The BRIC grouping – an acronym that lumps together the rapidly growing markets of Brazil, Russia, India and China – was created more than a decade ago by Jim O’Neill, now chairman of Goldman Sachs Asset Management. Since O’Neill coined the term in 2001, the aggregate GDP of these countries has nearly quadrupled, from around US$3 trillion to more than US$11 trillion – an increase equivalent to the creation of another new Japan plus a new Germany, or five United Kingdoms. The term “BRIC” itself has become embedded in the collective vocabulary of the business community.
Sick of BRIC
When it comes to the BRICs, many readers are likely to feel that they’ve heard it before. The term caught on because it described a new phenomenon no one had labeled before. But like all clichés, it has since gone from capturing the truth to obscuring it.
The strength of O’Neill’s book is that it manages to be much more than a tired treatise on a familiar growth story. He reminds the reader of the necessity of understanding this trend – “it is quite simply the story of our generation,” he writes – all the while detailing the enormous variations within the BRIC grouping.
All the BRIC countries have large populations, strong economic growth and comparatively high growth environment scores (GES), a Goldman Sachs measure that ranks countries by macro and microeconomic factors such as inflation, public debt, rule of law and the use of technology. But apart from these attributes, their economic makeup and investment prospects vary widely. The BRICs run the gamut in terms of demographics, from Russia’s aging population and bleak fertility rate, to China’s rough par with Europe, to Brazil and India’s rapidly growing working-age populations. And they differ wildly in criteria that determine productivity, such as the quality of their macroeconomic policies, political institutions and education.
It is O’Neill’s ability to draw concise comparisons among these huge and complex economies that makes “The Growth Map” an essential primer on this new engine for global growth. Investors are likely to benefit from O’Neill’s clear judgments on the risks and benefits of various countries and asset classes, and the book overflows with stats to arm the would-be BRIC business man. The narrative also shines when he discusses the potential for political conflict and alliances between various countries and groupings, including Japan and China, Europe and Russia, and the US and Latin America.
China watchers will be pleased to learn that the Middle Kingdom floats to the top in nearly all of O’Neill’s projections. He acknowledges that the country faces huge challenges, including an aging population, pollution, excessive investment and rampant corruption. Yet he remains optimistic about China, praising the ability of its leaders to “look clinically at their challenges and address them without prejudice.”
There’s more good news: O’Neill argues that China’s development will offer huge benefits to the developed world, especially the US. At the current pace, China’s imports could exceed those of the US within five years, and the country might run a consistent trade deficit by 2013, he estimates. That would create export opportunities not seen since the turn of the 20th century, when the US emerged as the world’s largest consumer market. O’Neill cites a 2011 report by Boston Consulting Group that suggests rising costs in China could restore America’s manufacturing competitiveness within the next five years.
At a time when the perception of economic malaise is pushing the West to erect trade barriers, O’Neill’s overview of the mutual benefit that accompanies growth offers a much-needed lesson. Globalization has transformed international trade, but not every manufacturing industry is engaged in a “race to the bottom” that precludes Western companies – just look at the success of German automakers in the Chinese market.
For those who still feel threatened rather than excited by the rise of the BRICs, O’Neill goes on to emphasize the difference between size and wealth. For all their dramatic growth, BRIC countries do not have much chance of becoming as wealthy as the developed world, with the possible exception of Russia.
It’s a simple lesson, but one that bears repeating. Take one Goldman Sachs scenario for 2050: China is by far the world’s largest economy with a GDP of US$80 trillion, more than double that of the US. Yet the individual American would still be nearly twice as rich as an average Chinese and four times as rich as an average Indian. In other words, the total wealth of a country should not be confused with the wealth of its people.
“What passes for common wisdom is often no more than a lazy consensus, overconfidence in the face of inordinate complexity,” O’Neill admonishes the reader at the onset of “The Growth Map.” It appears that the lazy consensus has now absorbed his once-innovative term. To forecast the outcomes of economies and investments, scholars, investors and business people alike will need to look much more closely at the BRIC grouping that is now driving the world’s economic growth. O’Neill’s book will certainly help them to do that.