Building BRICS Cooperation with Leading Industrialized States

Jonathan Luckhurst Instituto Tecnológico y de Estudios Superiores de Monterrey

Abstract

This article examines relations between the BRICS and leading industrialized states. It starts by analyzing the former’s mutual relations, focusing on how the ideational construct presented by Jim O’Neill (2001) in his ‘BRIC hypothesis’ became formalized as a leader-level diplomatic group at a summit in Yekaterinburg, Russia in 2009. I evaluate how the BRICS have influenced international issues and whether ‘cooperation’ or ‘conflict’ characterizes their relations with key industrialized states, concluding that there has been greater multilateral cooperation since 2008, especially through international fora such as the G20. However the BRICS partnership is one of unequals, significant for international economic relations primarily due to China. This has had important consequences as the Chinese government has prioritized economic cooperation with leading industrialized states. Influential countries can continue to benefit by enhancing multilateral ties in what are often non-zero sum situations.

Suggested citation: Luckhurst, J. (2013). Building BRICS Cooperation with Leading Industrialized States. Latin American Policy, 4(2), 251-268.

Published version at http://onlinelibrary.wiley.com/doi/10.1111/lamp.12018/full

Keywords

BRICS; industrialized states; China; G20; Jim O’Neill; currency wars; trade; imagined community; complex interdependence

The original BRIC1 hypothesis from Jim O’Neill (2001) gained the attention of scholars, market analysts, journalists, and policymakers due to its dramatic implications for the future of international economic relations. Its impact persists especially as his predictions about the growth of those countries have largely come true, as demonstrated below. This article examines how the BRICS became a formal diplomatic group, but also the significance of their disparities and divergences for their mutual relations and ties with key industrialized states.

1 O’Neill (2001) wrote of the ‘BRIC’ as the most significant emerging economies, but limited this group to Brazil, Russia, India, and China. South Africa was invited to join the formal diplomatic group by the other nations, thus constituting the BRICS.

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The main focus of the present study is to analyze BRICS relations with leading industrialized states since the 2008 financial crisis. My analysis of political-economic aspects of these relations is supported with analytical insights from social constructivism, liberal institutionalism, as well as complex-interdependence theory. There are pessimistic and optimistic opinions about the potential for effective multilateral cooperation between these countries. My analysis is broadly optimistic but with significant caveats about the potential for serious disagreements to emerge, especially over international security issues.

The first section analyzes how the BRICS became a formal group, including analysis of the motives of each government and the economic, security, and political factors that influenced its creation. It also examines some factors that could detract from the BRICS becoming a deeper ‘imagined community’ (Adler 2005: 185-206; Brütsch and Papa 2012). The second section builds on these insights, putting into perspective the relative strengths of the BRICS and how these impact their mutual relations as well as ties with key industrialized countries. The third section develops the core themes of the article more deeply, examining how multilateral cooperation between the BRICS and leading industrialized states has been achieved since 2008 but also demonstrating some limitations. This final section uses analytical tools especially from liberal institutionalism and complex-interdependence theory to demonstrate how international cooperation has been possible and crucial for the world economy. History of the BRIC[S] My analysis of how Brazil, Russia, India, China, and South Africa constituted the ‘BRICS’ starts with Jim O’Neill’s 2001 hypothesis that what he called the BRIC nations would become key global economic players. His famous research paper for Goldman Sachs caught the attention of scholars, business people, journalists, and policymakers around the world — whether they read it or just learnt of its central premise about the impending rise of the BRIC economies. More than a decade later, this paper continues to frame contemporary debate about these economies and, indeed, has inspired various alternative acronyms that vie for attention, including O’Neill’s more recent category of ‘Next 11’ or ‘N11’ (O’Neill and Stupnytska 2009). There are three key aspects of O’Neill’s 2001 paper: the dramatic economic growth predictions for the original four BRICs; the likely importance of their future governance role in the world economy; and the nature or quality of the development of these countries. O’Neill has addressed these issues through various media since 2001, including televised interviews and written commentaries (e.g. O’Neill 2005; 2009; 2010; 2011). He continues to focus on Brazil, Russia, India, and China, thus excluding South Africa because he considers it much less significant for the world economy. Interestingly he argues that the financial crisis that has engulfed many nations since 2008 did not undermine the BRIC concept; to the contrary, he

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claims the crisis was “when the BRIC thesis really came of age… [as they] emerged more robust than ever” (O’Neill 2011: 3). My analysis raises some doubts about this assertion, since it shows that China’s position has been strengthened more than the other BRICS.

