The $17 Trillion Dollar Brics Shift That Few Noticed
The seventh BRICS Summit took place in Ufa, the capital of Russia’s Bashkortostan Republic. In the West, most observers were preoccupied with the “make-or-break” days of Greece, which accounts for less than 0.4 percent of the global economy, rather than the BRICS Summit, which represents about 20 percent of the world economy.
At the same time, the BRICS leaders pledged to forge a closer economic partnership, which will be the “key guideline” for expanding trade, investment and cooperation in broad areas, from manufacturing to energy. It was followed by the 15th Shanghai Cooperation Organization (SCO) summit, which is expected to start a critical enlargement process for India and Pakistan.
The neglect reflects the new conventional wisdom, which suggests that large emerging economies are actually increasingly marginal to the world economy, or as a Brookings pre-summit analysis put it: “The BRICS Summit: A shadow of the former self it never was.”
This is conventional wisdom, which is always acceptable, often predictable but seldom right. In addition to a wish-fulfilling fantasy, it is a convenient way to rewrite recent history.
The BRICS fantasies and realities
According to the new conventional wisdom, the BRICS bloc came into being during the turbulent days of the global financial crisis. For obvious reasons, it does not respond to the question how. In fall 2008 advanced economies were at facing an economic abyss. The latter was only avoided by support of G20 – mainly by the large emerging BRICS economies.
According to the new conventional wisdom, the BRICS bloc was heralded as a grouping that would challenge the West for leadership in the international order. In reality, the BRICS grouping was created to complement – not to substitute – the existing international multilateral institutions.
Moreover, the International Monetary Fund, World Bank, World Trade Organization, and so on have never represented a truly international order. In the emerging world, they are seen as dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationality of their leaders.
During the global crisis, the G7 nations gave their word to speed up reforms in the international institutions. After the crisis, those promises were first delayed, then forgotten. That’s why BRICS economies moved ahead on their own; not to replace the West, but to create adequate representation for emerging and developing economies.
According to conventional wisdom, the BRICS economies have experienced a paralyzing growth slowdown in the past few years. As a result, their economic weight and their bargaining power are decreasing. In reality, the BRICS economies, in absolute terms, have suffered from the aftermath of the global crisis. In relative terms, their economic and bargaining power continues to go faster, while that of the West is declining.
Back in 2007, the U.S. economy was still double the size of the BRICS economies. Today, the combined output of the latter nearly matches that of the US. What’s worse, the growth of all G7 nations is now reliant on historically low policy rates and quantitative easing, which is paving way to new and potentially destructive asset bubbles.
In this environment, the BRICS economies continue to have inherent growth potential that can support the world economy another decade or two.
Moreover, the rise of the emerging world is about to accelerate in relative terms – which the 7th BRICS Summit will intensify in the foreseeable future.
From a dialogue forum to a strategic partnership
At last year’s BRICS Summit in Fortaleza, Brazil, President Xi Jinping proposed the creation of a new cooperation blueprint, which would reflect the growth experiences of the large emerging economies and boost broader and deeper ties among the BRICS nations.
In Ufa, President Xi pushed efforts to increase the cohesion of the BRICS bloc, through dual objectives. On the one hand, he was promoting an economic partnership strategy to support the development of the BRICS countries in the coming years. On the other hand, he hoped to operationalize that strategy into a pragmatic cooperation roadmap.
The dual objectives are challenging. After all, the participant economies reflect huge diversity. Demographically, the BRICS include two massive nations that each have 1.3 billion people, whereas South Africa’s population barely exceeds 53 million. Economically, the bloc is dominated by China, the second-largest economy in the world, whose $10.4 trillion economy is larger than that of its BRICS partners’ combined. Socially, each BRICS economy reflects different cultural, ethnic and historical legacies. In defense, China dominates the BRICS military expenditures, which today account for about a fifth of the world total. However, Russia’s nuclear weapon stockpile remains larger than that of the United States.
And yet, the forces of development that unite the BRICS are greater than those that divide them.
Unlike the G7 nations, which garnered their early prosperity through colonialism, the BRICS nations are the ones that suffered dearly from that very same colonialism. Due to their later starting-point in economic development, the prosperity levels of these nations are significantly lower than those of their counterparts in the advanced world. As a result, they have similar views about international economy, politics and governance.
And it is precisely these commonalities that fueled the theme of the 7th Summit: “BRICS partnership: A powerful factor for global development.”
What made this Summit different from the all the previous ones was the effort to transform the very nature of the BRICS cooperative mechanism, from a forum of dialogue to a venue of strategy – from talk to action.
The new forces behind the BRICS push
There are three new forces that motivate China’s BRICS efforts. Beijing has initiated a series of huge infrastructure projects that can fuel markets for years to come. The “One Belt, One Road” initiative has potential to uplift modernization in China and in and beyond its regional neighborhood. As Beijing seeks to couple the One Belt, One Road initiative with the BRICS goals, economic development is likely to accelerate from East and Southeast Asia to South Asia, Eurasia, Africa and the Americas.
These massive initiatives will be supported by the Asian Infrastructure Investment Bank (AIIB) and the BRICS nations’ New Development Bank. The Ufa witnessed the launch of the $100 billion BRICS Bank and a reserve currency pool worth another $100 billion. In turn, the registered capital of the AIIB amounts to $100 billion, with half from Beijing and the rest from the other founding members.
From now through 2030, the world will need to spend at least $57 trillion to build the ports, power plants, rails, roads, telecoms, water systems, and other infrastructure that the global economy needs. According to McKinsey, for advanced economies, the priority is to renew aging and dilapidated infrastructure; but for emerging ones, it is to build the structures required to support growth. The latter is the larger part of the total bill – and that’s what the BRICS will fuel in the coming years.
In the past few days, the West has been so fixed with the fate of a proud small nation in Europe that once gave the world the idea of democracy that it willfully ignored the large emerging economies that one day may make that democracy true at the global level.
The original version was released by China-US Focus on July 13, 2015