Jim O’Neill is a more successful economist than I’ll ever be. He rose to the top of the pre-eminent investment bank, Goldman Sachs, and is known around the world as the discoverer of the BRIC (an acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development). So influential was his identification of these four countries as the emerging economies of the future, they now hold an annual BRIC Summit, while other economists routinely reference O’Neill’s catchy acronym. Not since John Kenneth Galbraith (who counted ‘conventional wisdom’ and ‘affluent society’ among his viral neologisms) has a practitioner of the ‘dismal science’ so effectively reshaped popular thinking, and language.
Unsurprisingly, O’Neill’s follow-up discovery – the MINT economies – have been getting equally favourable coverage. He’s already spent a week on the BBC touring Mexico, Indonesia, Nigeria and Turkey, as the next dynamic economic quartet.
An expert this well-recognised can begin to turbocharge the trends they comment on. But before we channel our hard-earned savings towards the MINTs, it’s worth reflecting on the fate of the BRICs, and what they say about this form of prediction.
Emerging and Converging
There are various ways to measure a country’s economic progress, but the one most usually adopted is growth of national output, adjusted for inflation – real GDP (gross domestic product) growth. The table below shows real GDP growth for BRIC countries in the ten years before O’Neill announced their arrival, and in the ten years since. It actually uses real GDP per person, or per capita. That’s to be fair to Russia – whose population was falling during this time while the others’ rose, making it harder to match their GDP growth rates. The USA is thrown in to give a comparison with the ‘developed’ world.
This record makes it unsurprising why Jim O’Neill’s views are so respected – and why the ‘next BRICs’ are so eagerly sought. Brazil and India had already grown strongly in the decade before O’Neill picked them out – but in the decade that followed, they doubled their average growth rate in real terms. China had already grown so impressively in the decade to 2001 (more than doubling its per-capita GDP ) that many doubted that it could keep up its 10% annual expansion. O’Neill correctly anticipated it would do even better, generating 2.5 times its 2001 per-capita GDP by 2012.
And on Russia, going by this indicator, he was even more far-sighted – correctly predicting that a dismal decline in national income for the first ten years after the Soviet Union’s collapse would give way to a rise (coinciding with Putin’s) of more than 50%. As a result, all the BRICs did spectacularly better than the US, which rarely grew at 3% or more even in its better years, and saw its real GDP fall after the financial crisis of 2008.
BRIC through the window?
Given the BRICs’ obvious fulfilment of expectation, why would anyone doubt that the MINTs are the next big thing? One problem arises for the business and financial investors at whom these forecasts are especially aimed. A fast-growing economy with a large and rising population (one of the main criteria for selecting the BRICs) does not guarantee that a country will reward those who try to do business there. Russia has been a particular problem in this regard, with a number of prominent investors – including BP-Amoco and the prominent fund manager Bill Browder – being robbed of substantial assets through inadequate shareholder protection, with suspicions of state-linked organised crime.
Russia’s growth since 2001 has also been heavily dependent on oil and other raw-material exports, so it actually fell into recession when the 2008 crisis hit its main western customers. Commodity-based wealth also makes for a very unequal income distribution (keeping down the size of consumer markets, and risking social instability), and is associated with corruption which can make business substantially more expensive. Reliance on raw-material exports is a key reason why Russia and Brazil are unlikely to repeat their recent success in the next ten years. And corruption is a problem across all the BRICs – which rank (respectively) 72nd, 127th, 94th and 80th in the latest Transparency International perceptions index, while the US stays at a more respectable 19th.
The BRICs also weren’t a complete guide to the economies that would ‘take off’ in the new century. Because the acronym is usually pluralised, it’s often been assumed to contain a fifth member beginning with S. South Africa fits the bill well, as the above table (and its hosting of the latest BRICs summit) show – but it wasn’t in O’Neill’s original presentation. It did, however, get included in the CIVETS, a group of seven countries nominated a year ago – as the next emerging giants – by the Economist Intelligence Unit economist John Bowler. Bowler’s economic skills are no less than O’Neill’s, but his acronym – which happens to be a south-east Asian rodent whose droppings make the world’s most expensive coffee – was just too erudite to catch on.
So what are we to make of the MINTs? They will certainly be taken more seriously because of Jim O’Neill’s accolade. All have potential to repeat the BRICs’ sustained success. But to be fair, his radio programmes probed both sides of their breakthrough stories, and this is no one-sided selling-job. Mexico suffers from a grossly unequal income distribution and the aftermath of a costly war with drug cartels; Indonesia and Nigeria are still dependent on commodity exports, highly corruption-ridden and fighting increasingly costly battles against terrorist movements; and Turkey’s rapidly growing banks could mean a financial wobble to follow its recent political turbulence. All are vulnerable to a general capital outflow from emerging markets – straining their foreign debt finance – as US interest rates start to rise in the next 2-3 years.
And there’s the peril of the sequel, which sometimes transcends the first version but can equally often fall flat. Several studies have found that fund managers who outperform the financial markets in one period generally underperform them in the next – suggesting that success may actually be random. Others have been harsher on O’Neill’s first analysis than I’ve been. Not being a chef-economist, let alone a chief-economist, I’d just advise you to take every MINT with a pinch of salt.
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