Why it is not easy for The BRIC bloc to beat the West
For many years now, the BRICs have been known as a consortium that was predicted to overtake the economic might of the developed nations. But there are issues which put doubts on the very Viability, the Workability and the long-term effectiveness of this ambitious bloc.
Ever since the term BRIC was coined by Goldman Sachs in their Global Economics Paper, ‘Building Better Global Economic BRICs’ in November 2001, it has often been used as a representative of the shift in global economic power from the West (or the developed nations), to the developing nations. More than anything else, the projection of this shift is said to have created a lot of ripples in the international order, and understandably, more so among the developed countries that constitute the industrialised group – the G7.
Economists worldwide have projected BRIC as a powerful bloc of emerging economies. Why not? Combined, the four economies recorded a total GDP (in PPP terms; because economists argue that China’s exchange rate is not determined by market forces, but by fiat currency) of over $18 trillion ($18.34 trillion to be precise; as of CY2010). According to the International Monetary Fund (IMF), the BRICs are set to account for 61% of global growth over the next three years. Even Goldman Sachs, in its report, had argued that since the BRIC countries – which today occupies over 25% of the world’s land and house 40% of the world’s population – are developing rapidly, their combined economies could eclipse the combined economies of the current richest countries of the world by 2050. Brazil, Russia, India & China were set to emerge as the four most dominant economies by 2050 on the basis of their huge economic potential.
But fears abound that the concept of BRICs is just an over hype. While the growth of these economies has been remarkably heartening, thanks to the projections acting as a huge booster for FDIs and FIIs flowing into these countries, there is danger that this coin too, has a flip side. Contrary to the argument that the combined economies of BRIC countries could surpass the world’s richest countries by 2050, the projections, while concealing much detail in terms of the distribution of that growth, are actually based upon mere assumptions and cannot be relied upon. Economists like Vrajlal K. Sapovadia, Director, National Insurance Academy (NIA), Pune, contend that deviation in assumptions, difficulty in assessing qualitative factors, undermining inherent threats like population pressure, illiteracy, corruption, social and political unrest may actually lead to unrealistic forecasts.
The ‘Doing Business 2011’ report by World Bank is an eye-opener. According to this recent report, BRIC economies – when compared with their western counterparts – have actually lost shine over the past year. In the category of ‘Ease of doing business’, of the BRICs, the best ranked is China, at #79 (it was #78 last year). The other three of course occupy three-digit ranks. While Russia stands at #123 (it was #116 in 2010), Brazil comes in at #127 (#124 in 2010) and India at #134 (#135 last year). The developed world is of course far ahead of this lot, with US at #5 and UK at #6. The fact that names like Rwanda, Tonga, Vanuata, Mongolia and others are better off than the BRICs is a hard pill to digest. But true. Even in terms of per capita income and human index ranking, all the BRIC countries are worse off this year than they were in 2010 (and surely worse-off as compared to the developed nations). Digest this: the highest per-capita income amongst the BRICs is held by Russia ($9,622), which is equivalent to 1/5th of that of US’ ($47,576). “In order to make this dream (of a prospering BRIC) a reality, each BRIC country needs to set its own house in order and boost its natural and human resources through proactive management,” says Sapovadia, adding that it is imperative that their hidden strengths and wealth, like agriculture & forest land, water reservoirs and human capital be utilised scientifically before we start comparing these economies with the powerful West.
Many also claim that for all projections regarding the exemplary growth expected by the BRIC economies, the very agenda is actually being pushed by US, to open the floodgates for its products and services into these emerging economies. As interesting as they sound, the veracity of these claims is yet to be ascertained.
