302. Can the West bridge the gap with China, India and the BRICs+ nations?

0:00Robert Peston:Do you think Britain has been pretty effective in cultivating decent relationships? I think we could do a lot better. Again, one of my frustrations of the decade since Brexit, it was obvious that leaving had caused a big economic hit the way it has. Two places that massively outperformed our forecasts, not just what happened, is India and China. Every other region of the world, including the United States, actually underperformed what we suggested was going to happen over the past 25 years. And that is the reality of what's going on in the world economy. We have to somehow acknowledge that these countries think they need a bigger voice in global governance.

0:44Robert Peston:Does it just not matter whether a state is a democracy or not? It's a very good question and an extremely important one. Support for this episode comes from Octopus Energy and the founder and CEO Greg Jackson is with us now. And I want to ask about oil prices. Obviously, they're very high at the moment. What's your advice for a company worried about them? First of all, if you use a lot of electricity, it may be possible to get electricity tariffs where you get charged less at certain times of day. And a lot of businesses have been able to benefit by shifting their electricity consumption. They still use as much energy, they just pay less for it.

1:21Of course, things like heating space can be very expensive and finding ways to do that more efficiently by heating to maybe 18 degrees rather than 21 can make a very big difference. But of course, look, the real solution is that Britain needs to escape from this dependence on the global fossil fuel price. And that means more electrification, disconnect our electricity price from the gas price and ultimately get more of electricity from British resources. Nice one, Greg. Thanks for explaining that. Right, we're going to go to the next one.

2:19Visit your nearest Croc store today. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. The episode is brought to you by Google Chrome.

3:00Hello and welcome to The Rest is Money with me, Steph McGovern.

3:03Robert Peston:And with me, Robert Paston. And, you know, you'll all be able to see that I'm not in a normal place. I'm actually in Ankara in Turkey, where NATO is having its summit of world leaders. Keir Starmer is here at his very last international conference of any importance as prime minister. Donald Trump is here. Macron is here. Broadly, every Western leader of importance is here. I think he's not here. And it just sort of highlights, it's one aspect of the sort of divides in the world. The people who are not here are countries that are on the rise. whether it's China or India or much of South and Latin America or much of Asia.

3:50Robert Peston:They are not represented here. And that's the legacy of the fact that NATO was created to defend essentially the West after the Second World War, Europe after the Second World War. But it sort of highlights this divide between the rich countries and the rising countries. And the great expert on all of this is Jim O 'Neill, who's a friend of this program. He's often on Lord O 'Neill. And I'm delighted he's joined us today because you've actually set up a new think tank, which actually focuses on what you think is actually the widening gulf between that group of companies that you coined as the BRICS, now the BRICS +, and I guess the G7 countries, which are the rich developed nations.

4:37Robert Peston:Why are you particularly concerned about this divide at the moment, Jim? There are many factors that have accumulated in the past few years that have concerned me. And I'll give you a specific example. But at the core of it is effectively what you said without mentioning the phrase G20. One of the very, very few positive things that's come out of global policy development this millennium to date, forced by the great financial crisis, was the role of the G20. And that was done by President George Bush. It actually existed technically as an organization already, but he brought it to life because it included the BRICS.

5:23and to his credit and those that followed immediately including Obama and of course George Gordon Brown here in the UK they realized you can't solve genuine global issues and you unless you have these big rising powers um with a with an important seat at the table and um the specific example that followed that in uh in the towards the middle and back end of COVID I I was asked by Mario Monti to be a commissioner on something that became known as the Monti Commission, which was the WHO Europe thing, to try and make sure the fallout of future infections wouldn't be anything like the catastrophe that that was.

6:06And one of the ideas Mario and I dreamt up was something we called a Global Finance and Health Board, which was copying the Global Stability Board that came out of, Financial Stability Board that came out of the 2008 financial crisis, which has been specifically actually quite a big success in terms of global financial stability. And that idea was adopted by the Italian presidency of the G20 that year. And just as importantly, the G7, effectively, although some were more eager than others, embraced it as one of the, and it was going to be one of the three initiatives of the Italian presidency.

6:46to my amazement and mario's at the very last so-called g20 sherpas meeting the brics country is actually candid and i and everybody's looking at me saying well these are your friends and you've made the idea up with mario how come they're not agreeing to it and i will have to say i was rather surprised and confused and then when i delved the answer was yet again and this is because the g20 had started to deteriorate dramatically. This is the old industrialised countries dreaming up an idea and telling us what we should sign up to and not including us as part of the discussion. And I couldn't believe it.

