By MICHAEL ROBERTS*
The BRICS+ group will remain a much smaller and weaker economic force than the G7 imperialist bloc
The semi-annual meeting of the IMF and the World Bank took place recently in Washington, USA. At the same time, the BRICS+ group met in Kazan, Russia. The coincidence of these two meetings sums up the progress of the global economy as it stands in 2024.
After World War II, the IMF and the World Bank became the main agencies of cooperation and financing in the world economy. As institutions, they emerged from the Bretton Woods agreement of 1944, which established the future world economic order, the one that would come after the end of World War II.
At the time, then-US President Franklin Roosevelt offered the world these prophetic words: “The point in history at which we find ourselves is full of promise and peril. The world will either move toward unity and broadly shared prosperity or it will separate into necessarily competing economic blocs.”
Roosevelt was referring to the division between the United States and its allies and the Soviet Union. This first “Cold War” ended with the collapse of the union of socialist countries in 1990. But now, 25 years after that tragic end, Franklin Roosevelt’s words need to refer to a new context: between, on the one hand, the United States and its allies and, on the other, an emerging bloc of nations from the “Global South.”
The global economic order agreed at Bretton Woods established the United States as the world’s hegemonic economic power. In 1945, the United States was the world’s largest manufacturing nation, had the largest financial sector, and the most powerful military forces. It also dominated global trade and investment through the international use of the dollar.
John Maynard Keynes was heavily involved in the Bretton Woods agreement. He commented that his “far-sighted idea of a new institution to balance more equitably the interests of creditor and debtor countries was rejected.” Keynes’s biographer Robert Skidelsky summed up the outcome. “Of course, the Americans got what they wanted because of their economic power.”
“Britain,” he continued, “gave up its right to control the currencies of its former empire, whose economies were now controlled by the dollar, not the pound sterling. In return, the British were given credit to survive—but at interest.” Keynes told the British parliament that the deal was “not an assertion of American power, but a reasonable compromise between two great nations with the same goals; to restore a liberal world economy.”
In this arrangement, other nations were ignored, of course.
The US and its European allies have dominated the IMF and World Bank ever since, both in terms of management personnel and economic and social policies. Despite some very minor reforms to its voting and decision-making system over the past 80 years, the IMF continues to be run by the G7, with almost no say in the matter for the other countries of the world. There are a total of 24 seats on the IMF board, with the UK, the US, France, Germany, Saudi Arabia, Japan and China each holding individual seats – the US has the power to veto any major decisions.
In economic policy, the IMF is perhaps most notable for its imposition of “structural adjustment programs.” IMF loans are “granted” to countries in economic difficulty on the condition that they agree to balance their deficits, tighten public spending, open their markets, and privatize key sectors of the economy. The IMF’s most widely recommended policy remains to cut or freeze public sector wage bills. Furthermore, it still refuses to require progressive taxes on the income and wealth of the richest individuals and corporations.
As we know, starting from 2024, 54 countries will face external debt crises. Many are already spending more on servicing their debts than on financing education or health. Among the worst cases are Sri Lanka, Mongolia, Panama, Lebanon, Montenegro, Zambia, etc.
The World Bank’s criteria for lending and aid to poorer nations also remain within the dominant economic view that public investment is intended only to encourage the private sector to take on the task of investment and development. World Bank economists ignore the role of state investment and planning. Instead, the Bank wants to create “globally contestable markets, reduce factor and product market regulations, lay off unproductive firms, strengthen competition, deepen capital markets.”
Kristalina Georgieva has just been endorsed for a second term as head of the IMF. It may seem surprising, but she is now talking about “inclusive” economic policies. She says she wants to increase “global collaboration and reduce economic inequality.” The IMF says it now worries about the negative consequences of fiscal austerity; it often cites how social spending should be protected from cuts through conditions that set spending floors.
However, an Oxfam analysis of seventeen recent IMF programmes found that for every $1 the IMF encouraged these countries to spend on social protection, it imposed $4 cuts on them through austerity measures. The analysis concluded that social spending floors were “deeply inadequate, inconsistent, opaque and ultimately failed”.
Until recently, the IMF believed that faster growth depended on higher productivity, free movement of capital, globalization of international trade, and “liberalization” of markets, including labor markets (meaning the weakening of labor rights and trade unions). Inequality has never seemed important to the IMF. It has always supported the neoliberal formula for fostering economic growth. But the experience of the Great Recession of 2008-9 and the pandemic recession of 2020 seems to have caught the attention and taught the IMF’s economic hierarchy a lesson. Now, it says, the world economy is suffering from “anemic growth.”
