Globalization and the Evolving

International Economic Order

Four Snapshots:
India, China, Brazil, and Russia
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BRIC Country Overview

BRIC COUNTRY OVERVIEW

0.0 BRIC Country Overview

1.0 Brazil
2.0 Russia
3.0 India
4.0 China
5.0 Shared BRIC Challenges
6.0 Shared BRIC Opportunities
7.0 Discussion

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0.0 BRIC Overview

3 3
Introduction: BRIC Country Overview

Rise of the BRICs

 By 2050, BRIC countries expected to account for over 40% of
the world’s population, and 60% of global GDP

BRIC Consulting, Goldman Sachs Global Economics Paper No. 99 4

1.0 Brazil
Global Marketplace
Trends
Challenges for the Future

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Brazil: Global Marketplace

Global Marketplace: The uneasy emergence of an

economic leader in Latin America
 One of the fastest growing economies in the last century
 Development driven by trade of natural resources such as coffee and sugar
 But over-reliance on agricultural commodity exports resulted in a
development marked by boom and bust
 Political instability caused by fluctuating market prices political violence
 Since 1985, Brazil has been developing a representative
democracy
 In 1994, Fernando Henrique Cardoso elected president
 Cardoso believes economic development dependent upon investment,
technology transfer, and market access provided industrialized nations
 Succeeded in stopping hyper-inflation, but resulted in swelled debt and high
unemployment

Yale Global Online 6

Brazil: Global Marketplace

Global Marketplace: A Refreshed Administration and

Strategy

 In 2002, 53 million Brazilians elected former shoeshine boy and

leader of the New Unionism movement to chart new course
through globalization
 Luiz Inacio “Lula” da Silva established outward-oriented
development strategy to grow the economy
 Expanded exports of mineral, agricultural, semi-industrialized and high value-
added manufactured goods
 Targeted traditional markets (US & EU) and new markets in Latin America,
Southern Africa, China, India, and Middle East
 Established income-support programs to combat social exclusion
and poverty
 Brought a quarter of Brazil’s 190m people into the consumer market for the
first time

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Brazil: Global Marketplace

Global Marketplace: A Refreshed Administration

and Strategy

Results
 Export earnings grew from $43.5 billion in 1994 to $90 billion by 2000
 2008 estimates put exports over $190 billion
 From 2006 to 2007, per capita GDP increased from $4,930 to $6,600

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 Brazil: Trends

Trends
 Focus on equitable development has resulted in significant poverty reduction
 Middle class now comprises 52% of population
 “Long famous for its unequal distribution of wealth, Brazil has shrunk its income gap by six percentage points since 2001”
 Brazilian economy becoming less dependent on exports
 Brazil becoming a leader in the effort to bring developing nations into the era of globalization
 Established the IBSA development initiative to promote cooperation among the developing nations of the southern
hemisphere
 A global leader in renewable fuels
 World’s second largest producer of ethanol, and the largest exporter
 90% of Brazilian vehicles can be fueled by ethanol

The Globalist, Brazil: Navigating the Straits of Globalization; The Economist (May 2009) 9
Brazil: Challenges for the Future

Challenges for the Future

 Overburdened and ineffective judicial system
 Supreme Court received 100,781 cases in 2008
 69% of Brazilians believe judges lack impartiality
 High risk of broken contracts and lack of reliable legal recourse discourages foreign
investment

The Globalist, Brazil: Navigating the Straits of Globalization; The Economist (May 2009) 10
2.0 Russia
Global Marketplace
Challenges for the Future

11 11
Russia: Global Marketplace

Global Marketplace: An “easy case” for globalization

 After the collapse of the USSR in 1991, a sense of historical inevitability that Russia
would rapidly become a prosperous democratic state
 World community supported a plan of rapid economic reforms referred to as “shock
therapy”
 But beginning in 1992, Russia became plagued by hyperinflation, political conflict, and
desperate poverty
 Poverty increases ten-fold from Soviet era
 Infant mortality 4 times that of US
 

The Globalist, Brazil: Navigating the Straits of Globalization. 12

Russia: Global Marketplace

Global Marketplace: “Less shock, more therapy”

 By end of 1992, world community remains hopeful as Russian
people rapidly disillusioned
 Perception grows that Russia is being “lectured” by other
countries and is quickly losing its superpower status
 Propensity to offer guidance to Russia quickly became a sore point in the
U.S.-Russian relationship

The Globalist, Brazil: Navigating the Straits of Globalization. 13

Russia: Global Marketplace

Global Marketplace: Why did Russia not transition smoothly into the global
system?

