BRICS – BRETTON WOODS
We can go along way back to trace the roots of the BRICS alliance of countries: European colonialism and China’s ‘century of humiliation’ spring immediately to mind, but I’m going to start with the post-WW2 order largely dictated by America.
Before WW2 had ended, a conference in Bretton Woods in America, attended by more than forty countries, set out to ensure that the Great Depression that had destroyed the world’s economies in the 1930s and, in the process, had assisted the rise to power of Hitler in Germany as well as driving the Japanese to invade China, would not happen again. And it also set out to establish the means by which a war-torn Europe could recover. So, let me say at this point, the conference did have good intentions (though there will, of course, be a big BUT).
If there was a vision behind the meeting it belonged to John Maynard Keynes, the British economist who felt that even liberal economies needed government control to make them work. However, the negotiations were driven by the Americans, Britain was by now very much the junior partner. And America ensured a post-war economic order to its liking. The Soviet Union, by the way, was in on the discussions but declined to join the party. The Cold War was coming.
Free trade would prevail and stable rates of exchange would be prioritised. It was agreed that an International Trading Organisation should be established to free up trade from things like quotas and tariffs (import duties) as well as preferential trade agreements such as those between Britain and its empire – this would eventually manifest itself in 1947 as the General Agreement on Tariffs and Trade or GATT. Countries also agreed to do everything they could to stabilise exchange rates for their currencies. And the dollar became the international currency of trade with other currencies fixed to it. Maynard Keynes had wanted an actual international currency but, as I said, America got what it wanted. An International Monetary Fund was also set up to help maintain stability in the exchange rates and to help countries should they get into difficulties with their balance of payments. Each country would contribute funds to the IMF in relation to their ability to do so, but different degrees of influence, notably voting rights, followed in the wake of those contributions. It was also agreed that an International Bank for Reconstruction and Development, later called the World Bank, would be set up to help finance recovery in Europe as well as development in poorer countries. Its headquarters would be in Washington and all its presidents have been American. Both the IMF and the World Bank opened for business in 1946. And from the outset, America became the world’s creditor beginning with Europe which received some $14 billion dollars in post-war aid via the famous Marshall Plan (when it already owed $11.5 billion in war loans). And I should add these were huge sums back in the 1940s. The aid, in the form of equipment or money, would be spent to re-equip factories, help farming get back on its feet and revive trade, was desperately needed.
There would, however, be problems to this ideal world. First, Europe would be divided by the Iron Curtain, with the West one side and the Communist bloc on the other, much of the rest of the world soon following. Secondly, and this is our focus in these few episodes, the world was already changing in another way. Thirty-two states attended the Paris Peace Conference that followed WW1, and some of them were not yet legally constituted. Today, there are 193 member-states of the UN. How come? Well, WW1 saw the end of four empires: the Austro-Hungarian, the Ottoman, the German and the old Tsarist Russian empires (though the Ottoman, the German empires didn’t actually result in many new states at first). Whilst in the wake of WW2, the British and French empires slowly but surely broke up, creating a “third world”. The West was the “first world”, the Communist bloc was the “second”, the new states were the “third”. And, of course, since then, the Soviet Union has also broken up, as has Yugoslavia. So, we have a lot more independent sovereign states.
But in the 1950s and 1960s these new sates were all ex-colonies and though freed from the imperial powers, they were nearly all poor, underdeveloped states (their average income per capita was around one tenth of the West – the true testimony to imperialism). They desperately needed developing, in fact they needed protecting from free trade if their economies were to develop to the point where they could trade on equal terms. For let’s be clear, free trade is competitive – always has been, always will be – and has always worked in favour of the dominant economic powers.
The world was – still is – at wildly different levels of development. Today we talk of post-industrial economies, economies based on information technology, and we are looking right now at how AI will change economies. At the end of WW2 what really divided the world economically was not so much capitalism and communism but those countries that had industrialised and those that hadn’t. For those that hadn’t were overwhelming agricultural economies or else mined raw materials. In other words, their economies provided the primary products, also known as commodities: the food stuffs and raw materials that the industrialised nations need. According to estimates made by the International Labour Organisation, part of the UN, on average, today, around 60 per cent of the workforce of low-income developing countries are employed in agriculture whereas only 20 per cent in industry and 20 per cent in services. Whilst in developed countries only 4 per cent of their workforce is employed in agriculture, with 26 per cent employed in industry and 70 per cent in services.
