At their fifth annual summit in April, the leaders of the Brics nations said they would build their own development bank. If it happens, this club of leading emerging economies – Brazil, Russia, India, China and South Africa – will be taking quite a step. Up to now their meetings have produced bold statements, but little in the way of tangible achievement.
Reports of their meeting in Durban, South Africa, were somewhat thin on details: there was no announcement about where the new bank would have its headquarters or how the institution would be funded.
The vagueness suggests the new bank's true purpose hasn't been worked out. In a way, that's understandable, because the Brics grouping is unusual. Even so, for this venture to succeed, the new bank will need a clear rationale.
One of the main reasons it has been difficult for them to co-operate is simply that they aren't much alike. Four of the five (the Bric part of the group) are the world's largest emerging economies. But even this isn't much of a similarity: China is bigger than all the others put together. Its growth in effect creates a new India every couple of years, or a new South Africa every few months.
Putting size to one side, what else do they have in common? Not that much. Brazil – whose president Dilma Rousseff addressed the summit – India and South Africa are democracies; China and Russia aren't. China and India are major commodity importers; Brazil, Russia and South Africa are major commodity exporters. They also have very different levels of income and wealth. Russia's annual per capita income, adjusted for purchasing-power parity, is about $24,000; on the same basis, Brazil, China and South Africa have incomes of between $9,000 and $12,000; India is much poorer, at about $4,000.
I'm constantly reading that one country or another doesn't belong in the Brics group. Having come up with the idea in the first place, I don't know whether to be amused or annoyed. The fact is, it's easy to make a case for excluding each one.
As time goes by, I see China as the real odd man out – not just because of its size but also because, despite the recent slowdown, it's the only one that so far this decade has met my expectations for growth.
In economic terms, South Africa really doesn't belong either – but the Brics are a political grouping, not just an economic one. The membership requirement, you might say, is a compelling combination of economic potential and geopolitical weight. In any event, South Africa's a member, and debating whether it deserves to be is pointless.
What's well worth debating, though, is whether the decision to set up a Brics bank gives South Africa's leaders a new chance to explain its presence and make it count.
These sharply contrasting cases, China and South Africa, are the ones that interest me most when it comes to planning the new institution.
I ask myself why China is even interested, remembering that it already has the China Development Bank, which funds overseas investments judged by Beijing to be in China's economic or geopolitical interests. Here's my theory: China's leaders may see a Brics bank as a low-risk rehearsal for the role they are fated to play, in due course, at the International Monetary Fund and the World Bank, within the Group of 20 and maybe even at the United Nations.
What's South Africa's purpose? Some of its policy makers tell me they aspire to act as go-between for the Bric countries on one side and Africa – or least sub-Saharan Africa – on the other. That's fine, but they should be a bit more specific.
South Africa has a well-developed financial sector, and the expertise and experience that go with it. Why not use this strength to fashion a role in drawing project-development money to the many needy countries to their north?
If they fail to do this, you can bet that other rapidly growing African countries, such as Nigeria (which before very long will have a bigger economy than South Africa), will decide that the Brics bank does little for them, and that South Africa can't serve as their representative.
So much for the motives of China and South Africa. For the group as a whole, the recent turmoil in Brazil, Turkey and other emerging economies suggests – or ought to – what the larger missing rationale should be.
The reasons for the protests in so many emerging economies are complex, of course, and differ from case to case, but I see two common factors. One: fast-growing, emerging economies have rapidly expanding middle classes. These people have gained from economic growth and are anxious to have more of the same. Two: this new middle class sees governments wasting public money on pet projects. They want investment in things that will make them proud and more prosperous, and that will keep up the attack on poverty.
How should governments respond? For many years at Goldman Sachs, I followed scores calculated by our research department for each of the emerging economies: a system of 18 variables that aimed to measure sustainable growth.
For many large, emerging economies, including all the Bric countries and the "next 11" (apart from South Korea), three areas stood out as vital for success: first, governance – meaning better government as opposed to more; second, education, including at the most basic levels; third, access to modern technology.
Governments which raise all three of these scores give their countries the best chance of escaping once and for all from the so-called middle-income trap.
So I have a suggestion for the new bank, once it's up and running: set country-by-country targets for improving performance on each of these three measures over agreed periods. Make these scores the organising principle, and use them to guide capital allocation.
If a Brics development bank adopted a rationale such as this, used it to focus minds and then followed through with its decisions, it could do its members, and others as well, a power of good.
Jim O'Neill, former chairman of Goldman Sachs Asset Management, is a Bloomberg View columnist