Conventional wisdom rarely survives a good stress test, and few tests have been as stressful as that which the global economy has endured over the past 24 months. A healthy season of reappraisal has dawned, shining a new light on boom-time notions such as the value of opaque markets, the untouchable status of the US consumer, or the wisdom of deregulation.
One piece of bubble wisdom that has escaped relatively unscathed, however, is the assumption that the Bric countries—Brazil, Russia, India, and China—will increasingly call the economic tune in years to come. The Bric notion, coined in a 2003 Goldman Sachs report, is not all bad: At 75% correct, it scores a good deal better than most economic prognostications of the day.
Yet the economic crisis that began in 2008 exposed one of the four as an impostor. Set the vital statistics of the Bric economies side by side and it becomes painfully obvious that, in the words of the old Sesame Street game, “One of these things is not like the other.”
Illustration: Jayachandran / Mint
The weakness of the Russian economy and its highly leveraged banks and corporations, in particular, which was masked in recent years by the windfall brought by spiking oil and gas prices, burst into full view as the global economy tumbled. Saddled with a rust-belt infrastructure, Russia further disqualifies itself with dysfunctional and revanchist politics and a demographic trend in near-terminal decline.
Even with the modest recovery in commodity prices over the past six months, Russia’s energy sector has experienced declining production in recent years, due in part to fears among foreign investors of expropriation. Russia’s sovereign wealth fund, integral in propping up an increasingly recentralized economy, is being depleted fast. If negative trends continue, Russia’s reserve fund could eventually be exhausted.
Russia’s fall back to earth, meanwhile, spawned a kind of parlour game among academics, foreign policy wonks and educated investors, aimed at replacing the country in the club of major emerging market economies. A variety of acronyms have been suggested, from the cutesy Bricet (adding eastern Europe and Turkey) to Brickets (the former plus South Korea) and—an even greater stretch—Brimc, which shoehorns Mexico into the mix.
In all of these revisions, Russia survives, despite the writing on its economic wall. While Russia retains the world’s largest (if somewhat ageing) arsenal of nuclear weapons, as well as a permanent seat (and thus veto power) on the UN Security Council, it is more sick than Bric.
Purely from the standpoint of economic potential and fundamentals, the case is far stronger for South Korea, a sophisticated economic power whose primary liability is the danger that the regime of its evil twin to the north will collapse and inundate it with hungry refugees.