Talk of a new anti-Western alliance changing the balance of world power and finance is everywhere. But BRICS is a long way away from a coherent ideological and geopolitical alliance, let alone a powerful economic block of nations. Russian dissident Sergei Guriev, financier and Putin’s enemy Bill Browder, and Financial Times Europe-China correspondent Yuan Yang debated the future of the global order at HowTheLightGetsIn festival, in London.
A spectre is haunting the G7, the spectre of BRICS. Or so the recent media storm over the organisation would have you believe. On the surface, this looks like a perfectly reasonable claim. The rise of the East and decline of the West is a narrative that has permeated geopolitics for at least the last 40 years and even further to the decline of Western empire. However, despite the headline figures, the BRICS do not represent that shift. As was argued in the Redrawing the Global Order debate at this year’s HowTheLightGetsIn festival in London, BRICS is a precarious business partnership without the capital, ideology, or trust to challenge the G7.
Far from the collapse of the Soviet Union marking the permanent ascendance of Western Liberal Democracy, the BRICS nations now command a greater share of global GDP by purchasing power parity (PPP) than the G7. Two members of the BRICS will soon count as both the second and third-largest economies in the world by the end of the decade - China and India. In contrast with the high growth of the BRICS, key members of the G7 appear to be languishing. Italy and Japan’s growth rates have been stagnant for several years, while the BRICS contribution to global growth is 32.1% compared to the G7’s 29.9%. While this may look like a comparatively small difference, never underestimate the power of a compound exponential. They’re also expanding into the development sector. China’s much lauded Belt and Road initiative is now complemented by the New Development Bank, a BRICS backed institution providing targeted financing without the structural adjustment criteria of Western institutions. So after fifteen BRICS summits, with applications to join from Saudi Arabia, Iran and UAE among others, talks of a unified currency and shared geopolitical outlook, will we live in a BRICS dominated future?
Much is made of the BRICS having a higher percentage of global GDP than the G7, but importantly this is in purchasing power parity, not absolute terms.
According to name the panellists, the short answer is no. And with good reason. Let’s start with the economics because, on the surface, this represents the BRICS strongest playing card. Much is made of the BRICS having a higher percentage of global GDP than the G7, but importantly this is in purchasing power parity, not absolute terms. The disparity between real purchasing power and purchasing power parity indicates the relative weight of a nation’s currency. Purchasing power parity is a metric for comparing what a currency can buy across nations. Goods may vary in price across states based on more than exchange rates. Geography, regulation, degree of monopoly and a myriad of other factors impact prices. PPP tells you how much of a similar good you could buy in different countries. The Big Mac Index is an example of a PPP comparison. China, for example, has long been accused of dramatically undervaluing its currency to gain a comparative advantage over the West in the form of cheaper exports. This devaluing would boost its GDP’s purchasing power parity value by artificially allowing fewer Yuan to purchase the same good in dollars, thus inflating the overall size of its economy. In GDP by purchasing power parity terms, China overtook the US in 2013, despite the US still being 40% larger in absolute terms. Furthermore, as Sergei Guriev made clear in a recent interview with the iai, the BRICS New Development Bank pails into insignificance compared to China’s own Belt and Road initiative and the West’s IMF and World Bank portfolios.
Guriev was the former chief economist for the European Bank for Reconstruction and Development and is particularly sceptical when it comes to the power and scope of the New Development Bank. It’s portfolio of loans was worth $32.8 billion at the end of 2022 while at the same time, the World Bank’s portfolio amounted to $297 billion. For Guriev, while the New Development Bank’s eschewing of loan conditionality may be attractive for some developing economies, the BRICS are fundamentally unable to lever sufficient capital to make a meaningful impact on global development. Indeed, the FT’s Yuan Yang pointed out the similarities between the BRICS, and in particular China’s development policy, and the absence of forward planning among the Empires of the 20th century. Similar to the UK in India, China has poured money into various development projects through the Belt and Road initiative, and now the global economy is faltering they’re left as the lender of last resort with their domestic troubles. In the decade of the 2010s, China bailed out the Belt and Road initiative to the tune of $240 billion, while 60% of recipients of money from that scheme were classified as distressed debt by 2022. Yuan’s comparison appears to be apt in as far as Britain’s empire fell and colony nations were left to pick up the pieces. We have already seen how punitive development loans have precipitated government collapse, as we have seen in Shi Lanka. If China is unwilling to restructure or write-off bad debt, how it will extract itself from its development commitments without undermining debtor states and its own foreign policy is an open question. Somewhat like owning a fancy used car, if you can’t afford the upkeep, you can’t afford it. If you can’t afford to write off bad debt, you shouldn’t be making development loans in the first place.
