Features
31 Mar 2014 10:53am

What's in a word?

Has grouping countries together into manageable acronyms helped or hindered the economic analysis of them? Nick Martindale investigates the trend for international abbreviation

When Jim O’Neill, then working as head of global economics research for Goldman Sachs Asset Management, first coined the term “BRIC” in 2001, he had no idea how much impact it would have on his life. Or, indeed, the way in which the wider world would come to view the developing economies that would contribute so much to global growth of the early part of the last decade.

BRIC, as most people will know, stands for Brazil, Russia, India and China; a group of four “emerging economies” – a phrase O’Neill dislikes – that he believed would become the powerhouses for the coming century.

“The thinking was straightforward,” he says. “Two things are necessary to be large economies. First, you need to have a lot of people working and, second, you need improving productivity. Because the four BRIC countries have the largest populations in the emerging market world, they have the potential to be big; that is to account for between 3% and 5% of global GDP.”

The term did something else too, starting a trend for acronyms used to group different countries together. In 2009 Robert Ward, then global forecasting director of the Economist Intelligence Unit (EIU), came up with CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) to represent the next tier of emerging economies, and last year O’Neill again chipped in his two-pennies-worth, with the MINT economies (Mexico, Indonesia, Nigeria and Turkey).

It’s a way of highlighting to a very broad audience some really quite profound changes in the global economy

This itself was a response, he says, to the MIST countries, which included South Korea at the expense of Nigeria. O’Neill insists he did not create the term MINT, pointing out that while the acronym has been attributed to him following a BBC documentary, it had already been developed by asset management firm Fidelity.

The acronyms have worked out rather well for those behind them – particularly for O’Neill, as it has effectively defined his career – and, to varying extents, the countries themselves. Yet quite how much use the acronyms in general are is less clear. “I wanted a good geographical spread and there were a couple of things I wanted these countries to have in common, then I had an I, E, V and C, and then a T, and there was a word,” says Ward, explaining the rather haphazard creation of CIVETS.

“If you look at the BRICs and what holds those together, they’re all large landmass countries and that’s about it,” he adds. “But what they did, and where there’s value, is capturing people’s imaginations about countries they may not have thought about before but which are doing interesting things. It’s a way of highlighting to a very broad audience some really quite profound changes in the global economy.”

Clearly, neither O’Neill – now visiting research fellow at the Brussels think-tank Bruegel and chair of the City Growth Commission, having retired as chairman of Goldmans Sachs in 2013 – nor Ward expected their acronyms to have the impact they did, or to be taken to epitomise emerging markets in the way they were.

Yet there are economists who question both the point of having acronyms in the first place, and the composite members of the various groupings. “The fundamental problem is that there isn’t a concept of the BRICs,” says Roger Bootle, managing director of Capital Economics.

“There’s an acronym; that’s all it ever was. No thought went into this apart from the fact that these countries had grown quite fast recently and they might well grow fast in the future. Particularly with regard to the BRICs, I would argue that Russia doesn’t belong in that group, and that it’s in there simply because its name begins with an R.”

Indeed, it is the acronym aspect that so riles Bootle; his own organisation recently put together its own band, termed the “Reforming Four”, consisting of Nigeria, the Philippines, Mexico and Poland. “They all have substantial capacity for reform and in the process could well enjoy faster growth than they have over the last 10 years or so,” he says.

“The trouble is none of those begins with a vowel so you can’t make up an acronym that you can say. Does that mean we should scour the earth to find something like Angola? That leads you up the garden path; you’re better just sticking to the concept.”

Douglas McWilliams, executive chairman of the Centre for Economics and Business Research (Cebr) and professor of commerce at London’s Gresham College, goes along with the idea that such acronyms draw attention to broad economic movements but believes they collectively encourage a tendency to look at size over growth potential.

“Countries that don’t happen to be aggregated all together in a big state but may be developing much faster tend not to be picked up in that kind of approach,” he says.

“One of my favourite economies is Sri Lanka, which is never going to be on the cards for this, but which has standards of education, longevity, healthcare and other aspects that are way out of line with current economic conditions,” he adds. “It’s almost certainly going to be one of the fastest-growth economies in the world. There are so many places that don’t get in because they’re not big enough, so there is a tyranny of size about this.”

His own methodology is to split countries into “sunrise” and “serendipity” economies, making the distinction between those which are “on the way up” and those which have “got lucky”, largely on the back of a commodities boom.

Underlying beliefs

James Berkeley, managing director of Ellice Consulting, which specialises in helping organisations take advantage of new markets, including emerging economies, believes that problems arise not from the original premise, but how this premise is used further down the line.

“It often creates a lazy pointer for the economic debate,” he says. “It makes sense, it creates a brand and it creates a means for that economist to stand apart. The danger is the underlying beliefs that lie behind the group ultimately lose their purpose or their touch with reality of what the original message was, so BRIC or MINT get used lazily in predictions of future growth.”