There is another theory doing the rounds. Despite the abundance of ‘catch-up growth’ stories in the post-war period, growth starts to disappoint after a while and it is relatively easier to catch up with the leaders as compared to overtaking them. In reference to the robust growth that China has been experiencing in recent years, a recent article in The Economist cited references from a paper by Barry Eichengreen of the University of California, Donghyun Park of the Asian Development Bank (ADB) and Kwanho Shin of Korea University. The paper examines economic records of countries since 1957 to identify potential warning-signs, and contends that it would actually be wise for China to pursue “structural reforms” – which can help cushion the effects of a slowdown – in the current scenario, when it is growing remarkably, than wait for lean years which are bound to come.
India can learn too. Slowdown can hit it faster than expected. With many sectors in the economy already overheating, with scams and corruption plaguing the conduction of clean business, and with lack of proper infrastructure and human development facilities, the country may suddenly find itself struggling to run half as fast as it is now. It can also lose favour in the eyes of the global investors, signs of which are already showing – as per the Ministry of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11 months leading to February 2011, indicating a y-o-y fall of 25.5%. The current figure also represents the lowest ever, since FDI inflow first crossed the $15 billion mark for the first 11 months of the fiscal year in FY2006-07. So, the state of affairs in India definitely calls for immediate need of improving governance, a robust infrastructure and better provisions of human development (education, health et al). Even the long impending border issues with China need to be sorted out.
No doubt, the economic uprising of the BRICs could (and will) have unexpected negative consequences for the global environment. So, apart from boosting per capita income, the challenge for the emerging economies will be to improve social security and environment – in order to achieve a living standard comparable to that in advanced countries – as well as increase domestic consumer demand and spending in order to balance the fall in global consumption.
The idea here is not to raise doubts over the growth of the BRIC economies. However, the fact remains that the growth is more likely to occur on an individual level and not as a bloc, as the hype created around these economies suggest. The reason lies in the fact that there are no attempts to address key differences within this bloc that are likely to hamper the growth that is expected of these countries as a unit. The factor here is the absence of a strategic alliance or, for that matter, even an attempt to discuss differences between them. There is no denying that a strategic partnership between these strategically located nations, given their socio-political relevance in their regions, will be highly beneficial for the BRIC bloc. However, the absence of a willingness on the part of any of these nations to discuss and resolve aspects of security, territory et al, leaves the consortium looking like a statue which cares little about strong bilateral ties.
The BRIC economies, though on the right track, are truly far from posing any competition, leave apart being a threat to the alliance of the West. Dr. Suvrokamal Dutta, Economic and foreign policy expert comments that as for the viability of the BRIC alternative to the existing unipolar world order controlled and dominated by US, three power blocs could pose a real challenge to the existing world order, both in terms of political hegemony and economic supremacy – BRIC, IBSA (both of these are official now) and the troika consisting of India-China-Russia. “There were several secret meetings held between the foreign ministers of these three nations during the Vajpayee regime and these meetings had created ripples in Washington, which then used the Tibet issue to vitiate ties between India and China,” he says, adding that a major drawback of the forum is the lack of discussion on bilateral issues and issues of strategic, security and military concerns. It is known to all-and-one that at present, members of the bloc, discuss only economic, social and cultural issues; to have real teeth, business, strategic and military ties should be developed and discussed. While the troika proposition will take long to materialise, the need of the hour is to stop addressing BRIC as a competition or threat to the West, and address our internal and external differences as members of the bloc. The downturn has already shown the entire world what our strengths are. It is time now to work on our weaknesses and capitalise on the growth which is here to stay.
It is apparent that a strategic alliance between the member nations of the BRIC, which goes beyond commerce and trade and enters uncharted horizons, including defence – on the lines of say NATO – will not only tilt the balance of power in its favour, it will, in real terms, help them emerge an economic might. The contours of such futuristic thought-process would envisage a bipolar world, wherein the Troika and Brazil have a greater say in strategic issues pertaining to the landmass bordering Arctic Ocean, Atlantic Ocean and the Indian Ocean.
Not only this, the bloc will also benefit from India’s good economic and diplomatic ties with the Middle East nations. If Troika, or for that matter, BRIC is to see itself emerge as a mighty force at par with the present Western Alliance, it has to wake up to reality. How long can you live in a fool’s paradise?
