Politics, not economics, is increasingly the key to building BRICS
Presidents and prime ministers from the BRICS nations (Brazil, Russia, India, China and South Africa) will gather on Wednesday and Thursday in Brasilia for the group’s annual summit. The bloc was formed for its economic potential but political cooperation has also come to the fore in recent years.
This growing political bent is exemplified by several key initiatives. The New Development Bank, for example, which was created as an alternative to the World Bank and the International Monetary Fund and will finance infrastructure and other BRICS projects. A related $100 billion special currency reserve fund was also established. One driver for the new bank is the perception that it will allow BRICS nations to better promote their political interests abroad.
Another initiative, perceived as a challenge to the US preponderance in information technology, was most recently discussed in August when BRICS communications ministers signed a letter of intent to cooperate in this sector. This builds on plans, first mooted in 2012, for an optical-fibre cable system to carry telecommunications between the BRICS countries, partly as an attempt to evade the purview of western intelligence agencies, including the US National Security Agency.
These examples underline the hunger of the BRICS nations to become not only economic but even bigger political players, raising fears in some quarters that the bloc could become a unified anti-western alliance. This is of concern to many, given that the five countries account for more than 25 percent of the world’s land mass and 40 percent of its population.
To be sure, the members of BRICS (like some countries in the West) certainly have shared concerns about key elements of the prevailing global order. These include a wide swathe of US President Donald Trump’s policies, not least his trade tariffs. During last year’s BRICS summit in South Africa, for instance, the bloc — in the face of growing US protectionism — was keen to showcase its international leadership credentials around trade.
However, it is unlikely, for the immediate future at least, that BRICS will move decisively beyond being an increasingly institutionalized forum for emerging-market cooperation. Part of the reason for this is the heterogeneity of the club, and the diverse interests of its members. Take, for example, China's periodic tensions with India, including disputes over border issues, which can adversely affect relations between the two.
At the same time that the BRICS nations are stepping up their political cooperation, there is growing skepticism about the relevance of the group as an economic club.
At the same time that the BRICS nations are stepping up their political cooperation, there is growing skepticism about the relevance of the group as an economic club. Financial services company Standard & Poor’s, for instance, last month highlighted the diverging long-term economic trajectories of the five nations. The generally robust economic performance of China and India over the past two decades contrasts with the often disappointing results in Brazil, Russia and South Africa. This means that there is growing uncertainty about whether the bloc can fulfill the prediction of British economist Jim O’Neill — who first coined the BRICS concept — that it will overtake the collective economic output of the G7 in about a decade and a half.
Yet with the BRICS countries already accounting for about a quarter of global GDP, up by more than 10 percentage points in about a decade, their overall growth is already having a major global impact. World Bank research, for instance, suggests that for the first time in two centuries, overall global income inequality — one, but not the only, measure of economic inequality — appears to be declining.
This is being driven by BRICS and other emerging markets, in particular the collective economic growth and very large populations of India and China. These two countries have lifted a massive amount of people out of poverty, driving the greater trend in reducing overall global income inequality.
At the same time, however, there is an opposing force: the growing income inequality within many other countries. This factor has assumed growing political salience recently, helping to fuel populist, nationalist politicians, including Trump.
The net global trend for the past 200 years has been toward greater overall income inequality. Yet there is growing evidence in the past two decades that the “positive effect” of growing income equality between countries, spurred on by BRICS and the development of the global South, is superseding the “negative effect” of increasing inequality within individual nations.
It is unclear whether BRICS and the wider development of the global South have enough momentum to keep driving forward the move to a more equitable world order. This will depend largely on the twin issues of whether emerging markets generally continue to grow robustly, and whether the trend toward rising income inequality within countries is sustained.
Regarding the first issue, the trajectory of the global economy will very likely continue to shift toward the South, but the remarkable wave of emerging-market growth witnessed in the past generation might now decelerate. On the second issue, while it is not set in stone that the trend of ever-growing income inequality within countries will continue, it is unclear whether there is the political will to address it in many nations.
Taken overall, while the relevance of BRICS as an economic club is increasingly being questioned, it has helped drive what appears to be the first period of sustained movement toward greater global income equality for 200 years. While this is a hugely significant achievement, the fragile process could yet go into reverse, especially if growth in China and India flattens significantly.
- Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics