Twenty years ago, Goldman Sachs published Dreaming with the BRICs: The Path to 2050.” It reverberated around the world, fetching millions of entries on Google. The gist: By 2040, Brazil, Russia, India, and China would overtake the G7, which was comprised of Japan and other advanced economies of North America and Europe. The add-on disclaimer read, “If things go right.”
But they never do. Like all such prophesies, Dreaming has failed the reality test. Nor will BRICS 2.0 with six new members demote the West.
Twelve years after the report, the Financial Times declared the “end of an era” that had been said to shape a “new world order.” Jim O’Neill, the British economist who coined the acronym, recanted in 2021. “Brazil and Russia [are now] back to where they were 20 years ago.” Today, Russia’s GDP still ranks below Italy’s—with less than half of Putinland’s population. Russia’s real growth rate (inflation and currency fluctuation factored out) was minus 10 percent in 2022, Brazil’s .64 percent. India currently boasts almost 7 percent. Goldman Sachs closed its BRICs fund after $700 million in losses. And China’s 15 percent growth is past history. Like Japan, Taiwan, and South Korea, rapid risers always fall back to earth.
The BRICS summit held this past August in Johannesburg actually did produce a consensus of sorts, but not one that amuses the West. With a focus on recruitment, the summit invited Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the UAE, none of the six a pillar of the Liberal International Order built and nourished by the United States and its allies. The BRICS 11 (South Africa joined in 2010) can look forward to a huge enlargement. Forty more countries want to sign up—from Algeria via Cuba to Zimbabwe, which also are not renowned for their attachment to liberal democracy and free trade.
Pushed by Moscow and Beijing as a power tool and at heart an anti-Western alignment, BRICS Plus, it is said, would soon dwarf the G20. On the face of it, the advertised purpose is economic and financial cooperation. In truth, the project cannot reassure the West. These nations resent and denounce the Global North’s sway. Above all, they savor a new “geopolitical moment.” Given the outsized role of China and Russia in yesterday’s BRICs 1.0 and tomorrow’s 2.0, even judicious observers are not amiss when applying “anti-Western” to this motley crowd. Always ready for a hype, pundits round the world have either bemoaned or applauded the outcome of the Johannesburg summit. One side gleefully predicts the coming demise of the Liberal International Order, the other intones a wistful dirge. Either way, it will be finis occidentis.
“Not so fast, Louie,” Humphrey Bogart’s character Rick warns French police captain Louis Renault in Casablanca. We cannot plumb the future of the BRICS Plus. But we can retrace the career of the First Four, which delivers plenty of clues for our time. So, let’s recall the fabled report on the original BRICs by the team of economists at Goldman Sachs led O’Neill.
The Resistible Rise of China
China’s problems run deeper and trace back farther than the cyclical downturn triggered by its ruthless “zero Covid” lockdown. The causes grow out of an economic model copycatting yesteryear’s East Asian wunderkinder. In the 2010s, China’s growth dropped to low single digits, where it remains stuck today. The same fate befell the previous East Asian miracle economies. Japan’s breathtaking growth after World War II ended in 1970, segueing into twenty years of stagnation followed by low growth. South Korea used to shine with double-digit gains; in the 2000s the rate was 3. Taiwan’s 10 percent came down to 4. What is the lesson for the prophets who proclaimed “up, up, and away” forever?
This trio had set the model for China’s “catch-up capitalism.” Farther afield, there is also West Germany’s “bounce-back capitalism” as the country rose from the ashes of World War II with spectacular growth of up to twelve percent. All of these rapid risers followed the same strategy: exports first, fixed undervalued currencies, underconsumption, and overinvestment. Among the “Little Dragons,” the government provided heaps of low-interest funds to favored industries, which bred collusion and helped to keep out foreign competition. (Today, China’s State-Owned Enterprises receive, according to one estimate, about eight times more in bank loans than private companies, and then at far lower interest rates.) From West Germany to Japan, this model generated double-digit growth in the takeoff. But as economies mature, the growth rate always declines.
The slowdown of Japan et al. precedes and explains China’s. And it gives us a glimpse of the “Chinese century” said to unhinge the post-World War II architecture of power. Xi’s Middle Kingdom is clearly reaching for primacy, extending its tentacles round the world. This is a historical pattern. When nations become rich, they turn rowdy. Recall Wilhelmine Germany and Imperial Japan. Nor is this just the career of authoritarian states. As the United States grew to pre-eminence during the “Gilded Age,” it began to throw its weight around, expanding into the Caribbean and Pacific, not to speak of regular interventions in Mexico to “teach them to elect good men,” as Woodrow Wilson had it.
Economics is destiny. Let’s set aside the other BRICS. Even if they expand to fifty, they will not play in the same league with China. Neither will Russia, an economic basket case, nor populous Brazil or oil-rich Saudi Arabia. In the global balance, China matters first and foremost as would-be no. 1. The key question is this: What is the nexus between a nation’s economy and strategic muscle? The short answer: China’s declining growth does not guarantee its rise to the pinnacle of world power.
The Curses of China’s Economic Miracle
When China took off under Deng Xiaoping, it imitated the East Asian model while ignoring the cracks that had appeared in Japan et al. in the late 20th century. Overinvestment, the brother of cheap money and underconsumption, comes with two curses. One is overcapacity. As one estimate has it, there are sixty-five million unsold apartments in China, which could house a population of up to 200 million. The misdirected capital could have been put to more productive uses or to closing the dramatic gap between city and country. China’s urban per capita income (in RMB) is roughly three times higher than rural, according to government data. This does not bode well for national cohesion, unless it is fueled by frenzied nationalism.