But such economies lack diversity, usually relying on one product or one type of product, and are vulnerable to international market prices, which are usually low anyway. In a typical developing country about 60 to 75 per cent of its population depends on agriculture for its livelihood. Further, about 30 to 50 per cent of national income of these countries is obtained from agriculture alone. It’s not always so, for example oil and gas producing countries today are doing very well, but primary-based or commodity-based economies are generally defined as developing economies, or else are actually underdeveloped. Whereas industrialised and the post-industrial economies of today would be seen as developed economies. Now a word or two on terms. The “Third World” is no longer used, it’s best to think of it as a term that fitted the Cold War era. Today, geographers, economists and political scientists might refer instead to high-income countries, newly emerging economies and low-income countries, or else just more developed countries (MDCs) and less developed countries (LDCs). But whatever, I’m sure you will be able to follow me.
Back to Bretton Woods, and the role of the World Bank in helping poorer countries develop their economies. The “support”, the “aid”, given to the developing countries (and I’ve put both “support” and “aid” in inverted commas) came at a price. Loans from the World Bank or the IMF came at world market rates, far too high for poor countries. Consequently, they ate into any profits from their trade with the rest of the world thus holding back development. Whilst aid came at a price too: recipients of aid were often obliged to buy goods from the donor countries when they might have paid less elsewhere, or sell at prices lower than they could have got elsewhere. So, just as they had been in colonial times, development in poorer countries was actually held back as, instead of diversifying into manufacturing, they remained reliant on providing primary products or commodities, the food stuffs and raw materials that the richer economies demanded, and for which, other than oil, didn’t earn anything like as much as manufactured goods. And, of course, there were political requirements attached too: an alliance or a military base. Actually, even the aid America gave to Europe came at a price. In return, European countries would buy American goods and allow American companies to invest in their countries (and send their profits back home). So, with the rest of the world.
Let’s be fair, America was being altruistic to an extent – it was genuinely trying to help countries and save liberal democracy in the face of a perceived threat of communism, but let’s also be clear, it was also self-serving, America was confident it would benefit from the markets it was helping to prop up and develop. And many of the developing nations, and all the underdeveloped nations, have suffered badly as imperialism or colonialism has merely been replaced by neo- imperialism or neo-colonialism.
What does this mean? The World Bank has published data that puts the average income per capita in some developing countries at just one per cent of that in developing countries. In India, according to UN data for 2019, 80 million Indians, a little less than 7% of India’s population, are living below the poverty line of $1.25 per day, that is the minimum to sustain life, with more than 80% of Indians living on less than $6.85 per day. Now poverty is relative, that is it has to be related to the local cost of living. But that doesn’t get away from the fact that 80% of Indians have a standard of living that you and I would want. And in such conditions, education becomes a luxury: whereas in the developed world, all kids go to secondary school, data from 2010 shows that enrolment in underdeveloped countries for secondary education was only at 38%, and between 63% and 88% in developing countries (depending on the stage of development). Whilst tertiary education, where technicians and mangers might be trained, enrolment was only at 6% in underdeveloped countries and between 19% and 42% in developing countries (it’s at 67% in the developed world). And as the education system is sorely lacking, people are stuck in the poverty trap.
So, what’s the reality of that poverty trap in developing and underdeveloped countries? There is widespread poverty, widespread hunger. Children are a part of the economy, both the official economy and what we call the informal economy. There is poor access to good sanitation facilities and to health care, including family planning, and so family sizes are larger, life expectancy is lower, maternal mortality, infant mortality, child mortality are much higher. Whereas in developed countries 7 children per 1,000 births die before the age of five, between 22 and 57 die in developing countries and 118 die in underdeveloped countries. As developed countries grapple with obesity, developing and underdeveloped countries battle with malnutrition. Oh, and they were the last to get COVID vaccines.
The post-1945 world economic order doesn’t seem to have benefited the developing nations, those that have achieved political independence post-1945. So, maybe we can already see why the BRICS countries have banded together.
BRICS – NON-ALIGNMENT
Now as I began to explain in the last episode, at the same time as the world was polarising between the West and the Communist bloc, what came to be called the ‘Third World’, essentially the world emerging from the British and French, and other European empires, was struggling to assert itself too. These are countries in Asia, Africa and the Middle East (South American countries also being lumped into the same category even though they had a considerable head-start having gained the independence a century before).
