Can the BRICS build something new?

The establishment of a development bank by the BRICS countries (Brazil, Russia, India, China and South Africa) is a historic event for at least two reasons. First, the bank is a rare attempt by non-Western powers to build an international organization. Second, it is the first time that such a non-Western organization has been created to deal specifically with economic matters.

Consider the first point. Past attempts to organize the world’s institutions — from the introduction of the international postal service to the creation of the League of Nations, the Bretton Woods system and the U.N. — have been, as Mark Mazower aptly shows in “Governing the World,” enterprises led by Westerners and their governments. The rest of the world was then invited to join these initiatives, but always on Western terms. I can think of just three important international organizations in whose establishment the West did not play a key role: Comintern, the nonaligned movement and OPEC.

Comintern was created, funded and run by the Soviet Union, with significant input from Western communist parties. At first it was truly global, with communist parties from practically all countries and territories participating as members, but it gradually ended up being global in name only, with the Soviets setting the rules. Joseph Stalin unceremoniously wound Comintern down in 1943 at the insistence of his Western allies. The other four BRICS, with the exception of Chinese communists, played almost no role in it.

The nonaligned movement, which sought to give a more prominent international role to the third world countries in opposition to both the United States and the USSR, was conceived at the famous Bandung meeting in 1955 and officially established at the Belgrade conference in 1961. Of the BRICS, only India was among its creators and active members. For obvious reasons, the Soviet Union did not participate, but neither did China or apartheid-bound South Africa or Brazil, which, during the crucial period of the nonaligned movement’s development, was run by right-wing dictatorships. The nonaligned movement played a significant role during decolonization, then became moribund and irrelevant with the end of the Cold War. It still exists, but nobody, not even its more than 100 ostensible members, pays it much heed.

Of the three non-Western attempts to build powerful institutions, only OPEC remains. OPEC is not a real international organization — just a very narrow cartel driven by individual interests with little to offer to the rest of the world except more expensive oil.

The BRIC bank’s inauguration comes at a unique moment when a group of populous countries that have often been lumped together in the emerging-market category have truly arrived on the global scene and in some cases are even eclipsing the rich world in terms of their economic potential. There is no doubt that the time is right for these countries to form closer economic alliances, but history shows that creating multilateral institutions is not an easy task and that potential does not guarantee success. Despite the fact that the BRICS have had little experience and even fewer triumphs in multilateral institution building, things may be changing.

So are there reasons to be cautiously optimistic? In some ways, yes. From the League of Nations until today, Western countries took the lead in the creation of global institutions not because of any special cultural or political advantages but because they were ahead of the rest of the world economically and saw the need to create global rules undergirding commerce, control of the seas and war. The BRICS stand at the same juncture today. They have become sufficiently powerful to have realized that they have a stake in a global system and that if they wish to have a more active say in it, they ought to start drafting the rules both for themselves and the rest of the world. That shared objective should make the BRICS keen on the success of their enterprise. What’s more, the numbers are on their side: The five countries account for two-fifths of the world’s population, almost one-third of the world’s economic output (according to the new Purchasing Power Parity numbers) and one-fifth of world trade. 

But the BRICS do not share the same political institutions and cultural affinities that linked Western powers in 1944 and even in 1919. To cite a very obvious example: Brazil is a democracy, and China is not. Nevertheless, it must be clear to all five that they have an immense stake in the success of a bank that will lend differently and impose (or not impose) different development conditions than the World Bank or the International Monetary Fund would. Moreover, the process might eventually lead to the replacement of the dollar as the global currency, which would be not only a symbolic blow to Western pride but also an economic loss, as the United States would lose seigniorage rights (the ability to issue paper money against real goods and services). 

If the BRICS bank works out, it will bring the BRICS huge sway over the policies adopted by African, Asian and Latin American borrowers. To see how far-reaching the influence of such an institution can be, consider how the U.S. uses the World Bank as a diplomatic tool. Since the World Bank’s policies are either directly influenced by the U.S. Treasury (the U.S. being the World Bank’s only veto-holding member) or indirectly swayed by the ideological microclimate of Washington, governments that fail to behave in accordance with Washington’s wishes are often given their marching orders through the ostensibly technocratic reform programs of the World Bank. Structural adjustment loans of the 1980s that affected Brazil, Turkey, Argentina and many others, as well as a slew of privatization policies in the 1990s are the best examples. 

In their new bank, the BRICS will have a similarly cheap and useful instrument with which to wean former Third World countries off their dependence on Washington and impose their own agenda instead. The challenge will be to provide a similarly coherent ideological package to rival the Washington consensus policies of balanced budgets, currency convertibility and privatization. A shared economic and political ideology, very much present among the Western countries, from Bretton Woods in 1944 to the euro crisis now, is totally lacking among the BRICS. It is not even present in an embryonic form. Chinese economic policies and Chinese development precepts for the rest of the world (if they exist at all) have little in common with Brazilian or South African policies. In order to be really useful to its founders, the BRICS bank will have to not only learn to practice multilateralism but also define its own approach to development.

This likely lack of either procedural or economic rules for lending is the biggest threat to the BRICS bank. If its only ideology is to be anti-Washington and to do things by pure pragmatism — that is, to lend to whomever the sufficiently important members decide to support — it will fail ignominiously.

We are at a historic crossroads where the establishment of a successful BRICS bank is enormously promising but so is its chance of failure. One hopes that, as the saying goes about second marriages, the BRICS bank will come to represent the triumph of hope over experience and will not end up unraveling into a messy divorce. The worst thing for the world today would be for this bout of non-Western institution building to end in failure or acrimony. A crumbling BRICS bank would set back for decades similar attempts to organize the newly emerging economies, precisely at a time when the world needs more than one center of power.