The BRICS: Challengers to the Global Status Quo

 Source: Foreign Policy in Focus

Can the BRICS wrest control of the global economy from the United States and Europe, or will their internal contradictions tear them apart?

The term “BRICS”—which refers to the bloc of emerging economies in Brazil, Russia, India, China, and South Africa—was coined years ago by Goldman Sachs analyst Jim O’Neill, who saw the countries as promising markets for finance capital in the 21st century. But even if O’Neill had not invented the name, the BRICS would have emerged as a conscious formation of big, rapidly developing countries with an ambivalent relationship to the traditional center economies of Europe and the United States.

The BRICS served notice that they are now an economic alliance that poses a challenge to the global status quo during their last summit in Brazil in mid-July, when they inaugurated two path-breaking institutions intended to rival the U.S.- and European-dominated International Monetary Fund and World Bank: a Contingency Reserve Arrangement, with an initial capitalization of $100 billion, that can be accessed by BRICS members in need of funds; and the “New Development Bank,” with a total authorized capital of $100 billion, that is open to all members of the United Nations. Both institutions aim to break the global North’s chokehold on finance and development.

But while the BRICS countries have made plain their desire to loosen the control of the global economy by the United States and Europe, they’ll have to confront some serious problems at home.

Benefiting from Globalization

The BRICS have been among the key beneficiaries of corporate-driven globalization, owing their rise to the marriage between global capital and cheap labor that has followed the fuller integration of formerly non-capitalist or dependent capitalist countries into the global capitalist system over the last 30 years. This union was among the factors that kept up the rate of profit and raised global capitalism out of its crisis of stagnation in the 1970s and 1980s.

Make no mistake: the BRICS are capitalist regimes—albeit with large central apparatuses capable of controlling workers.

In China, for instance, though the Communist Party leadership retains its socialist rhetoric, the reality is that 30 years after Deng Xiaoping’s pro-market reforms, the country now represents—in the words of the Slovenian philosopher Slavoj Zizek—”the ideal capitalist state: freedom for capital, with the state doing the ‘dirty job’ of controlling the workers.” Zizek says China “seems to embody a new kind of capitalism,” with “disregard for ecological consequences, disdain for workers’ rights, everything subordinated to the ruthless drive to develop and become the new world force.”

The other BRICS states may not have the same coercive and extractive power as the Chinese state, and three of them—Brazil, South Africa, and India—are electoral democracies. But all have relatively powerful central bureaucracies that have been the key instrument in the technocratic transformation of their economies. Lula’s Brazil, it might be noted, inherited the developmental state forged by the Brazilian military-technocratic elite that produced the so-called “Brazilian Miracle” in the 1960s and 1970s. South Africa’s ruling African National Congress stepped into a centralized state apparatus that had been honed not only for repression but for extractive exploitation by the apartheid regime. And of course, Putin’s Russia inherited the old super-centralized Soviet state.

While there might be a healthy discussion on whether all of these regimes might be called neoliberal, there can be no doubt that they are capitalist regimes, prioritizing profits over welfare, loosening prior restraints on market forces, spearheading the integration of the domestic to the global economy, following conservative fiscal and monetary policies, exhibiting close cooperation between state elites and dominant forces in the economy, and, most importantly, relying on the super-exploitation of their working classes as the engine of rapid growth.

Contradictions with the Center Economies

Although the BRICS have been major beneficiaries of corporate-driven globalization, their integration into the world economy has been marked by a complex relationship with the traditional center economies of Europe and the United States.

True, some of them, particularly China, have developed investment regimes extremely hospitable to foreign capital. But all have also manipulated foreign capital to accumulate technological and management expertise to eventually wean themselves off foreign financiers. Even as they have reenergized global capitalism as a whole, they have pursued decidedly nationalist goals of enhancing their own clout vis-a-vis the traditional centers of global economic, political, and military power.

This is exhibited most sharply in the relationship of China to the United States. U.S. consumer demand has driven the rapid growth of China’s export-oriented economy, but China is increasingly challenging the hegemony of the U.S. dollar as the global means of exchange. It’s also supplanting the United States as the main investor and trading partner of many countries in Latin America—America’s so-called “backyard.”

If competition is pronounced at the economic level, it is even fiercer at the geopolitical level. In recent years, Beijing has moved from its policy of “peaceful rise” on the global stage to overtly challenging the military power of the United States and Japan, two economies with which China is deeply integrated, in the Western Pacific. At the same time, Russia’s relations with Europe and the United States—two blocs with which Moscow has developed significant economic ties, especially when it comes to finance and energy—have deteriorated as Russian President Vladimir Putin has pushed back against NATO’s expansion onto Russia’s doorstep.