 Undue emphasis on economics over politics

 Domestic pressures for change not as strong as in other countries
 Short-term consequences of “shock therapy” undermine public perceptions of linkage between reform and
prosperity
 Disregard of cultural values
 Russians did not adopt “western lifestyles” as a standard by which to judge their own
 Russia can still benefit from a globalized world without undertaking painful reform
 Diversified global firms willing to take risks in Russian energy sector because of high potential for profit
 Russia’s nuclear arsenal renders it “too big to fail,” attracting foreign assistance despite lack of democratic reform

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Russia: Global Marketplace
Global Marketplace
 Consolidation of federal power
 Immediately after inauguration, Putin begins weakening challengers of Kremlin’s power
 Regional governors, “Oligarchs”, NGO’s, Environmental groups
 Justice system used to attack political opponents of the regime
 Strengthening of ties with former Soviet allies such as North Korea while exploiting differences between
Washington and European capitals for political leverage
 Continued provision of nuclear and other sensitive technologies to Iran
 Continued popular skepticism of the west
 85% of Russians believe the US is trying to dominate the world
 This makes widespread pressure for economic or political reform unlikely
 Use of vast oil and natural gas reserves to exert geopolitical pressure
 Regional instability: Georgia incursion

http://www.nixoncenter.org/publications/articles/Russia%20and%20globalization.htm 15
Russia: Challenges for the Future

Challenges for the Future

 Labor shortages and poorly developed infrastructure
 WTO membership and long-term growth of the manufacturing sector
 “Economic miracle” of Russian economic growth driven by natural resource exports, but manufacturing
sector not competitive on global scale
 WTO accession will have long-term benefits, but will hurt the majority of domestic manufacturers which
cannot compete with foreign companies
 Reconciling ambitions as a major power with reality of current situation
 "With real democracy in Ukraine, more and more Russians would view the Putin regime as an
anachronism."(Zbigniew Brzezinski, former U.S. national security advisor, December 2004)

The Globalist, Nixon Center, The Economist, Yale Global Online 16

3.0 India
Global Marketplace
Key Advantages
Trends
Elections of 2009
Challenges for the Future

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India: Global Marketplace

Global Marketplace: The PC Revolution

 Seeds of Indian Software industry sown in late 70s and early 80s
 Early software training in India centered in universities
 Sense that power of software would be unleashed in years to come
 American technology firms enter Indian market and use local
programmers for domestic products
 Firms quickly realize Indian software is low-cost and high-quality, begin
using Indian programmers for other markets
 Indian industry gains exposure to international programming,
marketing, customer care

Yale Global Online 18

India: Global Marketplace

Global Marketplace: Globalization

 Forces of globalization set the stage for rapid rise of Indian
economy
 Sourcing capital from where it is cheapest
 Sourcing talent from where is it best available
 Producing where it is most cost effective
 Selling where markets are, without constraints of national borders

 Confluence of internal changes and external forces of

globalization allow India to leverage the power of English-
speaking technical talent to produce powerful software for the
global market

Yale Global Online 19

India: Key Advantages

Key Advantages
 1.15 billion people
 2nd largest labor force: 516.3m people
 60% employed in agriculture
 28% in services
 12% in industry
 Approximately 2.5 million college graduates per year
 Every year India graduates nearly 350,000 engineers, twice the number of
the US

 Those with graduate degrees and above have risen from 20.5
million in 1991 to 48.7 million in 2004
 Enrollments at grad-plus level rose from 6.6 million in 1995 to 9.84 million
in 2004, with proportion of those doing engineering going from 6% to
11.2%

World Bank Group: India Data Profile 20

India: Trends

Trends
 Number of people in absolute poverty has declined sharply
 Exports have boomed
 Foreign exchange reserves are ample for the first time in history
 Fifth highest globally in 2008

 Newfound economic dynamism has shifted the balance of leaders’

priorities from geopolitical goals to mutual economic interests [not
sure of meaning]
 Tense relations with Pakistan after Mumbai terror attacks

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India: Elections of 2009

Elections of 2009
 May 16th parliamentary elections result in stable majority for
Congress party
 Congress and electoral allies win 261 of 543 seats
 Best result of any party since 1991
 Party platform featured education reform, poverty reduction,
electrical capacity increase, and agricultural development
 Election seen as a sign of the compatibility of democracy and
development, and a validation of “equitable globalization”
 The “challenge of rising expectations”

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India: Elections of 2009

Elections of 2009
 Congress can no longer blame stagnation on political foes
 Expectations of continued high support for impoverished do not
account for economic downturn
 Government’s budget deficit may exceed 11% of GDP in 2009
 Many “necessary” reforms are politically unpopular
 Curbing fuel and fertilizer subsidies
 Repealing overly-protective labor laws
 Lifting cap on foreign direct investment

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India: Challenges for the Future

