If ‘CHINDIA’ cannot oust the West, why not use BRIC Plus?

Monday, 17 January 2011 00:01 -     - {{hitsCtrl.values.hits}}

Two readers, one domiciled in the Middle East and the other in Canada, of my previous My View on “Asia’s Return to World Leadership: Not a Cakewalk at all” have drawn my attention to two important factors which I had overlooked therein.

The first is that, CHINDIA (China and India) may be unable to oust the West from its supreme position, but an augmented group like BRIC or BRIC Plus has a good chance of doing so. Hence, the future world will be a world of BRIC Plus that will draw its strength from four continents, Latin America, part of Europe, Africa and Asia.

The other overlooked factor is in fact supportive of my view. It has drawn attention to China’s one child policy and the consequential aging of population imposing a constraint on its ability to continue with high economic growth.

Both these factors are important and deserve our attention.

The BRIC Plus factor

The original BRIC factor was the unofficial grouping of four fast growing economies in the world, namely, Brazil, Russia, India and China, by the US based investment bank, Goldman Sachs. According to Wikipedia, the cyberspace encyclopaedia, Goldman Sachs’ Chief Economist Jim O’Neill coined the acronym BRIC in 2001 in a paper titled “The World Needs Better BRICs”. Since then, all those who were interested in having a shift in the world power from the West to a new group carried it forward arguing that BRIC was on its way to gain world supremacy. Though BRIC countries did not have any wish to have themselves organised as a separate power group at first, the continuous reference to them as an emerging world power made them meet at high levels to discuss issues of common interest. Accordingly, Russia hosted the first BRIC Summit Meeting in 2009 and Brazil the second in 2010. The third is going to be hosted by China in 2011.

Towards the end of 2010, a fifth emerging economy, namely, South Africa, has been invited to the BRIC Group making it now BRIC Plus to accommodate any other new member to be enrolled in the future.

The common view today is that BRIC Plus is now on its march to displace the West from its world leadership.

BRIC Plus is a diverse group

BRIC Plus is a diverse group of countries occupying different stages of development and possessing different economic potential for the future.

Of them, China is the most promising in terms of future economic potential. Given its current economic size, growth prospects, reserve level, integration to global markets and commitment to upgrading technology, if needed, it could stand on its own and the other four have to just follow it. The old superpower, Russia, today is a spent force requiring a complete overhaul in its economy and management if it is to contest for world leadership. The other three countries are low income to upper mid income countries with their own internal economic woes.

    The average per capita income of BRIC Plus in 2009 amounted to US $ 5494. The comparable figure for the developed nations, represented by Organisation for Economic Cooperation and Development or OECD, was nearly eight times higher at US $ 40714. The combined population of BRIC Plus stood at 3 billion in 2009, but, out of that, 2.5 billion lived in Chindia. The high population in Chindia is an asset at the moment, because it can accommodate as many labour intensive industries as possible. But, it also poses the challenge of upgrading the living conditions of such a large number of people within a space of one generation and making their living more comfortable with modern amenities. The high incidence of poverty, ranging between 15 to 20 percent of the population has been the most formidable challenge. Though population-wise less in number, this is a common problem in the other three countries too. Hence, a greater portion of the newly acquired economic growth will have to be spent by these countries for upgrading their own citizens.

Thus, the intended march to victory by BRIC Plus will not be a rosy one at all.

Division of Production among BRIC Plus

According to Goldman Sachs, BRIC countries will have high economic growth continuously based on specialising in different product lines. Accordingly, China will specialise in manufacturing, India in services and both Russia and Brazil in raw materials. South Africa too will fall into this last category of a raw material supplier to the world.

In my view, it is unusual for a country to record a high sustainable growth having specialised in a single line of production.

BRIC Plus: The Projected High Economic Growth

It is again analysts outside BRIC Plus who have advocated its cause. Goldman Sachs, in three reports each presenting a more optimistic view than the previous one, has carved out a very clear and an accelerated path for BRIC Plus to ascend to world supremacy in the next four decades. In terms of the latest, China will be the largest economy in the world by 2027 surpassing USA. By 2050, the world’s five largest economies would be China, USA, India, Brazil and Mexico, in that order. Of them, three are BRIC Plus countries. If one considers the six largest economies, Russia being the sixth, all the four major BRIC countries are in the league. Thus, by size of the economy, BRIC Plus is projected to lead the world.

However, the scorecard with respect to per capita income shows a less convincing story. In 2050, by per capita income, these projections have kept USA at the top, followed by South Korea and the UK. Of BRIC Plus members, Russia is ranked at 4th, Brazil at 11th, China at 12th and India at 17th. South Africa is ranked below the highest 22 countries. A clearer picture is shown when the income per capita of the four major BRIC countries is taken as a percentage of USA’s per capita income: Russia, 85 percent of USA; both Brazil and China, 53 percent and India, 22 percent. On average, the four major BRIC countries will have a per capita income of US $ 49,000 as against USA’s per capita income of US $ 91000.

In my view, even if one accepts Goldman Sachs’ projections, they point to a number of hidden factors about the real state of BRIC Plus group.

Goldman Sachs’ projections have shown that BRIC Plus countries will grow enormously in size over the next four decades. But, like an overly obese person, they will be inefficient compared to even a small country like South Korea, which is currently a member of OECD. With low income, they would find it difficult to sustain that economic size purely out of domestic consumption and will have, as they do it today, to depend on the rich West for sustainability. According to projections by National Geographic Magazine, by 2050, the world’s population will be a little over 9 billion. Of that population, BRIC Plus will account for a little over 3.5 billion. The productivity of all those 3.5 billion people will be so low that on average, a person in BRIC will produce only about a half of what a US or a South Korean citizen has produced.

