Bridge over ocean
6 September 2017 Financial Analysts Journal Book Review

The Growth Map: Economic Opportunity in the BRICs and Beyond (a review)

  1. Jerry H. Tempelman, CFA
The author summarizes past research on the BRICs and other emerging markets and predicts that by 2050, the world’s largest economies will not be the G–7 nations but will instead include several countries currently considered emerging markets.

Jim O’Neill’s The Growth Map is a victory lap, of sorts, but one that is well deserved. In 2001, O’Neill, then chief global economist of Goldman Sachs and current chairman of its asset management division, predicted that four emerging markets that he labeled “BRICs” (Brazil, Russia, India, and China) would experience much faster economic growth than the G–7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) and thereby raise the BRICs’ relative weights in the world’s aggregate GDP. Although O’Neill’s prediction received some initial criticism, it has proven very much on target for the past decade. The average annual real GDP growth rate of all the BRIC countries has exceeded that of almost all G–7 countries in nearly each of the past 10 years.

Today, virtually every investment professional and international policymaker knows what the BRIC acronym stands for—something that cannot be said for competing attempts at grouping countries by acronym that were inspired by the popularity of the BRIC label. The four BRIC countries have even formed an official political alliance, with annual summit meetings attended by their heads of state. In 2010, they invited South Africa into the club. O’Neill, however, does not consider South Africa to be in the same economic league as the four BRICs.

In The Growth Map, O’Neill summarizes some of his and his colleagues’ past research on the BRICs and on other emerging markets. O’Neill is even more convinced today than he was when he coined the BRIC label that the pattern of the past decade will continue. His overall thesis remains that by 2050, the world’s largest economies will no longer be the G–7 and will, instead, include several countries currently still considered emerging markets. In 2011, O’Neill identified four additional countries with BRIC-like growth potential: South Korea, Mexico, Indonesia, and Turkey. He argued that the label “emerging market” has become out of date with respect to these eight countries, and in this book, he calls them “growth markets” instead. To account for these changes in relative economic importance, O’Neill proposes that international organizations be restructured to have less representation by Western European nations and more by BRIC and BRIC-like ones.

O’Neill presents his case in an easily digestible blend of economic statistics and personal anecdotes. He is correct, of course, that the economic success of the BRICs need not occur at the expense of other countries, including those in the West, because “international trade is not a zero-sum game.” He is also refreshingly humble in acknowledging the impact that creating the BRIC acronym has had on his professional reputation and in recognizing that much of the growth of the BRIC countries comes from something as simple as demographics. Countries with growing populations are likely to experience faster economic growth than countries whose population increases have stagnated. And countries with large populations are likely to have a larger share of world GDP than smaller countries. Chile, for example, has actually grown faster than Brazil over the past 10 years, but Chile’s population and GDP are less than one-tenth the size of Brazil’s.

For all the merits of what O’Neill calls “the BRIC story,” he may be overstating his case in two ways. First, the distinction between advanced industrial nations and emerging markets has not yet become moot from, for example, a credit perspective. All top-rated countries today are still industrialized, and credit markets for the most part trade them that way. Being industrialized still appears to be a necessary condition for being top rated, even if it may not, or may no longer, be a sufficient condition. Carmen Reinhart and Kenneth Rogoff have found that the economic growth of industrialized nations begins to deteriorate when their government-debt-to-GDP ratios reach approximately 90% but this empirical threshold lies at only 60% for emerging markets.1

The idea that the distinction between advanced industrialized nations and emerging markets has lost its relevance has become increasingly popular in the wake of the European sovereign debt crisis. But it is not clear whether the convergence, if any, between the two groups of countries is because emerging markets have become economic powerhouses or because the economic prospects of Western industrialized nations are suffering from such self-imposed challenges as declining birth rates and growing entitlement burdens. Consider, for example, the large social costs associated with the recent economic success of some of the BRIC nations, particularly China. An important reason Americans are able to buy consumer products cheaply from China is that Chinese labor costs are extremely low because many Chinese are willing to work long hours for low wages under conditions that would likely not be tolerated in the West. Whether such conditions will be sustained for the next four decades is not clear.

Second, economic might does not automatically translate into political influence. O’Neill explains well why people in China and Russia do not appear to care about democracy, perhaps having been conditioned by living under communism for several generations. The West ultimately derives its influence not from its economic or even its military prowess, however, but from the moral legitimacy of its ideals in such areas as human rights, respect for individual sovereignty, corporate governance, and the rule of law. Countries whose governments act in ways that indicate they do not share these universal values are unlikely to ever be considered full equals by those that do, which will limit the influence that O’Neill argues they should exercise strictly on the basis of their economic heft.


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