With Europe and much of the West facing a seemingly painful decline, attention continues to shift to the BRICS and the world's other rising powers. But are these countries overplaying their hands as the cracks begin to show in their economic virility?
No diplomatic meeting has personified the rise of the BRICS as much as the recent EU-Summit. Fresh from rigging an election, Russia’s president turned up in Brussels for the regular powwow - not to be lectured by EU leaders on the importance of free and fair elections, but to be begged for money.
With the euro in free-fall, European leaders hoped that Russia would stump up $10million to replenish the EFSF. Russian President Dimitry Medvedev could scarcely hide his delight, noting that “there are problems in the European Union as well.” The decline of the West has been much heralded, but what greater evidence of the shift in global power could be imagined – a once-rich, confident Europe begging a condescending Russia.
But this snapshot – and Europe’s photo album of crisis – obscures the true picture about the BRICS and other fast-growing states like Turkey and Indonesia: that while the decline of the West is incontestable, the rise of these states remains contestable. Politically, economically and culturally, these countries face risks that are much greater than the West.
Nobody thinks France will break up even if the euro does. But the prospect of China’s collapse is a matter of serious debate. However, in their moment of post-Western hubris, the BRICS risk overlooking the risks that they face. Strutting the international stage while taking comfort in the West’s discomfort is blinding them.
Take China, whose stubbornly high inflation fell in October, giving Beijing room to stimulate the world's Number 2 economy amid weak US and European growth. But it is still at 5.5%, a clear sign that the economy is overheating.
Food costs, especially sensitive in a society where poor families spend up to half their incomes to eat, rose 11.9% (in September it was 13.4%). The price of pork was up 38.6% compared to the previous year, and grain up 11.6%.
More fundamentally China faces challenges to its low-cost economy. Its offer of cheap wages, limited regulation and a stable regime is allowing it a period as the workshop of the world. But none of this is assured in the years to come. Bank lending has climbed, fuelling a property boom much like Spain’s in the 2000s. Wages are also rising rapidly – Beijing increased its minimum wage 21% earlier in the year. And pressure to protect land and labour rights is also on the rise. As a result, many international companies are looking elsewhere to locate their production facilities.
China, in other words, faces a myriad of problems. In this, it is not alone among the BRICS. Brazil has experienced negative growth in the third quarter of this year, and in India both the benchmark stock index and the rupee touched record lows, putting the country among the worst performing markets in Asia. Like China, Brazil and India are exposed to European markets. What happens to the euro will affect the BRICs.
Turkey’s world-beating growth is also a cause for concern. Last year it was over 11%, topping China and India, and easily blowing away forecasts of 9.6%. The import data indicate that soaring Turkish economic growth is increasingly supported by rising domestic consumption, accompanied by credit growth that shows little sign of slowing. Turkey, however, not just overheating economically, it is also overheating politically.
After slowing down domestic reforms as the prospects of EU membership receded, Turkey launched its now-famous “zero problems” foreign policy, seeking to establish itself not just as NATO member, but a pivotal Middle Eastern power. Prime Minster Erdogan played to the Arab street and there seem to be no regional conflict his energetic foreign minister did not see a role for Turkey in.
Yet this, too, has been exposed. Turkey’s bureaucracy is not yet equipped to handle the load of initiatives coming from the political leadership. Thus, many Turkish initiatives appear less than well prepared. Turkey’s effort to mediate between Iran and the IAEA collapsed after Tehran played its usual tricks. And Ahmet Davutoğlu’s demand that the Syrian government end its crackdown on a five-month-old uprising “immediately and unconditionally” have gone unheeded. Post-Syrian Turkey has been exposed as much weaker than it wants to be seen.
Despite the risks faced by the BRICS, politically and economically, they are steadfastly refusing to moderate their “move-over-here-we-come” rhetoric. But what Cold War diplomat George Kennan called their “hubris of inordinate size” will have consequences not only for themselves.
Ten years after a Goldman Sachs economist coined the word “BRIC”, to signify their economic potential and growing influence, it may be time to amend the acronym, describing the world’s fast-growing economies by adding two letters – an H and a U – to highlight what these countries also have in common: not just fast-growing economies, but a set of risks, a prideful unwillingness to acknowledge their problems and a reluctance to work with the West to address both their own and common concerns.
The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.