The Wall Comes Down On The BRICs
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08/17/2015
Thousands of demonstrators take part in a protest against the government of Brazil's President Dilma Rousseff in front of the Brazilian National... View Enlarged Image
Economics: Brazil saw huge protests Sunday with calls for the president's exit amid a flagging economy. They follow the monetary turmoil in China last week and trouble in Russia. Seems the laws of economics apply to BRICs, too.
Just a few years ago, establishment economists such as Nobel prize-winning Joseph Stiglitz were hailing the end of U.S. dominance in global markets and the rise of BRIC states : Brazil, Russia, India and China, with South Africa later added as an affirmative-action case for geographic balance.
It was all artificial, a 2001 idea from Goldman Sachs economist Jim O'Neill, writing about a post-American world in the wake of 9/11.
These countries had little in common other than size, yet his idea rapidly became a truism of the Davos crowd and the "respectable" global economics establishment.
It rapidly became conventional wisdom that large emerging markets would overtake the U.S. in economic growth by 2050.
The BRICs would lead the world in trade, GDP growth and the creation of a global middle class. And as a result, it wouldn't be long before they would replace the dollar as the world's reserve currency, set up a development bank to rival the World Bank, make loans in their own currencies and challenge U.S. dominance at the International Monetary Fund.
Russia, China, and Brazil were all awarded the Olympics in those years in an indirect sign of global approval.
"It reflects the fundamental change in global power," gushed lefty newscaster Amy Goodman in an interview with Stiglitz, who echoed her sentiments.
As of 2015, we've seen Russia's economy slide into negative growth, China's yuan devalue, and now Brazil boil over in the mother of all political turmoil with half a million protesters demanding the resignation and jailing of the last two socialist presidents.
It all comes down to the "big if" in Goldman Sachs' initial "Dreaming With BRICs: The Path to 2050" report: that the BRICs' economic advance will happen only if the countries "pursue good policies."
Actually, that advice applies to any nation that pursues good (read: free-market) economic policies. On that front, three of the four states have failed miserably.
Russia, China and Brazil all underwent significant free-market reforms in the 1990s that brought significant growth, but, since the advent of the Obama administration in 2008, have regressed into their old statism.
Protectionist barriers went back up in Brazil and the welfare state was accelerated. Brazil's leaders talked nonsense about their leadership on global warming instead of productivity-led economic growth.
Russia renationalized its oil, lost its flat tax, never got around to private pensions, and got itself sanctioned after its Ukraine land grab. That tanked the economy into an IMF forecast of -1.5% growth in 2015, and had the same effect as protectionism, shutting out Russian companies from world markets.
China politicized its central bank, printing money to boost growth and stepping up crony capitalism at the expense of the private sector. It also responded in a harsh and unyielding way on democracy cries from Hong Kong and physically menaced, free-market Taiwan.
Commodity booms kept some of these countries going for a while, despite their renewed statism, but ultimately they failed. And all gushing flattery from the likes of Stiglitz, New York Times columnists Tom Friedman and Paul Krugman, President Obama (who was photographed early in his presidency reading a book about a post-American world), and the propagandists of al-Jazeera and Russia's RT came to naught.
The downfall of the BRICs demonstrates that all economic growth is contingent not on a country's size, but on its economic policies. Apparently much of the global establishment got carried away with the idea of size (and power) mattering more than whether an economy is built on a sustainable foundation.
India has escaped the others' fate so far by more or less sticking to its free-market course, but Brazil, Russia and China are all going down for the same reason others do: unsustainable statist policies and an inherent socialist inability to correct course and fix problems.
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