BOOK
REVIEW BRIC by brick to the
future The Growth Map: Economic
Opportunity in the BRICs and Beyond,
by Jim O'Neill.
Reviewed by
Benjamin Shobert
Against the backdrop of
all that has happened in the United States and now
Europe since the 2008 financial crisis, it has
been easy to criticize modern economics for its
inability to predict downside risks or negative
trends that would come to define the world.
While this may be a perfectly
understandable frustration, it overlooks one of
the most important and accurate economic
predictions that professional economists have made
in the past
20 years: how the rise of the
world's emerging economies would happen, and what
this would mean for the developed world.
Jim O'Neill, now chairman of Goldman Sachs
Asset Management, not only coined the term "BRIC",
which stands for both what he saw as the four most
important emerging economies of Brazil, Russia,
India and China, as well as the larger set of
opportunities and challenges that would be faced
as these countries developed their respective
economies. (South Africa has subsequently become a
member of what is now known as BRICS.)
His
new book, The Growth Map: Economic Opportunity
in the BRICs and Beyond builds on the
successful predictions made 10 years ago when he
asserted that these four countries would surpass
the six biggest economies of the West in 40 years.
O'Neill's predictions a decade ago were,
as he now puts it, "rather conservative". His
quick rundown of how BRICs actually performed
during the period in question lays the foundation
for the bold predictions in his new book.
O'Neill writes of his original projections
that the aggregate gross domestic product (GDP) of
the BRIC countries "has close to quadrupled since
2001, from around $3 trillion to between $11 and
$12 trillion. The world economy has doubled in
size since 2001, and a third of that growth has
come from the BRICs."
To put this into
perspective, O'Neill states, "Their combined GDP
increase was more than twice that of the United
States and it was the equivalent to the
creation of another new Japan plus one Germany, or
five United Kingdoms, in the space of a single
decade." (Emphasis the reviewer's.)
Much of this economic growth comes at the
hands of the resurgent BRIC countries, which is
something Westerners take for granted today; but
O'Neill is right not only to point back at this
growth as reason to believe in what he is about to
write in his new book, but equally to remind the
reader of the enormous economic good that has been
set in motion by the entrance of the BRIC
economies to the world order. During a period
where Americans in particular have grown cynical
about whether China's presence has been for their
betterment or detriment, O'Neill's reminder is
much needed.
Thankfully, in The Growth
Map, O'Neill takes the time to explain briefly
to readers the original methodology he and his
team used when their original bold predictions
about the BRIC countries were made. Built largely
on what O'Neill calls a "global environment score"
or "GES Index", this approach takes into account a
total of 13 variables, some obviously economic
(inflation, government deficit, external debt, and
so forth) and others more intangible (use of
computers, education, corruption, stability of
government).
O'Neill splits these into
"macroeconomic" and "microeconomic" variables, a
distinction that is perhaps more clear on the
macro side than the micro. His large point is that
the methodology used to originally predict the
growth of the BRIC countries proved to be accurate
because of this approach, one that blends both
hard quantitative factors with more soft
determinations about a country's current
situation.
Anticipating those who will
read his book and argue that a particular country
should not be included in the BRIC formulation -
India as one of the more recent and common
examples - O'Neill spends time going over the
downside risks he sees in these countries. But,
his review of these concerns always goes back to
the predictive value of the GES Index.
The
larger point he makes is worth reflecting on:
during a period when prognosticating about the
future of the BRIC countries is as much about
Western insecurities as it is a grounded analysis
in what drives economies forward, the latter is
the right approach. Unwilling to simply overlook
trouble in any of the BRIC economies, he is
equally unwilling to let these problems obscure
the reality of where they have come from, and
where they are likely going.
With his
history of properly predicting the rise of the
BRIC economies firmly established, O'Neill turns
his attention to what he calls the "Next Eleven"
or "N-11". Originally a group he identified in
2005, this list includes Mexico, Turkey, Egypt,
Iran, Nigeria, Bangladesh, Indonesia, South Korea,
Pakistan, the Philippines and Vietnam. As O'Neill
admits, this group is not only much larger, but
more diverse than the original BRIC formulation.
Within this group, as O'Neill admits, is
more volatility and instability than existed when
he originally constructed the BRIC idea using the
GES Index. Consequently, his predictions about the
Next Eleven are couched a little more carefully.
Where O'Neill's previous predictions were more
discrete, namely, that the BRIC economies would
surpass the developed West in 40 years, his
predictions about the Next Eleven show confidence,
but come short of the bold certainty of previous
predictions.
O'Neill compartmentalizes the
Next Eleven into what he calls "three different
tracks". Respectively these are first, "South
Korea, Mexico and Turkey, where incomes and
development levels are reasonably high, growth
conditions are decent and the challenge will be to
sustain and improve those conditions in order to
converge with the world's richest economies."
His second group includes Indonesia and
the Philippines, where he believes each needs "to
advance further to get closer to the first group".
The final group includes Egypt, Nigeria, Pakistan,
Bangladesh, Iran and Vietnam. As O'Neill notes,
"The countries in this final group ... are quite
different."
Aware that The Growth
Map comes at a different moment in the world's
economic development than when he made his
original BRIC predictions, O'Neill is careful to
evaluate how issues like China's consumption of
natural resources and its growing role in Asian
affairs might be potential sources of tension and
unrest. He also appreciates that China's rise,
once something Washington believed it should
encourage, is currently being interpreted by many
Americans as having been at their expense.
O'Neill notes that "At a time when the US
economy is struggling, it is easy to blame others,
and especially China." He penetratingly writes "It
is highly fashionable for US politicians to blame
China for America's economic problems." Yet, as
O'Neill knows, this sort of response is precisely
what many American policy makers and the public at
large believe would be best suited to get back
what they feel they have lost to the rising BRIC
economies.
Towards the end of his book,
O'Neill turns his attention towards what he
believes the world must do in response to the BRIC
nations having, as he puts it, "gone from emerging
to emerged". The established order, whether
evidenced by non-governmental organizations like
the World Trade Organization or the International
Monetary Fund, will have to change in ways that
developed nations like the United States and the
eurozone may want to resist.
O'Neill
cautions that "Those countries that ran the world
for the latter half of the twentieth century
cannot afford to be squeamish or judgmental about
countries that now rival them economically, just
because of their different social and political
systems."
The Growth Map contains
its share of predictions, admittedly more
carefully couched than those O'Neill was
originally made famous for, but ones that are no
less potentially impactful. Whether the Next
Eleven will in fact emerge like the BRIC nations
have is certainly a pregnant question he labors to
answer, the more weighty question may be whether
the developed West has the willpower and
leadership necessary to find their way forward
without conflict in a world where they no longer
have the unquestioned upper hand.
The
Growth Map: Economic Opportunity in the BRICs and
Beyond, by Jim O'Neill. Portfolio Hardcover
(Dec 2011), ISBN-10: 1591844819. US$29.95, 256
pages.
Benjamin A Shobert is the
managing director of Rubicon Strategy Group, a
consulting firm specialized in strategy analysis
for companies looking to enter emerging economies.
He is the author of the upcoming book Blame
China and can be followed at www.CrossTheRubiconBlog.com.
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His
new book, The Growth Map: Economic Opportunity
in the BRICs and Beyond builds on the
successful predictions made 10 years ago when he
asserted that these four countries would surpass
the six biggest economies of the West in 40 years.