This ‘Third World’, as it was then called, didn’t particularly like either of the two super powers. Its early leader was Jawaharlal Nehru who became India’s prime minister in 1947, holding the post for the next seventeen years. He was a liberal-democrat but was determined to steer an independent path for India, independent of imperialist Britain, of autocratic Russia and of arrogant America which appeared to be too close to the European imperialists to be a champion for freedom from colonial rule as it had once appeared to be. It wasn’t called such yet, but this was the policy of non-alignment, asserting independence and ensuring neutrality in the Cold War. But it was also a declaration that there were more important issues to address, notably the imbalance of power – economic, cultural and political power.
And as I hope I showed last week, these new sovereign states were badly underdeveloped, so poor and so weak; unity amongst them was essential if they were going to change the order of things. But that was hard to achieve. The fight for independence had masked not only regional rivalries but domestic rivalries too. Take for example, the rivalry between India and Pakistan, or the tragic plight of the Congo, or the rivalry between Iran and Iraq that we have already looked at, with many, many more examples that could be included. But the upshot was that alliances with one or other of the two super powers soon proved difficult to avoid.
Nevertheless, in 1955 a conference of Asian, African and Middle East states held in Bandung in Indonesia was held. Both Russia and China were wooing the Third World away from the capitalists – Zhou Enlai, at the time China’s Premier and its Foreign Minister, attended the conference and Khrushchev visited Asia later that year; whilst at the same time America was doing everything it could to frighten them away from communism. So, whilst the participating countries at Bandung were still mostly very weak (though they included China and Japan as well as oil-producing countries), they did have a reasonable hand of cards to play.
The conference, attended by twenty-nine states or aspiring states, had four aims which said much about the mood of the organising countries – India, Pakistan, Ceylon (now Sri Lanka), Indonesia and Burma (now Myanmar): To encourage understanding and goodwill between Asian and Africa countries, and to promote their common interests. To examine their economic, social and cultural relations. To examine issues of common concern, notably colonialism, national sovereignty and racism. To consider the position of Asia and Africa in the world and the ways they can contribute to peace and co-operation. The strongest issues to unite the participating countries were anti-colonialism, sovereignty and racism and it’s interesting to note that the conference’s working language was English – given the historical experience of many of the participating states, it had to be. So, we can see that very quickly the Third World, what we now call the developing world, was trying to organise in order to improve its position, individually and collectively.
Nehru was a driving force behind the conference, so too was the Indonesian President, Sukarno. Zhou Enlai, for his part, worked to ensure the other countries that China was prepared to work with non-communists and had no hidden agenda. By the way, the Soviet Union had wanted to attend the conference but Nehru insisted it wouldn’t be appropriate. China, which was a developing country anyway, was seen differently.
There were few tangible results from the conference but it showed the priorities of the Third World. It called on the UN to set up a fund for economic development and to assure greater stability in commodity prices generally, but particularly with regard to oil, and it called for more funds from the World Bank. It also supported national self-determination, though the conference split on how to define the countries of eastern Europe yet was clear in condemning Israel and supporting Palestinians.
The conference also set out a number of principles for co-operation that left no doubt about the feelings of the Third World. They included respect for the territorial integrity and sovereignty of all states; recognition of the equality of all races and all nations; non-intervention in the internal affairs of countries; respect for the right of self-defence, including collective self-defence; and refusal to join collective defence agreements designed to serve the particular interests of a great power (even though just short of half the countries were in formal alliances with either America or the Soviet Union). So, we can see the belief in the Third World that the world order, both political, with the two super powers trying to extend their spheres of influence, and the economic order set up at Bretton Woods which favoured the wealthy nations, would work against the newly independent countries unless they organised against it. And so, we see the early seeds of the non-alignment movement but so, too, can we see, I feel, why we have ended up with the BRICS group of nations. And at this point, let me remind you who they are: the original members were Brazil, Russia, India and China with South Africa soon joining the group and this year, Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates also being invited to join. They were all, except for Russia and China, Third World countries back in 1955.
But back to the Bandung Conference, it might have seemed as if it was nothing but a lot of grandiose statements, a lot of hot air, but they had advanced their status and diplomatic clout in the world, the two superpowers, and Europe, now took them seriously, and they had laid the foundations for organising themselves in the UN. In the same year as the Bandung Conference, sixteen new states joined the UN, seventeen more would join in 1960, nearly all African states, with another seven having already joined in the intervening years.