O’Neill’s 2001 paper became famous for its predictions about the growth potential of the BRICs. His calculations about their gross domestic product (GDP) expansion have been borne out, indeed exceeded (Goldman Sachs 2011; Müller 2011: 1615; Ogrean and Herciu 2010: 109; O’Neill 2011: 4; O’Neill and Stupnytska 2009). All four countries are now ranked among the 10 largest national economies, according to the GDP purchasing-power-parity (PPP) index (Goldman Sachs 2011: 3). However the economic imbalance between the BRICS, with China’s economy larger than the others combined, indicates why it is key to the influence of the BRICS (see Fig. 1). Another significant aspect of O’Neill’s analysis was to advocate that, as the BRICs grew, they should be included within an expanded Group of Seven (G7), with Eurozone countries reduced to a single seat instead of maintaining representation as individual members (O’Neill 2001: 3). This has not happened, but the emergence of the Group of Twenty (G20) after the 2008 financial crisis has increased the role of the BRICS and other leading emerging nations. This raises questions about relations between the BRICS and developing countries, aside from the focus in the present article on their relations with leading industrialized states. Analysts disagree on whether the BRICS partnership is beneficial for other developing states or simply a new ‘insider’ group within international fora (cf. Glosny 2010; Kappel 2011; Müller 2011; Roberts 2010; Shaw, Cooper, and Antkiewicz 2007). The recent summit of the BRICS in Durban, South Africa, indicated the prospects for a BRICS development bank that might enhance economic ties between them and smaller developing nations, though the full details are not yet clear (BBC 2013; Rodrik 2013). Also important to emphasize are the major differences between the development strategies and policies of the BRICS themselves. One key doubt is whether such heterogeneous states can achieve close cooperation; some scholars believe strategic tensions between Russia, China, and India will constrain their potential for cooperation (Brütsch and Papa 2012; Emerson 2012; Glosny 2010; Sharma 2012b; Weiss 2009).

O’Neill’s (2001: 10) original hypothesis mentioned the differences “economically, socially and politically” between the BRIC countries, though as indicated above he was proposing that each should gain a position in a new ‘Group of Nine’ (G9),2 rather than foreseeing a formal diplomatic alliance. He notes (ibid.: 11) the potential benefits of including them in international economic discussions, especially China, which he claims “might have resulted in greater awareness of the building economic pressures that led to the Asian [1990s financial] crisis”. This emphasis on gains from shared information and expertise indicates a key aspect of enhanced multilateralism since 2008: to provide research and early warnings about risks via international bodies such as the new Financial Stability Board (FSB). Indeed, the original design of the G20 was intended to pass expertise from international institutions and wealthy states to strategically-significant developing nations.

2 According to O’Neill (2001: 10), this ‘G9’ should have consisted of the following: Canada; the Eurozone; Japan; the United Kingdom; the United States; plus the BRIC countries of Brazil, Russia, India, and China.

Source: IMF (2013b) World Economic Outlook Database.

*PPP = purchasing-power-parity measure.

This article argues that differences between the BRICS will constrain them from forming a consolidated alliance that goes beyond a limited set of shared goals. Despite such differences, the BRICS emerged as a formal group in 2009 largely based on the earlier Russia—India—China dialogue, which was expanded to include representatives from Brazil in 2006. The Russian governments of Vladimir Putin and Dimitry Medvedev were the most active proponents of a high-level BRIC forum, so in 2009 the first leaders’ summit was held in the Russian city of Yekaterinburg (Roberts 2010: 38-40). It was as if O’Neill’s hypothesis had materialized as a kind of self-fulfilling prophecy. As noted though, O’Neill had not anticipated a formal alliance; this was very much the initiative of Putin. The then Russian prime minister recognized the value of the BRIC hypothesis in providing a rationale for the formalization of an alliance between nations that, following the popularity of O’Neill’s analysis, had become widely perceived as the key emerging economies. This bestowed a certain prestige, or discursive capital, that could be exploited diplomatically and for attracting international business ties. The group, with significant weight in the world economy, constituted a useful association that might give Russia greater leverage in international economic negotiations. Each of the other members gained in different ways from formalization of the BRIC, as discussed below. The addition of South Africa in 2010 arguably helped them gain legitimacy as de facto representatives of the developing world, giving them a greater sense of inclusivity by involving an African nation. The 2013 Durban summit strengthened this impression through its official theme, “BRICS and Africa: Partnership for

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Brazil Russia India China S.Africa

Fig.1.BRICSpercentageshareofgrossworldproductin2011,PPP*

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Development, Integration and Industrialisation”, including a proposed new development bank to provide practical help through loans to African nations. The inclusion of South Africa in the BRICS certainly made it easier to argue that they represented the interests of developing nations and that they enhance multilateralism in international relations.

