Can we build on the BRICs? Prepared for: AIB SE 2013 ConferencePresenter: Ilan Alon, Ph.D.Cornell Professor of International Business, Rollins CollegeVisiting Scholar and Asia Fellow, Harvard University

Dreaming with BRICs By 2025, BRIC will account for over half the

size of the G6 Of the current G6, only the US and Japan may

be among the six largest economies in US dollar terms in 2050

The largest economies in the world (by GDP) may no longer be the richest (by income per capita)

Overtaking the G6 Countries

2050 Largest Economies

Latest World Bank GDP data

Research Question Can a country with bad governance sustain

economic growth and competitiveness? Russia China India

What is Governance? Traditions and institutions by which authority

in a country is exercised Process by which governments are selected,

monitored, replaced Capacity of government to effectively formulate

and implement sound policies Respect of citizens and the state for the

institutions that govern economic and social interactions among them

(Kaufmann and Kraay, 2007)

1. Voice and Accountability

2. Political Stability

3. Government Effectiveness

4. Regulatory Quality

5. Rule of Law

6. Control of Corruption

China: Collapse or Rule?Martin Jacques Gordon Chang

China Example: Rules of the Road - Institutions

Largest number of fatalities, despite low number of passenger miles

Guanxi not unique to China (relationship based economies) Implication to transition

India example: key challenges Poor (remember Maslow) Corruption Inequality Gridlock in government Caste system Religious fractionalization Red tape…

India Governance Indicators

Russia over time

Russia Example Dividends of economic (and political)

liberalization: Perestroika (restructuring) and Glasnost (opening)

Improvements in governance in the period following the Russian economic crisis (1998)

Run up in prices of oil and other commodities Slippage into autocracy and lack of control of

corruption has limited growth potential

Research on Russian Governance Informal rules (e.g., blat, organized crime)

sometimes conflict with formal rule (rule of law) Governance suffers from Trust, Transparency,

Enforcement of Law (Judge and Naoumova, 2004) Selective prosecution of uncooperative elites

Russian Stock Market vs. S&P

Nicolay II the Expiator

“There are treachery cowardice and a deceit everywhere around us”

Alexander III the Peacekeeper

“Russia in all over the world always had just two loyal friends: army and fleet”

Research Implications Do governance and institutions matter?

Can countries lead the world economically and still have a bad governance?

Can countries improve competitiveness regardless of governance?

What are the implications to international institutions? What are the implications to companies?

What are the roles of demographics? Energy prices? Geopolitical positioning?

Triad powers are here to stay: Europe, US and Japan New players will need to adapt; change the rules;

takeover international institutions; minimize their importance…

Role of Government Government ownership

Some key industries are dominated by state owned enterprises

Government involvement in key firms high (Judge and Naoumova, 2004) e.g. Yukos

Government legislates the rules Government enforces the rules Connection to government is important Competition is unfair and unequal Market efficiency is lost