Faculty & Research
Faculty & Research
BRICS and the Next Trends in Globalisation
By Marcos Troyjo
A question that rightly consumes much of the attention and predictive efforts of economists, business leaders and academics around the world is whether China will be able to continue its economic development trajectory. By association, the wider question is whether other BRICS countries can also continue on their development paths.
To start, we can ask a century's old question: why do nations rise? Broadly, we could argue that nations rise when they successfully adapt to the changing contours of globalisation. Undoubtedly, this can be pursued even in a more ambitious manner. If one considers the big players, it could be argued that nations rise further when they successfully shape the contours of globalisation. Accordingly, there is a very important connection between a nation's evolving economic strategy and the changing circumstances and demands of globalisation.
What is beyond dispute is that globalisation does change over time, though at varying speeds and in different directions. It is almost like a living organism, but one with an erratic evolution process. In a given specific period, the chief characteristics of globalisation may remain the same; but then, sometimes with little or no warning, they change. This leads to a new phase of globalisation that is characterised differently, with profound implications for everyone.
2001: Deep globalisation success brought the BRICS concept into being
If we hopped into a time machine and went back to 2001 (the year when the term BRICS came into usage), what contours in the landscape of globalisation would we be able to point out? More importantly, which nations were able to recognise those contours and adapt or shape them to their liking? To my mind, there are three crucial characteristics of globalisation to consider from that time:
- The dismantling of the Soviet Union in the early 1990s sparked a series of nations liberalising their approach to global trade. As a result, there were fewer trade barriers and fewer restrictions on foreign investment than ever. The 'triumph of the free market' seemed to be confirmed wherever you looked.
- The paradigm of technological innovation was beginning to shift from being solely the purview of big firms – as they were until now mostly the ones capable of amassing huge resources to successfully innovate – to include smaller, more agile companies and individuals. The term 'start-up' was just starting up.
- The world was reorganising into regional epicentres. 2001 saw a strengthening European Union (EU), the seventh year of the North American Free Trade Agreement (NAFTA), deepening trade ties between Mercosur nations and more. In this context, regionalisation could be seen as a stopover on the journey towards a full 'deep globalisation.'
Twenty years ago, the nations that were rising were the ones who recognised these trends, acknowledged their significance in terms of how the world was globalising, and subsequently adapted their own economic policies to benefit from them.
China is an excellent example of this. It had already greatly benefitted from the 'opening-up' policies of the late 1970s, and by then it had successfully adopted its own trading nation model, which is in some ways similar to those of regional competitors such as Japan and South Korea. In fact, all BRICS nations managed to adapt quite successfully to this period of deep globalisation. India put together a very interesting set of policies that allowed for its IT sector to flourish. Russia successfully managed elements of its transition away from being a more centrally controlled economy. Brazil put its macroeconomic house in order, combatting hyperinflation and taking more of an open approach to privatisation.
It was these success stories that led to the coining of the acronym 'BRICS,' and the assumption at the time that these nations were on a course to take a bigger and bigger slice of the global GDP by 2030.
2008 to today: From deep globalisation to de-globalisation
The collapse of the global markets in 2008 is the central reason we are now living in a different paradigm. As a response to a shock of that magnitude, the era of deep globalisation came to a halt. We, thus, moved into a phase of de-globalisation.
However, de-globalisation here should not be taken to mean the full reversal of globalisation. It should be understood in the same sense that you understand the word 'deceleration.' If a vehicle is decelerating, it does not mean that it has reversed its course or stopped entirely. It simply means that because of a change in the weather – such as a heavy fog – the driver has stopped accelerating and is moving with more caution. That is how the phenomenon of de-globalisation should be understood.
So, if we are to determine whether China and the rest of the BRICS nations will continue to rise, we have to understand the parameters of globalisation going forward. We can then determine what the successful strategies are likely to be, and who is best placed to adopt them. While globalisation is clearly a complex construct, again I would like to point out three chief characteristics to consider regarding its next development cycle; factors that I believe will be imperative for at least the next 20 years:
- A tectonic shift in economic power has already begun and will continue to speed up. The combined GDP of the G7 nations in pre-pandemic 2019 could be measured in purchasing power parity terms at $40 trillion (USD). Whereas the E7 – the seven biggest emerging economies of the world, including China, India, Brazil, Russia, Indonesia, Mexico and Turkey – had a combined GDP of $53 trillion (USD).
- There is a major re-routing of global value chains occurring worldwide. This goes beyond supply chain restructuring, and includes diverse elements such as R&D, marketing standards and intellectual property. Nations are now reconsidering where they extract value from, how geopolitics influences their trade agreements and decisions, which trade standards (both their own and their chosen trade partners') align best with their current and future needs.
- The world is entering a 'cycle of talent'. Unlike previous cycles based on the dominant power of material goods – such as coffee, gold or semiconductors – talent is the most important factor in determining the success of the global economy today. Long-term success in growing and harnessing a nation's talent means going beyond enhancing existing talent strengths and developing new ones to become truly competitive in many different areas.
2021: Adapting to the emerging cycle of globalisation
With these key trends in mind, there are not only a great deal of opportunities for BRICS nations, but also significant challenges to overcome. Will they continue to rise? While I cannot provide a definitive answer, there is a growing sense of understanding about what the new contours of globalisation will look like, and how we can successfully adapt to them, as individual nations, as a BRICS collective, and alongside our global partners.
Of course, the unfolding pandemic has brought a lot of these points about talent, supply and value chains and so on into sharp relief. For myself and the NDB, infrastructure development plays a critical role in our future plans for supporting sustainable economic growth that is appropriate for a 'with-COVID' or 'post-COVID' world. As such, physical infrastructure, for example, can no longer be thought of as separate from technologically intensive infrastructure. For instance, if one is talking about health infrastructure, it must work as an integrated early warning system that allows different health units to collaborate effectively, even under the pressure of a rising pandemic. Flexibility and adaptability in our infrastructure will be more important than ever.
The same goes for the debate around economic policy. Many models that we have worked with – export-led growth, domestic-led growth – these might not be so important to rigidly cling to in any given year. Understanding and capitalising on what is really happening with current-day globalisation is much deeper and more complex than simply assessing import/export ratios and dependencies. As such, more open-mindedness and flexibility will be required at the macroeconomic level.
The final thing that is needed is international cooperation. The world today has a major deficit in this area. For institutions like the NDB – and for any multilateral development bank – our goal should be going beyond providing funds, beyond providing ideas and beyond providing infrastructure solutions. We must become a platform where countries come together and work constructively on the issues of their shared interests. If all the stakeholders involved can manage this well, then we will have a much greater chance of adapting successfully to this current cycle of globalisation, and rise together.
Marcos Troyjo is President of the New Development Bank (NDB) a member of the CEIBS International Advisory Board (IAB).