The former Commercial Secretary to the Treasury and Goldman Sachs chief economist on the 20thanniversary of coining the influential term the BRICs
In late summer 2001, when I was co-head of economic research at Goldman Sachs with Gavin Davies, it became clear there was a strong probability Gavin would be leaving to become Chairman of the BBC. In Goldman’s inimitable style, their immediate thought was to find another co-head for me.
And so I became involved in interviewing all sorts of incredibly illustrious economists from around the world – spectacularly well-known names. I had to explore the idea that I would have some credibility as their equal.
Then, crucially, September 11thhappened. I’d been at the annual Economics Association Conference in the Twin Towers. On the Tuesday, Gavin and I were hosting our monthly video conference with all our MDs around the world. Halfway through, the guys in New York left. We were wrapped up in our little world – we just carried on. Then, around 15 minutes later Gavin left for his final interview for the BBC. He popped back into the room and said: “I think you probably want to be aware that apparently some plane has hit one of the Twin Towers.” My first instinct was to say: “Okay, thanks Gavin. Now, you guys in Asia…”
But within two days of it happening, I came to the strange conclusion that the underlying message to take away from this tragedy – rightly or wrongly – is that this was the end of American-led globalisation. It was the terrorists lashing out and saying: “We’ve had enough of Americanization.”
Within six weeks, I published my first piece: ‘The world needs better economic BRICs”. Three things were at the core of it. Firstly, I’d already been mesmerised by China’s role in helping solve the Asian crisis in the late 90s so I was already aware of the relevance of China for the world. Then, of course, we were coming to the end of the first decade of the collapse of the Soviet Union, and the supposed emergence of Russia as some kind of democratic state. The G7 would soon expand to the G8 to accommodate Russia.
Thirdly, we’d also seen the launch of the Euro as a single currency. So France, Germany and Italy now shared a single monetary policy, currency and the common framework for fiscal policy, which would still have the same equal representation as all these seeds of global economic governance.
It was only in 2003 that the acronym became well-known in business, when we published our outline as to what the world could look like by 2050. We deliberately called that ‘Dreaming with BRICs’. People forget that we wrote about what could happen if ever country fulfilled its potential. Of course, in reality the idea that every country in the world would reach its productivity potential is crazy. The idea that they’d all do it at the same time is completely absurd.
In reality, what has happened is that China has become so big that it’s twice the size of the other three put together. So when it comes to discussing the BRICs as an economic or political group, China completely dominates. Because of that, it still means that the various assumptions we made about the BRICS becoming bigger than the G6 in the future, actually could still happen – despite what has been a very disappointing decade for Brazil and Russia.
Overall, China and India look as though they’re going along the central path that we assumed. Meanwhile, Brazil and Russia have proved that they suffer from the so-called commodities curse. They can’t seemingly adjust their economies from being excessively dependent on commodity price swings. They keep having these violent economic cycles. In both countries, there’s also significant evidence of misallocation of resources and a lot of blatant corrupt practices that go with these dominant industries. Both countries need to reform and stimulate their private sectors.
Interestingly, the legal people at Goldman spent a brief amount of time exploring the case for acquiring the rights to the acronym. Whenever anyone mentioned the phrase BRICs, they wanted it to be Goldman Sachs BRICs. I argued against that because then other places wouldn’t have used it.
Today I worry that the American democratic system is struggling. The country is having to adjust to the fact that for the past 20 years, US economic growth has been so unequal. There’s been no rise in real wages during that time, which has caused this remarkable split politically. If we don’t see renewed economic growth post-COVID – and alongside it, shared economic growth – then the fragility will only grow more.