CHAPTER 13
MOVING INTO POSITION: THE RISING POWERS
Overview:
This chapter examines the problems of states, markets, and societies in transition from one ideologically
based system of political economy to another. The goal of this chapter is to explore the nature of the transitions from
communist/socialist or state-dominated economies to more market-based economies integrated into the global
capitalist system. Most attention is given to Russia, Brazil, India, and China—making this a complete BRICs
chapter.
More specifically, we present a number of important theses about the rising powers. First, there is not a
single path toward market-oriented economies. The different trajectories reflect variations in countries’ historical
background, size, political system, and policy decisions. Second, the experiences of countries in transition lead us to
question many assertions in the IPE theories we discussed earlier in this book. For example, China shows that
economic liberals’ belief that capitalism, democracy, and freedom go together may not always be true. On the other
hand, some countries’ phenomenal growth under market-friendly policies suggests that mercantilists overestimate
the positive outcomes of state intervention in the economy. And rapid reductions in poverty in China and India belie
structuralists’ belief that global capitalism locks poor countries into a vicious cycle of exploitation and
underdevelopment.
Third, in most countries transition has been a painful and chaotic process that has, at least in the short run,
destroyed valuable social institutions and undermined social stability in pursuit of long-term economic growth. For a
substantial number of people in post-communist countries, capitalism has brought sacrifice, crime, and despair.
Finally, the rising powers are ineluctably forcing Europe, the U.S., and Japan to change. These latter countries are
losing some of their ability to dominate international institutions, which means many of the “rules of the game”
affecting trade, finance, and intellectual property will have to start reflecting the interests of emerging countries.
This shift in power will create new global tensions that could just as easily lead to a more dangerous world as one
based on cooperation and peaceful coexistence.
Learning Objectives:
• To discuss some of the historical events and contexts that led up to transitions from socialism or state-
dominated economies to market-oriented economies in the Eastern bloc, Brazil, India, and China.
• To explain the specific problems and tensions that nations face as they attempt a transition from one system of
political economy to another.
• To highlight some of the different approaches that countries have taken to transitioning their economies. This
includes coverage of “shock therapy.”
• To explain the unresolved social and economic problems in the rising powers and highlight the tradeoffs
between different growth objectives.
• To discuss the problem many states have when it comes to choosing or selecting a strategy that would help
them further political and economic development.
• To summarize the potential implications of a world with a growing number of economically and politically
powerful countries.
Chapter Outline:
INTRODUCTION
a) China has been acknowledged by the Obama Administration as a country whose economic and political
influence is growing rapidly. Chinese–American cooperation on different issues is crucial for American
foreign policy.
b) As they transition to market-oriented economies, China, India, Brazil, and Russia are profoundly reshaping
where goods are produced, what global poverty trends look like, and how capital flows around the world.
c) The path of each BRIC country is different, reflecting variations in countries’ history, size, political system,
and policy decisions.
d) Change in something as complex and important as a nation’s system of political economy causes stresses
and strains at all levels: individual, market, class, nation, region, and globe. Half of the world’s population
has been experiencing the stress of a change.
e) The rising powers are ineluctably bringing intense competition to Europe, the United States, and Japan—
developed nations that are losing more of their labor–intensive manufacturing and some of their ability to
dominate international institutions.
TRANSITIONS IN THE FORMERLY COMMUNIST COUNTRIES
a) Although the Soviet Union came into existence in 1917, most communist or socialist regimes emerged after
the end of World War II in Eastern Europe and Central Europe, North Korea, China, Vietnam, and Cuba.
b) Most of the means of production—factories, land, and property—were owned by the state on behalf of the
people as a whole.
c) This cumbersome system of state central planning eventually resulted in a myriad of problems such as
overproduction, shortages, and misallocation of investment.
d) It is important to remember that in their heydays from the 1930s to the 1970s, many command economies
successfully generated high growth rates, transforming agrarian societies into military industrial
powerhouses.
e) States found it increasingly difficult to deal with the effects of the misallocation of resources caused by an
inefficient planning system and ignoring of fundamental market forces, which ultimately led to some
restructuring in countries like Russia, which introduced glasnost and perestroika.
f) Marketization is the re-creation of market forces of supply and demand, and privatization is the transfer
of state-held property into private hands.
