Key BRICS initiatives sound warning for Western leaders

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Andrew Hammond is an associate at LSE IDEAS at the London School of Economics

The BRICS meeting of presidents and prime ministers from Brazil, Russia, India, China and South Africa finished last week with warnings about trade protectionism and unilateralism from developed countries. The bloc was originally formed for its economic potential, yet it has also seen political co-operation rise to the fore amid concerns that it could become an anti-Western bloc standing up to what Chinese President Xi Jinping called “bullying."

This growing political bent is exemplified by several key initiatives. First, the creation of the New Development Bank (NDB), an alternative to the World Bank and International Monetary Fund, which will finance infrastructure and other projects in the BRICS countries, and a related US$100-billion special currency reserve fund. One driver for the new bank is the perception that it will allow the BRICS governments to better promote their political interests abroad.

Another initiative, perceived to challenge U.S. dominance in information technology, was most recently discussed in August when BRICS communications ministers signed a letter of intent to co-operate in the sector. This builds on plans, first proposed in 2012, for a potential optical-fibre cable system to carry telecommunications between the BRICS countries, partly as means to try to evade the purview of Western intelligence agencies, including the U.S. National Security Agency.

These examples underline the hunger of the BRICS to become even bigger political (not just economic) players, raising fears in some quarters that the bloc could, ultimately, become a unified anti-Western alliance. The five countries encompass about 25 per cent of the world’s land coverage and global gross domestic product, and about 40 per cent of the world’s population.

To be sure, the BRICS countries (like others across the world) have shared concerns about key elements of the prevailing global order, including Donald Trump’s trade tariffs, which Mr. Xi called “bullying” last week. However, it is unlikely, for the immediate future at least, that this will mean the BRICS countries will move decisively beyond an increasingly institutionalized forum for emerging market co-operation.

Part of the reason for this is the heterogeneity of the club. Take the example of China’s periodic tensions with India, including over border issues, which can adversely impact relations between the two.

At the same time that BRICS are stepping up their political co-operation, there is growing skepticism of the relevance of the group as an economic club. Standard & Poor’s (S&P) last month highlighted the diverging long-term economic trajectory of the five countries.

China and India have seen generally robust economic performance over the past two decades, contrasting with often-disappointing results in Brazil, Russia and South Africa, S&P said. And this means that there is growing uncertainty over whether the bloc will fullfil the prediction of British economist Jim O’Neill – who originally coined the BRICS concept – that it will overtake the Group of Seven′s collective economic output in around a decade and a half.

Yet, with BRICS already accounting for around a quarter of global GDP, their overall growth is already having a major global impact. World Bank research, for instance, has showed that for the first time in some two centuries, overall global income inequality – one, but not the only, measure of economic inequality – appears to be declining.

This is being driven by BRICS and other emerging markets – the collective economic growth and very large populations of India and China, in particular, have lifted a massive number of people out of poverty, driving this greater overall global income inequality trend.

At the same time, however, there is an opposing force: growing income inequality within many countries. It is this factor that has also assumed growing political salience recently helping fuel populist, nationalist politicians including Mr. Trump.

The net global trend for the past 200 years has been toward greater overall income inequality, yet there is increasing evidence in the past two decades that the “positive effect” of growing income equality between countries – spurred by BRICS and the development of the global South – is superseding the “negative effect” from increasing inequality within countries.

It is unclear whether the BRICS and wider development of the global South has enough momentum to keep driving forward a more equitable world order. This will depend, largely, on the same twin issues of whether emerging markets generally continue growing robustly, and also whether the trend toward rising income inequality within countries is sustained.

On the first issue, the trajectory of the global economy will very likely continue to shift toward the South, but the remarkable wave of emerging market growth of the last generation may now decelerate. On the second issue, it is not set in stone that ever-growing income inequality within countries will continue, but it is unclear whether there is the political will to address it in many countries.

Taken overall, while the relevance of the BRICS as an economic club is increasingly questioned, they have helped drive what appears to be the first period of sustained movement toward greater global income equality for 200 years. While this is a hugely significant achievement, the fragile process could yet go into reverse, especially if growth in China and India flattens significantly.

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