Nobody wants to be one of the PIIGS, but membership of the
BRICS is highly valued. Both acronyms were devised in the City of London, the
former by analysts describing a group of crisis-hit euro countries, the latter
by Goldman Sachs in a 2001
paper that identified
several countries that had come to prominence in the global economy. The
Goldmans formulation came at an opportune time: slower growth in the major
capitalist powers was being outpaced by developing countries that also appeared
to have brighter economic prospects. Its author called for including
Brazil,
Russia,
India and
China more formally in global economic
decision making (
South Africa was added later), and this was an adept
investment bank marketing tool to attract business both from and into the
relevant emerging powers, ones that craved recognition.
The BRICS are evidently diverse countries, geographically,
socially, economically, politically and in terms of their potential power in
the world economy. However, they share some common interests that the original
Goldmans formulation did not anticipate. Rather than them all simply wanting to
be included in the current hegemonic structure of global decision making -
being included in forums like the G7, for example - what has
happened over the past decade is that they have recognised that the game is
rigged against them. So, instead, they have made halting attempts to set up another
game.
The latest move is the new BRICS development bank, finally
agreed in Brazil on 15 July. After much negotiation, and the usual scepticism
from the western press that a deal could be agreed, the new bank will have its
headquarters in Shanghai and the first president for the bank will come from
India. This reflects the relevant economic power distribution, with China and
India having both the largest GDPs and populations among the BRICS, but with
China in first position. The first president will have the position for five
years, followed by a Brazilian. However, the real money will be advanced by
China, some 40%.
Initial reports suggest that the new bank will have $100bn
of starting capital, plus a 'contingency reserves arrangement' of the same
size. The latter will help developing nations avoid 'short-term liquidity
pressures, promote further BRICS cooperation, strengthen the global financial
safety net and complement existing international arrangements'. This is a major
challenge to the IMF- and World Bank-dominated system of country support and
reflects a desire among these up-and-coming countries to assert their position
versus the established imperialist powers.
This is one of the most important economic challenges to the
position of the major powers since 1945, in particular to the US and its
domination of IMF and World Bank policy. As outlined in an earlier
article, the US has already faced important
competition from China. This new institution will likely offer many trade and
investment deals that are outside the orbit of the Anglo-American system, ones
that do not depend upon using the US currency. In May, Russia and China did a
bilateral deal whereby Russia will supply China with oil and gas over many
years for hundreds of billions of dollars, but it is reported that the
transaction will
not be settled in the US dollar. Over the past 18
months, the Chinese government has also set up swap deals with central banks in
all the major financial centres that will make the Chinese renminbi a far more
important currency for international transactions and trade finance.
The end result is that the BRICS will likely end up being a
mechanism for the evolution of China as a major world power, not necessarily a
single group of alternative powers jointly challenging the existing structure. Just
note the levels of 2013 nominal GDP and population, in particular with China
well ahead of India's GDP, despite having a similarly large population (the
BRICS are in bold):
GDP (US$, trillion) Population
(millions)
US 16.8 318
China 9.2 1367
Japan 4.9 127
Germany 3.6 81
France 2.7 66
UK 2.5 64
Brazil 2.2 203
Russia 2.1 146
Italy 2.1 61
India 1.9 1247
Canada 1.8 35
South Africa 0.4 53
These developments put the position of China in quite a
different perspective from that offered by Panitch and Gindin in their recent
book, The Making of Global Capitalism. Their view is that China is so
ingrained in the post-war US hegemony as to be more a supplicant than a
challenger. They dismiss China as a potential rival to the US by arguing that
it is embedded in the US-designed system, for example by owning a huge volume
of US dollar-denominated debt in its foreign exchange reserves that effectively
cannot be sold. They question whether China has 'the capacity to take on extensive
responsibilities for managing global capitalism' (p. 336), as if that were the
issue at stake! The real issue, as Lenin noted a century ago, is one of the changing balance of strength among the key powers. As the new BRICS bank indicates, there are changes under way.
Tony Norfield, 15 July 2014