For many years now, the BRICs have been known as a consortium that was predicted to overtake the economic might of the developed nations. But there are issues which put doubts on the very Viability, the Workability and the long-term effectiveness of this ambitious bloc.
Ever since the term BRIC was coined by Goldman Sachs in their Global Economics Paper, ‘Building Better Global Economic BRICs’ in November 2001, it has often been used as a representative of the shift in global economic power from the West (or the developed nations), to the developing nations. More than anything else, the projection of this shift is said to have created a lot of ripples in the international order, and understandably, more so among the developed countries that constitute the industrialised group – the G7.
Economists worldwide have projected BRIC as a powerful bloc of emerging economies. Why not? Combined, the four economies recorded a total GDP (in PPP terms; because economists argue that China’s exchange rate is not determined by market forces, but by fiat currency) of over $18 trillion ($18.34 trillion to be precise; as of CY2010). According to the International Monetary Fund (IMF), the BRICs are set to account for 61% of global growth over the next three years. Even Goldman Sachs, in its report, had argued that since the BRIC countries – which today occupies over 25% of the world’s land and house 40% of the world’s population – are developing rapidly, their combined economies could eclipse the combined economies of the current richest countries of the world by 2050. Brazil, Russia, India & China were set to emerge as the four most dominant economies by 2050 on the basis of their huge economic potential.
But fears abound that the concept of BRICs is just an over hype. While the growth of these economies has been remarkably heartening, thanks to the projections acting as a huge booster for FDIs and FIIs flowing into these countries, there is danger that this coin too, has a flip side. Contrary to the argument that the combined economies of BRIC countries could surpass the world’s richest countries by 2050, the projections, while concealing much detail in terms of the distribution of that growth, are actually based upon mere assumptions and cannot be relied upon. Economists like Vrajlal K. Sapovadia, Director, National Insurance Academy (NIA), Pune, contend that deviation in assumptions, difficulty in assessing qualitative factors, undermining inherent threats like population pressure, illiteracy, corruption, social and political unrest may actually lead to unrealistic forecasts.
The ‘Doing Business 2011’ report by World Bank is an eye-opener. According to this recent report, BRIC economies – when compared with their western counterparts – have actually lost shine over the past year. In the category of ‘Ease of doing business’, of the BRICs, the best ranked is China, at #79 (it was #78 last year). The other three of course occupy three-digit ranks. While Russia stands at #123 (it was #116 in 2010), Brazil comes in at #127 (#124 in 2010) and India at #134 (#135 last year). The developed world is of course far ahead of this lot, with US at #5 and UK at #6. The fact that names like Rwanda, Tonga, Vanuata, Mongolia and others are better off than the BRICs is a hard pill to digest. But true. Even in terms of per capita income and human index ranking, all the BRIC countries are worse off this year than they were in 2010 (and surely worse-off as compared to the developed nations). Digest this: the highest per-capita income amongst the BRICs is held by Russia ($9,622), which is equivalent to 1/5th of that of US’ ($47,576). “In order to make this dream (of a prospering BRIC) a reality, each BRIC country needs to set its own house in order and boost its natural and human resources through proactive management,” says Sapovadia, adding that it is imperative that their hidden strengths and wealth, like agriculture & forest land, water reservoirs and human capital be utilised scientifically before we start comparing these economies with the powerful West.
Many also claim that for all projections regarding the exemplary growth expected by the BRIC economies, the very agenda is actually being pushed by US, to open the floodgates for its products and services into these emerging economies. As interesting as they sound, the veracity of these claims is yet to be ascertained.
There is another theory doing the rounds. Despite the abundance of ‘catch-up growth’ stories in the post-war period, growth starts to disappoint after a while and it is relatively easier to catch up with the leaders as compared to overtaking them. In reference to the robust growth that China has been experiencing in recent years, a recent article in The Economist cited references from a paper by Barry Eichengreen of the University of California, Donghyun Park of the Asian Development Bank (ADB) and Kwanho Shin of Korea University. The paper examines economic records of countries since 1957 to identify potential warning-signs, and contends that it would actually be wise for China to pursue “structural reforms” – which can help cushion the effects of a slowdown – in the current scenario, when it is growing remarkably, than wait for lean years which are bound to come.