From Engines of Growth to Stagnation

In 2001, O’Neill identified the BRICS as the “drivers of global growth.” The next few years appeared to prove him right, as their performance on all key indicators—including GDP growth rate, per capita income growth rate, and rates of return on investment—surpassed those of the United States and other economies in the North.

When the global financial crisis broke out, the BRICS at first seemed to be dragged down by the collapse of their markets in the North, with their growth rates slowing down significantly in 2008. However, recovery was swift, triggered in some countries by countercyclical stimulus programs. In China, for instance, a $586-billion stimulus program that was, in relation to the size of the economy, bigger than Obama’s $787-billion stimulus in the United States, reversed the economic contraction not only in China but also in neighboring economies that had become greatly dependent on Chinese consumers to absorb their products.

It was in this context that Nobel Prize laureate Michael Spence predicted in his book The Next Convergence that the BRICS would replace the United States and Europe as the key engines of the world economy. In a decade, Spence confidently predicted, the BRICS’ share of global GDP would pass the 50 percent mark. Much of this growth, he said, would stem from “endogenous growth drivers in emerging economies anchored by an expanding middle class.” Moreover, as trade among the BRICS increased, “the future of emerging economies is one of reduced dependence on industrial-country demand.”

Hardly had Spence’s book come out when the performance of the BRICS put paid to his rosy predictions. Beginning in 2012, the stagnation of the global economy engulfed the BRICS in earnest, revealing the stimulus-triggered recovery of 2009 to be a short-term affair rather than a passing of the baton. Brazil’s growth rate dropped from 5.3 percent in 2010 to 1.5 percent in 2012, India’s from 8.2 to 3 percent, Russia’s from 4.9 to 2.5 percent, and China’s from 9.8 to 7.2 per cent. The near simultaneous slowing down of the BRICS’ growth was accompanied by foreign capital outflows, which plunged currency values, increased inflation, and exacerbated inequality.

The Crisis of Export-led Growth

Export-oriented manufacturing based on the exploitation of hundreds of millions of workers from parts of the world formerly independent from or peripheral to global capitalism was the mode of integration for most of the BRICS into the international economy. This strategy focused priorities, incentives, and resources on the export sector, depressing domestic demand and creating dislocations in the domestic market. With its dependence on the now stagnant or contracting markets of Europe and the United States, however, the export-oriented strategy has entered into severe crisis.

China’s crisis illustrates the difficulty of breaking away from the model of export-oriented production. China’s stimulus program was meant to help transition the country to a new domestic-demand centered economy, where growth would be driven by Chinese consumers rather than foreign importers. After achieving some initial success, however, China then reverted back to its reliance on exporting products to the U.S. and European markets.  According to Yu Yong Ding, one of Beijing’s most influential economists, the dependence of millions of Chinese workers on the export sector “has become structural. That means that reducing China’s trade dependency and trade surplus is much more than a matter of adjusting macroeconomic policy.” The retreat back to export-led growth reflected the powerful influence wielded by a set of forces from the reform period that, as Yu put it, “have morphed into vested interests, which are fighting hard to protect what they have.” The export lobby—which brings together private entrepreneurs, state enterprise managers, foreign investors, and government technocrats—remains the strongest lobby in Beijing.  Staying with the export-oriented model was a dead end, according to Yu, since China’s “growth pattern has now almost exhausted its potential.” As the economy that most successfully rode the globalization wave, China “has reached a crucial juncture: without painful structural adjustments, the momentum of its economic growth could suddenly be lost. China’s rapid growth has been achieved at an extremely high cost. Only future generations will know the true price.”

Social Conflicts on the Rise

The crisis of the export-oriented model is likely to exacerbate social conflicts in the BRICS, which were already intensifying in the period of rapid growth. The most explosive problem is rising inequality.

In Brazil, which has one of the highest rates of inequality in Latin America, the payback came in the form of riots throughout the country in 2013. The outbursts were triggered by an explosive combination of transportation fare hikes, deteriorating public services, and the displacement of urban residents and corruption connected with the construction of infrastructure for the World Cup.

In South Africa, the illusion of BRICSdom fostered by the 2010 World Cup was shaken by the protests of miners that climaxed with the infamous Marikana massacre, where troops fired on strikers and killed 44 people in August 2012. Marikana exposed a developed-country infrastructure coexisting with one of the world’s most unequal income structures.

