The Policy BRICs in Business and Economics - Research Paper Example

Table of Contents Overview 2 An Introduction to BRIC Economies 3 Brazil 3 Russia 5 India 5 China 6 Certain Common Features That BRIC Comprise 6 Analysis of UK Economy 7 Political Overview 7 Economic Overview 8 Social Overview 8 Technological Overview 8 Economic Power Shift from Triad Region to BRICs 9 Effect on UK economy 9 References 11 Bibliography 15 Appendices 16 Overview BRIC economies denote certain major developing economies, i.e. Brazil, Russia, India and China in the world market with a substantial growth rate compared to the developed economies, like European countries, USA, and Japan which fall in the Triad region of the world economy. According to economists and analysts in different parts of the globe, the BRIC countries are likely to cross their boundaries and lead the world in proceeding few years. If in fact it is so, still then what is the reason for the UK economy to fear the BRIC nations so much itself being one of the most powerful economies included in the Triad region? The reason that matters underneath is the economic power shift from the leading western countries to the emerging eastern countries. The BRIC received its name from Goldman chief Jim O’Neil in 2001 and since then it has continuously been in the bull’s-eye category of economists in predicting future changes and suggesting remedies to the suffering economies. Most of the economists and analysts have already stated that by 2050, the BRIC economy especially China is going to be the biggest economy in the world (Economy Watch. 2010). This makes the reason for UK economy to consider the growth of BRIC economies and rethink its future perspective to face this global challenge. To work as a fuel to the matter, the GDP rate of UK was recorded to be $1.5, while on the context the GDP ratings for BRIC economies were standing at a height of $5.2, $4.3, $8.5 and $6.8 respectively in 2007 and is estimated to be $2.0 for UK, $3.1 for Brazil, $3.2 for Russia, $5.0 for India and $4.6 for China. Therefore it can be seen, in both the period’s figures are in favour of BRIC nations and certainly at a high volume compared to UK. As such, the concern regarding BRIC economies are quite justified (Hawksworth & Cookson, 2008). The world economic power for a long period of time had been concentrated upon three powerful economic regions i.e. USA, Japan and European Union. These three are recognised as Triad Region. The power of economy has with time been spread across the world and has transpired in the hands of the BRIC countries. The power shift of economies to be noted is not only affecting UK economy but it is also changing the prospects of other developed western economies like USA, Canada, and Australia. But the reason why only UK economy is under so much pressure is because of the fact that at the initial stage when all the other economies were on a mindset to enjoy the mounting opportunities served by these economies, UK was writing its own “Death Warrant” by ignoring the reality about BRICs (Grant Thornton UK LLP, 2007). An Introduction to BRIC Economies The abbreviation stated above was brought in front of the world by Jim O’Neil during 2001, when he first analysed and predicted the shift of global economic power, which certainly gained the interests and concerns of the leading economies and surely UK to be the one. The economies thereof do posses certain similar kind of attributes in opportunities and challenges. As stated earlier, the abbreviation stands for Brazil, Russia, India and China, the fastest growing economies in world. To sum up, from the late 1980s, the average growth of these economies has been of great significance. Along with Brazil, India and China, Russia has also enjoyed a rapid growth in its economic status. Worth mentioning, in the last 10 years the BRIC countries have been recorded to contribute almost a quarter of the total world GDP. And is furthermore expected to grow at a rapid pace (Wilson & Et. Al., 2010). Brazil Brazil has always gained its significance in South America being the largest economy of the continent in terms of geological and economical aspects. The economy is highly depended on agriculture, mining, manufacturing and service sector. The recent economic downturn in 2007-2008 affected the growth of Brazil by violating its stability in foreign investments, commodity exports and external credits. Although it was quite able to recover its growth and sustainability in the world market by 2009 incurring a GDP of 2.024, its growth rate fell from 5.3 in 2008 to 1.4 by 2009 (Economy Watch, n.d.). Brazil has also registered its name as one of the most superior industrial sectors of Latin America, contributing one-third of the total GDP. Notably, to reduce dependency on trading in oil from other countries, it therefore aims at a sovereign economic outlook with further more strategies. However, to conclude about the present picture of Brazil it certainly has certain promising notes regarding economic success. However, it is subject to a few serious problems like vast population and lower literacy rates that the economy is facing (Facts Monk, n.d.). Russia Russia is also known as Russian Federation. They are the largest economy in the world in terms of geography. After the fall of Soviet Union in Russia, the economy is continuously improving its structure to be more globally-isolated and centrally managed with a more improved market base and global integration (ITA, 2010). Unlike Brazil, Russia is considered to have the strength of natural resources, educated population and a healthy industrial foundation keeping its foot on agriculture, fishing, and manufacturing and therefore plays a major role among the BRIC nations. However, to state the future of the economy it is set to rise in the year 2010 with a projected GDP of 3.2% and further more in future years according to economists (Nash, 