasonable to imagine that, in purely material capability terms, any or all of Brazil, Russia, India, and China could by the mid-twentieth century be considered “major powers.” A variety of evidence suggests that by this criterion first China, then India and Russia, and then Brazil, all would be indisputable members of the set of top five to seven major powers--at the latest approximately three decades hence.37 We also questioned how and why a shift in the identities of the major powers might matter for the conduct of the global political economy. We identified widespread unease with the relative rise of China, in particular, but then went on to argue that the reasons for analysts’ discomfort with the image of a powerful China seemed to spread beyond the confines of the realist mental model. In other words, the actual concerns appeared to touch on issues of political institutions and values, and the domestic political characteristics of states. Allowing these analytical dimensions moves the debate decisively to the terrain of our third mental model.
III. Liberal Institutionalism and the BRICs
Our final perspective on the concept of “the BRICs” is that of liberal institutionalism, which we here define very broadly to encompass all of the schools and sub-schools of international relations that assert that institutions, and/or ideas and values (whether domestic, transnational, or international), may concretely influence international outcomes.38 The liberal institutionalist mental model begins from a realist, balance of power framing, but then makes crucial additional assumptions disallowed within a strict
35 Azar Gat, “The Return of Authoritarian Great Powers,” Foreign Affairs, July/August 2007.36 The description of China as an emerging “authoritarian capitalist” power is controversial. The Chinese government describes its economic system as “socialist market.” 37 The analysis also assumes that major countries of Western Europe will not decide to push for tighter political union, complementing their current monetary and economic integration, in order to preserve their current level of global influence. On how key non-BRICs countries might react to the rise of the BRICs see the papers by Brawley; Laurence; and Lee, Ma, and Park in this Special Issue.
realist model. For starters, most liberal institutionalists would expand the definition of “power” to allow for “soft” as well as “hard” capabilities in assessing the relative power of states.39 If citizens of other countries wish to attend university in your country, speak your national tongue, watch your movies, emigrate to your country, or identify their political institutions or cultural values as being like yours, then your country has soft power. Hard power capabilities ranging from military might to a large domestic market may enable a country to employ constraints (military threats) or inducements (market access) to gain the cooperation of others. In contrast the use of soft power relies on persuasion and the desire for emulation to inspire cooperation. Soft power inheres in a country’s reputation—for political stability, economic growth, trustworthiness in diplomacy, or public-spiritedness in managing international institutions. Reputation, or world public opinion, is a different kind of relative power indicator, and one that arguably incorporates both hard and soft power components. Germany’s Bertelsmann Foundation recently queried a wide sample of respondents from nine countries on which countries and major international organizations they perceived as world powers, both today and in the near future. Table 6 summarizes their findings. The only two countries that 50 percent or more of respondents expect to be great powers in 2020 are the US and China.
38 We include within a single paradigm theorists sometimes separated into “neoliberals” (in the international relations sense), “institutionalists,” and “constructivists.” See Brawley in this volume.39 See Joseph S. Nye, Soft Power: The Means to Success in World Politics. PublicAffairs Press, 2004.
Table 6. Which Countries or Organizations are/will be World Powers?*(percent of all respondents who select)
Today In 2020United States 81 57
Japan 37 32Britain 33 30
Germany 26 22France 21 20
European Union 32 26China 45 55India 12 16
Russia 27 24Brazil 5 10
South Africa 4 6United Nations 26 23
* Global percentage calculated as unweighted mean of country averages.* Source: “World Powers in the Twenty-First Century: The Results of a Representative Survey in Brazil, China, France, Germany, India, Japan, Russia, the United Kingdom, and the United States,” Berlin, Bertelsmann Foundation, June 2, 2006. http://www.bertelsmann-stiftung.de/bst/en/media/xcms_bst_dms_19189_19190_2.pdf
But the critical differences of the liberal institutionalist mental model as compared to the realist framing go beyond simply allowing soft components of power into our assessment of the relative ranking of states in the global system. First, liberal institutionalists (sometimes called neoliberal institutionalists, or simply institutionalists) typically believe that, in addition to states’ relative capabilities, the incentives and opportunities created by international institutions influence state choices and global outcomes. States are not the only significant actors in international relations. Under certain conditions, international governmental organizations (IGOs)--or even less-formalized but well-accepted global “regimes” of shared expectations about norms, rules, and procedures--may enmesh rationally suspicious sovereign states in mutually beneficial relations of reciprocity and trust.40 Interstate diplomacy poses countless pressing problems of collective action, defined as situations in which one party may make itself vulnerable by acting cooperatively, yet mutual cooperation produces a better outcome for all. Examples range from pollution control to disarmament. Liberal institutionalists posit that both formal IGOs, and less formal global regimes mixing state-to-state diplomacy with transnational private cooperation and monitoring, have measurably and mostly positively altered international relations, particularly in the six decades following the last
40 Keohane, Robert O., Power and Governance in a Partially Globalized World. London: Routledge, 2002; Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy. Princeton: Princeton University Press, 1983; Andreas Hasenclever, Peter Mayer, and Volker Rittberger, Theories of International Regimes. Cambridge: Cambridge University Press, 1997.
major power war, World War Two. For example, regular and mutual arms verification reduces the incentives for arms races, making accidental war less likely. Membership in international economic organizations such as the World Trade Organization facilitates trade, contract enforcement, and economic growth.
Second, many liberal institutionalists would take further theoretical steps and assert that domestic institutions and/or ideas and values also influence state choices and international outcomes.41 For example, democratic peace theory suggests that pairs or dyads of democratic states are better able to surmount the barriers to mutual trust and cooperate voluntarily across borders than are dyads in which at least one state is authoritarian.42 One proposed mechanism by which democratic dyads build relations of mutual trust turns on democratic countries’ relatively transparent and slow-moving domestic policy processes, full of potential veto players, which make sudden policy reversals extremely unlikely. Democratic leaders also are said to be less capable than autocrats of initiating an unprovoked surprise attack on an ally, simply because democratic publics cannot mentally re-categorize an erstwhile friend as a ‘rogue state’ overnight. The costs of breaking international agreements are thus higher for democracies.43 Other analysts emphasize democracy’s allegedly “dovish” value of settling disputes peacefully, and related humanitarian and universalistic norms.44
According to this “constructivist” variant of liberal institutionalism, the values held by citizens and their leaders can alter state choices, thus helping to create or maintain enduring and consequential international institutions that structure the incentives to and preferences of future state leaders and democratic publics. The institutionalist mental model thus asks not only what material capabilities the BRICs possess, but also what they and their leaders want. A liberal institutionalist asks whether a possible new G7—perhaps the US, Japan, the four BRICs, and the European Union as a collective voice--in the mid twenty-first century would be likely to alter the character of international institutions and global cooperation. This framing reveals that there are two distinct subsets of BRICs: the mostly authoritarian emerging powers, China and Russia, and the securely if sometimes chaotically democratic ones, India and Brazil.
China and Russia
We noted above the fears of many ostensibly realist analysts over the possible rise of an anti-liberal values coalition. Within a strict structural realist framing where only the interstate balance of power matters, this fear is illogical.45 But once we admit that domestic institutions and goals might shape international alliance preferences we are in
41 Moravcsik, Andrew, 1997. "Taking Preferences Seriously: A Liberal Theory of International Politics," International Organization, 51:4, Autumn; Audie Jeanne Klotz. Norms in International Relations: The Struggle Against Apartheid. Ithaca, NY: Cornell University Press, 1999.42 Michael E. Brown, Sean M. Lynn-Jones, and Steven E. Miller, eds. Debating the Democratic Peace. Cambridge, MA: The MIT Press, 1996 [2001].43 Brett Ashley Leeds, “Domestic Political Institutions, Credible Commitments, and International Cooperation,” American Journal of Political Science, 43:4, October, 1999, pp. 979-1002.44 Zeev Maoz and Bruce Russett. 1993. “Normative and Structural Causes of Democratic Peace, 1946-1986,” American Political Science Review, 87:3, September, pp. 624-638.45 See Waltz, Op. Cit.
the institutionalist/cognitivist/neoliberal domain. We shall assume that both China and Russia are accurately described today as authoritarian states. Will such states, once they become major powers, be likely to respect and expand the existing, and mostly liberal, network of global governance institutions?
There are two possibilities. Authoritarian leaders might be expected to value interstate cooperation on practical matters involving non-zero-sum threats to collective economic and physical security: disease prevention, protection of international shipping from piracy, and perhaps control of clandestine human, drugs, and weapons trafficking. But they are unlikely to favor international promotion of democratic values and processes: human rights, labor rights, and a free press and electronic media. The tenor of authoritarian countries’ participation in international regimes governing such subjects as trade, finance, climate change, and arms control should fall somewhere in between the extremes of willing cooperation and covert obstructionism, with Chinese and Russian leaders probably supportive of the goals of global economic governance, but much less willing than democracies to open their domestic institutions to supranational inspection or oversight, and very suspicious that they will be asked to sacrifice disproportionately.46
Meanwhile, Western analysts probably have underestimated the soft power of China and Russia, each of which have long and heroic imperial histories.47 Both China and Russia have been active in constructing IGOs that they dominate.48 As authoritarian major powers arise, the wealthy democracies also may participate less in international regimes, judging that their counterparts in Beijing and Moscow, as compared to those in London or Paris, are less constrained by domestic veto players and mass public opinion from acting capriciously, and therefore cannot fully be trusted. In sum, the inclusion of authoritarian countries as major powers may not necessarily signal an overt retreat from intergovernmental cooperation, but it is also unlikely to inspire its rapid expansion.