What is more, the momentum begun in Bandung would not be stopped. Afro-Asian unity was taken up again at a conference in Cairo at the end of 1957 with 46 states or aspiring states sending delegations (including, this time, a delegation from the Soviet Union though with its delegates tactfully coming mostly from its Central Asian Republics). And the stance taken had undergone a definite shift: anti-colonialism, in all its guises, was to the fore and the conference demanded the immediate end of colonial rule. With the European Economic Community newly formed there was a call for an Afro-Asian Common Market and further conferences were held to try and develop the idea but with such divergent economies it didn’t get anywhere.
A non-aligned movement, an undercurrent at the Bandung Conference, did gather momentum though. Its driving force was an unlikely trio: Nehru, as we know, from India, an idealist; Tito from Yugoslavia, a hardened communist who had refused to toe the Stalin line yet also refused to have anything to do with the West (we came across him in my “Vienna” episode), and President Gamal Abdel Nasser of Egypt (to give him his full name), an ex-military officer and would-be leader of Arab nationalism; but they were as one when it came to developing a non-aligned group of nations.
They first met in 1956 and set up a preliminary conference which met in Cairo in 1960, attended by twenty countries. This conference set out five principles for non-alignment: 1. Member states were to follow an independent foreign policy based on peaceful co-existence and, of course, non-alignment, or at least be favourable to such a policy (thereby allowing almost all the non-major powers to sign up). 2. Member states were to support all movements for national independence (thereby forming a link with the Banding Conference). 3. They were not to join any military alliance with links to the conflict between the great powers (in other words, they would have nothing to do with the Cold War). 4. They were not to form any bilateral alliance with a great power. 5. They were not to allow, if they could help it, a great power to establish a military base on their territory. It all gave enough wiggle room for countries to sign up and, in 1961, twenty-five states, including countries from South America (if only as observers), attended the first Summit Conference of Non-Aligned States in Belgrade. The Cold War was, of course, the dominant issue and the movement declared itself both politically neutral and economically so, i.e., they were neither anti-capitalist or anti-communism, but it was fiercely anti-colonialism and just as fiercely pro economic development. And in doing these things, they claimed the moral high ground.
In 1962, the UN tried to initiate change with the first meeting of UNCTAD: the United Nations Conference of Trade and Development that brought together the developed countries as well as the developing Asian, African and South American countries who were united in their need for change in the face of unfair competition and their realisation that political independence did not automatically bring economic independence. But it didn’t get very far. No agreement could be reached in 1962. The second meeting in 1968 only produced hopeful recommendations, and it was much the same with the third meeting in 1972, And when, in 1976, Third World countries presented a plan to UNCTAD to reschedule their debts, to diversify one-crop economies, provide technical aid and help countries diversify into manufacturing, it was so weakened by the wealthier countries, that the status quo was ensured. The developing world, never mind the underdeveloped world, was still operating in an economic system devised by and in the interests of the rich.
In 1973, the summit of non-aligned states, held in Algiers, produced an ambitious proposal for a New International Economic Order. It was a declaration that the agreements made at Bretton Woods and the institutions that had been created there had been for the benefit of the West and that they, the Third World, had little influence over their own destinies. Thus, instead of getting financial aid from the developed countries and the financial institutions created at Bretton Woods, they suggested a mechanism was needed to enable primary producers to negotiate collectively with the industrialised nations in order to ensure fair prices for commodities. They also wanted the transfer of new technology to help them industrialise so that their economies would not be reliant on exporting commodities. The rallying call was ‘Trade not Aid.’ And on top of all that, they called for full compensation from their colonialists who had exploited their economies.
The General Assembly of the UN adopted the Charter of Economic Rights and Duties of States in 1974. However, Western developed countries have blocked its implementation. In 2018, the UN General Assembly adopted another resolution, ‘Towards a New International Economic Order,’ which recognized the need to continue working for the development of the NIEO. Don’t hold your breath. Still, today, after eighteen conferences, held in African countries, Asian countries and Latin American countries, as well as in Europe, the non-alignment movement is the largest grouping of states after the UN, consisting of 120 countries.
Now, while all this was going on, African, Asian and Latin American states also took measures to organise separately in order to look after their particular interests. African states formed the Organisation of African Unity in 1963 at a conference in Addis Ababa, Ethiopia (appropriate as it is Africa’s oldest independent state). At a meeting in 1967 in Bangkok, Thailand, Malaysia, Singapore, Indonesia and the Philippines formed the Association of South-East Asian Nations (ASEAN). And Latin American countries have initiated a string of attempts to form common markets in different parts of the region. These different initiatives have led to benefits for the old Third World and what we would today call the developing world, but I would be on pretty safe ground if I was to say that progress has been nothing like what had been hoped for back in Bandung in 1955.