India can learn too. Slowdown can hit it faster than expected. With many sectors in the economy already overheating, with scams and corruption plaguing the conduction of clean business, and with lack of proper infrastructure and human development facilities, the country may suddenly find itself struggling to run half as fast as it is now. It can also lose favour in the eyes of the global investors, signs of which are already showing – as per the Ministry of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11 months leading to February 2011, indicating a y-o-y fall of 25.5%. The current figure also represents the lowest ever, since FDI inflow first crossed the $15 billion mark for the first 11 months of the fiscal year in FY2006-07. So, the state of affairs in India definitely calls for immediate need of improving governance, a robust infrastructure and better provisions of human development (education, health et al). Even the long impending border issues with China need to be sorted out.
No doubt, the economic uprising of the BRICs could (and will) have unexpected negative consequences for the global environment. So, apart from boosting per capita income, the challenge for the emerging economies will be to improve social security and environment – in order to achieve a living standard comparable to that in advanced countries – as well as increase domestic consumer demand and spending in order to balance the fall in global consumption.
The idea here is not to raise doubts over the growth of the BRIC economies. However, the fact remains that the growth is more likely to occur on an individual level and not as a bloc, as the hype created around these economies suggest. The reason lies in the fact that there are no attempts to address key differences within this bloc that are likely to hamper the growth that is expected of these countries as a unit. The factor here is the absence of a strategic alliance or, for that matter, even an attempt to discuss differences between them. There is no denying that a strategic partnership between these strategically located nations, given their socio-political relevance in their regions, will be highly beneficial for the BRIC bloc. However, the absence of a willingness on the part of any of these nations to discuss and resolve aspects of security, territory et al, leaves the consortium looking like a statue which cares little about strong bilateral ties.
The BRIC economies, though on the right track, are truly far from posing any competition, leave apart being a threat to the alliance of the West. Dr. Suvrokamal Dutta, Economic and foreign policy expert comments that as for the viability of the BRIC alternative to the existing unipolar world order controlled and dominated by US, three power blocs could pose a real challenge to the existing world order, both in terms of political hegemony and economic supremacy – BRIC, IBSA (both of these are official now) and the troika consisting of India-China-Russia. “There were several secret meetings held between the foreign ministers of these three nations during the Vajpayee regime and these meetings had created ripples in Washington, which then used the Tibet issue to vitiate ties between India and China,” he says, adding that a major drawback of the forum is the lack of discussion on bilateral issues and issues of strategic, security and military concerns. It is known to all-and-one that at present, members of the bloc, discuss only economic, social and cultural issues; to have real teeth, business, strategic and military ties should be developed and discussed. While the troika proposition will take long to materialise, the need of the hour is to stop addressing BRIC as a competition or threat to the West, and address our internal and external differences as members of the bloc. The downturn has already shown the entire world what our strengths are. It is time now to work on our weaknesses and capitalise on the growth which is here to stay.
It is apparent that a strategic alliance between the member nations of the BRIC, which goes beyond commerce and trade and enters uncharted horizons, including defence – on the lines of say NATO – will not only tilt the balance of power in its favour, it will, in real terms, help them emerge an economic might. The contours of such futuristic thought-process would envisage a bipolar world, wherein the Troika and Brazil have a greater say in strategic issues pertaining to the landmass bordering Arctic Ocean, Atlantic Ocean and the Indian Ocean.
Not only this, the bloc will also benefit from India’s good economic and diplomatic ties with the Middle East nations. If Troika, or for that matter, BRIC is to see itself emerge as a mighty force at par with the present Western Alliance, it has to wake up to reality. How long can you live in a fool’s paradise?
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