Seventy-two years ago in the mid-twentieth century, Englishman and thought leader in economics, Sir John Maynard Keynes, one of the principal designers of the modern global financial system, joined the debate as forty-four nations were negotiating a monetary system to govern monetary relations among independent nation states at the Bretton Woods Conference.
In the midst of World War II, the outcome of the conference was to create the International Monetary Fund and the International Bank for Reconstruction and Development, which today is part of the World Bank. Both still remain powerful forces in the global economy today.
But while forty-four nations participated in the discussions, only two were dominant: the United States of America and the United Kingdom. This made discussions – including compromise – difficult. As Keynes noted in his concluding remarks: “We the delegates of this Conference, Mr President, have been trying to accomplish something very difficult. It has been our task to find a common measure, a common standard, a common rule acceptable to all and not irksome to any.”
The USA, which controlled two thirds of the world’s gold at the time, insisted that the Bretton Woods system should depend on both gold and the US dollar as standards. But, according to Keynes, nations were not to be obliged to set monetary policy according to how much gold they had, but according to their economic needs. Keynes proposed the formation of an international clearing union or a global bank. His proposal would have established a world reserve currency, which he called “bancor”, administered by a central bank vested with the possibility of creating money and the authority to take actions on a much larger scale.
His original proposal was based on equality among the members of the union. He warned that it would be catastrophic if any of the member countries were to dominate the clearing union.
Keynes recommended that both debtors and creditors change their policies. The union would persuade creditor nations to spend their surplus money back into the economies of debtor nations; that is, countries with payment surpluses had to increase their imports from the deficit countries, build factories in debtor nations, or donate to them – and create a foreign trade equilibrium. Keynes’s plans were sensitive to the needs of the developing nations of the world.
Commenting on this idea, the British economist, Lionel Robbins, reported that it would be difficult to exaggerate the electrifying effect of Keynes’ proposals. Nothing so imaginative and so ambitious had ever been discussed.
Economists all over the world saw that Keynes had cracked it. Great Britain adopted Keynes’s solution as its official negotiating position.
However, the US, as the world’s biggest creditor, objected. The response of Harry Dexter White, head of the American delegation at Bretton Woods was: “We have been perfectly adamant on that point. We have taken the position of absolutely no!”
Instead, the US proposed the International Stabilisation Fund, which would impose no limits on the surplus that successful exporters could accumulate, and the reserve currency became the US dollar. In this way, the US dollar took over the role that gold had played to keep market exchange rates within 1% parity. The USA prevailed.
The International Stabilisation Fund became the Monetary Fund. The International Bank for Reconstruction became the World Bank. The IMF was to become the keeper of the rules and the main instrument of public international management. It advised countries and lent reserve currencies to nations who incurred debt.
Harry Dexter White also succeeded in awarding the US special veto powers over any major decision made by the IMF and World Bank. The consequences, especially for poor, indebted countries, were catastrophic. As American economist, Joseph Stiglitz, observed, the fund compounded existing crises where they had not existed before. It destabilised exchange rates, exacerbated balance of payments problems, forced countries into debt and recession, and destroyed the jobs of tens of millions of people.
Editor of the economist magazine, Geoffrey Crowthen, had warned in 1944 when he said: “Lord Keynes was right…the world will bitterly regret the fact that his arguments were rejected.”
The Bretton Woods Agreement was signed by all, except the Soviet Union. In 1971, the USA unilaterally terminated the convertibility of the US dollar and brought the Bretton Woods system to an end.
Today, the five developing nations, Brazil, Russia, India, China and South Africa (BRICS) have established a regime that has organised itself to contribute meaningfully to international financial dialogue. BRICS is able to showcase opportunities and, through this collaborative approach, is able to strengthen and promote economic development, trade, business, and investment ties among these countries.
BRICS represents 42% of the world’s population and has a combined nominal GDP of US$ 16 trillion. BRICS has developed a unique monetary order to boost economic growth and development. Xi Jinping, the President of China, said that a “Global economic governance system must reflect the profound changes in the global economic landscape, and the representation and voice of emerging markets and developing countries should be increased”. Thus, BRICS has positioned itself as a body that can fundamentally shape socio-economic growth and development for almost half of the world’s population.
There have been some significant steps taken, in particular the launch of the New Development Bank, which has already started funding key projects. The momentum, however, needs to be maintained. As Prime Minister Narendra Modi, of India, said: “We have now reached a level where we should be even more ambitious. We should focus on more tangible mechanisms and outcomes. Make BRICS a platform of Impact.”
The New Development Bank creates the possibility for BRICS countries to achieve the economic growth and development objectives of our respective countries by providing stimulus packages and infrastructure initiatives. It aims to be aligned with BRICS governments’ economic policies. In South Africa, for example, the New Development Bank aims to align its activities with our National Development Plan.
A key enabler of this vision is business. Since its formation in March 2013, the BRICS Business Council has proven to be an effective platform for strengthening and promoting economic, trade, business, and investment ties among the business communities of the five BRICS countries and, for South Africa, with the broader African region.
Our overarching goal as the South African BRICS Business Council is, therefore, to bring tangible projects to fruition more quickly and to strengthen the interface between the governments and private sectors of the BRICS economies. The regular dialogue between business and government that is enabled by the council and its various working groups has brought to the fore the key challenges that business feels are impediments to greater cooperation. The initiative has successfully created the space to allow business to make recommendations to government on how to address these challenges.
The BRICS Business Council needs to ensure that we are continually addressing our critics and demonstrating, through the showcasing of concrete initiatives, that the Business Council and the broader BRICS initiative are successful and are also making a significant contribution to growth and development in our respective countries.
To achieve this, the South African BRICS Business Council aims to focus on the following programmes:
- Insurance and re-insurance cooperation
- BRICS Agricultural seed bank
- Electricity generation and Transmission infrastructure in Africa
- BRICS information technology connectivity
- African Union’s North South Development Corridor
- Oceans economy co-ordination
- Co-operation projects on manufacturing in aviation
- Manufacturing and industrialisation programmes
The South African BRICS business portal that is being launched today is a mechanism aimed not only to provide information to other BRICS Business Councils, member companies, and governments, but also to provide a platform for communication and collaboration at a national and continental level. The portal has a facility where South African companies can register and then gain access to relevant information. It is also linked to a Twitter account and Facebook page, and these social media channels provide a mechanism to amplify company communication and exposure and for potential investors to find information about key initiatives. Through the launch of the South African portal, which is linked to the international BRICS portal, we are taking another step on the road to economic growth and prosperity in South Africa.
I would like to thank Transnet, who sponsored the development of this portal, and International Media, who facilitated its development.
Special thanks must also go to the members of the South African BRICS Business Council, Mr Sandile Zungu, Ms Khanyisile Kweyama, Dr Iqbal Surve and Mr Stavros Nicoloau who contributed their time and information to the successful development of the portal. Mr Patrice Motsepe, the founding chairperson of the BRICS business council deserves special mention for the trailblazing work that he did in the formative years of the BRICS Business Council.
In closing, I would like to quote Nelson Mandela, who said: “Since my release, I have become more convinced than ever that the real makers of history are the ordinary men and women of our country; their participation in every decision about the future is the only guarantee of true democracy and freedom.”
Let us be those men and women who collectively make history and leave a lasting legacy for the success of Africa’s renaissance.
BRICS gives us the power, as John Maynard Keynes suggested seventy-two years ago, to make a unified and significant difference to millions in the world.
23 September 2016