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Discussions at the upcoming BRICS summit are expected to focus on creating a BRICS development bank, an initiative first mooted at the New Delhi summit last year. If successful, it will not only be the BRICS’s first major collaborative initiative, but would also give ‘an institutional underpinning’ to the group according to a recent report by South Africa’s Standard Bank.
Notwithstanding the expectation of the same report that the bank is not a ‘counterweight’ to the US-dominated Bretton Woods institutions but an ‘auxiliary funding institution’, the BRICS bank will constitute a major step forward in the process of constructing international economic and monetary institutions and kindred bi- and multi-lateral trade and financial arrangements that steer clear of the US dollar, US financial institutions as well as the Bretton Woods institutions. However, these arrangements involved parties with common and complementary interests. The BRICS group is another matter altogether.
Until recently, those who sought to gauge how far the BRICS were really displacing the West’s and the US’s centrality in world affairs compared growth rates. Now however, those who would dismiss the significance of the BRICS are asking a more interesting question: how coherent is the BRICS group as a unit? Can the erstwhile acronym designating a set of disparate fast-growing countries really become a coherent unit? Does anything really bind them together? There may be four, and now five, BRICS, but where, to coin a metaphor, is the mortar?
This question has particular resonance in relation to India. Like Brazil and South Africa, it is more ambiguously situated in relation to the US than are Russia and, especially China. Unlike them, it has long-standing border disputes with China and has, over the last decade and a half, moved closer to the US – economically as well as militarily.
India’s pro-US tilt was consummated as recently as March 2005 in a US commitment to make India a ‘great power’ and in the historic 2006 Hyde Act, under which the US and India stepped up cooperation on civilian nuclear technology despite India’s continuing refusal to sign the Nuclear Non-proliferation Treaty.
If all this were not enough, the US’s recent ‘pivot to Asia’ has catapulted India into the centre of the US’s anti-China strategy in the region. India is a member of the Trans Pacific Partnership (TPP), a US-led trade organisation that pointedly excludes China.
How damaging might this situation be to the prospects of a BRICS bank, and for the BRICS as a coherent international grouping? The new Indian chief economist at the World Bank recently played down the prospects of a BRICS bank and expressed the hope that the World Bank could ‘up its game’ and obviate the need for a BRICS bank entirely.
Established Indian foreign policy experts remain wary of the possibility of China using a BRICS bank to expand the renminbi’s international role and are resentful of China’s unwillingness to support India’s bid for a seat on the United Nations Security Council.
Can the BRICS transcend such tensions? A little historical perspective might provide an answer. It will show these differences to be chiefly a result of the different distances the various BRICS have travelled from old export-oriented neoliberal economic policies. It is the recent narrowing of these differences that has provided the BRICS their mortar and they can be expected to continue narrowing for a good while yet.
Neoliberal, export-oriented policies imposed by the IMF and the World Bank on most of the developing world through Structural Adjustment Programmes since the 1980s, kept most of the developing world in a low productivity trap with stagnant or sometimes even declining national incomes. Some countries, however, were successfully able to defy the injunction against government intervention and upgrade their productive capacities so as to be able to export higher value goods. They became the fast-growing BRICs.
Even for them, however, this growth path meant a low wage policy at home (since the domestic market was not the main growth driver) and a tilt towards the US as the world’s demand locomotive, its ‘buyer of last resort’.
Since the economic and financial crisis in the US and the eurozone has curtailed their ability to absorb exports, the low-wage growth path has become obsolete. The demand to drive growth in the BRICS must now come from within.
This development contains the hopeful possibility that expanding domestic demand through higher productivity and higher wages will reduce inequality and poverty. It also obviates the need for any tilt in international policy towards the US for its markets and practically mandates opposition to forms of international governance – such as the IMF’s neoliberal conditionality – that obstruct this growth strategy.
The various BRICS are just at very different points in this journey from neoliberalism. At one extreme, China never did embrace it. Its economic reforms were directed by the Communist Party which has, so far at least, remained well-shy of a capitalist transition. Having exploited the opportunities offered by the US’s self-appointed role as the world’s ‘demand locomotive’ to the fullest, the Chinese leadership has clearly realised that in the current crisis domestically generated demand – initially investment demand and now, increasingly, consumption demand – needs to drive growth in China.
Russia, though it remains far from an economy in which growth is driven by an expanding domestic market, suffered from the horrors of ‘shock therapy’ in the 1990s and swung, under Putin, towards a greater state economic role.
Brazil, along with the rest of Latin America, suffered most under neoliberal structural adjustment and became, with the 2003 election of Lula, part of the wider Latin American rejection of neoliberalism. The Lula and Roussef governments have achieved the veritable miracle of reversing the country’s legendary trend toward inequality.
India is the laggard in this respect. Both neoliberalism and a pro-US foreign policy tilt remain popular among the country’s politically influential middle classes. However, pressures against both are building up. Domestically, democratic imperatives of legitimacy in a country which still contributes the world’s largest pool of the poor have required the systematic dilution of neoliberalism and imposed a modicum of sanity on economic policy.
The crisis has also cooled Indo-US relations with the Obama administration appearing to restore favour with Pakistan, delaying the implementation of the Indo-US nuclear deal while being no more willing to support India’s Security Council ambitions than China is.
Above all, however, the US remains mired in recession, no longer a source of export growth, while China continues to grow at impressive rates. So, not surprisingly, India has balanced its membership of the TPP with membership of the China-led Regional Comprehensive Economic Partnership (RCEP) and continues to seek closer ties with China.
Undoubtedly, at Durban, India will seek to limit the extent of Chinese dominance in the BRICS bank. And equally undoubtedly, if negotiations are to yield anything of lasting value, they will have to be tough. In assessing the process and outcome accurately, we would be well-advised to remember on the one hand that the US remains an important economic partner for all the BRICS and on the other that Indian policy-makers are as aware of the need to make the world’s international institutions more multipolar as those of the other BRICS countries. While policy-makers in all BRIC countries have made their blunders, there is no reason to expect them to display extraordinary obduracy.
Radhika Desai’s latest book is Geopolitical Economy: After US Hegemony, Globalization and Empire. She also co-edits The Future of World Capitalism book series.