BRICS warning for West

By Andrew Hammond

The meeting of presidents and prime ministers from Brazil, Russia, India, China and South Africa (BRICS) finished up Thursday night with warnings about trade protectionism and unilateralism from developed countries.

The bloc was originally formed for its economic potential, yet it has also seen political cooperation rise to the fore amid concerns that it could become an anti-Western bloc standing up to what Chinese President Xi Jinping called "bullying."

This growing political bent is exemplified by several key initiatives. Firstly, the creation of the New Development Bank, an alternative to the World Bank and International Monetary Fund, which will finance infrastructure and other projects in the BRICS, and a related $100 billion special currency reserve fund. One driver for the new bank is the perception that it will allow BRICS to better promote their political interests abroad.

Another initiative, perceived to challenge U.S. preponderance in information technology, was most recently discussed in August when BRICS communications ministers signed a letter of intent to cooperate in the sector. This builds on plans, first mooted in 2012, for a potential optical fiber cable system to carry telecommunications between the BRICS, partly as means to try to evade the purview of Western intelligence agencies, including the U.S. National Security Agency.

These examples underline the hunger of BRICS to become even bigger political (not just economic) players, raising fears in some quarters that the bloc could, ultimately, become a unified anti-Western alliance. This concerns many, given that the five countries encompass about 25 percent of the world's land and global GDP, plus some 40 percent of the world's population.

To be sure, BRICS (like others across the world) certainly have shared concerns about key elements of the prevailing global order, including a wide swathe of Donald Trump's trade tariffs that Xi called "bullying" on Thursday. However, it is unlikely, for the immediate future at least, that this will mean BRICS will move decisively beyond an increasingly institutionalized forum for emerging market cooperation.

Part of the reason for this is the heterogeneity of the club with its diverse interests. Take the example of China's periodic tensions with India, including border issues, which can adversely affect relations between the two.

At the same time that BRICS are stepping up their political cooperation, there is growing skepticism of the relevance of the group as an economic club. Standard & Poor's last month, for instance, highlighted the diverging long-term economic trajectory of the five nations.

This has seen generally robust economic performance in China and India over the past two decades contrasting with often disappointing results in Brazil, Russia and South Africa. And this means that there is growing uncertainty whether the bloc will fulfill the prediction of Jim O'Neill ― who originally coined the BRICS concept ― that it will overtake the G7's collective economic output in about 15 years.

Yet, with BRICS already accounting for about a quarter of global GDP, up by over 10 percentage points from around decade ago, their overall growth is already having a major global impact. World Bank research, for instance, has shown that for the first time in some two centuries, overall global income inequality ― one of, but not the only measure of economic inequality ― appears to be declining.

This is being driven by BRICS and other emerging markets ― especially the collective economic growth and very large populations of India and China, in particular, which have lifted a massive amount of people out of poverty, driving this greater overall global income inequality trend.

At the same time, however, there is an opposing force: growing income inequality within many countries. It is this factor that has also assumed growing political salience recently, helping fuel populist, nationalist politicians including Trump.

The net global trend for the past 200 years has been toward greater overall income inequality, yet there is growing evidence in the past two decades that the "positive effect" of growing income equality between countries, spurred by BRICS and the development of the global South, is superseding the "negative effect" from increasing inequality within nations.

It is unclear whether BRICS and wider development of the global South has enough momentum to keep driving forward a more equitable world order. This will depend, largely, on the same twin issues of whether emerging markets generally continue growing robustly and also whether the trend toward rising income inequality within countries is sustained.

On the first issue, the trajectory of the global economy will very likely continue to shift toward the South, but the remarkable wave of emerging market growth of the last generation may now decelerate. On the second issue, it is not set in stone that ever-growing income inequality within countries will continue, but it is unclear if there is the political will to address it in many nations.

Taken overall, while the relevance of BRICS as an economic club is increasingly questioned, they have helped drive what appears to be the first period of sustained movement toward greater global income equality for 200 years. While this is a hugely significant achievement, the fragile process could yet go into reverse, especially if growth in China and India flattens significantly.

Andrew Hammond (andrewkorea@outlook.com) is an associate at LSE IDEAS at the London School of Economics.