BRIC by BRIC: The Changing Global Economic League
China’s anticipated overtaking of the U.S. as the world’s biggest economy has become the focus of much comment of late. Equally important, however, are the changes already happening and likely to accelerate regarding the rising challenge of other BRIC nations in the world economic league. Earlier this month, Brazil replaced the U.K. as the sixth largest economy. This was a moment of some symbolism: Brazil used to be part of what historians have called Britain’s "informal empire," being under the sway of British trade, capital, and inward investment in the nineteenth century.
In the last decade, Brazil has consolidated its status as an agricultural and processed foodstuffs superpower, commodities that now account for a quarter of GDP and 36 percent of exports. It has become the world’s largest producer of sugarcane, coffee, tropical fruits, and commercial cattle (whose number is 50 percent larger than in the United States.). Brazil has also discovered massive oil reserves in the Atlantic, which have helped make it the world’s ninth-largest oil producer and raised the prospect of it eventually becoming the fifth-largest. The country is currently engaged in a massive program of infrastructure improvement to enhance growth, funded by the proceeds of its recent wealth creation.
Brazil’s dash for growth began in the mid-1990s, when a string of privatizations broke up some inefficient state monopolies, China became an increasingly important customer of its commodities -- notably iron ore, soya beans, and foodstuffs, and the U.S. began to invest heavily in the country.
Brazil still lacks a well-educated and well-qualified work force. Testifying to this shortfall, university graduates currently earn on average 3.6 times more than high school graduates, a wider multiple than in any OECD country. The country needs something like twice as many as the 30,000 engineers Brazilian universities currently graduate each year. There are also doubts about the quality of the training that graduates receive at home. At present few Brazilians go abroad to obtain university degrees, but that may be a necessary solution. The U.S. is currently the most popular destination but only 9,000 Brazilians (excluding language students) presently study there, compared with 260,000 Chinese and Indians combined. A government investment program would do much to boost numbers and historical precedent suggests that the payoff will be very beneficial. In the 1960s the Brazilian government paid for PhDs abroad in oil exploration, agricultural research, and aircraft design, three fields in which Brazil is now a world leader.
Although it has overtaken the U.K. in the aggregate, per capita income in Brazil ($11,000) is still only one-third of Britain’s. Moreover, income inequality remains a serious problem -- one of the worst in the world according to the UN -- but it's showing signs of improvement. The GINI coefficient measure of this peaked at 0.61 in 1990 but reached a historic low of 0.53 in 2010. According to the Getulio Vargas Foundation, the poorest 50 percent saw their incomes go up by 68 percent from 2000 to 2010.
Probably the softest spot in its new economic success story concerns Brazil’s current account deficit. Boosted by very high interest rates by international standards (particularly in the era of quantitative easing), the Brazilian real has appreciated 40 percent against a basket of leading currencies since the financial crisis of 2008. The effect is to suck in imports and make finished exports uncompetitive. At present, therefore, Brazil is over-dependent on the commodities boom for its growing national wealth. It still gets many industrialized products from abroad, notably China -- particularly Chinese rail tracks made from Brazilian iron -- to drive forward the country’s massive infrastructure development. If not quite a parallel with the U.S. economic situation, critics of Dilma Rousseff’s government (and of its Lula predecessor) claim that it is trying to achieve growth through consumption and credit to the detriment of its external balances.
Despite such concerns, the Centre for Economics and Business Research [CEBR], a highly regarded economic forecasting group, predicts that Brazil will hold onto sixth place in the global economic league over the second decade of the twenty-first century. However it estimates that India will climb above it to fifth by 2020, thanks to its highly educated workforce and strengths in new technology and engineering. CEBR also predicts that Russia will rise even higher to fourth on the back of its oil and gas exporting power.
The declining powers displaced by the rise of these emergent BRICs will be those of Europe, which is expected to experience a "lost decade." Paying back debts resulting from the financial crisis and over a short time frame will likely hit output growth, even in the leading economies. Accordingly, CEBR estimates that Germany will fall from its current fourth place in the world economic league to seventh by 2020, Britain will slip one place to eighth, and France will fall from fifth to ninth.
Whatever happens, it seems certain that the distribution of economic power in the global community of the twenty-first century will look very different from its twentieth-century counterpart, just as that did from the nineteenth-century reality.
comments powered by Disqus
- Election results are in for the American Historical Association
- Nial Ferguson warns Obama’s bet on Iran has low odds of success
- Sven Beckert’s List of the Ten Books on Slavery You Need to Read
- Jonathan Zimmerman says homosexuality is not alien to Africa
- Historian Howard Segal says the cost of paying for expensive commencement speeches is diverting funds from where they’re most needed