With the publication of his 2001 seminal paper on the BRICs, Goldman Sachs' rock star economist Jim O'Neill wowed the world with his forecasts of the inexorable rise of Brazil, Russia, India and China.

His universe of dynamic economies then expanded to the "next eleven" of Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.  And in his most recent book, "The Growth Map", he has shifted focus to what he calls the "growth markets", which includes the four BRICs and Indonesia, Mexico, Korea and Turkey.

What to make of all of this?

Many observers have been shocked by O'Neill's forecasts that China's economy would overtake America's, and that the BRICs would overtake the G7 in the foreseeable future.  But if anything, his forecasts have underestimated the rapid rise of the BRICs.  He now forecasts that before the end of 2020, the BRIC economies will become larger than the US.  Before the end of 2030, China may become as large as the US and the other BRIC economies may match those of the G7.

Most importantly, while his analysis may seem very powerful, it is basically common sense.  If countries with very large populations can raise the productivity, their economies will eventually overtake those with smaller populations.

And this is what has been happening.  After decades of bad policies, the emerging world is increasingly adopting good policies.  This is enabling their productivity levels to move on a path of progressive catchup to the West, and this catchup is a fast growth process.  (Bytheway, there is nothing particularly new about O'Neill's analysis.  Way back in 1997, the OECD produced a very similar report, "The World in 2020", which focused on the "Big 5" of Brazil, China, India, Indonesia and Russia, each of which then had a population over 150 million and GDP larger than $100 billion.)

O'Neill analyses the past and prospective performance of the growth markets based on his "growth environment score" index which comprises macroeconomic variables (inflation, government deficit, investment spending, external debt and degree of openness) and microeconomic variables (use of mobile telephones, use of the Internet, use of computers, life expectancy, education, rule of law, corruption, and stability of government).

He discusses the many implications of the rise of the BRICs for investors (we should not forget that he is a banker), the world economy, the international monetary system and global governance.

He has also very interesting discussions about the risks concerning the future performance of the growth markets.  But he invariably concludes through an impressive array of rambling anecdotes that these economies will succeed.  In particular, he is somewhat dismissive of the merits and pressures for democracy in China and Russia.  Through his infatuation for the BRICs, he may be guilty of what he calls "the lazy consensus".

One thing most curiously lacking in O'Neill's excellent book is any discussion of the risk of his growth economies falling into a "middle income trap".  By contrast, in its recent Asia 2050 report, the Asian Development Bank went to great pains to argue that the Asian Century was not preordained, and that there are very grave risks of Asia's leading economies getting stuck in a middle income trap because of a failure to stay the course in policy reform.

IBM's Chairman, Sam Palmisano, has recently developed this theme in an excellent speech on what he calls "Global Integration Act II".  For emerging economies, Act I of global integration was relatively simple if they ended a civil war, or dropped protectionist tariffs, or embraced digital IT.  The emerging world has now reached the end of the easy path to increasing GDP -- it has reaped the low hanging fruit.  It is now faced with the risk of the middle income trap meaning that it is a lot easier to go from being a low-income to a middle income country than it is to jump from a middle income to a high income country.

In Global Integration II, emerging economies face a radically more competitive arena, requiring higher degrees of regulation and higher standards, where there are higher expectations for everything -- from product and service quality, to working conditions, to protection of intellectual property and the rule of law.  It is very far from clear that O'Neill's growth markets are really up to the task of avoiding the middle income trap.

And lastly, while it is nice to have emerging economy groupings like the BRICs having members from several continents, the reality is that the really big and consistently dynamic economies all come from Asia, with China dominating.  And that the real challenge for the world remains realizing and adapting to an Asian Century, and fully coming to terms with the rise of China.

References:

O'Neill, Jim.  "The Growth Map: economic opportunity in the BRICs and beyond".

http://www.amazon.co.uk/Growth-Map-Economic-Opportunity-Beyond/dp/0670921262

OECD.  "The World in 2020: towards a new global age."

http://www.oecdbookshop.org/oecd/display.asp?lang=en&sf1=DI&st1=5LMQCR2KQHKC

Palmisano, Samuel J., "Global Integration Act II"

http://www.nytimes.com/2012/02/23/opinion/global-integration-act-two.html?_r=1