Saturday, January 11, 2014

'MINT': The New Drivers of Prosperity

Jim O'Neill has come up with a new acronym - MINT - and it has already hit the radio waves. Whether this ends up making waves as BRICS did, we will see: Famous as he is with these acronyms, his N-11, a list of 11 countries that were to become the next movers-and-shakers of the world economy, failed to gain traction. Perhaps, eleven countries were far too many to be optimistic about (and for bond traders, to focus on) and therefore, this new catchy shortlist making the memorable acronym, which has a good chance of success.

It is interesting to see that people are getting excited about this new set of countries just as the previous set, BRICs, seem to be in some sort of trouble. Indeed, articles such as 'Broken BRICS'  and 'The Great Deceleration' (with a memorable cartoon of BRICs countries drowning in a quicksand) have appeared during the course of last year, pointing out the many problems these economies faced once their stellar growth rates slowed down and other issues, governance, infrastructure and everything else, caught up. Indeed, one could say that the critics of BRICs somewhat jumped the gun, as it would seem that BRICs countries will still somewhat fulfill the original predictions of growth that was laid out for them (See The BRICs: The backlash against the BRICs backlash), but the hype cycle made sure such numbers were quickly out-expected and forgotten.

In this backdrop where the BRICs (or BRICS, if one included South Africa, a later addition) failed to materialise somewhat, the MINT presents an even bigger leap of faith. If the BRICS economies were constrained by the failure of governance, possibly with the exception of China (or may be not), the MINT poses an even bigger problem. Mexico, which is somewhat picking up the business left by the more expensive China, is the middle of a full scale civil war with its underworld, and could be torn apart by revolutions as it tries to push through neo-liberal reforms without creating a social safety net. The Nigerian economy, full of educated, aspirational middle class citizens, can be undermined by its corrupt oil politics, meddling by oil companies and disenfranchised populace who are fighting for their water (though this fight is fought under the banner of Islamic extremism). Indonesia looks very similar to Nigeria, its middle classes engaged in a desperate battle to disenfranchise the majority and build tiny-at-the-top prosperity. And, finally, Turkey, a country on the verge of a monetary policy paralysis and a possible sovereign downgrade, as this battle between the grassroots Islamic sentiments and middle class aspirations rage on. (Read this story on Turkey here)

Surely, the point is not to promote unbridled pessimism or to expose the futility of acronym making. We may start to accept that love of Hedge funds is a dangerous thing, and unless a country can bully them by being the biggest hedge fund of them all (as China apparently is trying to do), being included in one of these acronyms is possibly the surest sign of a coming disorder, as India is experiencing. From recent history, we know that such tough love makes a country less democratic, as its middle classes are sold the vision of being the next big power and seek to undermine their less fortunate co-citizens and destroy their environment in a mad rush to realise that dream. But this is a discussion for another day. The point here is to argue that if we accept the theory that prosperity in new geographies will drive the world economy, it may be sensible to start recognising the drift between the middle classes and other, and see the cities, rather than countries, as drivers of prosperity.

For example, as India got fully integrated in the acronym world, the biggest change in its economy came through urbanisation: Mumbai contributes 12% of India's GDP, 25% of its industrial output, 70% of its maritime trade and 70% of the country's capital transactions, closely followed by Delhi, with another 10% of India's GDP. If the middle classes are to drive this prosperity, it may be appropriate to turn the focus on city economies now than the countries, because the cities are run very differently from the countries: While countries are chosen based on their economic size, many city economies enjoy a large hinterland which they effectively serve, regardless of the national boundaries. The recent rebound in the Dubai economy due to the Arab spring is one example, but its rise in the first place was based on its geographic location.

Agreed, most cities are poorly governed, but this is more because they don't get appropriate leverage in the national policy making, which tends to see things in national terms rather than city economies. However, this is changing: The focus on financial markets are turning on to the Cities, and investors are increasingly looking at cities rather than countries (even in the developed world, as the divergence between London and the rest of the UK, for example). It is therefore perhaps more appropriate to talk about the cities than countries, when we try to identify the drivers of prosperity and coin these acronyms.

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