West cannot ignore Brics for another 25 years

It is now twenty-five years since the launch of one of the more emblematic acronyms in global economics. BRICS - the linguistic fusion of Brazil, Russia, India, and China, later to be joined by South Africa - was the brainchild of Goldman Sachs Chief Economist, Jim O’Neill. Back in 2001, BRICS provided an umbrella name for the emergent powers in the world economy. It also became useful branding for a generation of economics research.

BRICS has managed to survive the Global Financial Crisis, the Covid-19 pandemic, and a succession of trade, and military conflicts. Co-opted to become an intergovernmental organisation of the same name, BRICS has recently welcomed in six new member states: Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia, and the United Arab Emirates. Collectively these eleven countries now account for a quarter of world economic output.

Later this year the eighteenth BRICS Leaders’ Summit in Delhi will take place against a backdrop of BRIC countries producing GDP equivalent to 80% of the output of the G7. Back in 2001 that proportion was less than 30%. By 2036 the BRICS are expected to overtake the economic output of the G7.

Whilst the economic performance of individual BRICS countries has varied widely over the last quarter of a century, the thesis O’Neill alighted on - that these countries were the coming economic growth engines - has largely played out. In 2001 the centre of gravity for global GDP was situated over Libya. Today that centre sits over Pakistan. That is a 3,000-mile shift eastwards in the course of a generation. As recently as 1980 the equivalent centre sat in the North Atlantic.

So how should we appraise this shift in economic power, the challenges it throws up for the global economy and, crucially, what happens next?

The first thing to note, as O’Neill now readily accepts, is not everything has gone how he and his research team foresaw. China and India have driven BRICS economic performance. Excluding these two behemoths from today’s BRICS and GDP growth has averaged a sclerotic 0.75% a year amongst the remaining members. That is markedly slower growth than the much-maligned EU economies over the same period. The commodity curse – a function of economic overreliance on exports of volatile commodities - and poor governance has contributed to this underwhelming performance of Brazil, Russia, and South Africa. It also means the BRICS now find themselves as a very imbalanced group of countries.

Second, as a forum for generating a powerful and united voice on issues like political and military cooperation, financial integration, trade, and a coordinated response to issues like health emergencies and cross-border crime, BRICS has largely been a failure. An alignment of common interests has not been forthcoming. As a counterweight - or indeed an alternative - to post-World War Two structures like the G7, NATO, the Arab League, or the EU, the BRICS have struggled to act as a coherent collective.

Third, these economic and diplomatic impediments have not derailed the BRICS being behind a lot of the geopolitical headlines we see playing out in developed economies today. The reality of US economic might running up against determined commercial innovation in China, and Iranian military resistance in the Gulf, is indicative of the fact that traditional Western powerbrokers no longer get to dictate terms. German carmakers are having market share eviscerated by extraordinary Chinese industrial production of electric vehicles. Since Brexit, Indian and Chinese-born migrants have been the most populous two groups of inward migrants into the UK - replacing those from eastern European countries. Developed economy electorates were rather more easily pacified when control of their economic conditions was dictated closer to home. The route to addressing these pressing issues does not pass through the headquarters of the G7, EU, or NATO.

And this is where considering how the next twenty-five years evolve becomes relevant. In particular, are the existing multilateral political structures fit for purpose for the challenges the world economy now faces? Whatever one thinks of President Donald Trump’s Board of Peace, or his proposal for a Core Five (C5) of the United States, China, Russia, India and Japan, these groupings at least acknowledge that soft and hard power has not stayed static since the end of World War Two. Traditional US allies may baulk, but a seat at the diplomatic top table based on legacy economic and military credentials is simply not sustainable.

And this takes us onto the takeaway for traditional “middle power” countries with representation on multilateral bodies that is increasingly out of kilter with their economic relevance. For UK Prime Minister-elect, Andy Burnham, - with O’Neill now on his advisory group of economists - this international dimension will frame and influence his domestic economic agenda. There are no credible AI regulatory guardrails in the UK without engagement with BRICS economies, particularly China and India. There is no prospect of a successful industrial policy whilst UK industry is outcompeted by BRICS economies with cheaper energy, more flexible labour markets, and greater availability of domestic capital. There is no durable defence investment strategy without engagement on how Russia’s war in Ukraine, and Iran’s war with the US and Israel, has changed modern warfare.

Since the end of the Cold War, Western economies - including the UK - allowed the build-up of luxury economic beliefs to adorn their economy. This caused them to lose economic competitiveness and military relevance. BRICS, as a soundbite, provided an early warning back in 2001 that a challenge to that luxury approach was coming. Whilst it has not been plain sailing for all the BRICS, that challenge arrived. Western economies are now scrambling to deal with the fallout. The next twenty-five years are unlikely to be characterized by the same level of complacency in the West. We can already see that with US import tariffs, EU anti-dumping measures, and the rise of home-preference in the allocation of state contracts and investment capital in countries as diverse as Japan, the UK, and Canada.

A successful, self-confident world economy would merge the BRICS into existing multi-lateral power structures to help solve complex, cross-border issues like the taxation and regulation of digital services, including AI. But the upshot of not taking the BRICS seriously enough for the last twenty-five years is that trust in multilateral organisations is in short supply. Fragmentation, at least for now, looks far more likely.