The other possibility, which many liberal institutionalists believe likely, is that participation in global governance will promote liberalizing domestic change within authoritarian polities. This is the political convergence thesis.49 As citizens become wealthier and better educated, they also will expect more choices and more freedoms; political democracy will become more attractive. Both case study and econometric investigations demonstrate a high correlation between high levels of income per capita and stable democratic politics, although the precise causal link remains contested.50 By a similar logic, constructive engagement of today’s democratic major powers with rising
46 For example, a recent attempt at US-Chinese bilateral cooperation over manned space satellites ended abruptly when the US representative was denied access to Chinese human spaceflight training facilities. Guy Gugliotta, “New Challengers Emerge, Threatening to Take the Lead,” New York Times, September 25, 2007.47 On the attractiveness of China in Africa today see Liang in this issue.48 See Hancock and Liang in this Special Issue.49 On the attractiveness, or even inevitability, of liberal democracy and market capitalism see Frances Fukuyama, The End of History and the Last Man, Free Press, 1992; Michael Mandelbaum, The Ideas that Conquered the World: Peace, Democracy, and Free Markets in the Twenty-First Century. New York: Council on Foreign Relations, 2002. Fukuyama, however, has recently argued that heedless international behavior by a hegemonic liberal democracy may undermine the attractiveness of its domestic political and economic systems. See his America at the Crossroads: Democracy, Power, and the Neoconservative Legacy, New Haven, CT: Yale University Press, 2007.
authoritarian states should promote political convergence on liberal democracy. In 1997 the Group of Seven (G7), sometimes referred to as the rich countries’ club, took the unprecedented step of expanding its membership to include Russia, arguing that it was a “major power” with a right to be included. Those who pushed for inclusion of Russia hoped to support and strengthen liberal, pro-Western political forces within the country. Whether G8 membership has successfully compensated Russia for the West’s provocative decision to expand NATO eastwards remains an open question.
More recently the hopes of liberal institutionalists have centered on China. Hempson-Jones argues that China’s participation in IGOs has softened its practice, if not yet its official rhetoric, and that the former is a more important clue to its future behavior.51 China has gradually reduced its resistance to UN Peacekeeping missions. In August 2007 China backed down from its steadfast opposition in the UN Security Council to a peacekeeping mission for Darfur, the site of massacres acknowledged by most observers to be genocide tacitly endorsed by Khartoum. This occurred despite Beijing’s close ties with the Sudanese government and significant natural resource investments there. China, though not a formal member of the Association of South East Asian Countries (ASEAN), is a large presence in its discussions and a participant in several parallel processes involving its East Asian neighbors. According to some analysts, China has learned from discussions with its sovereign partners, occasionally modifying its policy positions. Since 2003 China has found common ground with other developing countries through its recent, though modest, participation in the G20 group formed to lobby the advanced industrial countries to liberalize agricultural trade. Li argues that returned foreign students have brought foreign liberal values home.52 Yet it would be foolish to conclude that mere willingness to participate in numerous international agreements means that an autocratic state will allow itself to be constrained in its behavior by those agreements. China’s neighbors, prominently including India, struggle to assess the credibility of China as an economic and political partner.53
India and Brazil
A liberal institutionalist also would ask what India and Brazil might want from global governance. Democratic peace theory predicts greater mutual trust between state dyads in which both countries are democracies. India and Brazil should be skilled at peaceful interstate cooperation for the same reasons that the US, France, or Japan are. The commitments of politicians are relatively credible, since abrupt shifts in policy will be difficult to explain to voters. Moreover, both India and Brazil have demonstrated considerable soft power, or attractive and persuasive international capabilities. For
50 See Dietrich Rueschemeyer, Evelyne Huber Stephens, and John D. Stephens, Capitalist Development and Democracy. Chicago: University of Chicago Press, 1993, especially Chapters 1 & 2; Adam Przeworski, Michael Alvarez, José Cheibub, and Fernando Limongi. 2000. Democracy and Development, Cambridge: Cambridge University Press.51 Hempson-Jones, Justin S., “The Evolution of China’s Engagement with International Governmental Organizations: Toward a Liberal Foreign Policy?,” Asian Survey, 45:5, 2005, pp. 702-721. See also Liang in this volume.52 He Li, “Returned Students and Political Change in China,” Asian Perspective, 30:2, 2006, pp. 5-29.53 See Rusko and Sasikumar in this volume.
example, India was a leader in both the Non-Aligned Movement of the 1950s through 1970s and the New International Economic Order of the 1970s and early 1980s, each of which might have found greater long-run success had more of their members been democracies like India. More recently, Brazil and Argentina have improved their relations dramatically since both have democratized. If some democracies who are major powers (the European members of today’s G7) are substituted for by other newly-powerful democracies (such as India and Brazil), then we may expect global governance institutions, overarching liberal values, and processes to remain much the same.
Nonetheless, some of the content of global governance initiatives could shift in response to weightier participation from developing country democracies. Like France or Britain, India and Brazil should value human rights, labor rights, and a free press. But leaders of India and Brazil may view global redistribution more favorably than leaders of the wealthy democracies. For example, climate change is an issue on which both Brazil and India have implemented domestic reforms and could be global leaders, but the substance of their leadership could make today’s G7 uncomfortable. Both democratic BRICs will side with other developing countries in demanding much greater conservation efforts from the US, Japan, and the EU, rather than from countries whose peak industrial pushes remain ahead of them. Indian and Brazilian politicians and non-governmental organization (NGO) activists also have been active in South-South diplomacy. Both countries have played host to the World Social Forum (WSF), the anti-Davos meeting, the original idea for which came from a Brazilian businessman and social activist, Oded Grajew.54 Anti-AIDs activists in the two countries have begun transnational collaboration, sharing ideas and pressuring their governments to insist on their rights to manufacture generic versions of expensive pharmaceuticals developed in the wealthy democracies. In 2003 Brazil joined India and South Africa in issuing the Brasília Declaration, which announced the three democracies’ intent of negotiating jointly within the WTO. This core became the Group of 20 (G20, also known as the G22) developing countries, which came to world attention during Cancún Ministerial meeting of the WTO by its refusal to negotiate over liberalizing the regulation of inward foreign direct investment) until the advanced industrial countries committed to substantial agricultural trade liberalization.55 What is particularly interesting in the Brazil-India-South Africa cooperation is that the three have been able to cooperate despite their lack of closely parallel interests in agricultural and other commodity trade. Contrast this with the utter inability of developing country debtor countries in Latin America and elsewhere to form a united front vis-à-vis creditor country banks and governments in the 1980s, a period when many were either autocracies or very new and fragile democracies.
This section thus has argued that a liberal institutionalist framing leads us to ask the most interesting questions about how and why a substitution of countries within the set of major powers might alter global politics. However and at the same time, the concept of “the BRICs” as a single useful analytical set shatters. Instead what appears to be most significant is whether the large emerging powers, whoever they may be, can be 54 See Gilberto Nascimento’s interview with Grajew in Isto E, December 12, 2000.55 Marcio Botelho, “The G-20: Aims and Perspectives of a New Trade Alliance,” M.A. Thesis (Berlin: University of Applied Sciences, 2005); Andrew Hurrell and Amrita Narlikar, “A New Politics of Confrontation? Brazil and India in Multilateral Trade Negotiations,” Global Society 20:4, 2006.
socialized into the hitherto cozy club of large industrial democracies, dominated by the US, that have more or less cooperatively managed the interlocking global governance regimes since the last hot conflict among major power combatants, the Second World War.56 If the large emerging powers become both status quo powers, interested in preserving existing global governance institutions, and more or less open, liberal societies, then the world may not miss US hegemony—much. If not, then the maintenance of mutually beneficial, yet purely voluntary, interstate cooperation founded on reciprocal trust becomes significantly more problematic.
IV. Conclusions
This paper has asked whether the ”BRICs countries” is a viable analytical category. The four do not share domestic political institutions, international goals, or economic structures and challenges. If the category nonetheless provides insight, it must be because this set of countries holds similar implications for the larger system—the international political economy—within which it is embedded.
The remainder of the essay considered the concept from three alternative systemic perspectives. I began with an economic liberal’s framing, a mental model that assumes the international economy is neither oligopolized nor highly politicized, but rather functions as a decentralized free market most of the time. From this perspective, the BRICs economies would be a analytically viable set if they offered usual opportunities for foreign portfolio and direct investors, or if their multinational firms could be expected to be ferocious competitors in the future, or if some other economic characteristic plausibly distinguished the four from the larger set of developing and post-communist countries known as emerging market economies. I found this claim unconvincing. In fact, a look at the business literature suggests that the core proposition even among scholars is simply that the BRICs economies will be large and therefore must be important—as markets, investment destinations, and competitors. While logically consistent economic liberals should care about factors such as the quality of national economic governance within emerging market economies, a concern with relative size—and thus relative power—implicitly transports us to the cognitive territory of political and economic realism.
A realist approach suggests that advanced industrial countries whose relative international position may be slipping are justified in fearing the rise of the BRICs countries. Moreover, within a pure balance of power mental model for interpreting trends in the international political economy, the structure of relative material capabilities among units or countries shapes systemic outcomes: the end of American hegemony may undermine global stability. Yet there is more to be said. In particular, the realist model is unclear about why Japan or Germany, enemies of the US (and the liberal democratic “West”) within living memory, today are universally perceived as reliable Western allies,
56 On the ways in which liberal global governance regimes have also served the parochial interests of the major powers, see especially Lloyd Gruber, Ruling the Waves: Power Politics and the Rise of Supranational Institutions, Princeton, NJ: Princeton University Press, 2000; and William K. Tabb, Economic Governance in an Age of Globalization. New York: Columbia University Press, 2004.
while China and Russia arouse enormous suspicion. To understand, we need a liberal institutionalist’s perspective, plus the additional proposition that democratic states may be more supportive of existing institutions of global economic governance, and of evolving political cooperation around liberal values, than autocracies. Ultimately it is uncertainties about the likely future balance between democratic and authoritarian major powers that should make a focus on the relative rise of the BRICs countries compelling for analysts of both international business and world politics.