NEW POLITICAL AND ECONOMIC LANDSCAPES
a) While almost all of the post-communist countries of the former Soviet Union and Eastern Europe suffered
severe economic decline and political upheaval in the early 1990s, some obtained relatively high rates of
growth after a few years while many still suffer significant economic and institutional problems.
b) There are surveys which indicate widespread dissatisfaction with democratic market systems in transition
economies.
c) It is clear that there are significant differences among post-communist countries today based on economic
indicators.
d) The Baltic states have embraced economic liberalism and social democracy.
e) In the Commonwealth of Independent States there have been mixed transition results. On average, it wasn’t
until 2007 that the GDP in real terms recovered to 1989 levels in these countries.
f) Some CIS countries have improved economic indicators, but remain moderately integrated, suffer from
crony capitalism and the presence of oligarchs, and have weak democracies.
g) Russia’s combined life expectancy for both sexes rose to seventy years by 2011, and fertility rates
increased as well, but political economist Nicholas Eberstadt argues that the “dying bear’s” “demographic
disaster” deprives it of the human resources needed to significantly improve its economic performance and
military prowess in the future.
h) Vladimir Putin’s strategy of nurturing state-controlled national champions in energy and mineral sectors is
a risky proposition, given the volatility in world energy prices and the neglect of private sector
manufacturing.
i) Realists remain concerned about the security threats from an authoritarian Russia that claims spheres of
influence around its borders and uses its oil-and-gas wealth to pressure European neighbors and centralize
economic power in the hands of corrupt, Kremlin-friendly elites.
Box: Waiting for Godot in Coscalia, Moldova
a) Moldova is formerly a part of the Soviet Union and culturally similar to Romania.
b) Moldovans live very simply on very modest farming salaries. After schooling is completed, many
Moldovans immigrate in search of more lucrative work.
c) Even though it is a tight knit community, residents’ lack of trust has meant that progress on collective
action has been limited.
d) This lack of cooperation is partly due to resistance on the part of younger members in the community to
cooperatives and centralization.
BRAZIL: THE COST OF SUCCESS
a) Brazil reflects a contradiction common to today’s emerging economies: tremendous economic growth has
given it greater influence on the global stage, but lasting legacies of exploitation and poverty have yet to be
overcome.
From Colonialism to Modernization
a) Beginning in the 1930s, Brazil embarked on a successful program of development based on the principles
of import-substitution industrialization.
b) The 1980s turned into the so–called Lost Decade. Brazil’s rate of annual GDP growth fell from 7.5 percent
to 2.5 percent.
c) Following the re-election of Cardoso in 1998, Brazil began to be perceived as a model for stability and
successful democratization within the Latin American region. It started to emerge as one of the world’s
most important exporters of agricultural products and ethanol. The country moved toward a customized
mixture of liberalization combined with policies aimed at domestic industrial and social development.
The Rise of Brazil under Lula
a) Brazil’s coronation as a major rising power coincided with the election of Labor Party candidate Luiz
Inácio Lula da Silva as president in 2002.
b) Domestically, Lula’s crowning economic achievement was the Fome Zero (Zero Hunger) program, which
quickly became one of the most comprehensive and well-known public assistance programs in the world.
Fome Zero includes a conditional cash transfer program called Bolsa Família (family grant), which
provides cash assistance to needy families—but only if they meet certain conditions, like school
attendance, vaccinations, and regular medical and dental care for children. The program has sharply
reduced absolute poverty and improved health and education for young people.
The Cost of Economic Success
a) Deforestation is the price Brazil has paid for the expansion of farmland and growth of agricultural exports.
