The fourth annual Brics summit between the leaders of Brazil, Russia, India, China and South Africa concluded in New Delhi last month. This group of fast-growing developing economies that now number among the 10 largest in the world, plus South Africa, represents almost half the world’s population and a growing share of its production. The Brics’ political clout has grown with their importance to the world economy and the latest summit declared its intention to set up a development bank to mobilise “resources for infrastructure and sustainable development projects in Brics and other emerging economies and developing countries, to supplement the existing efforts of multilateral and regional financial institutions for global growth and development”.
Despite their growing importance, commentators such as Jeremy Warner of the Telegraph dismiss the Brics: “virtually nothing … unites them other than resentment and suspicion of western monopoly, some of it justified, some of it not”. Rather than thinking up grandiose schemes such as development banks guaranteed to founder on their disunity, they say, the Brics leaders should have proposed a common candidate for World Bank president. While the US would definitely block such a candidate, at least the Brics would have learned to unite.
Such condescending commentary practically demonstrates how not to detect change in the world economic and political order. The Brics and emerging economies have already set in train a wider set of changes in the institutional architecture of the world order. Since western powers maintain their grip on its major institutions, these rising powers have simply side-stepped them, setting up new institutions and using old minor ones in new ways. The result is a decentralised and regionalised institutional structure that doesn’t look like a rival to western-dominated centralised and worldwide institutions at first sight.
But it is. For example, it bypasses the dollar-centred world monetary and financial regime. For decades this regime slowed developing countries’ growth, costing them two “lost decades of development”. Rather than directing productive capital to the developing world, as it was theoretically supposed to do, it directed capital from poor to rich countries. Worse, there this capital financed consumption, not production. After the recent financial crisis, this regime has created new problems by fuelling speculation, artificially driving up emerging economy currencies and food, fuel and raw material prices. Naturally, the Brics complain of these new obstacles to their continued growth.
In March 2009 the governor of the People’s Bank of China called for international monetary reform to replace the dollar with a currency commonly created and managed by member countries such as Keynes had called for in the 1940s. The call’s criticisms of the dollar-centred regime were broadly echoed by the Stiglitz commission set up by the president of the United Nations general assembly later that year. Properly designed, such world monetary reform would boost productive investment and growth worldwide. It is not the alleged disunity of the Brics but hold of financial interests over the US and western governments that makes such reform unlikely. These interests benefit from their control over and privileges in the world’s existing monetary and financial institutions and governments they dominate are unlikely champions of reform.
The Brics cannot afford to wait for this dominance to end. Their high growth rates began reshaping what we may call geopolitical economy a decade and a half ago – Goldman Sachs economist Jim O’Neill coined the term Bric in 1999 – despite, not because of, the dollar-centred regime. And they began changing the institutional environment to suit their needs.
Over this period, IMF influence fell and it had to compromise key policy prescriptions – pre-eminently on capital controls – as regional development banks and arrangements between two or more developing economies to conduct trade and investment in their own currencies undermined its monopoly. While China made the most such arrangements and founded the Chiang Mai Initiative Multilateralisation (CMIM) as a regional organisation for similar purposes, other Brics and emerging economies are also following suit.
So, as the rising profile of the Brics reshapes geopolitical economy and its institutional architecture, backing this or that candidate for president of an unreformed World Bank hardly matters. As if recognising this, Robert Zoellick, the current president, has endorsed the Brics development bank initiative, fearing that not doing so would be a “mistake of historic proportions” in a world where the Brics are increasingly important.
Professor Radhika Desai teaches politics at the University of Manitoba, Canada.