When Goldman Sachs, the investment bank, coined the BRICs acronym – denoting Brazil, Russia, India and China – it predicted that their proportion of world output would reach 10% by 2010; in fact, it reached over 17%. In that year, the four BRICs experienced growth-rates of 7.5%, 5%, 10% and 10.5% respectively, and had been largely unaffected by the Western financial crisis.
Much has changed: Brazil’s economy is now technically in recession, and the International Monetary Fund (IMF) expects negligible growth this year and only 1% next year. As sanctions bed in, Russia’s growth until at least 2016 will be less than 1%. India’s growth has halved since 2010 which has coincided with almost double-digit inflation. Even China is experiencing a slow-down of sorts: having averaged a 10% growth rate over the last three decades, it grew by 7.3% last year, and the IMF forecasts that to decline to 6.3% by the end of the decade.
It is in that context that the Society For International Affairs (SoFIA) and the Trinity Global Development Society co-hosted yesterday evening’s panel event, “BRICS: Building Houses of Straw?”
Hamish McRae, an associate editor at the London Independent and former editor of Trinity News, was alone in using a projector, and put it to use by displaying numerous graphs. China, according to IMF data, will overtake the US economy by 2030, he said, with the three other BRICs in the top six.
A central premise of his speech was that “demography is a key driver” in the economic performance of countries, and he warned that a collapse in birth-rates is leading to a rapid increase in the 65+ age-group in China – the UN predicts an almost tripling from 10% to 28% in the next 50 years, which will result in higher social welfare costs. Russia’s demographics look similarly weak, with total population set to decline 30% by 2050. Conversely, he pointed to a far healthier outlook in India and Brazil.
Concluding, he said another potential anchor on the future growth of BRICs would be protectionism in the form of nationalist tariffs and embargoes, and said that “power brings responsibility” for the BRICs.
Eamon Fingelton, a journalist and author with a particular interest in Japan, began by noting McRae’s focus on the “commonalities” between the BRICs; however, “differences are more important”, he said, “and there are many”. He stated that, due to these differences, China belongs outside of the BRICS, and that its rise will be seen as “one of the most significant events in human history.” In support, he contrasted China’s savings rate of 50% with Brazil’s rate of 14% (Ireland’s is 13.8%). While the gap between China and Brazil is the extreme, China retains a considerable gap on the others.
As “both authoritarian and stable” government, China can boost savings by suppressing consumption – through policies such as high sales taxes and small housing units (he explained that smaller housing units leads to less expenditure on heating, furniture, etc. which results in more saving). These savings reserves lead to a comparative advantage in the ability to build infrastructure which results in greater productivity.
Fingelton espoused a not widely-held view that Japan’s economy (which has grown by a mere 12% in real terms since its crash two decades ago – an annualised 0.6%) is in fact prospering because its government focuses on the “real economy” (manufacturing) rather than, say, financial services.
It is the economic model of Japan that China seeks to emulate rather than the western one, he said.
Padraig Carmody, a lecturer in development geography and author of The Rise of BRICs in Africa, said that the Western financial crisis had precipitated a “moment of hegemonic shift from USA to China”, one which had been building for decades, and that “structural flaws” remain in the west where the finance, insurance and real estate sectors continue to dominate.
In relation to BRICs taking responsibility for their power, he gave a nod to the New Development Bank which was founded earlier this year at the sixth BRICS Summit to compete with the US dominated World Bank (it should be noted that South Africa is a participant in the BRICS summits despite not being included in the initial acronym).
He said China’s ‘soft power’ – its ability to influence without coercion – was “evident in Africa”, where its “history of non-interventionism” is conducive to good relations.
With a reference to Naomi Klein’s ‘This Changes Everything: Capitalism vs the Climate’, he concluded with a warning that, in fact, it may not be just BRIC economies but the global economy that is building houses of “flammable straw” because of the spectre of climate change.
Martin Murray, executive director of the “educational think tank” Asia Matters and the honorary consul of Indonesia in Ireland, spoke about Indonesia – a country that is not one of the BRICS – and of the opportunities that Ireland had to trade in Asia. He outlined Ireland’s unique selling points as being education, ICT, food/agri, finance and aviation finance in particular.
“When you graduate,” he concluded to laughter, “move to Asia.”
Photo: Vitalia Bikmametova