AT THE START of the century, developing economies were a source of unbounded optimism and fierce ambition. Today South Africa is reeling from an insurrection, Colombia has suffered violent protests and Tunisia faces a constitutional crisis. Illiberal government is in fashion. Peru has just sworn in a Marxist as its president and independent institutions are under attack in Brazil, India and Mexico.
This wave of unrest and authoritarianism partly reflects covid-19, which has exposed and exploited vulnerabilities, from rotten bureaucracies to frayed social safety-nets. And as we explain this week, the despair and chaos threaten to exacerbate a profound economic problem: many poor and middle-income countries are losing the knack of catching up with the richest ones.
Our excess-mortality model suggests that 8m-16m people have died in the pandemic. The central estimate is 14m. The developing world is vulnerable to the virus, especially lower-middle-income countries where remote working is rare and plenty of people are fat and old. If you strip out China, non-rich countries have 68% of the world’s population but 87% of its deaths. Only 5% of those aged over 12 are fully vaccinated.
Alongside the human cost is an economic bill, since emerging markets have less room to spend their way out of trouble. Medium-term GDP forecasts for all emerging economies are in aggregate 5% lower than before the virus struck. People are angry and, even though protesting during a pandemic is risky, violent demonstrations around the world are more common than at any time since 2008.
Rich places, such as America and Britain, are no strangers to incompetence and turmoil. But disappointment has hit emerging economies especially hard. In the early 2000s they buzzed with talk of “catch-up”: the idea that poorer countries could prosper by absorbing foreign technology, investing in manufacturing and opening up their economies to trade, as a handful of East Asian tiger economies had done a generation earlier. Wall Street coined the term BRICs to celebrate Brazil, Russia, India and China—the world economy’s new superstars.
For a while, catch-up worked. The proportion of countries where the level of economic output per head was growing faster than in America rose from 34% in the 1980s to 82% in the 2000s. The implications were momentous. Poverty fell. Multinational companies pivoted away from the boring old West. In geopolitics catch-up promised a new multipolar world in which power was more evenly distributed.
This golden age now looks as if it has come to a premature end. In the 2010s the share of countries catching up fell to 59%. China has defied many doomsayers and there have been quieter Asian success stories such as Vietnam, the Philippines and Malaysia. But Brazil and Russia have let down the BRICs and, as a whole, Latin America, the Middle East and sub-Saharan Africa are falling further behind the rich world. Even emerging Asia is catching up more slowly than it was.
Bad luck has played a part. The commodity boom of the 2000s fizzled out, global trade stagnated after the financial crisis and bouts of exchange-rate turbulence caused turmoil. But so has complacency as countries have come to think that fast growth was preordained. In many places basic services such as education and health care have been neglected. Crippling problems have been left unfixed, including South Africa’s idle power plants, India’s rotten banks and Russia’s corruption. Instead of defending liberal institutions, such as central banks and the courts, politicians have used them for their own gain.
What happens next? One risk is an emerging-market economic crisis as interest rates in America rise. Fortunately most emerging economies are less brittle than they were, because they have floating exchange rates and rely less on foreign-currency debt. Long-running political crises are a bigger worry. Research suggests that protests suppress the economy, which leads to further discontent—and that the effect is more marked in emerging markets.
Even if emerging economies avoid chaos, the legacy of covid-19 and rising protectionism could condemn them to a long period of slower growth. Many of their people will remain unvaccinated until well into 2022. Long-term productivity could be lowered as a result of so many children having missed school.
Trade may also become harder. China is turning inward, away from the broadly open policies that made it richer. If that continues, China will never be the vast source of consumer demand for the poor world that America has been for China in recent decades.
The West’s increasing protectionism will also limit export opportunities for foreign producers which, in any case, will be less advan-tageous as manufacturing becomes less labour-intensive. Unfortunately, rich countries are unlikely to make up for it by liberalising trade in services, which would open up other paths to growth. And they may fail to help exposed economies such as Bangladesh—a success story—adapt to climate change.
Faced with this grim landscape, emerging markets may themselves be tempted to abandon open trade and investment. That would be a grave error. An unforgiving global environment makes it even more important for them to stick to policies that work. Turkey’s notion that raising interest rates causes inflation has been disastrous; Venezuela’s pursuit of socialism has been ruinous; and banning foreign firms from adding customers, as India just has with Mastercard, is self-defeating. When catching up is hard, those emerging markets which stay open will have the best chance.
Catch up, don’t give up
Some rules have changed: universal access to digital technologies is now vital, as is an adequate social safety-net. But the principles of how to get rich remain the same today as they ever were. Stay open to trade, compete in global markets and invest in infrastructure and education. Before the liberal reforms of recent decades, economies were diverging. There is time yet to avoid a return to the needless hardship of old. ■
This article appeared in the Leaders section of the print edition under the headline "Dashed hopes"
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