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November 27, 2011 8:35 pm
The Growth Map: Economic Opportunity in the BRICs and Beyond, by Jim O’Neill, Penguin, £25
The rise of the Bric economies is hard to separate from the name of Jim O’Neill. The former Goldman Sachs chief economist deserves credit for coining the acronym for Brazil, Russia, India and China 10 years ago; for predicting their spectacular growth; and for boosting their importance in the minds of investors and the world at large.
Without the label, the Brics would have risen anyway, although it might have taken longer for them to establish their credentials among fund managers. Mr O’Neill denies that his invention was a marketing ploy. But it has undoubtedly been a marketing success, spawning the creation of Bric-only investment funds.
It has worked so well that Mr O’Neill, now chairman of Goldman’s asset management arm, is struggling to develop new ways of labelling what most people still call the emerging markets. He does not like the phrase, as it underestimates these countries’ economic role. How can China still be an emerging market, he asks, when it already figures so prominently among policymakers, executives and investment officers?
His latest label is “growth markets”, which covers not just the Bric quartet but other emerging markets, including Indonesia, Mexico and Turkey. But it does not have the same ring as the Brics and lacks precision.
Mr O’Neill ruminates on all this in The Growth Map: Economic Opportunity in the BRICs and Beyond. It’s a somewhat rough-and-ready collection of the thoughts of the Bric inventor, described on the front cover as “Goldman Sachs’ rock star”.
The moniker sets the tone – this is a passionate riff on the subject rather than a perfectly-formed symphony. Clearly it was written in a hurry – with plenty of references to events in mid-2011 – so it is bang up to date but suffers from some hasty editing.
Mr O’Neill’s enthusiasm for the Bric story stands out. We read how the Bric economies did even better than he forecast in 2001, which encourages him to make equally bullish predictions for the next 10 to 40 years. Brazil, he says, was his biggest gamble 10 years ago, given the prevailing doubts then about its stability. Now its economy is larger than that of Italy.
The striking element in today’s forecasts is his optimism on Russia, with a prediction that, even with an ageing population, the country’s gross domestic product could overtake that of France, the UK and ultimately Germany by 2030. He thinks Russia can achieve this by diversifying away from natural resources into manufacturing, including for export. This is, of course, the dream of Russia’s economic liberals. The problem is the pervasive power of the conservative energy lobby.
Mr O’Neill has little time for western criticism of Russian authoritarianism or one-party rule in China. He quotes an American businessman recounting a line from a Chinese person, who had said: “What’s the big deal about voting? In the US everyone can do it and only half the people do. If voting were that great a thing, like sex for example, everyone would do it.”
This point is too important to cover with a few anecdotes. A book on the Brics might not be the right place to haul either China or Russia over the coals for their manifest human rights abuses. But Mr O’Neill could have addressed the links between rising living standards and democracy. Studies by Polity, a US research group, show that as GDP per head rises, states move towards democracy. Few countries with per head incomes of more than $10,000 a year survive as authoritarian nations except for oil exporters.
Russia, with income of more than $15,000 a head on a purchasing power parity basis, is one of these. China, on about $7,500 and growing fast, is approaching the income level when democratic change often begins. There are powerful arguments about why both countries might be permanent exceptions to the democracy rule. It would be worth knowing what Mr O’Neill thinks of this debate.
He’s on much stronger ground on economics and investment. While the anecdotes of rising consumer spending could be better organised, they paint a compelling story of huge opportunities. Mr O’Neill is right to give credit to leading western multinationals, notably carmakers, for spotting the potential early.
A discussion of foreign exchange policy is particularly convincing. Looking at BEijing’s options in exchange rate management, he says that officials might wish to keep control of the renminbi even as its international role grows. He is “not entirely convinced that [Chinese] policymakers will allow the currency to be as liquid and tradable as the dollar.”
This is a book that whets the appetite rather than leaving readers satisfied. But it is none the worse for that.
The writer is the FT’s emerging markets editor
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