Broken Brics: Why the Rest Stopped Rising Author(S): Ruchir Sharma Source: Foreign Affairs, Vol

Broken BRICs: Why the Rest Stopped Rising Author(s): Ruchir Sharma Source: Foreign Affairs, Vol. 91, No. 6 (NOVEMBER/DECEMBER 2012), pp. 2-7 Published by: Council on Foreign Relations Stable URL: http://www.jstor.org/stable/41720928 Accessed: 19-02-2016 16:39 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/ info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Council on Foreign Relations is collaborating with JSTOR to digitize, preserve and extend access to Foreign Affairs. http://www.jstor.org This content downloaded from 142.244.11.244 on Fri, 19 Feb 2016 16:39:59 UTC All use subject to JSTOR Terms and Conditions Broken BRICs Why the Rest Stopped Rising Ruchir Sharma Over the past several years,the most heart,as over50 percentof them,according talked-abouttrend in the global economy to a Gallup poll conducted this year,said has been the so-called rise of the rest, theythink that China is alreadythe world's which saw the economies of manydevel- "leading" economy,even though the U.S. oping countries swiftlyconverging with economy is still more than twice as large those of theirmore developed peers. The (and with a per capita income seven times primaryengines behind this phenomenon as high). were the four major emerging-market As with previous straight-lineprojec- - countries, known as the brics: Brazil, tions of economic trends,however such Russia, India, and China. The world as forecastsin the 1980s thatJapan would - was witnessinga once-in-a-lifetimeshift, soon be number one economically later the argumentwent, in which the major returnsare throwing cold water on the players in the developing world were extravagantpredictions. With the world catching up to or even surpassing their economy heading forits worst year since counterpartsin the developed world. 2009, Chinese growthis slowing sharply, These forecaststypically took the fromdouble digitsdown to seven percent developingworld s high growthrates from or even less. And the restof the brics are the middle of the last decade and extended tumbling,too: since 2008, Brazil's annual them straightinto the future,juxtaposing growth has dropped from4.5 percent to them against predicted sluggish growth two percent; Russia's, fromseven percent in the United States and other advanced to 3.5 percent; and India's, from nine industrialcountries. Such exercisessuppos- percent to six percent. edly proved that,for example, China was None of this should be surprising, on the verge of overtakingthe United because it is hard to sustain rapid growth - States as the world's largest economy for more than a decade. The unusual a point that Americans clearlytook to circumstances of the last decade made Ruchir Sharma is head of Emerging Markets and Global Macro at Morgan Stanley InvestmentManagement and the author of BreakoutNa- tions:In Pursuitof the Next EconomicMiracles. [2] This content downloaded from 142.244.11.244 on Fri, 19 Feb 2016 16:39:59 UTC All use subject to JSTOR Terms and Conditions Broken BRICs it look easy: coming offthe crisis-ridden catch up; nevertheless,as of 2011,the 1990s and fueled by a global flood of easy differencein per capita incomes between money,the emergingmarkets took offin the rich and the developing nations was a mass upward swing that made virtually back to where it was in the 1950s. everyeconomy a winner.By 2007, when This is not a negativeread on emerging only three countriesin the world suffered marketsso much as it is simple historical negative growth,recessions had all but reality.Over the courseof any givendecade disappeared fromthe internationalscene. since 1950, on average, only a thirdof the But now, thereis a lot less foreignmoney emergingmarkets have been able to grow flowinginto emergingmarkets. The global at an annual rate of fivepercent or more. economy is returningto its normal state Less than one-fourthhave kept up that of churn,with many laggards and just a pace for two decades, and one-tenth,for few winners rising in unexpected places. three decades. Only Malaysia, Singapore, The implicationsof this shiftare striking, South Korea,Taiwan, Thailand, and Hong because economic momentum is power, Kong have maintainedthis growth rate for and thus the flowof money to risingstars fourdecades. So even before the current will reshape the global balance of power. signs of a slowdown in the brics, the odds were against Brazil experiencing a full FOREVER EMERGING decade of growth above fivepercent, or The notion of wide-ranging convergence Russia, its second in a row. between the developing and the devel- Meanwhile, scoresof emergingmarkets oped worlds is a myth. Of the roughly have failed to gain any momentum for 180 countriesin the world trackedby the sustained growth, and still others have InternationalMonetary Fund, only 35 are seen their progress stall afterreaching