This low productivity and low per capita income will make BRIC plus countries still vulnerable and dependent on the rich West. Further, due to lower income, their citizens will be devoid of many comforts which the citizens of other rich countries will be enjoying at that time.

In my view, BRIC Plus will be blessed with more man – power and, hence, a larger economy. But they have to confront themselves with a new type of problem. That is how to feed more mouths which are less productive.  

This is hardly a capability for throwing a formidable challenge to the ruling world leadership.

Can a Country sustain infinite growth?

The projections by Goldman Sachs have assumed that over the next four decades, the BRIC countries will grow at supernatural rates.

For instance, China will grow at 35 percent per annum, India at 70 percent, Brazil at 19 percent and Russia at 13 percent.

In my view, this type of linear growth at high rates will make a significant call on the world’s natural resources and will require the use of ever advancing technology supported by an ever improving work force. The prices of natural resources will surely surge driving the whole world economy to a chaotic situation as it had done in the last energy and natural resource price increase in 2007 and 2008. Internally, super high economic growth will over heat the BRIC economies, like a motor car getting over heated, if it is driven continuously at high speed without a respite. The internal work force will get exhausted, worn out, obsolete and less productive, while becoming more and more costly along with the increase in the per capita income. Environmentally too, it may call for a massive exploitation of environment for dumping the waste matter that is to be produced by super natural economic growth.

Hence, countries will have to slow down and even abandon the high economic growth due to these impeding factors.

To be fair, Goldman Sachs has assumed a very modest economic growth in the developed West. For instance, it has assumed that USA will grow at an annual average of 3.4 percent over the next dour decades. The other leading economies are to grow even at lesser rates: Japan at 1.1 percent, UK at 2.6 percent, Germany at 1.5 percent and France at 2.5 percent.

It is not understandable how BRIC countries will be able to sustain their high economic growth rates when its main clients grow at snail’s pace.

Super technology is key to future world leadership

In my view, future world will be driven by super technology and anyone who has acquired this weapon will be able to rule the rest.

At the turn of the new millennium, Singapore’s authorities had identified four areas which would give super leadership to a country in the new century. They were genetic engineering, information and communication technology or ICT, nano technology and entertainment. Accordingly, Singapore insisted that all its universities and institutions of higher learning should concentrate on developing the country’s skills in these four areas. The logic behind this move was that it was USA and the UK which were leading in these areas and Singapore wanted to be a partner of the new global leadership by acquiring the necessary skills in the four fields.

Genetic engineering a must

Given the projected surging of world’s population to over 9 billion in the next four decades, the biggest challenge for the survival of mankind would be how to feed the more mouths that are added to its rank year after year, especially in the developing world. When the world was confronted with a similar problem in 1950s, the solution was found in launching a green revolution that produced more food per hectare of land. It has been suggested that the world should go for a second green revolution now. The production of more output through genetically modified foods will be the main component of this second green revolution. Understandably, it is the rich West which has taken leadership in research in genetic engineering.

Genetic engineering will boost in the advancement of medical sciences too. While it helps in the discovery of new drugs, it will also help in engineering essential and vital body parts. As reported by Newsweek in its issue of 13 December 2010, scientists at Harvard Medical School and Massachusetts Institute of Technology have made a breakthrough in engineering body parts by using natural cells of a person with a non – cellular frame or scaffolding. According to Newsweek, already a few patients in USA have been given a new lease of life with these engineered body parts.

ICT and Nano will open new horizons

New advancement in ICT, especially research into distributed intelligence, will revolutionise the future world. The smart machines to be developed under this will replace the costly manpower and reduce the comparative advantage which BRIC and other developing countries hold in this area at present.

China’s one child policy, compared to India’s surging population, will place China at a disadvantageous position in decades to come. But, the future production will be automated and the manpower requirements for mass production will be less. At that point, it will not matter whether industries are located in BRIC or other developing countries or simply in the developed countries. Given the leadership which the developed world, especially USA, Canada, the UK and Germany, has taken in ICT research at present, a relocation of mass production factories in developed countries is to be anticipated.

Nano technology where a nano means one billionth of any measure and in this case, one billionth of a metre, is a completely new area of research for developing countries. It has wide applications in medicine, energy and power, military matters and also consumer durables. The current leader in nano technology research is understandably the rich West and with that weapon in their arsenal, they are in a position to rule the world.

Entertainment: An area in which Chindia can excel

Entertainment, the final consumption product, has the largest market in the globe. Whoever who will excel in this will have a high growth prospects in the future. Both China and India have the built in potential to produce entertainment to the rest of the world, provided they could produce entertainment which the rich

West demands. Recently, as a preliminary step, India signed a Memorandum of Understanding with France to launch a collaborative movie project targeting the global market. China has gone into the animated movie production field in a big way in this area and is set to capture the global market.

Future World: A cooperative and collaborative business

Despite the wishes of many, the future world will be a cooperative and collaborative business with the rich West and the rest of the world. While the West has to accept the emerging economic strength of some selected countries like China and India, the rest of the world has to accept the good collaborative services being provided by the West.

The emerging global problems have to be tackled by the mankind together and not in isolation.

(W.A. Wijewardena practiced economics, taught economics and wrote on economics for more than three decades.  He is a free lance writer and a consultant on economic matters. He could be reached on [email protected])

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