BRICS: STRONGER PARTNERSHIP FOR A BRIGHTER FUTURE
By Jim O’Neill
I never had the slightest idea that a few years after I created the acronym, BRIC, to depict the fast rising economies of Brazil, Russia, India and China, that their political leaders would create a political club between them, adding South Africa to be the BRICS. Here we are nearly 16 years later after I first coined the phrase, BRICs (small s for the plural) and 9 after the start of the BRICS club. What do I think about both?
Well, first of all, I also never dreamt that the BRICs acronym itself would become such common wordology and become code name for the rise of the so called emerging economies and depict the changing nature of the world. That said, much of what has happened to the world in the subsequent 16 years is not that surprising to me, both in terms of its shifting drivers and global composition in terms of economic activity , nor the complex way global governance appears to be evolving.
When I first thought of the term, it was primarily in response to the shocking atrocity of 9/11 and the terrorist attacks on the World Trade Centre in New York. To my surprise, a couple of days later, I found myself thinking that beneath the horror, perhaps there was a deeper message , that the globalisation of the world was becoming more Americanised, and this was not sustainable. Indeed, for much of the previous 19 years of my career, it almost seemed as though globalisation equalled Americanisation. And I concluded- rightly or wrongly- after 9/11, that this was not sustainable, and in order for globalisation to survive, the world needed to both allow and perhaps even encourage, other countries to have a bigger influence on how the world economy was evolving, even if , perhaps it might mean more complex governance of the world. In essence, this is what has happened since, and continues to evolve.
One of the forces that probably influenced me back in 2001, was the rise of China which was already evident to me, and had been quite infatuated with China in terms of its economy, ever since my first visit in 1990. I was also highly impressed with China’s role in helping bring an end to the Asian Financial crisis, which led me to think that China could even then, in 1998, play a key role in influencing global economic and financial forces.
As most international economists would agree, long term economic growth is essentially driven by just two factors; the size (and growth) of a country’s working age population, and its productivity. Countries with large work forces, and improving productivity would have the potential to become large economies. Conversely, countries with small work force populations, even with strong productivity, could never become especially large, even if they are likely to be wealthy. Think of Luxembourg for example, or these days, Singapore.
It was this that led me to think of other large populated emerging economies that had the potential in the future to become large, in a global sense. India was obvious, along with China, as the only other country with more than 1 billion people. Brazil, as easily Latin America’s largest populated country was also obvious, and to make up a foursome, Russia, especially in those days, soon after the collapse of the Soviet Union, its early embrace by the West (now seems rather distant) became quite obvious too.
And as the famous phrase goes, the rest is history!
I often have to remind people that I never included South Africa (something which irritated South African policymakers). Based on the criteria that are economically important, South Africa is not an obvious country to highlight. Its population, between 45-50 million is small in a global sense, it has poor productivity. There are a number of more obvious emerging countries that are likely to be as large as the BRIC economies going forward. As I sometimes perhaps rudely would write, but is factually true, for much of the past decade, China has created the equivalent of a new South Africa once every 3 months. South Africa’s economy is around $ 350 bn. China creates an additional $ 1 trillion ever year.
That said, and this is important. I do not begrudge South Africa becoming a member of the BRICS political club, and indeed, as I shall explain later, they appear to play an active and a constructive role.
Back to the economics and how the BRICS have performed.
As is noted commonly, the BRICS economies today are around 23pct of global GDP, nearly the same size as the US and, in line with why the BRICs idea became so popular, they remain reasonably placed to become bigger than the combined size of all the G7 economies by the mid to late 2030’s, which is what I and my colleagues at Goldman Sachs had suggested.
I often read many things about supposedly how disappointing the BRICS economic story has turned out, but I find it most amusing when their collective share has more than doubled in 16 years. Yes, it is true that Brazil and Russia have disappointed –so far- in the second decade, but their individual share of global GDP is about the same as they were when I first created the phrase. And of course, at the start of this decade, before their individual crises, their share was notably higher in 2009/2010.
What perhaps is a more valid criticism, is that the group is dominated by China. This is, to some extent true. Today, as an economy nearly $12 trillion, it is more than four times bigger than its nearest BRIC competitor in terms of size, India, and even if India grows at a faster GDP growth rate for the rest of this decade- which seems likely- China will still create another India before this decade is over. And China is today, bigger than all the other BRICS economies put together.
But as much as this is true, I don’t think it invalidates the BRICS concept, not least because the only reason why I ever suggested they would become bigger than the G7 is because of the likely size of China ( and to a lesser degree, India) . It is also true, that there are not many things in life, where China isn’t becoming a huge influence, whether it be global trade, the fight against climate change, or luxury house prices in many parts of the rest of the world.
Let me now turn to the BRICS political club, and the title of this year’s summit, “A Stronger Partnership for a Brighter Future”. I hope this is true.
While I truly admire and respect the BRICS political club, and am aware of the number of regular meetings that now take place between their respective Ministers; including on trade, health as well as course, finance, there is not much concrete evidence of anything that the BRICS countries have collectively done to demonstrate their effectiveness.
Sometimes, I read about their ongoing collective economic might as some sort of symbol of their effectiveness, but it seems reasonably obvious that they would achieve this growth even if the club didn’t exist, especially as I have discussed, it is led by China. So, I don’t see this as valid.
Often there seems to be core reoccurring rational for the BRICS to campaign for a larger share of the IMF and World Bank capital and voting rights, and while this is obviously true, given the shares are supposed to represent relative economic size, it is not clear to me that this is a justification alone for the BRICS club.
What would be justification would be for them to find a genuine collective shared issue, and undertake initiatives between them where such action could make a demonstrable difference. One such area is global health, in a number of areas, and one of great importance to be specific, is tuberculous (TB) and the need to eliminate it.
I spent nearly 2 years, chairing an independent Review into so called antimicrobial resistance ( AMR) and my Review, showed that if we don’t do something about it, including finding new effective drugs, then by 2050, there could be 10 million people, yes, that is 10 million people, a year dying, many of them in the BRICS countries. Around 1/3 rd of these deaths would be as a result of the rise of drug resistant TB infections and we need some urgent attention.
To my pleasure, some of our attention was received by the G20 countries when China hosted the 2016 G20 in Hangzhou, and their statement included a short paragraph about the battle against AMR. This was followed up by a bigger statement at this year’s G20 in Hamburg, and according to my information, South Africa played a crucial role in ensuring the statement happened. For this alone, South Africa’s presence in the BRICS club is justified.
It is also the case that this successful G20 outcome was followed up by a high level agreement at the UN in September 2016, to fight AMR.
I recently had the pleasure of a lunch with the BRICS Ambassadors in Geneva, where I proposed to them to take back to their leaders, that the BRICS Bank (or New Development Bank) should be encouraged to either lend, or invest in some initiatives to accelerate drug trials for urgently needed new TB drugs. This would be a huge and clear sign of the BRICS countries collectively demonstrating their effectiveness, not least as it would make it more likely that my now famous prediction that their collective economic might will surpass the G7 countries before 2040. What better incentive could there be?
(The author is a former chairman of Goldman Sachs Asset Management)
(Source: People’s Daily)