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The BRICS of collapse? Why emerging economies need a different development model

They have pursued GDP growth with little or no investment in human, social and natural capital. This does not bode well for the future of the world economy.

Ever since the investment bank Goldman Sachs launched the acronym BRICS in the global debate in 2001, there has been much talk about the rise of new powers in the global economy. Brazil, Russia, India, China and South Africa have become the symbols of an alleged global shift, from an old economic system led by the so-called ‘West’ (the US and Europe) to a new development trajectory, spearheaded by traditionally ‘under-developed’ countries.

Yet, the reality appears much more complex than this ‘global power shift’ rhetoric would suggest. First of all, the BRICS countries have little in common in political terms. The ‘alliance’ can be better described as a marriage of convenience rather than a real partnership for change. The only uniting factor has been their sustained GDP growth for the past two decades. As resource-rich economies, they have adopted a development paradigm based on intensive extraction of natural resources (e.g. fossil and bio-fuels, minerals, etc.), which drive most of their exports, and cheap labour, especially in China and India. They have pursued GDP growth with little or no investment in human, social and natural capital. This does not bode well for the future of the world economy.

Income inequality is largely out of control in the BRICS. South Africa and Brazil are among the most unequal societies in the world. Popular unrest is rampant in both countries, with hundreds of service delivery protests erupting in South Africa and the soccer World Cup having become a catalyst of discontent in Brazil. Russia’s wealth is increasingly concentrated while in a traditionally egalitarian society such as India, the Gini coefficient has gone from 0.30 to 0.38 in less than a decade (the coefficient ranges between 0, perfect equality, and 1, complete inequality, with 0.40 being the critical threshold for potential unrest).

According to the most recent estimates, even China, despite its socialist ideology, has become one of the most unequal countries in the world. After over a decade of silence, the National Bureau of Statistics published inequality data in 2013, finding a Gini coefficient of about 0.47 (with a peak of 0.49 experienced in 2008). A study carried out by the People’s Bank of China, found that the Gini coefficient in China was 0.61 in 2010, with 10% of households capturing up to 58%of the country’s disposable income. The Chinese Academy of Social Sciences, a state research institute, estimated inequality at 0.54 in 2008. For the Academy, “The income gap in China is so big now that it brings huge risks of derailing China from its growth path.” The International Monetary Fund confirms that income inequality in China has risen more than in any other Asian economy.

And the environment fares even worse. The emissions of greenhouse gases have steadily increased in the BRICS, largely propelled by the energy-intensive growth of the Chinese and Indian economies. All BRICS countries have also experienced significant losses in terms of per capita biocapacity (that is, the capacity of a segment of land or sea to supply resources and absorb waste), while at the same time relentlessly enlarging their ecological footprints. The World Bank estimates that environmental degradation costs China about 9% of GDP, thus offsetting its growth even during the best years. According to the Global Burden of Disease Study 2010, published in the medical journal The Lancet, 1.2 million people die in China every year from pollution-related causes and the term “airpocalypse” has now become a catchword among foreigners living in the country. The much-discussed transition of the Chinese economy from investment-led growth to a consumption-based model does not promise relief from this environmental crisis.

Although Chinese megacities top the global pollution rankings, the world’s most polluted air is found in South Africa, about 100kms east of Johannesburg, in the town of Emalahleni. According to a study funded by the EU in 2013, the levels of chromium and barium are so high that conventional monitoring instruments have been unable to provide accurate measurements. The area is at the heart of South Africa’s coal industry, one of its major exports to China and India (South Africa is the world’s fifth largest coal exporter and the sixth largest consumer).

The World Bank recently estimated that environmental damage costs India $80 billion per year, an equivalent of 5.7% of its GDP. According to the team that conducted the assessment, “India has performed remarkably well economically, but that’s not reflected in its environmental outcomes. […] ‘Grow now, clean up later’ really doesn’t work.” The country suffers from exceptionally bad air pollution, mainly caused by coal-fired power stations, constructions and vehicles. As many as 23% of deaths among children may be attributed to environmental factors, “which means that about 350,000 under-fives die each year as a result of bad air, contaminated water or similar problems.”

The BRICS are experiencing a convergence of crises, which is now exacerbated by the deceleration of their GDP growth. The introduction of renewable resources is paramount, but there are considerable differences among the BRICS in terms of the intensity and composition of renewable sources. The diffusion of wind and solar technologies has developed rapidly in China and India, much less so in Russia and South Africa (because of the abundance of fossil fuels) and in Brazil (due to the availability of hydro energy).

But technological shifts are only a first step toward a more ambitious reorganization of natural resource management, production processes and income redistribution. The BRICS have the political clout, the financial power and the energy resources to lead a global transition towards a new development model. This alone would be a tangible sign of alternative global leadership.

*This article is based on a research report commissioned by Demos and the Rockefeller Foundation.