BRIC or RIC?

The latest surge of the BRICs (Brazil, Russia, India and China, a term coined by Jim O´Neill, from Goldman Sachs) allows us to make some comparisons among them.

The inclusion of Brazil is questioned because of its much lower growth rate than the other BRICs. Despite the piffling numbers of the most recent years, it still deserves to be ranked among these countries that might become world economic powers by 2050, but O´Neill believes it to be unlikely that Brazil may speed up to the “magical” 5% growth rate in the short term.

As for the other BRICs, their track records vary, but the three countries have been keeping to very high rates. In 2007, China grew 10.5%, India 7.6% and Russia, 7%. While Russia was tremendously benefited by the high prices of commodities, India and China enjoyed a high increase in productivity. However, both economies are still very poor and growth really ought to be much higher there. The openess to trade is much greater, investments have exceeded those of Brazil and governments are harvesting the fruits of decisions made a long time back.

India, chiefly, shows that results from tough structural reforms may take 5 to 10 years, but they are already enjoying the benefits from opening up their economy. India needs to be prepared for the possibility of being already overheated. All countries owe their performance to a very positive global environment over the last years.

China is about to face up to a very difficult political and social transition, apart from questions over poor capital allocation by the banks. The 50% drop in the Shanghai Stock Market in 2007 brings out the inherent volatility of an economy that grows 10% a year without having the necessary capital market institutions.

China already is getting to grips with ratchetting costs, which is the result of its very success. In India, the decision-making process is rather confused and may get in the way of new policies, and the primary and secondary education need to improve.

The Brazilian economy continues to be a very important regional anchor with many successes over the last years and O´Neill believes that Brazil can still keep emerging as one of the main economic forces in the world. But, certainly, we could be more confident about this if there were strucutural changes in the country.

At present, China, India and Russia are growing at much faster rates than projected. Brazil´s economy is at least 30 years more mature than theirs because it began its NDP – National Development Programme in the 60´s

Contrasts

There are some fascinating similarities between Brazil of the 60´s and 70´s and particularly China of the 2000´s.

The market economy export model

Brazil was inspired by the US market economy. The export model of Brazil Inc. envisaged raising its dollar reserves and creating jobs through foreign trade. The whole economy was run by economic teams designated by the military government, using amongst other things state banks and a heavy debt burden.

A similar strategy can be identified in China, without the indebtedness and with far more authoritarism. For instance, the Chinese government has the power to move entire populations from one city to another in the name of economic progress.

Erratic Growth

In the 70´s, Brazil experienced annual growth of 10%, followed by severe downturns. In the 90´s it came to the conclusion that sustainable growth was preferable to erratic GNP growth but it did not manage to perform above the 5% per annum level.

It is very likely that China will undergo a future hangover, partly because of cost increases. In the same way that Brazil loses out production to China, the latter may start to lose out production to even cheaper labor force centres, like India and Vietnam.

The Environment

One of the most serious problems China faces is the environment. China refuses to control its emissions. While it argues over the definition of the greatest polluter, its people breathe in the mortal smoke from its cities.

In 1973, a renouned Brazilian Planning Minister went as far as to say that environmental concerns would never get in the way of Brazil´s material progress, a statement that would be unthinkable today.

Nationalism and Hypersensitivity

One of the characteristics of the then Brazilian military government was its hypersensitivity towards even unintentional criticisms on the part of foreigners. This same hypersensitivity was also in evidence in the private sector, and foreigners were constantly obliged to praise businessmen; a mere unfavorable comparison of Brazilian companies with foreign ones was seen as offensive.

Brazil underwent a maturing process and pragmatism seems to prevail now. The country is its own strongest critic, just as the OECD´s countries. On the other hand, China overeacts to any criticism and always demands official apologies. They know no one wants to risk being kicked out of this huge market.

Market Reserve

Brazil did protect its banking, air transportation, insurance, media and information technology markets but the country kept a sort of symbiotic relationship with foreign capital. Big multinationals were obliged to accept minority stakes in joint-ventures, often with unknown or cash-strapped Brazilian partners. Brazil has almost abandoned these policies, but China follows the very same path today.

International Political Involvement

As far as the 60´s are concerned, a US slogan was “Business is the business of America”. Thereafter, the Pax Americana relegated business to second place (even third place today). BRICs go the other way around, as political ideology plays a less important role (except issues concerning Tibet and Taiwan) and doing business is all that matters, even if it is with dictatorships and rogue states. Only Brazil´s presence in Haiti seems to follow a different pattern in the international arena.

Conclusion

It would be reasonable to say that the same driving forces that led to the modernization of Brazilian society could somehow impact the RICs. No one knows how long it may take.