The New Cold War
America, China, and the Echoes of History
The past two decades have been all about the BRICS: a group of five countries (Brazil, Russia, India, China, and South Africa) that soared to economic superstardom and gradually won geopolitical influence. But now, with their economies slowing down, those days seem to be over. What’s more, by some measures, the BRICS have squandered their years of plenty. Even as they poured money into building dynamic economies and becoming global leaders, they neglected to invest in their own populations. As a result, they are less far down the development road than many would have expected.
Nothing demonstrates the problem more clearly than a group of economies that have avoided it entirely. Mexico, Colombia, and Singapore have invested more in economic and social welfare than in becoming global leaders. As a result, these smaller economies seem to be doing better in some areas than the BRICS.
BIG BAD BRICS
By now, the story of the BRICS’ rise is familiar. Speedy development led to booming GDPs, per-capita incomes, foreign direct investment, and exports. The BRICS became less dependent on foreign aid and earned themselves seats at the geopolitical grown-up table, where they were expected to play grown-up roles in geopolitics.
The BRICS’ leaders took to their new roles with aplomb. Luiz Inácio Lula da Silva, Brazil’s president between 2003 and 2010, for example, gave lectures at the United Nations and at African summits on how to reduce poverty and prevent and treat AIDS. For his part, Russian leader Vladimir Putin has served up advice on everything from national security to regional economic development in Asia. Indian Prime Minister Manmohan Singh has brought stern leadership to the promotion of a liberal global trade order, and his government has signed bilateral trade agreements with Bangladesh, China, South Korea, and Nepal. China, too, has been more proactive than usual in providing economic advice to all those who will listen. Chinese leader Xi Jinping has even gone so far as to suggest and help fund the creation of a new Asian Infrastructure Development Bank. And South African presidents from Thabo Mbeki to Jacob Zuma have been proactive about promoting regional institutions such as the African Union’s Peace and Security Council, which was established in 2003 to help end conflict, ensure security, and protect national sovereignty.
The BRICS have also strived to become global leaders in foreign aid assistance. At a 2013 summit in Durban, they agreed to create the BRICS Development Bank. With a fund of around $100 billion, the BDB provides grants and loans for finance and infrastructure development in developing nations, with few conditions attached. Beyond the BDB, the BRICS have also helped fund hundreds of multilateral economic development initiatives, IMF projects, and multilateral health efforts, such as the Global Fund to Fight HIV/AIDS, Tuberculosis, and Malaria. Russia leads the pack, providing the fund with an estimated $297 million in 2012, followed by China at $25 million, South Africa at $10.3 million, and India at $10 million.
As the BRICS’ economies grew and their donations increased, so did the international financial community’s efforts to get them to give more. In 2011, for example, the IMF approached Brazilian President Dilma Rousseff for financial assistance for Greece and Portugal. Brazil agreed to donate $10 billion. After that, the IMF asked the BRICS group to provide more funding to help boost IMF reserves and potentially to aid Europe.
The BRICS’ focus on becoming global leaders has come at a price. They have paid less attention to domestic policy -- especially health and education policy, which, because of the BRICS’ large sizes, are usually handled by local governments with limited oversight. Now, facing economic slowdown, the BRICS are facing neglected populations as well.
Before it was a BRIC, Brazil was mired in deep economic crisis. Its quick recovery surprised many, but it has made little progress on human development since then. A case in point is its failure to build an equitable and effective health-care system. Nearly 70 percent of the population is dependent on its universal health-care system, called SUS, but government funding for it has been minimal. The federal government has also neglected to help local governments manage SUS hospitals and has provided little cash for basic necessities, such as beds and x-ray machines, health-care workers, and medicine. As a result, in 2012, an estimated 40 percent of the population lacked access to essential medicine.
