Friday, November 21, 2014

BRICS Without Mortar

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.

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

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    1. CommentedChris Nomin

      There are quite substantial and obvious flaws in the article, sorry to admit. Brazil's GDP per capita is not as twice, but almost seven times that of India ( IMF 2012 ).
      The author indicated 90% literacy rate of Brazil in the context of Russian's declining power resources, but it omits that Russian's literacy approaches 100%. A territorial argument lacks any logical appeal, and even a kindergarden can point the biggest terrain in the world.
      Not quite sure what reasoned "while the large autocracies, Russia and China" argument, but, as a former long-time resident of Russia, I can regard it highly ungrounded, without any factual concerns.

    2. CommentedEdward Ponderer

      Well presented and a devastating analysis. It seems quite obvious that Professor Nye is correct.

      But I wouldn't end it here, but try to draw some more universal conclusions. For the BRICS are an example par excellence that in an every country for itself national/socio-economic egoism, groups of countries turning to oppose other groups of countries or the world as a whole, were certainly turn on each other and -- well in the immortal words of that old song by Simon and Garfunkel, "You know the nearer your destination, the more you slip sliding away."

      Its all or nothing, everybody or nobody. We get ourselves and integral education and start living per our global destiny, or we'll all hang together. Either way, the "other" individual, community, or country, will inevitably be our companion.

    3. CommentedYoshimichi Moriyama

      Prof. Nye,
      I am afraid the BRICS would not agree to your opinion, but I am sure the BRIS would do.

      You quoted from a Korean-Canadian citizen, Mr. Norimitsu Onishi, a perfect Japanese name, in your The Future of Power. The quoted part reminded me, for instance, of South Korean President Roh Moo-hyun and Professor Steve Tsang of Nottingham University.

      President Roh said South Korea should play the role of a balancer between the US and China, such as the one once played by Great Britain in European politics.

      Prof. Tsang said in "China without North Korea", Project-Syndicate, Feb. 14, 2013 that "China need not fear a South Korean-led unification of the peninsula. China already enjoys a smoother relationship with the South..." and "Japan and the US [would be] compelled to inject a huge amount of aid...This hardly runs counter to China's interests..."

      He went on to say, "Moreover, a united Korea will have inherited the North Korea's nucleas weapons. This will pose challenges to US-Korea relations, which should work to China's advantage. The US will remain committed to de-nuclearizing the peninsula, while the Korean government will be tempted to retain the North's nuclear capabilities. This strain further reduces the risk of having US troops stationed on the Korean side of China's border."

    4. CommentedLeo Arouet

      Es verdad. Los BRICS tienen muchas reuniones pero no acuerdan nada en absoluto o especial; por ejemplo, acuerdo de cooperación tecnológica y científica, nada; acuerdos sobre cooperación energética nada; sólo vemos por, último acuerdos comerciales entre China, Rusia, Sudáfrica y Brasil.

    5. CommentedZsolt Hermann

      Besides completely agreeing with the final statement of the article, we can open that statement and apply it to the rest of the global world just as well.
      The "mortar" is missing everywhere.
      The most obvious example is Europe, where on paper the countries trying to unite, work out a common market, common economy and financial system are much closer to each other than any of the BRICS countries, and in Europe this uniting experiment has been running for decades with huge investment and preparation.
      Still the building is violently shaking and is likely to fall apart unless some miracle happens, unless the missing mortar is found.
      But truly this is a global problem.
      On one hand there is hardly anybody who would not agree that humanity evolved into a fully interconnected and interdependent system, as some of the leading economists, politicians coined it, we are all sitting on the same boat.
      On the other hand we all try to break away, isolate if possible, or at least try to exploit these interconnections for our own benefit, our own profit, advancement.
      This clearly cannot happen, globalization was not our choice or our own making, simply on the course of our evolution we evolved into this network, existing as a single, living organism that has to function together, as any other entity within the vast natural system we exist in.
      So in order to survive, and continue our ongoing evolution we desperately need to find that "mortar" that can make this network stick, and work, something that can create mutually responsible and complementing relationships instead of today's destructive competition, instead of our exploitative, self centered attitude.
      So how can we define this mortar, capable of connecting seemingly totally opposite or different parts?
      We could define it as a common purpose, common understanding, a common positive motivation.
      And the only way of achieving such notion in a positive, positive way, that individuals and countries would change their ways and start practicing differently willingly, without any trickery or coercion is through a comprehensive, totally new education, through changing the society an its values.
      Only a global, integral eduction program reaching each and every one is capable of adjusting human behavior to our new system of existence, providing a stable foundation for a new human society and sustainable future.