2010). India Along with Russia, China and Brazil, Indian economy has always gained the interest of western economies with its cost effective and labour concentrated nature. The basic revenue of this economy is highly benefited by outsourcing, exporting and manufacturing units in the industrial sector. To consider its growth in the recent recession market, the economy was astonishingly out of its consequences until the last term, when it faced a slight downturn with its GDP falling from 7.30% in 2008 to 5.40% in 2009. But with strong perspectives it was raised to a figure of 7.20% by 2010 again, as projected (Stanley St Labs, 2010). With a huge population and rising literacy rate, the economy is also termed to be a boosting economy with its identity registered to have the highest growth during the downturn of the global economy. But still, the Indian economy faces certain major problems like rise in inflation rates which can certainly result to widen the gap of inequality in the economy (Economics help, 2010). China Among the BRIC economies, China also plays a significant role to put into account. Chinese economy even 30 years ago was a centrally organised economy, but today it has been successful to change its outlook with a more market-oriented form. This change certainly gifted the economy a rapid growth and helped it take over the Japanese economy in the current fiscal year. Together with Indian economy, Chinese economy also had a strong growth in the recession period. And finally in the current fiscal year according to the majority of economists around the world, China shall continue to have a strong growth structure in the future. However, the economy seems to be in an alarming position with rising job pressures and structural disparity that may weaken the growth potential of Chinese Economy (Huang, 2010). Certain Common Features That BRIC Comprise Certain common features of these economies are that all these economies come under the fastest growing economies in the global scenario. Being certain leading developing countries, these economies do offer a promising market for international traders with relatively lower margin of entrance. By nature these economies are mostly service-oriented, agriculture based and all of them are on a move to establish themselves as sovereign entities in the global perspective. These elements may look like the most glittering part of the context but it is certainly not without the darker aspects. Relating to the fact that these economies are still developing and yet development raises certain problems such as over population, high volume of disparity in terms of literacy, sex ratio of population and income groups. Moreover, the individual strengths and weaknesses of these economies also influence the fact of gaining leadership in the world market by 2050 as stated by the Goldman Sachs (Claudia & Mihaela, 2010). Analysis of UK Economy Quite similar to the other developed economies, included in the Triad region, UK also had a hard time during the recession and witnessed a steep fall in the GDP. The economy to be stated as such has not been out of the shock and is on a progress to recovery with 0.8% increased growth rate in 2010. Proving this fact, the forecast of its current year GDP is dropped by 1.1%. On the contrary, the US economy Political Overview Although it gained a positive growth rate at the end of economic downturn, the political issues do not seem to be in favour of the economy. More than aggression, the new reforms made by the government is acting in defensive behaviour. Rather reflecting an unstable appearance the economy is currently suffering from conflicts and depression taking place between political parties in the country. With higher amount of tariffs for national business and an open salutation for the international traders, the business environment is likely to get disturbed. Moreover, the amendment to raise tuition fees can itself have a vast effect in creating disparity in the economic structure (McBride, 2010). Additionally, the sectors dealing with automobile manufacturing, technology, and outsourcing is also heavily influenced by the economic power shift. Notably, the recent trends state that UK companies are attracting other foreign companies including the BRIC based companies to intensify their interests in acquisition. This new Takeover Panel rules shall certainly bring vast changes in the UK economy (Prosser, 2010). Economic Overview The UK economy after the recent economic downturn has come up with a new looks comprising of both favouring and non-favouring aspects in future sustainability factor. On one hand, the economy enjoys lower interest rates increasing demand as a result of 20% depreciation and increased housing prices. While on the other side the economy is dealing with certain major problems like budget deficit, increase in the saving attitude of the population, lower lending capability with a second chance of fall in the housing prices. It is still not able to reduce the unemployment rate, inflation and Government borrowings in the international market (Economics Help, 2010). Social Overview The most significant drawback of UK economy to be considered on this context is the rapid growth in population of the economy. For instance, the population was accumulated to be a figure of approximately 61.8 million in 2009. This shall undoubtedly result in enhancing the unemployment rate and inflationary prospects. Most alarmingly, the population is likely to touch the level of around 77 million by 2050, which is a genuine shock for the economy to face the power-shift (McDougall, 2010). Technological Overview Technological updates of the economy with great enthusiasm reflect that technological innovations and continuous up-gradation shall boost up the economy and help it move faster on the recovery track. It shall be easier for the economy as it was recorded to be among the leaders of