This content is from: Portfolio

Jim O’Neill Interview: The BRICs Turn 10

Just in time for the holidays, GSAM chairman Jim O’Neill has an optimistic message for investors.

Jim O’Neill is quite excited about the future of the global economy. Known best as the coiner of the term BRIC—short for Brazil, Russia, India and China—the former economist, now chairman of Goldman Sachs Asset Management in London, has written a new book in which he lays out his vision for a world in which the declining western nations rise once again on the outsized needs of the burgeoning third world middle class.

Ten years ago there was little fanfare when O’Neill, then head of Global Economic Research at Goldman Sachs, published GS Global Economics Paper No. 66, “Building Better Global Economic BRICs.” It wasn’t until 2003 after his colleagues Dominic Wilson and Roopa Purushothaman co-authored paper No. 99, “Dreaming with BRICs: the Path to 2050,” that the acronym finally took off.

In the original 2001 paper O’Neill predicted that four countries—Brazil, Russia, India and China—then about 8 percent of world GDP, would represent 14 percent by the end of 2010. In fact, they’ve sailed past O’Neill’s prediction to between 18 and 19 percent of world economic output today.

In honor of the 10th anniversary of the popular term, Mr. BRIC, as O’Neill occasionally and facetiously refers to himself, has written a book entitled, The Growth Map. In it we learn that the BRIC economies have grown collectively to $13 trillion, more than three times their 2001 size of around $3 trillion. A major consequence of the BRIC story, says its author, has been the desire of other large-population emerging economies to get into the “club.” When he realized this back in 2005, the neologist then came up with the term “N-11” for the next eleven largest emerging countries idea. The four largest of these—Indonesia, Korea, Mexico and Turkey—are sufficiently large and important, argues O’Neill, to be considered “growth markets”—a term he prefers to “emerging markets.”

O’Neill had a second motive in penning the new book. It’s a fundraiser for his London-based charity, SHINE or Support and Help In Education. In 1998, the year Goldman Sachs became a public company, a friend asked O’Neill what he was going to do after he became wealthy. The friend suggested creating a way to give something back to people who have come from a more challenging environment. After six months of research, SHINE, now a grant-making foundation with five staff that supports educational programs, was born in 1999. “It’s one of the best things I’ve ever did in my life,” says O’Neill, SHINE chairman for the past seven years. “We only invest in projects that demonstrate economies of scale and can be measured,” he adds. With greater need than ever, the foundation is looking to double the £2 million a year that it gives away. [Wink: buy the book.]

O’Neill spoke with Senior Writer Frances Denmark from his London office last week about the importance of the top eight growth markets that include the BRICs and four largest of the N-11s, Indonesia, Korea, Mexico and Turkey.

How important are the countries you call the “growth markets” today?

It’s kind of preposterous that people are thinking of them as emerging markets. I would describe them as the single most important structural economic issue of our generation. They are driving the world. And with it certainly the most important thing to help the deleveraging West get out of its trouble. For example, Russia is probably the biggest auto market in Europe. Within this decade, the aggregate GDP (gross domestic product) of the eight growth market economies will contribute twice that of the U.S. and Europe put together.

What about the smaller countries, those you call the N-11?

In my book I talk about the other four, Indonesia, Korea, Mexico and Turkey, and the African countries because in the future they could become very powerful. I home in on Nigeria in particular. There’s a large population in the emerging world.

How is Nigeria contributing to world economic growth?

Here’s an anecdote to illustrate that. I talk to people at Louis Vuitton very often because luxury goods are very well desired particularly in China. When I was with those people recently they did a little quiz with me. At the top of their flagship store in London they own an apartment and offer its use for their best clients. They asked me, “Guess what country has the most number of people who stay at that apartment?” I said of course, China. And they said, “Wrong, Nigeria.”

Will the N-11 and BRICs resurrect the global economy with Louis Vuitton bags?

We in the west have to turn from being importers from them to being exporters to them. That is the long and short of it. Instead of importing from China, we should be exporting to China. There are two things that matter for imports and exports. One is the price and the other is demand. As the Chinese and the BRICs and other growth markets get wealthier they have more income to buy more stuff. That is a bigger driver of what they will buy than the price, as evidenced by Louis Vuitton.

Has the trend started?

If you take Germany as a national example, right now, at the end of 2011, Germany is exporting more to the four BRICs than it does to France. That is what will end up being the case for the U.S. and the U.K. and other developed countries. These countries are going to end up being major export market for us. If you look at a chart of U.S. export growth, its biggest growth is to China, Brazil and Mexico.

How do you get past the black cloud of gloom hanging over the western world?

I describe myself as excited. People are so pessimistic about what’s going on at the moment that they don’t understand the opportunity. Contrary to what most people think, we are living through the largest period of people being taken out of poverty into the middle classes. Hundreds of millions of people are entering the middle classes. Between 2000 and 2030, we’ll have three billion new people join the middle class. That’s why it’s so exciting and why I wrote the book.

How much time do you spend visiting the growth market countries?

More, more and more. When I created the acronym I’d never been to but China of the four BRICs. When I sit down to plan my calendar, time in the BRIC countries is one of the most important things that I like to do. You cannot beat the anecdotes and other things you pick up by traveling in them. When I see many well known commentators, particularly in the U.S., articulate views about China, quite a few of them have never even been there. To understand China you have to spend some time there.

Will the Euro zone come apart and every country go back to its own currency?

I think it’s very unlikely. Right now there’s a large number of people who think it won’t exist in 2012, but it will. Even though I’m known as Mr. BRIC I was raised as a foreign exchange guy. I was hired by Goldman as a foreign exchange economist. I know plenty about the history of all of this. A lot of people confuse what they think should happen with what is going to happen. The euro is a product of French and German desire to avoid World War III. You can’t have any sensible discussion about the euro without realizing how important that is. Out of this, maybe not for all members, we might get a stronger and more sensible euro.

You travel so much, are you ever at home?

As indicative of how crazy my life has gotten as Mr. BRIC, I typically get invited to go on some trip somewhere at least eight times every day. I have a policy where I try, as measured by overnight stays in hotels, to limit my travel to no more than 25 percent of the time. I have learned the art of saying no diplomatically.

How do you manage the jet lag?

I haven’t found it yet so when you find it please let me know.

Related Content