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