The Gezi Park protests drew millions on to the streets of Turkey's cities. Photo: Getty
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Rise (and fall) of “the rest”: what China, India, Brazil and Turkey tell us about the world today

Given that developing countries face vastly different challenges with vastly different capacities to respond, we must stop thinking of them as members of a single club.

You’ve heard of the “rise of the rest”: the emergence of China, India, Brazil, Russia, Turkey, Mexico and other rapidly developing economies. Emerging markets have become a lifeline for the global economy. As the story goes, these countries will continue to emerge, providing much-needed global growth and leadership.

But they are struggling through severe growing pains, and for many of them the pain outweighs the gain. With 540 million votes cast, India’s recent election was the largest in world history; it followed less than two years after the largest blackout of all time, which left 700 million in India without power.

Other governments have had to contend with their own unwelcome surprises. A fare hike for bus services in São Paulo moved more than a million on to Brazil’s streets last year, and this year’s World Cup ignited another round of confrontation. A plan to cut down a grove of sycamore trees triggered a political fight that produced even larger demonstrations across Turkey last year, and Prime Minister Erdogan seems eager for more conflict. Not so long ago, Brazil and Turkey were considered best-in-class developing countries. Russia’s interventions in Ukraine have driven its economy into a tailspin, but Mexico, despite slowing growth, continues its march towards developed-world status. Finally, China’s uncertain future provides the world’s most important question mark.

Given that developing countries face vastly different challenges with vastly different capacities to respond, we must stop thinking of them as members of a single club. Forget the “rise of the rest”. Some are emerging. Some are stalling. Others are simply falling. For the developed world, this is a serious concern. The world now depends on emerging markets for much of its economic energy and some of its leadership.

Why did these countries rise together, and why are they now heading in such different directions? A close look at Brazil, Russia, India, Mexico, Turkey – and especially China – tells the story.

 

A rising tide lifts all emerging markets

When a World Bank economist coined the phrase “emerging markets” in 1981, he explained what the group had in common: “I came up with a term that sounded positive and invigorating . . . ‘emerging markets’ suggested progress, uplift and dynamism.” An emerging market is meant to grow rapidly while adopting the values, institutions and levels of political predictability found in the west; think Japan in the 1960s. The term has become fuzzier over time. Now it includes some 60 countries that have generated go-go growth in recent years despite their political immaturity.

Emerging markets hit their full stride by 2000. From 1960 to the late 1990s, only 30 per cent of these developing countries increased their per capita output faster than the United States. But from the late 1990s through 2012, 73 per cent of emerging markets outpaced the US – to the tune of 3.3 per cent per year on average. Emerging markets had become the place to go for those willing to accept higher risk for the possibility of higher growth.

This was an unprecedented era of abundance for many emerging-market countries, as commodity and credit booms dovetailed to supercharge growth. Rising commodity prices lifted many resource-rich markets without the need for underlying structural improvements. After the tech bubble burst in the United States in 2001, the US began slashing interest rates, sending vast amounts of capital flowing into these high-growth economies.

Emerging markets’ modest starting point was another common advantage. Emerging-market growth pulled hundreds of millions of people out of poverty: the share of the population in emerging-market countries that lived on less than $2 per day dropped from 65 per cent in 1990 to 41 per cent by 2010. Emerging-market middle classes ballooned in size. Governments postponed painful reforms needed for continued economic development, their necessity buried beneath gangbuster growth.

 

The backlash from a heady decade

After the financial crisis, as commodity prices fell, easy credit dried up and developed-world demand subsided, emerging markets felt the burn. This era of easy growth lifted huge numbers of citizens into the middle class and strengthened ruling parties and leaders’ hold on political power – but today, those larger middle classes are a double-edged sword.

