Another "BRIC" in the Wall
On October 2nd, 2009, Rio de Janeiro was named the host city of the 2016 Summer Olympic Games. Two weeks after winning, the city was thrown into a violent gang war involving drug cartels and the police, resulting in numerous deaths, and a police helicopter was downed by the drug cartel gangs. It seems that the Rio police are beginning to control the violence, but sporadic fighting continues. In just a few days, the image of Rio as portrayed in the Olympic Campaign was suddenly transformed from a happy beach loving city to a city embroiled in a gritty drug war.
I generally consider myself skeptical of very rosy economic predictions. Thus, when a Goldman Sachs Report came out in 2001 proclaiming that the economies of Brazil, Russia, India, and China will eclipse the combined economies of the richest developed countries of the world today, I was not convinced. As a result of the Goldman Sachs Report, these four countries came to be known as the BRICs. Russia even hosted a BRIC summit a few months ago. Although there is some promising news from these four countries, they have a bevy of underlying problems. One of them is national and regional security, as demonstrated by the Rio drug violence.
In terms of security, Brazil has long been suffering from drug cartels and general poverty of the favelas. A lot of this violence stems from extreme poverty and income disparity within the population. If national security is not greatly improved, the ability to host the Olympic Games, as well as other investments coming into Brazil will come to a halt. Russia, my native country also suffers numerous security issues. For one, internal wars in Chechnya and Dagestan have wreaked havoc not only on those regions of Russia, but included numerous devastating attacks on Moscow as well. Additionally, although violence has subsided from the "wild 1990s," there are still security issues in large cities where business people, journalists, and politicians are prime targets of assassinations. India and China also have a large number of regional and political conflicts that further drive a wedge between economic and political stability and instability. India is currently fighting Maoist rebels on numerous fronts of its territory. Last week, India said that it will deploy 75,000 troops to fight the rebels, which have infiltrated over a third of the country's territory. In addition to the Maoist concern, there is the ongoing political and territorial dispute with Pakistan over Kashmir, which has resulted in numerous terrorist attacks on Indian Territory over the years. China, while maintaining that they have superior security has also not been spared political instability. In two regions of China, Tibet and Xinjiang, minority populations are fighting to either secede from China or to establish a more autonomous rule. In both instances, Chinese soldiers and police have clashed with ethnic minorities and dozens of people have been killed and injured over the last few years. Additionally, China and Taiwan are always rattling their swords and China has even claimed that it will attack Taiwan if Taiwan dismisses the status quo and formally declares independence.
The foregoing security concerns in the BRIC countries place doubt on the reliability of predictors of economic future due to the fact that security and economic prosperity of a country are intrinsically intertwined. While national security is a factor that often only indirectly affects the economic prowess of a country, the country's products and services are the lifeblood of its success on the global marketplace. In the case of Brazil and Russia, they live and die by the price of commodities, with oil and national gas being the primary source of wealth for Russia. Similarly, Brazil also relies heavily on oil, food exports, and other minerals. Thus, if the prices of commodities were to suddenly drop, as they did recently, Brazil and Russia will be acutely affected. With respect to China and India, the two countries have positioned themselves as powerhouses of cheap labor and cheap back-office service support respectively. China's exports are now on virtually every shelf of every store around the world, and it would seem that when you call a customer help-line, the customer service representative will be located somewhere in India. This business model of putting all of one's eggs in one economic basket is quite dangerous. China is starting to face competition from other developing countries that are offering even lower costs of manufacturing and it will be probably not too long before some countries in Africa or elsewhere start developing call centers of their own to compete with India.
It is difficult to sustain economic progress if a large portion of the population is disadvantaged in some major way. In Brazil, over 50 million people, which is roughly a quarter of the country's population live in abject poverty with virtually no hope of advancing. This creates tension for the country and often leads to security concerns as mentioned previously. This instability is not conducive to long-term investment. Russia is battling numerous epidemics including hepatitis, AIDS, and many others, especially in the countryside and smaller cities. Many people in Russia simply do not have access to the same opportunities that people in large cities such as Moscow and St Petersburg have. Men, often deemed the breadwinners of a family, unable to find gainful employment turn to alcohol for their escape. As a result, the life expectancy of men in Russia is more than ten years less than women, likely one of the largest disparities in the world. To add to these problems, the population of Russia is rapidly shrinking, with families refusing to have children due to economic uncertainty. While population shrinkage poses a concern for Russia, India has the opposite problem, extreme population growth. For a country with crumbling infrastructure and health care system that is unable to support most of its population, the rapid increase in population adds an extra burden on that system. Additionally, the hundreds of millions of India's poor and illiterate do not benefit from India's economic growth, and if India does not do more to address this problem, the country will face economic and political instability. China, having established itself as a planned economy state, instituted a "one child policy" to place a check on population growth. As a result, China will not face the overpopulation problem of India, but as the generation that was not under the "one child policy" begins to retire, their children, which in most cases, is only one child due to the policy will be burdened to take care of them. An aging population, as demonstrated by economic problems that it brought to Japan coupled with the "one child policy" is a real economic concern for a growing economy such as China.
Therefore, while it might seem that every time we read the papers about economic growth in the BRIC countries, it appears as if the BRICs are destined for economic supremacy in the near future, I just do not see it happening for the aforementioned reasons. Additionally, the rampant corruption that permeates all of the BRIC societies will only add break fluid to their wheels of economic progress. Nevertheless, I do not believe the BRICs are destined for failure. Contrary to that, I stand for the proposition that the BRICs will emerge as important global players in the future, just not the economic superpowers that they are being touted to become.