Shanghai, China. (Credit: Aylandy/Bigstock)
Shanghai, China. (Credit: Aylandy/Bigstock) (via: bit.ly)

At a time when the durability of existing international relations systems is being questioned, the need for alternative models of global development is clear, according to Vladimir Yakunin. These models, he argues, ought to foster integration and solidarity, and most importantly come from the BRICS countries, as they can serve as the foundation in building ‘development belts’ and set an example for their neighbours and the world at large.

The Challenge is to Build ‘A World that Tolerates All Kinds of Development Models’

Meeting the challenge of building a world tolerant of various development models is in everyone’s interest: societies have become truly interconnected, and in case there is an escalation of disorder and chaos, we will not have any ‘safe havens’ left. As a supra-regional group of non-western, yet highly-developed countries, BRICS could become a platform for generating these models, a platform that does not claim exclusivity or demand monopoly status, but demonstrates a willingness to establish a new model of genuine integration, real solidarity, and interdependent development, as well as its willingness to bear responsibility for the future. A system like this avoids suspicions that any one country is pursuing leadership or hegemony, while also creating a model of equitable and meaningful discussion about the future of the world. The task is to develop and showcase a system of international relations that would meet pressing challenges and solve urgent problems, while also taking into account the diversity of interests—which are no longer represented by one or more blocs of states that view each other as threats. This is why BRICS countries do not contrast themselves to any other group of states and do not impose on its members a uniformity of positions bound by a single ideology.

Current international institutions that promote globalisation, such as the IMF, the World Bank, and the WTO, which were originally designed as instruments for the developed countries to assist those still in development, have made so many mistakes that the weight of their past is pulling them down and stripping them of any credibility. As Joseph Stiglitz wrote in his book called Globalization and Its Discontents, “A half century after its founding, it is clear that the IMF has failed in its mission”. It was the 2008 crisis that was a moment of truth—the moment when it became crystal clear that the source of the crisis, as well as the mechanisms that helped it spread, were none other than the global institutions themselves.

Of all the affected countries, only China was able to maintain its growth rate in the midst of the 2008 crisis. One of the cornerstones of their success was a robust banking system, which is not only the strongest within the BRICS group, but also one of the best banking systems in the world.

The realisation of the importance of financial institutions inspired BRICS to establish two major institutions: The New Development Bank, and a currency reserve pool (all the necessary ratification procedures took place in the five BRICS countries). The BRICS countries’ demand for liquidity stems primarily from the need to ensure payment for imported goods and services, and to guarantee solvency with regard to short-term external obligations. In addition, open economies face serious liquidity risks in domestic markets. For Russia and Brazil, these risks are caused by excessive inflationary expectations, while for India the problem is a high external debt burden. As for China, the issue is ‘investment overheating’. These imbalances are further exacerbated by the speculative forces present in foreign exchange markets, which undermine liquidity and hamper the ability to counter-balance volatile exchange rates. The accumulation of financial reserves, in the form of regional banks and other financial institutions, allows governments to quickly compensate for the lack of liquidity and smooth out the ‘shocks’ that result from dramatic changes on global financial markets.

Some economists draw attention to the fact that the BRICS countries are not truly interconnected, that there is little trade between them. Indeed, they are not actively investing in each other’s economies. Between 2010 and 2014, the proportion of investments within the BRICS group, in aggregate flows of foreign direct investment, amounted to less than one per cent.

Still, the BRICS group are investing more and more into other developing economies. For example, a significant share of Russian foreign direct investment is concentrated in its neighbouring states.

In other words, while there are certain similarities in socioeconomic development within the BRICS countries, they cannot serve as markets to sell their products to each other. That is why, in order to ensure successful long-term development within BRICS, the Strategy for BRICS Economic Partnership (adopted by the countries’ leaders at the BRICS Summit in July 2015) and other collective strategic documents must prevent inner competition and must be focused on joint efforts to implement financial, industrial, and infrastructural projects. This can then become the foundation of the new development model.

Outlining the World of the Future

The new world model must be built on the principles of personal human involvement in the process of development. The individual should not be seen as part of a purely materialistic ‘human capital’ or even as a ‘consumer’ who is easily manipulated through technocratic trickery. To the contrary, the individual must himself become a subject of economic and political governance. Economic development must be defined not by looking at the statistics of GDP growth, but rather by assessing the progress of humanism; the level of spiritual development of man; the society he lives in, the country, the region, and the world. That is why the idea of ‘development belts’ received such strong support in Eurasia: China’s Belt and Road Initiative has already sparked interest in many countries. In 2014 a Russian research team proposed the idea of creating the Trans-Eurasian Development Belt, which was based on the same philosophy as the initiative currently being developed by China.