Economists view growing middle classes as a huge plus. But the rising expectations they create for governments can spell trouble. The same people who contributed to – and benefited from – a decade of rapid growth are beginning to value quality over quantity and make more sophisticated demands. They want less corruption, more accountability and transparency, as well as better social services and quality of life, air, food and water. At the same time, new technologies and new tools of communication give citizens better access to information and help them articulate and amplify their demands for change. And leaders bolstered by a decade of explosive economic growth now have less capacity and fewer resources to respond.

An inability to meet these demands has led to enormous street protests in some best-in-class emerging markets. Last year in Turkey, demonstrations against commercial development in central Istanbul – and harsh retaliation from police and Prime Minister Erdogan – motivated over two million people to take to the streets in major cities. This year, anger at Erdogan reignited after leaked recordings of conversations between government officials surfaced on Twitter and YouTube, appearing to expose corruption. Erdogan responded with a heavy-handed attempt to ban these communication channels, platforms that he described as “the worst menace to society”.

The challenges keep piling on. The US Federal Reserve is tapering its quantitative easing, winding down the era of easy liquidity; higher bond yields in the developed world mean less capital flowing to emerging markets in search of better returns. Their growth has waned, leaving political incumbents in an increasingly tight spot. All told, 44 emerging-market countries, representing 36 per cent of the world’s population, have held or will hold elections in 2014. Many of these incumbents will spend more money to boost their popularity and election prospects, compromising their ability to balance the books after the votes are cast.

But even if many emerging markets face similar problems, their capacities, strategies and prospects differ enormously. The divergence between just six of the most important developing economies makes clear just how misleading the term “emerging markets” has become.

 

Major emerging markets are fundamentally different

It’s impossible to group China, Brazil, Russia, India, Mexico and Turkey together as emerging markets. Their energy needs and political and economic systems run the gamut, contributing to a huge divergence in their interests and priorities.

First, they are divided by energy. Russia is hugely reliant on energy production, natural resources comprising 70 per cent of its exports and over half of its government revenue. A spike in prices is a windfall for Moscow. Turkey, on the other hand, is deeply dependent on energy imports (see page 27), which provide about 90 per cent of the oil and gas it uses; the country’s energy demand is expected to double by 2030. Brazil’s abundant supplies of oil and ethanol make it energy-self-reliant, but its infrastructure problems continue to weigh heavily on growth. Mexico is an oil exporter, but one with declining production levels that have forced historic reforms to open the petroleum sector to foreign companies and investment. India, now the fourth-largest net importer of oil in the world, depends on foreign sources for 80 per cent of its oil. China has surpassed the US as the world’s leading oil importer. In short, on any question that might drive oil and gas prices higher or lower, the governments of these countries have very different sets of interests.

The political and economic systems across these six countries diverge even more than their energy needs. Mexico, India and Brazil are free-market democracies that grapple with corruption and governmental inefficiencies; India is by far the most decentralised. Russia poses as a democracy, but its elections, state institutions and swaths of its market landscape are subject to one-man authoritarian rule. In Turkey, Prime Minister Erdogan has authoritarian aspirations in what is otherwise a democracy with empowered institutions and a diversified economy. In China and Russia, the state is the primary actor in the economy – state-owned companies account for more than half the total value of the stock market in each. Yet they are heading in different directions. Under Xi Jinping, China is actively trying to liberalise its economy through ambitious reforms, while Vladimir Putin has not made significant strides to reduce the state’s control of key economic sectors such as oil, gas and mining.

The countries’ neighbourhoods and the major powers they rely on are completely distinct, too. In the western hemisphere, Brazil and Mexico are almost entirely insulated from geopolitical conflict; Mexico’s deepest security concerns come from drug-related violence within its own borders. But the two differ immensely in terms of their reliance on the United States. Mexico sends 80 per cent of its exports to the US, from which it receives roughly half of its imports. According to some estimates, a 1 per cent rise or fall in the US economy moves Mexico’s economy 1.2 per cent in the same direction. Brazil’s trade and investment relationships are much better diversified: in 2009, China surpassed the United States as its largest trading partner.

