Last month we published an article from the Bertlesmann Foundation arguing that the rise of the BRICS could mean the end of Western domination of global financial and political institutions. Today, Helmut Reisen, Head of Research at OECD Development Centre and author of the Shifting Wealth blog, replies.
Wishes and reality often diverge. Najim Azahaf claims that “the BRICS are about to change the power structure in the world economic system”, one of the major motivations behind the BRICS’ cooperation being their shared desire to limit the power of the developed economies in the global financial system.
Sure, the sustained growth that large emerging countries has experienced over the last decade and more has conferred on them a considerable growth delta over the OECD average. Combined with very large populations, these growth differences are translating into a new world economy. For the first time in history, the countries with the largest economic mass are not also the richest countries.
The shorthand for this complex event is what we call “Shifting Wealth” – the recalibration of the world economy toward the East and the South – , well documented in the two first issues of the OECD Perspectives on Global Development. The next report, forthcoming in 2013, will argue that Shifting Wealth is here to stay, notwithstanding severe structural challenges to the process of cross-country income convergence.
An important noncyclical concern is that China’s growth will come down as it is caught in the middle income trap, and with it other emerging middle-income countries whose growth has been increasingly China-dependent in the last decade. A look at the data, however, would seem to suggest that escaping the middle income trap has not been a rare event recently. Cross-country income convergence and emerging-country middle class consumption are probably the strongest pillars for Shifting Wealth for the future decades. These fundamental growth drivers for low and middle income countries remain under emphasised in the media.
Does the change in the world economic system imply a change in the power structure, as Mr. Azahaf writes? The geopolitical dimensions of Shifting Wealth have moved very much into the forefront, as shown by the OECD Development Centre’s Perspectives on Global Development 2010: Shifting Wealth. The re-invigoration of the G20 (which had been created in the aftermath of the 1990s Asian financial crisis) as the premier global economic policy forum, the modernisation of countries’ inclusion, representation and voice in international organisations such as the Bretton Woods institutions and higher political ‘power’ in particular of the large emerging countries are noted features of their shifting geopolitical stance on a global scale.
For international monetary governance, the prospect of the renminbi and perhaps other emerging-country currencies entering reserve-currency functions beside key OECD currencies has gained momentum. In global trade policy, Shifting Wealth translates into higher retaliation and bargaining power.
Finally, the growing importance of non-OECD countries may translate into acceptance of a different intellectual paradigm underlying cross-border collective arrangements and lower effective compliance of standards and best practices defined and scripted by the advanced economies, not least in the global aid architecture.
However, the majority of smaller emerging countries still submit to the Pax Americana, as is for example visible in the 70+ countries that engage with the OECD in one way or another. And within the BRICS group, there are considerable economic and geopolitical divergences, with China for the time being the only true superpower.
So economic and geopolitical reality still diverge.
On the rise of emerging countries and the implications for investment, poverty reduction and development, see Helmut Reisen’s Shifting Wealth blog