Auto de seguimiento N°008 De 2009 Corte Constitucional

An overaccumulation crisis might have prompted money managers to look for risky, unorthodox, and high-yielding assets, but enterprising fund managers and bankers have directed them towards particular investments. Over the last two to three decades, fund managers have increasingly marketed “Third World” countries as investment opportunities, using projections of economic growth to interest investors.14 _{Especially early on, this effort} involved new language. Banker Antoine van Agtmael remembers coining the term

“emerging markets” in 1981 as a marketing ploy. He had difficulty selling his “Third-World Equity Fund” to skeptical institutional investors and realized that he needed

an elevator pitch that liberated these developing economies from the stigma of being labeled as “Third World” basket cases, an image rife with negative associations of flimsy polyester, cheap toys, rampant corruption, Soviet-style tractors, and flooded rice paddies.

14 _{Banks and other financial services companies are also eager to expand to new markets. They aim to interest} Western investors in investments in emerging economies as well as to set up offices abroad to service companies from those markets (Economist 2007).

He settled on “emerging markets” to sell the fund because it “suggested progress, uplift, and dynamism” (Agtamael 2007, 5). In order to interest investors, he felt he had to sell them something that sounded profitable, not hopeless. Numerous fund managers and bankers have similarly re-branded assets to sell growth opportunities in the developing world.

The investment bank Goldman Sachs has contributed largely to this effort, publishing a series of reports which have helped re-brand India as a profitable investment destination. Beginning in 2001, Goldman Sachs researchers grouped India with Brazil, Russia, and China (the “BRICs”) and announced a shift in the center of GDP growth towards these four large “emerging economies” (Goldman Sachs 2007; O’Neill 2001; O’Neill and Poddar 2008; Wilson and Purushothaman 2003). In particular, the 2003 report, “Dreaming With BRICs: The Path to 2050,” gained international attention for predicting that the BRIC economies would outpace those of the developed world by 2050. The authors conclude,

In less than 40 years, the BRICs economies together could be larger than the G6 [U.S., UK, Germany, France, Italy, and Japan] in US dollar terms. By 2025 they could 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. (Wilson and Purushothaman 2003, 1)

The report spells out the implications of this shift for investors and companies, predicting “higher returns and increased demand for capital”; increased spending; and “significant opportunities for global companies” faced with “shrinking” markets elsewhere. In short, they suggest that moving into the BRIC markets will be an important “strategic choice” multinational firms and investors will want to make (Wilson and Purushothaman 2003, 2).

While these reports originally circulated among Goldman Sachs employees and clients, the Financial Times, the Economist, Newsweek and other publications summarized them, popularizing their message (Balls 2003; Bogler 2003; Economist 2003; Zakaria 2006), and other banks and global consultancies published their own reports along similar lines.15 Subsequent media coverage soon signaled a sea-change in international opinion. One review concluded, “the growth opportunities offered by some developing countries are just too exciting to be ignored” (Coggan 2003). A commentator in the Financial Times wrote, “After years of being overshadowed by China and its extraordinary record of economic growth, the world’s second most populous country is making a comeback. India, it is whispered, may at last have what it takes to start catching up with its larger neighbour” (Financial Times 2003). The term “BRIC” quickly became accepted business-speak, and the idea that economic growth would come from the emerging economies was the new common sense.16 _{The 2003} BRIC report’s success surprised author Roopa Purushothaman, who commented, “We thought it would be popular but we just didn’t think it would take on the form it did” (Dua 2006).

While the BRIC reports predicted economic growth over the next half century, they galvanized short-term interest in Brazilian, Russian, Indian, and Chinese stock markets. Morgan Stanley Capital International (MSCI) started an index of BRIC stock market performance in 2005, and the Dow Jones Indexes followed suit in 2006 (Wall Street Journal

15 _{The international consultancy PriceWaterhouseCoopers, for example, published a report titled “The World} in 2050: How big will the major emerging market economies get and how can the OECD compete?” in March 2006, with an argument along the same lines as the Goldman Sachs reports. To differentiate its analysis, PriceWaterhouseCoopers investigates the growth potential of the “E7,” the BRIC countries plus Turkey, Indonesia, and Mexico. The report is available at http://www.pwc.com/gx/en/world-2050/growth-in- emerging-economies-oportunity-or-threat.jhtml.

16 _{For example, in 2006, the Economist declared that emerging economies like India and China “will provide the} biggest boost to the world economy since the industrial revolution” (Woodall 2006).

