Russia, the BRICs, and the United States
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By Thomas Graham
Abstract — Despite formidable challenges, Russia should remain a leading emerging market economy, along with Brazil, China, and India (BRICs). The BRIC grouping thus has a future as a symbol of the rise of the non-Western world. The future of the Russian-led effort to consolidate the BRICS (the BRICs plus South Africa) as an influential multilateral organization is less certain because of inherent contradictions in the members’ ambitions, prospects, and security challenges. The United States engages Russia for strategic, not economic reasons. It matters little to the United States that Russia is a BRIC, and it will not engage Russia through the BRICS.
Does Russia belong among the BRICs, along with Brazil, India, and China? That depends on what one means by the BRICs.
The Emergence of the BRICs
In 2001, Jim O’Neill, then Goldman Sachs’ head of global economic research, coined the term ‘BRICs’ as part of a discussion about how to better manage the global economy. At that time, BRIC countries were the four largest “emerging market,” non G-7 economies in the world, by measures of both nominal and purchasing power parity (PPP) GDP.[1] According to O’Neill, the relative importance of these economies would increase in coming decades, since they would continue to grow substantially faster than the already mature G-7 economies. His question, then, was how the G-7 might be reconfigured or enlarged to allow for better management of the global economy.
O’Neill recognized that the BRICs were hardly a group of similar countries. As he wrote, “Clearly, the four countries under consideration are very different economically, socially and politically, and incorporating all four of them into a G-7 style club might not be straightforward, (although the existing G20 meetings are arguably an extended club version of this proposal) and . . . the case based on economic criteria is strongest for China, and less for the others.” [2] What united them was their growing importance for the global economy.
After the global financial crisis of 2008–09, during which Russia suffered the sharpest economic contraction among the BRICs (and indeed among the G-203) by a wide margin, many observers have questioned whether it still belongs among the BRICs, whether BRICs might rightly be reduced to BICs. O’Neill rejects that position, noting that “while Russia does have serious challenges, it also has the potential to have a higher GDP per capita than the other BRICs, and even higher than all other European countries.”[4] Meanwhile, ten years after O’Neill’s initial study, Goldman Sachs contended that his projections had proved broadly accurate. Indeed, the BRICs’ actual performance during the previous decade had exceeded the initial projections. What Goldman Sachs had baptized as the ‘Great Transformation’—“the long shift in economic weight and the engines of growth towards the BRICs and the emerging markets”—was well underway.[5]
O’Neill’s initial projections were music to Russian ears. They played into President Putin’s own ambition to reassert Russia as a major power after its profound socio- economic and political crisis of the 1990s, during which its GDP collapsed by about forty percent. They also validated the economic course—and by extension the politics— that he, in his second year as president, was pursuing to rebuild Russia.
Putin sought to secure a seat for Russia in the top tier of world affairs. Soon after he became president in 2000, he set his sights on hosting the G-8 summit in Russia for the first time (Russia joined the G-8 in 1997, although it was not admitted to the G-7 meetings of financial ministers). He achieved that goal in 2006, but the strains in relations with Russia’s G-8 partners, particularly the United States, were evident and growing at that time due to concerns about Putin’s authoritarian tendencies and Russia’s aggressive policies toward Georgia and Ukraine. That Russia had paid off its debt to the International Monetary Fund (IMF) ahead of schedule in 2005 and to the Paris Club (of sovereign lenders) in 2006 made him more impatient with Western criticism and freed him to pursue an independent course. Putin was turning his back on his earlier goal of integrating Russia into the West and beginning to forge an independent, multi-vectored foreign policy.[6] The BRICs could prove handy in that effort, particularly if the four big emerging economies could be united to push against Western domination of the institutions of global economic governance and more broadly of the international agenda. In 2006, the BRIC foreign ministers met for the first time as a group on the margins of the UN General Assembly’s opening session. In 2008, Russia hosted a meeting of the BRIC foreign ministers, and a year later it took the initiative to raise the BRIC’s profile by hosting the group’s first summit. Three more summits have since taken place, and the agenda has expanded to include a wide range of socio-economic, political, and security issues. In 2010, at China’s request, South Africa was invited to represent sub-Saharan Africa, although, economically, it is not in the same class as the BRICs.[7]
Writing in early 2012, Putin stressed that the BRICS grouping was “a striking symbol of the transition from a unipolar world [led by the United States] to a more just world order.” He acknowledged the countries were experiencing difficulties in working together in this format, particularly at the United Nations (all five BRICSs served on the Security Council in 2011). But he predicted that “when BRICS is really up and running, its impact on the world economy and politics will be considerable.” [8]
As this brief review indicates, BRIC(S) comes in two guises, as a four-faced symbol of the growing weight of the emerging markets in the global economy, and as a political institution created to help redress the balance in world affairs in favor of the largest non-Western powers. And the question of whether Russia belongs among the BRIC(S) is twofold:
Will Russia remain among the four largest emerging markets?