In the face of this evidence, the IMF is concerned. Kristalina Georgieva recently said that something must be done. The reason why major economies are experiencing slowdowns and low real GDP growth is, she said, growing wealth and income inequality: “We have an obligation to correct what has been most clearly wrong in the last 100 years – the persistence of high economic inequality. IMF research shows that lower income inequality can be associated with higher and more sustainable growth. Climate change, rising inequality and increasing geopolitical ‘fragmentation’ also threaten the global economic order and the stability of the social fabric of capitalism.”
During the Long Depression that began in 2008 and continued through the 2010s, globalization stalled; geopolitical fragmentation began to set in – around 3.000 trade restrictions were imposed in 2023, almost three times the number in 2019. This is also why Kristalina Georgieva is concerned: “Geoeconomic fragmentation is deepening as countries introduce changes in trade and capital flows. Climate risks are increasing and are already affecting economic performance, from agricultural productivity to transport reliability and the availability and cost of insurance. These risks could hold back regions with the greatest demographic potential, such as sub-Saharan Africa.”
Meanwhile, higher interest rates and debt servicing costs are straining government budgets – in doing so, leaving less room for countries to provide essential services and invest in people and infrastructure.
Against this backdrop, Kristalina Georgieva appears to want a new approach from the IMF to be implemented during the new five-year term. The previous neoliberal model of growth and prosperity should be replaced by “inclusive growth” that aims to reduce inequalities and not just increase real GDP. The key issues should now be “inclusion, sustainability and global governance, with a welcome emphasis on eradicating poverty and hunger.”
But can the IMF or the World Bank really change anything, even if this is Kristalina Georgieva’s expressed wish? Given that the US and its imperialist allies de facto control these institutions? The IMF’s loan conditionalities have barely changed. Perhaps there will be some debt relief (i.e. some restructuring of existing loans), but no cancellation of burdensome debts. As for the interest rates on these loans, the IMF imposes additional hidden penalty rates on very poor countries unable to meet their repayment obligations! After a growing outcry against these penalties, these rates were recently reduced (not abolished), thus reducing the costs for debtors by (only) $1,2 billion per year.
Christine Lagarde, now head of the European Central Bank (ECB), was the previous head of the IMF. She delivered a major speech in a sort of lecture last spring to the U.S. Council on Foreign Relations in New York. Lagarde spoke nostalgically of the post-1990 period after the collapse of the Soviet Union, supposedly heralding a prosperous new period of global dominance for the U.S. and its “alliance of the willing.”
“In the post-Cold War period, the world benefited from a remarkably favorable geopolitical environment. Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded. This led to a deepening of global value chains and, as China joined the global economy, a massive increase in the global labor supply.”
These were the times when the two waves of post-World War II globalization occurred, through which trade and capital flows increased; the dominance of Bretton Woods institutions such as the IMF and the World Bank then dictated the terms of loans granted; and, above all, there was the expectation that China would be brought under the imperialist bloc after joining the World Trade Organization (WTO) in 2001.
However, things didn’t work out as expected. The wave of globalization came to an abrupt end after the Great Recession, and China failed to open its economy to Western multinationals. This forced the US to shift its policy toward China from “engagement” to “containment” – and with increasing intensity in recent years.
And then came the renewed determination of the US and its European satellites to expand their control eastwards and thus ensure that Russia fails in its attempt to exert control over its border countries. US imperialism wants to permanently weaken Russia as a countervailing force to the bloc it most strongly dominates. It was this encirclement that led to Russia’s invasion of Ukraine.
This marks the rise of the countries that make up the BRICS bloc, an acronym for Brazil, Russia, India, China and South Africa, the original members. Now, in Kazan, there will be the first meeting of BRICS+ with its new members: Iran, Egypt, Ethiopia, the United Arab Emirates (and perhaps Saudi Arabia).
There is much optimism on the global left that the emergence of the BRICS grouping will change the balance of economic and political forces globally. It is true that the five BRICS nations now have a combined GDP greater than that of the G7 in terms of purchasing power parity (a measure of what GDP can buy domestically in goods and services). And if you add the new members, that makes the gap even wider.
But there are caveats. First, within the BRICS, it is China that provides the bulk of BRICS GDP (accounting for 17,6% of global GDP), followed by India in a distant second place (7%); while Russia (3,1%), Brazil (2,4%) and South Africa (0,6%) together account for only 6,1% of global GDP. So economic power is not equally distributed within the BRICS. And when we measure GDP per capita, the BRICS do not rank prominently anywhere. Even using international dollars adjusted for purchasing power parity, the United States’ GDP per capita is US$80.035, more than three times that of China, which is only US$23.382.
The BRICS+ group will remain a much smaller and weaker economic force than the G7 imperialist bloc. Moreover, the BRICS are very diverse in population, GDP per capita, geographically and in trade composition. And the ruling elites in these countries are often at odds (China vs. India; Brazil vs. Russia; Iran vs. Saudi Arabia). Unlike the G7, which has increasingly homogeneous economic goals under the firm hegemonic control of the US, the BRICS group is disparate in wealth and income and without any unified economic goals – except perhaps trying to move away from US economic dominance and, in particular, the US dollar.
