What competition? – Part XII

As part of the series examining the “competition” to America in this era of supposed decline an article has argued that rather than the disparate and diverse BRICS a far better acronym is that of the TIMBIs.

This group, the author writes, consisting of Turkey, India, Mexico, Brazil, and Indonesia are, he argues, far better placed to take advantage of their populations and wealth than others such as Russia and China who face obvious challenges. He begins the piece noting that “Yet 10 years on, the notion of the BRICs already seems out of date. In China and Russia, demographic patterns have shifted. Their working-age populations are declining, as are exports, while still-rigid political systems stifle free thought and hamper technical advance”.

Interestingly he goes on to note “Future trends still look robust in Brazil and India, but these countries should now be in new company — a group of dynamic and democratic emerging economies. Let’s call them the TIMBIs: Turkey, India, Mexico, Brazil, and Indonesia. These countries form more than just a cute acronym. They all share favourable demographics and democracy and are already large economies. Their GDPs combined have already surpassed that of China and will be much faster growing in the coming decades. Their combination of booming labor forces and political openness points to rapid increases in human capital and innovation that will propel these regional powers into global powers in the near future”.

As he rightly points out one of the major weaknesses of China is its impending demographic collapse, he adds however that “China’s labour force grew an average of 1.7 percent per year, reaping the gains of Mao’s pro-natalist policies from the 1960s and 1970s. These gains accounted for about one-fifth of China’s annual economic growth in these decades. In the same years, urbanisation — a key source of the increase in productivity of China’s labour force, as workers moving from farming to urban manufacturing and services brought huge increases in output per worker — grew at a rate of 4.3 percent per year, as urbanites went from 20 percent to 45 percent of China’s population. Education, yet another key element in increasing productivity, underwent a similarly rapid boom. From 1998 to 2004, total undergraduate enrollment increased from 3.4 million to 13.3 million, an incredible annual increase of 25 percent per year. These trends helped underwrite GDP growth rates of 10 percent per year”.

He then makes the valid argument that “Trends cannot continue at this rate, however, and indeed they have already begun to reverse. In response to the success of the one-child policy adopted in 1978, China’s labour-force growth ceased in 2010, and its working-age population will decline by 15 percent by 2040. This shift from 1.7 percent annual labour-force growth to an annual contraction of 0.5 percent will, by itself, knock 2.2 percentage points off China’s annual economic growth potential over the next three decades. Moreover, urbanisation — perhaps the main driver of productivity increases — will decline even more. The U.N. Population Division projects that China’s urbanisation will continue, rising from 45 percent of China’s population today to 67 percent by 2040 as an additional 360 million people will be added to China’s cities. As an annual rate of urban growth, though, this is only a 1.5 percent annual increase — a slowdown of about two-thirds from the 1980-2010 rate. As for educational growth, that too has clearly reached a limit. Twenty percent of China’s college-age youth are in colleges and universities today, a remarkable number for what is still a predominantly agrarian and blue-collar economy. China announced this year that it will limit the growth of doctoral programs. The biggest concern of Chinese college graduates is that their numbers have increased much faster than the economy can employ them, as white-collar jobs are proving extremely hard to find. Thus, all the demographic drivers of China’s recent productivity increase will be lacking in the future”.

He correctly dismisses Russian leadership going on to argue that Brazil is the real story to watch, “The big story here is Brazil, which is projected to overtake Germany around 2025, becoming the world’s fourth-largest economy (after the United States, China, and Japan). India will overtake Italy and Britain by 2020 and surpass France and nearly equal Germany in output by 2030, becoming the world’s sixth-largest economy. Mexico will overtake Spain and Russia by 2020 and catch up to Italy by 2030. And Indonesia and Turkey will essentially catch up to Russia and Spain, going from less than half their size in 2010 to near equality in 2030”.

The piece concludes, “it’s not just demographics. The TIMBIs have diversified economies — their manufacturing, agriculture, and service sectors are all growing. Oil exports, which loom so large for Russia and were once crucial to Mexico and Indonesia, no longer play such a central role. Mexico’s economy grew 5.1 percent per year from 1995 to 2002, even as oil dropped from 62 percent of exports in 1980 to 7 percent of exports in 2000. Indonesia is now a net oil importer due to surging domestic consumption to fuel its own growth. Turkey is poised to benefit from its position at the fulcrum of Europe, the Middle East, and Africa, resuming its historic central role in Eurasian trade, while also being a huge supplier of goods and services to Central Asia, the Middle East, and Africa. Brazil not only boasts growing technological skills but a huge lead in global energy competitiveness through its early adoption of sugar-cane ethanol for fuel. India’s leap directly to economic growth led by services and white-collar jobs puts it in far better position than China to ward off competition from other low-wage countries moving into manufacturing, such as Vietnam, Bangladesh, and Indonesia”.

While there are some concerns about the Turkish economy overheating and the credibility to Turkey’s claim to democracy the others in the group, at least India, Mexico and Brazil are all democracies and on the surface have similar values and broadly the same interests as the United States. That is not to say that they will act the way America wants, but crucially they have all benefited enormously from the American led global order and it could be said have a vital national interest in keeping it it check perhaps to the exclusion of other potential challengers. So while they might be competition in the economic sense of the term, America has less to worry about should these countries ever decide to have a more active foreign policy.