Thus the ideational construct ‘BRIC’ was transformed into an official diplomatic forum. It is far from certain that absent the original hypothesis the BRICS would have become such a group. However the proliferation of discourse on the subject after 2001 provided an ideational, discursive justification — in the form of at least a nascent ‘imagined community’ (Brütsch and Papa 2012)3 — that encouraged political actors who considered it useful to push ahead with formalization of the group. This partly indicates how context-dependent beliefs about the world constitute the bounds of human rationality (see Clegg 2006; Sen 1977), but also how discursive shifts due to changes in conventional wisdom can be politically instrumentalized (see Krugman 1996; Luckhurst 2012: 764-69). This discourse was consistent with, and enhanced by, an increasingly widespread perception that leading emerging nations were gaining in international economic significance relative to the G7. Moreover, the ‘rise of the BRICS’ was interpreted not only as a shift in the world economy due to global integration and interdependence, but also as a normatively-justifiable reorientation of international governance to incorporate key emerging states (Cervo 2010: 27-28; Rodrik 2013). In this sense, the earlier point about the utility of adding an African nation should not be underestimated; it has encouraged favorable perceptions of the BRICS’ role in the world economy and in multilateral relations (e.g. Brende 2013; Calderón 2009; Kimenyi and Lewis 2011;Mlachila and Takebe 2011).

The world economic crisis since 2008 has been a key challenge for the BRICS. As O’Neill notes (2011: 3), the international financial crisis and subsequent enhanced role for the G20 and other multilateral bodies gave the BRICS an opportunity to exert diplomatic leverage as a group. These circumstances helped consolidate the perception that they are important states now at the heart of international economic decision-making, especially as they have accounted for much of global economic growth since the crisis began (Goldman Sachs 2011: 2). However recently BRICS’ growth rates have decreased and, arguably, international perceptions are not as positive as pre-2008 (Nye 2013; Sharma 2012b). Skeptics claim that each of the BRICS faces significant obstacles, with Brazil showing the most dramatic slowdown in growth. Indeed, some emerging-markets analysts now consider economies such as Mexico and Indonesia more promising than Brazil and some other BRICS (Bloomberg 2013; Roubini 2013; Sharma 2012b; Velasco 2013). Also there are considerable doubts about the BRICS’ capacity to coordinate key policy positions. Their cooperation has been limited and often they have diverged on broad

3This notion of ‘imagined community’ is discussed by Christian Brütsch and Mihaela Papa (2012) with reference to Emanuel Adler’s (1997; 2005) social-constructivist research on ‘security communities’. His analysis emphasized how cooperation between states could “engender collective identities” that help foster trust and deepen ties (Adler 1997: 258). However the BRICS have not yet achieved this kind of ‘imagined community’, to the extent that would sustain a momentum for much deeper cooperation, e.g. as has been achieved within the European Union (EU) and North Atlantic Treaty Organization (NATO). Joseph Nye (2013) similarly has written that, “BRIC is not likely to become a serious political organization of like-minded states.”

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strategic goals, including in their relations with the United States and whether they want to reform or simply integrate more with the international economy. BRICS relations and mutual perceptions In order to analyze relations between the BRICS and leading industrialized states it is important to consider their mutual ties. This is not just about evaluating rational preferences but rather how governments assess their own interests in contexts of ‘imperfect information’. Analysis of key issues shows points of convergence and divergence between BRICS governments. The following indicates their potential to cooperate by evaluating their common strategic priorities as well as differences. The key concern is whether, despite the latter, they can coordinate their relations with leading industrialized states. O’Neill (2011: 43) and others (e.g. Armijo 2007; Armijo and Burges 2010; Glosny 2010; Hurrell 2006; Roberts 2010; Sinha and Dorschner 2010) have analyzed the different social, political, and economic circumstances of the BRICS. Considering such factors, I show the extent to which their self-perceived interests and policies are compatible — in international economic relations, especially trade, foreign direct investment (FDI), and monetary policies; plus I compare their domestic politics and development priorities. Growing ties between the BRICS and industrialized countries have been a significant feature of the past decade. The BRICS have experienced rapid growth facilitated by expanding export sectors and, in the case of India, the sale of services to foreign firms. Each has a different focus, with “Brazil specialized in agriculture, Russia in natural resources, India in services, and China in manufactures” (Armijo and Burges 2010: 35), while South Africa is mainly concentrated on mineral exports (IMF 2012: 6). Their main export destinations are often the same wealthy nations; hence there is continuing potential for tensions over trade relations and whether each is complying with World Trade Organization (WTO) rules. They are also competitors in attracting FDI from wealthy states, including persuading foreign firms to locate production within their borders (Nayyar 2008: 13). Commodity markets also cause divergence in economic priorities. China is a major importer of foreign natural resources, e.g. Russian oil and gas and Australian coal and iron ore, which makes high prices a major concern. By contrast, Russia and Brazil gain substantially from higher prices for their energy and commodity exports. Market trends over the past decade highlight the close parallel between energy and commodity indices and GDP growth of these two countries, which have experienced higher or lower growth rates depending on whether international prices are increasing or decreasing (Kim and Ando 2012; Roberts 2010: 44; Sharma 2012a). This indicates heavy reliance on primary sectors and a lack of economic diversification, but also a key difference from China, India, and South Africa in economic priorities — the latter all net importers of key resources such as petroleum. Differences over international commodity and energy markets extend to bilateral relations, with

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some negative consequences for cooperation. One significant example has been recent disputes between Russia and China over Russian oil export-prices and a proposed gas pipeline between them (Blank 2012). This has exposed risks to cooperation due to tensions in their bilateral relations and over broader strategic issues in Asia, as Russian officials were compelled to divert energy infrastructure to China from the strategically-important region of Central Asia (ibid.).

