Friday, January 22, 2010 How the BRIC was Born

If you've been at all involved in the stock market the past 3+ years you should be very aware of BRIC aka Brazil, Russia, India, China.   [Mar 16, 2009: BeSpoke - BRIC Country Return 1 Year and 10 Year versus USA] I'm more of a BIC fan myself as Russia is more or less a 1 dimensional play on energy with a wildcard government [Dec 22, 2008: WSJ - Oil Crash Stirs Unrest in Russia & Protectionism on the Rise] , but the original idea behind BRIC was with a decade(s) long view so perhaps some changes will occur in 2025 in Russia that we cannot see today.  In the interim, I've suggestd BRICI or iBRIC since I think Indonesia would be a fine - but thus far under the radar - addition [May 22, 2009: Indonesia: A Must Own Emerging Market]

Readers might not know the origination of the acronym BRIC - it came from bowels of Government Sachs (GS) or more specifically Chief Economist Jim O'Neill.  The has an excellent article (click on link for full article) on the history, and how the term has morphed into something far more than a simple investment tag.  It's a lengthy but quite worthwhile story:

  • On the desk of Jim O’Neill, chief economist for Goldman Sachs, stand four flimsy flags. They look out of place among the expensive computer terminals of the investment bank’s plush London office, like leftovers of a child’s geography homework or cheap mementos from backpacking trips to exotic parts of the world. But these flags hint at a more interesting story – of the latest way in which money and ideas are reshaping the world. The small scraps of fabric are pennants for big countries: Brazil, Russia, India and China. And almost a decade ago, O’Neill decided to start thinking of them as a group – which he gave the acronym Bric.
  • It was a simple mental prop. The bolder move was to predict – publicly, and in Goldman’s name – that by 2041 (later revised to 2039, then 2032) the Brics would overtake the six largest western economies in terms of economic might. The four flags would come to represent the pillars of the 21st-century economy.
  • At the time, many scoffed at this idea. The predictions turned conventional western wisdom on its head; and O’Neill hardly seemed an obvious champion of the concept. A large man with working-class Manchester roots, he does not exude the aura of any globetrotting elite.
  • Indeed, when O’Neill coined the term Bric in 2001, he had never properly visited three of the four countries (the exception was China), and spoke none of their languages. Yet, notwithstanding those unlikely beginnings, in the past decade, Bric has become a near ubiquitous financial term, shaping how a generation of investors, financiers and policymakers view the emerging markets.
  • O’Neill speaks in smaller spheres for a moment: “It has transformed my life,” he says.
  • To some critics, the fuss about Brics is overblown. The term is hype, spin, from a bank and banking industry accustomed to disguising such guff as genuinely new ideas and concepts – the better to profit from them. “Brics is really just marketing – it’s nonsense!” says Charles Dumas, a London-based economist who disputes many elements of the Brics concept, such as the idea that these countries will keep growing inexorably into the future.
  • Others are more cynical still, arguing that Goldmans Sachs has used the concept to extend its global power, and thus turbo-charge its formidable profit-making machine.
  • But even if Brics is self-interested spin, such spin – an idea in itself, really – can sometimes take on a life of its own, beyond what its creators expect or even hope for. By creating the word Brics, O’Neill has redrawn powerbrokers’ cognitive map, helping them to articulate a fundamental shift of influence away from the western world.
From there, the story goes in a winding history and onto some interesting tangents... worth the full read if international markets are up your alley.
  • ... what they all shared in 2001 were large populations, underdeveloped economies and governments that appeared willing to embrace global markets and some elements of globalisation. To O’Neill, these characteristics made them natural sisters: they all had the potential for rapid future growth.
  • By luck – or insight – O’Neill had produced this tag just as many western businesses were trying to hone their strategies to sell products to the non-western world, or to use regions such as China as a manufacturing base.
  • ... since 2003, the Brics stock markets have risen from 2 to 9 per cent of global market capitalisation, and O’Neill forecasts they will represent almost 50 per cent of global market capitalisation in 2050.

Towards the end of the story is a chilling passage for those of us who enjoy Goldman so much - effectively they are trying to recreate their arching power in the US, overseas - country by country.  One globe - united under Goldman?  All for one (profit)!
  • This drive is going hand in hand with a complex process of cultural engineering. As the bank acquires more non-western staff, it is devising programmes to rotate its locally hired employees through headquarters, to ensure that they learn “Goldman values”.
  • As its sponsorship of Chinese business schools shows, Goldman is trying to raise a new generation of local leaders. “If you look at the history of the London office of Goldman, you can see how over a decade or two, you can have locals rise to the top,” says one top executive. “That is our goal across the world. The idea is to get embedded, to show that we are there for the long term … but also to ensure that our Goldman values are everywhere in the world.”
  • It all might sound reminiscent of the way the British empire operated in the 19th centuryor the way the Russian Communist party once tried to knit the diverse peoples of the Soviet Union into a single ideologically based nation. Only this time, it is MBA programmes and Goldman training courses, rather than British public schools or communist training camps, that provide the cultural glue. And – perhaps most important of all – Goldman Sachs (unlike earlier empires) is not overtly acting with a nationalist or political agenda; insofar as it has a real loyalty, it is to its own bottom line and its ability to make profits.

Ah, a world brimming with "Goldman values" i.e. demolish all that stands in your path in the interest of squeezing every last penny from their fractured souls.  We can only hope the company is as successful overses as they have been in the U.S. ;)  You will know it is time to hide the children when Goldman execs start filling the ranks of government as they now do in the U.S.  Looking forward to it...

Speaking of Goldman, the clock is ticking on how quickly they move to become a private company so they can do their "good" away from the watchful eye of the public.

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