Will the BRICS consolidate as an influential multilateral organization in global economic and political affairs?
Russia’s Economic Future
Russia’s economy has grown rapidly in the decade since O’Neill introduced the BRICs. In 2001, Russia was the fourth largest emerging market and tenth largest economy in the world, in PPP terms. By 2011, it had become the third largest emerging market and sixth largest economy overall. In the next two to three years, it should be the world’s fifth largest economy (after the United States, China, Japan, and India), as Putin told the Duma in spring 2012.[9] Meanwhile, Goldman Sachs continues to believe Russia has great potential; in 2011 it projected that its economy would rank fifth in the world by 2050 (behind China, the United States, India, and Brazil) and its per capita GDP would rank eighth, well ahead of the other BRICs.[10]
But, as Goldman Sachs itself points out, its projections are indications of a country’s potential, not forecasts of its actual performance.[11] The obstacles to Russia’s economic success are well-known: overdependence on commodities, particularly oil and gas; underinvestment in the energy sector; inadequate investment in rapidly aging infrastructure; lagging technological development; decaying education and public health systems; and crime and corruption.[12] Russia will have to attract a considerable amount of foreign investment to overcome these obstacles, meaning it must urgently and radically improve its current investment and business climate: Russia ranked 120 out of 183 economies in the World Bank’s 2012 Doing Business report.
Russian leaders, including President Putin, have repeatedly acknowledged the country’s economic challenges.[13] Various government and government-sponsored committees and commissions have developed plans for overcoming them. But the government has lagged in formulating clear policies and then executing them in an efficient and timely fashion.
Russia’s political system makes this situation unlikely to change. To succeed in the twenty-first century, countries need to foster innovation, creativity, flexibility, and risk- taking. That would suggest Russia needs to liberalize its soft authoritarian system to create more space for personal freedoms. Yet since he returned to the Kremlin last May, Putin has moved in the opposite direction. In response to the urban protest movement that erupted after rigged Duma elections in December 2011, he pushed legislation that has raised the costs of protests, restricted contacts with foreigners, and threatened broad censorship of the internet. These steps have erected significant barriers to continued growth, and have narrowed room for much needed debate over Russia’s future.
Street demonstrations and other public signs of protest have largely faded away, though that might reflect more the inadequacies of opposition leaders than the effectiveness of Putin’s crackdown. But the disaffection has only increased, including with Putin personally. His “trust” rating, according to a leading pollster, dropped from fifty-five percent in March 2012 to forty-three percent at the end of January 2013.[14] Moreover, disaffection is greatest among young urban professionals—the very social stratum that is critical to innovation and economic growth.
These economic and political challenges are formidable, but it is important to put them into perspective. First, the economic challenges are not new. And as recent years have demonstrated, they do not preclude continued growth in Russia, even if they might reduce the rate. Second, the political challenges do not portend a near-term crisis of governability or widespread instability; indeed, they could eventually lead to some liberalization should Putin realize that his crackdown is ineffective in dealing with the discontent and producing the economic growth he seeks. Third, Russia’s challenges are not necessarily more severe than those faced by the world’s other major economies, including the other BRICs, as they seek to deal with the aftermath of the 2008–09 crisis. As a result, Russia is almost certain to remain among the top four emerging market economies, along with China, India, and Brazil, well into the future. In that limited sense, it still belongs among the original economic categorization of the BRICs.
