Golden Billion or Golden Middle?

With the world economy transitioning towards what some term as fragmentation and/or regionalization, there may be new groups of countries and regional blocs that are likely to ascend to greater prominence on the international stage. In particular, the so-called middle powers are becoming increasingly active in consolidating their efforts in the world economy, while also exploring the possibilities for reforming the current system of global governance. Some of these middle powers such as Vietnam in Southeast Asia, are among the most dynamic in the world economy, while also playing increasingly important roles in their respective regional integration blocs. The world’s “golden middle” may hold the key to the future growth dynamics of the global economy and the creation of new pathways to international economic cooperation, including via the formation of a platform for regional integration arrangements.

One of the issues with the lack of consolidation among the regional powers of the global economy is the “identification problem” for such members[1] of the international community – while for small and large economies the criteria and scale of analysis have been extensively explored, the layer of middle powers and its role for the world economy have been accorded relatively less attention. We refer to the middle powers (used here interchangeably with the term “regional powers”) as economies with a significant regional (but not quite global) clout/influence (including through their respective RTAs) whose size is well above the criteria for small economies as defined by the IMF and the World Bank. Such economies may include the likes of Malaysia and Thailand in Southeast Asia, Saudi Arabia in the Middle East, Argentina in South America.

In terms of growth dynamics, middle powers are likely to account for a rising share of global GDP on the back of the outperformance of middle-sized developing economies. One of the successful growth stories among the middle powers of the Global South is Ethiopia that exhibited GDP growth rates consistently in excess of 6% in each of the years within the 2020-2025 period[2]. Another dynamic growth story in this country category is Vietnam that posted positive growth rates in each of the years in the 2020-2025 period, with an annual average rate of more than 5.2%[3]. Overall, existing estimates of the share of the middle powers in global GDP based on proxies such as the shares of BRICS/BRICS+ or the emerging markets and developing countries (EMDCs) suggest a rising trajectory, with the EMDC category already accounting for nearly 1/2 of global GDP in current prices (more than 60% in PPP terms) and nearly 2/3 of global growth[4].

More generally, there may be reasons why in today’s setting there is a need and scope for middle powers to play a greater role in the global economy and global economic governance:

There is inherently less rivalry among the middle/regional powers compared to large powers vying for world leadership
In a world of mounting geopolitical strife, middle powers have a greater neutrality potential compared to small or large economic powers
With the regionalization of the world economy it is the regional powers (frequently being the main drivers of economic integration in their respective regions) that are taking on greater prominence in the world economy
Middle powers account for a rising share of global economy, while also pertaining to one of the most disenfranchised categories of countries in the world economy

Indeed, compared to large and small economies, middle powers have greater scope for maintaining a neutral stance on the international stage. While large powers are frequently obsessed with geopolitical ambitions and small countries find it hard to maintain neutrality and independence under the pressures from the largest players, the middle powers have more scope to withstand such pressures, particularly in case they create stable and resilient RTAs in their respective regions as well as networks/platforms among their regional arrangements.

Despite their notable potential, middle powers appeared to be somewhat left out in the current system of global governance that favored large developed economies. In fact, there may be a phenomenon that could be referred to as the “middle power trap”, whereby the role of middle powers in global institutions such as the IMF and the World Bank (Bretton Woods institutions) is undermined by the disproportionate share of votes accorded to the largest powers, while on the other hand in other institutions such as the UN and the WTO voting is so fragmented that the middle powers also lose out, this time at the expense of smaller constituencies.

For middle powers then, the way out of the trap may be associated with the creation of a new layer of global governance – one may refer to it as the middle layer positioned between that of global institutions (IMF, WTO) and the country-layer composed of individual national economies. This middle/intermediate layer could be formed by the regional integration arrangements, in which the middle powers play a crucial role. Thus far, no such layer for regional arrangements has been created in the world economy.

