Today on China's Hainan Island, the leaders of the BRIC countries "“ Brazil, Russia, India and China "“ met for their latest summit, which this time included South Africa (hey, how did they get an invite?). These now regular blabber-fests have arisen (in theory) to better promote the views of the emerging world on key global issues like economic reform, security and climate change. The idea seems to be to create sort of a developing nation G-7. But generally, these summits have been real snoozers, producing statements of such vague blandness that they make G-20 resolutions read like Harry Potter page-turners. Our sister blog, Global Spin is also underwhelmed by the conference.
But should we expect anything more? Though all developing economies, the original BRICs in fact have little in common beyond being bunched together in Goldman Sachs research reports. Unlike the old G-7, which were uniformly liberal democracies and advanced economies, the BRICS have vastly divergent political systems, levels of development, economic interests and foreign policy priorities. They also have some serious disputes among themselves. Brazil has been an open critic of China's distorted currency regime, while China and India spar over border disputes. Is it any wonder that these countries have trouble agreeing on anything of any importance?
Yet out of this recent summit, something has emerged on which they all can agree "“ a preference for controlling markets when it suits them. As the BRICS gain in influence, that thinking could drastically reshape global economic policy. Here's what I mean:
Buried within the usual platitudes about promoting peace and cooperation, the communiqué issued during the summit contains some clues into the BRICS' thinking on one of the most contentious issues facing the world economy today "“ mitigating the perceived ill-effects of free markets. For example, the BRICS made it clear that they are not necessarily in favor of free financial flows in all circumstances:
We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economies.
Nor are they big fans of volatile commodity markets, especially in food, and took a special jab at derivatives trading:
Excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy. We support the international community in strengthening cooperation to ensure stability and strong development of physical market by reducing distortion and further regulate financial market...The regulation of the derivatives market for commodities should be accordingly strengthened to prevent activities capable of destabilizing markets.
Of course, such talk isn't unique to these nations. French President Nicolas Sarkozy advocated more regulation of commodities markets and better management of capital flows at the last G-20 meeting, and the G-7 intervened in currency markets to depress the yen in the wake of Japan's March earthquake. But the G-7 at least had an overarching belief in liberal economic systems and generally favored open markets to support growth and free enterprise. That's not true among the BRICS. At best, they hold very mixed attitudes towards open markets. Sure, China, India and Russia have all liberalized and opened up their economics since the bad-old days of far-reaching government control. But they're not bastions of laissez faire philosophy either. The suffocating License Raj in India has died hard and the private sector is still entangled by too much bureaucratic meddling. Russia and China are proud adherents of "state capitalism," in which the government and state-owned firms play a large role in the economy. Chinese policymakers are clearly wedded to the notion that economic problems can be better resolved by bureaucratic decree than macroeconomic management. Rather than allow their controlled currency to appreciate to battle inflation, for example, Chinese bureaucrats would rather bully the private sector into halting price increases, as they recently did with Unilever. Brazil has been a vocal critic of the way inflows of loose money have hurt the competitiveness of its economy and the government has tried to control the appreciation of the real.
There is, of course, a tinge of hypocrisy in these positions. Brazil and South Africa are major commodities exporters, perfectly happy to see prices soar for natural resources that they sell. I'd find it hard to believe they'd be in favor of controlling the prices of iron ore or gold. All of the BRICS have been huge beneficiaries of free capital flows, which have boosted their wealth and created jobs for their large populations. So the BRICS want to enjoy the benefits of free markets while jettisoning what they don't care for. We all do, of course, but in the West, and especially the United States, there is much more wariness about the potential negative consequences of market interference than we find among the BRICS. If their national policies are a guide (and I believe they are), the BRICS will be much more willing to regulate, control, and inhibit the functioning of markets based on their perceived needs of the moment. For the BRICS, or at least most of them, markets are a matter of convenience rather than conviction.
In the wake of the Great Recession, which was brought about by market excesses, many of you are probably saying the position of the BRICS doesn't seem like a bad thing. Perhaps that is the case. But however we feel about free markets, the more influential the BRICS and their emerging-market cousins become in the global economy, the more influential their ideas on market forces will become in global policy. The great shift of economic power from the developed to the developing world is also bringing about a major shift in the ideological underpinnings of the global economy. So maybe these boring BRICS summits have some meaning after all.