The philosophy of these projects is simple: attention must be drawn away from the virtual economy and its imposed ideological values, and return to the real economy, that is, to the interests of real people. To do so, development belts with actual physical infrastructure should be created, which will improve people’s quality of life by providing new resources and opportunities. At the same time, areas marked by desolation and inequality, which often become breeding grounds for extremism, should be done away with.

The term ‘infrastructure’, is used in the broadest sense: it includes transportation, energy, communications, water supply, healthcare, education, and much more. In this way, the BRICS countries face a unique historic opportunity: they serve as the sources for the development of their neighbours, as the hotbeds of development on their respective continents. Therefore, BRICS serve as fundamental in the creation and promotion of respective ‘development belts’, which, surely will one day cross the oceans.

Tools for Development

When thinking about tools for development, sometimes there is no need to reinvent the wheel. And oftentimes it is most appropriate to consider financial instruments. Today the world is face to face with global challenges and a global crisis. It is natural for societies to want to defend themselves against these threats. If one looks to the financial sphere, the best thing to do is to create financial reserves. The accumulation of financial reserves in the form of regional banks and other financial institutions allows countries to quickly compensate for the lack of liquidity and to smooth out the ‘shocks’ that result from dramatic changes on global financial markets.

In addition to that, regional financial institutions can expand the potential pool of resources that can be used to finance joint projects. Large investment projects at the level of interstate cooperation involve significant sums of ‘long-term money’. It may not always be possible to withdraw such funds from business or the government. In this case, regional development banks become a decent substitute for syndicated loans because they possess the resources, as well as involve the joint participation of a number of countries in project financing. There is rich international experience with creating such institutions, including those which Russia is a part of. The examples are numerous.

This experience has proven its worth over the years and has yielded successful results, including specific mechanisms established in the member states, so it can be used by the BRICS countries as well.

Conclusion

Asking the right questions is already half the solution. Now that it is clear where the world stands, it is time to think hard about the future. The BRICS countries need to come up with a development model not only for themselves, but also for their neighbours and the world at large. The fact that BRICS are spread across different continents gives them the opportunity to transform themselves into hotbeds of growth, into pillars of support for ‘development belts’. These belts are currently conceptual projects that, given proper research, can translate into specific development projects that in turn will receive funding from joint financial institutions among member states. For this to happen, we need more platforms for expert, public, and political discussions such as the Dialogue of Civilizations Forum, and many others.

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Vladimir Yakunin

Chairman of the Supervisory Board of the Dialogue of Civilizations Research Institute, Head of the Department of State Governance of the Faculty of Political Science, Moscow State University, RU

Russian business leader and philanthropist. Former President of Russian Railways (2005-2015). Head of the Department of State Governance of the Faculty of Political Science of the Lomonosov Moscow State University. Doctor of Political Sciences; visiting professor at the Stockholm School of Economics; visiting professor at Peking University; Honorary Doctor of the Diplomatic Academy of the Russian Foreign Ministry; Member of the Russian Academy of Social Sciences. Vladimir Yakunin graduated from the Leningrad Institute of Mechanics as a Mechanical Engineer in 1972. After completing military service he worked with the Administration of the State Committee of the Council of Ministers of the USSR for Foreign Trade and as a department head at the Russian Academy of Sciences’ Ioffe Physical-Technical Institute. In 1985-1991, Vladimir Yakunin was Second and then First Secretary of the USSR’s Permanent Representative Office at the United Nations. In the 1990s, Vladimir Yakunin occupied various positions in business and public service, including high-ranking positions in the Presidential Administration of the Russian Federation. Yakunin served as Deputy Minister of Transport and as first Deputy Minister of Railways. In 2005 he was appointed CEO of Russian Railways, Russia's largest employer, a position he held until 2015. Vladimir Yakunin is Chairman of the Board of Trustees of the St Andrew the First-Called Foundation and a member of the Russian-French Trianon Dialogue Coordination Council. In 2013, Vladimir Yakunin founded the Endowment for the World Public Forum Dialogue of Civilizations, aimed at supporting research in the sphere of political and social sciences, religion and culture, developing communication between countries on political and economic matters, and seeking compromise in cases of social unrest and international disputes. In 2016, together with the Former Secretary General of the Council of Europe Walter Schwimmer and Professor Peter W. Schulze of the Georg-August University of Gőttingen, he founded the Dialogue of Civilizations Research Institute. Vladimir Yakunin was appointed Chairman of the Supervisory Board of the Institute. Vladimir Yakunin has received around 30 state awards, both Russian and international.