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BRIC Bust?

The very structural characteristics that launched the economic successes of Brazil, Russia, India, and China are now holding them back.

Appeared in: Volume 9, Number 5 | Published on: April 20, 2014
Michael Mandelbaum is the Christian A. Herter Professor of American Foreign Policy at The Johns Hopkins University’s School of Advanced International Studies. This essay is adapted from his new book The Road to Global Prosperity, published by Simon & Schuster.
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  • Corlyss

    “Rich countries already have in abundance what produces growth: the most advanced technology and techniques of production.”
    Quite true, but the observation neglects the fact that those nations are beavering away to stifle themselves with self-imposed regulatory and statutory limits in the interests of fairness and equality with the less fortunate.

  • Wonderful summary. One key thing missing: Corruption. Both of money and power. It is the cancer that underlies all these countries.

  • Jacksonian_Libertarian

    I agree with most of this, except for the analysis of China which ignores the major reason for China’s success and the roots of its coming bust. I speak of currency manipulation, by which the Chinese central bank overpays for foreign currencies to reduce the supplies of those currencies in their economy, then uses those currencies to purchase the debt of their respective governments. This manipulation provides their exporters with a price advantage on world markets, and makes imports prohibitively expensive.

    The problem comes with the excessive accumulation of foreign debt that was overpaid for, and the reduced competition exporters have faced. Taking the last reason first; it is the “Feedback of Competition” that forces continuous improvements in Quality, Service, and Price. The reduced competition has therefore made Chinese businesses inefficient and weak, and likely to just fail when the currency manipulation ends as inevitably it must. And that brings us to the accumulated foreign debt from the currency manipulation, since in Capitalism everything must balance, China’s exporters will face decades of price disadvantage while cheap imports grab market share and bankrupt the weak Chinese businesses.

    While all of the BRIC’s have engaged in currency manipulation, only China has used it so vigorously that it grew at 10% per year. Japan did this starting in the 60’s until it hit the wall in the late 80’s, and has now been in a deflationary depression for 25 years and counting. China will now face a similar fate, at the hands of market forces. The Chinese Communists should have questioned the willingness of the western capitalists to allow them to manipulate their currency when Deng Xiaoping opened their economy up to the west. Instead they have been snickering to themselves for decades thinking they have put one over on their Capitalist enemies. Have they grown hugely? Of course they have, western capitalists want the largest most efficient world market they can get. And an intransigent Communist China in the 70’s was a potential billion people in abject poverty that could be uplifted to expand that market if only the Communists could be lured into the market. So the clueless Chinese sacrificed long term growth, for short term gain, and only now are some of them coming to realize what it is going to cost them.

    Some Americans look at the $1.3 Trillion in US Treasuries the Chinese have, and say that they own us. I say such people are as unsophisticated and stupid as the Communist Chinese who agree with them. Ask yourself, if the Chinese were to go to war with America over say the South China Sea, would America still be obligated to pay them back? So, who owns who?

    (US Treasuries are simply accounting entries at the US Federal Reserve Bank, and can be erased with the push of a button)

  • Pait

    “As a result, the price level rose sharply.” This vague sentence, found in the part about Brazil, is a good summary of the argument. What does it mean? It suggests that the book might have made sense before being shortened to an essay. Or perhaps the book itself was already a succession of platitudes. A collage of newspaper excerpts posing as deep analysis.

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