China continues to have an under-valued currency and its manufacturing sector has higher productivity levels than the other BRICS. This gives its manufactured exports an advantage that has helped sustain annual trade surpluses at the expense of leading industrialized states, but also restricted the manufacturing exports of the other BRICS. Meanwhile, Brazil has suffered from an over-inflated currency; its government has publicly criticized the United States for weakening its currency since the 2008 crisis (New York Times 2010a), especially through the Federal Reserve’s ‘quantitative easing’ policy, but also it has joined India in openly criticizing the weak Chinese yuan (Financial Times 2010). The latter has certainly dampened Brazil’s manufacturing export potential by reducing its capacity to compete with Chinese exporters (Pereira and Castro Neves 2011: 5-6). The 2012 economic slowdown in China had a further negative impact on Brazil’s economy, with the latter’s GDP growth-rate down to 1% in 2012 as exports of commodities and energy resources to China declined (IMF 2013a; Sharma 2012a). Importation of Brazilian primary goods still counterbalances China’s competitive advantage in manufactured exports in their bilateral trade, but as Brazil’s growth slows and its trade surplus with China narrows the negative aspects of their ties become more apparent. Arguably the overall impact has been at least a weakening of Brazilian manufacturing; some have gone so far as to claim it has caused a “deindustrialization” trend in the economy (see Jenkins and de Freitas Barbosa: 66-67). Analysts have characterized their relations as more like a “North—South” rather than “South—South” exchange (Pereira and Castro Neves 2011: 4), in which China receives basic goods from Brazil in return for Chinese manufactures. This is indicative of China’s global market advantage over Brazil in manufactured exports, with Chinese products displacing or reducing Brazilian export potential in countries such as Mexico and even neighboring Argentina (ibid.: 6; Jenkins and de Freitas Barbosa 2012: 66-70). Russia, India, and South Africa face similar negative effects from China’s manufacturing success. Sino—Brazilian cooperation on trade issues at the WTO might be undermined due to the persistent imbalance in their export capacities.

Strategic tensions mentioned earlier between the Asian BRICS are a key factor in their relations. As Chinese economic and strategic influence increases in Asia and further afield, especially Africa and South America, these strains might increase. Scholars such as Stephen Blank (2011) and Gaye Christoffersen (2010) argue that Chinese and Russian differences with the U.S. should not obscure their bilateral strategic concerns. There is evidence that Russian policymakers have sometimes perceived China’s increasing influence in Asia as a zero-sum game, in which Russia is being sidelined as a consequence (Blank 2011: 11). However Russian officials have been reluctant to express such concerns, to avoid damaging bilateral relations in a ‘game’ they cannot win against their economically-much-stronger neighbor (ibid.: 12-13). In a

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possible sign that relations might improve, Chinese President Xi Jinping’s first foreign visit after his inauguration was to Russia in March 2013. He and Putin emphasized the strength of relations between their nations, including agreements to increase bilateral trade (New York Times 2013; Reuters 2013b). Yet both governments are likely to remain circumspect about their ties, especially due to the potential for strategic and economic competition in Central Asia. Tensions also exist in China’s relations with India, partly due to growing competition between them for economic influence in states such as Nepal, Burma/Myanmar, and Cambodia (Brewster 2010; Glosny 2010: 127; Malik 2011). Some Indian security analysts perceive a growing Chinese encirclement of India through its maritime influence in the region (Brewster 2010: 6-7). These tensions persist despite their involvement in the Shanghai Cooperation Organization, of which China and Russia are full members and India has observer status. Another key contemporary issue on which the BRICS have different priorities is climate change (Brütsch and Papa 2012; Maplecroft 2010). Russia has diverged from the other BRICS on key aspects of ‘post-Kyoto Protocol’ environmental negotiations in calling for binding targets for everyone, something especially the Chinese and Indian governments reject. Consequently the BASIC group, i.e. all the BRICS except Russia, became the main focus for cooperation in this area in negotiations with the United States, the European Union, and others leading up to the Copenhagen Accord of 2009 (Brütsch and Papa 2012).

