O’Neill sees ‘rosy’ Bric future even as China, India slow

Jim O’Neill, the economist who coined the acronym BRIC, may again be ahead of his time. Or perhaps he just has bad timing.
His new book, The Growth Map, reached stores this month with predictions of “rosy prospects” for the BRIC nations of Brazil, Russia, India and China and other developing markets.
Yet economic growth in many of these countries is slowing these days, casting a shadow over the sunny forecasts he dispenses from his desk at Goldman Sachs Group Inc.

The BRICs, boosted by at least $870 billion of fiscal stimulus, did become the locomotives of the global economy during the Great Recession that battered the US from December 2007 to June 2009. Now China, India and Brazil are losing speed after raising interest rates to curb the inflation that the stimulus stoked.

Many investors suspect that China’s rapid growth in recent years stemmed from a debt-fuelled bubble, if not the daddy of all Ponzi schemes. India keeps balking at market-opening policies, reversing its decision to let foreign retailers such as Wal-Mart Stores Inc expand in the country.

New York University professor Nouriel Roubini, dour as ever, says China may have a hard landing within a year. Even O’Neill, who wrote his book in mid-2011, is now predicting that global growth next year will decelerate to 3.4%.

Ten years have passed since O’Neill introduced the BRICs as four populous, ambitious countries destined to drive global growth in the coming decades. In follow-up research, his team wrote that China could overtake the US as the world’s largest economy by 2035, while the combined gross domestic products of the BRICs could exceed that of the Group of Seven leading industrial nations by 2039.

The acronym transformed both O’Neill’s career and how global investors viewed the world. The BRICs obligingly outpaced his boldest original forecast, roughly quadrupling their aggregate GDP from $3 trillion when he wrote the paper to almost $12 trillion, he says. It was an impressive showing, even if Western consumers, drunk on cheap credit, financed the party by importing BRIC goodies.

Expanding the franchise, O’Neill’s team has since explored the potential of the next eleven most populous emerging economies, or the ‘N-11’. More recently, he decided that the term “emerging markets” no longer applies to the BRICs or four of the N-11 — Indonesia, South Korea, Mexico and Turkey. These he now calls “Growth Markets.”

The medley of labels can smack of a fund manager’s sales pitch, a suggestion he rejects. “It is not a marketing gimmick or a way to sell a new investment fund,” says O’Neill, now chairman of Goldman Sachs Asset Management. “It is a way to help all of us think more globally.”

For anyone unfamiliar with his research, ‘The Growth Map’ offers a handy, if repetitious, guide to how he hit on the BRIC idea and how his thinking has since evolved.

The initial impulse came when the 9/11 terrorist attacks pulverised the World Trade Centre and threatened to knock globalisation — and all its benefits — off track. He began looking for a new way to think about growth, “some idea that could be shared and accepted by everyone, and would transcend nationalism.”

As the acronym caught on, many urged him to scramble the letters. Why not call them CRIBs, reflecting their economic infancy? Did the R really merit inclusion? Was the B there only to make the acronym sound snappy?

The BRIC concept is appealing, I suspect, because it forces Western investors to set aside their preconceptions about the world. O’Neill encourages us to concentrate on the basics: population and productivity. It’s the demography, stupid.

“In all my analysis of world economies, amid all the information and hype, I have stayed focused on the benefits of an expanding, more productive workforce,” he writes.

This admirably simple approach is a weakness as well as a strength. History teaches that economic development depends on more than demographics. What about property rights, the rule of law, education and technology?

O’Neill and his team now include some of these factors in their assessments, yet one suspects they should spend more time studying the BRICs’ turbulent pasts and less time finessing their models.

Recent events — ballot-box stuffing in Russia, protests against land seizures in China, the U-turn on foreign retailers in India — suggest that the road to lasting prosperity and stability will be anything but smooth.

O’Neill, for all his optimism, doesn’t ignore the challenges. Yes, he’s aware that China’s boom benefited from exports and massive investments. No, he’s not blind to the nation’s pile of bad loans. India’s poverty remains astonishing, its traffic jams legendary and its bureaucracy suffocating, he says. Russia suffers from a shrinking population, poor governance and a dependence on energy and raw materials.

Though no storyteller, he also tries to lighten the reams of GDP projections with anecdotes from his travels to the Himalayas, Rio and Russia. The narrative that really excites him, though, is how the ascent of BRIC economies is freeing millions from poverty and unleashing their ambitions. This is, he maintains, “the dominant story of our generation.”

Let’s hope the story has a happy ending. Bloomberg