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Scrutiny
  
Mr. Sachs, you had us
Goldman Sachs proves it now – you can fool all the people all the time
07/08/2008

To deeply understand (sic!) the quintessential debate over the chicken and egg chronicle (to added effect, another ‘sic!’), perhaps a look at the famed Goldman Sachs’ BRIC report should be enough. We’ll cut the comedy short – the question is, were BRIC economies chosen because they were supposed to lead the world in growth; or did they grow ‘because’ of the hype surrounding the fact that they were chosen? Of course, we’re not trying to recreate the Hawthorne study experiment; the second supposition perhaps even sounds utterly ridiculous given the ‘given’ nature of BRIC... Or does it?

So here comes our killer hypothesis. The Sachs’ forecasts, if they were to be taken to court, would stand a shameful defence; as these ‘chosen’ BRIC nations have actually had growth much beyond what could have been reasonably assumed. Quite suggestively, these nations might well have been chosen because of the business interests that many clients of US investment banks had in the BRIC nations.

Despite our apparently dripping sarcasm against the 2003 Sachs’ report, Dream with BRIC: Path to 2050, consider some points: in the 2003 report, Sachs projected that India would have a GDP of only around $929 billion by 2010, apart from Russia having $847 billion and China $3 trillion. Both India and Russia crossed the trillion dollar GDP mark by 2007, while China – for all that its economic data can be believed – reached a smashing $3.25 trillion by the same year. And all three countries, three years before the sacrosanct forecast. Not that we have a problem with that, but if a firm cannot forecast economic data three years to the tee, what is it supposed to do? We’ll tell you.
Bring out the BRICs & Beyond report, which Goldman Sachs regimentally did in 2007. And this time, they’ve played safe. Why forecast for the next three to seven years, when fifty can deep fry you better! The new report has ‘newer’ revised estimates. Sample this – they’ve stated that by 2050 (whoop!), China would be a $70 trillion economy [four years ago, Sachs had predicted that China would be a $44.45 trillion economy by 2050], followed by India at $38.22 trillion [Sachs’ 2050 prediction four years back was $27.8 trillion], Brazil at $11.36 trillion [Mr. Sachs: $6 trillion] and Russia at $8.5 trillion [Mr. Sachs’ again: $5.8 trillion].

The hype surrounding BRIC economies has motivated further investments post their being ‘chosen’ [FDI investments from 2001-2003 in BRIC economies were just $232 billion; from 2004-2006, a crazy $341 billion]. And not too ‘characterful’ investments, should we say! While China has kept aside all ethics issues while arming ethnic groups in Africa, Russia has been using its new found economic power to settle scores with many former Soviet countries; and the lesser we speak of the 400 million plus Indians still living below the poverty line, the better. To say that we’ve chosen the BRIC economies in this issue of Scrutiny is perhaps falling to the premise of our own hypothesis; but what the heck, we weren’t the first ones, and we won’t be the last either, eh!

By:- Pathikrit Payne
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