Perhaps there was a reason why, until 2001, nobody had coined the acronym Bric. It was then that Jim O’Neill, chief economist at Goldman Sachs, came up with the word to encapsulate the burgeoning economies of Brazil, Russia, India and China. South Africa asked to be added later, to form the now commonly-used Brics.
At the time, O’Neill was hailed as something of a genius. He had spotted the growing financial strength of what, until then, had been regarded as large, but poor and under-performing, nations. The change they presented as challengers to the developed nations, in particular, the US with its mighty dollar, was enormous; the opportunities for investment from those established powerhouses, colossal.
But now look. In the past 13 months, almost $1trn has left those “emerging markets”, as they’re also called. That’s twice the amount that decamped during the global financial crisis. The outflow is nowhere near finished, as domestic demand in these emerging or developing countries continues to fall. China’s recent currency devaluation has sent shock waves across the business world, with the full implications of the move yet to sink in. Russia is being hit by sanctions, due to its aggression in Ukraine, and is suffering negative growth. Brazil is being rocked by protests, with over half a million taking to the streets. South Africa is riddled with corruption, with some commentators likening the Rainbow Nation that once promised so much to other African regimes beleaguered by dark practices and shady dealing. Only India is maintaining any sort of momentum.
O’Neill was not alone. Other commentators, notably Joseph Stiglitz, the American, Nobel prize-winning economist, were calling the end of US hegemony. In the future, Stiglitz said, financial wealth across the world was going to be more evenly distributed. The label, Brics, went from being trendy to accepted gospel. The Davos crowd could not get enough of them.
Every business supplement, every conference, every economic forecast, contained reference to the glitzy Brics – or so it seemed.
Leading business figures, academics and politicians liked to speculate how the world would appear, once these countries with their increasingly-educated populations and reservoirs of natural resources, in crops and minerals, realised their full potential.
There was even a date set, 2050, for the takeover. By then the US would have succumbed – the Brics would be in charge. The 21st century, it was widely accepted, even by those in the White House, would not be America’s.
Possibly fatally, the Brics took the enthusiasm to heart and created their own club, even holding summit meetings to mirror those of the snootier G7 developed economies. They saw themselves as the sexy upstarts, setting their own rules, pushing boundaries, acting together.
At present, Russia, which holds the current chair, is proposing they have their own visa-free travel arrangements. While that may help Russia out of a hole of its own making, it veers towards a joint foreign policy – something never envisaged.
Brics went to everyone’s heads. To the countries concerned, they saw themselves as challengers to the established order; to the developed nations, they were a magnet for business and diplomacy, where size mattered above all else. Quite deliberately, three of the Brics were awarded the Olympics. They certainly had the scale. Some three billion people, or 42 per cent of the world’s population, are accounted for by the five Brics. Like all things, other countries looked on jealously.
Sure enough, a second tier was identified, also by O’Neill, using the term Mint to group Mexico, Indonesia, Nigeria and Turkey. While all this pointed to the overall strength and permanency of the Brics, it was masking underlying weakness.
For a while, their economies were buoyed by world commodity prices. It’s no coincidence that as market prices have fallen, so too have fissures in the Brics been exposed.
O’Neill looked at similarities between them, and there were many. He never expected his analysis to be grabbed and to go as far or as deep as it did; he did not suppose they would form their own collective unit. Where the Brics have come unstuck is in their differences – with the exception of India, they each adopted measures that have proved to be disastrous. To give O’Neill his due, he penned a rider to his analysis, stating the Brics would only thrive if they pursued sound economic policies. And they haven’t.
Brazil allowed an explosion in its welfare state and tried to take on the mantle of world leader on global warming. The once free marketer has been forced to become defensively protectionist again.
Russia sold off much of its assets to the private sector, then took back oil. Putin’s aggressive foreign policy has seen the shutters come down on much of the country’s international business. China removed the independence of its central bank and tried to boost growth by printing more currency. After years of rampant expansion, it’s now in the throes of a long-predicted and feared slowdown and the West is rapidly losing faith in its ability to turn the economy around. The devaluation of the yuan has created an air of fragility where once there was stability.
All three countries are experiencing a drop in local demand. They no longer have the buffer of healthy commodity prices to fall back upon. Neither, too, are they being aided by reinvigorated Western trading partners. The economic recovery in much of the West remains fragile.
Now the Brics are on their own – and are not equal to the task. The wind has been taken out of their sails and the idea they may supplant the US seems further away than ever. Their inability to govern themselves, to produce safe and sound economic policies, to put their business on a lasting, world-beating level has proved their undoing. Arguably, it’s always been there – which is why they were never lumped together as one.
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