If China and Russia become major powers that are authoritarian, albeit marketized, then the net tenor of global governance will revert to being more Westphalian, as sovereign states increasingly shy away from even mild criticism of one another and abjure ‘interference’ within one another’s borders. In contrast, the relative rise of liberal democratic states such as India and Brazil portends that ideals of secular universalism, religious and ethnic tolerance, and universal human rights will continue to spread, however gradually and imperfectly. We also should expect Indian or Brazilian integration into the club of the powerful to push global negotiations in areas such as climate change, or the international trade and investment regimes, toward somewhat more globally redistributive bargains. This does not of course mean that either India or Brazil will put the interests of the poorest countries, many of which are in sub-Saharan Africa, above those of their own citizens, any more than today’s wealthy democracies have been willing to sacrifice their comforts or agricultural subsidies for the sake of Indians, Chinese, or Brazilians. Ultimately, our expectations of how these four new players might behave suggest two distinct subsets, one authoritarian and the other democratic. The category of “the BRICs” is thus, strictu sensu, a mirage—but one that nonetheless has provided considerable insight. For the present, perhaps we should keep it.
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India and China: Governance Issues andDevelopment
PRANAB BARDHAN
The world’s two most populous countries each made international headlines in2008, thanks to the Sichuan earthquake and Beijing Olympics, the Mumbaiterror attacks, and reports of how the global financial crisis affected the Chineseand Indian economies. However, China and India were also seen in 2008 asmaking up, together, one of the ongoing development stories of the twenty-firstcentury—and there are good reasons to think this trend will continue throughout2009. Thanks to years of strikingly high growth rates for India and even higherones for China, comparisons of the two countries have proliferated. This hasresulted in a slew of books and articles, often aimed at investors, that worryover or enthuse about the way the “dragon” and the “elephant” have been upend-ing or bringing new energy into the global economic order. Scholars immersed inthe study of Asia often find these publications lacking in depth, but there is noquestion that economic shifts in the two countries and surging interest in theircurrent trajectories are important. With this in mind, we decided this would bea useful time to revisit a familiar governance issue that has long been associatedwith joint discussions of China and India: the relationship between democracyand development. We invited economist Pranab Bardhan, author of a forthcomingbook on the political economy of India and China titledAwakening Giants, Feet ofClay, to reflect on the subject, concentrating in particular on issues of governance—a topic he has explored in plenary and keynote addresses given everywhere fromMontreal to Manchester, Beijing to Bogota, Canberra to Calcutta.
ANY COMPARATIVE STUDY OF contemporary China and India inevitably involvesdiscussion of democracy and development, but most of the standard treat-
ments stay at the level of simplistic clichés and high-minded platitudes. Mygoal here is to go beyond this, highlighting some of the complexities in the func-tioning of democracy in India and authoritarianism in China, and asking what thiscontrast tells us about governance and economic management in the context ofdevelopment in these two large and still—despite record growth years—poorcountries.
One reason such a consideration matters is that the dramatic economicsuccess story of China in the last quarter century has revived a hoary myth: thatauthoritarianism delivers much more than democracy, particularly early on.
Pranab Bardhan (bardhan@econ.berkeley.edu) is Professor of Economics at the University of California,Berkeley.
The Journal of Asian Studies Vol. 68, No. 2 (May) 2009: 347–357.© 2009 The Association for Asian Studies, Inc. doi:10.1017/S002191180900062X
This myth is reinforced by the memory of the impressive economicperformances of other East Asian authoritarian regimes, such as South Koreaand Taiwan prior to their democratic turns. The lingering hope of democratshas been that as the Chinese middle class prospers, its members will demandwhat their counterparts in South Korea and Taiwan got: movement toward pol-itical democracy.
The relationship between authoritarianism, democracy, and development,however, is not so simple. Authoritarianism is neither necessary nor sufficientfor development. That it is not necessary is illustrated by today’s industrialdemocracies and by scattered cases of development success: Costa Rica, Bots-wana, and now India. That it is not sufficient is evident from disastrous authori-tarian regimes in Africa and elsewhere.
Even if we did not value democracy for its own sake, and looked at it in apurely instrumental way, it is worth reiterating some basic development-relatedadvantages of democracy. First of all, democracies are better able to avoid cata-strophic mistakes, such as China’s Great Leap Forward (which was accompaniedby a famine that killed nearly 30 million people) and the Cultural Revolution(which was linked to massive mayhem). Democracies also have greater healingpowers after difficult times. In general, democracy provides a better capacityfor managing conflicts, which in the long run enables a more stable politicalenvironment for development.
India’s democratic pluralism has provided the means of containing many(though not all) social conflicts, a capacity that China’s homogenizing, monolithicstate does not yet seem to have acquired. Faced with a public crisis or politicalshock, the Chinese leadership, which is otherwise so pragmatic, tends to over-react, suppress information, and act heavy-handedly. (One example of this heavy-handedness is that, according to some accounts by human rights organizations,although both countries have capital punishment, China executes more peoplein one week than India has put to death in the sixty-plus years sinceindependence.)
Some degree of tolerance for diversity and dissent has historically been thesafety valve for India’s extremely heterogeneous society. For many centuries,on the contrary, Chinese authorities have typically given much less scope to plur-alism and diversity; a centralizing, authoritarian Communist Party has carried onthis tradition. Nurtured in this centralizing tradition of control, there is a certainpreoccupation in China (not just in the party) with order and stability and theimportance of avoiding da luan (great turmoil), as well as a quickness to branddissenting movements and local autonomy efforts as seditious. This often leadsto unnecessarily harsh repression.
In recent years, China has diffused and contained many conflicts by localizingthem. More positively, the policy of decentralized development and regionalautonomy has encouraged local initiatives and incentives. But in order to keepthese local initiatives under some moderate bounds and to make them serve
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national goals through tournament-like competition in regional economic per-formance, centralized control has been maintained through the channels of apromotion and reward system that encourages local officials to depend onthose above them in the party bureaucracy. But centralized control is notalways benign, even though the party leadership has in recent years curbedsome of its arbitrary practices and shown some sensitivity to popular grievances.As long as checks and balances on the top leadership are not fully institutiona-lized, the danger of going off the rails in response to unexpected events and exag-geration of dissent always remains.
Democracies in general experience more intense pressure to share thebenefits of development among the people, thus making it more sustainable.They also provide more scope for popular movements against capitalist excessesand environmental degradation. In addition, there are more politicalopportunities to mitigate social inequalities (especially acute in India) that actas barriers to socioeconomic mobility and to the full development of individualpotential.
Finally, democratic societies provide better environments for nurturing thedevelopment of information technologies, a matter of importance in thecurrent knowledge-driven global economy. Intensive cybercensorship in Chinamay seriously limit future innovation. Censorship (and anticipatory self-censorship) inhibits imaginativeness and inventiveness. State control ofinformation also sometimes makes for delay in official recognition, and thushandling, of an incipient crisis. From the SARS outbreak to last year’s taintedmilk scandal, there are many examples of this. Weeks before the latter scandalbroke, journalists were encouraged to suppress bad news because of theOlympics, which was being stage-managed as China’s moment of internationalglory. Journalists who were fully aware of the tainted milk case avoided writingabout this “in order to be harmonious,” as one editor said later (New YorkTimes, September 27, 2008). Meanwhile, hundreds of thousands of childrenfell sick (a few even died), and the reputation of Chinese products was seriouslydamaged.
All that said, India’s experience suggests that democracy can also hinderdevelopment in ways not usually considered by democracy enthusiasts. Competi-tive populism—short-run pandering and handouts to win elections—mayhurt long-run investment, particularly in physical infrastructure, a keydevelopment-related bottleneck in India. Such political arrangements make itdifficult, for example, to charge user fees for roads, electricity, and irrigation, dis-couraging investment in these areas. Conversely, in China, infrastructure compa-nies can charge more commercial rates. Competitive populism also makes itdifficult to carry out policy experimentation of the kind that China’s leadershave excelled in throughout the reform era (“crossing the river, groping for thestones,” as Deng Xiaoping famously put it). It is harder to cut losses andretreat from a failed project in India, which, with its inevitable job losses and
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bailout pressures, has electoral consequences that discourage leaders from policyexperimentation in the first place.
In Indian democracy, the legislative process is often relegated to a secondorder of importance, giving short shrift to the deliberative process of democracythat John Stuart Mill and other classical liberal theorists valued so much. Overall,India’s particular form of democracy relies less on deliberation than on popularmobilization. This means that issues that could be resolved through the delibera-tive give-and-take get trapped in rhetorical intransigence and strident divisive-ness of street theater. Decision deadlocks are frequent, which has immensepolitical and economic costs. This is over and above the general case that democ-racy’s slow decision-making processes can be costly in a world of fast-changingmarkets and technology.
Besides, when democracy relies on popular mobilization in a country wherethe general education level is low, civic associations relatively weak, and publicdebates relatively uninformed, the opposition can get away with being irrespon-sible (e.g., opposing the government for policies they themselves supported whenin power). It also gives political opportunists leeway in segmenting the electoratealong ethnic, regional, or religious lines; fomenting sectarian fear and anxiety isoften a successful political mobilization device.
The hopes of democrats relying on the middle classes in authoritarianregimes have not always borne fruit. Latin American and South Europeanhistory has been replete with episodes of middle classes hailing a supreme cau-dillo. The police state in China shows no signs of loosening its grip, despite thespectacular progress in the opening of the economy. While there has beensome relaxation in controls over individual expression and lifestyle, and moreopen middle-class grumbling over pollution and forcible acquisition of property,the state still never fails to clamp down on political activities that have even aremote chance of challenging the party’s monopoly on power. Many middle-classChinese seem likely to remain complicit in this in the name of preserving socialstability or “harmony,” as long as opportunities for money making and wallowingin nationalist pride keep on thriving. A kind of preening nationalism has replacedsocialism as the social glue in China, with the state leadership occasionally tryingto stoke and then modulate collective passions about what the West or Japan haddone in the past to China in the “century of humiliation” (sometimes fomented byfrenzy on the Internet among the young) and to turn any external criticism into aslur on national self-respect.
The Indian urban middle classes also have a prickly nationalism, but morethan harking back to two centuries of direct colonial subordination, it occasionallyturns instead to majoritarian atavism to serve as a unifier in the context of unma-nageable social and cultural diversity in society and works itself up questioningthe national loyalty of domestic minority groups (in a context where the violentpartition of the country at independence remains a festering wound). Urbanupper and middle classes in many parts of India are impatient about climbing
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the global ranks of big power and often regard as a hindrance and liability thenumerically large poor outside their gated communities, with their all toovisible squalor and messy democratic politics.