The government’s education policies have been just as lackluster. Local governments, which have been given responsibility for basic education, have not been able to adequately invest in primary and secondary schools. There has been little effort to regulate teaching qualifications or to provide sufficient training, and so the overall quality of teaching has declined. Today, over 10 percent of the population is illiterate. Even with Rousseff’s recent commitment to increasing funding for education, some worry that Brazil’s labor force will soon lack the technical skills needed to run the country’s economy.
In the face of all these challenges, civil society has become increasingly angry that its government is focusing on giving foreign aid when need at home is so great.
Russia, meanwhile, has its own health-care demons. Although the government provides universal health insurance, government expenditure for health has decreased from 7.1 percent of GDP in 1997 to 6.2 percent in 2011. And last January, the Putin administration decided to reduce the federal health-care budget still further. The reason: increased military spending. Yet citizens already lack access to essential medicines, and doctors often require bribes in exchange for care. (That might be due to doctors’ measly salaries of $300 a month.) It should not be surprising that Russian health remains poor. Adult life expectancy is well below the OECD average, at 64 years for men and 76 for women. Heart disease and cancer are on the rise, as are HIV/AIDS and tuberculosis.
Moscow has also failed to invest in education. Grand pronouncements of new funding schemes are more government PR than sustainable development. Although federal spending for education has gradually increased, the Putin administration decided to reduce it. Once again, the cuts were made in the name of military spending. Russia should have other priorities. Unless the quality of Russian education improves; unless teachers encourage students to major in important subjects, such as mathematics (a small minority of college freshman plan to do so); and unless universities train students to work within the global economy, Russia may see its workforce competitiveness decline. Coming on top of an overall population decline, that is a scary prospect.
As in Brazil, Russian civil society has become increasingly disheartened with the government’s ongoing focus on providing foreign aid. In a 2010 Levada Center opinion survey, for example, 66 percent of Russians believed that, due to ongoing domestic needs and economic challenges, the government was not in a position to be increasing foreign aid; 82 percent believed that Russia should be more concerned with its domestic problems than with providing aid abroad.
In India, too, human development has been an afterthought. India spends about 1.2 percent of its GDP on health care. Federal spending for hospital infrastructure has declined, and approximately 69 percent of the country’s Primary Health Centres, state-owned clinics for general health care and minor surgeries, have only one bed. Consequently, most citizens have either paid for health-care services out of pocket or have purchased private health insurance. Despite being one of the world’s largest producers and exporters of generic medications, Indians have less access to essential medicines than nearly every other nationality.
Education policy had also been lacking. Government spending marginally increased from 10 percent of total government expenditure in 2009 to 11 percent in 2011. Yet the increased spending has not kept up with growing local demand. Schools often lack adequate infrastructure, such as desks and chalkboards. Approximately 89 percent of schools having no toilets and 59 percent are without drinking water. There is a dearth of qualified teachers and only a quarter of teachers in public schools show up for work on a regular basis. Adult literacy is still low, reaching only 73 percent in 2011, and approximately 70 percent of the population lacks any education beyond primary schooling.
Because of these challenges, the government has had a difficult time mustering political will for increasing foreign assistance. But it nevertheless wants to use foreign aid to bolster its image as a world power. Meanwhile, the government has even decided to refrain from receiving any more foreign assistance from the British government, notwithstanding increased poverty rates and inequality.
China’s failures are similar. It has no universal health-care system. It wasn’t until 1998 that the government even began to provide subsidized health insurance for urban residents through the Urban Employees’ Basic Medical Insurance system. Rural residents got their own program in 2003. Those programs were complemented in 2007 with the Urban Residents’ Basic Medical Insurance program, which covers the unemployed, students, and retirees. Overall, government spending on health care has more than doubled in recent years, from $156 billion in 2006 to $357 billion in 2011. That doesn’t mean that the government has been providing adequate health care, though. In state-run hospitals, there is an increasing shortage of general practitioners for primary health care. There is often a long waiting period for medical attention, and rural residents often lack access to the same medical technology, beds, and equipment as urbanites.
