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BRICS Bank to Herald End of International System?

16/04/2013 12:43 BST | Updated 16/06/2013 10:12 BST

Sweeping global shifts

The BRICS - Brazil, Russia, India, China, and South Africa - have decided to set up their own development bank to rival the World Bank. This initiative is not happening in a vacuum. The emerging economies are increasingly self-confident and there is growing dissatisfaction with the international institutional system that was set up by the West. Meanwhile, two "founding fathers" of this system - the US and Europe - are weakening.

The blessings of capitalism?

During and following World War II, the Allied Powers cobbled together the framework of the present global system. The main elements that upheld the new international order were the UN, the IMF, the World Bank, and the General Agreement on Tariffs and Trade (which led to the creation of the World Trade Organization).

After the Berlin Wall came down, it briefly appeared as if each and every country would eventually slot into the international system. From 1989 onwards, the Washington Consensus applied, China joined the WTO and the Americans were the military superpower, aka the policeman of the world, without meeting a lot of resistance. Around the same time Francis Fukuyama wrote his famous essay, The end of history. His argument is that, in the long run, all countries tend towards a form of capitalist (social) democracy.

Fukuyama's utopia

Since the 9/11 attacks cracks have started to appear in this ideal. These turned into gaping gaps after the global financial-economic crisis erupted in 2007. The foundations of the international system started to crumble; a process that continues to this day. The reason is that the system leaned on four characteristics that were ascribed to the West but that are increasingly questionable: economic supremacy, political clout, military dominance and moral/ideological pull.

In the economic world order, the emerging countries are rapidly gaining ground whereas the western states are forced to concede territory. The Eurozone is still in crisis, the US recovery is fragile, and Japan is desperately trying to overcome stagnation that has lasted decades. By now, emerging markets comprise half of the global economy and they are growing much faster than the West.

Politically, the western countries are distracted by internal wrangles. The political discourse in Washington has been hijacked by the fiscal (verbal) war between Democrats and Republicans. Owing to the antagonism between both parties, it has become all but impossible to implement reforms. Simultaneously, Europe is preoccupied with populism, rising unemployment, and ailing EMU members.

Military and ideological dominance on the wane

With a gigantic army and worldwide network of military bases, for decades the US has relished its role as global policeman. Helped by its allies, it guaranteed global stability and ensured that capital flowed freely. International trade prospered. Now the supremacy of the US is being eroded. States like China and Russia are steadily expanding their military capacity. According to the official data, in 2013 Beijing will spend 10.7% more on defense compared to last year. The Russians even plan to up spending by 50%, relative to 2012. Meanwhile, the US defense budget is shrinking (although it should be said that other military budgets still pale in comparison). On top of this, Europe is less and less inclined to play Robin to America's Batman. And in any case it has become more difficult to "police the world" due to the complexity of contemporary threats (which encompass terrorism, cyber wars etc).

Clearly, the western ideology of capitalist democracy is fraying at the edges. For a long time, the US and Europe presented themselves as beacons of lights for those who wanted to moved away from authoritarian darkness. The economic crisis put paid to this. It showed that the political-economic system in the West is not as strong as assumed. Economic inequality is on the increase, uncertainty is rife, while social unrest and populism are spreading.

Wanted: Leaders

In other words, the West has become less able to shape the international institutional system. China in particular, but other countries too, have comfortably hitched a ride on the global regime of trade, financing, diplomacy, and security that was supported by the Americans and Europeans. However, these supports are crumbling and the "powers that be" are losing their enthusiasm. Consequently, the emerging economies reap fewer rewards from the status quo.

Pursuant to shifting power relationships and the growing entanglement of economy and security issues many of the existing structures are no longer sufficient to regulate international relationships and trade. Because the West is drawing in its horns, security and free trade are in jeopardy. Meanwhile, the emerging powers are increasingly critical of the current system. The question is can they - and do they want to - take over the baton from the West? Or will we see a period of profound chaos in a complex world without strong leadership? Worse, is the authoritarian, centrist capitalist model going to undermine the traditional capitalist/democratic welfare state?