Brazil, Russia, India and China, collectively known as BRICs, are the current buzz on everyone’s global economy radio as a result of their incredible economic growth. This growth has stemmed from compounding changes in each country: “All these things don’t just happen magically—they happen for a reason,” says Texas A&M Finance Professor Arvind Mahajan.
Mahajan, Lamar Savings Professor at Mays, is co-author of “A Future Global Economy to be Built by BRICs,” published as the lead article in the May 2007 issue of Global Finance Journal.
Researchers have linked BRICs as a potential team with China and India acting as dominant global suppliers of goods and services, and Brazil and Russia as their commodity and raw material suppliers. All four of these countries have experienced growth because of their advancement to global capitalism, which has been propelled by programs such as changing political systems, foreign investment and education. But BRIC countries still face major hurdles that may slow their rising economies.
Brazil’s economic position has improved because the demand and prices of its exports have risen, but primary surplus associated with higher taxes can lead to higher public debt. The INSS, Brazil’s social security administration, is pressuring the central government for increasing retirement expenditures while investment expenditures are declining as a fraction of its gross domestic product, or GDP.
High oil prices and a cheap ruble are the sources of Russia’s recent economic success. Its foreign debt has declined from 90 percent of GDP to only 31 percent and foreign reserves have leaped from $12 billion to $180 billion within a decade. Russia has abundant natural resources, but still faces problems because the country lacks strong legal, financial and democratic institutions.
A democratically elected government runs India, but its democracy has created obstacles of another kind. “Progress can’t be as swift because of democracy. Democracy can be bad news and good newsâ€”it’s bad because it makes everything move slower, but it’s good because if people aren’t happy, they can complain,” Mahajan says. Even with slower progress, India’s growth rate has exploded—it averaged a 6 percent increase over the last 25 years. If that growth rate continues, India’s economy (in terms of purchasing power) will equal that of the U.S. by 2050.
China has the most potential of the BRIC countries to become the next world leader. Mahajan says researchers joke that “China is the production center of the world and India is the huge back office of the world.” China is the biggest country by area, and with 1.3 billion people, it is also the most populous nation in the world. Needless to say, China’s overpopulation results in cheap labor and concentrated areas of poverty.
In an effort to control overpopulation, each family in China was allowed to have only one child. This has helped lower the population, but in the future, there may not be enough of the working-age population left to run China’s huge rising economy. The lack of regulations is also causing major problems. Pollution is so extreme that citizens are developing serious health problems from polluting agents. And as more people in China become educated and wealthy, they will demand more political rights.
In order for the U.S. to remain active in the global market alongside BRIC countries, Mahajan suggests that the U.S. must continue in the path of freely competitive and more efficient markets, pursuing policies encouraging innovation and rigorous education with new industry-specific strategies. “If we do things right, we can have the same strengths,” he says.
Students at Mays Business School can expect more opportunities for study abroad experiences, including those in BRIC countries. MBA students are studying in India this year and other students will have the opportunity to study at the University of Beijing. Mays faculty were also involved in starting a business school in St. Petersburg, Russia.
Mahajan, along with other Mays professors, plans to continue challenging Texas A&M students in their knowledge and understanding of the global economy, especially concerning BRIC countries. “The U.S. is on the first page of every country’s newspaper,” Mahajan says. “We know so little about these countries, and they know so much about us. We need to understand where people are coming from to know where they are going.”
Categories: Research Notes