And that almost leads us to the BRICS, but before I go there, next week I want to first look at the big success coming out of the history of the Third World during those Cold War years. You might have noticed that, in looking at the continental organisations, I didn’t go to the Middle East, well next week I will and we’ll take a look at the impact of OPEC.
BRICS – OPEC
America had been struggling to maintain the Bretton Woods system throughout the 1960s as the dollar came under increasing strain both in relation to the price of gold and in relation to other currencies, but Bretton Woods didn’t finally break down until the early 1970s by which time some countries had begun to make up ground with America. The European Economic Community was by then a major economy, Japan had recovered from the war and was a major player, and the Asian Tiger economies of Hong Kong, Singapore, South Korea and Taiwan had industrialised, diversified and were growing stronger and stronger, with Malaysia and Thailand not that far behind them. This was “the Asian miracle”, and it was export-driven. At the same time, the Vietnam War had cost America dear, and so the American economy needed protecting. Free trade was no longer working for it. It freed the dollar from managing the exchange rates and it introduced tariffs on imports. An early signal of at least the beginning of the end of American Century? Perhaps.
Then, in 1973, fifty years ago so it seems even more fitting that we should be looking at this, the first oil crisis plunged most of the world’s economies, certainly those in the developed West, into stagflation – economic stagnation coupled with high inflation. In America, inflation reached double digits and unemployment rose faster than at any time since the Great Depression, and the stock market crashed by nearly 50%. In Europe, unemployment shot up and industrial unrest followed.
Oil had been underpriced but, in the wake of decolonisation and the resulting rise in nationalism in the Arab oil-producing countries, ownership of oil production was in the process of passing from Western-owned private companies to state-control and the OPEC countries (Organisation of Petroleum Exporting Countries), though geographically spread across the world and culturally and politically very different from each other, saw what was to be gained to bury those differences and unite to get a better deal for themselves. OPEC was set up in 1960 when Iran, Iraq, Kuwait Saudi Arabia and Venezuela (which supplied America) agreed to co-ordinate their prices and, just as important, their supplies, in order to counter the Western oil companies that still dictated terns even where production was no longer in their hands. By 1973 they had been joined by another seven producing countries.
The developed world of the West was, at this point, reliant on oil. It used oil as an energy source, it had replaced coal as its supply diminished. To put some stats to that, whereas Europe had got 32% of its energy from oil in 1962, by 1973 that percentage had risen to 60%; for Japan, it was using 44% at the beginning of the 1960s and 73% by 1973; and just about all the oil, in Europe as well as Japan was imported. The North Sea oil fields didn’t really get going until after the shock of 1973, indeed it was a mighty impetus. And America, though an oil producer itself, was consuming oil in such quantities that by 1973 it was importing a third of the oil it was using. American car-owners were consuming one in every seven barrels of oil produced – every day. They would do: the average American car only got 12mpg (about 5 kilometres per litre). Staggering but true!
But what is more, our lighting, our heating, in homes, factories, hospitals and schools, was reliant on oil. Planes and boats and trains (there’s a song in there somewhere) ran on oil, as well as our cars. The chemical industry and the production of plastics consumed huge quantities of it (and, of course, all of this is still true). The world had come to depend on cheap energy and the continued dominance of the developed nations was, by the 1970s, based on it. In all the ways I’ve just outlined but also in enabling the West to develop its extensive social security provision, health care and, for most, very comfortable lifestyles. Not only that, but it enabled America to sustain the cost of the Cold War.
Oil was in demand yet it had been historically underpriced. It was also a finite resource and so for the producers of oil, the best had to be made of it whilst it lasted and enough money earned to ensure they could diversify before it ran out. So, it was always going to go up. In the 1960s prices increased slowly, the oil producing countries were happy with a moderate increase in national income and the oil companies were careful to negotiate with them when before they had arrogantly continued to dictate terms. It was actually Libya that pointed the way when Gaddafi’s Revolutionary Command Council, which had overthrown the Libyan monarchy in 1969, immediately put pressure on the oil companies in Libya to increase their prices and in 1971 he nationalised the Libyan oil companies’ operations in Libya. And we have already noted in an earlier series that Iran nationalised the British-controlled Anglo-Iranian Oil Company in 1951 and Iraq nationalised its oil industry from an international consortium of oil companies but with Shell and British Petroleum to the fore, in 1972.
