The Brics summit, featuring presidents and prime ministers from Brazil, Russia, India, China, and South Africa, concluded last Friday by calling for a fairer and more representative world order. The group’s 10th annual meeting, which focused on how the bloc can become an even bigger political and economic player, also re-affirmed strong support for “an open world economy”.
The key emerging markets’ club already accounts for around a quarter of global gross domestic product. Yet, there remains some distance to travel to fulfil the prediction of economist Jim O’Neill — who had originally coined the Brics concept — that the bloc will overtake the G7’s collective economic output by 2035. That said, if the group could previously be dismissed as just another ‘alphabet soup’ global institution, then today, its importance is growing significantly. And this has raised fears in some quarters that it could, ultimately, become a unified anti-western alliance.
To be sure, Brics (like some in the West) certainly has shared concerns about some elements of United States President Donald Trump’s policies, not least his trade tariffs. However, it is unlikely, in the foreseeable future at least, that this will cohere the club into much more than an increasingly institutionalised forum for emerging market cooperation.
Part of the reason is the heterogeneity of the Brics with its diverse interests. Take the example of China’s periodic tensions with India, including over border issues, which can adversely impact relations between the two.
The theme for this latest summit was ‘Collaboration for shared prosperity in the 4th Industrial Revolution’. This stress on inclusive growth and the call for a new international order by Brics is pertinent, given that the world is at a potentially pivotal moment in global economic history. A World Bank research co-authored by Branko Milanovic and Christoph Lakner indicates that, for the first time in some two centuries, overall global income inequality — one of, but not the only measure of economic inequality — appears to be declining.
Key Brics nations, which overall account for more than 40 per cent of world population, have been the major drivers of this historic movement towards greater overall global income inequality. The collective economic growth and very large populations of India and China, in particular, have lifted a massive amount of people out of poverty.
At the same time, however, there is an opposing force: Growing income inequality within many countries. It is this factor that has also assumed growing political salience recently, helping fuel populist, nationalist politicians from Donald Trump on the Right to Mexican President-elect Andres Manuel Lopez Obrador on the Left.
These countervailing pressures, like tectonic plates, are pushing against each other. While the net global trend for the past 200 years has been towards greater overall income inequality, there is now significant, growing evidence since the turn of the Millennium that the ‘positive effect’ of growing income equality between countries, spurred by the development of the global South, is superseding the ‘negative effect’ from increasing inequality within nations.
More proof is needed to judge whether this economic phenomenon is robust and sustainable. Yet, what is certain is that the overall lot of the South has improved dramatically, as exemplified by Brics over the last generation.
The most prominent beneficiaries have been a much-heralded ‘new’ middle class — estimated to be as large as a third of the world’s population — disproportionately located in key Asian emerging economies. Much of the bottom-third of the global income hierarchy has also generally benefitted.
However, not all the South has shared fully this success story. Much of Africa, and some of Latin America, for instance, have generally not benefited as much as Asia, and this is an issue that the South African summit hosts sought to explore. It is unclear whether the development of the global South has enough momentum to keep driving forward a more equitable world order. This will depend, largely, on the same twin issues of whether emerging markets generally continue growing robustly, and also whether the trend towards rising income inequality within countries is sustained.
On the first issue, the trajectory of global economy will very likely continue to shift towards the South, and for the foreseeable future many key emerging markets will probably remain robust. However, the remarkable wave of emerging market growth of the last generation may now decelerate, and the global transformation it has produced in recent years potentially may not repeat again.
On the latter, it is not set in stone that ever-growing income inequality within countries will continue, especially if there is political will to address it. However, the debate over what long-term reform agenda should be undertaken to tackle this problem is contested by the Left and Right across much of the world
Taken overall, Brics is helping drive what could be the first period of sustained movement towards greater global income equality in two centuries. Yet, the fragile process could yet go into reverse, undercutting efforts to foster inclusive growth, which the summit sought to foster.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.