In addition, there are more violent conflicts between large producers and rural peasants over access to land.
b) Sugar cane plantations and mills are blamed for reducing the land available for food production and
diverting massive quantities of water from some of the country’s most important watersheds. Agricultural
development policies also often leave small-scale producers and indigenous communities without access to
the land upon which they rely for their livelihoods.
c) Rising global demand for aircraft and basic commodities like food, iron ore, and energy have no doubt
helped keep Brazil’s exports up. In 2009, China surpassed the United States as Brazil’s most important
trading partner.
d) Brazil has been proud of its economic model which embraces free markets and foreign investment, but also
maintains large state-owned industries in strategic sectors like oil, electricity, telecommunications, and
agricultural research.
e) However, there are still storm clouds on Brazil’s horizon. Growth faltered in 2011 as manufacturing
declined and Chinese demand slowed. Inequality remains persistently high, contributing to class tensions.
INDIA: THE OTHER ASIAN TIGER
a) India has made tremendous economic advances, but many view India’s reluctance to fully embrace
economic liberalization as self-imposed bars of its own cage.
From Independence to a Mixed Economy
a) Following independence in 1947, India’s first Prime Minister Jawaharlal Nehru promoted his vision of a
self-reliant, import-substitution-led model of growth that was as independent of foreign capital as possible,
driven by a fundamental mistrust in the capital system as a result of colonialism.
b) Along with the protection of infant industries, India grappled with the improvement of the agricultural
sector, as it was not only an important source of revenue and food security, but was overwhelmingly (and
remains so today) the largest source of employment for India’s population.
c) Aside from the successfully high levels of crop yields, the Green Revolution played an important part in
stimulating auxiliary sectors of India’s economy such as irrigation, manufacturing of fertilizers and agro-
chemicals, and domestic transportation infrastructure.
d) Despite large-scale capital investment during the first 30 years of independence, India averaged a modest
annual economic growth rate of only 3.6 percent, and the annual GDP per capita growth rate was a mere
1.4 percent.
Post-Reform Performance
a) Reforms after 1991 triggered growth rates in the 7 percent range with the services sector growing
dramatically.
a. Unlike many East Asian economies, India’s economic performance since its 1991 reforms has been
characterized by capital- and skill-intensive growth as opposed to export-led growth of labor- intensive
manufactured goods.
b. As evidence of India’s increased global presence following its reforms, over one hundred of its companies
have a market capitalization value of over $1 billion.
b) Left behind has been the peasantry. Economic reforms in the 1990s included the elimination of most
agricultural subsidies, lower prices supports, and encouragement of cash crops like cotton that left many
farmers at the mercy of market forces.
c) Poor public services, underdeveloped physical infrastructure, and an inconsistent supply of water and
electricity all place major constraints on India’s potential for further rapid development and sustainable
urbanization.
Box: The Case of Bangalore: Epitomizing India’s Duality
a) Bangalore’s IT industry grew rapidly post 1991 neoliberal reforms. The city prospered from this industry,
but also struggled with overpopulation, inequality, and poor infrastructure.
b) Bangalore was considered a key location for software development and the outsourcing of IT- related
industry for a number of reasons, including a large presence of leading universities and research
institutions, an English-speaking labor pool, and an existing close-knit relationship between the
government and the private sector.
c) Bangalore epitomizes India’s development character: fast-paced growth driven by the services sector,
though constrained by byzantine bureaucracy.
d) Bangalore was ranked last on a list of seventeen Indian cities in terms of ease in starting a business,
according to the World Bank’s 2009 Doing Business in India report.
Outlook for the Future: The Crisis and Beyond
a) In India, the proportion of its population of working age will continue to rise for the next few decades,
whereas in China it is expected to fall.
b) While the global financial crisis has hit India’s stock market, much of India’s domestic foundation remains
strong. It has a demographic dividend.
c) Scholars have debated whether or not India’s democratic system has left it at a disadvantage in generating
economic development compared to authoritarian China.
d) Most IPE scholars expect that it will take many years for India to become a global power. In the meantime,
realists hope it will be a regional buffer against Islamic extremism in neighboring Afghanistan and
Pakistan. Economic liberals see in India proof that moving away from a state-dominated economy leads to
rapid growth.
e) Structuralists tend to pooh-pooh the India-rising hype, noting that caste and exploitation still leave most
Indians in deep poverty. The proliferation of ultra-rich businessmen points to growing inequality of wealth.
