What is the state of the countries that should have represented our global economic future and what does the last fifteen years of their development teach us? First of all, the famous “emerging markets” — from the fortunate term coined in the 1980s by Antoine Van Agtmael that referred to approximately thirty incompletely developed autonomous markets– set on China’s extraordinary growth, committed the error of not enacting necessary structural reforms (eliminating subsidies, balancing their budgets, strengthening their banking systems, creating the rule of law, and fighting corruption). Therefore, today, with Chinese growth in retreat, a large part of these nations are in poor shape with the exception of Vietnam, which is not dependent on raw materials and did a lot to create an industrial future.
The same argument is valid for the “BRICS”– an acronym invented by Jim O’Neill for Brazil, Russia, India, China, and South Africa– although they followed two different paths: a positive one for China and India (sustained by its services sector that accounts for 50% of its GDP and its lack of raw materials which forced it to take advantage of every shard of growth, like the software sector). It’s another story for Brazil (who from great promise to great disappointment), Russia (in crisis for reasons other than oil, such as its geopolitical situation), and South Africa (with unemployment rates hovering at 30%): three economies stricken by the collapse of commodities prices and political problems, in addition to lacking strong technological sectors, which are guiding the growth of Taiwan and South Korea. The BRICS are countries that have lived a lost decade, full of great euphoria they were unable to take advantage of. In fact, the data indicate that tech stocks represent a meager 4.1% of the Russian market, 0.3% of Brazil’s, and 0.4% of South Africa’s. Politics are evidently at fault: technological revolutions start at the grassroots level and have reduced potential in these countries– particularly in Russia, it is believed– where the freedom of expression-action is opposed. The situation is analogous for the other emerging “MINT” countries: Mexico (which is moderately dependent on raw materials and remains anchored to the United States’ growth which continues to hold), Indonesia, Nigeria, and Turkey (which possesses great potential deriving from its culturally rich territory and a ready economy, but also the rather notable problems of religious origin that negatively impact the market and contribute to unemployment and growing inflation).
In general, therefore, we can say that as soon as China sneezes, all of the emerging markets get pneumonia. For example, the situation in Thailand is worrisome with growth not even reaching 3%, high private debt that’s strangling the economy and reducing consumption, and the Baht at its lowest value in ten years. On the other hand, countries like Vietnam and Indonesia are sending interesting signals in terms of innovation and development, but it’s still too early to draw conclusions because, despite important investments in infrastructure (about 10% of GDP), politics and religion represent and not insignificant threat.
Remembering that the deflation afflicting the world derives also from China’s excess productive capacity, emerging markets have collectively reached a fraction of the global GDP greater than 50% over the past fifteen years and have also acquired authority (think of China, India, and Turkey: three nations that in growing built their own banks and have become influential at the UN and IMF), but with growth slowing rapidly for at least the last couple years, problems have risen to the surface. In exchange for the export of raw materials almost all emerging markets dismantled their own (weak and protected) industries first, then began to import Chinese products; now they’re finding themselves without industry and with little room to maneuver.
In the world, thinking of the future, we talk about the need to enact structural reforms, but in reality everything always changes too little. Reflecting on my long experience in Southeast Asia and returning more than twenty years after my first visit, I must admit that I expected to see greater progress. And I have the suspicion that the structural reforms are chimeras that will be impossible to realize gradually because of income disparities that won’t relinquish privilege, and render efforts to change the socioeconomic structure in vain. Then, it would be worthwhile to begin believing that only big exogenous traumas can modify the status quo in calcified societies. Therefore, instead of fearing deflation and financial crisis, it would be wiser to seize them and take advantage of their destructive force in constructive ways, because this is the only way to finally break obsolete schemes and recreate environments in which innovation and productivity can grow freely.