But it was the Arab nations response to the Yom Kippur War with Israel in 1973, and the West’s support for Israel, that drove the price skywards. They had tried to do the same during the Six Day War in 1967 but Iran and Venezuela made good their cuts in production. Things were different in 1973 though, and the Arab states knew the strength of their position: Saudi Arabia alone held a quarter of the world’s known oil reserves. Also, in 1968 the Arab members of OPEC had formed the Organisation of Arab Petroleum Exporting Countries which gave them greater control.
Ten days into the war, which began in October, six Persian Gulf states – Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE – met and raised the price of their oil by 70% as well as cutting its production by 5%. King Faisal of Saudi Arabia asked America to stop supplying Israel with military aid and when, instead, America increased that aid, the Saudi’s placed a total ban on sales to America with Libya, Algeria, and the other Arab states followed the Saudi lead (Nixon seriously considered military action to seize oil fields not just in Saudi Arabia, but Kuwait and Abu Dhabi in the UAE too. In November, production was reduced to 25% of its pre-war level by which time the price of oil had already doubled. They now put states into three categories: ‘hostile’ states with close ties to Israel who had a total embargo imposed, ‘neutral’ states who had their supplies cut by 25%, and ‘friendly’ states with pro-Arab or anti-Israeli foreign policies whose supplies were unaffected. But for everyone, prices were increased again so that by the beginning of 1974 they were at almost four times the price of pre-war levels. The alliance weakened when Iran and Iraq went their own way: neither cut back production, in fact they increased it, though nothing like enough to make good the overall reduction, and Iraq drew up its own list of countries to be punished, but this hardly lessened the effects.
What is more, those Gulf states that hadn’t already taken control of their oil, now did so. In 1973, the Saudi Arabian government took a 25% share of its oil production, raising this to 60% a year later and taking full control in 1976. It had been under the control of a conglomerate of American oil companies, including Standard Oil of California (now Chevron), Texaco, Esso which became Exxon, and Mobil (under the trading name of the Saudi Arabia Oil Group, previously, and more accurately, called the Arabian American Oil Company). Kuwait made its first move in 1974 taking control of 60% of the Kuwait Oil Company which had been owned by British Petroleum and the American-owned Gulf Oil Corporation, taking full ownership in 1975.
The repercussions of what had unfolded were staggering. Everyone was hit hard: developed, developing and underdeveloped worlds; as you will see, even if they weren’t dependent on oil. Let’s use America, where the car was king, as an example though. Petrol was rationed and a national speed limit of 55mph (about 90kph) was imposed. There was odd–even rationing in which cars with license plates having an odd number as the last digit could only buy petrol on odd-numbered days, while others could buy only on even-numbered days. And, in the long term, the Corporate Average Fuel Economy (CAFE) standards were imposed which required improved fuel economy for cars and light trucks. It is still enforced today. Americans, for the first time really, became interested in smaller cars. And as sales of imported cars from Japan, Germany and France increased, General Motors, Ford and Chrysler were forced to introduce smaller, fuel-efficient models. You might also be interested to know that, in Europe, the age of the hatchback was about to dawn as a result of the crisis.
But, of course, it was the developing and underdeveloped worlds that were hit most as, not only was the developing world also paying substantially more for their oil, but the developed world, was cutting back, not only on the loans they had given them, but on buying their commodities. And the developing countries were heavily in debt: $300 billion in total with a combined balance of payments deficit of $100 billion on top. And with the hike in oil prices, it was set to rise another $25 billion per year. Of course, this also put their creditors in deep trouble too because it was clear they would not be unable to pay. The developing countries renewed their efforts to push through a New International Economic Order but instead, the merry-go-round turned full circle as it was the OPEC countries who came to their help, providing aid (partly by ending their contributions to the World Bank, again because of the West’s support of Israel).
But the impact of what OPEC had done was just as profound in the oil-rich countries themselves as well as for the balance of wealth in the world as a whole. For the oil producers of the Gulf, already very wealthy, were about to become enormously wealthy. With small populations, the GDP per capita was at least fifty times greater than America. Take, for example, Saudi Arabia, its population was only about seven million in 1973, a quarter of whom were nomadic, though it’s about three-quarters the size of India, which has the largest population in the world. And remember, it held a quarter of the world’s known oil reserves.
