Tuesday, November 25, 2014

What the World Needs from the BRICS

CAMBRIDGE – In 2001, Goldman Sachs’ Jim O’Neill famously coined the term BRIC to characterize the world’s four largest developing economies – Brazil, Russia, India, and China. But, more than a decade later, just about the only thing that these countries have in common is that they are the only economies ranked among the world’s 15 largest (adjusted for purchasing power) that are not members of the OECD.

The four countries have very different economic structures: Russia and Brazil rely on commodities, India on services, and China on manufacturing. Brazil and India are democracies, while China and Russia are decidedly not. And, as Joseph Nye has written, Russia is a superpower in decline, while China and (less markedly) the others are on the rise.

Yet, in a strange case of life imitating fantasy, BRICS – the original four countries, now joined by South Africa – have formed a grouping of their own with regular meetings and policy initiatives. Their most ambitious effort to date is the establishment of a development bank.

At their meeting in Durban in March, the five countries’ leaders announced that their “New Development Bank” will focus on infrastructure investment in developing countries, which, they said, was constrained by “insufficient long-term financing and foreign direct investment.” They pledged to make an initial capital contribution to the bank that would be “substantial and sufficient for the bank to be effective in financing infrastructure.” A second initiative announced in Durban is the creation of a $100 billion contingent reserve facility to deal with “short-term liquidity pressures.”

It can be cause only for celebration that the world’s largest developing economies are regularly talking to each other and establishing common initiatives. Nonetheless, it is disappointing that they have chosen to focus on infrastructure finance as their first major area of collaboration.

This approach represents a 1950’s view of economic development, which has long been superseded by a more variegated perspective that recognizes a multiplicity of constraints – everything from poor governance to market failures – of varying importance in different countries. One might even say that today’s global economy suffers from too much, rather than too little, cross-border finance.

What the world needs from the BRICS is not another development bank, but greater leadership on today’s great global issues. The BRICS countries are home to around half of the world’s population and the bulk of unexploited economic potential. If the international community fails to confront its most serious challenges – from the need for a sound global economic architecture to addressing climate change – they are the ones that will pay the highest price.

Yet these countries have so far played a rather unimaginative and timid role in international forums such as the G-20 or the World Trade Organization. When they have asserted themselves, it has been largely in pursuit of narrow national interests. Do they really have nothing new to offer?

The global economy has operated so far under a set of ideas and institutions emanating from the advanced countries of the West. The United States gave the world the doctrine of liberal, rule-based multilateralism – a regime whose many blemishes highlight the lofty principles according to which the system has generally functioned. Europe brought democratic values, social solidarity, and, for all its current problems, the century’s most impressive feat of institutional engineering, the European Union.

But these old powers have neither the legitimacy nor the power to sustain the global order into the future, while the new rising powers have yet to demonstrate which values they will articulate and promote. They have to develop their vision of a new global economy, beyond complaints about its asymmetric power structure. Unfortunately, it is not yet clear whether they have the inclination to rise above their immediate interests in order to address the world’s common challenges.

Their own development experience makes countries like China, India, and Brazil resistant to market fundamentalism and natural advocates for institutional diversity and pragmatic experimentation. They can build on this experience to articulate a new global narrative that emphasizes the real economy over finance, policy diversity over harmonization, national policy space over external constraints, and social inclusion over technocratic elitism.

But they must stop being supplicants, and act like real leaders, understanding that others, too, including advanced countries, face challenges that sometimes require policies that put the domestic economy first. And they must work to uphold the bedrock principles of the global economy that have served it – and them – so well in the last 60 years: non-discrimination and multilateralism.

Ultimately, though, the BRICS must also lead by example. The human-rights practices in China and Russia, and their suppression of political dissent, are incompatible with global leadership.& These authoritarian regimes must reform themselves at home if they are to exert any kind of moral claim abroad.

Read more from our "Falling BRICS?" Focal Point.

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    1. Commenteddonna jorgo

      BRICS is other side of the economic world (will be strong)
      countries like CHINA super fast ..RUSSIA rich India rich too Brasil ..( i don't know what mean human right's )?
      not confusing anappticsy with social problem .
      this use America and Europe for fight because they are very ANEMIC ILL BLOOD ..AND BODY ANAPPTICSY they are full in fiscal problem America monetary problem too ..
      BRICS is future for the investiment ..

      thank you

    2. CommentedLeo Arouet

      Lo del banco de desarrollo que se han propuesto crear los BRICS es necesario ya que sería en una parte neutral y acogedora en contraposición del Banco Mundial que ofrece créditos a cambio de reformas catastróficas en los países.