* * *
Democracy has brought about a kind of social revolution in India. It hasspread out to the remote reaches of this far-flung country in ever-wideningcircles of political awareness and self-assertion among socially hithertosubordinate groups. These groups have increased faith in the efficacy of the pol-itical system, and they vigorously participate in larger numbers in the electoralprocess.
But the great puzzle of Indian democracy is why the poor, so assertive whenelection time comes, often do not punish politicians who are ineffective at resol-ving the endemic problems of poverty, disease, and illiteracy. It is possible thatendemic poverty is widely regarded among the common people as a complexphenomenon with multiple causes, and they ascribe only limited responsibilityto the government. The measures of government performance are in any caserather noisy, particularly so in a world of illiteracy and low levels of civic organ-ization and formal communication on public issues. A perceived slight in thespeech of a political leader felt by a particular ethnic group will usually causemuch more of an uproar than the same leader’s failure to change policies thathelp keep thousands of children severely malnourished in the same ethnicgroup. The same issue of group dignity comes up in the case of reservation ofpublic-sector jobs for backward groups, which fervently catches their publicimagination, even though objectively the overwhelming majority of the peoplein these groups have no chance of ever landing those jobs, as they and their chil-dren largely drop out of school by the fifth grade. Even when these public jobquotas mainly help the tiny elite in backward groups, as a symbol and a possibleobject of aspiration for their children, they ostensibly serve a valuable function inattempts at group upliftment.
While the electorate does not seem to penalize politicians for their endemicpoverty, they are less forgiving when there is a sharp and concentrated deterio-ration in their economic condition. Amartya Sen has commented on the politicalsensitivity of democracies to the threat of famine, but to me, the more common-place example for this in India is the electorate’s high degree of inflation sensi-tivity. It is a common presumption that an annual inflation rate at thedouble-digit level, if it continues for some time, will be politically intolerable inIndia, and politicians universally support a conservative monetary and sometimeseven fiscal policy to avoid this danger. The poor tend to make the governmentdirectly responsible for inflation and expect it to stop it in its tracks, even atthe expense of cutting budgetary programs for infrastructure that would helpthe poor in the long run.
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The Indian electorate is often regarded as reflexively anti-incumbent, par-ticularly in contrast with the electorate in the United States. This may have some-thing to do with widespread dissatisfaction with the delivery of social services andpublic goods. Because the poor usually get mobilized along caste and ethnic lines,the modalities of such mobilization are often multidimensional, and poverty alle-viation is only one of many issues that get articulated in the public domain. Also,the process of ethnic mobilization is often easily hijacked by the elite of thesegroups, who channel the lion’s share of the benefits toward themselves. Theintended poor beneficiaries are often unorganized and uninformed about theirentitlements, and they also lack the ability to evaluate the quality of the particulareducation or health service provided.
Besides, at any given moment in India, an election somewhere is not far off(national, state, municipal, and village elections are staggered), and, as in electiontimes everywhere, short-term calculations dominate. Populist quick-fix policiesrather than sustainable improvements in structural conditions become theorder of the day, and because it is usually the case in India’s extremely fractioussociety that no disadvantaged group by itself is numerically predominant, the exi-gencies of electoral alliances with other groups (some of them not so disadvan-taged) dilute the need to attend to the poorest. Because the better-off people(including better-off sections of disadvantaged groups) increasingly turn toprivate sources of public services (primary and secondary education, healthcare, irrigation, drinking water, child nutrition), the political support structurefor public access to these services or improvement in their quality is ratherweak or eroded in many parts of the country. There are also differentialdegrees of public vigilance over (or effectiveness of) different types of antipovertyprograms. Political clientelism prevails, under which the delivery of private andshort-run benefits (in the form of temporary employment projects, subsidies,loan waivers, etc.) get priority over public services and long-term investment ininfrastructural facilities (roads, public health and sanitation, watershed develop-ment, etc.).
The problem of poor delivery of social services involves more than just a lackof public vigilance or demand. It is a serious governance problem from the supplyside as well (such as inadequate school buildings or health clinics with appropri-ate facilities and within manageable distance, rampant absenteeism by teachers,doctors, nurses, etc.).
Decentralization of governance in the sense of devolution of power toelected local governments was constitutionally adopted in India in the early1990s. It was supposed to increase the accountability of the service bureaucracyas well as generate resources to address felt needs at the local level. But this par-ticular governance reform remains largely on paper, except in three or four states,and in this sense local democracy is still rather weak in India. In most cases, localgovernment officials are primarily involved in selecting the beneficiaries of pro-grams that are designed and funded from above. A large number of local
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governments simply do not have adequate funds, or the appropriate delegatedfunctions or competent functionaries, to carry out locally initiated autonomousprojects that could make a significant difference in the lives of the poor; thereis considerable misappropriation of funds and delivery of services to nontargetgroups, sometimes giving decentralization a bad name. Yet there have beensome localized success stories.
In China, decentralization has been successful in providing incentives (and dis-cipline) for rural industrialization. But decentralization has increased regionalinequalities. In spite of the fiscal recentralization of the mid-1990s and a greatdeal of central transfers to local areas, there is a widespread rural budget crisis inChina. The system is still sufficiently fiscally decentralized, with large numbers ofunfunded mandates for local governments, that while the better-off regions canafford superior public services, the lagging regions have to live with large cuts incommunity services. These tensions of fiscal federalism are increasing in India,too. The better-performing state governments are now openly protesting large redis-tributive transfers to laggard states ordained by the Finance Commission. In theIndian democratic system, however, some of these laggard populous states (suchas Uttar Pradesh or Bihar) send a very large number of members to Parliament,and the (shaky) coalition governments at the center can ill afford to alienate them.
* * *
There are interesting contrasts in the style and content of governance inChina and India. In China, there is more decisive policy initiative and executionthan in India. This is not all attributable to an authoritarian setup. In general, col-lective action problems in goal formulation and policy enforcement are lesssevere in China than in the conflict-ridden, extremely heterogeneous society ofIndia, where any major controversial decision is preceded by endless discussion,loud agitation, breast-beating street antics, and sometimes even fistfights andproperty damage; ultimately, what gets carried out after considerable delay is amuch fought over, imperfect compromise. But for the same reason, executiveauthority in India, while weak, is more legitimate. The same disorderly processesof fractious pluralistic democracy that make decisiveness on the part of the lea-dership difficult also make executive authority more legitimate in the eyes of thepeople. The Chinese leadership, conversely, has to derive popular legitimacyfrom ensuring rapid economic growth and job expansion (which are understress in the current recession), and also somewhat from advancing toward “har-monious” goals (i.e., environmentally friendly growth with some rudimentarysocial protection and effective political order). Ethnicity-based dignity politics,group upliftment, and other sectarian issues that crowd the political agenda inIndia are less of an encumbrance.
Recently, the Chinese political leadership has been more technocratic andprofessional than that in India, which helps in informed, purposive decision
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making. (Even the party membership composition in China has changed substan-tially lately: In 1978, two-thirds of the members were workers and peasants, butby 2005, their share had fallen to 29 percent, and by then, 23 percent of memberswere professionals, 30 percent college students).
Promotions in the administrative services are more performance based(instead of being seniority based) in China than in India. “Transfers and postings”of officials are major preoccupations of (and sometimes a source of illicit incomefor) Indian politicians, particularly at the state level. Rotation and temporarysojourns of Indian bureaucrats in a given job inhibit on-the-job learning ofincreasingly complex tasks. Regulatory effectiveness in commercial transactionsis also better in China than in India, even though guanxi and corruption continueto contaminate the process. Nepotism in state appointments, however, may havegone further in China than in India: It is reported that many of the senior pos-itions in some of the state-dominated sectors in China are filled by the childrenand other relatives of high-ranking party officials. Some Chinese economists havewarned about the dangers of crony capitalism.
Corruption is pervasive in both countries. But corruption in China is, ingeneral, qualitatively different from that in India in at least three ways: (1) Thelines of authority are more well defined and streamlined, whereas in India,there is multiple veto power of different authorities (part of thechecks-and-balances system) on a given decision—as a result, even after payingbribes, one is never sure whether the job will get done. (2) Because the officialrewards and promotions in China are more directly linked to local economic per-formance, the officials involved do not usually lose sight of the overall perform-ance record, even as they line their own pockets. (3) As elections become moreexpensive, politicians in India have to be on the lookout for collecting seriousmoney to an extent not necessary in China. But at the same time, there aremore institutionalized efforts in India to check the sources of corruption: TheRight to Information Act, for example, which recently came into existence as aresult of an energetic public activist movement in India, is an important stepin that direction.
The social revolution that democracy has brought about has also had someimpact on the nature of governance in India. The diminishing hold of elitecontrol and the welcome expansion of democracy to the lower rungs of thesocial hierarchy have been associated with a loosening of the earlier administra-tive protocols and a steady erosion of the institutional insulation of the decision-making process in public administration and economic management. This hasaffected not just the ability to credibly commit to long-term decisions, but thewhole fabric of governance itself. It is now common practice, for example, fora low-caste chief minister in a state to proceed, immediately upon assumingoffice, to transfer away top civil servants belonging to upper castes and to getpliant bureaucrats from his or her own caste. Some of the new social groupscoming to power are even nonchalant in suggesting that all these years, upper
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classes and castes have looted the state, and now it is their turn. If, in the process,they trample upon some individual rights or some procedural aspects of demo-cratic administration, the institutions that are supposed to kick in to restrainthem are relatively weak. Highly corrupt politicians are regularly reelected bytheir particular ethnic or local constituencies (which they nurse assiduouslyeven while fleecing the rest of the system). Personal extravagance at stateexpense by particular ethnic leaders is often a source of community pride for his-torically disadvantaged groups.
