Goldman Sachs' Jim O'Neill BRICS 'Have Exceeded all Expectations'
Jim O'Neill, who coined the acronymn BRIC for emerging nations, plans to leave his post at Goldman Sachs this year. In an interview with SPIEGEL ONLINE, he discusses the banking industry and why he still sees a bright future for China and Russia.
As chairman of Goldman Sachs Asset Management, Jim O'Neill is responsible for some $800 billion in assets. At the beginning of February, he made the surprise announcement that he would leave the bank by the end of this year.
O'Neill, 55, became well-known in 2001 for a paper in which he was the first to coin the acronomyn BRIC, for the developing nations of Brazil, Russia, India and China, which he predicted would be the great economic powers of the future. More recently, South Africa has also been frequently named as belonging to this circle.
The quintet, now called BRICS, accounts for about 40 percent of the world's population and has long seen itself as a counterweight to established powers, such as the United States or the European Union. At the end of March, BRICS leaders are scheduled to meet in Durban, South Africa, as part of their search for a new world order and their role in it.
SPIEGEL: Mr. O'Neill, managing more than $800 billion in assets seems to be a challenging job. Why don't you like it anymore?
O'Neill: That's not the point. I very much like what I do. But after more than 17 years as a partner at Goldman Sachs, I have decided to take stock. And I have come to the conclusion that it is time to move on and try out a new life out there.
SPIEGEL: What do you mean? Are you going to retire and travel around the world? Or are you going you join the board of directors of another bank, say Deutsche Bank?
O'Neill: Nice try to provoke me, but no, I cannot be any more specific. For sure, I will not withdraw from the business entirely.
SPIEGEL: Does your resignation possibly have something to do with the poor image Goldman Sachs has been suffering from? Only recently, Greenpeace awarded the firm the mock "Public Eye Award" for "worst company of the year" because Goldman Sachs helped Greece hide its public debt, and thus bears a large share of responsibility for the financial crisis. And now it is working in non-transparent ways again.
O'Neill: This has nothing to do with my personal decision. It may come as a surprise to you what I am saying now: I believe that the critics are right in some respects. Some of us did not behave responsibly enough in some points. Some of us failed to understand that our dealings affect the whole of mankind. They behave as if one could decouple from the real world. We are rightly being criticized for that.
SPIEGEL: You could start a second career as secretary general of the BRICS countries.
O'Neill: I have indeed received a few offers during the last several days, and this proposal is certainly one of the more interesting ones! However, I don't know whether the heads of the BRICS countries want to create such a post and, if so, whether they would like to give it to me. On the other hand, this club of countries owes its very existence to me -- if I may say so in all modesty. So I will be waiting for a call to come in.
SPIEGEL: At last year's meeting in Delhi, BRICS leaders already discussed some very specific joint actions such as establishing a "Bank of the South" to compete with the Western country-dominated World Bank ...
O'Neill: ... which I think is a fascinating idea that is being championed by India and, probably also by Brazil. However, it remains to be seen whether the Chinese really like this plan. At this point, it would be important for the BRICS countries to launch concrete projects if they want to be more than a club that is loosely tied together. They have already agreed on measures to facilitate trade between them and issued joint demands on some foreign and environmental policy topics. More can be done.
SPIEGEL: Are the BRICS countries not too different to form a really powerful group?When you invented the BRICS concept, did it ever occur to you that they would have such an impact on world politics?
O'Neill: No, of course not! Try to imagine the situation in which I came up with that idea. This was shortly after 9/11. The terrorist attacks on New York and Washington strengthened my belief that the dominance of the western countries needed to be superseded, or at least complemented, by something else. If globalization were to continue to be successful, it should not sail under the US flag. It seemed to me that because of their sheer size and their populations, China, India, Russia and Brazil had the economic potential. What emerging markets have in common -- in addition to their distrust of the West -- is their bright future. But apart from that, they could hardly be more different in terms of their politics and, also, their economic systems.
SPIEGEL: Economically, have the BRICs developed as you expected?
O'Neill: They have exceeded all expectations. In slightly over a decade the group's GDP has grown from approximately $3 billion to $13 billion. The BRIC countries have the potential to avert a global recession and to grow faster than the rest of the world and to pull all of us along with them as a (growth) engine.