The recent BRICS summit in South Africa brought interesting advances in cooperation, especially a reiteration of the 2012 Delhi summit proposal for a new BRICS development bank (BRICS 2012) and an agreement between Brazil and China to swap US$30 billion worth of their own currencies to help ensure bilateral trade (BBC 2013). A key aspect of the Durban summit was its focus on deepening cooperation with African states. Such an emphasis on enhancing ties with other developing nations continues a trend of recent years, though China alone has become the key foreign investor in the continent (Mlachila and Takebe 2011: 4-6). This fits with previous evidence that implies the centrality of China for BRICS diplomacy, though as part of a broader multilateral strategy rather than constituting an ‘anti-western’ bloc. Such deals might deepen mutual trust and cooperation between the BRICS and the development bank would increase the BRICS influence in Africa, but they are relatively limited steps. The currency swap deal is part of a tendency since the 2008 financial crisis for developing countries to diversify away from reliance on the U.S. dollar (Bottelier and Dadush 2011; Eichengreen 2009). It is also similar to a deal reached between China and Australia, plus another being discussed by the Bank of England and the People’s Bank of China (BBC 2013). This indicates that BRICS cooperation is not unique but parallels other examples in China’s international economic relations. Indeed, since 2009 the Chinese have often been more focused on regional economic cooperation in Asia. In particular, they have contributed to the ‘Chiang Mai Initiative Multilateralisation’ (CMIM) agreement and increased their contributions to the Asian Development Bank (Chin 2012: 5-8; Woods 2010: 59). The CMIM agreement was especially important for multilateral coordination between China, Japan, South Korea, and the Association of Southeast Asian Nations (ASEAN). China, including Hong Kong, and Japan each contributed the highest amounts of US$38.4 billion

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to the regional financial support fund, followed by the Koreans with US$19.2 billion. Diplomatically this was significant, as it recognized the “co-equal” regional economic leadership of Japan and China (Chin 2012: 6) and increased their cooperation.

Aside from international issues, it is important to consider domestic factors that influence BRICS relations. Political differences between the five nations are stark. Brazil and India are broadly considered to be consolidated democracies, sharing political norms with the countries of the ‘west’. South Africa’s president Jacob Zuma has raised some eyebrows and there are concerns about corruption within the dominant African National Congress party, but the country is generally considered a stable democracy and a positive example to other African states. Russia is formally a liberal democracy but with growing international concerns about its civil rights record, combined with low scores on key governance indicators such as corruption; freedom of speech; oligarchic influence in the economy; lack of economic diversification, etc. (Müller 2011: 1617-18; World Bank 2011). Meanwhile, China is a one-party state with a rapidly changing society and economy. The country faces significant challenges to overcome potential economic risks, including the need to boost domestic growth and become less reliant on manufactured exports. These differences in domestic circumstances explain some divergences in their strategic priorities, as noted in the discussion of international economic issues. Moreover, their political differences make it difficult to envisage the BRICS constituting a deeply-integrated group based on shared norms that could encourage much deeper cooperation in future.

This section demonstrates how key differences between the BRICS limit cooperation. In light of this, it is important to consider why the BRICS group persists. After all, as argued by Robert Keohane and Lisa Martin (1995: 41), states would not join international fora if there were no perceived utility in doing so. The motivations for political actors and governments in each country are related to political, economic, and strategic goals. As noted, the Russian government perceived the BRICS as an opportunity to enhance Russia’s prestige and gain leverage in world affairs. The Brazilian government of Lula da Silva similarly considered it a means to enhance Brazil’s international diplomatic role (Sweig 2010), and both governments viewed the BRICS as a way to enhance their influence by constituting a multilateral challenge to the dominance of the United States. For India’s leaders, membership of the BRICS has helped project influence in international bodies but they do not view it as “a viable political grouping or alliance” in a strong sense (Sinha and Dorschner 2010: 78). Also the Indian government maintains good relations with the U.S. and has no desire to weaken the latter’s international influence, despite the goal to increase India’s. South Africa’s membership in the BRICS is convenient for the others, as noted, since it provides a greater sense of inclusivity in their ties with developing nations. For the South African government, membership brings diplomatic prestige by association with such key global players, thus helping to consolidate their continental leadership. The recent Durban summit arguably enhanced this benefit. The lynchpin of the BRICS is undoubtedly China, due to its much greater economic influence in contemporary international relations. However, while the other BRICS benefit from a kind of diplomatic augmentation through membership, the priority for the Chinese government has often been the reverse: it has used the BRICS to reduce the

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impression it is seeking a superpower role in world affairs. This strategic purpose has constrained Russian and Brazilian hopes to present a more assertive ‘BRICS diplomacy’, undermining prospects for a coordinated challenge to western or U.S. influence. No doubt surprisingly for some, China has tended to facilitate diplomatic cooperation between the BRICS and leading industrialized states, especially since the 2008 financial crisis.