technology in international market. For certainly, the sooner they recover the chances of suffering economic power shift is to get reduced. But the general outlook and consequences that recently occurred with the name of Gulf of Mexico Spill does not conclude the sector to be on growth in reality and thus, making the standing line of the economy weaker (Marsh, 2010). Precisely, UK economy from all the dimensions related to political, economical, sociological and technological aspects are undergoing a highly sporadic period. To be summed up, the economy has a problem of unemployment. It is also facing a high volume of budget deficit, unbalanced economy and trade borrowings, weak sterling and demographic challenges which are the major issues that the economy must take over cautiously as fast as possible. Additionally, it’s in depth fall in the recession period has also acted as fuel to the matter (Economics Help, 2010). Economic Power Shift from Triad Region to BRICs At present the power shift from the mentioned Triad region to the BRICs has gained the most significant feature in the history of world economy. Worth mentioning the fact that GDP ratings of all the economies included in the Triad region were highly influenced by the recent global recession and thus have lost their growth rate which is one of the major reasons for the economic power shift. Comparatively, the BRIC economies were nearly unaffected by the slowdown. With a higher growth rate and major participation in the global GDP, the power is certainly shifting its drift from the Triad region to the BRIC economies. But among the Triad economies the most affected one is the UK economy included in the European Union as per the data related to GDP growth. To sum up, US had a growth rate of 2.20%; Japan had a GDP rate of 0.90%, while the European Union was recorded to attain a GDP growth of 0.20% on average. Effect on UK economy To state the economic power shift effect on UK economy, it certainly becomes a matter of concern with the given constraints of UK economy and opportunities of the BRIC economy. One of the foremost points that is worth mentioning on this context is that the BRIC economies were almost unaffected by the recession whereas, the UK economy witnessed a great fall and is still on its track of recovery. Surely, the global recession has the most vital consequences that affected the economy. Positively, with absence of all these newly unleashing problems the economy would have found it easier to maintain a level of power in the world market after 40 years. On the divergent aspect, the drawbacks or weaknesses of the BRIC economies can provide a chance for the UK economy to recover faster. It all depends on the potential of these economies. To put into account, UK posses a current growth rate of around 0.80% while the BRIC economies has their average current growth rate reached to a height of 5.57% approximately. Therefore, conclusively depending on the forecasts of economists all around the world it can be better stated that continuous growth on the same rate will certainly lead UK economy to a phase of inferiority compared to the superiority of BRIC nations by 2050 (Hawksworth, & Cookson, 2008). To put into account, an example can be highlighted in this context, regarding the fact that China has already recorded a higher input than economies like USA, Europe and Japan, the Triad as confirmed by the UNESCO science report. The report had a detailed study of past three years performance of China’s planning and reform regarding the sector of Research and development. According to the study, China enjoyed a steep growth in the R&D sector between 2000 and 2007. But it also had a slight fall in 2008. Even India was recorded to overlap UK economy falling third to the list of pharmaceutical producers gaining a 10% share of the world market. As such it becomes highly reflective that BRIC economies in fact are emerging as a threat to the Triad region (Narendra, 2010). References Claudia, O. & Mihaela, H., 2010. Changing the Patterns of the Global Economy–The Emergence and Evolution of the BRIC Countries. Studies in Business and Economics. [Online] Available at: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/528ogrean&herciu.pdf [Accessed November 18, 2010]. Economics Help, 2010. Problems Facing UK Economy in 2010. Depth of the Recession. [Online] Available at: http://econ.economicshelp.org/2009/11/problems-facing-uk-economy-in-2010.html [Accessed November 18, 2010]. Economics help, 2010. UK Economy 2010. Economics. [Online] Available at: http://www.economicshelp.org/blog/economics/uk-economy-2010/ [Accessed November 18, 2010]. Economics help, 2010. Indian Economy 2010. 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[Online] Available at: http://www.independent.co.uk/news/business/news/foreign-firms-prepare-to-swoop-on-british-targets-2140472.html [Accessed November 18, 2010]. Stanley St Labs, 2010. Indian Economy Overview. Economic Prospects for 2010. [Online] Available at: http://www.economywatch.com/indianeconomy/indian-economy-overview.html [Accessed November 18, 2010]. The Picky, 2010. Brazil, Russia, India and China (BRIC) Larger Economy by 2050. Investing. [Online] Available at: http://www.thepicky.com/investing/brazil-russia-india-and-china-bric-larger-economy-by-2050/ [Accessed November 18, 2010]. Wilson, D. & Et. Al., 2010. BRICs Monthly. Goldman Sachs. [Online] Available at: http://www2.goldmansachs.com/ideas/brics/brics-decade-doc.pdf [Accessed November 17, 2010]. Bibliography Jensen, T. H. & Larsen, J. A. K., 2004. The BRIC Countries. Monetary Review 4th Quarter. [Online] Available at: https://royalmint.dk/C1256BE9004F6416/side/Monetary_review_4_Quarter_2004/$file/MON4_04.pdf#page=43 [Accessed November 18, 2010]. Appendices Figure 1. (Claudia, & Mihaela, 2010). Figure 2. (Claudia, & Mihaela, 2010). Figure 3. (Claudia, & Mihaela, 2010). Figure 4. (The Picky, 2010). Read More