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| Worthy Notions: From The Editor |
Trading Places, Revisited
Dwight Cass
09/01/2005
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One increasingly popular belief is that they, along
with Brazil and Russia (the BRIC countries), will continue their upward
trajectory and eventually outshine the more deliberately paced G8 economies,
including ours. Indeed, in a report issued in late 2003 which popularized the
BRIC acronym, Goldman Sachs economists predicted that by 2050 the BRICs would
comprise four of the world’s six largest economies. Other economists
subsequently made similar, if slightly more conservative,
projections.
According to Goldman’s report, China’s GDP will overtake the
UK’s and Germany’s by 2010, Japan’s by 2016 and ours by 2041. It will be the
world’s largest economy by 2050, followed by the U.S. and India. India’s economy
will take a bit longer, but will have surpassed those of Italy, France and
Germany by 2025 and Japan by 2035. Brazil and Russia lag behind, but Goldman
forecasts that both economies will leave Germany in the dust by 2040.
These
results may seem implausible to those who have negotiated India’s Byzantine
bureaucracy in an attempt to establish businesses or make investments, or who
have put capital in Chinese companies, only to find them stripped bare by
rapacious local mandarins and hucksters. But even if Goldman’s forecast is taken
as illustrative of only the best-case scenario for the BRICs, the general thesis
raises interesting strategic questions for investors and
entrepreneurs.
Clearly, these countries will play a crucial role in the
global economy in the coming decades. Today, investors blithely put their
low-risk money in 20-plus-year U.S. government debt and, in Europe, the
occasional 50-year issue. Those who invest for the future in this manner should
give some thought to which countries will be the best repositories for that
sleep-well capital when those investments come due. Meanwhile, entrepreneurs
build companies that they hope will last for decades, if not generations. If
Goldman’s forecasts about the BRICs are even partially correct, those
companies—and their investors—will need unprecedented flexibility to react to
this shift in the macroeconomic international balance of power.
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