Cooperation between the BRICS and leading industrialized states The continuing disparities and diplomatic divergences between the BRICS decreases the prospects for a more entrenched, long-term strategic confrontation between them, as a group, and leading industrialized states. If the United States, Japan, and the core EU members emphasize positive engagement, then international cooperation could be enhanced by multilateral interventions from the BRICS. The Chinese government can consolidate these ties by continuing to temper or reject occasional attempts by others, especially Brazil and Russia, to provoke more confrontational relations between the BRICS and leading industrialized states. For example, at the Yekaterinburg summit of 2009 Chinese leaders blocked a Russo—Brazilian attempt to criticize the U.S. for mismanagement of its financial sector prior to the 2008 crisis. Also they have cooled talk of challenging the role of the U.S. dollar as the main reserve currency (Glosny 2010: 121-22). Moreover, the involvement of China and the other BRICS in the G20 indicates their willingness to cooperate rather than compete with leading wealthy nations. The Chinese government has often emphasized areas of cooperation rather than conflict. This is indicated by pronouncements such as the following from a Defense White Paper (State Council Information Office 2009): “China cannot develop in isolation from the rest of the world, nor can the world enjoy prosperity and stability without China”. This attitude is not surprising if one considers the great benefits the country has gained, especially massive economic growth due to exports, from its increasing integration with the world economy since the 1980s. Despite the pessimism of realist scholars like John Mearsheimer (2010: 382), who proclaims “China cannot rise peacefully” and that conflict between China and the U.S. is almost inevitable, John Ikenberry (2008) indicates why China is more likely to integrate with the ‘liberal international order’ rather than try to destroy it. He argues that realist assumptions about the risks and tensions of “power transitions” in the “international order” are not relevant to the current context, since the postwar world economy has not been imperialistic but rather “liberal”, based on multilateral institutions and international law; consequently, China can just as feasibly be accommodated within the ‘liberal order’ as postwar Japan and West Germany. Chinese engagement in the WTO, the International Monetary Fund (IMF), the G20, etc. certainly indicates that this has been happening (see Glosny 2010; Johnston 2008).

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Recent agreements on the BRICS development bank and currency diversification away from the U.S. dollar are significant, but they indicate limited steps towards a greater role for ‘BRICS diplomacy’ in international economic relations. This does not constitute a major breach in their relations with leading industrialized states. Moreover, while the development bank proposal has gained much attention and there is talk of a possible BRICS fund to rival the role of the IMF (Wall Street Journal 2013), an important focus of BRICS diplomacy since 2008 actually has been to increase their role within the IMF (Glosny 2010: 120-23; Woods 2010: 52, 56). In addition, as discussed earlier, China has actively participated in Asian multilateral efforts to counter the effects of the 2008 financial crisis. This regional cooperation has been undertaken in cooperation with the IMF and World Bank. Therefore if similar new BRICS institutions emerge, they could constitute an additional set of multilateral financial mechanisms that complement the Bretton Woods institutions rather than undermine them. After all, the economic policy prescriptions are unlikely to be radically different on matters of trade and investment, even if the Bretton Woods institutions and western governments sometimes set more preconditions about political and governance issues.

Any perception that the Chinese government, especially, is trying to set up a BRICS institutional architecture to challenge the ‘west’ would be contrary to the cooperative approach adopted recently; also, as Ikenberry (2008) explains, there is little reason for them to want to overhaul current arrangements, beyond advocating adjustments that would likely further integrate them with existing multilateral mechanisms. Even among the other BRICS, there has been a general lack of emphasis on confrontation. Russia and Brazil have occasionally alluded to the possibility of challenging U.S. leadership (Cooper 2010: 753-54), e.g. by questioning the reserve-currency role of the U.S. dollar and criticizing its policies on key international security issues such as Iran and Syria. However, despite diplomatic overtures and common critiques, their capacity to cooperate independently of China could be undermined by a lack of mutual strategic and economic ties (Cervo 2010: 30), plus broad differences in domestic politics and societies. Meanwhile, Chinese influence will likely encourage the kind of economic multilateralism it has adopted in the G20 and with Asian states, despite the island disputes that could threaten to undermine the latter.4

Two economic issues that have caused significant clashes within the G20 are trade imbalances and the risk of so-called ‘currency wars’ (Dadush and Suominen 2011: 2, 4-5; Luckhurst 2012: 757-58, 761; Schirm 2011: 7-8), a term to describe heightened tensions between several countries over the effects of loose monetary policies on international currency markets. However, as noted, these tensions exist between the BRICS — with Indian and Brazilian criticism of Chinese yuan policy, as well as between them and leading industrialized countries such as the U.S. and recently Japan due to the latter’s reflationary policy interventions. The desire of Chinese policymakers to increase the role of the yuan as a potential international reserve currency might eventually lead them to allow its exchange-rate to be market-determined, which would reduce tensions over the currency (see World Bank 2012: 63). It has already 4 Discussed below.

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become a less divisive issue after some revaluation in recent years, while China’s export-growth to the EU, USA, and other markets has slowed significantly (Coates, Horton and McNamee 2012; Financial Times 2013). The new Chinese development strategy is to reduce reliance on manufactured exports and focus instead on domestic growth, which, if successful, would lead to further rebalancing and diminish its trade surplus (see O’Neill and Stupnytska 2010: 7-11; Pettis 2013: 69-99; World Bank 2012). Moreover, Ángel Gurría, the Secretary-General of the Organisation for Economic Cooperation and Development, claims that with complex, cross-border supply and production chains the formal balance of trade in finished goods is no longer so crucial in U.S.—China relations (Reuters 2013a). Significantly, currency issues have not constituted a clear divide between the BRICS and wealthy states qua blocs. Likewise, as explained in the previous section, trade tensions exist between the BRICS as well as between them and leading industrialized states. This is in keeping with a broader point I previously noted about the G20, that there are “heterogeneous interest coalitions that traverse disparities in developmental status and geographical position” (Luckhurst 2012: 756), which reduces the potential for the BRICS to constitute a homogeneous and consistently anti-western bloc.