The Gulf States, all of them, spent heavily: modernising their cities with shopping malls galore, building airports and airlines, and buying arms (which only added to tensions in the Middle East). A vulgar materialist culture quickly followed, what I called the Ferrari-speed boat culture (I lived in Qatar for a year – did not like it at all). And to be fair, it has also led to a massive rise in the standard of living across the Gulf states, and much, much improved education and health care too. And all this did allow the West to claw back some of the money it was paying out for its oil. In Iran, in 1979, it would lead to the overthrow of the Shah and the Islamic Revolution led by Ayatollah Khamenei. Which in turn would lead to the Iran-Iraq War, another oil crisis with another surge in the price of oil.
But there was still so much money to spare, and the Arab world began to invest in the properties of Western capitals, eventually European football teams, and ‘petrodollars’ flooded into Western banks too.
Meanwhile, the West set about reducing its reliance on oil from the Gulf (just as it’s doing now with Russian gas). Mexico increased its production, the Norwegian and British North Sea oil fields were developed as quickly as possible and were in production by 1975 with Britain self-sufficient in oil by the end of the decade. America built a pipeline to connect itself with its Alaskan oilfields. The pipeline had previously been rejected on environmental grounds but by 1978 was pumping more than a million barrels a day. Japan moved away from oil-intensive industries and into electronics. France opted to build nuclear power stations. Brazil went for this option too as well as implementing its “Proálcool” (pro-alcohol) project in 1975 that mixed ethanol with gasoline for cars. And by the 1980s the oil provided by OPEC countries to the West had dropped from 90% to just 40%.
Also, in 1975, in an attempt to deal with the world-wide recession that resulted from the oil crisis, six of the West’s biggest players – America, Japan, West Germany, Britain and France – met in Rambouillet in France at the invitation of the French president, Giscard d’Estaing to discuss “common problems”. They were joined by Canada at a meeting the following year. Thus was born the G-7 and henceforth they would meet annually.
The Soviet Union was not really affected by what had gone on, it was a significant oil-producer itself. But it missed out from benefiting from the hike in the price of oil as its exports mostly went to eastern Europe at prices that were fixed to the average price over the previous five years. So, prices did climb but as it was spread over five years, eastern Europe was shielded somewhat, and the Soviet Union didn’t reap the profits it would otherwise have done. And with the Soviet Union’s invasion of Afghanistan in 1979 (plus the Islamic Revolution in Iran, the same year), the Gulf States returned to the American camp, so the Soviet Union didn’t gain politically either. Neither was China, the crisis came before its great development surge had got going (Mao would not die for another three years).
And now, with developing countries showing that they can kick back, and kick back hard. And with a Russian Federation rather than a Soviet Union, as well as a developed China, next week I’ll turn to the BRICS group.
BRICS
This week’s episode is going to take a close look at BRICS, the group formed in 2006 by Brazil, Russia, India and China, with South Africa joining the group in 2010 and with Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates invited to join at this year’s BRICS summit, it’s fifteenth, held in Johannesburg, South Africa. And it’s worth noting that the summit was attended by 32 other countries in total and that applications to join were received from 22 of them.
Let’s start by looking at some stats, because they show us a lot about the significance of the group. Now, these stats are the state of play as we stand now, i.e., before the other countries join.
BRICS countries account for just about 30% of the world’s land surface
40% of the world’s population – that’s 3.2 billion people, and growing
Their economies have more than 25% of the world’s GDP
And between 2003 and 2007, the growth of the four initial members accounted for 65% of the expansion of world GDP.
Though they do have some way to go to catch up with the West’s developed countries when it comes to GDP per capita (though wait until the OPEC states join)
But as things stand now, America’s GDP per capita is $76,000 – Now America has the most developed economy in the world, never mind the West, but let’s compare it with the BRICS countries
Russia’s GDP per capita stands at $15,000
China – almost $13,000
Brazil – almost $9,000
South Africa – almost $7,000
India – a little over $2,000
And all that’s important because its shows the spread of wealth in a
country, or the lack of it.
Looking ahead, it’s thought that when the new countries formally join the group, their share of the world’s population will rise to 47% and its share of GDP will rise to 36%, whilst it’s projected that they will have more than 50% by 2030
And its also worth comparing this to the G7s share of GDP which currently stands at 30%