Growth Is Not Destiny
The BRICs and the U.S. in the age of multipolarity
For the last two weeks, The Atlantic has run a special report on the next global economies and, in particular, about the BRICs: Brazil, Russia, India, and China. The BRIC story is one about economic growth. Growth makes families wealthier, healthier, and happier. It gives the United States and other developed countries a bigger pool of consumers to which we can sell our machines and services -- which makes us wealthier and happier, too.
But growth is complicated. In China, the pursuit of 10% annual expansion has led to economic degradation and the forcible uprooting of millions of families. In India, it has created a film of wealth above a deep pool of miserable poverty.
Americans can see the impact of Asia's industrial revolution in the big white gasoline signs on every other street corner. Last week, with Brent Crude soaring over $120 a barrel, Barclays Capital published a note concluding that, in addition to supply issues, prices were rising, even with weak economies in the U.S. and Europe, because "the epicenter of growth has most definitely moved away from the US to Asia, and China in particular." With cheap clothes and electronics, we are benefiting from China's productivity (and India's, and ours). With rising transportation costs, we are paying for China's growth (and India's, and ours).
Combined, Brazil, Russia, China and India account for two in every five people in the world -- nine times more than the United States, on its own. And yet their combined economies amount to no more than $14 trillion -- less than the United States, on our own. These countries are catching up to the U.S., and they should be. But as the BRICs gain on us -- and, with fits and starts, they will keep gaining -- the United States must recognize that the emergence of a two-billion-person middle class offers huge challenges and opportunities.
To oversimplify a bit, the opportunities have to do mostly with trade and the challenges have to do mostly with resources. For example, since the recession hit, Brazil's consumers have been taking on debt at an awesome pace. This might suggest unsustainable borrowing, but it also represents an export opportunity for U.S. businesses and investment opportunities for banks, funds, and families. Yet, as more rich people from Rio (and Russia, and so on) buy cars and create skyscrapers and build suburbs, they will push up demands for natural resources that will almost certainly result in higher prices for the building blocks of modern lifestyle. Over the next few decades, the U.S. will find that international competition will have quantifiable costs, such as lost entrepreneurs and students that choose to go to foreign universities. But the specter of international competition should also galvanize us to make sensible reforms, such as scrapping our ridiculous cap on visas for smart graduates and making permanent our R&D tax credit.
The biggest BRIC offers the biggest challenges and opportunities. China has helped multinational companies achieve remarkable productivity gains by offshoring and streamlining the production of cheap stuff. From the perspective of American unions and liberal policymakers, China's cheap labor and undervalued currency impoverish American workers. Perhaps. But cheap labor and weak currencies also impoverish the Chinese. As their economy grows, more children of farmers will move into cities and the currency will get stronger against the dollar, making China an better export opportunity for US businesses. At its current pace, China's dollar-value of imports will surpass the United States in 2016. Once again, as China traces modern labor's journey from the farms to the factories to the office buildings, they will demand business services that the United States should be willing to provide. After all, a consultant can export his services just as easily -- if not more easily -- than a manufacturer.
The most important chapters of the BRIC stories haven't been written yet. Recessions happen. Depressions happen. And how a country responds to these unforeseen crises makes all the difference. Eighty years ago, two economic rivals sharing a timezone entered two similar Great Depressions. One country shut off its economy and drowned in inflation. The other country passed a series of stimulus bills, eased its monetary policy, blew up its debt to fight a war, and won. The first country was Argentina, whose GDP per capita is still roughly that of Mexico or Chile. The second was the United States. Growth isn't destiny. It's an answer to a multiple choice question.