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Four Snapshots:

India, China, Brazil, and Russia

Globalization and the EvolvingInternational Economic Order


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BRIC Country Overview

BRIC COUNTRY OVERVIEW

0.0 BRIC Country Overview

1.0 Brazil

2.0 Russia3.0 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


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

Introduction: BRIC Country Overview

Rise of the BRICs

By 2050, BRIC countries expected to account for over40% ofthe worlds population, and 60% of global GDP


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1.0 BrazilGlobal MarketplaceTrendsChallenges 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 adevelopment marked by boom and bust Political instability caused by fluctuating market prices political violence

Since 1985, Brazil has been developing a representativedemocracy 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 highunemployment

Yale Global Online


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Global Marketplace: A Refreshed Administrationand Strategy

In 2002, 53 million Brazilians elected former shoeshine boy andleader 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 Brazils 190m people into the consumer market for the

first time


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Global Marketplace: A Refreshed Administrationand 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 since200

1 Brazilian economy becoming less dependent on exports

Brazil becoming a leader in the effort to bring developing nationsinto 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 Worlds 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)


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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)


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2.0 RussiaGlobal MarketplaceChallenges for the Future


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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 prosperousdemocratic 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.


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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 othercountries 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.


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Global Marketplace: Why did Russia not transitionsmoothly 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 perceptionsof 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 withoutundertaking painful reform Diversified global firms willing to take risks in Russian energy sector

because of high potential for profit Russias nuclear arsenal renders it too big to fail, attracting foreign

assistance despite lack of democratic reform


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Global Marketplace Consolidation of federal power

Immediately after inauguration, Putin begins weakening challengers ofKremlins power

Regional governors, Oligarchs, NGOs, Environmental groups

Justice system used to attack political opponents of the regime

Strengthening of ties with former Soviet allies such as North Koreawhile exploiting differences between Washington and Europeancapitals 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 geopoliticalpressure

Regional instability: Georgia incursion

http://www.nixoncenter.org/publications/articles/Russia%20and%20globalization.htm



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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 domesticmanufacturers 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 securityadvisor, December2004)

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


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3.0 IndiaGlobal MarketplaceKey AdvantagesTrendsElections of2009

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 localprogrammers for domestic products

Firms quickly realize Indian software is low-cost and high-quality, begin usingIndian programmers for other markets

Indian industry gains exposure to international programming,

marketing, customer care

Yale Global Online


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India: Global Marketplace

Global Marketplace: Globalization

Forces of globalization set the stage for rapid rise of Indianeconomy

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 ofglobalization allow India to leverage the power of English-

speaking technical talent to produce powerful software for theglobal market

Yale Global Online


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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 ofthe US

Those with graduate degrees and above have risen from 20.5million in 1991 to 48.7 million in 2004

Enrollments at grad-plus level rose from 6.6 million in 1995 to 9.84 millionin 2004, with proportion of those doing engineering going from 6% to11.2%

World Bank Group: India Data Profile


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India: Elections of 2009

Elections of 2009

May 16th parliamentary elections result in stable majority forCongress party Congress and electoral allies win 261 of543 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 anddevelopment, 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 notaccount for economic downturn Governments 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 from30% to 60% by 2050

Indian companies lose an average of7% 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 laborforce


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4.0 ChinaGlobal MarketplaceKey AdvantagesTrendsChallenges 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 worlds 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 rapidimprovements in living standards and working conditions

Chinas successes are associated with liberalization andglobalization

In 2004, international trade accounted for70% of Chinas GDP, as comparedwith 24% for Japan

RAND Corporation, China and Globalization, Yale Global Online, Goldman Sachs


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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 corporatemanagement techniques

Elite youth sent abroad for education Incorporates foreign brands into local culture



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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 under30 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 worlds 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 withinurban 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 belowpoverty line

Resilience to global economic downturn

High savings rate creates economic buffer

Vast untapped potential in domestic consumer goods market may be Chinassecret weapon

RAND Corporation, China and Globalization; WSJ; Goldman Sachs


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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 Japans economy

Complex and symbiotic relationship with US

Chinas 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 instability of US economy


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China: Challenges for the Future

Challenges for the Future Recognition as a global power requires adherence to internationalnorms 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 andvalues

Globalization vulnerable to backlash from countries or social groups that cannot finda satisfactory place in the global system

Could create coalition of these groups


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Shared Opportunities

Shared Opportunities Inclusive growth critical for sustained globalization

(politically) in developing countries, because potentiallies in bringing up all


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7.0 Discussion


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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 addressintractable problems?

How can the US ensure its continued relevance andimportance in the changing game of globalization?

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