CAMBRIDGE – Last month, China’s new president, Xi Jinping, chose Moscow for his first foreign visit. He and Russian President Vladimir Putin announced a number of agreements and then traveled to Durban, South Africa, for the fifth “BRICS” summit, where they joined with the leaders of India, Brazil, and South Africa to announce the creation of a new development bank that could challenge the dominance of the World Bank and the International Monetary Fund. The five leaders’ speeches referred to a shifting world order, and Xi said “the potential of BRICS development is infinite.”
It looked as if the BRICS had finally come of age. Three years ago, I was skeptical about the BRICS. And, despite the recent summit’s apparent success, I still am.
Nearly 12 years ago, Jim O’Neill, then the chief economist for Goldman Sachs, coined the term “BRIC” to describe the “emerging markets” of Brazil, Russia, India, and China. From 2000 to 2008, these four countries’ share of global output rose rapidly, from 16% to 22% (in purchasing power parity terms), and their economies performed better than average in the subsequent global recession.
For investors, that outcome justified the creation of the catchy acronym. But then a strange thing happened: the investors’ creature came to life. In 2009, the four countries met for the first time in Russia in an effort to forge an international political organization. South Africa joined the bloc in late 2010 primarily for political reasons. As O’Neill recently told China Daily, “South Africa is quite fortunate enough to be in the group, as, economically, it is rather small compared to the others.” Moreover, its economic performance has been relatively sluggish, with a growth rate of just 2.3% last year.
Indeed, while the BRICS may be helpful in coordinating certain diplomatic tactics, the term lumps together highly disparate countries. Not only is South Africa miniscule compared to the others, but China’s economy is larger than those of all of the other members combined. Likewise, India, Brazil, and South Africa are democracies, and occasionally meet in an alternative forum that they call “IBSA.” And, while the large autocracies, Russia and China, find it diplomatically advantageous to tweak the Americans, both have different but crucial relationships with the United States. And both have worked to thwart efforts by India, Brazil, and South Africa to become permanent members of the United Nations Security Council.
As I wrote three years ago, in analytical terms, it makes little sense to include Russia, a former superpower, with the developing economies. Russia lacks diversified exports, faces severe demographic and health problems, and, in former President Dmitri Medvedev’s words, “greatly needs modernization.” Little has changed since Putin returned to the presidency last year. While economic growth benefited from the dramatic growth in oil and gas prices during the last decade, other competitive industries have yet to emerge, and the country now faces the prospect of declining energy prices. While it aims to maintain 5% annual growth, its economy was relatively flat last year.
If Russia’s power resources seem to be declining, Brazil’s appear to be more impressive, given it has a territory nearly three times the size of India’s, a 90% literacy rate, and triple the per capita income of India (and nearly twice that of China). But, in the three years since my earlier assessment, Brazil’s performance has slipped: annual economic growth has slowed from 7.5% in 2010 to 1% last year, with a 3.5% rate expected in 2013.
Like Brazil, India experienced a spurt of output growth after liberalizing its economy in the 1990’s; indeed, until a few years ago, GDP growth was approaching Chinese-style rates. This year, however, output is expected to rise by a relatively sluggish 5.9%. Unless it improves its infrastructure and literacy rate (particularly for women), India is unlikely to catch up with China.
So, should we take today’s BRICS more seriously than the BRICs of three years ago?
Tellingly, the meeting in Durban failed to produce any details of the structure of the proposed new development bank, suggesting that little progress had been made in the year since the BRICS’ last meeting in New Delhi, where the plan was announced. In fact, despite a commitment to launch “formal negotiations” to establish the bank, disagreements about the size and shares of the bank’s capital have not been resolved.
That lack of unity is symptomatic of the BRICS members’ underlying incompatibilities. In political terms, China, India, and Russia are vying with each other for power in Asia. And, in economic terms, Brazil, India, and South Africa are concerned about the effects of China’s undervalued currency on their economies.
Three years ago, I wrote that, “BRIC is not likely to become a serious political organization of like-minded states.” The BRICS’ most recent meeting has given me no reason to revise that assessment.
Copyright: Project Syndicate, 2013.
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