Over the past few years, the most talked-about trend in the
global economy has been the so-called rise of the BRICs: Brazil, Russia, India,
and China. The world was witnessing a paradigm shift in which the major players in the developing
world were catching up to or even surpassing the developed world. But is this really the case?
These were ‘straight-line’
projections that took the developing world's high growth rates from the middle
of the last decade and extended them straight into the future, setting them
against sluggish growth in the US and other advanced industrial countries. These
projections showed, for example, that China was on the verge of overtaking the
United States as the world's largest economy (even though the U.S. economy is
still more than twice as large and with a per capita income seven times as
high)
However, with
the world economy heading for its worst year since 2009, Chinese growth is
slowing sharply, from double digits down to seven percent (even less) and the
rest of the BRICs are tumbling, too - Since 2008, Brazil's annual growth has
dropped from 4.5 percent to two percent; Russia's, from seven percent to 3.5
percent; and India's, from nine percent to six percent.
None of this is really
surprising, because it is hard to sustain rapid growth for more than a decade
but the circumstances of the last decade made it look easy - coming out of the crisis-ridden 1990s and supported by an
abundant supply of credit, the emerging markets took off and by 2007, when only
three countries in the world suffered negative growth, recessions had all but
disappeared from the international scene. But now, there is a lot less foreign money flowing
into emerging markets and the global economy is returning to its normal state.
EMERGING MARKETS
The notion of a convergence between the developing and the
developed world is a myth - of the roughly 180 countries in the world tracked
by the International Monetary Fund, only 35 are developed. The markets of the
rest are emerging-and most of them have been emerging for many decades and will
continue to do so for many more. As of 2011, the difference in per capita
incomes between the rich and the developing nations is the same as it was in
the 1950s.
BRICs (or should that be BICS or VIPs)
Other than being
the largest economies in their respective regions, the big four emerging
markets have little in common. They generate growth in different and often
competing ways-Brazil and Russia, for example, are major energy producers that
benefit from high energy prices, whereas India, as a major energy consumer,
suffers from them. Except in highly unusual circumstances (such as those of the
last decade) they are unlikely to grow in unison. They have limited trade ties
with one another, and they have few political or foreign policy interests in
common.
Russia remains a
member of the BRICs only because the term sounds better with an R.
In recent years, Russia's economy and stock market have been among the weakest
of the emerging markets, dominated by an oil-rich class of billionaires whose
assets equal 20 percent of GDP
In fact, the longest period over which one can find clear
patterns in the global economic cycle is around a decade. The typical business
cycle lasts about five years, from the bottom of one downturn to the bottom of
the next, and most practical investors limit their perspectives to one or two
business cycles. Beyond that, forecasts are often rendered obsolete by the
unanticipated appearance of new competitors, new political environments, or new
technologies.
THE NEW ECONOMIC ORDER
In the next ten
years, the United States, Europe, and Japan are likely to grow slowly as will
China as the economy matures. As growth slows in China and in the advanced
industrial world, these countries will buy less from their export-driven
counterparts, such as Brazil, Malaysia, Mexico, Russia, and Taiwan.
The economic role models of recent times will give way to new models
as growth occurs elsewhere. In the past, Asian states tended to look to Japan
as a model, nations from the Balkans looked to the European Union, and nearly
all countries to some extent looked to the United States. But the crisis of
2008 has undermined the credibility of all these role models. Tokyo's recent
mistakes have made South Korea, which is still rising as a manufacturing
powerhouse, a much more appealing Asian model than Japan. Countries that once
were eager to enter the eurozone, such as the Czech Republic, Poland, and
Turkey, now wonder if they want to join a club with so many members on the
verge of bankruptcy. And the US call for poor countries to restrain their
spending and liberalize their economies is difficult to accept when Washington can't agree to cut its own huge
deficit.
Among countries
with per capita incomes in the $20,000 to $25,000 range, only two have a good
chance of matching or exceeding 3% growth over the next decade: the Czech
Republic and South Korea. Among the large group with average incomes in the
$10,000 to $15,000 range, only one country -- Turkey -- has a good shot at matching
or exceeding four to five percent growth and in the $5,000 to $10,000 income class,
Thailand seems to be the only country with a real shot at outperforming
significantly.
To the extent that there will be a new crop of emerging-market
stars in the coming years, therefore, it is likely to feature countries whose
per capita incomes are under $5,000, such as Indonesia, Nigeria, the
Philippines, Sri Lanka, and various contenders in East Africa.
Although the
world can expect more breakout nations to emerge from the bottom income tier,
at the top and the middle, the new global economic order will probably look pretty
much like the old one .
