Since its inception the BRICS as a bloc has been criticized for bringing together economies that are too diverse, too different and heterogeneous to pursue common approaches to policy. This criticism has been leveled in particular with respect to the China-India duo, that was seen as a source of contradictions due to either cultural differences or geopolitical orientation. In reality the two Asian giants managed to coordinate numerous joint BRICS initiatives, including the creation of the New Development Bank and more recently the bloc’s expansion in membership on the back of earlier BRICS+ meetings. There may be perhaps ways to render this joint coordination more systematic with one of the possible paradigms in this area being the well-known principle of “strategic complementarity”. We proceed to explore the possible modalities of this principle in streamlining and facilitating greater coordination among BRICS core members.
In economics and in game theory, “strategic complementarity” takes place when a player’s optimal strategy increases along with the increase in other players’ strategies, providing for a mutual reinforcement of the parties’ strategies[1]. Examples of such complementarities may range from network effects in platforms to spending on public goods and R&D in the presence of positive spillover effects[2]. Experimental studies on the relative merits of strategic complementarity vs. strategic substitutability in game theoretic settings reveal that “there is significantly more cooperation when actions exhibit strategic complementarities than in case of strategic substitutes“[3]. The multiple equilibria associated with a “strategic complementarity” setting may enhance the optionality of scenarios for the coordinating parties, something that may be of significant value in settings that have frequently been characterized by limited optionality for emerging market economies in the past.
With respect to BRICS, the operation of the strategic complementarity principle needs to go beyond the narrow spirit of short-term game theory, to a broader type of cooperation that is systemic, forward-looking and multi-faceted. It should seek to exploit the differences in economic specialization, market positioning, regional and global market presence, but also the differences in values, culture and geopolitical orientation. Such a strategic complementarity orientation has the potential to increase not only the economic prowess of the bloc, but also its soft power via appealing to the widest possible segments of the global community.
In this sense, the operation of the strategic complementarity principle within BRICS may to some degree be compared to the principle of additionality in impact investing. In the latter case impact investors aim to direct their financial resources into areas that have hitherto not been adequately covered by other investors. This effort to find new areas that have not been attended to in earlier investment rounds raises the potential for delivering a more emphatic impact (diminishing returns likely prevalent in more “saturated” segments), whether in the social or in the environmental sphere.
In the case of the strategic complementarity between China and India in BRICS the following areas of coordination could be explored:
- Policy impulses and initiatives: while China’s approach on issues of BRICS cooperation has frequently been more focused on top-down initiatives and proposals (BRICS+ initiative being one such example), in India’s case these tended to be more bottom-up, emphasizing the need to improve the micro-level conditions for entrepreneurship, start-ups and business activity.
- Trade alliances: while China’s trade alliances such as RCEP are focused on Southeast Asia and the Pacific, India has its regional integration initiatives positioned in South Asia and bilateral alliances forged across developed and emerging economies across the globe.
- Transportation corridors: while China actively builds the East-West transportation corridors in Eurasia as part of the Belt and Road Initiative (BRI), India focusses more on other pathways to connectivity, including via North-South corridors. A co-integration between these transportation projects/networks would greatly improve the optionality of transportation routes in Eurasia, though this would require significantly more coordination between the two economies.
- Complementary nature of economic specialization and trade patterns in global markets: China specializing in manufacturing and capital-intensive goods, with India being more present in segments such as raw materials, intermediate goods, pharma and services.
Admittedly, the above spheres of coordination may call for a far greater degree of cohesion between these two BRICS members – something that skeptics may see as a tall order in the current international setting. At the same time, such coordination if advanced could result in substantial welfare gains not only for China and India, but likely for the broader Global South. In the extreme case of a firm alliance exploiting the opportunities of strategic complementarity, the two economies could substantially strengthen their position on the international stage to the point where they become dominant not only in a developing world setting, but also globally.
At the same time, alongside opportunities there may also be risks and costs associated with the “strategic complementarity” paradigm. The use of the game-theoretic lens for BRICS cooperation may limit the weight of the broader humanistic and humanitarian issues that are so critical for the bloc’s global role. Such a paradigm may also be difficult to implement and coordinate in a setting characterized by mounting geopolitical risks and expanding membership in the bloc’s core and the partnership belt.
In the end, the “strategic complementarity” principle should not be confined to the China-India pair, but needs to be seen as an operational guide for the broader BRICS+ formation. With cultural differences and divergence in national economic models becoming even more pronounced after the bloc’s expansion, “strategic complementarity” may serve to turn such differences into a key strength, rather than a weakness. Such a principle may also focus the priorities of BRICS members away from short-term considerations to longer-term win-win outcomes and cooperation pathways in which policy initiatives coming from various members reinforce each other. Strategic complementarity may also become an important feature of the annual succession in the presidencies of BRICS countries, whereby the bloc’s development priorities and undertakings are reinforced through complementary initiatives of the subsequent BRICS presidencies.
[1] Tirole, J. The Theory of Industrial Organization. Cambridge, MA: MIT Press (1998)
[2] https://www.kellogg.northwestern.edu/research/math/papers/1336.PDF
https://www.researchgate.net/publication/326279453_Cooperation_and_Strategic_Complementarity_An_Experiment_with_Two_Voluntary_Contribution_Mechanism_Games_with_Interior_Equilibria
[3] https://repository.tilburguniversity.edu/server/api/core/bitstreams/d5f6ed6d-1f93-4646-b4b2-6cdd37c05ad4/content
Yaroslav Lissovolik, Founder, BRICS+ Analytics
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