This is part of a fundamental tension between the participatory and pro-cedural aspects of Indian democracy: The unfolding of the logic of populistdemocracy has itself become a threat to democratic governance. The participa-tory aspects of democracy and the all-consuming emphasis on electoral mobiliz-ation, often of whole groups (described by journalists as “vote banks”), have ledthe system to look away from politicians’ and their followers’ rampant proceduralviolations, generating a “culture of impunity” that the Indian political system willhave to grapple with for quite some time to come. Of course, ultimately, thechecks and balances of the ramshackle but still vibrant legal system kick in tocurb undue excesses, in a way that is rather rare in China. The independent judi-ciary, the Election Commission, and a few of the regulatory bodies still functionwith some degree of insulation from political interference and hold up dueprocess against great odds.
This institutional insulation is much weaker in China, and the “culture of impu-nity” among top party officials is more prevalent. But there has been discernibleprogress in the legal system: As disputes become more complex, political interfer-ence, though still substantial, is declining, particularly inmatters of commercial law.There is greater transparency than before in the corporate governance of statecompanies, particularly those listed on overseas stock exchanges. The media andnongovernmental organizations as watchdogs are more active in India. But corpor-ate ownership of media is a problem for independent investigations in bothcountries, just in different ways. There is occasional official clamping down on cor-ruption in China (including even summary execution as punishment), but cynicalpeople often describe this as mostly targeted at political enemies or at best smallfries, exempting the big fish or cronies of the dominant faction leaders.
The party has also tentatively started to introduce some form of intrapartydemocracy at the lower levels, with multiple candidates for positions. It isironic that Indian democracy, which in the beginning decades allowed for agreat deal of intraparty democracy, now has largely deviated from this tradition.In most major national parties, the leaders are often nominated from above.Young and ambitious local politicians, finding their path of upward mobilityblocked within the larger parties, often are inclined to go out and form theirown parties, thereby acquiring leverage in India’s coalition politics. This is onesource of the country’s increasing political fragmentation, which hinders purpo-sive governance.
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I have already discussed the important role that decentralization of powercombined with central control over personnel and promotion plays in Chinesegovernance. In recent years, the central government has recentralized publicfinances (as it was facing fiscal erosion by the mid-1990s) and taken on final auth-ority over the personnel and loan decisions of local banks (to check the mounting“nonperforming loans” that local officials indulged in). But even at the countylevel, local government still has a great deal of power (much more than inIndia) in privatizing state companies, in making regulatory approvals and distri-buting patronage, in appointing local oversight committees against financialand other irregularities, in appointing and fixing the salaries of judges andpublic prosecutors, and so on. It is difficult for the central government tocontrol local officials and to wean them away from the cozy rental havens theyhave built in collusion with local business and commercial interests. In itspursuit of the goals of reducing inequality, stopping land seizures, containingenvironmental damages, and preventing the frequent regulatory scandals (relat-ing to food and other consumer product safety), the central government faces atleast the covert opposition of local officials. Even when the local official is notvenal, in an atmosphere of information control, his usual inclination is to suppressbad news, as it may adversely affect his chances of promotion or his reputation.
Yet over more than a quarter century now, the Chinese central leadership hasshown a remarkable adaptability to changing circumstances and a capacity tomobilize new support coalitions to protect its political power. Keeping themain focus on economic growth and national glory as the source of its politicallegitimacy, it has moved away from its earlier constituent groups among peasantsand workers, allowing urban–rural disparity to grow and presiding over massivelayoffs of workers; it has accommodated the erstwhile “red-hat capitalists” in sym-biotic relation with state officials, and gradually co-opted the new private entre-preneurs and professionals (including much of the intelligentsia); through itscontrol of bank lending and regulatory approval of investment, it has skillfullybalanced regional and factional interests. It is now trying to move some stateresources away from the government-business groups of coastal China (e.g.,those connected with what used to be called the “Shanghai coalition”), and haspublicly shown a great deal of empathy for hitherto excluded groups in remoterural areas and urban migrants, while still being supportive of markets andgeneral noninterference with thriving private enterprises. By streamlining therules of succession and establishing clear procedures for term and age limitsfor leaders, it has restructured the rules of authoritarian hierarchy to increasecareer predictability and general elite support.
But China is still far from establishing a comprehensive rule-based systemand institutionalizing a credible set of checks and balances. It has installed afar more decisive and purposive governance structure than India, but itsweaker institutional checks (such as the lack of independent judiciary or otherregulatory authority) and low capacity for conflict management make it more
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brittle in the face of a crisis than the messy-looking system in India, for all itsflaws. As the economy becomes more complex and social relations becomemore convoluted and intense, the absence of transparent and accountable pro-cesses and the attempts by a “control-freak” leadership to force conformity andlockstep discipline will generate acute tension and informational inefficiency.Several alternative political scenarios for the future in China have been depictedby political speculators, none more plausible than the others; some (wistfully)predict the eventual outbreak of Taiwan- or Korea-style democracy, but onlyon a large scale, starting with the big cities; others predict that even if Chinamanages a soft landing into some form of quasi-democracy, it will be of thecorrupt oligarchic kind under a predominant party like the one that prevailedin Mexico under the Institutional Revolutionary Party for many decades.
While the Indian system has more institutionalized outlets for letting offsteam, it also has more ethnic and religious tensions and centrifugal forces tograpple with. Its appalling governance structure for the delivery of social services,its anomic inability to carry out collective action or to overcome populist hin-drances to long-term investment in order to address the infrastructural deficitthat is reaching crisis proportions, its overpoliticized administration and decision-making processes, and its clogged courts and corrupt police and patronage poli-tics that make a mockery of the rule of law for the common people—all will con-tinue to hobble the process of economic growth and alleviation of its still massivepoverty. Yet the differential state capacity and governance performance amongdifferent states (better in some South or West Indian states) may generateover time a bit of healthy competition in investment climate and poverty allevia-tion performance to set examples for the democratic participants in all states todemand, overshadowing the salience of ethnicity or religion in politics.
Both China and India have done much better in the last quarter century thaneither did in the last 200 years in terms of economic growth. And each country’spolity has shown remarkable resilience in its own way. Still, we should not under-estimate the structural weaknesses in their governance mechanisms and the enor-mousness of the social and political uncertainties that cloud the horizons for thesetwo countries.
Asia Beyond the Headlines 357
Putin’s Legacy and Russia’s Identity
ALFRED B. EVANS, JR
AS A NUMBER OF SCHOLARS HAVE POINTED OUT, POST-SOVIET RUSSIA faces an
identity crisis (Tsygankov 2006a, 2007; Suny 2007). The Soviet regime had promoted
its conception of Russia’s role in a multinational community of people, but after the
break-up of the USSR that interpretation became outdated. With new urgency
Russian intellectuals addressed the question of the identity of their country, as
implicitly all Russians might wonder, ‘Who are we?’ and ‘Where is Russia going?’
Different groups of Russian intellectuals and politicians offered competing answers to
these questions, presenting alternative definitions of Russia’s identity (Tolz 1998, p.
995, 2001; Hopf 2006, p. 700; Legvold 2007). The issues that were debated concerned
not only the choice of strategy for domestic and foreign policy, but also the essential
character and values of the national community and a view of that nation’s place in
the world.
History and ideology
Debate over the question of Russia’s identity was not a new phenomenon, however,
even though it occurred under new conditions in the post-Soviet period. The question
of ‘Who are we?’ had been addressed by Russian intellectuals and political leaders for
hundreds of years. The varying answers to that question in earlier eras have been
echoed in the discussion of the post-Soviet period. One element of continuity was
evident in such debates: in every era in which that issue was raised, the West was the
principal Other that served as the main reference point in defining Russia’s identity
(Tolz 1998, p. 995; Tsygankov 2006a, p. 37). Russia’s relationship with Europe has
been a key question since the time of Peter the Great in the late 1600s and early 1700s
(Stent 2007, p. 397). Since that time it has been apparent that Russia’s rulers have
faced a dilemma in relation to the more modernised societies of Western Europe:
whether to emulate the example of the West in order to advance their country’s
development or to preserve Russia’s separate values and customs at the risk of denying
it the capacity to compete with Europe (Tsygankov 2007, p. 380). A basic division of
opinion in response to that dilemma has been evident in one period after another in
the history of tsarist Russia. Fundamentally the Russian intelligentsia has displayed
ambivalence in its attitude toward Europe, combining feelings of attraction and
aversion in relation to the societies of the West (Stent 2007, pp. 398–99, 435). Vladimir
Putin has offered his answer to the question of Russia’s place in the world, and his
EUROPE-ASIA STUDIES
Vol. 60, No. 6, August 2008, 899 – 912
ISSN 0966-8136 print; ISSN 1465-3427 online/08/060899-14 ª 2008 University of Glasgow
DOI: 10.1080/09668130802161140
statements recognise the crucial importance of his country’s relationship with the
West, now including both the United States and the European Union. In consistency
with Russian tradition, Putin’s attitude toward the West is deeply ambivalent, and the
conflicting tendencies in his assessment of Russia’s relationship with the West are
reflected in the internal tension within the system of values that he has adopted.
It is clear that Putin has given approval to a well-defined set of values and policy
goals. Whether we can speak of the ideas associated with his political leadership as
‘Putin’s ideology’ is not clear, however. On that question the pronouncements of the
political regime are apparently contradictory. Before becoming President of Russia,
Putin’s most basic articulation of his outlook declared that Russia should not have a
state ideology (1999b). Yet by 2006 a prominent member of the presidential
administration insisted that Russian society did need an ideology, and that the
dominant United Russia (Edinaya Rossiya) party should give its approval to the theses
that supposedly could be based on Putin’s speeches (Surkov 2006a). Soon that official,
Vladislav Surkov, welcomed the publication of a book entitled Putin: His Ideology
(Chadaev 2006). Surkov introduced the concept of ‘sovereign democracy’ as the
essence of the ideology associated with the Putin leadership (2006b). Yet before long
Dmitrii Medvedev, a deputy prime minister, expressed some reservations about the
value of the term ‘sovereign democracy’ (2006), and Putin himself voiced similar
thoughts in September 2006 (Putin 2006b) and again seemed to distance himself from
that concept in September 2007 (Putin 2007a). In December 2007 Medvedev, who had
seemed sceptical about the merits of the concept that had been popularised by Surkov,
was chosen to be the presidential nominee of the dominant United Russia party with
Putin’s public approval. So it is not clear that Putin, who was said to be the main
source of the new official ideology, has actually been willing to take responsibility for
the creation of such a package of doctrines. Contrasting statements by high-ranking
officials may imply not only that there is some division in the inner circles of the elite
concerning particular formulations, but also that the Putin administration’s attitude
toward ideology contains contradictory impulses.
