For the BRICs, 2012 is ending on a sober note. Taken as a group, stocks in the once red hot markets of Brazil, Russia, India and China are trailing global equity averages. Currently, India is running scared and moving towards a new round of reform as growth slows. Brazil on the other hand has been coasting and backsliding, but is now beginning to worry that its current course is unsustainable. Bloomberg has the full story:
Stocks of BRIC companies beat global equities by 403 percentage points in the eight years after Goldman Sachs Group Inc. coined the term in 2001, as their economies grew more than threefold. Gross domestic product is now expanding at the slowest rate compared to the rest of the world since 1998. The International Monetary Fund sees average growth in the four countries of 4.5 percent this year, down from 8.1 percent in 2010, compared with 3.3 percent for the world economy.
One takeaway from all this: while these countries have done much better by adopting various elements of capitalism more thoroughly, there is a lot of cultural and political opposition to the market economy. This opposition comes from many points of view. Bureaucrats and political authorities don’t want to give up control. State-backed and state-owned enterprises don’t want to give up their subsidies and their protection. Intellectuals in many cases remain attracted to socialist nostrums, and pressure groups that do well from a large state presence in the economy fight change.
What often happens in these cases is a kind of start and stop growth pattern. If the authorities are unhappy with economic growth rates, they will liberalize and open their economies to get things started again. But once things are going well enough, they tend to stop opening and even backtrack until growth slows. Then they restart the cycle.
Brazil, Russia, India and China — the Brics — face different kinds of policy constraints. In China and Russia the weight of a corrupt state capitalism on the system is a major problem. In India and Brazil, organized political resistance by groups and regions who think they have something to lose in reform plays a greater role. China remains economically the healthiest of the Brics today, but may have the most tumultuous future.
The Brics aren’t transforming the world on quite the schedule enthusiasts predicted; given the deep domestic roots of the constraints on growth we’ve mentioned, their future progress is likely to remain erratic for some time.