Sick as a BRIC
First of all, its Friday, and even a chronicler of superpower decline is due a break on Friday.
Secondly, yes, I said four. I know – South Africa’s been added to the BRICs to make them BRICS. I don’t buy it. I can name four better candidates than South Africa in terms of economic potential (Indonesia, South Korea, Turkey and Mexico). Probably more. But I digress.
The point of this post is risk, and so I’ll risk contradicting this blog’s raison d’etre with these musings about the fatal flaw lurking behind each happy “BRIC” narrative.
Brazil is the striver of this bunch, not quite the global giant that India and China are in population terms or economic potential. That means Brazil should be concentrating on quality rather than quantity when it comes to its long-term growth. The recent performance of its central bank, which has quite credibly imposed developed world monetary policy on a country notorious in earlier decades for fiscal incompetence, shows Brazilian officials seem to appreciate this fact. Even with inflation risks, Curtis Mewborne, managing director of PIMCO’s portfolio department, told a Bloomberg conference on Brazil Thursday, “for a country with a history of hyperinflation, it is noteworthy that we’re even concerned about inflation at 6 % — only slightly above target.”
But Brazil has failed to open its labor markets sufficiently to make the kind of joint ventures it seeks with foreign partners as attractive as they should be. The flop of its high-speed rail auction hints at the problem: Brazil can’t decide whether to close itself off and create national champions across the board or to open up and supercharge its transition to a middle income power. Unless Brazil comes to terms with this, high labor costs, relatively low skills and its bureaucracy could prevent all its promise from being realized.
China has more than its share of trouble. Economically, its hard to tell which issue recently labeled a “time bomb” will go off first: the real estate bubble? inflation? Or, as RGE’s Adam Wolfe recently noted, local government debt? “The medium-term hit to China’s fiscal position, which is likely to be much worse than we had assumed,” he wrote earlier this month. But long-term?
Demographic imbalances thanks to the one-child policy certainly provide cause for worry. Even more so, China’s domestic ethnic and political time bombs also must figure here – there has been a major incident with one ethnic group after another on an annual basis since 2008′s unrest in Tibet. The Muslims of Xinjiang rose up in 2009, and this year it was the turn of Inner Mongolia. The resulting crackdown has not been confined to ethnic activists, however, as political dissent of any kind has been repressed ahead of the Communist Party’s changing of the guard next year. It’s become conventional wisdom in some circles to suggest China is immune to the kind of change rattling the Arab world. If so, why has jasmine been banned from local markets?
The lid may stay on long enough for the middle income road to be traveled, but the greatest danger, in fact, is of a misstep in the Pacific. China’s defense expenditures remain within the bounds of reason for a nation of its size and oil dependency. It has to have a navy that, soon enough, will extend its writ over the sea lanes that carry fuel for its economy. But as that navy rubs up against the U.S. Seventh Fleet, the thin skinned nature of up-and-coming powers presents an enormous risk of misjudgment. Humility would be advised.
For India, the risk is of rotting from within. Corruption surrounding India’s hosting of the Commonwealth Games gave the world a great peg for examining this problem, but anyone who has done business there was under no prior illusions. (For my money, the best recent look at this came from the Economist.) Perhaps the most promising of the four BRICs due to its mix of size, ambition and tolerance for dissent (which prevents pressure-cooker-like explosions), India nonetheless has corruption problems which appear far worse than many suspected, particularly when combined with the impedimential legacy of the licence Raj.
India’s internal ethnic problems rival China’s, too, though again the democratic approach to such problems is less likely to find other disparate groups with grievances suddenly rallying around, say, the Naxalites terrorists or Assamese separatists. India’s Muslim-Hindu divide will always be a challenge (and could become a short-term nightmare if Narendra Modi, the Hindu nationalist who leads Gujarat, ascends to the prime minister’s office). India’s insistence that no outside power should be allowed to mediate the Kashmir dispute has also missed an important historical opportunity. The moment has passed, for for a time during the first decade of the century, the U.S. had enough leverage over Pakistan and a relatively amenable leader in Gen. Musharaff to have made real progress. Instead, this powder keg remains one of the world’s great threats to peace.
And Russia, frankly, shouldn’t be a BRIC at all. As Ian Bremmer told me recently, Russia is a commodity play. Beyond its oil and gas, and some diamonds, the paper-thin veneer of good governance and prosperity has little to support it. It still makes excellent warplanes and tanks, though a step behind western top line competitors. It talks a good game in international forums and has consistently punched above its brittle-boned weight in geopolitical disputes with the U.S. But rule of law – at least in the eyes of potential international investors – simply does not exist. Russia ranks 154th out of 178 nations in Transparency International’s corruption index. That’s 20 places lower than Nigeria!
Add Russia’s world-beating demographic collapse, its bellicose bullying of smaller neighbors (see: Georgia, 2008), and its creeping police state approach to domestic dissent and its hard to see why anyone views it as a player with stamina in this century. The second half of the 21st Century is a long way off; given current trends, Russia’s Pacific coast, where 3 million Russians live on in a vast, sparsely populated hinterland bordered by 80 million overcrowded Chinese and North Koreans — could well have new names that are not written in cyrillic. What, realistically, could Moscow do to prevent it short of nuclear war with the emerging behemoth, China? All in all, more sick than brick.
So there — an answer to all of you who accuse me of being too negative about America. I can dish it out internationally, too.
One Response to “Sick as a BRIC”
Exactly correct on Russia – what a joke to be included in anything forward looking. What about Poland? And, hell, Nigeria's a better choice than Russia!