7:25And then when I really thought about it, there was a sort of element of truth of this sort of very subtle and not deliberate underlying almost colonial overhang of, you know, yeah, you guys are doing a bit better. Well done. And we'd love to do some trade with you a bit more to help us, but listen to what we tell you, and then et cetera, et cetera, et cetera. And when I really think of the massive global challenges, and of course, I've got involved in some of this stuff because of the review I led on antimicrobial resistance. It doesn't distinguish between whether you're a communist or a dramatic liberal person.

8:08and it doesn't distinguish whether you're a woman or a man or you're Sunni or Shiite or black or white, it affects all eight-plus billion of us. Same with climate change. Same with AI and global governance. And the reason why we've set up this policy platform is as the world slowly deteriorates in the opposite direction, we want to foster a voice, and a crucial part of our DNA is backing the best objective academic research that exists in the world's top universities on a number of selected topics of true global importance. It is not about us wanting to fall in love with every one of those countries that isn't in that room where you are, Robert, in Ankara, but it is to understand that you have to find some way of communication which is accepting that they have a right to be at the seat of a global table and not just assume, not kid yourself that you can drive the world to a better place without them.

9:14And actually similarly, also for the now expanded BRICS +, the same thing for them, because they can't solve global issues without the declining liberal West. And at the court, we actually had an event to launch it where we have a website that's been up and running for a couple of months called Bricks Plus Thinking. And my old colleague, Gavin Davis, I asked him to write an article about the state of the world. And in only the way somebody with Gavin's objectivity and numeracy could do. He studied what we had said 25 years ago, and importantly, had this beautiful graphic about the changing center of global GDP.

9:54And since I started my career in 1980 in the world of finance, it has continued to steadily shift eastwards. And then he also shows in this amazing table the actual forecast error that we made for every region in the world. And very, very importantly, the two places that massively outperformed our forecasts, not just what happened, is India and China. And every other, importantly, in this current mood, every other region of the world, including the United States, including the United States, actually underperformed what we suggested was going to happen over the past 25 years. And that is the reality of what's going on in the world economy.

10:43Yeah. And we have to somehow acknowledge that these countries think they need a bigger voice in global governance. And it's why so many countries from the global south are wanting to become part of this thing. What's really interesting as well about this BRIC idea is, essentially, you created it as an investment shorthand to describe, as we've said, Brazil, Russia, India and China, because you believed they were going to be the four fastest-growing emerging economies and would become major drivers of global growth. I'm going to challenge you, Steph. You need to read the first paper. That's what so many people say.

11:22And when I hear it, it means they definitely have not read the first paper. The first paper was all about global governance. My paper did show four different scenarios of the world the next decade, which, by the way, in the first decade, the BRICS outperformed every one of those four scenarios. But the paper was about changing the G7 into an expanded group to do two things, bring in the four bricks and crucially, and still part of the problem, persuading the continental Europeans, now that they share a common monetary unit, to actually represent themselves as one. So the G20, many years later, was a sort of bigger embracement of that idea.

12:12But what I proposed was something that was smaller than the G20. And at the event we had this week, a couple of very seasoned people in global governance that were there. And sadly, one of them pointed, it was on the day that Belgium had knocked the US out of the World Cup. so it's quite funny, but somebody pointed out that Belgium, which is economically a tiny, tiny place, is still hogging the same proportional representation it has in all these global governance organisations. And it's completely crazy.

12:43Robert Peston:So how do, whether it's the IMF or the World Bank or the UN, I mean, you and I have been talking about this for years, and they haven't reformed in a significant way. Do you get any sense that they are set to reform and give a bigger role to these rising star countries? I think under the current political climate, with the way the US is thinking, especially with this particular president, that is just not a realistic thing that's going to change in the near future. but as it relates to bricks plus thinking platform and it's again one of the reasons we're trying to do it you can try to uh introduce policy initiatives that can still be pursued despite that intransigence and so what what the goal of uh and right the core dna of our platform is to is to uh and and our eight priority policy papers for this year have already been commissioned and they're underway, we'll have hopefully most of them done by October.

13:50And we've asked them to know, got to be somewhere between 5 ,000 to 7 ,000 words, no more. And we want you to have precise policy prescriptions. When they're out, we as a unit or an entity will try to make noise to influence policymakers about these are things that need to happen, despite this seemingly dysfunctional global governance structure, in order to stop this particular issue becoming worse and worse and worse, or in fact, possibly making it better. We had at this event, to kickstart it, I had the privilege of interviewing the CEO, Greg Jackson, of Octopus Energy, arguably the most exciting energy company in the UK for my generation, that somehow manages to be sort of affordable for UK consumers or chooses the best paths to be affordable, but has a passionate embracement of alternative energies.