Turkey can benefit from economic opportunities in Europe as well as the Middle East, but its neighbourhood comes with a steep geopolitical price tag. It borders volatile Iraq, sanctioned Iran and Syria, from which it has absorbed more than 750,000 refugees. But over the next decade, the risk of political, commercial and military confrontation is highest in Asia, which accounts for a growing percentage of global growth, competing rising powers and a lack of multilateral institutions that can manage the resulting security risks. A rising China is sending shock waves through the region, provoking conflict in the East and South China Seas. North Korea remains a wild card: the regime will ultimately collapse, but when and how will make all the difference. For India, China and Russia, Asia is a profitable – but volatile – arena.

Finally, demographics and size differentials matter. China and India each have more than double the populations of Russia, Brazil, Turkey and Mexico combined. But China already has the largest elderly population in the world (more than 130 million Chinese are over the age of 65) and a fertility rate of just 1.55: well below the replacement rate of 2.1, and the lowest among the six. A recent government agency survey forecasts that the share of China’s population aged over 60 will grow from 12 per cent in 2010 to 34 per cent by 2050 – and China’s working-age population began to shrink in 2012.

Russia is also ageing, with just 15 per cent of the population under 15 years old, whereas Mexico and India are youthful at 29 and 31 per cent, better than the global average.

 

. . . and they’re heading in completely different directions

Though all of the external factors matter – the US Fed’s taper, the end of the commodity super-cycle, new demands from and communication channels for citizens – the governments themselves are the main reason these markets are emerging no more. Do these six countries have the willingness and capacity to make the hard choices that can put their economies on a healthy long-term footing? Their ability to deliver on much-needed reforms varies enormously.

Turkey and Russia are likely down and out for the foreseeable future. In Turkey, Erdogan has used the country’s growing polarisation to his political advantage, but at the expense of its long-term economic outlook. He remains favoured to become his country’s first directly elected president in August, setting him up to (mis)govern the country through to 2024.

In Russia, President Vladimir Putin is buttressing his popularity with an aggressive and costly campaign to derail Ukraine’s attempt to move towards Europe. The ruble and stock market plunged after the annexation of Crimea. Already depressing growth forecasts have been revised downward, sanctions have been imposed and $50bn in capital flight occurred in the first quarter alone (which matched all of last year’s). Longer-term, Putin is undermining his best geopolitical and economic weapon: energy. Europe is accelerating its long-term diversification away from Russia, and the US is moving towards exporting liquefied natural gas (LNG). Russia’s tremendous overreliance on state revenue from energy exports – and its lack of effort to rebalance before it’s too late – is a big part of what makes Russia a “submerging market”.

Efforts by India and Brazil to restructure their economies may prove slower-moving than many are hoping. After Narendra Modi’s historic landslide election in May, many expect him to bring his successful “no red tape, only red carpet” approach from his home state of Gujarat to the national stage. But unlike in China or Russia, power in India remains substantially decentralised, and the (now opposition) Congress Party remains the dominant force in India’s upper house of parliament. We won’t see quick legislative reforms on sensitive issues; changes, at least for the near term, will be more incremental, even if India’s longer-term outlook remains a question mark. In Brazil, Dilma Rousseff faces a tough re-election battle; with a weaker mandate on the back of softer approval ratings, she wouldn’t be able to push through big-bang reforms in her second term. Economic policy would likely improve, but only incrementally.

Mexico is a rare bright spot for sustained reform. Last year, President Enrique Peña Nieto approved key economic measures on tax reform, regulatory framework changes to promote competition and an energy-sector overhaul. Continued progress on reforms is still on track, even if there remains much to be done and it won’t happen overnight.

Unfortunately, Mexico’s success may be the exception that proves the rule. Unlike most emerging markets, Mexico was largely on the sidelines during the boom of the 2000s. It didn’t leverage the commodity super-cycle. It experienced low growth, declining oil production and less of a dip in poverty (the rate was 52.4 per cent 20 years ago and dipped as low as 42.7 per cent in 2006, but in 2012 poverty went up again to 51.3 per cent). Whereas other emerging markets have been plagued by complacencies born from the success they enjoyed during that decade, the urgency for adjustment has grown steadily in Mexico.