developed. The marketsof the rest are middle-income status. Malaysia and - emerging and most of them have Thailand appeared to be on course to been emergingfor many decades and will emerge as rich countries until crony continue to do so for many more. The capitalism,excessive debts, and overpriced Harvard economist Dani Rodrik captures currenciescaused the Asian financial this realitywell. He has shown that before meltdown of 1997-98. Their growth has 2000, the performanceof the emerging disappointed ever since. In the late 1960s, marketsas a whole did not convergewith Burma (now officiallycalled Myanmar), that of the developed world at all. In fact, the Philippines,and Sri Lanka were billed the per capita income gap between the as the nextAsian tigers,only to falterbadly advanced and the developing economies well before they could even reach the steadilywidened from1950 until 2000. middle-class average income of about There were a few pockets of countries $5,000 in currentdollar terms.Failure to that did catch up with the West, but they sustain growthhas been the general rule, were limited to oil states in the Gulf, the and that rule is likelyto reassertitself in nations of southernEurope afterWorld the coming decade. War II, and the economic "tigers" of In the opening decade of the twenty- East Asia. It was only after2000 that the firstcentury, emerging markets became emergingmarkets as a whole startedto such a celebrated pillar of the global • FOREIGN AFFAIRS November/December 2012 [3] This content downloaded from 142.244.11.244 on Fri, 19 Feb 2016 16:39:59 UTC All use subject to JSTOR Terms and Conditions Ruchir Pharma economy that it is easy to forgethow mostlyrecovered in 2009, but since then, new the concept of emergingmarkets is it has been slow going. in the financialworld. The firstcoming The thirdcoming, an era that will be of the emerging markets dates to the definedby moderate growthin the devel- mid-1980s, when Wall Street started oping world,the returnof the boom-bust tracking them as a distinct asset class. cycle,and the breakup of herd behavior Initiallylabeled as "exotic,"many emerging- on the part of emerging-marketcountries, marketcountries were then opening up is just beginning.Without the easy money their stock marketsto foreignersfor the and the blue-sky optimism that fueled firsttime: Taiwan opened its up in 1991; investmentin the last decade, the stock India, in 1992; South Korea, in 1993; and marketsof developing countriesare likely Russia, in 1995. Foreign investorsrushed to deliver more measured and uneven in, unleashing a 600 percentboom in returns.Gains that averaged 37 percent emerging-marketstock prices (measured a year between 2003 and 2007 are likely in dollar terms) between 1987 and 1994. to slow to, at best, ten percent over the Over this period, the amount of money coming decade, as earnings growthand invested in emerging marketsrose from exchange-ratevalues in large emerging less than one percent to nearly eight marketshave limited scope for addi- percentof the global stock-markettotal. tional improvement afterlast decades This phase ended with the economic strong performance. crises that struckfrom Mexico to Turkey between 1994 and 2002. The stock markets PAST ITS SELL-BY DATE of developing countrieslost almost half No idea has done more to muddle think- their value and shrank to four percent ing about the global economy than that of the global total. From 1987 to 2002, of the BRics. Other than being the largest developing countries'share of global gdp economies in theirrespective regions, the actuallyfell, from 23 percentto 20 percent. big fouremerging markets never had much The exception was China, which saw its in common. They generate growth in - share double, to 4.5 percent.The storyof differentand often competing ways the hot emergingmarkets, in otherwords, Brazil and Russia, for example, are was reallyabout one country. major energyproducers that benefitfrom The second coming began with the high energyprices, whereas India, as a global boom in 2003, when emerging major energy consumer, suffersfrom markets really started to take offas a them. Except in highlyunusual circum- group. Their share of global gdp began stances, such as those of the last decade, a rapid climb, from 20 percent to the theyare unlikelyto grow in unison. China 34 percent that they representtoday apart,they have limited trade ties with (attributable in part to the rising value one another,and they have few political of their currencies), and their share of or foreignpolicy interestsin common. the global stock-market total rose from A problem with thinkingin acronyms less than four percent to more than ten is that once one catches on, it tends to percent.The huge losses sufferedduring lock analystsinto a worldview that may the global financial crash of 2008 were soon be outdated.

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