Bring India into G8 to confront nonsense of the Brics
The democracies must outwit China by turning G7 into a standard bearer of pluralist values
The Brics brand of rising economic powers began as a marketing gimmick by Chinaworshippers at Goldman Sachs. It never had any coherence, and should have disappeared from the media lexicon long ago. Yet it refuses to die. The Brics idea has roared back to life, dividing the world along an unnatural line of cleavage.
Brazil, Russia, India, China, and South Africa have little in common. Some are democracies, others are one-party dictatorships at war with democracy. Some were colonies within living memory, others are today’s imperialists. Some are energy and food importers. Others live off commodity rents.
As a group, they have failed to sustain the promise of economic take-off, assumed to be inevitable 15 years ago. It is America that has rebounded, China that has suffered a collapse in productivity growth and is sliding into the middle income trap.
The Brics share a vaguely-stated aim of “multipolarity” – but China is not trying to achieve anything of the sort. Its own strategy documents aspire to dominance over the world’s economic and technological infrastructure, with Beijing setting the rules of a new global order.
Yet for all the absurdities, the Brics club is expanding. Twelve countries have applied to join and another six are putting out feelers. The Brics bank in Shanghai has been upgraded politically under Brazil’s ex-leader Dilma Rousseff, even as it is downgraded financially to AA by Fitch Ratings. Egypt and Bangladesh have joined, and Uruguay will soon follow.
It aspires to be the rival Bretton Woods lender for the global South, breaking the stranglehold of Washington, and free from the harsh lending conditions of the IMF, or so applicants think. The actual terms of debt restructuring under China’s Belt and Road are draconian.
There is much heady talk of a Brics currency to defy dollar supremacy. Brazil’s president, Lula da Silva, says: “Every night I ask myself why all countries have to base their trade on the dollar.”
Of course it makes sense for Brazil to sell iron ore and soybeans to China under yuan contracts. But Lula of all people ought to know why the dollar endures. His country explains the riddle. So does Russia.
Brazil and Russia each looked like commodity superpowers during the bubble of the early 2000s, supplying energy, metals and food for Asia’s industrial revolution. But both were succumbing to the Resource Curse. Their industrial cores were being hollowed out by overvalued currencies.
Both sank into a lost decade when the commodity supercycle deflated. The combined GDP of Brazil and Russia was $4.7trillion (£3.7trillion) in 2011; it was $3.4trillion by 2021 (World Bank data). In the meantime the US vaulted from $15.6 to $23.3trillion.
The Brics story is really about China. It is taken as given in the global South that China’s GDP will soon overtake America’s. This looked plausible for a brief moment circa 2008.
It seemed self-evident that China, growing at double-digit rates, would inherit the Earth by compound arithmetic. The dollar was then at rock bottom. Brazilian supermodel Gisele Bündchen refused to accept it as payment.
Peak oil was in vogue and America had become dangerously reliant on energy imports. The US current account deficit had ballooned to 6pc of GDP. China’s surplus was 10pc of GDP.
What most people did not know is that US free enterprise and technology had already cracked the potential of shale. Within a decade the US was again the world’s biggest producer of oil and gas, with energy and chemical feedstock prices low enough to power a US manufacturing renaissance.
The heart attack in the US banking system in 2008 was not the crisis of capitalism that China supposed it to be. It was just an episode in the Schumpeterian cycle of creative destruction.
We can see in retrospect that China suffered deeper damage. The Central Party School falsely concluded that it vindicated the Communist model of top-down control of bank credit and five-year industrial plans. Hubris ran rampant.
China doubled down on a development model that was already obsolete. The economic return on each yuan of credit hurled at construction and industrial over-capacity has fallen from about 1:1 in 2008 to nearer 1:3 today. China may have missed its chance to reform in time.
It is following Japan and Korea into demographic collapse, with the big difference that it is becoming old before it is rich. Xi has progressively abandoned the Deng Xiaoping model that delivered 40 years of supercharged growth. He strives for global technological ascendancy but has reverted to Maoist thought control and treats tech entrepreneurs as a threat to Party control.
China’s structural growth rate is heading for 2-3pc, converging on mature US growth rates long before it has caught up. Informed opinion no longer thinks that China’s sorpasso is inevitable before 2030, and if it does not happen this decade, it will not happen this century given America’s demographic edge – so long as America does not self-destruct: the new Fukuyama thesis.
The Brics revival today is different from its original flowering in 2008. This time, what anti-americans object to is US strength. The dollar is too strong for global comfort. The US has weaponised control over the dollarised system of global payments and credit to enforce American foreign policy.
If the Brics are not the economic force of global imagination, does it matter whether or not applicants want to join? Yes it does, because this amorphous front for Chinese ambitions has succeeded in capturing the political microphone of the global South, reviving a superannuated concept that ought not to exist.
The West is paying a high price for dragging its feet on reform of the UN Security Council and the Bretton Woods regime. To have pushed India and Brazil into the embrace of this racket has been a failure of statecraft. But it is also reversible.
Lula’s visceral anti-americanism and infatuation with China make Brazil a tough nut to crack. India offers more strategic promise right now. Pessimists say India has already drifted into the autocratic camp under Narendra Modi but this is too bleak and defeatist. Civil society is alive and well.
Indian leaders have been attending G7 summits intermittently as a guest over the past 20 years. It is time to invite India to play its full part in an expanded G8 and turn this body into a muscular, unapologetic, standard bearer of pluralist values.
The G8 should be the best club to join. The democracies must beat China at its own game.