As Bill Browder argued, having piles of Yuan and Rupees stuck in Russia’s reserves doesn’t help Putin finance a war or evade international sanctions.
So if the BRICS development agenda isn’t all it’s cracked up to be, do they instead represent a geopolitical challenge to G7 and by extension NATO? With the advent of war in Ukraine, much was made of the BRICS nations refusing to sanction Russia along with the rest of the world. Indeed, this tacit support has provided Putin with a valuable lifeline to sell his oil and acquire foreign currencies. However, this is no get out of jail free card. As Bill Browder argued, having piles of Yuan and Rupees stuck in Russia’s reserves doesn’t help Putin finance a war or evade international sanctions. Going further, the threat of a BRICS currency is hot air because the world’s elite is resistant to de-dollarisation. As a financier himself, Bill makes the astute observation that rich people tend to like to hold onto their money. They want it safe, liquid, and spendable, none of which is possible under autocratic regimes. The Euro is feasible because our governments aren’t led by autocrats inflating their wealth through the abuse of power in government roles (at least for the most part). However, Russian oligarchs and Chinese billionaires need Swiss accounts full of dollars to protect their wealth from the whims of their governments. In an autocratic system, a BRICS currency would be vulnerable to the whims of the autocrat, which would means significant personal risk among the elite investing in that currency. Even before coming to the constraints of a monetary union, Bill Browder’s life is a testament to the power that wealth, and the loss thereof, can do to motivate an oligarch. The capture of most BRICS nations by elites feeds into the last point covered by the debate, that of the category error of calling the BRICS an alliance.
It is easy to forget that the BRICS was originally a marketing term, coined by the chairman of Goldman Sachs to sell bonds.
A common theme among the panellists was to dispute the notion that the BRICS is an alliance comparable to the G7. While the BRICS may on the surface look like an alliance. They make shared pronouncements, they meet up regularly and set up shared institutions, but Browder, Yang and Guriev all agreed that their relationship is more akin to a business partnership than an alliance. It is easy to forget that the BRICS was originally a marketing term, coined by the chairman of Goldman Sachs to sell bonds. And from business origins, the BRICS remain a pragmatic grouping. China’s inclusion in the BRICS stems from a distrust of the West over an ideological affinity for the other members. With Trump and now Biden’s increased protectionist fervour, and the willingness of the West to sanction Russia over the Ukraine war, China needs a plan B, especially if it intends to invade Taiwan. While the G7 is nominally bound by the Washington Consensus, or at least a shared appreciation for liberal democracy, the BRICS have no uniform ideology. China and India’s border geopolitics couldn’t be more at odds, Brazil’s democracy and geography distances itself from the other members, and the New Development Bank refusing to invest in Russia all indicate discord behind the scenes.
For Browder, the obvious connection between most BRICS nations is corruption. South Africa defends Russia, not because Russia is a major trading partner, but because Russia bribes key officials. We can talk all day about geopolitical alignment and economic aid, but ultimately money rules the roost, and politicians are cheap. Browder’s life has been a crusade against corruption, and according to Sergei, he has precisely the zeal that the West should aspire to. The BRICS have rhetorical power precisely because the West fails to call out corruption within its ranks. As Guriev describes in Spin Dictators, dictatorships never call themselves dictatorships. Even North Korea is a ‘Democratic People’s Republic’. While the West’s ideological cohesion gives it trust, when it fails to live up to those ideas we arm our opponents. As a member of the audience pointed out in a question, we can criticise the BRI and NDB all day, but the West’s hands are far from clean in the developing world. Bill described his treatment by Westerners at Davos as that of a pariah for standing up to Putin’s money. If anything what the BRICS can tell us is that their outsized influence, rhetorical strength, and growing appeal stems not from their strength, but from the West’s hypocrisies.
So, will the BRICS overtake the West? No. But the BRICS are an important group to study to see where the West should be more self-critical.. The size of the New Development Bank’s agenda may be small, but by breaking up the West’s monopoly this can hold us to account for our ideas. The scars of structural adjustment still linger and the BRICS’ appeal derives from the West’s mistakes. Like any economic system, competition can be a force for good, provided it’s not a race to the bottom and as Yuan pointed out, we shouldn’t emulate China’s security state in our response to BRICS ascendancy. The BRICS rise need not be the West’s folly – but it gives the West the impetus to put its money where its mouth is.