As if Putin’s stance did not create enough confusion on that subject, a review of
scholarly writings reveals striking ambiguity in relation to the meaning of ideology.
John Gerring (1997) has documented the use of a great variety of definitions of the
word among different scholars. Mainstream students of that topic in the social sciences
would agree that the term ‘ideology’ pertains to a system or collection of ideas, and
that the ideas should include direct political content, should attempt to motivate
substantial numbers of people to action, and should display some degree of coherence
or integration (Hunt 1987; Freeden 2006). Scholars disagree, however, in relation to
the breadth and internal coherence that may be expected of an ideology. A broader
definition of ideology, as ‘a relatively coherent, emotionally charged, and conceptually
interlocking set of ideas’ (Hunt 1987, p. 15), would easily allow us to conclude that
there is an ideology of the Putin regime in contemporary Russia. A narrower and more
rigorous definition, insisting on a degree of comprehensiveness and internal
integration similar to that possessed by Soviet Marxism–Leninism, would deny the
label of ideology to the outlook associated with the Putin leadership.
For the remainder of this essay we will set aside the question of whether the ideas
associated with the Putin regime should be called an ideology. Yet it is apparent that
900 ALFRED B. EVANS, JR
Putin’s statements do indicate the existence of a body of interrelated assumptions and
values that provide a general orientation for decisions that have structured political
institutions and policies. Putin’s major strategic choices should not be seen as having
been merely ad hoc responses to immediate conditions (and indeed it could be argued
that ad hoc decision making has been characteristic of Putin much less than it was for
Boris Yel’tsin in the 1990s). The central thesis of this essay is that Putin’s actions have
been guided by core values and long-term goals whose general outlines were delineated
even before he took office as the President of Russia. Putin has sought to reshape
reality to fit his values and goals, with considerable success so far; and he seeks to
ensure that the orientation for policy that he has chosen will continue to guide
Russia’s political leaders in future decades. It is argued here that in its totality Putin’s
thinking constitutes a distinctive choice of an identity for contemporary Russia.
Russia and the world
As noted earlier, for centuries the West, originally consisting of Western Europe, was
the principal Other for Russia, the main basis of comparison against which Russians
shaped the identity of their society. During the last years of existence of the Soviet
Union, Mikhail Gorbachev looked on Western Europe as providing the model for a
political and economic system (Stent 2007, p. 394) and attempted to Westernise Soviet
institutions. He wanted Russia (and the whole of the USSR) to be accepted as part of
the ‘common European home’, and he affirmed that a commitment to democracy and
individual rights was shared by all nations in Europe. Boris Yel’tsin, as the first
President of the independent Russian Federation, attempted to outdo Gorbachev in
adopting the image of a Westerniser, and though in practice his policies were
profoundly inconsistent, in theory Yel’tsin’s programme of change was justified as
bringing features of Western democracy and capitalism to Russia. Vladimir Putin has
repeatedly said that Russia is a European country, and has asserted that historically
Russia has shared common values and experiences with the other European countries
(Putin 2000a, p. 169, 2005e, 2007a; Tret’yakov 2005a). Putin has even gone so far as to
claim that Russia moved toward the protection of freedom at a pace generally similar
to that of other European nations. ‘On our own historical path, at times falling
behind, at times outstripping our partners, we passed through the same stages of
establishing democratic, legal, and civic institutions’ (Putin 2005d). That statement is
so wildly fictitious that it raises the question of the intentions of the person who
offered it.
In fact, Putin and other officials of the Russian government have emphatically
rejected criticism of the tendency of concentration of power in their country since 2000,
and have angrily repudiated any efforts by Western governments and non-
governmental organisations to verify the implementation of democratic principles by
Russian political institutions. We must conclude that Putin’s repeated assertions that
Russia is a part of Europe are not motivated by a desire to share common political
values with the European democracies. Putin does wish closer institutional linkages
between Russia and Europe (Stent 2007, p. 422) for reasons related to his view of
Russia’s essential national interests. Even before he became President of Russia, Putin’s
written words revealed his conviction that economic growth and modernisation would
PUTIN’S LEGACY AND RUSSIA’S IDENTITY 901
be vital for his country’s security (1999a). Robert Legvold has remarked that Putin’s
view of the international setting reflects a ‘Hobbesian view of the world’ (2007, p. 10),
and this author has reported that ‘persistent statements by Putin reinforce the
impression that he sees the world in which Russia exists as filled with danger resulting
from a relentless, dog-eat-dog struggle’ (Evans 2008, p. 7). In Putin’s opinion, economic
strength is the basis of survival in that harsh competition; to be inferior economically is
to be vulnerable politically and militarily. In his view Russia can preserve its
independence and protect its identity only if its economy becomes one of the most
developed in the world. An article that Putin published in 1999, based on his graduate
dissertation, showed that he already was focused on the goal of making Russia a ‘great
economic power’ on the basis of its vast energy resources (Putin 1999a; Balzer 2005).
While Putin does not show enthusiasm for Russia’s assimilation to the liberal
political values of the West, economic integration with the West can serve the goal of
modernising Russia’s economy (Trenin 2007, p. 96). Angela Stent has argued
persuasively that Putin seeks a closer relationship with Europe because he expects that
‘selective adoption of European institutions will enable Russia to become a stronger,
prosperous, modern society that will participate more fully in a globalised world’
(Stent 2007, p. 421). Putin regards globalisation, primarily in the form of international
economic integration, as a powerful and irresistible force, and he emphasises that
isolation from the world economy is a recipe for underdevelopment (Evans 2008, p.8).
Thus he insists that integration into the international economy is necessary for Russia
to achieve a high level of economic advancement. But as Celeste Wallander puts it, the
Putin leadership is determined ‘to control and manage globalisation’s challenges while
pursuing its opportunities’ (Wallander 2007, p. 459). The leadership is convinced that
to deal with both the challenges and opportunities for Russia’s development that are
posed by globalisation, ‘a greater role for the state’ is imperative (Wallander 2007, p.
490). Wallander points out that historically those in authority in Russia have reacted
to increases in the impact of global trends on their society by prescribing greater state
control to manage the internal consequences of such trends (2007, p. 450). It is clear
that Putin’s approach fits squarely within that tradition of pursuing state-dominant
development.
Defending Russia’s sovereignty
According to Putin, one aspect of globalism is the existence of values that are universal
on a worldwide scale, and a commitment to democracy is among those values that are
universal for all of humanity (Putin 1999b, 2005d). Putin has said many times that
Russia has made its choice in favour of democracy (Evans 2008, p. 6). How has he
reconciled his ostensible support for democracy with the consolidation of a semi-
authoritarian political system in Russia under his leadership? Putin argues that while
the basic principles of democracy have universal validity, the implementation of those
principles in any country must fit the conditions that are distinctive for that country
(Putin 2005e). Thus he reasons that ‘the fundamental principles of democracy and the
institutions of democracy should be adapted to the realities of Russian life, to our
traditions and history’ (Putin 2005a). Putin argues that the form of government that
emerges in Russia will be a blend of universal ideals and ‘primordial Russian values
902 ALFRED B. EVANS, JR
that have stood the test of time’ (Putin 1999b). In December 1999, before Putin
became President of Russia, he decisively rejected the notion of importing ‘abstract
models and schemes from other countries’ (Putin 1999b). While the status of the term
‘sovereign democracy’ may be uncertain, there is no doubt that protecting Russia’s
sovereignty is vitally important for Putin in order to ensure that his country is
completely independent in choosing its own form of development.
The growing emphasis on the concept of sovereignty by Russia’s leadership after
2005, a trend that was evident in Putin’s speeches, was closely associated with ever
more vehement repudiation of foreign governments’ criticism of changes in Russian
political practices as undemocratic. Putin angrily denies the right of anyone outside
Russia to evaluate his country’s political institutions or to intervene in the affairs of
that nation in order to attempt to correct deviations from democratic principles. He
has complained that such efforts assume a patriarchal relationship between certain
countries (implicitly the USA and Western Europe) and Russia, or in other words a
relationship between superiors and inferiors (Putin 2007b). He charges that efforts
supposedly aimed at spreading democracy are in fact motivated by the self-interest of
the states that finance such programmes, which threaten to compromise the
independence of the countries targeted for such attention. By 2006 Putin evoked the
concept of neocolonialism to attack the notion of democracy promotion, when he
charged that the idea of a ‘civilising role’ that was used to justify European colonialism
in the nineteenth century had been replaced in recent times by the term
‘democratisation’ (Putin 2006a). Vladislav Surkov, a deputy head of the presidential
administration who often is described as the main ideologist of the Putin leadership,
ratcheted up the rhetoric when he appealed to the memory of Ernesto ‘Che’ Guevara
as one from whom contemporary Russians could learn that it is crucial to build an
economic basis for real political sovereignty (Surkov 2006b). One of the principal
implications of the Putin regime’s emphasis on sovereignty is that, as Dmitrii Trenin
has summarised it, Russia no longer should recognise the ‘moral authority’ of the
USA and Europe, the established democracies of the West (Trenin 2007, p. 96).
Combined with Putin’s frequent assertions that Russia is a European nation and that
his country is committed to the principles of democracy, the concept of sovereignty
that the leadership has emphasised in recent years communicates the desire by the
political and economic elite of Russia to enter the Western world on its own terms
(Zagladin et al. 2006, p. 46), not on the basis of conditions that have been determined
by Western governments.
