The Problem with the (BRI)C Theory

“Families are always rising and falling in America,” Nathaniel Hawthorne observed, and the same is true of nations.  Their economies emerge and retract, develop and decline, and while, as investor Jimmy Rogers writes, “the 19^th century belonged to Great Britain and the 20^th belonged to America,” the great story of this day, in the 21^st century, indeed seems to be a great shift in global economic power away from long-developed nations like the United States and Great Britain and towards emerging nations in the east and in the global south. It was such a perceived notion that led former Goldman Sachs chief economist Jim O’Neill to coin the term BRIC in 2001, an acronym for Brazil, Russia, India, and China, a group of nations that Mr. O’Neill believed to be the great economic powerhouses of the future. It is an intriguing notion, and one well accepted in a post-2008 world ripe with economic instability in western developed countries. Yet there are several great flaws with the BRIC thesis, found not in its general premise but in three of the four nations whose economic dominance it predicts.

In truth, only of these four nations, China, has achieved, or is on its way to achieving, global economic power. A host of problems plague Brazil, Russia, and India, enough so that even O’Neill himself told the Financial Times just this past Sunday that he believed a “reshuffling” of his original theory was in order. O’Neill, who is soon set to retire from his current position as chairman of the asset management group at Goldman Sachs, notes that “China’s doing better than we assumed and it is in the strongest position…India is the most troubling because its growth rate has slowed significantly.”

O’Neill isn’t the only one who believes there are flaws to his BRIC conception.  Rogers writes in his latest book Street Smarts (a wonderful read, by the way) of the problems that plague O’Neill’s wunderkinds. Brazil, Rogers says, “owes its prosperity almost exclusively to the bull market in commodities, which like all bull markets will come to an end.” The implications of a decline in demand for commodities, particularly in China, are serious for Brazil, reliant as they are on the export of such items. Russia too, Rogers believes, owes its prosperity to the same bull market.

On top of that, demographic trends pose perhaps the greatest problems in these nations. In Russia, declining population growth rates and an increasingly aging population represent threats to productivity; in India, an opposite surging population is expected to yield a similar result, considering the nation is hardly able to feed its current population of 1.2 billion people, 32.7% of whom live on $1.25 a day or less (compared to 13% in China). And, if we look at the problem of rising debt, we see that India now holds a debt-to-GDP ratio of nearly 70 to 1, closer to the level of the United States (which is itself now over the ominous 100 to 1 mark) than to China (a mere 16 to 1).

These are examples of just some of the problems that plague Brazil, Russia, and India, and, without a doubt, China too will experience problems and economic downturns in the coming years. Many believe that the aging population Russia now experiences might occur in China in the future. However, it seems clear that at the present China alone, together with its fellow Asian states (excluding India) is experiencing the growth O’Neill predicted. The central premise that there exists a core of emerging nations poised to take the mantle of global economic dominance is true, but the great story of our times is not the rise of all of these these BRIC countries, but rather only of the nation represented by that final letter, C.