Población y desarrollo

Our Chat With the ‘Bric’ Builder

Famed economist Jim O’Neill spotted the enormous potential of four developing countries. So where are the next big hits?


O’Neill, an economist, is known for tweaking data models to make them more closely reflect reality. His take on the U.S. budget deficit isn’t for the faint of heart.

WHAT YOU NOTICE FIRST is his thick Manchester accent. Then maybe the somewhat disheveled suit. Indeed, Jim O’Neill is an unlikely mix of a man—a professor dressed in a banker’s suit. But the well-known economist and outgoing chairman of Goldman Sachs Asset Management was the guy who more than a decade ago spotted the potential in four countries that most investors were ignoring—Brazil, Russia, India and China. He dubbed them the “BRICs,” and the title gained wide notoriety because it so aptly expressed a shift in global economic power away from big developed countries. The four BRIC nations even began working more closely together as a result. Now retiring, but still expected to be influential, Mr. Acronym (don’t call him that to his face) offered a few new predictions that his fans will hope are just as smart. His edited remarks follow.

Q: Let’s start with your outlook for global growth in the current decade.

A: Controversially, I think world gross-domestic product between 2011 and 2020 will be stronger than each of the past three decades because of the BRICs. China creates another Spain every year. In 2011, just one year, the increase of dollar GDP in the four BRIC countries was equivalent to the size of Italy’s entire economy.

By 2015, the aggregate GDP for the four BRIC countries will probably be bigger than the U.S. So what’s going on in BRIC countries will be increasingly the real driver of global GDP.

Q: How do you expect the four BRIC nations to perform?

A: China’s growth is almost definitely going to slow—to 7 percent annually instead of 10 percent. I think India could grow by more than 10 percent per year, but I am not sure. I am assuming Brazil will grow by 5 percent, and Russia by 4 percent.

Q: So you are most optimistic about India?

A: India definitely has the biggest potential for growth among BRIC countries this decade. India has incredible demographics. It has a very strong birth rate, which means the demographic profile is improving all the time and it is very young. During the next 20 years, the increase in the size of the working population in India could be as large as the total number of people working in the U.S. today. It is absolutely incredible.

But of course India needs to carry out reform for this to happen. It needs to embrace foreign direct investment for a start. When will India really open the door to foreign direct investments? That is the billion-rupee question. I have learned that with India, you can’t be overly hopeful because the situation there is so complex.

Q: Why is Russia a laggard among the BRICs?

A: Russia has the weakest demographics. It is also the most dependent on energy production. I think it is quite possible oil prices have peaked and that the commodity super cycle is coming to an end. Since 2000, oil prices have basically risen, though the absolute peak was in 2008. I have been saying all year that investors should be bearish on oil, and I continue to think so.

Q: What’s the biggest risk to the growth of the BRICs?

A: We just missed the biggest risk—a U.S. trade war with China. I was nervous about Mitt Romney winning the presidential election, but now that risk is gone and that’s a good thing. Another risk is that the Chinese government will not be able to control a Chinese-style shift to democracy. I think they plan to advance political reform, but it will happen slowly. I’ve spent a lot of time in China and I’ve met a lot of important people. One of the things they talk about a lot is that they want to give more attention to innovation and creativity. That means allowing individuals to be more creative and to take more risks. You have to provide more freedom. So I am going to be watching this very closely. The process is very unpredictable. It could be very, very difficult. If the country’s leaders mishandle it, China could suffer a hard landing.

Q: How will China’s shift to focusing on domestic consumption impact U.S.-China relations and global growth?

A: I monitor the trend of real retail sales in China very closely, and it has been fantastic. We have seen strong signs of acceleration. I think President Xi Jinping inherited an economy that is already adjusting.

If the trend toward increased domestic consumption gathers steam, it should improve U.S.-China relations dramatically. The U.S. will be able to sell more and more to China and will not want to import as much from China. The U.S. will see China less as a threat and more as an opportunity. It is a fantastic opportunity for U.S. companies that sell consumer products to Chinese consumers.

What this decade is all about is the U.S. becoming more and more like China, and China becoming more like the U.S. This is why I am so bullish on the global growth. I am amazed that the International Monetary Fund is not more optimistic about this kind of thing. You look at the 2008 crisis, and it was all about the U.S. consuming too much, and China consuming too little. The U.S. has too big of a trade deficit, and China has too big of a trade surplus. But both countries are making significant progress in the other direction. The U.S. trade deficit is now about 3 percent of GDP, and China’s trade surplus is about 2.5 percent, so it is really encouraging.

“This decade is about the U.S. becoming more like China, and China becoming more like the U.S.”

Q: What is the outlook for the euro zone?

A: I suspect Europe will go back to being boring. By European standards, the past two years have been far too exciting. At the core of it, Europe is a dull place. European growth potential is about 1.5 to 2 percent for this decade. Yes, the crisis in the euro zone is dramatic, but we will eventually resolve the crisis one way or the other. The question is, when? And that is still a one-trillion-euro question.

Q: Is the U.S. poised for growth?

A: I see 2.5 percent annual growth for this decade. By the standard of the past 30 years, this would be disappointing. But the U.S. only grew an average of 1.6 percent annually in the past decade. The U.S. has two dilemmas. First, it has to produce more and consume less. And second, the U.S. has a big fiscal problem.

In some ways, Europe is ahead of the U.S. in addressing fiscal deficits. The U.S. has to tighten its fiscal policy. It has no choice. Of course, in the short term you need to support the economy, but in the longer term the fiscal deficit must be addressed. If you look at the U.S. fiscal situation today, it is worse than that of every European country. According to our calculations, the cyclically adjusted fiscal deficit in the U.S. is about 6.3 percent of GDP. That is higher than every European country, including Greece. Cyclically adjusted is a way of looking at how an economy is doing based on where it is in its business cycle.

Q: Any new acronyms for us?

A: I don’t want to be known as Mr. Acronym. People claimed I recently created another one: MIST, or Mexico, Indonesia, South Korea and Turkey.

What I believe is that these four nations, along with the BRICs, should be regarded as distinctive from the rest of the emerging world because they all account for more than 1 percent of global GDP. They are the big guys. I think MIST countries will do well but not as well as the BRICs this decade.

Q: What’s your favorite BRIC country to visit?

A: Brazil, easily. Because they love football, and so do I. I didn’t go to India in 2012, but I went to Brazil, Russia and China. I used to travel to China the most.

Q: Ruchir Sharma’s book “Breakout Nations” got some attention. What is your response to his criticism of BRICs as a concept?

A: I didn’t read it. I don’t disagree with the fact they are different, but so what? They share large populations and huge potential. Russia, the supposed “weakest,” is probably going to add more to global GDP this decade than the entire euro zone.

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