Strange
things happen in the world. Imagine a grouping of countries
spread across the globe, which gets formed only for
the simple reason that an analyst for an investment
bank decides that these countries have some things in
common, including future potential for growth, and then
creates an acronym of their names! Bizarre but true.
The
original categorization by Jim O'Neill of Goldman Sachs
contained only Brazil, Russia, India and China – subsequently
South Africa was added to the group. And while the origin
of the grouping may be odd, and the countries are indeed
remarkably diverse, there are some commonalities that
are important. And in any case, these countries have
since shown significant appetite for meeting periodically,
working together, finding some synergies and new ways
of co-operation. It is interesting to note that trade
between BRICS countries soared after they became recognized
as a combination, although of course this is a period
when trade between developing and emerging markets in
general has grown much faster than aggregate world trade.
At the most recent BRICS Summit held in New Delhi, the
meeting of the Financial Forum definitely signaled some
steps forward, such as an agreement to encourage trade
between members denominated in bilateral currencies.
The heads of development banks of the five countries
also spoke of working together to push for a different
global financial architecture, as well as cooperation
in areas such as developing ''green'' economies.
In fact there is great potential in these five countries
not just combining to address global issues, but perhaps
even more significantly, in learning from one another.
In the discussions at the Financial Forum it became
evident how much India has to learn from Brazil and
China in the matter of development banking. From the
early 1990s, India has set about destroying the potential
of its own development banks, in both agriculture and
industry – but there is still scope for their renewal
and rejuvenation. And the example of Brazil, and in
particular BNDES, in entering areas and promoting activities
that would not occur purely through the incentives determined
by the market, could provide some guidance about how
this can occur even in a very open and largely market-driven
economy.
Similarly, there are areas in which other BRICS countries
could learn from India, while the description of the
work of the South African Development Bank illuminated
the strategy of creating financial structures and mechanisms
to promote the ''green economy'' through environmentally
desirable activities and technologies. There are also
immense possibilities for technology sharing and even
co-ordinating technology development, in a world where
intellectual property rights still largely controlled
by Northern multinational companies have emerged as
a major constraint on development.
But it is not only comparing experiences of the recent
past and learning from each other's approaches that
may be important. Despite their many differences, the
BRICS countries do face some common challenges, and
the very urgency of these challenges points to the benefits
of co-operation to develop creating new strategies.
At least four such challenges deserve mention, as do
some possibilities of combined action to confront them.
The first is the fact of the continuing global crisis
and the near certainty that the Northern economies (the
US and Europe in particular) are unlikely to provide
much positive stimulus to the global economy. For all
the BRICS, these countries still dominate as export
destinations and the domino effect of declining Northern
markets must be accepted. So clearly, there is need
to diversify exports, a process that has already started
but still needs to go a long way. Of course bilateral
currency trade would encourage more trading activity
between the BRICS, and this is desirable.
But the current state of the global economy suggests
the need for greater ambition. In particular, the time
is clearly ripe for some sort of ''Marshall Plan'' for
the developing world, and the BRICS countries (particularly
China and Russia) are uniquely positioned to take this
process forward. This would involve developing mechanisms
to finance imports by countries with low incomes and
low levels of development, simultaneously delivering
markets to other developing countries and more development
potential to the recipient countries.
The other challenges are more internal, but surprisingly
common across the BRICS. The recent growth process has
been substantially associated with increasing income
and asset inequality (other than in Brazil, which once
again provides some lessons for the others, but where
Gini coefficients still remain among the highest in
the world). It is now more evident that such inequality
is socially and economically dysfunctional, and also
that it gives rise to political tensions that can be
even more damaging. So there must be measure to address
this.
Inadequate productive employment generation has been
a central feature of the past growth process, and is
clearly linked with the growing inequality. So financial
policies within BRICS countries must be concerned with
this, and in particular with how to use finance to promote
more opportunities for decent work. In this context,
the development banks themselves need to be not just
strengthened but also reformed, so as expand their ambit
to be more explicitly concerned with micro and small
enterprises, which have been hitherto relatively neglected
in credit allocation. Indeed, the focus could be not
just on credit per se, but strategies to ensure technology
development in micro enterprises as well as better access
to markets. For example, it is possible to think of
dedicated export credit lines of Eximbanks devoted to
the products of micro and small enterprises.
Another major aspect of inequality has been the inequality
in access to basic social services and utilities. The
strategies of privatisation and reduced public spending
in such areas in all the BRICS countries have not only
reduced access for the poor but also created tremendous
inequalities. It is increasingly necessary for innovative
financial strategies to promote more universal provision
of necessary services and utilities. Such credit cannot
focus only on ''public private partnerships'' but must
increasingly be oriented towards municipalities and
locally elected bodies who are often directly responsible
for such provision but tend to be cash starved and denied
finance.
Finally, recent growth in all the BRICS countries has
been associated with a construction and real estate
boom, and it is interesting to note that this boom is
also in the process of winding down in all five countries.
This creates all sorts of difficulties, both in terms
of the employment losses as well as the health of the
financial sector, and it is particularly galling given
the continued shortage of adequate mass housing. All
of these countries will need effective strategies to
deal with this challenge, even while they continue to
promote affordable and better quality mass housing,
and so surely there are opportunities here for creative
policy thinking that can be shared.
Much of recent South-South interaction (including amongst
BRICS) has been corporate-led, which has determined
the focus on trade and investment and the encouragement
of particular patterns of trade and investment. To the
extent that companies everywhere have similar interests
(the pursuit of their own profits) it is not surprising
that older North-South patterns are replicated. But
surely the focus should be to democratise the interaction
itself, to work out the ways in which the patterns of
trade and investment flows can be altered to emphasise
the creation of decent employment.
Ultimately, sustainable economic diversification to
higher value added and ecologically viable activities
remains the key to growth and development not just in
the BRICS countries but in other developing countries
as well. This period of global flux actually provides
a valuable opportunity to encourage and develop new
ways of taking such strategies forward through co-operation.
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