The BRICS’ Geopolitical Future
The BRICS’ future as a geopolitical grouping is less certain. To be sure, BRICS members share some significant positions, notably the defense of sovereignty and non-interference in internal affairs as fundamental principles of world order and a common desire to rebalance power in international institutions in favor of non-Western powers. But these shared interests are unlikely to withstand geopolitical realities for long. The BRICSs are hardly natural allies. India sees China as its greatest security challenge, while China worries that India might be drawn into a coalition of states along China’s border that seek to contain it. Although Russian-Chinese relations might be, in Putin’s words, at “an unprecedented high, marked by great mutual trust in political and economic matters,” Russia must have concerns about the demographic imbalance along its border with China (six to eight million Russians facing well over one hundred million Chinese) and Chinese commercial penetration into Central Asia.[15] At the same time, pipeline projects from the Caspian Basin across Central Asia to China are eroding Russia’s control of the export routes of oil and gas from that region, which has been a critical source of Russian leverage and influence throughout the former Soviet space.
There are other inherent contradictions among the BRICSs. Brazil, India, and South Africa are democracies; China and Russia are authoritarian states. Russia’s interest as an energy producer in high oil and gas prices runs counter to China’s and India’s interests as major energy consumers. Brazil and South Africa have little interest in the Eurasian security problems that preoccupy China, India, and Russia.
Moreover, for all the talk about growing economic ties among emerging markets, BRICSs are not, generally speaking, key economic partners for one another. For China, the relationship with the United States is far and away the most critical. Russia, although it is actively seeking to build up its presence in East Asia, will find itself closely intertwined with Europe for years to come. (Today, the European Union accounts for about half of Russia’s overall trade and upwards of seventy-five percent of foreign direct investment stock in Russia.)[16] China may have overtaken the United States as Brazil’s leading trade partner, but the other BRICSs do not figure large in Brazil’s trade. South Africa by any measure is a minor commercial player compared to the other BRICSs.
Finally, although Russia has played the leading role in organizing the BRICSs, it remains—in ambition, prospects, and worldview—the odd-man out. Of the five, Russia is the only one with recent history as a global power, and it desperately wants to reassert itself as a major player. But in the eyes of most of the other leading powers, particularly the United States and China, Russia is a power in decline, while China and India are rising powers and the fortunes of Brazil and South Africa are rapidly improving. Russia’s rapid economic development since 2000 was made possible in part by reutilizing Soviet infrastructure that had been underused during the crisis of the 1990s. The other four BRICSs, in contrast, have built modern infrastructure to support their growing economies. And while the growing prominence of the other four is a consequence of their economic achievements and promise, Russia’s influence still derives largely from its nuclear weapons and energy resources. As a result, Russia probably looks less confidently toward the future than the other BRICSs do. These differences in perspective and prospects will both reduce the range of issues on which Russia can collaborate with the other BRICSs and complicate further efforts at cooperation.
Despite the inherent problems, Russia will continue to use the BRICS as an instrument to advance its global agenda. But it will likely find, as will all the others, that it is only of value for a narrow range of issues, notably global economic governance. BRICS will be of little value for many of the key challenges Russia faces, particularly along its periphery in Europe, Central Asia, and the Arctic as well as in the strategic realm. On these matters, it will operate through other fora with different partners. The other BRICSs will find themselves in similar situations as they confront their most serious security challenges. In short, the BRICS grouping will not disappear, but it is improbable that it will grow into an influential multilateral organization.
The United States, Russia, and the BRICS
As the geopolitical uncertainties surrounding the BRICS suggest, the grouping itself does not figure into the equation of U.S. foreign policy, although each of the individual countries do. The United States will, as a rule, deal with each of these countries bilaterally and in appropriate fora, such as the United Nations or IMF, but not as a member of BRICS; nor will it engage with the group directly. Likewise, it is hard to envisage any of the BRICSs insisting that the United States deal with it primarily through BRICS.
