Brazil, Russia, India and China recently held their second annual summit in Brasilia. Journalists continue to lavish attention on these so-called “BRIC” countries, but I remain skeptical of the concept.
Goldman Sachs coined the term in 2001 to call attention to profitable opportunities in what it considered “emerging markets.” The BRICs’ share of world GDP rose from 16 percent in 2000 to 22 percent in 2008. Collectively they did better than average in the subsequent global recession. Together, they account for 42 percent of world population and one-third of global economic growth in the past 10 years. Putting aside the US (which ranks third in population), annual economic growth in the other four most populous countries — China, India, Indonesia and Brazil — was above 5 percent to 6 percent in 2000-2009.
Obviously, that is good news for the world economy, but an economic term has taken on a political life of its own, despite the fact that Russia fits poorly in the category.
As the Beijing Review commented, “when Goldman Sachs created the acronym BRIC in 2001, neither the economists nor the rest of the world imagined that Brazil, Russia, India and China would finally sit together to build up a substantial platform one day.”
In June last year, the foreign ministers of the four countries met for the first time in Yekaterinburg, Russia, to transform a catchy acronym into an international political force.
The BRICs hold US$2.8 trillion or 42 percent of global foreign reserves (though most of that is Chinese).
So, in Yekaterinburg, Russian President Dmitri Medvedev declared that “there can be no successful global currency system if the financial instruments that are used are denominated in only one currency.”
After China eclipsed the US as Brazil’s largest trading partner, China and Brazil announced plans to settle trade in their national currencies rather than dollars. Although Russia accounts for only 5 percent of China’s trade, the two countries announced a similar agreement.
After the recent financial crisis, Goldman Sachs upped the ante and projected that the combined GDP of the BRICs might exceed that of the G7 countries by 2027, about 10 years sooner than initially believed. Such simple extrapolations of current economic growth rates often turn out to be mistaken because of unforeseen events. Whatever the merits of this linear economic projection, however, the term BRICs still makes little sense for long-term assessments of global power relations.
While a BRICs meeting may be convenient for coordinating some short-term diplomatic tactics, the term lumps together disparate countries that have deep divisions. It makes little sense to include Russia, a former superpower, with three developing economies. Of the four members, Russia has the smallest and most literate population and a much higher per capita income, but, more importantly, many observers believe that Russia is declining while the other three are rising in power resources.
Russia today not only suffers more from the aftermath of the global recession, but it faces severe long-term liabilities: A lack of diversified exports, severe demographic and health problems, and, in Medvedev’s own words, an urgent need for “modernization.”
As the Financial Times recently pointed out, just two decades ago “Russia was a scientific superpower, carrying out more research than China, India and Brazil combined. Since then it has been left behind not only by the world-beating growth of Chinese science but also by India and Brazil.”
When one looks closely at the numbers, the heart of the BRIC acronym is the rise in China’s resources, but the role of Brazil is a pleasant surprise.
When the BRIC acronym was first invented, The Economist objected that “a country with a growth rate as skimpy as its swimsuits, prey to any financial crisis that was around, a place of chronic political instability, whose infinite capacity to squander its obvious potential was as legendary as its talent for football and carnivals, did not seem to belong with those emerging titans.”
Now, as The Economist notes, “in some ways, Brazil outclasses the other BRICs. Unlike China, it is a democracy. Unlike India, it has no insurgents, ethnic and religious conflicts or hostile neighbors. Unlike Russia, it exports more than oil and arms and treats foreign investors with respect.”
Since curbing inflation and instituting market reforms in the 1990s, Brazil has shown an impressive rate of economic growth in the range of 5 percent. With a territory nearly three times the size of India’s, 90 percent of its 200 million people literate, a US$2 trillion GDP equivalent to Russia’s and per capita income of US$10,000 (three times India’s and nearly twice China’s), Brazil has impressive power resources. In 2007, the discovery of massive offshore oil reserves promised to make Brazil a significant power in the energy arena as well.
Brazil, like the other BRICs, also faces a serious number of problems. It ranks 75th out of 180 countries on Transparency International’s corruption perceptions index (compared to 79th for China, 84th for India and 146th for Russia). The World Economic Forum ranks Brazil 56th among 133 countries in terms of economic competitiveness (compared with 29th for China, 49th for India and 63rd for Russia). Poverty and inequality remain serious problems. Brazil’s Gini coefficient is 0.57 (1.0 is perfect inequality, with one person receiving all income), compared to 0.45 for the US, 0.42 for China, 0.37 for India and 0.42 for Russia.
So, how seriously should analysts take the term BRIC? As an indicator of economic opportunity, they should welcome it, though it would make more sense if Indonesia replaced Russia. In political terms, China, India and Russia are competitors for power in Asia, and Brazil and India have been hurt by China’s undervalued currency. Thus, BRIC is not likely to become a serious political organization of like-minded states.
Joseph Nye, a former US assistant secretary of defense, is a professor at Harvard University.
Copyright: Project Syndicate
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