Dropping BRICS......

One thing we are not short of is doomsayers. ‘Ten years before economy recovers’; ‘Break-up of Euro will be disaster for UK’; you know the sort of stuff. All this rubbish is presented as fact, when at best it is speculation and at worst scare-mongering to sell papers.

We are told that we have regressed to 1996. Things were really bad then, were they not? Soup kitchens, mass unemployment. Try remembering 1956. We are approximately 4 times richer than we were then.

A recurrent theme is ‘the BRICS are coming’. We are going to be overwhelmed by the Emerging Economies and impoverished whilst they grow fat at our expense and pinch all our jobs.

When is all this going to happen? Well, it isn’t, and here’s why.

That they get richer does not mean that we get poorer. It’s more likely that they will become more like us economically. The untapped market is huge, big enough for everybody.

And the doomsayers assume that the BRICS growth is inexorable.

Let’s take Mr Chin first.

True the growth in the Chinese economy over the past 20 years or do has been phenomenal. But it’s a bit of a mess; house building, industrial production and electricity supply (a sure economic indicator) have slowed quite sharply in the last year. Investment spending on capital projects has accounted for over half of growth; net exports contributed nothing.

Public debt is only about 50% of GDP, but the savings rate is a huge 51% which stifles consumer demand. There is a supply side/demand side imbalance and so an over-reliance on export markets especially the US.  Wage inflation is very high – the last time I checked it was about 24% -  which is sharply reducing competiveness. There are signs that American companies in particular are ‘in-shoring’ – coming back to the US where wage productivity is better and where there is not the constant threat of intellectual property theft.

There are also serious ‘structural’ problems. The Government has fingers in every pie. Waste is commonplace. Officials are corrupt. Savers are ripped off by arbitrarily-set interest rates. And there have been changes and scandals at the very top of the Communist Party pyramid. The structure of government seems a tad rickety right now.

Maybe the most serious structural problem is the sanctity of property rights. It doesn’t exist. One consequence is that only about 4% of the land area is under cultivation. Farmers can be easily dispossessed with no or inadequate compensation, so there is no incentive to invest in more efficient farming methods.

Prognosis? Now that the elite have acquired a taste for Ferraris, Rolls-Royces and fine wines there is certainly no going back and as the rich get richer the poor become less poor, on the cliché that a rising tide floats all boats. So China will continue to be a global star, but the growth will be less frantic – more pussy cat than tiger.

And for Mr Chin to become as rich as Uncle Sam the GDP would need to be 5 times as large as the US. That’s not going to happen anytime soon.

Brazil? Well, it’s predicted 4.5% growth is hardy ‘tiger’ and that looks optimistic anyway. It is highly commodity-dependent, although it has some fine high-tech industry like Embraer. It has some big new oil fields but seems to be developing a strangely hostile attitude to the industry, like the threat of imprisonment and hefty fines for a small leak at a Chevron field off the coast and a requirement that 65% of oil industry equipment must be locally made, which will make development slower and costlier.

The tax burden is 36% of GDP and too much goes on tasty pensions and an over-large state. It is becoming an expensive place to do business, with labour costs 3 times those of some other emerging economies.

The President – worryingly -  has started to make some Chavez-style pronouncements.

Prognosis? Continued strong growth but nothing tigerish or enough to deal with its staggering social inequalities.

Russia? A corrupt kleptocracy dependent on oil in the grip of Rasputin’s KGB muckers. It is the second largest producer of oil and the largest exporter of gas. But it is only ranked 70 in GDP/ppp. Does not really qualify as ‘emerging’. No threat economically. Politically? That’s another story.

The elephant in the room for both China and Russia is demographic collapse; both have fertility rates way below replacement rate, and so face rapidly-aging populations.

India? It has a vast reservoir of cheap labour; a very enterprising and capable business class; a huge market – and  the English language and the English Common law, the two great legacies of the Raj. Its further education in science, technology and mathematics are world-class. But its governance is a mess, with self-seeking, incompetent and corrupt politicians, and a public service to match. It ranks 95 on the TI corruption index, It is still not sure whether it wants to have a market economy – witness its U-turn on the admission of foreign supermarket chains  to protect its legions of dhuka-wallahs.

Its economy is susceptible to shocks from the US and Europe where it is very export-dependent. Growth has slumped sharply of late.

Prognosis? It will continue to grow as a major world economy, if at a less dizzy rate – but it desperately needs the smack of firm government and to clean up its act.

South Africa? Don’t make me laugh!

Prediction? The next ‘tigers’ will be Indonesia, Burma and a clutch of African countries.