SPIEGEL: That is what you say. But China, India, Russia and Brazil are also facing significant crises. Ruchir Sharma, your counterpart and the head of Morgan Stanley Investment Management, has already proclaimed the end of the miracle. In an article entitled "Broken BRICs" he wrote that "the world economy's new BRICs are broken" ...
O'Neill: and part of the press keeps echoing that. This is so plain wrong that, depending on the mood I'm in, it sometimes amuses and sometimes irritates me.
SPIEGEL: You are not going to deny that last year the BRICs caused considerable disappointment and that their economic performance has also been far from splendid so far this year.
O'Neill: Opinions differ on this. Last year, China's economy grew by 7.7 percent. Thus, in 2012 the country again created the equivalent of another Greek economy every 11 and a half weeks. Admittedly, a rather slow growth rate by Chinese standards. Importantly, the reasons for China's lower growth rate were structural and cyclical in nature. It was a planned downturn, mainly due to concerns about overheating and inflation. During the last quarter China already did better again, coming out of its trough.
SPIEGEL: Don't you see any warning signs in the large number of strikes, in corruption and the growing gap between the rich and the poor? Are you selling shares in China funds right now?
O'Neill: During my visits to China I have always been struck by how undogmatic the country's ruling party is about making economic-policy decisions. During the last two years, they tightened the financial reins a good deal because China's leadership tried to protect itself against inflation, and apparently they have overdone it. While I do not expect bold moves from the new political leadership, I do expect them to cautiously continue the reforms that have already started with the aim of raising living standards and reducing the huge gap between the rich and the poor.
SPIEGEL: Are you also so optimistic about Russia, Brazil and India?
O'Neill: Not quite. Russia must free itself from its dependence on oil and gas exports, but they stand a good chance of achieving continuous annual growth rates slightly above 4 percent. While Brazil needs to do more to foster growth, great opportunities lie ahead for the country in the long run because of its raw materials and industrial performance. Leaving aside South Africa, which does not belong in this club in the first place, India is the BRIC country facing the biggest challenges. The government in Delhi would need to do more to support foreign direct investment, and (the country's economy) urgently needs some stimulus. They simply do not govern enough. Politicians in India fatally believe that things will get better by themselves and that they don't need to do anything to contribute to this. Nevertheless, the country remains highly interesting. Besides, with its very young population it enjoys a demographic advantage.
SPIEGEL: Many investors feel the BRICS markets no longer offer the kind of return on investment they are looking for. Do you see any countries emerging that could replace them?
O'Neill: When I identified Mexico, Indonesia, South Korea and Turkey as new growth markets, somebody suggested calling them "MIST."
SPIEGEL: investors are now referring to these four countries as "SMIT" ...
O'Neill: Be that as it may: They are up-and-coming.
SPIEGEL: And what about your own industry? What is your view on the question, which is being hotly debated in Germany right now, of separating investment banks and commercial banks to shield retail investors from any liability for potential losses resulting from speculative transactions?
O'Neill: I do think that such a separation would make sense in principle. Investment banking is quite different from commercial banking. And with respect to bonuses: I am against variable annual raises. The former partnership model worked well. Under this model the money went into a capital account where wealth was accumulated until retirement. We need to fight excesses.
SPIEGEL: Now you almost sound like an Occupy activist.
O'Neill: In certain respects, I am indeed an outsider in my profession. At any rate, I am not part of the establishment. Which I am happy about. Many people working in this industry are picked up by a chauffeur in the morning, have lunch with their lot only in expensive restaurants, and are driven back home after 14 hours in the office. They are simply not aware that there is a life beyond their jobs or beyond their income bracket. I use the London Tube and take time off to spend with friends and people from other professions. To me it is important to mix with people from all parts of society. And especially with football fans, whom I regularly meet at pubs.
SPIEGEL: Why such openness?
O'Neill: This certainly has to do with where I come from. My father left school when he was 14 and worked as a postman. My sister and I grew up in humble surroundings in Manchester. Our parents saved every penny so that we could go to university.