You don't really beieve we have free markets in the U.S., do you? Ours may not be overly controlled by the government; however, they are being seized oligopolies.
"?People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.' (Adam Smith, The Wealth of Nations, 1776).
What does the American auto industry, the health care industry, wall street firms and the banking industry all have in common; other than they were all on the brink of failure?
These are industries where the production side of the industry is no longer a free market with many producers competing head-to head to earn the business of consumers, or customers, of the industry. Instead each of these industries are controlled by a relatively small number of very large corporations that have transformed these markets into oligopolies. Read More Click Here http://ow.ly/4AjVA
Absolutely. You hit the bull's eye. Michael correct your perception.
I did not state that the U.S. is a perfect free market. My point is that the ideological basis of American economic thinking is that freer markets are usually better, and government interference in markets can potentially have negative consequences and should be considered carefully. This view is reflected in the shape of the world economy today and in the U.S. approach to global economic issues. The BRICS don't share the same economic ideology. They are not as fearful of using government to achieve certain economic means. That's especially true with China and Russia, and in a different sense, India. As the BRICS gain in influence, their different economic thinking will begin to be felt on the structure of global economic policy as well.
This article lacks your natural instinct for insightful analysis. A little disappointed.
Gamesmith94134: Do the BRICS believe in free markets?
Mr. Shuman, "The regulation of the derivatives market for commodities should be accordingly strengthened to prevent activities capable of destabilizing markets." It can be corrected if we all being honest how derivatives market for commodities is operated; not manipulated. I am not questioning on the misquoted derivatives on real estate or banking that went under; it was the imbalance of trade that tilted the market and left everyone puzzled how our global monetary system applies. If you defrauded, not punished; but appreciated. So, is it the force the G-7 applies to stabilize the market that the more sovereignty debts the more value does to its currencies by its throw weight? Euro pluses PIIGS add 15% (1.4 rose from 1.2 to a Dollar), or Yen added Fukushima deserve 10% (90 down to 83), but a trillion more deficits for US that cut its value by 15%. I suppose it is the way how G-7 wants everyone else to pay for their debts and maintain the stability of the global market and enslave the non-monetarily sovereignty nations or emerging nations for sake of consumerism or balance of payments. Who is their accountant and I need him to fix my loan too? Is it IMF or the SDR? Is it the resolution to the debt crisis? If it is no monopoly, shall I say socialism or oligopolies? Why can't the G-7 put on other shoes of the emerging market nations or the non-monetarily sovereignties like inflation by 5%? FED said inflation did not affect our economy even though we paid 11% of our living expense on gas; temporally under our sub zero interest policy. It was because their currencies like Chinese yuan (renmimbi) are undervalued and still pay over $4 for it. Mr. Schuman stated, "All of the BRICS have been huge beneficiaries of free capital flows, which have boosted their wealth and created jobs for their large populations. So the BRICS want to enjoy the benefits of free markets while jettisoning what they don't care for. We all do, of course, but in the West, and especially the United States, there is much more wariness about the potential negative consequences of market interference than we find among the BRICS." Well said; But why I am puzzled why we give up our houses in foreclosures. It went up 12% last month and we gave our money to invest the emerging market nations instead of saving us from further embarrassment. Those hedge fund managers should buy us out with full price. Why China or Brazil? Did they learn the lesson of us that their assistance is not needed if any of their citizens would take 70 years of earnings to buy one house just because of the free capital flows? I am glad the BRICS are united to capture the moment under the decree of slavery of the G-7; and challenged the IMF in the SDR to adopt Chinese yuan (renmimbi) as part of the exchange. I think it is the best act of diversification to our heated and imbalanced global economy; and everyone is playing fair in the free trade market. In addition, the ruling on the policy that defaulted on loan must pay, and deficit from trade cannot make its currencies stronger should be affirmed; so, everyone should earn its privilege to lead and not master its disguise to cheat or enslave. By putting on some ones' shoes, he should understand better of the free capital flows and inflation that investments work ambidextrously in growth and exploitation May the Buddha bless you?
It is refreshing to read the article by Michael as well as the subsequent comments by the readers. They make the discussion lively and realistic.
Some points are debatable, like whether the US is indeed truly practicing free markets. Others are factual, like the flourishing top-down state-controlled enterprises in China and to a certain extent in Russia.
It would be interesting to watch how politically as diverse as BRICS could be that economically unified as suggested by the communiqué. (vzc1943, btt1943)
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