The group of fast-growing emerging markets known as the BRICS--Brazil, Russia, India, China, and South Africa--held their fourth annual summit this past week in New Delhi. The leaders of the five nations agreed on new measures to facilitate greater trade within the bloc, including a deal to extend credit facilities in the local currencies of other BRICS countries. They also discussed a potential plan to set up a joint BRICS development bank, which would serve as a counterweight to the Western-dominated World Bank and International Monetary Fund. However, the BRICS have not set out a comprehensive long-term agenda because they are hobbled by internal differences and have "nothing in common," argues the Financial Times’ Martin Wolf.
What are the prospects for a BRICS development bank?
It’s not completely obvious to me what it could achieve, given that we have the World Bank and a whole network of big regional development banks. There are big questions about the governance of those institutions, and in particular, the continued domination of the developed countries. The BRICS collectively would be able to shake that if they really try to do so. What’s not clear to me is whether this is a bank that would operate everywhere using BRICS money in some way, or whether it would be a BRIC bank. We have enough official banks, and it would make far more sense to improve the governance of what we have than to start creating completely new institutions.
What is the significance of the fact that the BRICS did not put forward a candidate for the World Bank presidency, and is it clear where they stand vis-à-vis the U.S. nominee?
The BRICS are not a group. The BRICS were invented by Jim O’Neil [of Goldman Sachs, in 2001]. They added South Africa to the BRICS [last year], which wasn’t originally there, to give some representation of Africa. These countries have basically nothing in common whatsoever, except that they are called BRICS and they are quite important. But in all other respects, their interests and values, political systems, and objectives are substantially diverse. So there’s no reason whatsoever to expect them to agree on anything substantive in the world, except that the existing dominating powers should cede some of their influence and power. That’s the one thing they have in common.
Secondly, the grouping has very specific jealousies within it, particularly the two most powerful members--in terms of their potential, anyway--China and India. There’s a lot of mistrust between the two, and [it would be] very difficult for them to agree on a candidate. Third, at this stage, I don’t think they are particularly interested in quixotic battles. They know the U.S. is likely to get European support. They probably don’t regard this--none of the countries individually or collectively--as a first-class issue to use their capital on in a big way. In time, voting shares are going to be adjusted, so sooner or later, the big countries are going to get the power that they need. It’s a matter of continuous pressure over time, so why fight this battle now when they don’t really care what happens in the World Bank? Because these countries are not very dependent on the World Bank.
There’s no reason to expect them to agree on anything substantive in the world, except that the existing dominating powers should cede some of their influence and power.
What are some objectives that the BRICS agree upon, besides getting the West to cede power?
Quite a number of them tend to complain about Western protectionism. They obviously are interested in developing trade amongst themselves; that’s a potential area of cooperation. But I don’t regard the BRICS as a grouping of natural fellows. They are very, very different politically, in terms of their development potential, in terms of the economic fundamentals they have--and they have quite a few conflicts among them.
There’s also been criticism by the BRICS that Western monetary policy has been too loose, and has hurt developing countries. What do you make of that?
I should have added that as one of the complaints. The answer to that is: "Who the hell cares?" Western policy is made in light of what the Western countries see as their interests. And these countries make their monetary policy in light of their interests. There is no global monetary system at all, of any kind, that disciplines this. So the reality is [that] we live in monetary policy anarchy, from a global point of view, in which each country pursues its own interest. So I regard these as completely fruitless complaints, unless we start thinking about a total reordering of the global monetary system, which these countries don’t want any more than the developed countries want because they would all lose sovereignty.
I think the developed countries’ monetary policies are reasonable, given their circumstances. At least implicitly, there’s actually some concern about the monetary policies of some BRICS among other BRICS. For example, it’s pretty clear Brazil is concerned about Chinese currency intervention. Finally, part of this is scapegoating--unpleasant things happen to you, your exchange rate appreciates too much, there’s some inflation in the world, you have to find someone to blame--it’s very convenient to blame the monetary policy of the developed world. In most of these cases, the connection is really not that obvious.
