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Brics party will soon be over

Published Mar 17, 2013


As the Brics summit approaches, there are some lingering questions that nobody seems willing to ask, especially in South Africa, where Brics euphoria has captured most analysts and commentators.

While it is hard to identify what the Brics countries have in common at the political level, there is no doubt these five nations are united by a deep-seated creed on the wonders of GDP growth.

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Arguably the only glue uniting the five is their capacity to outpace the West as the new axis of global economic growth.

Owing their fame to the politics of GDP, these countries have unquestioningly accepted that economic growth will bring prosperity to their people and power to their leaders. Much to the contrary, blind trust in GDP is leading these countries (and the world) into a vicious circle. Let’s see why.

As GDP does not take into account how income is distributed, fast-growing societies tend to accumulate profits among top income earners. Those with the skills and the connections to succeed make it quickly to the apex of the pyramid, while the rest are left behind, waiting for profits to trickle down.

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Moreover, as economic growth requires the privatisation of common resources, which must be marketised to fuel GDP, traditional access to land, water and other important life-saving assets is restricted, undermining the capacity of rural communities to earn livelihoods and forcing people to join the growth machine as waged workers.

While the urbanisation process may make it easier for governments to provide services, it invariably puts a strain on the capacity of existing cities to accommodate incoming flows. This is self-evident in many megalopolises from India to China. Moreover, within cities, the proximity of wealthy and poor areas worsens the self-perception of destitution, as poor people feel even poorer when they are surrounded by increasing wealth.

South Africa and Brazil, with their world-class inequality, are no exception among the Brics nations. India is still grappling with a growing income divide between the few haves and the millions of have-nots, and Russia’s concentration of wealth in a few hands is notorious.

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It is interesting that even China, an allegedly communist country, has come to worry about out-of-control inequality.

The State Council has recently released an income redistribution plan to address mounting social unrest, which is considered the most significant threat to political stability in the Asian giant (according to independent researchers, China’s Gini coefficient is 0.61, indicating extreme inequality).

Yet, countries obsessed with GDP maximisation tend to address income gaps by pushing for even higher growth targets.

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In South Africa, for instance, politicians tell us we should grow even faster to defeat inequality.

As Zuma reminded us in the State of the Nation address, the National Development Plan postulates that we will reap the real benefits of GDP growth only with an annualised rate above 5 percent, while the DA has launched its ambitious 8 percent manifesto.

But how can GDP growth help to tackle the inequalities it contributes to creating? Here the argument put forward by GDP lovers turns to velocity. We are told that if countries fast-forward growth, then the adaptation process can happen more quickly, resulting in more people being lifted out of poverty without having to suffer the prolonged destitution caused by the growth process itself.

People will still be driven out of their land but they will immediately get a job in town and replace their hut with a townhouse. The transition will have been imperceptible.

But is this feasible in times of global economic crisis?

As the Brics countries are export-led economies, growth cannot be accelerated unless the whole world goes back on to its shopping spree.

Brazil, a dynamic economy, grew only 0.98 percent last year.

Our finance minister, Pravin Gordhan, fully recognised this reality in his Budget speech, highlighting the serious difficulties facing the economy in an age of international recession. All the government’s socio-economic goals, including its job creation plan, will simply need to wait. How long?

Even if more growth were possible, however, we’d bump against inescapable ecological boundaries.

First of all, climate change has already become a significant threat to economic stability.

In developing countries, including the Brics, natural disasters undermine economic development and exacerbate inequalities.

As GDP growth has largely destroyed subsistence economies, small-scale agriculture and other safety nets, communities are made more vulnerable.

Pollution and environmental degradation have become serious challenges for emerging economies, especially China. It is hard to see how more growth could be achieved without triggering environmental revolts.

Moreover, with a global regime of climate governance, carbon taxes and other forms of regulation will make it even more costly to pollute, thus stifling GDP. This is becoming a reality also in South Africa, with the introduction of a carbon tax.

Second, energy has become more expensive and harder to find. In the past few decades, the process of GDP growth has led to an unprecedented depletion of natural resources in many countries.

No surprise, then, that energy-hungry nations such as China and India have been scrambling to get access to energy sources and land in Africa and Latin America.

According to the World Resources Institute, the systematic neglect of resource depletion, which is never calculated in GDP, has long generated a number of “illusions”, especially in nations whose growth depends heavily on natural resource exploitation.

Net product and net capital formation are overestimated. Fiscal deficits of central governments that own natural resource enterprises are underestimated.

Current account deficits in a nation’s balance of payments may be masked by unsustainable sales of natural assets. Basically, these countries “feel” rich in GDP terms, but they are simply impoverishing themselves by over-exploiting their limited natural resources.

The Brics countries pride themselves on their anti-West rhetoric and rightly criticise the Washington Consensus. Yet they fail to realise their development model based on GDP growth was imposed on them by the very imperial powers they allegedly speak against.

While the West enjoyed GDP growth at a time when only a minority of the world was consuming, nowadays the acceleration of global GDP growth makes it self-evident that we are headed against a threefold wall: persistent social inequalities, economic instability and environmental catastrophe.

The Brics countries have joined the growth party too late. They are still dancing, of course, but the clock is ticking. The key question, then, is: will the Brics alliance be able to rethink our economic paradigm? Will it provide leadership or simply mock the West until we all hit the wall?


- Fioramonti is director of the Centre for the Study of Governance Innovation at the University of Pretoria.

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