Consequently, for all practical purposes, BRICS will not be an issue in U.S.-Russian relations. As it has for decades, Russia’s importance for the United States lies in the strategic realm, not the economic one. The United States cares about Russia’s nuclear arsenal, nuclear expertise, and vast natural resources. Russia’s geographic location makes it a significant player in Europe, the Middle East, and Asia, who can help the United States achieve its goals or complicate the challenge.
Even with a growing economy and over $500 billion in international reserves, Russia does not figure large as an economic player for the United States. It matters little that Russia is a BRIC economy. Russia’s recent entry into the World Trade Organization (WTO) will not change this calculation. Today, Russia accounts for well under one percent of overall U.S. trade, and even the most optimistic estimates for increased trade resulting from its WTO membership would only increase its share to about one percent in five years.[17] American direct investment in Russia is small, particularly outside of the energy sector, as is Russian direct investment in the United States. Nothing suggests that a significant change in the investment pattern is in the offing.
As a result, the U.S.-Russian agenda will revolve around the issues it always has: strategic stability; non-proliferation; counterterrorism; security in Europe, the Middle East, and Central Asia and Afghanistan; and human rights. The United States will deal with Russia bilaterally and in various fora on those issues. At times, other BRICSs may participate, along with the United States and Russia. There is, after all, some overlap in the U.S. agenda with Russia and the United States’ agendas with the other BRICSs. China and India, for example, figure in the United States’ calculus for Central Asia and Afghanistan, along with a number of other states in the region. All the BRICSs are players on non-proliferation and counterterrorism, if not necessar- ily among the most important. But for the key issues on the U.S.-Russian agenda, BRICS is irrelevant.
About the Author
Thomas Graham, a Managing Director at Kissinger Associates, Inc., and a senior fellow at the Jackson Institute for Global Affairs, Yale University, 2011–2012, was the senior director for Russia on the U.S. National Security Council staff 2004–2007.
The major developed economies, that is, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
Jim O’ Neill, Building Better Global Economic BRICs, Global Economics Paper No: 66, Goldman Sachs, November 30,2001.
See OECD statistics available at http://stats.oecd.org/index.aspx?QueryID=350#
Jim O’Neill, The Growth Map: Economic Opportunity in the BRICs and Beyond (New York: Portfolio/Penguin, 2012), Kindle Version, loc. 694.
Dominic Wilson, Kamakshya Trivedi, Stacy Carlson and José Ursúa, The BRICs 10 Years On: Halfway Through the Great Transformation, Global Economics Paper No: 208, Goldman Sachs, December 7, 2011. The quoted phrase is found on p. 3.
See Dmitri Trenin, “Russia Leaves the West, ”Foreign Affairs (July/August 2006), available at http://www.foreignaffairs.com/articles/61735/dmitri-trenin/russia-leaves-the-west
See http://www.bricsindia.in/about.html
Vladimir Putin, “Rossiya i menyayushchiysya mir” [Russia and the Changing World], Moskovskiye novosti, February 27, 2012, available at http://mn.ru/politics/20120227/312306749.html
Vladimir Putin’s Report to the Duma, April11, 2012.The full text is available at http://www.kp.ru/daily/25866/2832380/
Dominic Wilson et al., GDP per capita projections are found on p. 31.
Ibid., pp. 16–17.
See National Intelligence Council, Global Trends 2025: A Transformed World, November 2008, pp. 31–32.
See, for example, Putin’s Report to the Duma, April 11, 2012.
See the Public Opinion Foundation’s data available at http://bd.fom.ru/pdf/d4712.pdf
See Putin’s interview with Russia Today, September 6, 2012, available at http://kremlin.ru/news/16393
See http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/
Anders Aslund and Gary Clyde Hufbauer, The United States Should Establish Permanent Normal Trade Relations with Russia, Policy Brief Number PB11-20, Peterson Institute for International Economics, November 2011, p. 2.