BRICS Ascendant

Readers of most Newspapers in the postindustrial economies, and the wider spectrum of society that half-notice news headlines on television and radio, have been left unaware of the fact that the last days of March produced major news in the field of Political Economy, from Delhi. A meeting of the Heads of Government of China, India, Brazil, Russia and South Africa disappointed US and EU delusionists who hoped that major areas of disagreement - and different perceptions of their national interests - would cause this group of countries [commonly called the BRICS] to come to no practically-useful agreements. They instead issued their Delhi Declaration summarising a developing shared view of the state of the global economy, an increasing frustration with the unfairness of the nineteen-forties institutions that regulate world affairs [insofar as such matters are regulated], and a shared determination to gain appropriate recognition for their group - and for its members individually - in global institutions.

Their importance in the global economy has already gained recognition as a fact, as more of the goods in a typical European or American hardware store are marked as having been made in some of those countries; and oil, crops, minerals and other 'primary products' from those sources are increasingly important. China has gained control of the global market in 'rare earths' as well as a massive market share in simple manufacturing. Indian firms control globally renowned brands of high-quality cars and have exported their software building and managing skills into the highest technology laboratories and factories worldwide. Brazil is increasingly gaining respect for the balance between sectors that is being achieved as it grown rapidly. Despite the threat to economic stability that is posed by Zimbabwe-style pressure to dispossess 'white' firms and farms that comes from the 'left' of the ruling party, South Africa has managed to display economic data that currently justify their membership of the club. Enemies stress the weaknesses of Russia - declining population, oligarchy, corruption, the failure to establish 'real democracy' and the dubiety of the rule of law - but the combination of military strength and natural resources that always provided the basis for Tsarist power is still enough to ensure the global significance of the biggest country on the planet.

The Delhi group asserted that half of the world economic growth that is forecast for the next few years will take place in those countries. When 'the west' was in the lead, its Economists and politicians extolled their role as 'the locomotive' for the world economy: the concept has quietly been forgotten now that the BRICS can claim to be the motive forces for the present era. The most influential of the post-war institutions, the International Monetary Fund [IMF], was structured to serve the victorious wartime allies and even after many revisions to reflect changes in the world [and much weakening of the role of the US dollar] the EU together has 36% of the votes, the US still has 17%, and the BRICS together have just 11%: while their turnover is 28% of the global economy [and rising quickly as the west stagnates]. The Delhi assembly criticised this, demanded a reorganisation of the United Nations, and especially of the permanent seats on the Security Council, to reflect the shift in power. The rigidity of the World Bank - and the probability that yet another American would become its chairman - led to the BRICS examining the possibility of creating a South-South Development Bank through which they could lend money to each other and their emergent-country clients.

If the old-world institutions do not open themselves to recognition of the shift in the basic facts of Global Political Economy, they will compel the BRICS to set up their own parallel institutions: and the potential of global institutions to foster Peace among the Nations, which was promised to the whole world by the victors of 1945 - which included China and Russia and Imperial India - will be vitiated. The BRICS have the resources and the ability to go their own way: within the first half of the present century the Chinese and Indian economies will both be larger than the American. If these powers are not welcomed with due respect into the global institutions, the postindustrial countries will be much the loosers.

Boxed Patents

One of the good things that the Gordon Brown government did in the UK was partially to recognise that the economy has no hope of getting out of the hole that the political class has made for it unless the state recognises and rewards the creation of 'intellectual property'. Unsurprisingly, they did not understand the simple basic nature of  ik, as explained in my PPE [see link from this site], but this was a step on the road to rational management of the most important of national resources.

