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Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness

ISSN: 1059-5422

Online from: 1991

Subject Area: International Business

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Editorial

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Article citation: Abbas J. Ali, (2009) "Editorial", Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness, Vol. 19 Iss: 5, pp. -

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Article Type: Editorial From: Competitiveness Review: An International Business Journal, Volume 19, Issue 5

Recently, the Wall Street Journal (2009) reported that the BRIC countries – Brazil, Russia, India, and China in a meeting in Russia sought to exercise their global clout. The Journal indicated that these countries, like other emerging economies, are heavily dependent on fluctuations in the dollar exchange rate, yet are powerless to influence it. In their meeting, the leaders of BRIC called for more voice and representation for developing and emerging nations in international financial institutions.

The Journal, however, overlooks another important fact; that emerging economies, despite their economic and population growth, lack the political clout, on the global stage, to get their voices heard by advanced countries. Indeed, with the exception of China and Russia, most emerging countries have neither meaningful access to voicing their political priorities nor the power to exercise their political will on the international stage, be it the UN Security Council or other vital global forums.

The IMF (2009a) found that the emerging nations' economic link to and interdependency with industrial countries are stronger than ever. It stated that “stress in emerging economies moves almost one-for-one with stress in advanced economies. The transmission is rapid and occurs within one or two months after advanced economies experience financial stress.” The IMF suggested that a coordinated policy response by advanced and emerging economies has become an imperative.

A coordinated policy, however, is far from becoming a reality. This is because it demands that concerned countries, whether they are advanced or developing, have to participate in a deliberative process in designing a reasonably responsive policy. China's Premier, Wen Jiabao (2009), underscored this message when he stated, “We should advance reform of the international financial system, increase the representation and voice of emerging markets and developing countries, strengthen surveillance of the macroeconomic policies of major reserve currency issuing economies, and develop a more diversified international monetary system.”

The question, however, is “Can a sound global economic policy be developed and carried out without a profound change in existing world political arrangements?” The answer is No! It is impossible, under the current world system, to fairly incorporate the concerns of developing countries in devising global economic policies. Since the establishment of the World Bank and IMF after the Second World War and the subsequent creation of World Trade Organizations, developing countries' desires have rarely been effectively and directly taken into consideration.

In today's world, the established powers make all necessary efforts to maintain their privilege and hold on designing international reality. Their privilege goes far beyond politics to include economic, social, and ecological priorities. Practically, these powers are not inclined to share some of their privileges with others unless there are credible counter-forces. There are signs in recent years that these counter-forces are in the making. Indeed, these forces have been credited with making their voices heard during the November 2001 Doha Round and subsequent meetings which took place in Cancun (2003), and Hong Kong (2005), along with other negotiations in Geneva (2004, 2006, 2008); Paris, (2005); and Potsdam (2007). Nevertheless, these counter-forces have not reached either the level of sophistication in flexing their muscles or in getting their agendas recognized as legitimate and necessary.

This has left developing countries, especially the emerging ones, with little room for maneuvering. The IMF (2009b) reported that as current economic crises becomes more prolonged, “a growing number of emerging economies will find room for policy maneuver becoming increasingly limited, and large-scale official support is likely to be needed from bilateral and multilateral sources.” Given the existing world power structure, it is not clear yet whether this support is forthcoming or not.

Experts, however, argue that emerging economies have no option but to assert their clout on the global economic and political stage. Certainly, economic power will not make headway without being accompanied with political clout. The latter reinforces and strengthens economic power and traditionally eases its expansion across the globe. The formation of the UN, especially its Security Council, the World Bank and IMF, and, to a large degree the WTO, was based solely on political considerations and at the time reflected the prevailing power structure. Since then, the world has experienced profound changes politically and economically. These developments accentuate the need to reconsider the role of emerging economies in world affairs corresponding with the rising realities. The most important of these realities are:

• Many emerging economies have played successful mediating roles in solving regional conflicts and political problems (e.g. South Africa's role in solving Pan-African disputes and internal problems in countries like Kenya, Sudan, Mozambique, Congo, etc.). Furthermore, India, Egypt, and Indonesia, for example, played a leading role in establishing the non-aligned nations during the Cold War.
• Emerging economies are an important market for industrial countries' sophisticated technologies and serve as suppliers of variety of commodities and services to these countries.
• Emerging economies are the home of many well established and rising MNCs (e.g. Lenovo, Noble Group-China; Tata, Reliance Industries – India; Banco Bradesco, Petrobras – Brazil; Cemex, Pemex – Mexico, etc.) and, more importantly, are the host for hundreds of western-based MNCs.
• Emerging economies accounted for 44 percent of global GDP in 2007. Furthermore, projected GDP growth rates for major industrial markets in 2009 are expected to lie between −0.2 and 0.5 percent, emerging markets are predicted to grow at 6.1 percent on average, with China (9.3 percent) and India (6.9 percent) performing even better (Ernst & Young, 2009).
• The rapid increase in the size of the middle classes in emerging markets is certain to position these countries as pivotal players in the growth of the global marketplace. Since 2000, 600 million people have reached middle class status, spending on average US$four trillion a year and an estimated 70 million further people will join their global ranks annually (Ernst & Young, 2009).
• Labor markets in emerging economies are expanding steadily. It is predicted that these nations represent a huge potential for the next wave of growth (Dresang, 2009).
• Emerging economies are increasingly becoming the source for new talents for developed countries.
• Emerging economies have accumulated in the last few years a huge capital. For example, China and Russia have accumulated $1.9 trillion and $560 billion, respectively, (Ernst & Young, 2009).

Though emerging economies have not yet articulated what type of role they should play in global affairs as they have not acted collectively, their economic clout and their noticeable presence on the world stage inaugurates a new era of global political and economic change. The developed world may find it prudent to heed emerging economies' concerns and treat them not only as a legitimate force but also as a vital factor for positive change in addressing world economic and political affairs.

Global developments in the last few decades, especially after the abatement of the Cold War, demonstrate that the current international power structure and arrangement is inadequate to satisfactorily address and cope with mounting economic and political pressures. In fact, various forces have demanded profound reform in the World Bank, IMF, and UN Security Council. Emerging economies have been consistently pointing to deficiencies in the operations and functions of these and other international organizations. Heeding the demands of emerging economies may turn out to be a wise choice for devising a practical and functional world system.

Abbas J. Ali

References

Dresang, J. (2009), “Manpower CEO senses change: employment company has learned to deal with a shifting workload”, Journal Sentinel, available: www.jsonline.com/business/47112552.html (accessed June 6)
Ernst & Young (2009), “Global megatrends – the accelerating shift of power from West to East”, available: www.ey.com/GL/en/Issues/Business-environment/Global-megatrends-The-accelerating-shift-of-power-from-West-to-East
IMF (2009a), “Rapid spread of crisis reflects close global economic ties”, available: www.imf.org/external/pubs/ft/survey/so/2009/res041609a.htm (accessed April 16)
IMF (2009b), “Emerging markets: IMF key issues”, available: www.imf.org/external/np/exr/key/emkts.htm (accessed April 27)
Jiabao, W. (2009), “In Encyclopaedia Britannica”, available: www.britannica.com/EBchecked/topic/914924/Wen-Jiabao (accessed August 22)

Further Reading

China Daily (2009), “Boao conference begins with focus on financial crisis”, available: www.chinadaily.net/china/2009-04/18/content_7691470.htm (accessed April 18)
Osborne, A. (2009), “Four developing powers seek global clout”, Wall Street Journal, June 17, p. A6