Today on China’s Hainan Island, the leaders of the BRIC countries – Brazil, Russia, India and China – met for their latest summit, which this time included South Africa (hey, how did they get an invite?). These now regular blabber-fests have arisen (in theory) to better promote the views of the emerging world on key global issues like economic reform, security and climate change. The idea seems to be to create sort of a developing nation G-7. But generally, these summits have been real snoozers, producing statements of such vague blandness that they make G-20 resolutions read like Harry Potter page-turners. Our sister blog, Global Spin is also underwhelmed by the conference.
But should we expect anything more? Though all developing economies, the original BRICs in fact have little in common beyond being bunched together in Goldman Sachs research reports. Unlike the old G-7, which were uniformly liberal democracies and advanced economies, the BRICS have vastly divergent political systems, levels of development, economic interests and foreign policy priorities. They also have some serious disputes among themselves. Brazil has been an open critic of China’s distorted currency regime, while China and India spar over border disputes. Is it any wonder that these countries have trouble agreeing on anything of any importance?
Yet out of this recent summit, something has emerged on which they all can agree – a preference for controlling markets when it suits them. As the BRICS gain in influence, that thinking could drastically reshape global economic policy. Here’s what I mean:
Buried within the usual platitudes about promoting peace and cooperation, the communiqué issued during the summit contains some clues into the BRICS’ thinking on one of the most contentious issues facing the world economy today – mitigating the perceived ill-effects of free markets. For example, the BRICS made it clear that they are not necessarily in favor of free financial flows in all circumstances:
We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies.
Nor are they big fans of volatile commodity markets, especially in food, and took a special jab at derivatives trading:
Excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy. We support the international community in strengthening cooperation to ensure stability and strong development of physical market by reducing distortion and further regulate financial market…The regulation of the derivatives market for commodities should be accordingly strengthened to prevent activities capable of destabilizing markets.
Of course, such talk isn’t unique to these nations. French President Nicolas Sarkozy advocated more regulation of commodities markets and better management of capital flows at the last G-20 meeting, and the G-7 intervened in currency markets to depress the yen in the wake of Japan’s March earthquake. But the G-7 at least had an overarching belief in liberal economic systems and generally favored open markets to support growth and free enterprise. That’s not true among the BRICS. At best, they hold very mixed attitudes towards open markets. Sure, China, India and Russia have all liberalized and opened up their economics since the bad-old days of far-reaching government control. But they’re not bastions of laissez faire philosophy either. The suffocating License Raj in India has died hard and the private sector is still entangled by too much bureaucratic meddling. Russia and China are proud adherents of “state capitalism,” in which the government and state-owned firms play a large role in the economy. Chinese policymakers are clearly wedded to the notion that economic problems can be better resolved by bureaucratic decree than macroeconomic management. Rather than allow their controlled currency to appreciate to battle inflation, for example, Chinese bureaucrats would rather bully the private sector into halting price increases, as they recently did with Unilever. Brazil has been a vocal critic of the way inflows of loose money have hurt the competitiveness of its economy and the government has tried to control the appreciation of the real.
There is, of course, a tinge of hypocrisy in these positions. Brazil and South Africa are major commodities exporters, perfectly happy to see prices soar for natural resources that they sell. I’d find it hard to believe they’d be in favor of controlling the prices of iron ore or gold. All of the BRICS have been huge beneficiaries of free capital flows, which have boosted their wealth and created jobs for their large populations. So the BRICS want to enjoy the benefits of free markets while jettisoning what they don’t care for. We all do, of course, but in the West, and especially the United States, there is much more wariness about the potential negative consequences of market interference than we find among the BRICS. If their national policies are a guide (and I believe they are), the BRICS will be much more willing to regulate, control, and inhibit the functioning of markets based on their perceived needs of the moment. For the BRICS, or at least most of them, markets are a matter of convenience rather than conviction.
In the wake of the Great Recession, which was brought about by market excesses, many of you are probably saying the position of the BRICS doesn’t seem like a bad thing. Perhaps that is the case. But however we feel about free markets, the more influential the BRICS and their emerging-market cousins become in the global economy, the more influential their ideas on market forces will become in global policy. The great shift of economic power from the developed to the developing world is also bringing about a major shift in the ideological underpinnings of the global economy. So maybe these boring BRICS summits have some meaning after all.
