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Keep an Eye on the KWEFS and Other Emerging Economies

If Jim O’Neill, author of The Growth Map, is correct and good things can come from crisis, we are in for a doozy of a future based on the last couple of years alone. Unlike many books on the post-economic apocalypse, O’Neill’s is refreshingly upbeat. Yes, China and countries like India and Brazil are gaining on us, but don’t be concerned. O’Neill’s “guess is that within a couple of years this depressing mood will lift.” If those countries achieve their goals, “it will be good for the world, and good for us.” Dubbed the “rock star” of Goldman Sachs by Business Week in 2010, O’Neill tracked the growth of emerging markets to draw conclusions about what it means for the world economy and western nations.

When he’s not writing, blogging, or running charities, O’Neill works as the chairman of Goldman Sachs asset management. He prefers “growth markets” to “emerging markets” to emphasize the upward trend for a group of countries he refers to as BRICs (Brazil, Russia, India, and China). He points out that the opportunity scale for productivity in growth market countries is much larger than those already developed, so it is productivity growth that accounts for their overall gains in GDP. In other words, many countries have a much larger potential for progress than the United States because they fill a wider gap from their starting point. In contrast, US gains are incremental over our already huge economy. Still, we currently rank only second to China.

O’Neill coined the term BRICs in 2001 when he predicted that certain countries would leap ahead in economic growth. At the time, few people listened. But when the BRICs did just that, people – investors – for example – started noticing. There is no one, simple factor that links them all but O’Neill looks at growth in employment, growth in capital stock (the accumulated capital available for investment) and technical progress as indicators. He also places great faith in technology to right any of our world woes. Though the growth of the BRICs and many other developing nations will eat up valuable resources (ones you might assume our earth can ill afford) technology will save the day as it has so often in the past. And, new developments in technology will in turn foster more economic growth.

Like many books by high profile economists and business gurus, The Growth Map is a cocktail: one part memoir, one part sales spiel, one and a half parts economic analysis and two dashes of history for flavor. His aim seems to be to calm fearful reader-investors who put faith in doomsayers – those who would have us learning Chinese in order to communicate with our inevitable future bosses. When we contemplate the rise of developing countries we often view it as a case of us or them – an either/or in which the economic success of some countries means the downfall of others. Not so, in O’Neill’s view. “The rules of the game are not entirely clear,” he writes. “But everyone can see the potential and everyone wants in.”

Just behind the BRICs are another group of emerging markets O’Neill calls the N-11 (the Next 11), which include (in alphabetical order) Bangladesh, Egypt, Indonesia, Iran, South Korean, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam. In O’Neill’s view, these are countries to watch for new investment opportunities.

O’Neill and his asset team love acronyms, according to Christian Science Monitor’s Ruth Walker. They are a way to sell emerging nations as opportunities to investors. After BRICs and N-11s, there are CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) and PIGS (Portugal, Ireland, Greece, and Spain). The last one is clearly a negative directed at those troubled economies. O’Neill, however, gets bonus good guy points for donating the proceeds from his book to his London-based charity SHINE (another acronym for Support and Growth in Education).

Do acronyms translate into good investment advice or solid predictions for economic success? Not everyone thinks so. But if they do, the acronym of economies I’d like to see in the growth column is the KWEFS, (Kingman, Winslow, East Flagstaff, and Sedona). Not as elegant as O’Neill’s perhaps, but every bit as deserving.

Business Book Review written each month by Constance DeVereaux

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