BRICs: Then and Now - An Emerging Markets Timeline

A recent article in The Economist regarding emerging markets, and more specifically the BRICs, caught my attention. BRICs is an acronym used for the 4 major emerging markets - Brazil, Russia, India and China (South Africa was added in 2010, it is now known as 'BRICS'). All 4 of these nations are newly industrialised, developing economies who share a common, rapidly expanding national economy.

As can be seen from this World Bank graph, the four economies have consistently posted growth rates well in excess of that set by the USA in the last 10 years (ignoring 2009 'financial crisis effect year', everyone suffered) up until this year. Brazil has dipped below the growth rate of the USA whilst the other 3 are falling. The turning point, potentially. The four economies have reached a point of maturity. The gap between themselves and the world leader that existed 20 years ago has been wiped out by the rapid progress, leaving no more room for this 'catch-up growth'. Coupled with this, each of the economies have their own individual problems that are hindering them from carrying on this progress - China's ageing population and India's need for reform, for example. Although we can't exactly call this slowdown a failure in economic terms, it does pose a problem for the economies.

For the most part of my life (or what I can remember of it) emerging markets and their rapid expansion has been one of the dominating stories, consistently cropping up in the media. Now the sense is that this era has come to an end. The days of the rapid economic expansion seen by the BRICS over recent decades are drawing to a close. Take China as an example, it's growth rate was 7.8% in 2012, half of the level it achieved back in 2007. China is also struggling to reached its 7.5% forecasted GDP growth for 2013 which would be the lowest growth rate the country has seen in 23 years.

The consensus is that the world will not be seeing growth rates well into the double figures like China posted in the mid 2000's ever again.

With this thought in mind, I thought it would be fitting to do a researched piece on the BRICS, looking at where they have come from in the last few decades and what has been the cause of this slowdown. I'll do this over a 5 part blog post, with each country being looked at in detail and then a conclusion at the end - so stay tuned for that. 

Britain's Victorian Economic Dominance

Back in 1870, Britain still held the position as the top economy in the world. We were producing more than 50% of the worlds cotton cloth, iron, steel and coal in 1851 and 20% of the worlds trade was conducted through British ports. We were dominating after being the first economy to go through the industrialisation phase.

However, after 1870 the British economy has gained an association with decline, despite still growing in absolute terms. There are two reasons for gaining this reputation: the rate of growth was less than in previous years and other countries were growing at a faster rate. So comparatively, the era following 1870 was a time of economic failure for Britain. An example of this slowing of economic growth can be seen by the British manufacturing output statistics for the time. From 1856-1873, the annual growth of British manufacturing output was 2.6%. From 1873 to 1913 this annual growth had fallen to 2.0%. Britain's competitors were growing at a faster rate as well, as i said, which made the British economy look like it was failing even more.
The 1870 - 1913 figures for annual growth of output look like this:

• Britain - 1.9%
• Netherlands - 2.1%
• Germany - 2.8%
• USA - 4.2%

As can be seen from these figures, Britain was growing a lot slower than it's competitors and due to this the USA and Germany overtook Britain's economy by the time the First World War came around. The U.S now had the biggest economy with Germany close behind. The share Britain held on world manufacturing exports also declined from 37.1% in 1883 to 25.4% in 1913 whilst at the same time the U.S's and Germany's grew. 

Some economists came to the conclusion that this relative decline of Britain was inevitable as other countries began to make their way through the industrial revolution phase. On the other hand, some economists blamed the United Kingdom's internal weaknesses for this decline. These weaknesses include a failure to adopt the latest machinery, too much focus on older industries (coal, steel, etc) and not good enough commercial and technical education. But, nowadays this view has pretty much been dismissed as more data and evidence has come to light. British firms were still maximising profit and production at the time, which suggests that there wasn't a need to adopt new machinery. Technology from the U.S wasn't always suitable for the British market. An example of this is the ship building industry. The U.S were more technologically advanced when it came to building ships yet Britain could still produce them cheaper and therefore more efficiently. Finally, the main causes of this relative decline were external. Britain was losing out to countries with more raw materials and larger markets. The U.S, for example, had a lot of land, oil and coal and a massive internal market which benefited them greatly. This is known as the 'Factor Supply Thesis'. This also leads onto the 'Early Start Thesis'. This is basically the principle that because Britain had industrialised first, other countries could learn from Britain's mistakes during the process and catch up much quicker. Also, because of Britain's early start, many aspects of the economy had become very outdated and difficult to change. The railway system is a good example of this. The Victorian railway system which Britain was left with was not as efficient as it could have been.   

Overall though, the structure of the British economy in 1913 was still good. There was a small agricultural sector, taking up an 11.5% share of employment. This differed from the U.S and Germany who's agricultural sectors were much larger. The U.S's took up 25% of employment and Germany's took up 33%. Britain had many large firms operating in many sectors of the economy. There was a very sophisticated service sector holding a share of 44% of Britain's employment. Manufacturing held steady at 32.1% of employment. Britain even had the highest level of output per head in Europe in 1910. It lead the way with $1,302 per head compared to $958 per head from Germany. 

In summary, up to 1870 the British economy was dominating the world due to it being the first economy to industrialise. After 1870, other economies started to industrialise too and this meant they caught up the British economy, leading to doubts about the economy. However, these doubts were pretty much out of the control of Britain and despite these problems, in 1913 the outlook for Britain was still good as they were producing more per head in Europe than anyone else. The position of the economy of Britain was made to look worse because all the other economies were doing so well. 

A brief insight into Britain's Victorian economic dominance and the period from 1870 up to 1913. Thanks for reading, have a good day!

Sam.