 

China is the true outlier

China is the real game-changer. It is simply too big, too different from any other country and too crucial for the global economy to be considered a part of anyone else’s club. Its economy is bigger than those of Brazil, Russia, India, Mexico and Turkey combined, and it continues to grow at a faster clip than any of them. According to International Monetary Fund forecasts, China will account for roughly a quarter of total global growth over the period 2011-2014.

More importantly, there is no other country with a more uncertain future.

As Beijing undertakes its most ambitious economic reforms in decades, the potential outcomes provide the single biggest worry for the global economy.

China can’t keep growing the way it did for the past 30 years – on the back of state-driven investment and cheap labour. Xi Jinping understands that China must shift to a more consumer-driven, liberalised economic model. He has begun taking the transformative first steps with an ambitious reform agenda around the environment, the financial sector and inefficient state-owned enterprises.

In the near term, the prospects for reform look good. Growth has slowed at a modest pace – that is part of what building a more sustainable model requires – and there has not yet been strong political pushback from powerful figures who don’t want change.

But China’s economic transformation is unprecedented in terms of the scope and the stakes. It will require an enormous transfer of wealth from large domestic companies, many of them state-owned, to Chinese citizens, who will increasingly demand a more open and accountable political system. Success will threaten the vested interests of all the influential leaders who have enriched themselves off the status quo for decades. And the leadership is undertaking these reforms at a time when hundreds of millions of Chinese are now online. In an environment where ideas and information flow at an unprecedented rate, dissent and unrest can emerge and grow in unpredictable ways.

Moreover, a liberalised economy will create greater competition, from foreign firms among others. Coupled with a necessary gradual economic slowdown, that will force companies to cut costs – and even employees. We are already witnessing an escalation of worker protests and a surge in labour unrest, with the largest strike yet occurring in Guangdong Province in April this year. If a future economic slowdown proves unmanageable, it could provoke cascading bank defaults or a major credit crisis. Or an unanticipated foreign policy or environmental crisis could shock the system and put citizens on the streets, too.

As Leo Tolstoy said, “All happy families are alike; each unhappy family is unhappy in its own way.” That’s a good rule of thumb for the shift in emerging markets’ fortunes between the 2000s and today. China will soon boast the world’s largest economy. When it does, it will still be poor, and thus potentially unstable. It will be far from ready to take on global responsibilities appropriate to a country of its size and influence. Beyond China, virtually all these countries rose on a fortuitous tide of historically unusual circumstances. Now they are going their separate ways – and just at the moment when they have begun to matter. 

Ian Bremmer is the president of Eurasia Group and the author of “Every Nation for Itself: Winners and Losers in a G-Zero World” (Portfolio, £9.99)

This article first appeared in the 02 July 2014 issue of the New Statesman, After God Again

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Expressions of sympathy for terror's victims may seem banal, but it's better than the alternative

Angry calls for "something to be done" play into terrorists' hands.

No sooner had we heard of the dreadful Manchester Arena bombing and before either the identity of the bomber or the number of dead were known, cries of “something must be done” echoed across social media and the airwaves. Katie Hopkins, the Mail Online columnist, called for “a final solution”, a tweet that was rapidly deleted, presumably after she remembered (or somebody explained to her) its connotations. The Telegraph columnist Allison Pearson wanted “a State of Emergency as France has” and “internment of thousands of terror suspects”, apparently unaware that the Nice attack, killing 86, happened after that emergency was declared and that nobody has been interned anyway.

It cannot be said too often that such responses play into terrorists’ hands, particularly if Isis was behind the Manchester bombing. The group’s aim is to convince Muslims in the West that they and their families cannot live in peace with the in-fidel and will be safe only if they join the group in establishing a caliphate. Journalists, striving for effect, often want to go beyond ­banal expressions of sympathy for ­victims. (It’s a mistake I, too, have sometimes made.) But occasionally the banal is the appropriate response.

