States of Matter. Another BRICS in the wall

In newsrooms that resonate with calls to war, a five-nation summit that begins in picturesque Goa tomorrow will likely attract attention for all the wrong reasons.

China, the economic heavy-hitter among the five, is currently in rather bad odour with the host nation. Its unwavering friendship with Pakistan does not go down well at a time when the drums of war are rolling in India. And the recent memory of being blackballed by an exclusive club of nuclear suppliers at China’s insistence continues to rankle. As the festive season begins, shoppers heading to India’s consumer markets are being exhorted to boycott Chinese goods.

Russia, the big military power in the grouping, has its mind-space entirely occupied with pushing the brutal civil war in Syria towards closure, amidst growing diplomatic tension and acrimony with the West.

Two other members of the grouping, Brazil and South Africa, are going through severe internal political churns. Brazil had a popularly elected president removed in a parliamentary coup d’etat, and a new incumbent not quite able to shake off the usurper’s stigma. South Africa, similarly, is beset by worker and student protests at a failure to deliver on welfare benefits promised at the time of liberation from white racist rule.

What does India achieve from hosting the BRICS summit for the second time since the grouping came into existence? The official briefing prepared by the Ministry of External Affairs offers clever wordplay, as this expansion out of the BRICS acronym, ostensibly the theme of the summit, suggests ‘Building Responsive, Inclusive and Collective Solutions’. Beyond the vacuity of that, India offers through the year it retains the chair in BRICS, film festivals, youth congresses, sporting exchanges and much more of a similar flavour.

It does not matter that much of what is planned on the BRICS platform would be inconsequential, since India seemingly revels in the kind of company which represents its coming of age on the global stage. BRICS is India’s bold effort in league with like-minded countries, to step up to the world stage and bridge the power deficits emerging in the transition from a unipolar architecture.

It is significant that just two weeks before the BRICS event, India pulled out of a South Asian summit that seemed to represent for it the detritus of an unwanted past. The last place India wants to be is a neighbourhood where its aspirations for regional hegemony are constantly challenged by smaller countries.

BRICS was a distant glimmer in the eye of the international financial services behemoth Goldman Sachs in 2001. It became a buzz around the markets soon afterwards, triggering the quite unintended consequence of birthing a formal compact between four governments by 2007. A summit of the four followed in 2009 and South Africa was added to the mix in 2010.

Like for several other banks and brokerages, 2001 was a year of creative endeavour for Goldman. The “dotcom” boom had peaked and firms that had ridden the euphoria faced a sharp slide in market values. George W Bush had assumed office as US President after a contentious campaign and a deeply divisive outcome, and pushed through deep tax cuts rooted more in ideology than pragmatism. And then came September 11.

It was a unique policy muddle that only the US right wing could have confected: War and recession coinciding with massive tax breaks for the rich. Alan Greenspan, the revered “maestro” of the money markets — rendered a disconnected hack in retrospective evaluation — headed the US Fed and played along with steep rate cuts.

The stage was set for the speculative fever in the housing market that Goldman and every one of its peers and competitors plunged into. Salvation from one bubble burst arrived in the creation of another.

New destinations for investment were proposed in a November 2001 paper by Jim O’Neill, chief economist at Goldman. On two measures — both gross domestic product (GDP) and purchasing power parity (PPP) — there were a number of economies that seemed to be growing out of the lesser league they had been confined to.

China and India both accounted for a much larger share of the global economy in terms of PPP than the GDP measure suggested. O’Neill’s expectation was that if the outlook of 2001 were to be sustained through 10 years, “then by 2011 China will actually be as big as Germany on a current GDP basis, and Brazil and India not far behind Italy”.

With Russia, too, identified as a prospective investment destination, Goldman’s chairman proposed the acronym CRIB. That was changed to BRIC since the association with infancy was not considered polite.

Perhaps it was coincidence, but by late 2006, when Goldman started shorting its investments in the housing mortgage market in the expectation of a meltdown, the BRIC fund began appreciating in value. There was a sharp fall late in 2008, when Goldman became one of the few brokerages to bet and win on the global financial meltdown. But from the following year, the BRIC fund began a steady appreciation in value. By 2011, the peak had been crested.

Late in 2015, Goldman Sachs shut down its BRIC fund, merging it with the investment arm that dealt in general with emerging market economies. For several years, China alone had seemed a viable investment destination among the four, and successive years of value erosion suffered, and questions about “acronym-based” investments left no reason to sustain the fund. The Goa summit may well be where the strategic alliance spawned by Goldman also walks into an existential crisis.

Sukumar Muralidharan is an independent writer and researcher based in Gurgaon

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