The world economy has changed after the end of WWII. Keynes’ statement that underdeveloped countries “clearly have nothing to contribute and will merely encumber the ground” (quoted in Camara-Neto and Vernengo 20009, 200) at Bretton Wood was true at that time but perhaps it does not hold any more nowadays. Economically and politically several underdeveloped countries seems to be very important today (Glosny 2010). However, does it mean that these underdeveloped countries grouped in BRICS (Brazil, Russia, India, China, and South Africa) can challenge the existing international world order established by the G7 (the US, Canada, Japan, France, Italy, Germany, and the UK) under the hegemony of the USA.
A pioneering paper about BRICS’ relevance was written by Goldman Sachs researcher, Jim O’Neill in 2001. He argued that China and India had a bigger economy than Italy and Canada, so the former countries should have joined the G7, and the latter should have left out. Since then, scholars have approached BRICS’ relevance as if these countries, led by China, can undermine the G7 power led by the US. Some cited literature claims that this is not possible for economical (Roberts 2009; Liu and Wray 2010; Beausang) and political reasons (Glosny 2010). However, other scholars point out that the BRICS can enforce a new international order (a multipolar world) based on the creation of a new bank which would function as a development bank. Unfortunately, this line of thought has been argued mostly through newspaper and no serious discussion has been done yet. In this article, we are not concerned whether or not BRICS can challenge the US hegemony, nor the existing rivalries among the BRICS’ members. Our objective is to throw some light about the feasibility of this bank. After this introduction, in section 2, we deal with the economic performance of both G7 and BRICS from 1989 to 2012; in section 3, we take into account whether or not a BRICS’ bank is desirable; in 4 we consider whether or not this bank is doable. Our conclusions show that China is the only country among the BRICS with high growth, foreign international reserves, and current account surpluses, then, the creation of a new development bank depends on China’s will to finance other members.
2. Economic performance of G7 and BRICS.
BRICS’ increasing importance worldwide is based on threefold aspects: 1) its population (43 percent out world population), 2) its GDP level, and 3) foreign exchange reserve level. Even though Eric Hobsbawn (1990) hypothesizes in his Nations and Nationalism since 1970 that population and resources play a big role in the creation of nations, and also David Harvey (2003) maintains that territorial resources and the accumulation of capital are the key features of a shaping an hegemony, we are not dealing here with population. This can be a mistake since the beginning of economic science, population was taken into account (Ricardo, Malthus). However, our objective in this paper is to deal only with accumulation of capital’s aspects. Then, in this section we encompass the following: 1) showing the G7 and the BRICS’ shares of world GDP at PPP (Purchasing Power Parity) from 1989 to 2012, and 2) showing growth rates and the levels of foreign exchange reserves for the groups mentioned before.
Shares of world GDP has decreased in the G7 and increased in the BRICS. Figure 1 shows this phenomenon. However, we have to highlight that disparities exist through time and among the groups. First of all, for the G7, the share of world GDP remains constant at 50 percent from 1989 to 2000, thereafter, it decreases steadily. For the BRICS, it can be seen in Figure 1 that the share of world GDP increases in a very slow pace from 1989 to 2000, and this share grows in a faster speed from 2000 onwards.
Second, the evolution of each country differs in their respective group. For the G7 (see Figure 2), we can say that European countries (Germany, France, Italy, and the UK) and Japan has diminished their importance in the overall share of world GDP, Canada has remained quite constant, and the USA exhibited an increasing share in the 1990s (the result of the so called New Economy, see Brenner 2002), but it decreased sharply from the beginnings of the 2000s onward. Meanwhile, for the BRICS, South Africa seems meaningless (see Figure 3), due to its dropping GDP share in the world GDP. Russia has recovered from the 1990s’ collapse (due to oil and gas exports), but its economy is smaller than during the times of the former Soviet Union. Brazil’s participation in overall GDP has decreased a little from these levels of the 1990s. Then, there are only 2 economies which their GDP shares have increased, India and China (May 1993/94; Layne 2009). The latter country folded, its GDP’s participation in world total, for more than 3 in just 23 years .