From Project Syndicate by Dani Rodrik:
In 2001, Goldman Sachs’ Jim O’Neill famously coined the term BRIC to characterize the world’s four largest developing economies – Brazil, Russia, India, and China. But, more than a decade later, just about the only thing that these countries have in common is that they are the only economies ranked among the world’s 15 largest (adjusted for purchasing power) that are not members of the OECD.
The four countries have very different economic structures: Russia and Brazil rely on commodities, India on services, and China on manufacturing. Brazil and India are democracies, while China and Russia are decidedly not. And, as Joseph Nye has written, Russia is a superpower in decline, while China and (less markedly) the others are on the rise.
Yet, in a strange case of life imitating fantasy, BRICS – the original four countries, now joined by South Africa – have formed a grouping of their own with regular meetings and policy initiatives. Their most ambitious effort to date is the establishment of a development bank.
At their meeting in Durban in March, the five countries’ leaders announced that their “New Development Bank” will focus on infrastructure investment in developing countries, which, they said, was constrained by “insufficient long-term financing and foreign direct investment.” They pledged to make an initial capital contribution to the bank that would be “substantial and sufficient for the bank to be effective in financing infrastructure.” A second initiative announced in Durban is the creation of a $100 billion contingent reserve facility to deal with “short-term liquidity pressures.”
It can be cause only for celebration that the world’s largest developing economies are regularly talking to each other and establishing common initiatives. Nonetheless, it is disappointing that they have chosen to focus on infrastructure finance as their first major area of collaboration.
This approach represents a 1950’s view of economic development, which has long been superseded by a more variegated perspective that recognizes a multiplicity of constraints – everything from poor governance to market failures – of varying importance in different countries. One might even say that today’s global economy suffers from too much, rather than too little, cross-border finance.
What the world needs from the BRICS is not another development bank, but greater leadership on today’s great global issues. The BRICS countries are home to around half of the world’s population and the bulk of unexploited economic potential. If the international community fails to confront its most serious challenges – from the need for a sound global economic architecture to addressing climate change – they are the ones that will pay the highest price.
Yet these countries have so far played a rather unimaginative and timid role in international forums such as the G-20 or the World Trade Organization. When they have asserted themselves, it has been largely in pursuit of narrow national interests. Do they really have nothing new to offer?