CHINA IN TRANSITION: AN ANALYSIS OF PARADOXES
a) Though born out of the structuralist rhetoric of Communist revolution, modern China in the last three
decades has adopted increasingly liberal economic policies on its way to becoming a leading manufacturing
power and major player in the global economy.
b) A mix of the IPE perspectives can be used to describe Chinese economic policy.
The Roots of China’s Rise: The Transition to Market Socialism
a) By the late 1970s, China’s economy was unstable, and the legitimacy of the Communist Party was in
serious jeopardy.
b) In 1978, Deng unveiled an economic reform program that he described as “socialism with Chinese
characteristics” that combined elements of socialism with a greater role for markets and private property.
c) Under Deng, communal farms were dissolved and trade barriers were reduced.
d) The Chinese state policy has resulted in the development of regions that are entirely devoted to export-
oriented manufacturing such as the Pearl River Delta.
e) Rapid growth has fueled tensions and distrust between the Chinese population and the Communist Party
leadership but censorship has kept public expressions of dissatisfaction to a minimum.
f) Hu Jintao has implemented policies aimed at fighting corruption, strengthening the legal system, improving
public services, protecting the environment, and decreasing inequality.
g) One of the reasons for China’s worsening terms of trade—the ratio of prices of exports to the prices of
imports—is the rising cost of imported commodities and minerals. In addition, China’s rising wages and
modest currency appreciation are making its goods relatively less competitive in the world.
Paradox I: Fostering a Consumer Society Despite Repressive Policies
a) China’s long-term challenge in maintaining a minimum level of annual economic growth is as much a
matter of protecting trade as it is a task of opening market opportunities within its own economy.
b) Fostering such internal economic growth is in Beijing’s interests for many reasons. Selling more Chinese
goods inside China would provide a more reliable and stable economic model. Consumerism has been
developing in China’s burgeoning metropolises.
c) Arvind Subramanian points out that since the beginning of the 2000s, the average Chinese citizen has
enjoyed rising consumption. He doubts that China’s economic transition can be stopped: by 2030 China
will probably be the world’s economic powerhouse, based on existing data trends.
d) Providing greater faith in the availability and affordability of basic social services may, in the long run, be
China’s ticket to instigating greater domestic consumer spending.
e) Structuralists argue that in its singular pursuit of industrialization the Communist Party has disregarded the
health and safety of its own people.
f) The dilemma China faces is that expansive, direct control over media access is increasingly at odds with the
values and desires of an educate middle class.
Paradox II: Mercantilism that Runs on Global Interdependence
a) Some western theorists have accused Beijing of keeping China’s currency artificially devalued, providing
unfair export subsidies, allowing inhumane working conditions, and turning a blind eye to widespread
violations of intellectual property rights, representing a threat to U.S. security.
b) The prospect of a stronger China, with its repressive political system and human rights practices, is
considered unacceptable.
c) Realists have a less sanguine view of China than free-market theorists. They worry that its military
modernization will threaten U.S. military hegemony worldwide. The “China price” for manufactured goods
is weakening or destroying major industries in the developed world such as textiles, electronics, and green
technologies, leading to a major loss of good jobs and rendering developed countries more vulnerable in a
potential war.
d) Historians Niall Ferguson and Moritz Schularick coined the term “Chimerica” to describe the
phenomenon: China not only produces the affordable goods that Americans crave, but its culture of
personal saving builds the credit that effectively bankrolls a culture of leveraged debt in the United States.
e) Beijing shocked many countries in 2010 when it temporarily halted the export of rare earth metals used in
the manufacture of consumer electronics, hybrid car batteries, and military equipment. For realists, the
lesson of the episode is that China cannot be trusted to abide by global trade rules in the future.
f) Realist political scientist John Mearsheimer has stated adamantly that China will inevitably become more
aggressive and seek regional hegemony, compelling the United States to try to slow its rise.
