How big are the BRICs? by Sir Jeremy Greenstock
How big are the BRICs?
Sir Jeremy Greenstock, Gatehouse Advisory Partners
The most significant change in the global picture since the collapse of the Soviet Union in 1990 is the emergence of the new dynamo economies in China, India, South-East Asia, Brazil and Turkey, alongside the growing strength and flexibility of the sovereign wealth funds in the Gulf, Russia and other resource-rich states. Why does this translate into so much political influence? How long will the redistribution of relative power continue? And what will be the effect on global relationships, trade patterns and stability.
You have to bear the consequences of what you wish for. The end of the Cold War was a victory for the free world, with democracy apparently showing itself as the system most likely to generate open, prosperous and stable societies. So the more freedom and democracy, the better, it seemed. We underestimated the degree to which a more closed global structure, with the industrialised world controlling the economic agenda, gave comparative advantage to Europe and North America. A world of equal opportunity, fairly applied rules and freedom of choice tilts the playing-field back to a flatter level, in which size of population, access to raw materials and capacity for hard work all count fair and square. That’s ‘normal’ and the West has to get used to it. Military weight, political sophistication, diplomatic finesse all score fewer marks. Economic competitiveness and information skills matter much more. This brings education, science and technology to the forefront; but these are openly available to those who organise and invest in their access to them.
This train of thought leads to some interesting conclusions. The skills that are starting to tell in the modern age are those of organisation, strategic good sense, innovation, determination and persuasiveness. It helps to have economic momentum and large amounts of unleveraged capital, but those benefits can be damaged by unwise investments or blatant inequality. Ideas and good management are the priorities. Staying out of trouble (in effect, persuading others that you are good world citizens) helps.
Where does that leave the world’s major players? The European Union is the largest economic bloc, but the recent evidence suggests that it has been focusing on the wrong strategic objectives (closer union between unequal entities) and performing weakly on innovation. The United States remains massively powerful as a dynamic and innovative economy, but is having difficulty adjusting to a more equal and ‘softer’ world and has made some unconvincing policy choices since 2001. The West remains a hugely competent organiser, but seems to have been sitting on its laurels.
And the BRICs? Their dramatic rise to prominence can be put down, fairly, to their hard work and determination. But most of it stems from the levelling of the playing-field. Their comparative advantage is time-limited. Add on a bit of oomph for the momentum they have created, and for the older economies’ slowness in adapting to the new environment, and their superior growth performance will last for a few more years. But then they will find inflation and the modern skills criteria beginning to bite. Underneath the organisational and innovation challenges, there also demographic questions. What effect will an ageing China have on economic dynamism? Can India create jobs for its much younger, growing and demanding population? Can Brazil’s education system supply the skills for an accelerating production capability? How can Russia diversify its economy with a declining population, an increasingly repressive political climate and poor policy-making?
The BRICs are going to be tested much more fiercely over the next period than they have in the last one. Will the older industrialised world see the atmosphere as competitive and hold back from helping them, or will the health of the total global economy be the first priority? With the trend in geopolitics veering towards nationalism, expect greater competition. But the newer economies will not have it all their own way.