Hey BRICS, Stop Whining Already

05/26/2011 12:20 pm EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Emerging powers united by the catchy acronym have been doing a lot of kvetching of late. It’s time to tune them out, writes MoneyShow.com Senior Editor Igor Greenwald.

Just because you’re a BRIC, it doesn’t mean you should throw yourself at the nearest glass house. Especially when so many of your citizens still view the world through plastic sheeting or prison bars.

The countries shoehorned into that aging acronym sure are a whiny lot, united mostly by the belief that somehow the Anglo-Saxons have cheated them out of national greatness. And maybe they did, for a while.

But one sign of development is learning to let bygones be bygones. Brazil, Russia, India, and China are still prone to sulking like insecure teenagers.

The latest reputed offense against their sense of self-worth is the candidacy of French finance minister Christine Lagarde to replace legally preoccupied countryman Dominique Strauss-Kahn as head of the International Monetary Fund.

Every managing director of the IMF since the organization’s founding in 1946 has been a European, except on two occasions (counting the present one) when the American deputy was briefly in charge.

The BRICS directors at the Fund quickly issued a joint statement advocating “abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe.”

Brazil and China appear ready to back Lagarde, after paying lip service to the need to transfer more power to emerging markets.

Still, Latin ears understandably bristled at assertions that a European needs to stay in charge because the IMF is so heavily involved in European bailouts. No South Americans needed apply for the top job when that continent was on the receiving end of IMF loans, of course.

House of Cards
I don’t think it matters much who fronts the IMF. The Fund is a creature of the national governments that provide its capital—and ultimately, its marching orders.

I do think this is an opportune time to debunk the notion that the world would somehow be a better place if Europe and the US transferred more authority to emerging powers.

The argument for the BRIC ascendancy goes something like this:

  • Emerging markets have grown much faster than the developed world for decades
  • Their young financial industries didn’t push the world economy to the brink of the abyss three years ago
  • Their citizens save much more than Westerners, while governments exercise the sort of fiscal prudence that used to be the hallmark of developed countries, before they lost their way
  • China and India are so populous that transferring more power to them is a matter of simple fairness, and will make the world more democratic

And here’s the truth behind the steel-and-glass façade:

  • They’ve grown so rapidly for decades because they were so badly mismanaged for decades, and sometimes centuries, before that. They’ve grown so fast because their people’s time was so cheap, attracting Western capital and technology. In other words, they’ve ridden our coattails most of the way, and those supercharged growth rates are partly a reflection of that fact
  • Every one of the BRICs offers up examples of financial and regulatory chicanery every bit as tawdry as our own, and China’s shell games with bad loans and real estate are likely to prove as dangerous as Lehman's one day
  • Their citizens save more because their social safety nets are so lacking, while the governments are so flush because they’ve pursued exports at the expense of general welfare. China and Brazil beggared their neighbors (and their own people) with devalued currencies; their trade surpluses assume deficits elsewhere that can’t last forever
  • China may be populous—but giving Beijing more sway is hardly democratic, since it denies political freedoms to its own people. Russia is a democracy in name only. India and Brazil are unusually prone to all the usual democratic corruptions.

All of the BRICs continue to suffer from heavy political meddling in the economy, a predilection they would further on the global stage.

In Transparency International’s Corruption Perceptions Index, the newest BRIC, South Africa, checks in 54th out of 178 countries—no more craven than Kuwait—while Brazil places 69th, only a little bit more corrupt than Italy. China is tied for 78th place, and India ranks even lower, at 87th.

And then Russia...Russia is deadlocked with Kenya and Laos for bragging rights to 154th place, which is to say that only 15 godforsaken nations (Iraq, Afghanistan, Somalia, etc.) are seen as more corrupt.

Are these the really the people to whom advanced democracies should be devolving power?

I don’t mean to suggest that the US, Europe, and Japan have nothing to learn from faster growing countries. I do think that Chile and Singapore would make much more credible teachers than China or India, which impress mainly on the headcount, and on the distance their people must still travel to attain prosperity.

There are good reasons why BRIC markets have lagged in recent years, behind more resource-rich and just plain more resourceful countries.

  • China and India are doomed to pay through the nose for the energy, metals, and food they will need in the years ahead
  • Russia is the all-time champion at punishing initiative and enterprise
  • By default, Brazil seems like the best long-term bet, but it’s in line for a nasty hangover once spending tied to the upcoming World Cup and Olympics starts to wane

As for the recent boom in consumer borrowing, Americans know how that ends.

So, to sum up, the BRICS’ claims to additional authority are based on unsustainable growth rates dictated by their former poverty and the speed with which technology spreads around the world these days.

Their governments are notoriously meddlesome and corrupt. China’s and Russia’s are repressive as well. They should strut less on the global stage and take care of the dire problems in their own backyards.

And then maybe, in a few decades, they’ll be as prosperous and well-run as the US, if not quite Scandinavia or Canada.

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