2006).17 _{HSBC Holdings Plc began the first BRIC investment fund in 2004, followed by} Franklin Templeton Investments, Deutsche Asset Management, Schroder Investment Management, and Goldman Sachs (Karmin 2006a). BRIC funds such as these attracted $4 billion in investments between January and July 2006 alone (Hudson 2006). Emerging markets’ stocks began a long upturn in 2003, further interesting investors, and the Morgan Stanley Capital International BRIC Index more than tripled in value between 2003 and 2006, outperforming general emerging markets indices (Karmin 2006a, 2006b; Wilson 2007). As Craig Karmin of the Wall Street Journal put it, the emergence and popularity of BRIC funds “reveal[s] how fund companies act to capitalize on new trends – even ones that have timetables stretching out to midcentury” (Karmin 2006a).

The Goldman Sachs reports may not have caused the BRIC stock markets to surge between 2003 and 2006, for there was certainly interest amongst investors in “emerging economies” prior to 2001. Indeed, investors, fund managers, pundits, consultants, and journalists took up the term “BRIC” with a gusto that indicates they already believed Goldman Sachs’s claims; the BRIC reports perhaps gave name to what was already an incipient investment trend. Also, as noted above, fund managers faced pressures to find new investment opportunities. Yet the sudden popularity of BRIC funds, the rush to invest in BRIC stocks, and the surge in BRIC stock market valuations does suggest that Goldman Sachs’s research team was able to guide investment – and thus the expansion of finance capital – simply by coining a catchy new acronym and predicting growth.18 _{In so doing, they}

17 _{MSCI had already established an Emerging Markets Index in 1987; it added India to the Emerging Markets} Index in 1994. See MSCI Barra 2008 and the MSCI Barra webpage, “MSCI Indices: Overview,”

http://www.mscibarra.com/products/indices/index.jsp (accessed January 16, 2010).

18 _{Goldman Sachs has continued to move lock-step with investors’ quest for new markets. In 2005 its} researchers coined the acronym N11 to describe the “Next Eleven,” i.e., “the next set of large-population

helped position India as a desirable investment location, and they provided a language for talking about investing in India to numerous investors and developers.

My informants reiterated the stories popularized by Goldman Sachs analysts, other consultancies, and the media about India’s heralded long-term growth potential to describe their firms’ expansion into India. Simon, the head of the Indian office for a British real estate investment firm, described his firm’s owners’ interest in India:

[A]s the market is in the West in terms of prices being so low, uhm, I think they felt that long term growth was going to be in the, inverted commas, developing markets. So they wanted to find a country that has long term growth opportunities.

Similarly, the Michigan-based retail property developer, Taubman, faced with a stagnating U.S. market, sought to build retail properties in Asia, including India. The company opened its first international subsidiary, Taubman Asia, in 2005. The firm’s 2007 annual report described this expansion using the language of the Economist, the BRIC reports, and others as “a long-term strategic commitment to the broad markets of Asia, a region that over the next 20 to 30 years will likely prove to be the greatest growth opportunity that the world has ever seen” (Taubman Centers, Inc. 2007, 15).

One of my informants, a retail consultant working with a prominent Indian real estate development firm, had himself moved to India because he felt the Indian economy – and with it the real estate market – has long-term growth prospects. He thought that places like the Middle East might be “bigger marketplaces” right now, but “when the market starts to cool, India is still going to go.” The Indian economy, he explained,

countries beyond the BRICs” that Goldman Sachs researchers felt “could potentially have a BRIC-like impact in rivaling the G7” (Goldman Sachs Global Economic Group 2007, 131). Similarly, enabling investors in their quest for returns on the “frontiers” of capitalism, MSCI Barra launched a Frontier Market Index covering 19 “emerging emerging markets” in 2007. HSBC also announced a frontier market fund in the same year (Assis 2007).

will have highs and lows like all economies; you would not be insulated whatever anybody says. But, it will have probably fifteen years of steady growth, based on domestic population changes that go on there. And that’s a place that can guarantee an income.

He concluded, “if the rest of the marketplaces crash, everybody will try to enter India at the same time.” He, however, would already be there, where growth would “guarantee an

income.” The senior vice president of an American private equity firm felt similarly that India was a sure-fire long-term investment: “Unless something dramatically happens to the overall region or the country, I don’t see, you know, that – at least for the next fifteen years, anything can go wrong in this story.” For real estate investors, the “India Story” seemed like a good long-term wager. While predicting long-term growth, then, the BRIC reports catalyzed near- term action: the movement of firms into India.