China’s education policies are somewhat more promising, however. In 2012, the government finally reached its goal of spending four percent of GDP on public education. In 2013, moreover, the central government waived school enrollment fees for poor children, and federal grants continue to help poor children obtain scholarships to good schools. Nevertheless, major challenges remain. There is still an urban-rural divide in access to quality public schools. And families are often forced to spend out of pocket for private education, which has increased inequality in access to education.
Some Chinese officials are miffed that party leaders are focusing so much on helping other nations overcome their health and education challenges. Recently, for example, senior health officials admitted that China needs to focus on its domestic problems before trying to solve the world’s problems.
Like in its BRICS counterparts, in South Africa, federal spending for health care has increased over the years. That, in part, reflects the government’s commitment in 2009 to implement universal health insurance. But there has been no matching effort to ensure that public hospitals have sufficient medical equipment and adequate personnel. Aaron Motsoaledi, the country’s health minister, stated that the quality of public health care is “often totally unacceptable.”
Like in health care, South Africa has continued to increase the federal budget for education, bringing spending up to about nearly 18 percent of government spending, one of the highest rates in the world. Yet due to corruption and mismanagement, the money has amounted to naught. In 2011, 3,544 out of 24,793 public schools had no electricity; 2,402 no water; and 19,037 no computer centers. Today, the World Economic Forum ranks South Africa’s student performance in math second to last in the world. Although university enrollment rates have increased from 74,000 in 1994 to 127,000 in 2007, there is a 45 percent drop out rate. Skilled labor supply is thus in short supply.
Like South Africa’s BRICS counterparts, the government has had a hard time scaling up its foreign aid while domestic health and education problems linger -- as well as unemployment, an ongoing shortage of human resources, and crime. South African citizens have become increasingly concerned with sending foreign assistance to other nations when there are so many needs at home.
HEALTH AND WELLNESS
Not all the world’s emerging economies have fared so poorly. Some, including Colombia, Mexico, and Singapore have locked in persistently high levels of economic growth and have made strategic investments in health and education. They have been able to do so because they have not aspired to become global leaders. Colombia, for example, has refrained from trying to shape international policy. In its ongoing efforts to curtail the influence of terrorist guerilla armed forces and drug trafficking, the government has focused on internal and regional security cooperation, along with strengthening the economy, increasing employment, and curtailing poverty. Mexico has likewise been reluctant to join in international policymaking, a stance that has a rather long tradition there. Although Mexico’s growing economic power certainly could provide it greater hand in international financial and environmental policy, the government, like Colombia’s, has instead focused on strengthening its economy and infrastructure, and suppressing ongoing drug wars and violence. Likewise, although Singapore has participated in UN and other efforts to promote peaceful international cooperation, it has refrained from following in the BRICS’ footsteps and providing international policy advice and influence at international venues.
Most tellingly, all these countries have avoided providing a substantial amount of development aid. Colombia gives very little by way of multilateral and bilateral assistance. For example, last year it provided almost $8 million dollars to multilateral food programs. In 2011, Mexico’s government created the Mexican Agency for International Development Cooperation, which provides funding for approximately 341 projects region-wide in the areas of education, economic development, culture, and scientific and technical assistance. Singapore has only a very small bilateral program, the Singapore Cooperation Programme, which provides limited funding and technical and training support to countries in the Asia-Pacific Region. Although it could afford to give more, it doesn’t
In general, moreover, agencies such as the IMF and the World Bank have never expected these four countries to play a donor role. Mexico is perhaps the only exception, when, in 2012 the IMF asked for and received Mexico’s assistance in providing funds in order to help contain Europe’s debt crisis.
Because of this, it seems that Colombia, Mexico, and Singapore have been able to focus more on domestic policy -- an easier feat for each, to be sure, since they are much smaller and not nearly as decentralized as the BRICS.