14:57And, and the reason why I raise it, is perfectly at ease in doing things with China. In fact, if you sit down and listen to Greg, he says he can't get anywhere unless he does do things with the best technology providers on solar power and all the rest of it in China. And we have to, this idea that we, you know, that they're going to have some buried security thing in there. So if we have a sort of solar power thing on our roof, then we've got the whole of the Chinese communists spying on us. You know, it's kind of an amusing theme that takes hold, but it's kind of bonkers. So we don't need to worry then about Chinese security in terms of when we do business with them?

15:36Of course we need to worry. We need to worry about, for Britain, we need to worry about security risks from everywhere. We need to worry about China. We need to worry about Russia. We need to probably have some concerns about the United States. I mean, what we need to do is have a really top class security entity that is capable of assessing to some degree with an independent voice to advise governments. This is the genuine risk from country X, rather than to fall into this very simplistic view is, oh, they're evil at everything. Don't do anything with them. because if you get you can make that choice but if you do you're not going to be able to benefit much from their rising economic power because they won't they will be offended by that you think of them in that way but on this issue of the challenges that we face that can only be solved by

16:34Robert Peston:global cooperation um you know we've talked about global we've talked about financial stability in a financially globalized world. Of course, you need cooperation. You need institutions that have proper representation for all the major financial powers. You were saying earlier about how disappointed and shocked you were. You wanted more global cooperation when it came to health challenges. And Peyton, any of us who were conscious, as it were, through the COVID crisis will completely agree with you that when it comes to essentially protecting ourselves against pandemics, you need much greater global cooperation and governance, global governments institutions that are representative of all countries.

17:25If you look at the G7

17:27Robert Peston:richest countries in terms of the developed economies, look, none of our democracies are absolutely idealised perfection and if you look at the states You can see a president who's essentially trying to roll back some of the sort of constitutional limitations on his power and challenging some aspects of what we thought of as one of the great democracies. But it is the case, pretty much every member of your rising star class, if they are democracies, they are very limited and rather flawed versions of democracies or they're autocracies. And I suppose when we talk about reforming either Bretton Woods institutions like the IMF and the World Bank or the UN, does it just not matter whether a state is a democracy or not?

18:19It's a very good question and an extremely important one. And I've often had conversations and thought a lot about it when it comes to, for example, the head of the IMF. I think it would be very problematical to have a head of the IMF that can't make any decision in the instant of a crisis in place X without calling back home and getting their approval. You know, that cannot happen. So I think you need to develop a system that allows for proper leadership of those organizations. And of course, you know, a separate question you could then follow up as well. We've had enough problems with that, even without, you know, even with them coming from democratic countries.

19:09So one shouldn't underestimate that challenge whatsoever. But at the same time, without sounding completely contradictory, aspects of how Trump behaves has broken this, and hence why a Mark Carney speech or a President Stubbs speech, that this idea that many of these places have some yearning desire to be just like us, you know, is for the birds. I mean, they don't want to be. What people in these countries want, they want our wealth, but they don't really care. So long as their country can somehow deliver better living standards and better wealth, that's what they primarily care about. And of course, because of our own sort of weird things going on the past 20 years, they look at our democracy and think, why would we really want that?

19:57Particularly because in most places, it's not actually delivering any kind of economic growth or prosperity. So why should we want that? And Jim, what about trust between the countries as well? like you know that that's lacking isn't it between look if you look at china and india they don't really trust each other does it matter if they're in this group but they don't necessarily trust each other that is an equally fantastic question um one of our uh advisors we have the most amazing list of advisors and we're so grateful for their support because without their endorsement we wouldn't have been able to really get even to where we are one of them is a guy called a young guy called Brian Wong who's a professor at Hong Kong University he authored a book with a few others a few months ago about the motives of all the individual Bricks Plus countries about what they get out of being in this club and it's absolutely for any students of international relations I mean it's absolutely fascinating stuff and buried in it is this complete competing international relations issue between China and India and And in addition to their own bilateral challenges, they both see themselves as the real underlying leader of the global south.