Challenges for the Future

 Improving governance
 Indian bureaucracy notoriously prone to “leakage”
 Governance problems overarch all others
 Improving basic educational achievement
 India is still 40% illiterate
 Can take up to 4 years to fill teacher vacancy
 Improving infrastructure and electrical capacity in cities
 Strain on urban services will rise dramatically as urban population rises from 30%
to 60% by 2050
 Indian companies lose an average of 7% of income due to power outages
 To reach growth goal of 9% per year, India will need to add 25,000MW of
electrical capacity per year
 Expanding technology industry
 High tech sector still accounts for only one quarter of one percent of the labor
force

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4.0 China
Global Marketplace
Key Advantages
Trends
Challenges for the Future

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China: Global Marketplace

Global Marketplace: Unleashing the “Caged Tiger”

 As recently as the late 1970s, China was the world’s most important
opponent of globalization
 Though it was a latecomer, China has been extremely aggressive in its
engagement in the globalized system
 As a result, China achieved an average GDP growth rate of 9.6%
between 1976 to 2004
 No large country in human history has experienced such rapid improvements in
living standards and working conditions
 China’s successes are associated with liberalization and
globalization
 In 2004, international trade accounted for 70% of China’s GDP, as compared with
24% for Japan

RAND Corporation, China and Globalization, Yale Global Online, Goldman Sachs 26
China: Global Marketplace

Global Marketplace: How did China do it?

 China focused not only on opening economy, but also on
institutionalizing globalization
 Adopted Western concept of “rule of law”
 Established competition as a centrally important economic practice
 Adopted English as de facto second language for educated population
 Assimilation of best practices from across the globe
 Sends missions throughout the world seeking best technology and corporate
management techniques
 Elite youth sent abroad for education
 Incorporates foreign brands into local culture

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China: Global Marketplace

Global Marketplace: A Painful Transition

 State enterprise employment declined from 110 million in 1995 to 66
million in 2005
 Manufacturing jobs declined from 54 million in 1994 to under 30 million today
 Urban-rural income gap is getting wider
 Environmental cost of industrialization
 70% of Chinese energy from coal
 One new coal-burning plant brought online every week on average
 China has 20 of the world’s 30 most polluted cities

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China: Key Advantages

Key Advantages
 Broad expansion of educational achievement
 Great success in promoting primary, secondary, and university education within urban and
rural populations
 One-child policy results in greater parental and national investment on a per-child basis
 Rapid economic growth
 4th largest economy (behind US, Japan, Germany)
 Economy grew by 11.9% in 2007
 More than 200 million people lifted out of poverty, with 10% of population below poverty line
 Resilience to global economic downturn
 High savings rate creates economic buffer
 Vast untapped potential in domestic consumer goods market may be China’s “secret
weapon”

RAND Corporation, China and Globalization; WSJ; Goldman Sachs 29

China: Trends

Trends
 China has been a source of economic growth and stability in the
region
 Demonstrated to India advantages of more open economy
 Stimulated neighbors’ trade and foreign investment rather than depriving them
 Revived Japan’s economy
 Complex and symbiotic relationship with US
 China’s growth driven largely by demand in US market
 Inexpensive products substantially improve living standards of poorer Americans
 China top creditor of US (holds nearly $1 trillion in US bonds)
 Security of US debt a growing international issue, but China has vested interest in
stability of US economy

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China: Challenges for the Future

Challenges for the Future

 Recognition as a global power requires adherence to international
norms
 Environmental quality
 Human rights
 Currency manipulation
 Intellectual property rights
 Continued reform of state-run enterprises
 Banking system worst in the world, but reforming
 State control resulted in high proportion of non-performing loans
 Demographic shifts threaten sustained growth
 Rapidly-aging work-force due to one-child policy
 Every generation, 300 million move to the cities
 Eventual result will be high non-working/working ratio in cities
 Navigating a complex relationship with US and world
 Value of US debt depends upon
 Cooperation on nontraditional threats such as terrorism and disease

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5.0 Shared BRIC Challenges

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Shared Challenges

Shared Challenges
 The face of poverty in 20th century was rural children. The face of
poverty in the 21st century will be the urban elderly.
 Making the global system more accommodating to diverse cultures
and values
 Globalization vulnerable to backlash from countries or social groups that cannot find
a satisfactory place in the global system
 Could create coalition of these groups

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6.0 Shared BRIC Opportunities

34 34
Shared Opportunities

Shared Opportunities
 “Inclusive growth” critical for sustained globalization
(politically) in developing countries, because potential
lies in bringing up all

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7.0 Discussion

36 36
Discussion

Discussion
 Should more economic power necessarily translate
into more political power?

 Should Brazil and India be on the UNSC? Does more

representation allow us to more efficiently address
intractable problems?

 How can the US ensure its continued relevance and

importance in the changing game of globalization?

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