BRICS is about geopolitics, not economics

VINCI is prettier?

BRICS, one of the most powerful concepts to emerge in political economy this century, makes little sense today, S&P Global Ratings said in an emailed note last week. But even if that’s true for economic analysis, the acronym coined by Goldman Sachs analyst Jim O’Neill has predicted the current geopolitical reality, which isn’t served well by 20th century institutions.

The acronym stands for Brazil, Russia, India, China and South Africa, the latter a late addition that wasn’t in O’Neill’s original 2001 paper or its 2003 sequel (which used BRICs, as a plural). Both reports predicted that the first four of the nonWestern economies eventually would account for a much bigger share of global economic output, overtaking large European economies, and told investors they’d be wrong to miss the opportunity to get involved in this global shift.

The idea often has been dismissed as a marketing tool, a way to put a flashy label on something no one could have missed, namely the growth of the big emerging economies. Those who see it that way could feel vindicated by the S&P note’s suggestion that “the diverging long-term economic trajectory of the five countries weakens the analytical value of viewing the BRICS as a coherent economic grouping.”

But, like other serendipitous ideas, O’Neill’s has been transformed by the way the world has changed since the early 2000s. It doesn’t really matter that the BRICS aren’t growing at the same pace. They’re still all playing major roles in reshaping the world.

As the S&P note correctly points out, putting the five countries in the same basket many economically questionable. India and China have consistently exceeded the rating firm’s growth predictions since the turn of the century. Russia and South Africa have failed to meet them since about 2005, Brazil since 2010. Of course, the five nations have greatly increased their combined economic heft since is increasingly the turn of the century — but only thanks to China and India. Brazil, Russia and South Africa’s shares of global output have actually shrunk since 2000.

As the five countries’ economic models and policies have diverged, so did the paths of their credit ratings. China’s went up four rungs on the S&P ladder to A+, while the others never got that high: Russia and India are five steps below today, and South Africa and Brazil seven and eight below, respectively.

This divergence suggests that O’Neill made a mistake in betting on the future champions. He could have gone with Indonesia and Vietnam instead of Brazil and Russia (acronym VICI, “I conquered” in Latin) and then someone could have added Nigeria (VINCI, as in, you know, Leonardo da Vinci) — and it would have made more sense in terms of growth trajectories, while the combined share of global output would have remained the same at 32.6 per cent.

That, however, wouldn’t have captured the geopolitical reality as well as the BRICS concept does. Responding to criticism, O’Neill has pointed out that his 2001 paper was meant to question the adequacy of the contemporary global economic governance system. Indeed, he suggested clearing the European spots in the G-7 for some of the emerging powers; Germany, France and Italy could share one seat as euro area members. The resulting group, O’Neill argued, would better reflect the changing economic setup.

That never happened. But emerging economies did gain more power when it comes to global government. The G-20 is arguably a more effective body today than the G-7. At any rate, far-reaching changes in global tax regimes are being discussed in the larger forum, while the G-7 has been unable to agree on much at all.

The BRICS countries, meanwhile, have turned out to be a valuable support group for each other. Their leaders hold a summit every year (next month, they’re scheduled to meet in Brazil). Devoid of access to the top jobs in international financial organisations and development institutions, which still nearly always go to Westerners, they’ve set up the New Development Bank to finance infrastructure projects in the developing world. Voting rights in it aren’t weighted by the size of the countries’ economies. Four years after starting operations, it has a $10.2 billion loan book; that’s relatively small, but the NDB is one of the word’s biggest multilateral development banks by paid-in capital.

—Bloomberg