Paradox III: Adapting to Global Norms and Institutions (While Trying to Change Them)
a) Political scientist Michael Beckley rejects the thesis of Arvind Subramanian and many realists that China’s
economic growth necessarily means the decline of the United States.
b) According to international development scholar Deborah Brautigam, China should not be interpreted as a
“rogue donor” bent on ruthless exploitation of Africa. Rather, it has a “win–win” relationship with its
African partners.
c) Ultimately, the realities of global economic interdependence constrain China’s ability to act rashly and
malevolently in pursuit of own benefit. Deep interconnections with the rest of the world tamper its ability
to exercise a realist–mercantilist agenda willy-nilly.
d) Many liberals believe that China’s wealth is strengthening institutions of global governance such as the
WTO, the UN, and the G20. In this conception, it is China that is accepting the developed world’s
consensus, not the developed world that is bending to the “Beijing Consensus.”
CONCLUSION
a) Some IPE theorists fear the emergence of these aspiring powers, while others see their success as laying the
foundation for mutual benefit from globalization.
b) Brazil has faced debt burdens and inequality. Russia has suffered deindustrialization and various social ills,
turning into something of a rentier state. India has left too many poor people by the wayside. China cannot
shake off authoritarianism.
Key Terms:
• glasnost
• perestroika
• marketization
• privatization
• crony capitalism
• oligarchs
• siloviki
• national champions
• Bolsa Família
• Green Revolution
• Demographic dividend
• Terms of trade
• Chimerica
Teaching Tips:
• Students are likely to have much more familiarity with China than India, Brazil, or Russia. We recommend
showing students the countries (and their various regions) on a map. It would also help to briefly mention the
current top leaders of each country.
• It is interesting is to ask students whether it is possible to have democracy without capitalism and capitalism
without democracy. The question of whether market socialism can solve the problems of capitalism and
classical socialism provides an interesting avenue for discussion.
• The case studies in this chapter—Russia, Brazil, India and China—are somewhat tentative because events and
trends can change. You might want to quickly review recent events in the nations that are case studies in this
chapter or in other countries (or assign students to do so!) so that you can effectively update the text.
• U.S. hegemony makes a great topic for starting conversation and debate among students. This chapter is
particularly well suited to the topic, as the focus is on other rising world powers. Ask students about the
likelihood that China and India will become major political economic powers over the next 20 years.
Sample Essay-Discussion Questions
1. Compare and contrast the economic and political reforms in Russia and China. Are there any general lessons to
be derived from this experience? Explain.
2. How are China and India’s reform experiences different from those of Russia and Brazil? Focus on differences
between the ends and means of development in these societies. For example, China aims to reform its market
without a radical alteration in its political system. Is it possible to so dramatically change the market without
changing the state in these societies? Explain.
3. Compare and contrast the economic and political reforms in Russia and China. Are there any general lessons to
be derived from this experience? Explain.
4. In what ways is China posing a threat to American wealth and might? Do you believe that the United States
and/or the EU are likely to remain competitive, thriving countries in the future? What advantages does the
United States have that may sustain its global dominance?
5. How do realists view China? For what reasons might China’s rise not be something to worry about?
Sample Examination Questions:
1. Which of the following statements best characterizes the experience of economic and political reforms in
China?
a) attempts to achieve economic reform without strong political backing
2. Which of the following statements best characterizes the experience of Brazil?
a) The 1990s are referred to as its Lost Decade
3. India’s economic transition was most similar to those of the other emerging economies in which respect?
a) socialism had its roots in a rebellion against historical events
4. “Which of the following statements would a structuralist make?
d) Democracy in India and Brazil gives their governments more legitimacy than in China and Russia.
5. Which of the following is most associated with economic liberal policies?
a) Promotion of national champions.
d) They embrace free trade and foreign investment
7. Which of the following is not identified as a characteristic of contemporary Russia?
8. Which characterizes India more than China?
9. Which of the following best characterizes China?
10. Which is the most likely observation some realists would make about China?
11. Which is NOT a key characteristic of India before 1990?
d) a significant role for state planning in the economy
12. Which of the following is the most apt description of India’s emerging relationship to the global economy?
a) Chimerica
13. Which of the following is a key characteristic of the Russian political economy?
a) a demographic dividend
14. Which of the following is described as a contradiction in China’s development?
d) adopting significant environmental sustainability policies while maintaining high growth rates
15. Which observation would an economic liberal most likely make about China and India?
d) one of them—but not both—can emerge as a major political-military player in the world