Another enemy of growth is China’s disastrous demographics. Beijing’s worst enemy is the steady decline of its working-age population reflecting plummeting birth rates. Same for Russia, which is suffering from the flight of its “Best and Brightest” by the hundreds of thousands. That demographic decline began even before Putin’s war of conquest against Ukraine.
In January of 2023, China went past the tipping point, reporting population shrinkage for the first time in sixty years—a loss of 850,000. By mid-century, China will be the oldest large economy in the world, with an army of 350 million pensioners who don’t produce but soak up ever more social support moneys. (The United States and India will have the youngest populations among the big players.) Welfare leaves less for warfare, as Beijing strains to outarm the United States.
A shrinking labor pool raises wages, which eats into China’s competitive advantage as “factory of the world.” Nor is this just a twist of the business cycle or a fall-out from “zero-Covid.” As early as 2012, a Boston Consulting study did the math. “In 2000, factory wages in China averaged just 52 cents an hour, a mere 3 percent of what U.S. factory workers earned. Since then, Chinese wages and benefits have been rising by double-digits each year, averaging increases of 19 percent from 2005 to 2010.”
To boot, productivity is lagging behind labor costs, dropping from a 10 percent increase in 2010 to 6 just before the pandemic. It is expected to fall for the rest of this decade, according to S&P Global Ratings. So, offshore manufacturing comes home or absconds to lower-wage economies in Asia, with Africa next. The trend is being accelerated by strategic concerns, with the West cutting supply chains and the export of sensitive technologies.
Back to BRICS 2.0. The crux of the Goldman Sachs prediction of twenty years ago is the New World Order in which the Rest are projected to outstrip the West. This crowd will not be a bloc, so how will it build an anti-Western system? What do Riyadh, Brasilia and New Delhi have in common?
China and India are giants, but with less than 2 percent of global GDP, the nouveau riche Saudis and UAE sheikdoms are not. Ethiopia is an economic disaster zone. Russia, Iran, Brazil, Argentina, and South Africa keep oscillating between haphazard growth and painful contraction. To boot, those who imagine the BRICS Plus overtaking the West ignore that the latter is larger than the G7; add the former Soviet possessions in Central Europe, Australia, South Korea, Mexico, Iberia, the Low Countries, and the Scandinavians.
But let’s not juggle numbers. To begin, the Global South is au fond a bunch of non-democracies and top-down economies. India is beholden to free-market capitalism, but under Modi, its democracy has begun to wobble. South Africa, Brazil, and Argentina are so-so democracies. The old dream of what I have called “modernitarianism”—state-managed growth—does brilliantly at first, as under Stalin, but eventually falters because of rampant resource misallocation, cronyism, rent-seeking, and oppression. Obedience stifles feedback that corrects a misbegotten course. Wars of aggression like Putin’s destroy growth and drive out talent. Deng allowed a “hundred flowers to bloom,” as Mao decreed very briefly in 1957. Xi has been re-imposing totalitarianism, which is not good for a country’s economic growth. Russia’s one-man rule under Putin is turning more vicious by the day. When top-down control advances, the economy does not.
The second problem is about strategy and BRICS Plus cohesion. The challengers are a herd of cats. The big ones–China, Russia, and India–are rivals, and neither will fall in line with any of the two others. Expansionist Iran, determined to build a nuclear arsenal, will not be embraced by the Saudis next door. Brazil and Argentina, Latin America’s top two, are historic opponents. Cairo will not ditch the U.S. security umbrella, nor will Riyadh. Larger is not better. The more numerous the BRICS, the more conflicted they will be. Consider the seventy-eight UN members of the Global South. Ranging from Antigua to Zimbabwe, they lack the tie that binds.
So, there is little chance these hissing cats will undo the liberal order, led and defended by the United States. The real threat to the West is twofold. The first is posed by the usual suspects, the revisionist great powers China and Russia, trailed by mid-sized Iran. Revisionists must be countered with the time-honored tools of alliance, preparedness, and deterrence. The rest of the BRICS Plus do not have the strategic assets to deploy in the great-power game.
Then what about India (mass) or Saudi Arabia (oil and cash)? They use the Global South for stagecraft. Theirs is the old game of nations—tilting back and forth to extract benefits without lasting commitment. The antidote is adroit diplomacy—suasion and incentives blended with denial when core Western interests are at stake.
Ironically, the other threat to the West is homemade. How can it preserve the Liberal International Order by sinning against it? “Deglobalization” is the watchword du jour, and some of it is prudent where Western economic dependence delivers strategic clout to China and Russia. But non-tariff walls are rising. It would get worse under Donald II, who wants to impose a blanket 10 percent duty on U.S. imports.
And Joe Biden is not exactly a free trader, either. The Democrats are clamoring for re-industrialization, another word for national strength über alles. Environmental rules are beating out comparative advantage with nonstrategic import restrictions. We don’t engage in tariff wars as in the 1930s. The new game is billions of subsidies handed to domestic producers across the West. The Inflation Reduction Act showers American firms with $369 billion in subsidies, which might expand to $1 trillion.
This is not what the Liberal International Order prescribes. So how can the West preach virtue to the Global South when the real thrust is Western “inwardism”? The BRICS Plus will not bring down that order, but beware of our own demolition men using chisels rather than wrecking balls. Recall the U.S. cartoon character Pogo. Returning from his reconnaissance mission, this badger told the other forest animals, “We have met the enemy and he is us.”
Josef Joffe, a member of the American Purpose editorial board, has taught international politics at Harvard, Stanford, and Johns Hopkins universities. A fellow at Stanford, he is author of The Myth of American Decline (2014), which dealt at length with the coming end of the Chinese miracle. Some quotes and numbers have been taken from this book.
Image: A close-up of bricks within the Great Wall of China. (Unsplash: Diego Jimenez)
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