Between 1995 and 2010, for example, Colombia has increased health care spending from 7.34 percent of GDP to 7.59 percent. This will likely eventually prove unsustainable, especially if there is an economic downturn. But, for now, Colombia has a very generous health system. Today, approximately 96 percent of the population has health insurance. The number of state-owned hospitals increased from 4,466 in 2004 to 4,602 in 2009, and the number of beds for intensive care increased from 4,985 to 9,294. The number of physicians increased from 0.96 per 1,000 residents in 1990 to 1.47 per 1,000 in 2010. And finally, access to essential medicines has increased for both chronic conditions and communicable diseases, such as AIDS. Although challenges remain, including the overall quality of health care services (especially in rural areas) and the financial sustainability of the system, these policy efforts have led to a sizeable reduction in health care inequality.
Colombia has also made noticeable improvements in education. It has increased spending on education from 1.73 percent of GDP in 1980 to 4.5 percent of GDP in 2011. In 2011, it allocated an additional $513 million for the construction and reconstruction of approximately 200,000 schools. Today, primary school enrollment is at about 90 percent, and secondary school and college enrollment rates have risen.
In recent years, Mexico has strived to develop a robust economy while investing in social welfare policies. Government spending for health care increased from about 5.07 percent of GDP in 2000 to about 6.16 percent in 2011. In addition to providing health care services through the national Social Security Institute (mainly for employed workers), this spending has gone toward ensuring universal coverage through the Seguro Popular policy initiative of 2003, which guarantees access to health care for the uninsured. The country also allocated of $5.3 billion in the last few years, to build, expand, or refurbish more than 2,750 medical units. Meanwhile, access to essential medicines has increased: in 2002, only 55 percent of drug prescriptions issued by government-run outpatient clinics were completely filled, increasing to 79 percent in 2006.
The government has also continued to invest in education. As of 2010, its education spending was 6.2 percent of GDP, higher than Brazil (5.6 percent) and Russia (4.9 percent). There are still problems -- 75 percent of primary schools do not have computers or functioning libraries -- but the current administration has allocated an additional $900 million to fixing those problems. Today, Mexico also has one of the highest primary school enrollment rates in the world (99 percent of four-year-old children are enrolled in primary education), notwithstanding its struggles with high upper secondary school dropout rates.
Singapore has minimized health-care expenditures over time, from 5.1 percent of government spending in 2009 to 4.6 percent in 2011. This reflects Singapore’s unique health-care system, which combines government subsides for public health with compulsory corporate savings accounts and individual savings accounts. Together, these programs have protected individuals from catastrophic health-care expenses while financing medical procedures and surgeries. The government continues to invest in hospital infrastructure. Access to essential medicines has also increased, and life expectancy and other health-care indicators continue to rise.
Singapore has an outstanding track record when it comes to education. Since 2007, it has increased education spending by approximately 40 percent, from $7.5 billion in fiscal year 2007 to $10.5 billion in fiscal year 2012. Perhaps the biggest factor contributing to Singapore’s success is the government’s dedication to investing in its teachers. It selects pools of applicants from the top university graduates for entrance into the National Institute for Education and then provides those who make it with free tuition, a monthly stipend, and a guaranteed job upon graduation. The country continues to rank highly in international academic assessments: last year, it ranked second overall in the in the OECD’s 15-year-old PISA math achievement tests and third in PISA reading comprehension exams. All in all, Singapore has developed the skilled labor needed to match its thriving economy.
THE NEXT STARS
When comparing emerging economies, it is worthwhile to consider more than just economic growth rates. The nations' capacity to develop thriving welfare systems and ensure human development is also key. From this perspective, it seems that Colombia, Mexico, and Singapore will outperform even the BRICS. These non-BRICS nations have figured out that sustaining high economic growth rates requires investing in people and, unless the BRICS reach that conclusion as well, they will not do as well as observers might expect.
In that sense, the welfare-focused nations of Colombia, Mexico, and Singapore might make for better models than the BRICS for the rest of the developing world. They are less interested in becoming global powers and are, instead, focused on social welfare, something that other smaller emerging economies, such as Ghana, Indonesia, Malaysia, Nigeria, Poland, and Thailand can certainly appreciate.