21:12And so there's many, many, many aspects of that. And importantly, going to the scale of the ambition of this institute, one of our eight papers, which, as I say, are underway, is to explore some policy ideas. are what are the genuine areas where China and India could cooperate better and properly. And that would be extremely good for the coherence of the BRICS Plus, because, you know, they're amongst their own challenges, is if you have China and India taking shots, you know, pot shots at each other intellectually and policy wise, then there's not much chance of the BRICS Plus really functioning, because they are the two places that really matter.

21:56The flip side of it is if they do really coordinate properly on things, then it opens up a whole host of new questions, including some of these that occasionally come up about the future of the global monetary system, for example, and global trade. If China and India genuinely wanted to explore free trade with each other, nobody in this country would give a damn what Donald Trump says about tariffs because it wouldn't matter.

22:25Robert Peston:But arguably, Donald Trump has done his best to undermine confidence in the dollar, but it is still the world's reserve currency. It still has, I think it was Jessica Dostoyan going to phrase the exorbitant privilege broadly. Everybody's got our dollars and therefore they can borrow at rates somewhat unconnected to their underlying financial strength. If you look at what the BRICS are doing in terms of potentially creating an alternative reserve currency, is that something we're going to see in our lifetimes? So I've partially changed my mind about this in the last 18 months in a limited way. I think the idea that the BRICS countries can create a genuine alternative to the dollar in the existing monetary system is kind of crazy.

23:22If it was between them, that would require the Chinese authorities to give up the independence of the Central Bank of China. It would be quite, you know, same for the Indians. And it's not going to happen in my lifetime. However, two things have forced me to shift my thinking a little bit. Firstly, of course, like other people with international monetary experience, I think about it in the context of the modern international monetary system. You know, when I first started working, fortunately, timing wise for me, it was on the back of the boom in the city. Maggie Thatcher had just introduced capital market liberalization, including controls on international capital.

24:07In the 1970s, we didn't have free flowing capital and linked to huge, deep issues of society. You know, another 30 years, people in America might not want a monetary system in the way the one we have today. And who knows about that? But the second more substantive part of why I've shifted, given modern technology and the whole digital payments thing, I increasingly think the BRICS countries can introduce some kind of BRICS plus pay instrument for trade between themselves. There is a proposal that's doing the rounds that if you introduced a GDP-weighted version of that and used it for payments on trade between the BRICS countries, that could easily and probably will become a significant thing that's going to rise in usage.

25:09So, Jim, to understand this right, is this as a cryptocurrency essentially then? i don't think it i mean some parts of crypto technology would be i think i think blockchain i mean i'm a bit of a sort of neanderthal when it comes to this but i have started to understand it a bit more some of the technical technology linked to blockchain and this uh would be necessary but no it wouldn't be a crypto people wouldn't be able to trade it uh it would be for literally form of trade payments.

25:42Robert Peston:I suppose one of the things that I think is interesting about these sorts of developments, and we have actually seen a bit of this anyway since Putin launched his war in Ukraine, and indeed since Trump declared war on Iran, is we are seeing ways around sanctions as these countries find other ways of financing trade. And this, in some ways, if we do see this development of the new R currency, digital currency for trade between these countries, not only does it have an impact in terms of the effectiveness of Donald Trump's tariffs, but it also has an impact when it comes to the ability of the West to punish countries who trade with our enemies, because sanctions would be less effective, wouldn't they?

26:31It depends what those kind of sanctions would be. I guess they would have to go more strongly down the path of financial sanctions and intermediation in things which link to the dollar settlements basis. But for the same reason, Robert, and I think that's where your mind was going, they are certainly also trying to pursue an alternative to the SWIFT payment system for this very reason as well. And one of the downsides to the sort of speed of the approach on the Russian sanctions is that, of course, many other countries in the global south are worrying that at some point, with an, let's call it, an erratic US president, if he gets out of bed on the feeling the wrong mood one day, you know, he could have a go at them about something that wasn't quite as worthy as the justification as it was, in my opinion, with Russia.

27:28And so, of course, and this does, and this comes back to a sort of deeper philosophical answer to you of the underlying question, more and more of these things, particularly as it relates to changing economic weight, at some point in the very unpredictable long-term future, the dollar will not dominate. In the same way that many, I think, quite a few decades after we ceased to be the most important country in the world, the pound suddenly stopped being the currency that mattered. And at some point in the future, that will be the case with the dollar. But as you pointed out in the way you asked it, it's certainly not today and it probably won't be anytime soon.

28:12But we will only know after it's happened, in my view. Jim, there's lots more we want to get into on all of this. But let's sit tight for a couple of minutes while we go to a quick break.

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29:29Visit your nearest Croc store today. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. Shoot care.