The Great Recession of 2008 served as a reminder to the emerging markets to insulate their economies from the pitfalls of a global recession.
In response to this, four emerging markets Brazil, Russia, India, and China joined hands to form a coalition in 2009 called the BRIC. In 2010, South Africa provided this alliance a foothold in Africa, and the alliance expanded to form the BRICS, including South Africa.
The alliance conducts its business through a policy of mutual benefit and non-interference allowing each partner to make independent trade deals with other members of the group.
Though its underlying purpose is to promote growth and prosperity, even to the extent of securing loans for a partner in times of recession and inflation, the alliance is more of a manifestation of a protest against the dominance of Western-based financial institutions.
Yet the potential, which led to the creation of this association, has hardly transformed them into economic super-powers when it comes to their GDP per capita growth and standards of living.
The transition from an emerging market to an actual economic super-power has not been that smooth, as the alliance members face massive hurdles from state-based ownership, rampant corruption, and subsequent high-scale inflation.
This so-called ‘mini-IMF’, which boasts of one-fifth of the world’s GDP, failed to curb the economic recession in Brazil.
Brazil was hit by high inflation and a tremendous decrease in foreign direct investment chiefly because of the persistent implementation of socialist policies under the ‘Lula model’, named after Brazil’s most popular president in recent history Lula da Silva. The model involved big social-welfare schemes which served as a template for South American countries in their battle against class struggle.
Four years after Dilma Rousseff, Silva’s successor, took office, commodity prices dropped worldwide and growth rates dipped sharply.
Socialist policies and the state-capitalism model of government in leading countries like Russia and China, have not resulted in enormous economic growth. For instance, China’s economic growth of 12% in 2010 has now come down to a relatively modest 6.7% in 2016. In a report by the International Monetary Fund, it was stated that China’s economic growth is expected to slow towards 5.8% by 2021.
In South Africa, economic growth has barely blossomed since Jacob Zuma came to power in 2009. South Africa’s economy is in crisis, yet the country’s finance minister, Pravin Gordhan, was stripped of his position earlier in April for advocating a capitalist economic model. The value of South African currency, the rand, has halved against the dollar over the past five years, and unemployment has reached 27 percent.
Privatization has long been resisted by sections of the ruling African National Congress (ANC), the first democratically-elected party in South Africa. The ANC recently announced an increase in tax rates, with minimal tax relief, to combat the ever-growing problems of inflation, corruption, and recession.
The only member of this alliance that is actually showing signs of economic progression, through ‘An Ease of doing Business’ model, is India. India has jumped twelve places to 130th and expects to move up at least thirty more by 2018-2019.
Prime Minister Narendra Modi has kicked off the ambitious Startup India Movement. The government program aims to fill gaps in the economy for the growth and development of startups and will aim to boost digital entrepreneurship in the grassroots.
All this has been possible since the deeply-regulatory All-India Congress fell from power yielding the federal government to a more lenient, pro-growth right wing party in 2014.
These problems are culturally and socially rooted in the countries. People of these socialist countries, who come under this umbrella, embrace heavy government subsidies and leftist policies aimed at providing free-cost education and health services. As for state-run corporate businesses, they arrange their business models around patterns of state patronage and subsidy. Consequently, the structure becomes progressively more dysfunctional and less easy to reform.
Although this alliance began with an ambitious project, they are spluttering at present, facing both political uncertainty and stagnant economies.