Under the coalition the grasping hand of the Treasury has been allowed to influence the deign of the concept for protecting British intellectual property, and consequently the government announced their intention to create a 'patent box' . Under this category a company [or possibly a high-net-worth individual] would be able to secure a patent, and to implement it into production, and get tax exemptions and reductions at various stages in the process. The 2010 Coalition government declared that they would implement the plan and a few companies, including Glaxo, entered discussion with the government about using the process. Glaxo planned to extend their UK factories under a Box agreement specifically to exploit a new product for which it was in process of securing a patent. The company announced its decision to invest in the UK on Budget Day 2012 [as featured in the previous Post here], to accommodate the squalid spin doctoring of sad politicians who would seek any propaganda point in the absence of evidence of real economic progress.  In this case, there was real potential in the investment. But [as already noted] the Patent Box is not the only inducement to locate industrial plant in the UK. British labour is becoming relatively cheaper as Chinese workers begin to enjoy consumerism with larger wages, and the tax system in the UK is becoming a little less oppressive. UK and EU Labour law and the omnipresent intrusion of inept and officious 'health and safety' regulations are still deterrents to investment, especially in physical production. But steps are being taken in the right direction, albeit they are hesitant and indecisive.

The bigger issue that is disclosed by the Glaxo announcement is that safeguarding intellectual property is becoming the most important consideration of companies in the global economy: and while the US government has become obsessive about China's 'theft' of such property the EU and European governments have still not grasped the heart of this issue. The leading British ministry, BIS, has focussed on reducing the period between the filing of a patent application and the manufacture of the product; which is a good thing if it can be achieved while maintaining the secret.

But the entire positive story is yet to be told: that Brits, including Glaxo research teams, are unusually fecund in producing both patentable inventions and marketable concepts. The world's leading advertising agents are British, and several of the world's best-known and highest-regarded brands are British: yet a major feature of British business is the sad fact that while ideas continue to bubble up, and patents are registered, there is a dearth of funding to develop products fast enough. Firms  are sold in their infancy, usually to foreign owners who then reap the rewards for developing the product and its marketplace. To concentrate exclusively on implementing patents is to miss the point.

New patents can improve existing brands, or can be the basis for a new creation of brand value. The establishment of a new brand partly depends on marketing, partly on spontaneous shifts in fashion, partly on consumers' incomes increasing enough to embrace the new  consumer experience in addition to the existing standard of living. Investment must be made, often over a series of years, in the development of brand reputation as well as in the technicalities of material manufacture. Investment in systems patents and copyrights, brand-names and trademarks, is needed: these aspects can be more costly than the technical patents that are embodied in a material patent. The total suite of investments is needed to build a brand; otherwise patent-owners who are discouraged from developing their firms and their brands by lack of investments will still be tempted to cash-in their assets and sell the firm and its intellectual property to be developed in foreign hands. The British government needs to move a lot further to meet the need!

China, Europe and Quons

Over the past month Chinese ministers and bankers have been quoted a lot in the European press as they have used increasingly uninhibited terminology in which to decline the privilege of putting billions of their dollars into various bail-out funds for the euro. It has been 'understood' that Chinese see many Europeans as workshy, many European products as imperfect or outdated, and European standards of living as excessive when set against national productivity and per capita output.

Economists, bankers and politicians have reportedly bought-in to the 'idea' that Britain and other laggard countries in the EU should increase their exports to China. More nuanced thinkers among these elites have particularised that the exports should be of 'manufactures': perhaps of the kinds that Germany's successful sales to China have comprised for the past few decades. The primitivism of that thinking is pathetic to behold. China has been the global powerhouse in manufacturing for two decades: it has no need to import those commodities that it has been so successful in exporting. On the basis of that success China has grown thousands of billionaires and hundreds of millions of 'middle class' consumers. These people don't think in terms of consuming 'manufactures': they want brands. 


Economists' models of markets have never coped with the concept of brands: with the palpable fact that capable buyers do not haggle about prices for those consumer experiences that are most highly desired. The dogmatic theoretical framework that was developed in Europe [and adopted in the USA] between 1863 and 1875 - and is now seen by the Chinese as the flawed and failing 'European business model' - is a huge inhibition on the post-industrial economies in trying to plot a course for the future. Although they do not yet know the term, the Chinese know that they want to buy quons: more quons per head per year as their purchasing power increases. To find out what quons are, and to see that they are the key to Europe's recovery, read Personal Political Economy: accessible by the link from this blog..