Vladimir Putin has stressed that democracy in Russia must be compatible with
Russian conditions and the traditions of Russian history. One part of Russian tradition
that he has identified is the centralisation of power in a strong state. ‘From the very
beginning, Russia was created as a supercentralised state. That’s practically laid down
in its genetic code, its traditions, and the mentality of its people’ (Putin 2000a, p. 86).
Putin also considers collectivism and paternalism to be among the traditions of the
Russian people (Putin 1999b). Almost as often as he has endorsed the idea of
democracy, Putin has spoken of the need to build a stronger civil society in Russia. In
December 2007, when he admitted the persistence of the problem of corruption in the
Russian state, he acknowledged the absence of ‘social control of the activities of public
institutions’, and described the strengthening of civil society as the most promising
PUTIN’S LEGACY AND RUSSIA’S IDENTITY 903
means to achieve that goal (Putin 2007b). Western scholars think of civil society as the
sphere of social organisation that involves the efforts of citizens acting largely
independently of the state. The Putin leadership has assumed, however, that in Russia a
strong civil society will not take shape unless the state takes the initiative to make that
happen. That assumption was reflected in Vladislav Surkov’s assertion: ‘If society isn’t
able to put forth initiatives on its own, then we must stimulate it’ (Weir 2005, p. 1).
Vitalii Tret’yakov has remarked astutely that in Putin’s view the state must be called on
to create the conditions for democracy and freedom since Russian society itself is not
capable of coping with that task (Tret’yakov 2005b, p. 77).
One of the recurring themes in Putin’s statements about Russian society is the
urgent need for a fundamental unity of values among all segments of the population of
his country. His assessment of the problems facing Russia has consistently revealed a
fear of disunity in society and a tendency to equate differences on values with
disintegration and weakness. In December 1999 he said that progress was impossible
‘in a society finding itself in a condition of division, internally disintegrated, a society
in which social strata and political forces adhere to different basic values and
fundamental ideological orientations’ (Putin 1999b). In May 2003 he asserted that it
would be difficult to overcome contemporary challenges if society is ‘splintered into
small groups’, each of which is devoted to its own narrow interests, and he called for
consolidation ‘around basic national values and tasks’ (Putin 2003). Thus he saw the
proper response to disunity as a strong consensus of values in Russian society. In an
interview in early 2000, when Putin was asked to identify the main priority for Russia,
he answered that it was the adoption of goals or moral values that all members of the
society could understand, like the ‘Code of the Builder of Communism’ that was
disseminated in the Soviet Union in the 1960s (Putin 2000b). Putin again stressed the
importance of soglasie, meaning agreement, consensus, or harmony in society, in his
first presidential address to the Russian parliament in July 2000, in which he said that
a consensus on goals should come from the unique cultural traditions and shared
historical memory of the Russian nation (Putin 2000b). When interviewed by a
journalist from Time in December 2007 he returned to that theme, urging, ‘We need to
pay the utmost attention to our common moral values and consolidate Russian society
on this basis’, and adding, ‘I think that this is an absolute priority’ (Putin 2007b).
The Putin leadership has stigmatised Russians who stand outside the boundaries of
the supposed consensus as disloyal to the nation. In September 2004 Vladislav Surkov
referred to those on the right and left in his country who were particularly critical of
the regime as a ‘fifth column’ within the society that allegedly sought ‘the defeat of
their own country in the war on terror’.1 Putin has made it clear that he believes that
the most outspoken domestic critics of the state are serving foreign masters, having
sold their loyalty to foreign governments that seek to undermine Russia’s
independence (Putin 2004, 2007b). When speaking at a campaign rally of the United
Russia party shortly before the parliamentary election of December 2007, he poured
contempt on the critics of the regime: ‘Those who oppose us need a weak, sick state, a
disoriented, divided society, so that behind its back they can get up to their dirty deeds
1RFE/RL Newsline, ‘Putin Senior Staffer Details Proposed Political Reforms’, 8, 185, Part I, 29
September 2004.
904 ALFRED B. EVANS, JR
and profit at your and my expense’. Putin charged, ‘unfortunately there are jackals
inside the country who sponge off foreign embassies’.2 Putin’s strong desire for unity
in Russian society leads him to regard any fundamental opposition to the political
regime as reflecting disloyalty to the nation. As President of Russia, Vladimir Putin
has turned that country away from the Westernising direction followed by Mikhail
Gorbachev and Boris Yel’tsin, and instead of advocating a course of development
guided by the values of liberal democracy he has chosen a unique model that he sees as
consistent with the historical tradition distinctive to Russia (Zagladin et al. 2006,
p. 40). Under Putin, ‘sovereignty’ has become the code word for the demand that the
West accept Russia’s right to make its independent choice of political and economic
institutions.
While the fundamental values supported by Putin have not changed since he became
President of Russia in 2000, the theme of non-interference in his nation’s internal
affairs has received growing emphasis among Russia’s political elite during the last few
years (Tsygankov 2007, p. 385). Beginning in 2005, hostility toward the West was also
more openly voiced by the political leadership of Russia, and was even expressed by
Putin himself more directly than ever before in 2007 (Shlapentokh 2007). There may
have been a number of reasons for those trends in the rhetoric of the Putin regime. In
the first place, Russian leaders apparently resented Western criticism of the practices
of that regime, which had intensified as it became increasingly clear that changes
brought by Putin were moving toward a more authoritarian concentration of power
(Shlapentokh 2007). In addition, since Russia had experienced several years of steady
economic growth since the late 1990s (primarily fuelled by rising prices for oil, which
that country exports in large quantities), the leaders of the Russian state seemed to
believe that their power position in the world had improved qualitatively, and felt free
to take a more assertive stance in relation to the West (Tsygankov 2006a, p. 288;
Shlapentokh 2007). In essence, they believed that if Russia was to be accepted as a
major power, as they hoped and expected, other countries should refrain from looking
down on their country and presuming to instruct it on domestic political practices.
The growing stress on the need to protect Russia’s sovereignty appears to have been
most directly a response to the ‘coloured revolutions’ in some other states of the
former Soviet Union, and particularly the ‘Orange Revolution’ in Ukraine in late 2004
that overturned the results of an election that had been widely seen as marred by fraud
(Okara 2007; Krastev 2007, p. 37). As Vladimir Shlapentokh argues, ‘the reemergence
of the foreign threat to the regime as a major political and ideological issue in Moscow
was deeply influenced by the developments in Ukraine in 2004’ (Shlapentokh 2007).
The obsession with ‘orange technology’ in Russian sources in recent years lends
plausibility to Shlapentokh’s conclusion that Putin feared that the same methods used
in Ukraine might be employed to undermine the stability of the regime that he had
consolidated in Russia.
The concept of ‘sovereign democracy’ must be seen in part as a reaction to the goal
of democracy promotion by the USA, which increasingly led the Putin leadership to
worry that the United States might seek to bring about regime change in Russia
(Shlapentokh 2007). But pressure on the government of Russia concerning its
2The Economist, 2007, p. 640.
PUTIN’S LEGACY AND RUSSIA’S IDENTITY 905
domestic actions also came from Europe, which may have created a more fundamental
cause for discomfort in the Putin leadership. Europe has come closer to Russia in
recent years with the expansion of the European Union (which now includes most of
formerly communist Eastern Europe and three states that were republics of the Soviet
Union) and the growth of trade between Russia and the EU. Neil Macfarlane notes
that there has been growing dissonance between Russia and the EU, as the
government of Russia seeks cooperation as a means of serving economic needs, while
the European Union has a ‘preoccupation with liberal values’ that is ‘annoying from
the Russian perspective’ (Macfarlane 2006, p. 54). As Angela Stent (2007) has pointed
out, the nations that are members of the EU have given up a significant degree of their
national sovereignty to create a united Europe, which is disturbing for a Russian state
that seeks a closer economic relationship with Europe while attempting to guard the
autonomy of its domestic political structures. Moscow also has resisted the scrutiny
from outside that is embodied in the monitoring of Russian elections by the
Organisation for Security and Cooperation in Europe (OSCE), an organisation of 55
countries to which Russia belongs (Bigg 2008). A series of factors makes it possible to
understand the increasing vehemence of the Putin leadership’s denunciations of
attempts by foreign nations to exert influence on political practices in Russia, leading
the regime to intensify its insistence on the necessity of protecting Russia’s sovereignty.
A new ideological challenge?
As criticism of Western governments by members of the Russian elite has grown
harsher and there have been efforts to create an official ideology for Russia, we may
wonder whether the Putin leadership has decided to present an ideological challenge to
Western democracy. Not long ago it was reasonable to assume that the words and
actions of the Putin regime were intended not to seek changes in the outside world, but
to moderate the impact on Russia of systemic trends in the world (Macfarlane 2006,
p. 8). By 2007, however, it was possible to argue that the Russian state’s goals had
become more ambitious; as Derek Averre reported, statements by ‘leading Russian
officials have represented a clear attempt to challenge the international order’ (Averre
2007, p. 177). From a stance of defence of Russia’s distinctive form of democracy,
the pronouncements of Russian officials and loyal intellectuals shifted to a
counteroffensive against Western governments, pointing out the flaws of Western
political processes and at times even implying that Russian democracy is superior to
Western democracy (Shlapentokh 2007). Leonid Polyakov suggested that there was a
justification for considering ‘sovereign democracy’ as a model that might evoke ‘global
resonance’, appealing to many countries which have experienced substantial economic
development in recent years (Polyakov 2007, p. 67). He asserted that sovereign
democracy represents a ‘universal form of political order of a nation in the conditions
of globalisation’ (2007, p. 68, emphasis in original).
