Book review: The Growth Map, by Jim O'Neill

The rise of the BRIC nations, in particular China, is often written as a scare story in the west. Shamik Dhar finds merit in a more optimistic view of the global market.

by Shamik Dhar
Last Updated: 02 Mar 2012
I liked this book for its optimism. We're currently inundated with gloomy tomes sporting titles like The Great Stagnation, so an upbeat look at the next 50 years comes as a very welcome diversion.

Our western obsession with the burden of excess debt and the prospect of meltdown in Europe sometimes leaves us blind to the great good news story of our generation - the entry of upwards of two billion people into the global marketplace.

Jim O'Neill reminds us that their participation in world trade will enrich both us and them in years to come and that the countries leading this extraordinary advance in human welfare will be among the largest, most politically important and culturally significant on the planet.

O'Neill was chief economist at Goldman Sachs Investment Bank and it was there in 2001 that he came up with the acronym 'BRICs' to describe Brazil, Russia, India and China - the four countries destined to become economic powerhouses of the 21st century. Since then, the moniker has become a huge hit with markets and policy-makers.

The book's central argument rests on demographics and productivity convergence. These four countries have huge populations but started with relatively low per-capita incomes, which were always likely to converge on richer country levels once they opened up to freer trade and foreign investment.

China's population is roughly four times that of the US, so the average Chinese only has to become a quarter as productive as the average American for the two economies to end up around the same size. And China is approaching that level of productivity rapidly, thanks to the transfer of know-how, import of capital goods and the inexorable logic of compound growth.

O'Neill describes how the projections that he and his team made in 2001 have turned out to be too pessimistic. Back then, they were forecasting China would overtake the US to become the world's largest economy by 2039. In fact, that now looks likely to happen by 2027. Brazil's performance has been even more impressive. In 2001, O'Neill had forecast it would be the same size as Italy by 2025. In fact, it overtook Italy in 2010.

All of this has had and will continue to have enormous political as well as economic consequences. Already, the old G7 bloc has been superseded by the more representative G20. And international institutions, such as the UN and IMF, will have to reinvent themselves, while longstanding bilateral economic and military alliances will have to be reshaped.

The implications of the BRICs' rise for global resource use, mass consumerism, multinational companies and geopolitics are at once exciting and frightening. O'Neill is optimistic again, arguing that the benefits in terms of human welfare will far outweigh the costs.

I'm inclined to agree with him, but worry that getting from here to there will be trickier than he thinks. There are a host of transitional problems that get a mention, but not much in-depth treatment.

And who knows what the impact on the climate will have been by then? It's an issue he pays remarkably little attention to. Similarly, he asserts that urbanisation will stop China's population slump from halting growth - China will get rich before it gets old - but you won't find much evidence here.

The BRICs' emergence has also caused the world economy a few problems, which barely get a mention. Many believe that neo-mercantilist policies in China helped drive down global interest rates in the early 2000s and contributed to the build-up of the housing debt bubble in the west. Also, the relocation of manufacturing to the BRICs has probably benefited the world as a whole, but it has had a serious impact on certain populations, notably a generation of unskilled workers in the west.

However, a major financial crisis, a resource war or some other disaster or event could derail the steady progress of these nations to global power status. And if the recent crisis has taught economists anything, it should be that they show humility in their forecasts. This book, like many others published recently, amazes me with its brazen confidence. Clear, uncluttered storylines certainly help sales but, as many ex-futurologists would testify, the real world is messier and far less predictable than we think.

That said, O'Neill's book does a service by bringing to the attention of a non-specialist audience the implications of demographics and productivity catch-up in some of the world's largest nations. Moreover, he has done so in an eye-catching way, backed up with a clutch of startling statistics. If we judge this book against those criteria, it has many merits.

The Growth Map: Economic opportunity in the BRICs and beyond

Jim O'Neill

Penguin Portfolio, £25.00

- Shamik Dhar is Aviva Investors' senior economist - Asia.

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