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“BRICS to design global financial architecture”
March 23, 2013, 3:57 pm

Jeffrey SommersEconomist Jeffrey Sommers, associate professor at the University of Wisconsin-Milwaukee, and visiting faculty at the Stockholm School of Economics in Riga, talks about the “good and bad news” from BRICS and the “austerity madness” in Europe. Sommers was interviewed by Daria Chernyshova for The BRICS Post in Moscow.


Question: What scope do you see in EU and BRICS coming together as a formidable business and trade alliance?

Jeffrey: The US has always feared too close relationship between Russia and the EU. Yet, it seems this relationship will continue to grow.  However, the emerging relationship that has the most potential for growth is not that of the EU and BRICS, but of China, India, and Brazil to Africa.  That is where the Global South could become transformed as the vast potential for tapping Africa’s commodities, and also its yet unrealised consumer market potential is realised.  Ironically, Russia, which had the largest role in Africa of today’s BRICS, will have the least role of the BRICS in that continent moving forward.

Question: What role do you think a new BRICS Bank could play in the revised economic order, considering that emerging markets are contributing to greater growth in the world?

Jeffrey: Given the massive capital reserves they are building up, BRICS are positioned to take a bigger role in managing and even designing the global financial architecture.

Question: Do you think the BRICS nations stand for a new equitable economic order?

Jeffrey: The BRICS represent the breakout from underdevelopment for the formerly poor world. It represents a huge change to the world order, and one which is both more and simultaneously less equitable. The good news is the breakout from underdevelopment and the large middle classes the BRICS are creating. The bad news is their still high levels of inequality.

It seems only Brazil is trying to address the latter, and not all that successfully. Given the power of the BRICS as a rising force globally, their social structure will tend to influence that of the rich nations. In short, it’s not only goods and energy that they export, but inequality. That said, the BRICS cannot continue living off exports to the rich world. To get richer yet, they need to expand their middle classes further, consume more of what they themselves make. This, in turn, will require they reduce inequality in their own countries.

Question: What prospects do you see for a revival of growth in the Eurozone in the near future?

Jeffrey: Politically they look poor as long as they continue pursuing this austerity madness.  Moreover, they still do not have a mechanism, beyond structural funds, for recycling capital from rich to poor nations in Europe. And, structural funds have only led to inflation and dependence, rather than economic development in the poorer European states. I’m increasingly coming to the conclusion that the euro project needs to be scrapped, or at least converted to smaller, regional currency unions. The latter would likely be the best option, but only if action is taken soon before the whole project collapses.

Question: How do you see the EU-Britain rift working out?

Jeffrey: They cannot work out their differences. Britain essentially is a finance offshore economy tied to attracting hiding foreign flight capital. Britain made this turn fully in the late 1970s and gave up on manufacturing competitiveness (both by and under pressure from the US who in 1976 was unwilling to give it an IMF loan to modernise manufacturing, and later by Margaret Thatcher, who wished to destroy labour). Of course, not everyone can be an offshore correspondent banking centre. Thus, their model is both undesirable for most of the rest of Europe, and not reproduce-able anyway. Britain benefits by having its own currency, and given that is its economy.

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