    3. CommentedAshikur Rahman

      I am very satisfied that Mr Rodrik has pinpointed the right ingredients that one needs to scrutinize before accepting some of these nations as Global leaders. Yet, unfortunately, the present leaders too have fallen short of acknowledging and reacting effectively to most pertinent topic of our century: climate change. Narrow national interest still dominates the global political scene and our collective humanity will suffer if we do not act in a farsighted manner.

    4. CommentedJonathan Lam

      Gamesmith94134: What the World Needs from the BRICS
      I am glad Mr. Dani Rodrik would speak on human-rights practice and social that put on the foundation for financial growth; and let the spillover of the liquidity or debt in the BRICS to rise; so they can “articulate a new global narrative that emphasizes the real economy over finance, policy diversity over harmonization, national policy space over external constraints, and social inclusion over technocratic elitism.” Cheer for inequality and non-sustainability. Why can’t they boom and bust like the American and EU while the developed nations can erect more foundation of liquidity? See, we build the foundation with liquidity and never mind the cement shoe or investment; and inflation is the only exit of debt. Believe me, no one is drowning in the sea of debt like us, after years of consolidation with mergers with 0.25 growth lesser productivity in developed nations, but inflow of cash on the BRICS is up in five folds
      I assume Mr. Rodrik portrayed the BRICS as Bruce Lee in “enter the Dragon” in destroying the “the bedrock principles of the global economy that have served it – and them – so well in the last 60 years: non-discrimination and multilateralism.” However, I think BRICS are seeing the bedrock principle turn into a Shanghai international settlement that non-discrimination and multilateralism may be its cement shoes v erectable foundation in term of affordability and inequality in their micro economical sense.
      After the dip in Dow Jones and capital commodities, I think the screen turn into another movie by Bruce Lee in “Fury” that BRICS is demanding to abrogate Shanghai international settlement and goes its own way in restructuring the long term debts instead on kicking the can down the road. If Mr. Rodrik think social and finance are not exclusive, he should go watch the movie or study Shanghai International Settlement.
      Affordability and inequality may not be social in term of macroeconomic, they are inclusive to financial developments; and non-discrimination and multilateral are exclusively apply to BRICS………….. Mine 2% to your 15% is an equitable exchange and not currency exchange?
      May the Buddha bless you?

    5. CommentedZsolt Hermann

      I would like to point out only one principle:
      In a global, interconnected world, where each individual and nation depends on everybody and everything else regardless of size and influence, there is no West or East, there is no BRICS or OECD. There is only a complete system.
      In a fully integrated system each element is as important as all the other elements and only fully, mutually responsible, and mutually complementing coordination and cooperation can elevate humanity above the present, deepening crisis.
      Anybody who wants to show positive example, or leadership has to show in this respect, how to support this mutuality, how to consider the well being of the whole as priority above self centered calculations and self benefit.
      This is not some kind of an ethical, moral mantra, we simply have no other choice, since the unbreakable, binding laws of our natural system, which we are part of dictate this principle to us.

        CommentedEdward Ponderer

        Indeed, whatever parts of this great water balloon called Earth decide to join forces to stick a pin in another part or other parts, this result will be positive for no one. Only as a whole will this globe keep all its human passengers intact.

    6. CommentedRoss Clem

      Perhaps the BRICs would make a greater contribution to world leadership if they were members of the OECD

    7. CommentedRoss Clem

      Perhaps the BRICS would focus on problems other than infrastructure if they were members of the OECD.

    8. CommentedArinze Nwokolo

      The recommendation for a new development bank focused on infrastructure finance seems to be a safe bet since most of these countries also face infrastructure problems which is important for growth. According to Global ranking on quality of infrastructure by the World Economic Forum (with 1 for the Best performer and 144 for the Worst) , the overall quality of infrastructure amongst the BRICS was quite low.

      South Africa was best performer with rank of 58, followed by China (69), India (87), Russia (101) and Brazil (107).

      China has invested about $600 billion in infrastructure and India needs $1.7 trillion investment to meet its growing infrastructure needs over the next decade. Brazil is expected to increase its infrastructure spending by more than 50%.

      However, infrastructure alone would not lead to growth. Policies on trade and exchange rate should also been considered.

    9. CommentedProcyon Mukherjee

      The article summarizes the limits of influence that the five countries in question could exert on the rest of the world; the multiplicity of problems that engulf them domestically far outpaces their ability to cope with them, therefore it is not narrow self-interest that limits them to lead, it is their inability to go beyond the demands of the internal strife. The problems of over-heating in China, the tremendous slow down in India are too big to ignore issues and the coming together of BRICS rather be dedicated to learning from each other than to teach others in the world.