Talking point
The BRIC countries and the "Beijing consensus"
October 12, 2010
After suffering significant political and/or economic crises all four BRIC countries embarked on a course
of fundamental reforms during the 1980s and 1990s that transformed their economies and succeeded in
boosting growth, largely by fomenting greater private-sector activity. By contrast, the financial crisis has
strengthened the influence of the “statists” and increased the allure of what critics have labelled the
“Beijing consensus”. The urge to extend the role of the state without a thorough analysis of the potential
costs and benefits of doing so should be resisted.
During much of the post-WWII period, the BRIC economies have either been very or relatively closed to trade and
they have tended to suffer from heavy state control and intervention. Naturally, the levels of state control and
economic restrictions have varied dramatically. After all, China and the (then) Soviet Union used to run statecontrolled command economies, while Brazil and India, in spite of significant economic restrictions and the
important role played in the economy by the state, had functioning, if restricted, markets.
While Brazil’s and Russia’s development model came unstuck
during the 1980s, China’s and India’s had never much “stuck”
in the first place – at least judging by the two countries’ level of
per capita income. Brazil and Russia experienced their highgrowth periods during 1945-1980, before their economies and
their respective economic models were engulfed in crisis. The
causes for the ultimate failure differ somewhat, but both
economies entered periods of stagnation because of
“excessive” – if admittedly varying – degrees of state
intervention and limited trade openness that ended up
undercutting total factor productivity growth. China and India,
by contrast, never experienced a comparable (per capita)
growth take-off until they started reforming their economies in
the 1980s and 1990s, respectively. India’s infamous “Hindu rate
of growth” perhaps best captures the relative economic
stagnation that characterised the four decades following WWII.
After having suffered significant political and/or economic crises
all four countries embarked upon fundamental reforms that transformed their economies and succeeded in
boosting growth. Brazil defaulted on its external debt in the early 1980s, after a decade-long external borrowing
binge that had helped sustain the import-substitution industrialisation strategy beyond its expiry date. A “lost
decade” ensued until the Cardoso administration (1995-2002) started implementing wide-ranging structural
reforms, including trade liberalisation and privatisation, and managed to defeat hyperinflation. The Lula
administration (2003-2010) finally managed to stabilise the economy for good, and economic growth started to
move to a tangibly higher level following the 2002 “transition crisis”.
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Talking Point
In Russia, following the break-up of the Soviet Union in 1991,
reformist governments transformed the command economy into
a market economy by way of a so-called “shock therapy” under
Yeltsin (1991-1999). Similar to Brazil, post-reform Russia
suffered a major financial crisis in 1998. Economic stabilisation
and growth take-off were finally achieved during the Putin
presidency (1999-2008) – helped, admittedly, by continuously
rising oil prices.
In the late seventies, China emerged from the political and
economic turmoil of the Cultural Revolution (1966-76) with a
pragmatically-minded leadership under Deng. The statecontrolled economy was in tatters and the time was ripe for a
new approach. Not only did it not matter if the cat was black or
white as long as it caught mice. Becoming rich became
glorious, too. Various types of liberalising reforms, perhaps
most notably the reform of township and village enterprises
(TVEs) in the late seventies and the establishment of special
economic zones (SEZs) in the eighties, brought about
fundamental economic change and set free a stunning
economic dynamism lasting to this day
In India, “liberalization by stealth” (Panagariya) started in the late 1970s and early 1980s and reforms continued
under the Rajiv Gandhi government (1984-89), notably the liberalisation of the “Licence Raj”. Economic reforms
received further impetus under PM Rao (1991-96) and FM Singh following the 1991 balance-of-payments crisis.
The liberalising reforms, conspicuously, helped accelerate per capita growth.
By the late 1970s and early 1980s, the various economic models had either failed after a relative period of
success (Brazil, Russia), or the realisation had emerged that the models had never worked in the first place
(China, India). Economic and/or political crises acted as a crucial catalyst for reform by allowing political leaders to
push through important reforms. One does not have to be of a neo-liberal persuasion to acknowledge that it was a
combination of economic reforms aimed at “more market” and “less state” that helped lift growth.
By contrast, the global crisis has politically strengthened the “statists” and has ideologically increased the lure of
the, what critics have labeled, the “Beijing consensus” (Halper). The “Beijing” as opposed to the “Washington
consensus” rejects the presumption in favour of (unfettered) “market liberalism” and assigns the state a central
role in economic development, mainly through state ownership in sectors that are deemed strategically important,
through significant government control over credit, through state support for “national champions” and through
state-owned investment funds (aka sovereign wealth funds).
After all, ad-hoc government intervention and, especially, “state-led” credit policies proved instrumental in limiting
the economic and financial fall-out of the 2008 global crisis. In Brazil, the next government will pursue a more
active industrial and financial policy and the Brazilian state will no doubt play a more prominent role in selected
sectors. In Russia, where parts of the economy are dominated by the state, the government is talking about
privatisation, but – like in China – this will at most involve selling minority stakes in “national champions” to
foreigners. Neither China nor India will significantly reduce state involvement in the economy in the coming years.
This does not mean that we won’t see any economic reform in the BRICs, but a significant reduction in the role
played by the state looks unlikely.
All four countries have fared relatively well in terms of growth over the past decade. It is therefore not surprising
that the dominant political forces seem to be taking an “if it ain’t broke, don’t fix it” approach. Admittedly, state
involvement is not per se a bad thing. In the case of market failure or in areas where the social returns exceed
appropriable private returns, for instance, state investment may even be desirable. There are also successful
examples of state-led economic development, even if failures have historically been far more common. Amongst
other challenges, states face time inconsistency problems and need to avoid capture by factional interests. The
more extensive and long-lasting the state involvement, the greater the risk of “capture” by rent-seeking interests,
and the greater the negative impact on economic growth.
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Talking Point
The role of the state in economic development is too complex to be adequately captured by a label. Nonetheless,
there is no denying that the “Beijing consensus” and its cousins in Brasilia, Moscow and New Delhi have thrown
down the gauntlet to the, often misunderstood, “Washington consensus”. This political reality notwithstanding,
BRIC history suggests the urge to extend the role of the state without carefully evaluating the potential costs and
benefits should be resisted. Intellectually, if not politically, the “burden of proof” should remain squarely on the
shoulders of the “statists”.
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Markus Jaeger +1 212 250 6971
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