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Why it is not Easy for The BRIC Bloc to Beat The West
For Many Years Now, The BRICs have been known as a Consortium that was Predicted to Overtake The Economic might of The Developed Nations. But there are Issues which Put Doubts on The Very Viability, The Workability and The Long-Term Effectiveness of this Ambitious Bloc.
Issue Date - 26/05/2011
Ever since the term BRIC was coined by Goldman Sachs in their Global Economics Paper, ‘Building Better Global Economic BRICs’ in November 2001, it has often been used as a representative of the shift in global economic power from the West (or the developed nations), to the developing nations. More than anything else, the projection of this shift is said to have created a lot of ripples in the international order, and understandably, more so among the developed countries that constitute the industrialised group – the G7.

Economists worldwide have projected BRIC as a powerful bloc of emerging economies. Why not? Combined, the four economies recorded a total GDP (in PPP terms; because economists argue that China’s exchange rate is not determined by market forces, but by fiat currency) of over $18 trillion ($18.34 trillion to be precise; as of CY2010). According to the International Monetary Fund (IMF), the BRICs are set to account for 61% of global growth over the next three years. Even Goldman Sachs, in its report, had argued that since the BRIC countries – which today occupies over 25% of the world’s land and house 40% of the world’s population – are developing rapidly, their combined economies could eclipse the combined economies of the current richest countries of the world by 2050. Brazil, Russia, India & China were set to emerge as the four most dominant economies by 2050 on the basis of their huge economic potential.

But fears abound that the concept of BRICs is just an overhype. While the growth of these economies has been remarkably heartening, thanks to the projections acting as a huge booster for FDIs and FIIs flowing into these countries, there is danger that this coin too, has a flip side. Contrary to the argument that the combined economies of BRIC countries could surpass the world’s richest countries by 2050, the projections, while concealing much detail in terms of the distribution of that growth, are actually based upon mere assumptions and cannot be relied upon. Economists like Vrajlal K. Sapovadia, Director, National Insurance Academy (NIA), Pune, contend that deviation in assumptions, difficulty in assessing qualitative factors, undermining inherent threats like population pressure, illiteracy, corruption, social and political unrest may actually lead to unrealistic forecasts.

The ‘Doing Business 2011’ report by World Bank is an eye-opener. According to this recent report, BRIC economies – when compared with their western counterparts – have actually lost shine over the past year. In the category of ‘Ease of doing business’, of the BRICs, the best ranked is China, at #79 (it was #78 last year). The other three of course occupy three-digit ranks. While Russia stands at #123 (it was #116 in 2010), Brazil comes in at #127 (#124 in 2010) and India at #134 (#135 last year). The developed world is of course far ahead of this lot, with US at #5 and UK at #6. The fact that names like Rwanda, Tonga, Vanuata, Mongolia and others are better off than the BRICs is a hard pill to digest. But true. Even in terms of per capita income and human index ranking, all the BRIC countries are worse off this year than they were in 2010 (and surely worse-off as compared to the developed nations). Digest this: the highest per-capita income amongst the BRICs is held by Russia ($9,622), which is equivalent to 1/5th of that of US’ ($47,576). “In order to make this dream (of a prospering BRIC) a reality, each BRIC country needs to set its own house in order and boost its natural and human resources through proactive management,” says Sapovadia, adding that it is imperative that their hidden strengths and wealth, like agriculture & forest land, water reservoirs and human capital be utilised scientifically before we start comparing these economies with the powerful West.

Many also claim that for all projections regarding the exemplary growth expected by the BRIC economies, the very agenda is actually being pushed by US, to open the floodgates for its products and services into these emerging economies. As interesting as they sound, the veracity of these claims is yet to be ascertained.

There is another theory doing the rounds. Despite the abundance of ‘catch-up growth’ stories in the post-war period, growth starts to disappoint after a while and it is relatively easier to catch up with the leaders as compared to overtaking them. In reference to the robust growth that China has been experiencing in recent years, a recent article in The Economist cited references from a paper by Barry Eichengreen of the University of California, Donghyun Park of the Asian Development Bank (ADB) and Kwanho Shin of Korea University. The paper examines economic records of countries since 1957 to identify potential warning-signs, and contends that it would actually be wise for China to pursue “structural reforms” – which can help cushion the effects of a slowdown – in the current scenario, when it is growing remarkably, than wait for lean years which are bound to come.


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