Page 32 - bne IntelliNews monthly magazine October 2024

32 I Cover story bne October 2024
alone account for 35% of global GDP in nominal, not adjusted, terms, whereas the G7 accounts for 30%, as Putin keeps pointing out. And the BRICS have ten times the population of the G7. Russia remains by far the largest consumer market in Europe with 145mn people, followed by Germany with 83mn.
The BRICS+ club has already been expanded to include 10 members at last year’s gathering and 17 more countries have applied to join at this year’s summit hosted by Russia in Kazan in October, with another 22 countries in the wings. Azerbaijan, Indonesia, Malaysia and Turkey are amongst those that are expected to join this year. One of the first things the expanded BRICS+ intends to do is build a BRICS currency to replace the dollar in international trade.
Colonialism and comparative advantage
The French are good at making champagne and the most profitable British export is the Rolls Royce car. A basic tenant of economics is “comparative advantage”: instead of Frenchmen making champagne and cars, they should put all their effort into just making champagne and leave the Brits to make the Rolls Royces, who can import all
the champagne they need. The net result is both the French and the British net-net have more champagne and cars. Sanctions have destroyed this equation that is at the heart of the globalisation.
Running even deeper than comparative advantage is the net transfer of wealth from the Global South to the rich markets of the North. As bne IntelliNews reported, for the last 500 years or so there has been a net transfer of wealth from the Global South to the developed world, pioneered in the empire-era. Economists say there have been three globalisation periods: 1870-1914, 1944- 1971 and the most recent, which is still ongoing, started in 1989 but is winding down now.
The West exports some 90% of its manufacturing capacity to the Global South but the Global South only receives 21% of the revenues generated, according to a study published in Nature Communications in July.
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In effect, the Global South has exported its human capital to the West and, thanks to the huge discrepancy between wages, it is very badly paid
for it, according to the study. This colonialist transfer is the basis of the West’s relative wealth compared to the Global South and the raison d'etre for empires, which have been replaced by multinationals.
This set-up is starting to finally break down, first due to the onshoring
due to the pandemic and then to the “friendshoring” due to the geopolitical tensions in an increasingly fractured world. The same study found that not only are the manufacturing exports no longer just targeting low-cost, low-skill manufacturing, but increasingly the emerging markets are providing high- skilled production, and wages are rising in these countries.
This story has already played out in Poland, where wages have risen to match the EU average as firms have gone up
the value chain, making Poland one of the most robust economies in Europe. And it also played out in Russia, where wages have risen relentlessly from next to nothing in 1991, after Putin spent a decade boosting public sector wages
by 10% a year in the noughties to close the burgeoning gap between the public sector and private to avoid social unrest. The average salary in Russia today is just under RUB90,000 ($964) a month, which is $2,185 in PPP adjusted terms, which is almost exactly the same as the EU average salary of €2,006 ($2,240). However, there are still significant regional differences. In particular, salaries in Moscow are
Percentage contribution to China's GDP
real estate
much higher and can reach RUB360,000 ($4,700) a month and more for things like IT experts, bankers and other professional jobs, according to the Average Salary Survey. Overall, Russian’s incomes are now on a par or higher than that of the EU and salaries in the capital are on a par with those in cities like London, Paris and Berlin.
China is also well advanced in this process. Its rapid catch-up in the last few decades has been driven by being the “factory of the world,” but the relentless rise of wages means about
a third of the population now earn Western standard middle-class wages. China has gone from “made in China” to “created in China.”
Russia used to import its manufactured goods from China like everyone else, but in the boom years of the noughties, Chinese wages overtook Russian wages, spurring an expansion in light manufacturing investment in Russia as it became cheaper for Russians to make the goods themselves. Under China’s new economic development plan the emphasis has switched from an export- orientated model to an innovation- orientated model. The share of Chinese GDP from high tech is expected to exceed that of real estate in the next two years, when just six years ago real estate was still twice that of high tech, Bloomberg reports.
All of the countries of the Global South are being lifted by the same tide, but increasingly they resent the colonialist model that has robbed them of their human capital wealth, and they are
high tech
Source: Bloomberg Economics