Pity begins at home

Mark Twain, writing about the “terror” that followed the French Revolution and brought “the horror of swift death”, observed that there was another, older and more widespread, terror that brought “lifelong death from hunger, cold, insult, cruelty and heartbreak”. The first, he wrote, we had been “diligently taught to shiver and mourn over”; the other we had never learned to see “in its vastness or pity as it deserves”.

That is true: more children across the world die each day from hunger or disease than could ever be killed in a terror attack. We should not forget them. Nor should we forget that the numbers killed in terrorist attacks in, for example, Baghdad far outnumber those killed in all European attacks of our times combined. In an age of globalisation, we should be more cosmopolitan in our sympathies but the immediacy of 24-hour news make us less so.

When all is said and done, however, pity, like charity, begins at home. We naturally grieve most over those with whom we share a country and a way of life. Most of us have been to concerts and some readers will have been to one at the Manchester Arena. We or our children could have been present.

Cheers from Highgate Cemetery

What a shame that Theresa May modified the Tory manifesto’s proposals on social care. For a few giddy days, she was proposing the most steeply progressive (or confiscatory, as the Tories would normally say) tax in history. True, it was only for those unfortunate enough to suffer conditions such as dementia, but the principle is what counts. It would have started at zero for those with assets of less than £100,000, 20 per cent for those with £120,000, 50 per cent for those worth £200,000, 99 per cent with those with £10m and so on, ad infinitum. Karl Marx would have been cheering from Highgate Cemetery.

Given that most people’s main asset – the value of their home – did not have to be sold to meet their care costs until death, this was in effect an inheritance tax. It had tantalising implications: to secure their inheritance, children of the rich would have had to care for their parents, possibly sacrificing careers and risking downward mobility, while the children of the poor could have dedicated themselves to seeking upward mobility.

The Tories historically favour, in John Major’s words, wealth cascading down the generations. In recent years they have all but abolished inheritance tax. Now they have unwittingly (or perhaps wittingly, who knows?) conceded that what they previously branded a “death tax” has some legitimacy. Labour, which proposes a National Care Service but optimistically expects “cross-party consensus” on how to finance it, should now offer the clarity about old age that many voters crave. Inheritance tax should be earmarked for the care service, which would be free at the point of use, and it should be levied on all estates worth (say) £100,000 at progressive rates (not rising above even 50 per cent, never mind 99 per cent) that yield sufficient money to fund it adequately.

Paul Dacre’s new darling

Paul Dacre, the Daily Mail editor, is in love again. “At last, a PM not afraid to be honest with you,” proclaimed the paper’s front page on Theresa May’s manifesto. Though the Mail has previously argued that to make old people use housing wealth to fund care is comparable to the slaughter of the first-born, an editorial said that her honesty was exemplified by the social care proposals.

On the morning of the very day that May U-turned, the Mail columnist Dominic Lawson offered a convoluted defence of the failure to cap what people might pay. Next day, with a cap announced, the Mail hailed “a PM who’s listening”.

Dacre was previously in love with Gordon Brown, though not to the extent of recommending a vote for him. What do Brown and May have in common? Patriotism, moral values, awkward social manners, lack of metropolitan glitz and, perhaps above all, no evident sense of humour. Those are the qualities that win Paul Dacre’s heart.

Sobering up

Much excitement in the Wilby household about opinion polls that show Labour reducing the Tories’ enormous lead to, according to YouGov, “only” 9 percentage points. I find myself babbling about ­“Labour’s lead”. “What are you talking about?” my wife asks. When I come to my senses, I realise that my pleasure at the prospect, after seven years of Tory austerity, of limiting the Tories’ majority to 46 – more than Margaret Thatcher got in 1979 – is a measure of my sadly diminished expectations. l

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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