In China, “mass incidents”—a euphemism for protests—doubled between 2006 and 2010, rising to 180,000, according to the Chinese Academy of Governance. The causes were varied, ranging from land grabs to official corruption to environmental degradation. Protests against pollution and other forms of ecological destabilization appeared to be particularly numerous and underlined the authorities’ subordination of quality of life to the goal of high growth rates. In China and the other BRICS as well, the notion appeared to reign that there was a trade-off among environmental protection, labor rights, and development.  In 2010, however, a successful strike for higher wages by workers of a Honda plant in Nanhai inaugurated a new era of resistance, this time with the workers that had served as the backbone of export-oriented manufacturing in the lead. In June 2011, it was the turn of thousands of poorly paid garment workers in Zengcheng, the so-called “Blue Jeans” capital of the world, to protest with riots and strikes. These events were a dress rehearsal for the strikes involving some 30,000 workers in Dongguan, near Guangzhou, that hit the manufacturing subcontractor Yue Yuen, perhaps the largest producer of branded footwear in the world, in April 2014.

The movement appears to be growing. “More than thirty years into the Communist Party’s project of market reform,” noted a writer for the progressive journal Jacobin, “China is undeniably the epicenter of global labor unrest. While there are no official statistics, it is certain that thousands, if not tens of thousands, of strikes take place each year. All of them are wildcat strikes—there is no such thing as a legal strike in China. So on a typical day anywhere from half a dozen to several dozen strikes are likely taking place.”

The BRICS and the Global South

Despite their exploitative practices at home, the BRICS portray themselves as paragons of the global South, providing the leadership of such blocs as the “Group of 77 and China” in international climate negotiations and the “Group of 20” in the World Trade Organization.

However, critics of the BRICS say that their investment and trade practices belie their benevolent posture towards developing countries.

Much of this criticism is directed at China. Although China has poured billions of dollars in aid into Sub-Saharan Africa—much more, in fact, than the World Bank—it has also been criticized by the local population for bringing in Chinese workers instead of hiring local labor, for flooding retail markets with Chinese products, and for supporting repressive regimes with economic assistance. In Southeast Asia, China’s economic diplomacy is said to be geared toward dividing the region’s collective stand on the South China Sea issue, isolating in particular the Philippines and Vietnam.

Although many of these criticisms are valid, the rise of the BRICS is a good thing for the South. In the geopolitics of development, the BRICS currently fulfill the role that the Soviet Union once played, which was to provide a pole that developing countries could play off the United States as they struggled to achieve political and economic independence. The dark period of unipolar domination by the United States, with its neoliberal institutions and ideology, has come to an end with the emergence of the BRICS bloc, and this is an extremely positive development.

The Future of the BRICS

With export-oriented production and globalization entering into crisis, the question emerges: what is the future of the BRICS? That the BRICS will not move to break with their current paradigm of growth is certainly a possibility. However, there are serious discussions in ruling circles about ways to surmount the current crisis.

One option is for the BRICS to become more integrated with each other and with other developing country economies, along the lines of the “South-South Trade” or “South-South Cooperation” strategies that have long been propounded by many progressive economists. Further integration is one of the key topics in the BRICS summits that now take place every two years.

There is, however, one problem with this solution: the fruits of integration would be limited if that integration involved highly unequal societies with restricted demand, since large parts of the population would be left out of the market.

The other solution, which the BRICS elites are not too enthusiastic about, is for the BRICS to adopt policies aimed at radically reducing income inequality and thus creating vibrant domestic markets. This would involve no less than promoting a social revolution in these countries, since powerful interest groups have congealed around the current economic regimes.

Even more fundamentally, assuming that the BRICS can break with export-led growth, can the pursuit of policies promoting greater equality be undertaken within these countries’ current capitalist frameworks, where profitability remains the elites’ central concern? The elites in the BRICS are dealing with the challenge of transformation in diverse ways.

In India, the new BJP government of Narendra Modi seeks to revitalize the Indian economy by opening it up more fully to foreign investors and radically cutting down the country’s budget deficit a la Tea Party partisans in the United States. This seems to be a prescription for continuing and deepening the past 25 years of conservative economic policies and thus is unlikely to succeed in surmounting the country’s stagnation.

In this area, the bellwether among the BRICS is again China, where the current leadership is very much aware of the consequences of the previous leadership’s failure to cultivate a domestic market invigorated by radical asset and income redistribution. Whether Xi Jinping succeeds where Hu Jintao failed remains to be seen.

Whatever strategies the BRICS may follow in the coming period, their competition is likely to intensify with the center economies, even as their long pent-up domestic pressures are released in a staccato of internal social explosions.

Foreign Policy In Focus columnist Walden Bello is a representative of the Akbayan (Citizens’ Action) Party in the House of Representatives of the Philippines. He is also the author of 18 books, the latest of which is Capitalism’s Last Stand: Deglobalization in the Age of Austerity (London: Zed, 2014). This column is an excerpt of a working paper in the TNI series, Shifting Power – Critical perspectives on emerging economies.