It would be remiss not to reiterate that security tensions could ignite conflict and undermine international cooperation. Clearly there are significant strategic risks to inter-BRICS relations in Asia, in addition to latent disputes between China and Russia, especially, and key industrialized states. Yet multilateral economic cooperation between China, Japan, South Korea, and ASEAN countries increased after the 2008 financial crisis despite territorial disputes over islands in the South China Sea and East China Sea, in particular between China and Japan over what the Chinese call the Diaoyu and the Japanese call the Senkaku Islands. Another significant issue in recent years was a Brazilian disagreement with the United States over Iran’s nuclear energy ambitions, in which Brazil voted against United Nations sanctions on Iran in the face of U.S. criticism (New York Times 2010b; Santos Vieira de Jesus 2011: 61). However the Brazilian people were critical of this move, indicating the public-opinion constraints on Brazilian cooperation with such avowedly anti-western states. Also the new Brazilian president, Dilma Rousseff, has since cooled relations with Iran and improved ties with Barack Obama’s U.S. administration (Downes 2012: 1, 13; New York Times 2011). Another point of contention has been the Syrian conflict, with Russia and China consistently blocking U.S., British, and French proposals for tougher sanctions from the United Nations Security Council. In addition, there is the potential for complications in China—U.S. relations over the issues of Taiwan and U.S. military presence in East Asia. Such contingencies cannot be fully discounted, but deep economic ties between China and the United States imply an extent of interdependence that makes cooperation vital and, effectively, a non-zero sum game with substantial mutual gains at stake.5 The Russian government has sometimes leveraged its energy supply to the EU and

5 The deepening of U.S.— China economic interdependence has been one of the most striking aspects of international economic relations since the 1990s. Particularly significant is that China is the largest foreign lender to the U.S. Treasury, while the U.S. is the major importer of Chinese goods. There are disagreements about the future of their bilateral ties, with optimist and pessimist camps among liberals, realists, and constructivists; however the importance of their relations is widely accepted (see Friedberg 2005; James 2011: 531-32; Nye 2010).

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neighboring states, plus it has vehemently opposed further NATO expansion, so these remain potential sources of tension. Nevertheless, reactions from Washington and Moscow to the Boston Marathon attack of April 2013 — apparently perpetrated by ethnic Chechens about whom the Russians had previously warned the U.S. Federal Bureau of Investigation (Reuters 2013c), indicate how counter-terrorism cooperation could enhance U.S.—Russia security relations.

The G20 has become very important for cooperation between the BRICS nations — which, significantly, are all members — and leading industrialized states. The forum gained a decisive role in coordinating and even ‘steering’ international efforts to manage the global economic crisis (Cooper 2010). It was raised to a leader-level forum and superseded the role of the G7, thus integrating the BRICS with key industrialized states at the heart of multilateral negotiations and economic coordination. This has enhanced the ‘soft power’ of the BRICS in international relations, but in a way that induces closer cooperation with wealthy states through regular dialogue on important issues of the day. Thus the G20 has become a vital aspect of enhanced multilateralism since the collapse of Lehman Brothers in September 2008. Evidence of its achievements is mixed, but there have been notable successes. The April 2009 London Summit of the G20 brought major agreements to implement a global stimulus strategy based on increased funding for the IMF, the World Bank, and regional development banks, as well as national fiscal stimulus programs; plus an agreement to set up the FSB, which further integrated the BRICS with leading industrialized states through monitoring and coordinating financial market reforms (G20 2009). The G20 subsequently agreed to adopt the new Basel III Accords on banking reform (Basel Committee on Banking Supervision 2012: 1), which raises capital reserve requirements for banks and is intended to reduce risks to international financial stability (Basel Committee on Banking Supervision 2010; Slovik and Cournède 2011). Further G20 negotiations have focused on agreements to resist trade-restricting practices (G20 2010; WTO 2010). Also there have been discussions on how to avoid the potential for ‘currency wars’, though without a comprehensive agreement to date (Dadush and Suominen 2011: 2, 4-5). Nevertheless, these G20 initiatives and negotiations have combined diverse new areas of multilateral cooperation with China’s increased regional role in Asia and agreements to reform the IMF, especially by increasing the vote-share of China and the other BRICS in return for their increased financial contributions to the Fund (Woods 2010: 56).

