Some optimistically view the BRICS as an opportunity to resurrect the present mode of globalisation with minor tactical reforms. However, for the BRICS to be an agent of change, it is imperative that the member countries place the need to resolve their domestic imbalances, as their main policy priority.
In fact, given the adverse impact of the global crisis and the current recession embroiling the European peninsula and the USA, many analysts feel that this requirement on the BRICS countries has, more or less, become mandatory in order to put the global economic outlook back on track.
Globalisation involved low and some medium-end labour-intensive manufacturing and services processes, previously located primarily in the West (meaning Europe and the USA), being off-shored and subcontracted to the emerging economies. This fragmentation created what economists call ‘under absorption’ in case of Asia (where production exceeds consumption) and ‘over-absorption’ in the case of the West (where consumption exceeds income). The surpluses in the former and deficits in the latter are an empirical expression of this global division of labour.
The global economic crisis has called this arrangement into question for two reasons.
First, deindustrialisation and the consequent adverse effects on unemployment in the West have made off-shoring politically difficult.
Second, the massive build up of sovereign and private household debt in the West implies that it can no longer fully absorb the export-oriented manufacturing infrastructure that, ironically, its own multinational companies (MNCs) help establish in the emerging Asian, African and South American economies (BRICS included).
So the question that is logically being asked now is that what does the future hold for the production infrastructure of these so-called southern economies whose raison d’etre has been to mainly supply to the Western markets? The answer is obvious in that the BRICS and the other southern economies will have to both retrench and divert their manufacturing and trading systems to alternatively cater more for domestic and regional demand.
This may not be easy. One of the consequences of developing an export-oriented structure is that the domestic savings invariably rise to finance manufacturing and related infrastructure and wages, in turn, are suppressed to make the labour force attractive to international capital. Domestic consumption as a result of this naturally declines. China has come to exemplify such a model.
China’s current share of GDP, for instance, contributed by the household sector (meaning its wages and consumption) is 35 percent compared to its peak of 56 percent in 1983. In 2010, Chinese workers’ salaries were equivalent to 25 percent of GDP versus the world average of 55 percent.
So what this implies is that for the BRICS to play a meaningful role in resurrecting the global economy, it will first have to take the basic step where all member countries at home self-endeavour to raise wages and workers’ incomes in order shore up respective domestic demands and overall trade within the BRICS countries.
At a philosophical level, what the BRICS need is redefining the metrics for economic progress and re-questioning their concept of development. In this change of strategy, three aspects will be important.
First, as we study the origin of nearly all the modern-day emerging economies, we see that one of the enduring insights from the ‘West-Emerging Economies’ interdependence is that as the emerging economies plugged into globalisation, they found capital accumulation easier than ‘intellectual accumulation’; the latter strategically guarded by the Western MNCs. To overcome this, the BRICS’ elite need to end their overriding obsession with GDP growth rates and focus more on metrics that actually gauge social realities, human capital, innovation and the technological potential of their economies.
Second, the BRICS as an institution needs to promote a discourse, whereby the logic of unrestrained profit accumulation (inherent in capitalism) is balanced off by the concept of a dynamic, responsive, and a strategic state. Without a robust state, there can be no governance, no agency to establish and enforce property rights, and nobody to ensure the development and systematic flow of commodities, labour and capital.
Third, there is little doubt that the interdependence between Western capital and the BRICS labour has adversely effected the latter’s workers. What the BRICS countries need to remember is that they cannot balance or rebalance their economies without first forging a compact between their respective capital and labour.
Finally, if the BRICS is to play a dominant role in global economics in the years to come, it has to also take into account the threats facing its potential from within the bloc. Since 2001, intra-BRICS trade has grown at an average of 28 percent per year and it has increased by nearly 15 times from the bloc’s inception year to reach $230 billion in 2011. However, this figure accounts for only 10 percent of BRICS’ total trade, suggesting that intra-BRICS commerce is still modest relative to trade with the West.
Ironically, even a large portion of this intra-BRICS trade has so far been mainly driven by the final demand from the G-3 (USA, EU and Japan). Meaning, intra-BRICS interdependence, in fact, needs to be rightfully attributed to the underlying interdependence between the BRICS and the West.
Now with the West in peril, the situation can instead very well spark an unhealthy intra-BRICS competition for market share and natural resources that can, in turn, prove to be the anti-thesis of BRICS collectivism. Possibilities on such a development cannot be wished away, as we are already seeing unhealthy traces within the BRICS of leanings towards protectionism. Since July 2011, Russia has imposed 138 protectionist measures against fellow BRICS nations - India 85, Brazil 52 and China 33.
This contradiction though in a way is only natural, since all the bloc’s economies rely heavily on exports to stave off social instability and generate surpluses for their other developmental goals. While this reality may not change in the short-term, what is, perhaps, instead doable is for the BRICS’ leadership to manage this competition in a way that it does not undermine either the potential for BRICS collectivism or the intra-BRICS interdependence itself.
The premise being that if the US, EU and Japan can compete vigorously among their industrial and consumer MNCs without compromising on their common strategic agenda to preserve their asymmetric advantages in the global arena of trade, then why cannot the BRICS also balance the logic of competition with their parallel strategic collectivism to reshape the rules of the world economy in favour of the emerging economies.
The thing is that the above discussed intra-BRICS dynamics will always contain both elements of competition and cooperation. The ongoing flux suggests ideological, geopolitical and geo-economic challenges, as the status quo West seeks to grapple with the ‘interdependence’ and the attendant diffusion of wealth that they themselves initiated. BRICS is this very expression of diffusion of global wealth and power.
The BRICS horse has definitely bolted and it would be a shame and tragic, if the bloc’s potential is wasted by the lack of farsightedness on part of the respective member states’ leaderships.
In the coming months and years, it would be interesting to note whether pragmatism is shown to bring more emerging economies on board to make the bloc more encompassing cum meaningful or an opportunity is wasted by turning this all-important formation into a platform for parochial power-seekers and a symbol of a mere cosmetic change in the shift of the economic centre of gravity from the West to the emerging economies!
The writer is an entrepreneur and economic analyst. Email: