Emerging Economies: An Overview from 30,000 Feet

Guest Author: Frank Li (Bio at end of article)

BRIC (Brazil, Russia, India, and China) held its first annual meeting in Russia in 2009, and its second in Brazil in 2010. China hosted the third one this year (in April), when BRIC became BRICS (“S” for South Africa). The five BRICS countries are now known as the “emerging economies.” But are they equal and how may you take advantage of them in business?  My answers are very simple:

1. Pay special attention to China, as it is far ahead in the pack.
2. Pay good attention to Brazil and Russia, as they both have vast natural resources.
3. Pay some attention to South Africa, as it’s the most advanced country in Africa.
4. Pay a little bit of attention to India, as it has yet to get the basics right, although it has been trying very hard.

India

After becoming independent from the British in 1947, India took a noble standing internationally: non-alliance, neither to the East (i.e. the socialist block led by the Soviet Union) nor to the West (i.e. the capitalist block led by the U.S.). Unfortunately, India ended up with the worst of both. With “socialism,” which destroys the basic work ethics in human beings, India got a bunch of non-performing state enterprises as the engine of its economy. With “capitalism,” which seemed to go hand-in-hand with democracy (until China showed up recently), India embraced democracy early and quick, resulting in having so many individual human rights that you can’t even acquire a piece of significant land today to build something big and serious (e.g. highways and airports).

Obviously, India has changed a lot recently, but nothing fundamentally! The #1 challenge for India is to lift its massive population out of abysmal poverty (like China did one decade ago), for which India must understand two basics: (1) democracy is a nice-to-have after the must-have, namely, the [initial] success of capitalism (article); and (2) because democracy is already deeply rooted, India can’t follow China (which lacks basic democracy) as an example of success. India must figure out its own way of success, which will take a long time. How long? 30 years, at least!

Russia

The Soviet Union was a total disaster! Russia changed too quickly after the disintegration of the Soviet Union, adopting both a new political system and a new economic system overnight. The result has been chaos, to say the least. However, Russia does have a history of manufacturing (e.g. heavy machinery). More importantly, Russia is a country with vast natural resources, just like Canada or Australia. In that sense alone, nobody should ever under-estimate Russia, the potential, if not the current ability.

The #1 challenge for Russia is to restore some “orders” before democracy gets way ahead of capitalism. Like India, Russia must understand that for prosperity, capitalism is a must, while democracy is merely an option. With this challenge met, Russia may become a major economic power soon. How soon? 10 years at least!

Brazil

Brazil, unlike Russia, does not have any advantage or disadvantage of “socialism” from the past. Like Russia, Brazil is rich in natural resources. So despite the fact that Brazil has no history of making anything (that you may know of), it will play an increasingly important role internationally, given its size and location. Yes, being in South America is a huge advantage today, such as winning the bid to host the Summer Olympics in 2016. Very importantly, while the French and the British were busy bombing Libya recently, Brazil surpassed both of them to become the 5th largest economy on earth (after the U.S., China, Japan, and Germany).

The #1 challenge for Brazil is to build a culture of creating products, which is very different from selling natural resources (like the Saudis)! This will take quite a while, 30 years at least.

South Africa

Like Brazil, South Africa is the most developed country in its continent and rich in natural resources. Unlike Brazil, South Africa is not likely to host a Summer Olympics within the next 20 years. Way to go!

China

China, like Russia, suffered a lot from “socialism” from 1949 to 1976. Unlike Russia, China did not change both the political system and the economic system overnight. Instead, China embraced capitalism quickly, while evolving its political system gradually into a better autocratic system over time. As a result, China today has the best of both “socialism” and “capitalism” (totally opposite to India). With “socialism,” China re-built the infrastructure (e.g. airports, highways, and high-speed railways) quickly and it’s world-class now. With “capitalism,” China has become the world’s epic center of manufacturing, with millions of factories, big and small, thriving.

The #1 challenge for China is to introduce democracy slowly but steadily, so as to avoid being “a long cycle nears its end” (article) and evolve itself into a truly “harmonious” society built on top of a powerful economy. With that, China will become the largest economy on earth by 2030.

One big note: I believe the world would be a better place if we all adopted China’s approach internationally: let’s do some business together, regardless of the ideological differences. Why? Because today’s ideological wrong could be tomorrow’s right! Many human tragedies were the results of strong ideologies, be they religious or political. Peace and trade, not war! To know what the Chinese are doing globally, watch this BBC series (video). For a most recent Russian view of China’s development, see article.

My Closing

This is a simple overview of BRICS from 30,000 feet. Needless to say, all five countries face all kinds of big challenges of their own. However, the overall directions for all of them are very positive. Following the current trend, BRICS will become, by 2020, an axis comparable to G-8, with China playing a dominant role like the U.S. does at G-8.

Visit China and see her with your own eyes: the good, the bad, and the ugly!

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About the Author

Frank Li is the Founder & President of W.E.I. (West-East International), a Chicago-based import & export company. Frank received his B.E. from Zhejiang University (China) in 1982, M.E. from the University of Tokyo in 1985, and Ph.D. from Vanderbilt University in 1988, all in Electrical Engineering. He worked for several companies until 2004, when he founded his own company W.E.I. Today, W.E.I. is a leader in the weighing industry not only in products & services, but also in thought and action. Dr. Li writes extensively and uniquely on politics, for which he has been called “a modern-day Thomas Jefferson” (see page 31).