Jim O’Neill, Chairman of Goldman Sachs Asset management first published “BRIC”–the acronym for Brazil, Russia, India and China–in a Goldman Sachs economics paper titled “Building Better Global Economic BRICs.”Wednesday, November 30 is the tenth anniversary of that paper. In fact, he’s currently writing a book commemorate it.
In his latest Viewpoints From The Office Of The Chairman, O’Neill reflects on the BRIC’s last 10 years. Here’s an excerpt:
Looking Back and Forward With the BRICs.
As I said, the BRIC economies combined have grown to around $13 trillion and are poised to overtake the size of each of the US and the EU in coming years. Over the decade, they have created the equivalent of close to seven new United Kingdoms or at least of the 2001 size. China alone has added slightly more to world GDP than the US, around $ 5.5 trillion probably by the end of this year.
In the decade ahead, the BRIC countries will probably create at least another one of their current self, i.e., grow by around $12-13 trillion in nominal $ terms, assuming that they collectively grow at somewhat softer rates. If they grow by similar degrees as the last decade, their contribution in nominal $ could be closer to $20 trillion. China seems likely to grow by more modest rates, perhaps in the 7-8pct range, but India could accelerate. This could be especially true if India persists with what looks like some sudden passion for policy reform. In what I would describe as the most interesting economic news of the week, on Thursday the Indian government appears to have decided to allow majority foreign ownership of their domestic retail businesses. This is obviously huge news for the world’s biggest retailers given India’s fabulous demographic but it is probably even more important for Indian agricultural productivity and supply chains which is why policymakers have finally decided to take this step. More of these kinds of decisions and India will possibly finally succeed in achieving China-style GDP growth rates.
Another major consequence of the BRIC story has been the desire of other large-population emerging economies to get into the “club” something itself we recognised back in 2005 when we thought of the “Next 11” idea. Many of these countries before and after have wanted some of that BRIC “magic”. These days, at GSAM, we regard four of them Indonesia, Korea, Mexico and Turkey as sufficiently large and important to be considered “Growth Markets” along with the BRICs. Going forward, it is quite likely that others may become this differentiated, perhaps at some stage including part of Africa and the Middle East. I discuss aspects of this in the book. I spent Friday in one of the non-BRIC Growth economies, visiting Istanbul to present my views of the world for a major client. I was literally in and out, but what a remarkably vibrant city Istanbul is these days. I cannot understand why continental European countries are not more eager to embrace this country, especially as it would seem like an obvious credible “model” for some of the dramatically changing nations in Northern Africa and the Middle East.
As it relates to the BRIC politics, Philip Stephens wrote a very interesting op-ed in Friday’s Financial Times entitled “BRICs without Mortar.” He points out that the four countries are not natural political bedfellows, highlighting some of their bilateral issues and many of their differences. I would agree with many of his points, but I don’t think this means they are not increasingly relevant for the world and, as discussed above, they should be more and more central to optimal global economic policymaking. I never suggested that they should operate alone as a political club, and other than highlighting the inadequacies of the current G7, etc., the purpose of such a club -especially now South Africa is included seems a bit limited. However, by the end of this decade, the BRICs and the other four Growth Markets collectively will be not far off the size of the G7. The BRICs collectively will be bigger than the US. So, from an economic perspective, the BRICs will be contributing lots of mortar.
Against this background, it seems inevitable that the current world monetary system is likely to evolve differently with, at a minimum, the role of the RMB becoming more important, and as I discuss in the book, perhaps other changes might occur.
O’Neill’s letter also revisits three arguments he made in the 2001 paper. He also discusses how we could see a Eurobond proposal by December 9. You can read the full letter here.