The role of BRICS in building global economic equality

The role of BRICS in building global economic equality

Presidents and prime ministers from the member nations of BRICS — an association of major emerging economies: Brazil, Russia, India, China and South Africa — will meet from July 25 to 27 in Johannesburg for the group’s 10th summit. Other key nations have also been invited to attend as guests, including Turkey in its capacity as chair of the Organization of Islamic Cooperation (OIC).
South Africa’s invitation to Turkey and other key emerging markets has prompted speculation about a potential new “BRICS-plus” approach to expanding the bloc. However, host countries have invited additional countries to the summit as guests for several years now.
One key reason why there is some opposition within the bloc to expanding its membership is that it has come to be regarded as a prestigious group by virtue of its small size. Moreover, there is a perception that the club already has significant clout as it stands, accounting for 23 percent of the global gross domestic product in 2016 — up by more than 10 percentage points from a decade ago.
If the group could previously be dismissed as just another “alphabet soup” global institution, today its importance is growing. This has raised fears in some quarters that it could, ultimately, become a unified anti-Western alliance.
To be sure, the BRICS members (like counterpart groups in the West) certainly have shared concerns about some elements of US President Donald Trump’s policies, not least his trade tariffs. However, it is unlikely, for the foreseeable future at least, that this will cohere the club into much more than an increasingly institutionalized forum for emerging-market cooperation.
Part of the reason for this is the heterogeneity of the BRICS nations, with their resultant diverse interests. Take, for example, China’s periodic tensions with India, including over border issues, which can adversely affect relations between the two.
South Africa’s theme for the summit is “collaboration for inclusive growth and shared prosperity in the fourth industrial revolution.” This will entail discussion of measures for how BRICS could become even bigger players and help spearhead a campaign for greater economic globalization. In the face of growing protectionism from Washington, the bloc is keen to showcase its international leadership credentials and help fulfill the prediction of economist Jim O’Neill — who coined the BRICS concept — that it will overtake the G-7’s collective economic output by 2035.
The summit’s emphasis on inclusive growth and shared prosperity is pertinent given that the world is at a potentially pivotal moment in global economic history. World Bank research, co-authored by Branko Milanovic and Christoph Lakner, indicates that for the first time in about two centuries, overall global income inequality — one of, but not the only, measures of economic inequality — appears to be declining.

The BRICS nations are helping to drive what could be the first period of sustained movement toward greater global income equality for two centuries.

Andrew Hammond

The BRICS nations, which overall account for more than 40 percent of the world’s population, have been key drivers of this historic movement toward greater overall global income inequality. The collective economic growth and very large populations of India and China, in particular, have lifted a massive amount of people out of poverty.
At the same time, however, there is an opposing force: Growing income inequality within many countries. This factor has also assumed growing political salience recently, helping to fuel populist, nationalist politicians, from Donald Trump on the right to Mexican President-elect Andrés Manuel López Obrador on the left.
These countervailing pressures, like tectonic plates, are pushing against each other. While the net global trend for the past 200 years has been toward greater overall income inequality, there is significant, growing evidence since the turn of the millennium that the “positive effect” of growing income equality between countries, spurred by the development of the global South, is superseding the “negative effect” from increasing inequality within nations.
Monumental as this could be, however, the picture is not yet clear cut. While more proof is therefore needed to judge whether this economic phenomenon is robust and sustainable, what is certain is that the overall lot of the South has improved dramatically, as exemplified by BRICS over the past generation.
The most prominent beneficiaries have been a much heralded “new” middle class — estimated to be as large as a third of the world’s population — disproportionately located in key Asian emerging economies. Much of the bottom third of the global income hierarchy has generally benefited, too.
However, not all of the South has shared fully in this success story, to date at least. Much of Africa, and some of Latin America, for instance, have generally not benefited as much as Asia, and this is an issue the South African summit hosts will seek to explore.
It is unclear whether the development of the global South has enough momentum to keep driving forward a more equitable world order. This will depend, largely, on the same twin issues of whether emerging markets generally continue to grow robustly, and whether the trend toward rising income inequality within countries is sustained.
On the first issue, the trajectory of the global economy will very likely continue to shift toward the South, and for the foreseeable future many key emerging markets will probably remain robust. However, the remarkable wave of emerging-market growth of the past generation might now decelerate, and the global transformation it has produced in recent years potentially will not be repeated.
Regarding the second issue, it is not set in stone that ever-growing income inequality within countries will continue, especially if there is a political will to address it. However, the debate over what long-term reform agenda should be undertaken to tackle this problem is contested by the left and right across much of the world.
Taken overall, the BRICS nations are helping to drive what could be the first period of sustained movement toward greater global income equality for two centuries. However, the fragile process could yet go into reverse if emerging-market growth decelerates faster than anticipated and/or income inequality within countries accelerates, undercutting efforts to foster the type of inclusive growth the summit seeks to foster.

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.

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