The B R I C

Created on 14/4/2008

What is the BRIC? It is the acronym for the four big, new economically surging power countries, the future super powers. They are Brazil, Russia, India and China. Here I am about to argue that despite economic arguments in their favor, I don’t agree.

All four of these countries have been growing into powerhouses throughout the latest period of global growth. Now they, like the first world, face a different scenario. In this new situation we all face decreasing growth, and maybe even a sustained recession. My bet is that we are going to have to face the latter, and if this is mishandled, it could be a whole lot worse.

There are reasons for these countries to have been doing so well during the last ten years of growth. The first world’s boom was built on explosive consumerism and the BRIC economies supplied those needs, be that the manufacturing capacity of the Chinese or the raw materials, like oil and gas of the Russians or the call centers and technological services of India. Without such need there is a concomitant decrease in demand.

There are other, bigger reasons for the problems that lay ahead for these economies and they are less obvious, but perhaps even more pertinent. Chief amongst these problems is the lack of democracy in China. How can there be economic freedom in a society lacking political and personal freedom? I am unable to name any country from history in which this has been sustained. From history you can predict the future with almost total certainty. China, in its present form, cannot be a long-term economic power. Something will have to give.

Like many others I am horrified by how the Chinese Government is treating Tibet. However it is not their behavior that surprises me. What is really shocking is how their Ministers appear on television without the self -realization that the rest of the world is horrified. Like all totalitarian regimes they are unable to see themselves in the global mirror. It is an unworkable dichotomy to imagine you can have a fault line within a country that promotes central control for all things except aspects of business. In fact, the truth is that freedom in business demands a great deal of freedom in society. The Chinese bureaucracy is almost certainly an unintended invitation to widespread endemic corruption. If there are vast riches to be gained, and they come through a state controlled tap then the controller of that tap is going to become seriously rich and powerful. Long term there is a fault line in this economic model so wide that the resulting earthquake could damage our whole world when it blows.

India is a different story. It is the biggest democracy in the world, but it is not an efficient democracy working like anything we know in the western world. It is no worse for this except where it comes to long-term efficiencies. Although there is a growing middle class in India, there are also huge social inequalities and almost feudal social economics in play. This model can work if there is continual growth in wealth, which takes everyone’s collective mind off their plight in other areas. Again, India, like China, is going to suffer huge growing pains that could well result in massive social upheaval and this might lead to breakdowns in the present social order.

Home grown consumerism can ameliorate the damage this inevitable changing of gears will cause as the world economy shudders into neutral, perhaps reverse, but it won’t make it vanish.

Brazil and Russia both have some similarities to each other. They each possess large populations of able and dexterous people but above all they are rich in resources. The Russians are prepared to bully anyone that doesn’t meet their price but that can backfire badly when the boot is on the other foot and economies contract. Some people regard Brazil as being almost ungovernable. Russia is now governed by their new Tsar, Mister Putin and has become a giant and corrupt oligarchy that he controls. It is a gangster state.

Will these BRIC economic tigers prosper, or is their flame going to flicker and die? My belief is that they are going to have to reform or they will inevitably fail in the longer term. We should do all we can to help this process for the benefit of us all.