It’s a problem that Simon Evenett, professor of international trade and economic development at the University of St Gallen and a former World Bank official, also highlights. He urges those behind such terms to be very clear about their logic and why certain countries have been included or excluded. “The purpose should define some metric for deciding whether a country is in or out,” he says.

The logic behind the MINT countries needs some clarification, he adds, pointing out there are nations such as Pakistan, Bangladesh and the Philippines which are far larger than Turkey. “If someone wants to justify the use of the term MINT, it had better be on grounds of more than just population,” he says. “Whatever criteria people use needs to be applied consistently, otherwise it is misleading.”

While the use of such acronyms can be convenient, catchy and attention-grabbing, is it possible they could even distort realities and impact on economic fortunes? In the wake of their creation, many investment houses launched dedicated BRIC or CIVET funds, channelling money to certain parts of the world that may not have received such support otherwise, potentially at the expense of other economies that had been omitted.

“There’s a clear knock-on effect in terms of market reactions,” says Evenett. “These acronyms are used to determine investment in the countries concerned, so this is going to have an impact on cross-border financial flows, exchange rates, national performance and macroeconomic performance,” he says. “Some of these may be completely unintended or unrelated to the purpose of the creation of these acronyms.”

Spillover effect

Ward admits the development of funds by banks and investment firms took him by surprise. “I was trying to highlight these countries as being interesting but we saw people using it in a way that I hadn’t anticipated,” he says. “But if it means money going into those countries and that helps them grow and dispels certain myths, it’s a good thing.”

He concedes, however, that there was a risk of other countries being ignored, although claims in many cases there has been “spillover effect” from countries into regions – such as from Nigeria into West Africa as a whole.

O’Neill, meanwhile, is proud of his role in helping to develop such economies, and points to the development of the “BRIC club” – attended by leaders of the various countries – in recent years as further justification for its creation in the first place. “They meet every year at the highest levels, so of course it can have an influence,” he says. “Frankly, I’m pleased, as it has given these countries a platform that otherwise they might not have had. This is despite the fact they are quite different countries.”

There is, though, danger in what is essentially an artificially-created grouping, says Ugo Panizza, finance and development professor of economics at The Graduate Institute in Geneva, both for those on the inside and outside.

“The big worry is they remove the incentive to look at individual countries,” he says. “So in good times when there is abundant capital, this might redirect some capital from countries which are outside a group to ones which are maybe less deserving. But in bad times being in this group may be dangerous because contagion can spread.”

Transmitting shock

He gives the example of the way in which capital flows to the whole emerging market sector dried up in the late 1990s after Russia defaulted. “Suddenly capital stopped flowing to Brazil and Argentina, which had absolutely nothing to do with Russia,” he says. “If you have a negative shock in one country it can be transmitted to others which have nothing to do with it, except for the fact that somebody in Wall Street or the City of London decided to put them in the same group. It can detract attention from the fundamentals.”

Yet certainly the BRICs, at least in the popular mind, have become as established as any other economic grouping, including more traditional entities such as G8, G20, the North American Free Trade Agreement (NAFTA) or the Association of South East Asian Nations (ASEAN).

But for economists there are clear and distinct differences. “The G8 and G20 are not analytical groupings,” says Bootle. “No one sat down to analyse the world in terms of the G8 or G20. NAFTA is not an attempt by an economist or a supposed thinker to put together a group of countries that somehow can be analysed together. It is a political and economic reality, and the same is true of ASEAN, the G8 and G20.”

“These are more geographic but they tend to have some meaning to them,” agrees McWilliams. “Some mean more than others but they normally involve some agreement to pool various standards, rules and regulations and to merge a degree of sovereignty. The old acronyms tended to be about deals; the current ones are simply a categorisation.”

The degree to which acronyms retain any validity in the modern era remains a matter of opinion. Ward, now editorial director at the EIU, admits his CIVETs are “looking a little mangy”, although he believes they remain a more justifiable group than the MINT nations, and concedes that each one that emerges lessens the impact.

“I’d be looking for something a bit more esoteric; I had the idea of the ZICKs back in 2007, as the new ultimate frontier markets for those with nerves of steel, which would be Zimbabwe, Iraq, Cuba and Korea North, but it didn’t take off,” he says. “To make a really big splash you’d need to look at tier-three emerging markets now.”

For his part, O’Neill remains fiercely defensive of his original BRIC (he opposes the later extension of this to include South Africa). “They are bigger than the Euro area in terms of GDP and by the end of 2015 they will be as big as the US,” he says.

“By 2035, they could be bigger in terms of GDP than the G7 countries, as I said 13 years ago. Nothing has changed.”

Nick Martindale

 

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