BRICS without Mortar?

Discussions at the upcoming BRICS summit are expected to focus on creating a BRICS
development bank, an initiative first mooted at the New Delhi summit last year. If
successful, it will not only be the BRICSs first major collaborative initiative, but would
also give an institutional underpinning to the group according to a recent report by South
Africas Standard Bank.
Notwithstanding the expectation of the same report that the bank is not a counterweight
to the US-dominated Bretton Woods institutions but an auxiliary funding institution, the
BRICS bank will constitute a major step forward in the process of constructing
international economic and monetary institutions and kindred bi- and multi-lateral trade
and financial arrangements that steer clear of the US dollar, US financial institutions as
well as the Bretton Woods institutions. However, these arrangements involved parties
with common and complementary interests. The BRICS group is another matter
altogether.
Until recently, those who sought to gauge how far the BRICS were really displacing the
Wests and the USs centrality in world affairs compared growth rates. Now however,
those who would dismiss the significance of the BRICS are asking a more interesting
question: how coherent is the BRICS group as a unit? Can the erstwhile acronym
designating a set of disparate fast-growing countries reallybecome a coherent unit? Does
anything really bind them together? There may be four, and now five, BRICS, but where,
to coin a metaphor, is the mortar?
This question has particular resonance in relation to India. Like Brazil and South Africa,
it is more ambiguously situated in relation to the US than are Russia and, especially
China. Unlike them, it has long-standing border disputes with China and has, over the
last decade and a half, moved closer to the US economically as well as militarily.
Indias pro-US tilt was consummated as recently as March 2005 in a US commitment to
make India a great power and in the historic 2006 Hyde Act, under which the US and
India stepped up cooperation on civilian nuclear technology despite Indias continuing
refusal to sign the Nuclear Non-proliferation Treaty.
If all this were not enough, the USs recent pivot to Asia has catapulted India into the
centre of the USs anti-China strategy in the region. India is a member of the Trans
Pacific Partnership (TPP), a US-led trade organisation that pointedly excludes China.
How damaging might this situation be to the prospects of a BRICS bank, and for the
BRICS as a coherent international grouping? The new Indian chief economist at the
World Bank recently played down the prospects of a BRICS bank and expressed the
hope that the World Bank could up its game and obviate the need for a BRICS bank
entirely.
Established Indian foreign policy experts remain wary of the possibility of China using a
BRICS bank to expand the renminbis international role and are resentful of Chinas
unwillingness to support Indias bid for a seat on the United Nations Security Council.

Can the BRICS transcend such tensions? A little historical perspective might provide an
answer. It will show these differences to be chiefly a result of the different distances the
various BRICS have travelled from old export-oriented neoliberal economic policies. It is
the recent narrowing of these differences that has provided the BRICS their mortar and
they can be expected to continue narrowing for a good while yet.
Neoliberal, export-oriented policies imposed by the IMF and the World Bank on most of
the developing world through Structural Adjustment Programmes since the 1980s, kept
most of the developing world in a low productivity trap with stagnant or sometimes even
declining national incomes. Some countries, however, were successfully able to defy the
injunction against government intervention and upgrade their productive capacities so as
to be able to export higher value goods. They became the fast-growing BRICs.
Even for them, however, this growth path meant a low wage policy at home (since the
domestic market was not the main growth driver) and a tilt towards the US as the worlds
demand locomotive, its buyer of last resort.
Since the economic and financial crisis in the US and the eurozone has curtailed their
ability to absorb exports, the low-wage growth path has become obsolete. The demand
to drive growth in the BRICS must now come from within.
This development contains the hopeful possibility that expanding domestic demand
through higher productivity and higher wages will reduce inequality and poverty. It also
obviates the need for any tilt in international policy towards the US for its markets and
practically mandates opposition to forms of international governance such as the IMFs
neoliberal conditionality that obstruct this growth strategy.
The various BRICS are just at very different points in this journey from neoliberalism. At
one extreme, China never did embrace it. Its economic reforms were directed by the
Communist Party which has, so far at least, remained well-shy of a capitalist transition.
Having exploited the opportunities offered by the USs self-appointed role as the worlds
demand locomotive to the fullest, the Chinese leadership has clearly realised that in the
current crisis domestically generated demand initially investment demand and now,
increasingly, consumption demand needs to drive growth in China.
Russia, though it remains far from an economy in which growth is driven by an
expanding domestic market, suffered from the horrors of shock therapy in the 1990s
and swung, under Putin, towards a greater state economic role.
Brazil, along with the rest of Latin America, suffered most under neoliberal structural
adjustment and became, with the 2003 election of Lula, part of the wider Latin American
rejection of neoliberalism. The Lula and Roussef governments have achieved the
veritable miracle of reversing the countrys legendary trend toward inequality.
India is the laggard in this respect. Both neoliberalism and a pro-US foreign policy tilt
remain popular among the countrys politically influential middle classes. However,
pressures against both are building up. Domestically, democratic imperatives of
legitimacy in a country which still contributes the worlds largest pool of the poor have
required the systematic dilution of neoliberalism and imposed a modicum of sanity on
economic policy.

The crisis has also cooled Indo-US relations with the Obama administration appearing to
restore favour with Pakistan, delaying the implementation of the Indo-US nuclear deal
while being no more willing to support Indias Security Council ambitions than China is.
Above all, however, the US remains mired in recession, no longer a source of export
growth, while China continues to grow at impressive rates. So, not surprisingly, India has
balanced its membership of the TPP with membership of the China-led Regional
Comprehensive Economic Partnership (RCEP) and continues to seek closer ties with
China.
Undoubtedly, at Durban, India will seek to limit the extent of Chinese dominance in the
BRICS bank. And equally undoubtedly, if negotiations are to yield anything of lasting
value, they will have to be tough. In assessing the process and outcome accurately, we
would be well-advised to remember on the one hand that the US remains an important
economic partner for all the BRICS and on the other that Indian policy-makers are as
aware of the need to make the worlds international institutions more multipolar as those
of the other BRICS countries. While policy-makers in all BRIC countries have made their
blunders, there is no reason to expect them to display extraordinary obduracy.
BRICS Without Mortarby JOSEPH S. NYE


CAMBRIDGE Last month, Chinas 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 summits apparent success, I still
am.
Nearly 12 years ago, Jim ONeill, 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 ONeill 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 Chinas 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 Medvedevs 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 Russias power resources seem to be declining, Brazils appear to be more
impressive, given it has a territory nearly three times the size of Indias, 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, Brazils 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 1990s; 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 todays 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 banks 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 Chinas 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.