BRIC by BRIC: The bloc where India and China will interact next

Now that the Xi Jinping-Narendra Modi lovefest is on in the Chinese President’s ongoing state visit, attention will also turn to BRICS, the international arrangement, for want of a better word, where some of the diplomacy between the two countries will play out. The coming together of Brazil, Russia, India, China and South Africa (BRICS) in a new arrangement offers an intriguing new dimension to international relations.

There’s even a BRICS bank - the New Development Bank. The bank announcement, and its capitalisation, show that the BRICS concept is beginning to promise something more than summitry.

The initial issue is what to make of it.

And dear, don’t forget the commissions

This would be one of the first instances in history where the speculations - as in ideas and not punting - of a Wall Street analyst actually translated into a major initiative in international diplomacy. For the initial idea of using a catchy acronym like BRICS to describe the commonalities between Brazil, Russia, India, and China - South Africa is the parvenu here - came from Jim O’Neil of Goldman Sachs. Ably assisted, one might note, by a young economics graduate named Rupa Purushothaman. Despite initial skepticism, O’Neill and Purushothaman went ahead with their little acronym, and cranked out the idea.

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The idea, and the pithiness of the acronym, caught on. Finding commonalities between nations, two of whom have populations in billions and are in the nature of subcontinents, is actually an easy exercise. It is also quite useful for marketing asset allocation strategies to Wall Street’s buy side, who control trillions in assets, and are always looking for ideas to deploy them. Of course, that was the original motive behind the research - to market the idea of BRICS as an asset class to the buy side. And dear, don’t forget to come to Goldman Sachs when you do pull the trigger and buy BRICS shares. We need the commissions that the buying generates to earn our bonuses.

But international relations is a tough game of reconciling national interests, a little different from getting fund managers to allocate money to catchy ideas and write cheques. BRICS as an idea in international relations? Now that’s a parlous exercise. After all, there’s so much out there, more than enough for the glittering generalizations to hold.

So are the BRICS an idea whose time has come in global politics ?

E pluribus unum ?

Out of many, one? They’re all very different to begin with. On the political front, India, South Africa, and Brazil are all democracies. Russia is well, Russia, and calling it a democracy is a bit of a stretch. China isn’t even one nominally. So much for political systems that are common. Legally, India is very much in the English common law tradition, South Africa -influenced in history by both the UK and Holland - is bijuridical, China and Russia don’t have legal systems worth the name, and Brazil follows continental civil law traditions. So much for similarities on legal systems.

Geographical proximity helps when building international arrangements. But in this case, Russia is as far from Brazil, as South Africa is from China. India and China have a common border, but they’ve fought a war over it, and the border is still undemarcated in some areas. Ditto for Russia and China, which have also fought a border conflict, but have no “long simmering border disputes”, to use that old chestnut of media reports. Point being that there’s no geographical proximity, and even when there is, it’s been disputed and fought over.

Languages help, if they’re common. NATO has different languages but English works as the common link. Don’t tell the French that though. Here too, the BRICS are something of a polyglot. Only South Africa and India have a common link language - English. For the rest, it’s all over the place.

Could they actually become an alliance ? Not really. The most important requirement is a common threat - or some time just its perception - that binds them together against an external foe. Little of that in this bunch. Further, the political systems preclude the presence of common values.

And yet, there is the tantalising promise of the triumph of hope over reality. Part of that promise lies in the political economy of international relations. That’s a better way of putting it than using that corny phrase, “geo-economics”. That’s an ugghh phrase if ever there was one.

Real and Financial

On the real side, Brazil, Russia, and South Africa are big time commodity exporters. India and China are importers. This presents possibilities for internal arrangements, but splits the group down the middle when advocating anything to do with international commodity prices. This is in stark contrast to Opec, for example, another international grouping, bound together with the intention to cartelise a single commodity - oil. The sort of cohesion Opec has because of its single-minded focus as an oil exporting cartel, simply would not exist for the BRICS. Here one can expect the incoherence that conflicting interests would lead to. In fact on oil, the incoherence stands out the most. India and China - among the world’s biggest oil importers - are on the same side on oil prices, benefiting when they fall. Russia - as the world’s second biggest oil exporter - would like oil prices to rise, and keep doing so.

A common market for goods? Nah. It would be too difficult to overcome the tyranny of distance, and the logistics of non-contiguous trade. Besides, they’d rather take the free trade agreement (FTA) route in economic diplomacy, and that’s bilateral anyways, with no need for multilateral alliances or arrangements.

If the prospects for commonalities on the real side are parlous, they’re more promising on the financial side. Shared frustration with present global economic architecture seems to be the main motivation behind the grouping for now. In fact, BRICS dissatisfaction over the existing power arrangements around the Bretton Woods twins - the World Bank and the IMF - are what provided the spur to the BRICS bank. The Bank and the Fund seem to be taking their own time aligning shareholder voting rights - and management - with the size of national economies. China is particularly peeved. So here there is the possibility of an alternative to the World Bank or the IMF. So far, that BRICS bank is the only real manifestation of the idea of a BRICS block; before the bank it was all melas and conferences.

The BRICS bank spoken off is more like the World Bank’s younger cousins, the Asian Development Bank (ADB), or for that matter, the Inter American Development Bank (IADB). The capitalisation of the institution, currently at least, is peanuts; at USD 50 billion, it’s even smaller than the ADB. Recall also that both the cousins are area groupings, and geographically contiguous. The BRICS bank is not. Questions on whether it will lend to just the BRICS or others have yet to be answered. What it can add to the already crowded field of infrastructure finance is another issue. But at least there’s some competition to the Bank-Fund complex now.

Currency stabilisation arrangements are another area for cooperation. Here India and Brazil could be big beneficiaries. China has less need for the same, given the size of its currency reserves.

Most importantly, how the arrangement handles the elephant in the room - China - is the key issue. China’s economy is 20 times larger than South Africa, and four times as large as Russia or India. China will call the shots, but it must not seem to be calling the shots. That calls for Confucian levels of wisdom.

.. and, be careful what you wish for

So where does that leave us? The only thing in common among the BRICS right now is a certain vague anti-Americanism, resentment towards the existing quota system at the Bank-Fund complex, and a desire to cooperate just enough to enhance their standing in the world order. All this comes together with the bank formation announcement.

But is that enough for an international bloc ?

In fact, as China might warn the rest of the BRICS, be careful what you wish for. It might come true. Reform of shareholder voting rights at the Fund and the Bank, the original purpose for the BRICS coming together, should be the last thing they hope for. It might just force the Bank-Fund complex to fiddle with the current arrangements, and right the existing order of things. Any reform on those lines will send the bloc’s diplomats back to the drawing board, searching for another raison d’tre for its existence.

Adil Rustomjee is an investment adviser in Mumbai. Comments are welcome at a_rustomjee@hotmail.com