Sergei Lavrov, the Foreign Minister of the Russian Federation, says that recent
trends in international relations have resulted in a situation in which the West is losing
its monopoly of models of development and its control over processes of globalisation
(Lavrov 2007a). Immanuel Wallerstein argues that Vladimir Putin has gained greater
confidence in dealing with the West because of changes in the world economy
906 ALFRED B. EVANS, JR
(Wallerstein 2007). Putin contends that economic growth in the ‘emerging nations’ is
bringing a shift in the balance of political power, which will become more pronounced
in the coming decades (Putin 2007b). Some Western scholars have begun to argue that
the growth of ties among the ‘rising powers’ who recently have enjoyed rapid economic
development is creating ‘an alternative system of international politics’ that is
‘surprisingly independent fromWestern control’ (Barma et al. 2007, pp. 23–24). Russia
is often categorised as one of the BRIC countries (Brazil, Russia, India and China), and
according to Andrew Hurrell, all of those countries believe that they are entitled to ‘a
more influential role in world affairs’ (Hurrell 2006, p. 2). At the very least, the
emerging powers may be said to share dissatisfaction with some aspects of the existing
structuring of power in the world, especially the degree of domination by the USA as
the sole superpower (Macfarlane 2006, p. 41). In particular, the leaders of China and
Russia find a common cause in rejecting the notion that the West should be the source
of ideas about development for the rest of the world (Ferdinand 2007, p. 679). Both
China and Russia may be thought of as examples of ‘developmental states’, or ‘states
where the government still plays a crucial role in determining the direction of
development’ (Ferdinand 2007, p. 663). It would be possible to regard ‘sovereign
democracy’ as Russia’s ideological version of the model of the developmental state, and
it is apparent that there are some in Russia who are eager to take that approach. S. A.
Karaganov asserts that a struggle is being waged between two models of development,
on the one hand ‘the liberal-democratic model of the West’, and on the other, the semi-
authoritarian capitalism exemplified by some Asian states. He wants Russia to join on
the side of the latter group in endorsing a model that he expects to be more attractive
for many countries of the former Third World (Karaganov 2007).
So far, however, Russia’s highest leaders have not shown any interest in entering
into a global ideological struggle or packaging any model of development for export to
other countries. According to Sergei Lavrov, the Russian state has renounced ideology
and ‘grand designs’ in its foreign policy in favour of a pragmatic approach (Lavrov
2007b, p. 8). His statement implies that Russia’s actions in relation to the rest of the
world will be guided by the country’s national interests as its leaders perceive them
(Zagladin et al. 2006, p. 44). Putin has said that Russia should renounce the Soviet
legacy of trying to lead a worldwide movement toward communist revolution and
attempting to ‘impose a certain way of life on other countries’ (Putin 2007b). He has
also cautioned against the assumption of any ‘missionary functions’ for Russia,
warning that it would be harmful for the country to be seized by missionary ideas
(Putin 2007a). We should recall that Putin himself, and his successor Dmitrii
Medvedev, have distanced themselves carefully from the concept of ‘sovereign
democracy’, which could have furnished a convenient title for a model to be offered for
export as an alternative to the Western liberal-democratic model.
It is true that the Russian state is opposed to efforts to achieve a unipolar world
dominated by the USA, or even a world dominated by the West (Lavrov 2006, 2007b,
p. 12), because of the fear that such a concentration of power would relegate Russia to
second-class status and make it vulnerable to the designs of the most powerful
countries. But, contrary to the wishes of the more radical Eurasianists in Russia, Putin
has not sought to lead an international coalition in opposition to the main centres of
power in the world. (After all, if such a coalition took shape despite the great diversity
PUTIN’S LEGACY AND RUSSIA’S IDENTITY 907
of interests of the potential partners in its ranks, it would be unlikely that Russia
would be accepted as its leader on the basis of its population size or economic
weight. In addition, to become part of such a coalition would require Russia to
commit itself to goals that might restrict its freedom to pursue its own interests.)
Instead the Russian state under Putin has pursued a foreign policy that has been
flexible and many-sided, open to forming short-term, limited partnerships with a great
variety of states. V. I. Pantin captures the spirit of the Putin administration when he
urges, ‘the internal and external self-determination of Russia should not be one-
sidedly pro-Western or anti-Western, liberal or anti-liberal’ (Zagladin et al. 2006,
p. 41). While Putin hopes that Russia will benefit from a shift in power in favour of the
countries with emerging economies, he has avoided making the claim that Russia has
crafted a model of development to be offered to other nations as an alternative to the
liberal-democratic values promoted by the West.
Conclusion
Though Vladimir Putin is often described as a pragmatist, we have seen that before he
came to power as President of Russia he was committed to core values and goals that
would guide him during the next eight years. He evidently hopes that those values and
goals will continue to determine the direction of policy-making by the Russian state in
the years to come. The ideas that have been associated with the Putin regime constitute
a distinctive answer to the question of Russia’s identity that was posed with
heightened urgency after the dissolution of the Soviet Union. A key question for
Russians since the time of Peter the Great has been their society’s relationship with the
West, which originally was equated with Europe. We have noted that the Russian
elite’s attitude toward the West traditionally has been filled with ambivalence, and that
has continued under Putin. On the one hand, he has repeatedly insisted that Russia is a
part of Europe, and shares the same basic aspirations with the nations of Western
Europe, including the goal of implementing the principles of democracy. But on the
other hand, he warns against attempts to import foreign models into his country,
argues that the form of government in Russia must fit the time-honoured traditions of
that nation, and angrily repudiates efforts by outsiders to evaluate the performance of
political institutions in Russia.
Putin wants his country to be accepted in the community of Western democracies on
its own terms, which he sees as necessary to preserve Russia’s distinctive identity.
Putin’s expectations for a consensus of values in Russian society and his view of the
limits of acceptable division within the national political system reflect his response to
the ‘liberal idea’, generally accepted in contemporary Western countries, that
international integration entails not only closer economic cooperation among different
nations but also the lowering of national barriers to the dissemination of democratic
political ideas and institutions (Averre 2007, p. 179). As Derek Averre points out, ‘it is
only in the recent period that Moscow has formulated a coherent and vigorous
response’ to that thinking (2007, p. 180) by articulating a set of ideas that are said to be
grounded in the traditions that have shape Russia’s unique identity. Putin’s position
implies approval for a premise that is accepted by some other late-developing states,
which in opposition to the Western emphasis on individual rights as the basis of self-
908 ALFRED B. EVANS, JR
determination argues in favour of ‘state determination’, or the idea that ‘sovereign
states are empowered to set the terms of the relationship inside their borders between
the government and the governed’ (Barma et al. 2007, p. 27). In Putin’s view, a
predominant role by the state is necessary, not only to lead Russia to success in the
economic competition stimulated by globalisation, but also to manage the
consequences of global trends for domestic society. The political orientation that
pervades Putin’s statements seeks to defend deeply conservative values, rather than
calling on Russia to renew the radical challenge to Western democracy and capitalism
that was posed by the Bolsheviks.
While Putin has offered an answer to the question of Russia’s identity, his answer
reveals major elements of ambiguity, and beneath the surface it contains internal
contradictions. Andrei Tsygankov has observed that the contemporary Westernisers
and Eurasianists represent ‘polar opposites’ on the question of Russian identity, and
we might add that those extremes have deep roots in Russian history. Tsygankov
points out that Vladimir Putin’s vision of Russia falls between those polar opposites,
and is a ‘cultural synthesis’ of such competing positions (Tsygankov 2007, p. 381). As
a synthesis, the integrated body of ideas offered by Putin displays contradictory
impulses that are inherent in its values and logic. In the first place, there is a conflict
between the acceptance of international integration and the demand for protection of
Russia’s autonomy. Putin argues that international economic integration is irresistible,
and that it is necessary for Russia to plunge into globalisation in order to become a
great economic power. But at the same time Putin’s statements reveal a deep fear that
international integration will open Russia to control from outside and the erosion of
the independence of action by the Russian state and society. Putin’s position is
fundamentally ambiguous about the political implications of international integration.
He asserts that Russia has joined in the general international consensus in favour of
democracy (Lavrov 2007b, p. 10), but he wants to insulate the political process in
Russia from foreign influence. While he repudiates Western criticism, he does show
sensitivity to the need to satisfy some international standards in following democratic
procedures. The degree of pluralism that is permitted in the political arena in Putin’s
Russia is qualitatively greater than that which was allowed in the Soviet Union before
Gorbachev, but the limits of pluralism have been tightened since Putin came to power,
and the acceptable degree of disagreement is still not entirely clear.
Most obviously, contradictory messages from the Putin leadership reflect the
dilemma posed by the demands of ideology and pragmatism. The effort by Vladislav
Surkov and others within the presidential administration and the dominant political
party to fashion a systematic set of ideas that could be presented as ‘Putin’s ideology’
may have been motivated in part by the desire to ensure continuity in policy during the
periods of leadership transition that will come in future decades. There was also an
evident desire to present the thinking of the leadership in a form suitable for mass
consumption, so that millions of political activists could be indoctrinated in the same
ideas. In addition, even in Putin’s speeches it has been evident that he has felt the need
to offer an articulate answer to the challenge of the ‘liberal idea’ promoted by the
Western democracies that occupy a dominant position in the contemporary world. On
the other hand, Putin has been reluctant to give full approval to the concept of
sovereign democracy that has been presented (with considerable justification) as the
PUTIN’S LEGACY AND RUSSIA’S IDENTITY 909
authoritative summary of his thinking. He has not joined in the call for an ideology
that can be recognised as authoritative for Russia. Putin seems to want to preserve his
flexibility of action in domestic and foreign policies, and he may realise that a
commitment to an explicit and integrated ideology would limit his freedom of choice,
or at least force him to justify his actions in terms of established doctrinal principles.
Also, an entrenched ideology can make it more difficult for leaders to become aware of
key aspects of changing developments, as Putin has ample reason to recall. Further,
for the regime to adopt a full-fledged ideology would invite the resumption of the
ideological struggle with the West, and Putin does not seem to believe that such a
struggle would be necessary or profitable for Russia. Thus while Putin has endorsed a
set of values that offer an answer to the question of Russia’s identity and provide
guidance for long-term strategy, his answer includes substantial ambiguity and
contains contradictory impulses. That ambiguity implies that there is the potential for
the ideational legacy of the Putin presidency to be interpreted in different ways in the
future as new challenges and opportunities arise. Whether the Russian state will yield
to the temptation to mount a more aggressive ideological counterattack against the
West will depend not only on the results of trends within Russia’s political elite, but
also on the choices made by Western governments.
California State University, Fresno
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