In terms of disagreements within the BRICS, could you touch on the tensions between India and China? More broadly, is there an inherent contradiction between more authoritarian states like Russia and China and the more democratically oriented states, like South Africa, India, and Brazil?
They have very different values. They all share the idea that they are important countries and should be taken seriously, and that’s clearly right. What they have in common, it seems, is their view of their relations with the established powers. They see themselves as rising powers, and the established powers as declining powers, and they want the world order to change for that reason.
They don’t necessarily want to live in a world in which China is omnipotent or the greatest power. I don’t think there really is much in common between the emerging countries in these groups--China, India, South Africa, Brazil on the one hand--and Russia, which is clearly a declining country. It’s not a significant player in the world economy, apart from being an oil and gas producer.
There is an obvious tension in values. People can do business with one another, but they are not natural allies because the differences in values are quite important.
There is an obvious tension in values. People can do business with one another, but they are not natural allies because the differences in values are quite important. South Africa, Brazil, and India are very vibrant and complicated democracies, and China is something completely different. There’s no doubt Indians are very frightened of encirclement by China. This is a geopolitical security issue. They are concerned about China’s relationships with neighbors, particularly Pakistan. They are concerned by the very big imbalance in power between China and India. China is a much bigger powerful economy and military now than India. Obviously they like to be in such a grouping so that they can talk to them; they have lots of economic interests in common. But there’s also a great deal of anxiety in India.
Is China worried that India is joining with the United States to contain it in Asia?
Yes. China, of course, is aware that it has no powerful natural allies. It’s a relatively lonely power, and it has a number of very important neighbors [that] are suspicious of it. That is one reason China has, in various ways, been trying to encourage close relations with Russia. But some Chinese are concerned about the possibility of a balancing alliance being created to encircle it--with the U.S. as central player, including possibly India and Japan.
Will the BRICS be able to reach any kind of meaningful consensus--and have an impact--regarding the ongoing dispute between the West and Iran over the latter’s nuclear program?
In the case of Russia, China, and India, they all agree that they don’t want this to come to any sort of serious conflict, and will be unwilling to support increasingly powerful sanctions or military action against Iran. [India does] not want to get into a conflict with Iran, which is an important neighbor and supplier [of oil]. It’s also important to stress the economic factor that anything that leads to a big spike in oil prices and instability in the world economy is very bad for China and India; they are big net importers. That would not be true for Russia, as a net exporter. So there’s divergence in positions here in terms of the straight economic benefits.
What do the BRICS member states need to do to stay relevant in the global economy?
They all have different problems. China and India have obviously been very successful in the last twenty years or so. Brazil has been improving, though it has some problems now--very slow growth at the moment. South Africa has found it more difficult to sustain growth. Russia is being quite volatile. Clearly, India and China are massive countries of a different scale than the others, with extraordinary potential and very impressive records. The others are slightly different, more complicated stories. So each country has to be looked at differently; this is not a natural grouping in any way.
In terms of the future, ultimately it depends on whether they manage to sustain their development process, and what sort of growth they can manage with it. If China’s growth rate falls, as the Chinese government says it will, to somewhere like 7.5 percent a year, it’s still growing much faster than the world economy; it’s going to rise to become the biggest economy in the world, in crude size terms, perhaps sometime early in the 2020s. So unless something goes seriously wrong with China, its relevance to the world economy is going to become much bigger. India is much further behind. If you track it against China, it’s about fifteen years behind. It’s going more slowly; it has huge governance problems, though its underlying democratic political system is very resilient, possibly more resilient, ultimately, than the Communist Party in China--more resilient, but also less effective. They have to do a lot of things in terms of domestic reform, building infrastructure, improving the quality of the labor force, to sustain anything like the growth process that China has sustained so that fifteen to twenty years from now, they will be where China is today.
The others are rather different cases. I tend to think that Brazil will become more important; it’s very big country, big potential. South Africa is quite a small country by these standards, and not likely to be a world power, though it’s very important in Africa. And Russia is a declining power with a huge nuclear weapons capacity, and [has] a very important role as an energy supplier. But it’s not going to become more important in these respects; it’s going to become less important. China and India, because of their populations, have a potential weight in the world, which is completely different from any of these countries.