A system of global governance with a regional layer of cooperation among regional integration arrangements would arguably have better resilience with respect to geopolitical shocks both in terms of ex-ante reduction in national-level tensions and in terms of ex-post conflict resolution (as the regional layer would facilitate the role of regional organizations in peace mediations). In the economic sphere, such a layer would benefit the international community via:

Greater development of regionalism and regional ties across the main regions of the world economy
Lowering dependence on the economic performance of large economic powers via a more regionalized/decentralized pattern of economic cooperation
Boosting South-South economic ties that are currently well below potential, partly due to the lack of a well-developed framework of regionalism

The dynamics within the “middle power” belt of the world economy could have increasingly palpable implications for the rest of the international community. Greater consolidation of middle powers and their ability to exploit their comparative advantages in boosting regional (RTA) and inter-regional (inter-RTA) trade could improve their longer term growth potential, which in turn may be conducive to the expansion in the ranks of the middle class in these emerging markets. This in turn could set in the virtuous circle of greater wealth-creation propping up social and political stability, which in turn would support further economic expansion. The reverse is what appears to have been in motion in the preceding decades, whereby a high degree of fragmentation among the middle powers resulted in low impulses towards intra- and inter-regional trade, leaving many regional powers in the “middle-income trap” and depriving these economies of the benefits of growth and social/political stability.

Greater coordination and a cooperative platform for regional powers could lead to the formation of a “middle bulge” of neutrality and a more “normal distribution” of voting shares/influence/policy-making in international organizations and the global economy more generally. Such a segment of middle powers in the global spectrum could be similar to the role of the median voter that performs a stabilizing role in the socio-economic dynamics and electoral processes. This in turn could act to attenuate the power excesses of large powers that increasingly would compete to get closer to the center of the global political spectrum by concluding alliances with middle powers, much as electoral contenders seek to secure the support of the median voter. This appears to be already playing out with respect to such a centricity-driven regional bloc as ASEAN, whereby competition among the global powers such as the US and China has been intensifying to forge closer alliances with this regional grouping.

But while the benefits from greater consolidation of middle powers and the creation of a platform for regional integration arrangements appear to be plausible, the more difficult question concerns the constituencies, blocs or groups of economies that would opt to launch such a platform. Anything along the lines of a non-aligned movement (NAM) lacks a constructive vision and sufficient momentum for economic cooperation. The G20 group is dominated by large economies with polarized and highly competitive ambitions – so far calls for the creation of an inclusive platform for regional integration arrangements along the lines of a regional R20 remained unaddressed.

The rising number of middle powers applying to join BRICS would suggest that such a platform for regional arrangements could be launched on the basis of a BRICS+ formation. Thus far there is limited headway in this direction that mostly revolves around the framework of the potential cooperation between BRICS economies and the two Eurasian regional blocs – Eurasian Economic Union (EAEU) and the Shanghai Cooperation Organization (SCO). The presence of such heavyweights of the Global South as China and India within the BRICS core necessitates an open and inclusive approach from these large powers in order for BRICS+ to perform the role of a platform for middle powers.

Another possibility is for the regional blocs themselves to launch such a platform. Perhaps of all the regional blocs in the Global South, it is ASEAN that could lead such an effort, given its centricity and neutrality credentials, its economic dynamism and its diversified network of alliances with countries and regions across the world. ASEAN is also the hub for a relatively large number of dynamic and ambitious middle powers such as Vietnam, Malaysia and Thailand.

Notwithstanding its potential benefits, the creation of a platform for middle/regional powers may be fraught with difficulties. One of the pitfalls in this respect is the intra-regional competition and tensions among some of the middle powers that are striving for regional leadership – the competition among some of the largest economies in Africa is one of the cases in point. Another problem is the lingering power of distance in cross-regional trade flows that limits the scale of consolidation among the various regions of the global economy. This is particularly problematic with respect to South-South trade and the under-trading compared to potential among the leading regional economies of the Global South.

In the end, middle powers may be the newly discovered juste-milieu of the global economy. They in effect could become the main beneficiaries of a shift away from a unipolar setting in the global economy to a regionalized framework as one of the possible modalities of a multipolar global governance. The consolidation of the middle powers may enable the international community to build new layers of global governance as well as a bulge of neutrality and stability that attenuates the power excesses of large/global powers. The regional/middle powers may lead the process of a re-assembly of global economic governance that is accompanied by stronger regional integration impulses and a closer cooperation among the main regional integration arrangements.

From BRICS+ Analytics