R.I.P. BRICs
September 15, 2014 --
On Nov. 30, 2001, Jim O’Neill made lexicographic history. That was the day he, as Head of Global Economic Research at Goldman Sachs, published Global Economics Paper No. 66, otherwise known as “Building Better Global Economic BRICs.” This insightful essay argued that the size and prospective growth of Brazil, Russia, India, and China—memorably therein coined as the BRICs—made them a sufficiently important feature of the global economy that policy institutions should expand to accommodate them. In particular, Mr. O’Neill discussed the merits of expanding the G7 forum to (at least) the G9. That hasn’t happened (and probably won’t—see below), but the BRICS (South Africa has joined the club) have held six summits and in June announced the launch of their own development bank.
Since the designation of “BRICs” nearly 13 years, the term has connoted to many thinkers an optimistic blend of opportunity, hope, and progress for the planet. That optimism, in turn, has been based on that elixir of so many challenges economic, political, and otherwise: fast growth through integration into a rules-based global economic system.
In light of these denotations and associations of the BRICs, with this missive we regret to report the death of the BRICs on Aug. 29, 2014.
The proximate cause of death was that day’s news that Brazil has slipped into a technical recession in the first six months of 2014, with a first-quarter contraction in gross domestic product of -0.2 percent followed by a second-quarter contraction of -0.6 percent. And it follows a broader trend of decelerating Brazil. Its GDP growth was just 2.7 percent in 2011, 1.0 percent in 2012, and 1.7 percent in 2013.
The underlying cause of death has been the cumulative deterioration of BRIC performance relative to lofty expectations. A country’s strong economic growth is a byproduct of consistent accumulation of some combination of the following: labor, capital, and total-factor productivity. Since the birth of BRICs, China and (to a lesser extent) India have achieved strong growth.
But, per the statistics above, Brazil has failed to maintain it. At a per capita income of approximately $13,000 last year, Brazil looks to have fallen into the dreaded middle-income trap of much slower economic growth once average income crosses about $10,000. Indeed, with low capital investment (four consecutive quarters and counting, economy-wide investment has fallen) and little policy reform in recent years, some recent analyses have concluded that Brazil has been experiencing zero productivity growth.
Russia’s growth downfall looks quite similar. The country’s GDP fell by a dramatic 7.8 percent in 2009, and after two years of growth a bit above 4 percent, growth slipped to 3.4 percent in 2012, 1.3 percent in 2013, and is widely forecast to be barely 1 percent this year. Like Brazil, Russia has failed to implement broad and meaningful economic reform. The economy remains heavily dependent on resource extraction, and economic “policy” has largely been the whimsical dictates of Vladimir Putin. Russia’s invasion of Ukraine and overall threat to geopolitical stability hardly qualifies it as a foundation for global prosperity—per its recent defenestration from the G8 forum.
Even China is now straining, not supporting, the global economy. Perhaps most prominent is the spreading investigation of Western multinational companies operating there. One recent story described “a growing list of foreign businesses running afoul of regulators in China, in industries such as dairy, technology, and pharmaceuticals.” Another concluded that “A growing number of the world’s most powerful brands … are being targeted in antimonopoly investigations in China, leaving all multinationals wondering if their Chinese investments could be next.” Yes, national regulators always retain the sovereign right to regulate commerce in their countries. But the scale and scope of recent foreign-company actions smack of something different that, whatever the motives, do not foster globally connected growth.
In reality, the BRICs always shared at least as many differences as similarities. But they were united by their evocation of growth and prosperity in broader parts of the world. Here in 2014 such progress still does exist, but the sagging performance and diverging paths of the BRICs renders that term more confusing than clarifying.
What might replace the BRICs? Many possibilities have been proposed and examined: Goldman Sachs proposed the Next Eleven a few years ago; Mr. O’Neill (who left Goldman last year) is now all about MINTs; HSBC has plunged into the acronym pool with CIVETS; and in an earlier report we modestly proposed the Latin American MAPs.
Ultimately, though, we shouldn’t hope for cute acronyms that call out a select few high-performing countries. Rather, we should hope for a world with so much growth from so many countries that such acronyms are too narrow to capture all the progress.
Articles © 2014 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2014 Trustees of Dartmouth College. All rights reserved.