And even that goal will be difficult to achieve. As I have pointed out in previous posts in The next recession blog, although there has been a relative decline in US economic dominance globally and in the dollar, the latter remains the most important currency by far for trade, investment and national reserves. Approximately half of all global trade is invoiced in dollars and this share has barely changed.
The dollar is involved in nearly 90% of global foreign exchange transactions, making it the most traded currency in the foreign exchange market. Approximately half of all cross-border loans, international debt securities and trade invoices are denominated in US dollars, while about 40% of SWIFT messages and 60% of global foreign exchange reserves are in dollars.
The Chinese yuan continues to make gradual gains, and the renminbi’s share of global foreign exchange turnover has risen from less than 1 percent 20 years ago to more than 7 percent now. But the Chinese currency still accounts for only 3 percent of global foreign exchange reserves, up from 1 percent in 2017. And China does not appear to have changed the dollar’s position in its reserves over the past decade—and it remains very high.
John Ross made similar observations in his excellent analysis of “de-dollarization.” “In short, countries/firms/institutions involved in de-dollarization suffer, or risk suffering, significant costs and risks. In contrast, there are no equivalent immediate upside gains from abandoning the dollar. Therefore, the vast majority of countries, firms and institutions will not abandon the dollar unless forced to do so. The dollar, therefore, cannot be replaced as the international monetary unit without a complete change in the global international situation for which the objective international conditions do not yet exist.”
Moreover, multilateral institutions that could be an alternative to the existing IMF and World Bank (controlled by the imperialist economies) are still small and weak. For example, there is the BRICS New Development Bank, created in 2015 in Shanghai. The NDB is led by Brazil’s leftist former president Dilma Rousseff.
There is much talk that the NDB could become a credit-providing counter-pole to the imperialist institutions of the IMF and the World Bank. But there is a long way to go before this happens. A former official of the South African Reserve Bank (SARB) commented: “The idea that the BRICS initiatives, the most prominent of which has been the NDB to date, will supplant the Western-dominated multilateral financial institutions is a pipe dream.”
And as Patrick Bond, a critical South African economist, recently put it: “There is a ‘talk left, walk right’ attitude towards the BRICS’ role in global finance.” This was seen not only in their strong financial support for the International Monetary Fund during the 2010s, but also, more recently, in the decision by the BRICS New Development Bank – supposedly an alternative to the World Bank – to declare a freeze on its Russian portfolio. This was done last March because otherwise it would not have maintained its AA+ Western credit rating. Russia is a 20% shareholder in the NDB.
The BRICS are a heterogeneous group of nations with governments that do not have an internationalist outlook. They certainly do not share a working-class internationalism; on the contrary, some are led by autocratic regimes where workers have little or no voice. Furthermore, there are countries among them led by governments that are still strongly tied to the interests of the imperialist bloc.
We must therefore return to Bretton Woods and Franklin Roosevelt’s prophecy. Many modern Keynesians regard the Bretton Woods agreement as one of the great successes of Keynesian policy in providing the kind of global cooperation that the world economy needs to emerge from its current depression. What is needed is for all the world’s major economies to come together to work out a new agreement on trade and currencies with rules to ensure that all countries work for the global good.
Two Democratic Keynesians in the US recently argued that “a different kind of worldview has never been clearer. This is revealed by a glance at any of the problems of our time, from climate change to inequality and social exclusion… Designing a new global economic structure requires a conversation on a global scale.”
Indeed, but is it really possible in a world controlled by an imperialist bloc led by an increasingly protectionist and militaristic regime (with a Trump on the political horizon) that it can be confronted by a loose amalgam of governments that often exploit and repress their own people? In such a situation, hopes for a new world order coordinated in the spheres of world money, trade and global finance seem to be out of the question. A new and just ‘Bretton Woods’ will not happen in the 21st century – quite the opposite.
It is worth quoting Cristina Lagarde again: “the most important factor influencing the use of international currency is the ‘strength of fundamentals’. In other words, on the one hand, the weakening trend of the economies of the imperialist bloc, which are facing very slow growth and declines during the rest of its decade; and, on the other, the continued expansion of China and even India.
This means that the strong military and financial dominance of the US and its allies is based on relatively low productivity, investment and profitability. This looks like a recipe for fragmentation and a resurgence of global conflict.
*Michael Roberts is an economist. Author, among other books, of The great recession: a marxist view (Lulu Press) [https://amzn.to/3ZUjFFj]
Translation: Eleutério FS Prado.
Originally published in The next recession blog.
the earth is round there is thanks to our readers and supporters.
Help us keep this idea going.
CONTRIBUTE