The new emphasis on the G20 has given it what Alastair Iain Johnston (2001: 511-12) would consider a socializing effect, through a kind of peer-pressure exerted on its members. This has been augmented by the monitoring and peer-review role of the FSB and agreements such as to implement the Basel III Accords. What I have called the recent international trend for “multilateral ad hoc embedded liberalism”6 (Luckhurst 2012: 769) fits with Chinese politicians’ preference for strategic economic coordination, further implying how multilateralism might help

6 My reference to ‘ad hoc embedded liberalism’ indicates key similarities between post-2008 international economic governance, especially prominent crisis-response strategies, and the postwar ‘Bretton Woods compromise’. My analysis demonstrates how domestic and international policies have been introduced to ‘embed’ aspects of economic liberalism — though on an ad hoc basis, by contrast with the comprehensive strategy devised in the 1940s (see Luckhurst 2012).

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to solve collective action problems and facilitate BRICS cooperation with the U.S., EU, Japan and other industrialized nations. In this context, the fact that the BRICS are a relatively loose group rather than a close alliance with mutual norms or a shared strategic outlook — beyond the general aim of each government to enhance their international role, makes it less of a constraint on the integration of its members within broader multilateral contexts. China’s greater strength makes it the crucial BRICS member and its government has prioritized an increased international role through existing multilateral institutions, especially boosting its regional influence through the Asian Development Bank and the CMIM (Chin 2012: 6; also see Glosny 2010). This growing desire of Chinese politicians for international leadership was summarized by former Australian Prime Minister Kevin Rudd, who commented in a CNN television interview in April 2013: “China doesn’t just want to be a great power, but a great power that is respected.” Hence the self-perception of Chinese leaders that they are essential participants in, plus beneficiaries of, the current international economic architecture — as noted by Ikenberry (2008) — encourages them to seek accommodation within existing multilateral mechanisms rather than undermine them.

East Asian economic cooperation led by China and Japan since 2008 has made a more positive contribution to the world economy than, in particular, the Eurozone with its continual economic crises due to mismanagement and collective action failures (see Featherstone 2011; Krugman 2012: 166-87; Pettis 2013: 119-35). Angela Merkel’s Germany has allowed the Eurozone to drift towards possible collapse and, at the very least, an extended economic stagnation that has dampened the global recovery since 2010. By contrast, the BRICS have accounted for around 50 percent of global growth since the start of the financial crisis (Goldman Sachs 2011: 2), mostly generated by China. The United States and China have adopted growth-oriented economic policies that have had positive spillovers for the world economy, helping to sustain global growth and trade despite the EU’s self-inflicted problems. This shows the benefits of cooperation between the BRICS and industrialized states such as the U.S. and Japan, especially while the EU cannot be relied on to make a stronger contribution. Greater awareness of the benefits of collective action to overcome global economic risks, e.g. through the G20, is due to shared perceptions of the non-zero sum challenges of international economic relations. On key issues such as trade, FDI, and financial regulation, the G20 has become a crucial forum for facilitating cooperation between leading developing and industrialized states. Achievements to date such as the coordinated response to the financial crisis of 2008, combined with its greater inclusivity compared with the G7, indicate that cooperation between the BRICS and leading industrialized countries has been enhanced by the G20 with significant benefits for the world economy.

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Conclusion This article demonstrates how cooperation has been achieved since the 2008 financial crisis between the BRICS and leading industrialized states. ‘BRICS diplomacy’ became more significant after the crisis with the creation of a leader-level forum in 2009, which some perceived as a potential challenge to liberal international institutions and practices that have predominated since 1945. However the central role of China has facilitated cooperation rather than conflict, especially because of the benefits the country has attained from the existing international economic architecture. Strategic, political, and economic differences between the BRICS make it unlikely they will constitute an anti-western alliance and try to transform international economic norms, e.g. by undermining the United States and other wealthy states. Their preference for enhancing multilateralism in international relations is not a radical new political-economic agenda, but simply intended to gain leverage within existing mechanisms. Increasing incorporation of the BRICS in key institutions and fora such as the WTO, IMF, G20, and FSB indicates that their focus is to become more influential through dialogue and cooperation, not confrontation. Despite occasional evidence from Russia and Brazil, particularly, that contestation could increase, the Chinese government has consistently prioritized multilateral cooperation and leadership through existing institutions and practices in international and Asian-regional contexts. This is a consequence of their appreciation of the non-zero sum effects of complex interdependence, especially in relations with the United States. There are strong reasons for both leading industrialized states and the BRICS to prioritize international economic cooperation. In the current context of fragile recovery in the world economy, often undermined by policy failure and recession in the EU, positive-sum cooperation and growth-oriented strategies from the BRICS and countries such as the U.S., Japan, South Korea, Canada, and Australia has become crucial. Much has been achieved since the 2008 financial crisis through enhanced multilateralism and the Chinese government has played a crucial role in encouraging cooperation, while the BRICS have contributed substantially to global growth. The G20 and other multilateral bodies, plus the BRICS and leading industrialized states, should further enhance their policy coordination for mutual gains and to strengthen the world economy.

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