The Rise and Fall of Nations: Forces of Change in the Post-Crisis World

"This is the most recent book I’ve chosen, it came out in June. Ruchir Sharma is an emerging markets strategist at Morgan Stanley Investment Management, and he brings a practitioner’s view and writes in a very accessible style. If some of the books I’ve chosen sound a bit stuffy and written from an academic point of view, Sharma writes from the standpoint of somebody who travels a lot to different countries. He’s an Indian. He knows a lot about his own country, he knows China, he knows Mexico, he knows a number of emerging countries and devises strategy for investing in them. He has set out a series of phenomena that he regards as critical success factors for emerging countries, to do with wealth concentration, commodity concentration, and corruption, to name just three. He has a fairly restrained perspective. I wouldn’t say it’s pessimistic, necessarily, because I think he believes that there are rules of development that countries can fulfil. But he’s optimistic about the United States, for example. Get the weekly Five Books newsletter He’s quite conscious of something some economists are very keen on which is that geography matters quite a lot to whether you are going to be successful or not. So, if you happen to be slotted into a geographic zone of prosperity, because you happen to be within close proximity of Germany—which emerging countries like the Czech Republic and Romania are—then it is a lot easier for you to piggyback off the success of successful countries than it is if you happen not to be in somebody’s supply chain, or if you happen to be geographically a bit isolated. He is also very keen on drawing a distinction between countries that have what he calls ‘a heavy hand of government.’ He talks about the heavy hand of government, say, in the case of the banking system in India. China is an obvious key case in point. The driving force of growth in China is the private sector, but it’s the state sector—through the state-owned banks and state-owned enterprises—that occupy the commanding heights of the economy. They stifle growth in much of the rest of the economy because they consume a huge amount of resources and subsidies, and special privileges and favours, and so on and so forth. If we think back just a few years to the global financial crisis, which really began in 2007, there were very few naysayers. Everybody was a cheerleader for emerging countries because they were riding the crest of a wave. When we look back now, we can see, much more clearly than was apparent in 2006-7, that the wave they were riding was a cyclical one, in large measure. “It was the proverbial tide that lifted all the boats in the emerging world. But as Warren Buffett reminded us…it’s only when the tide goes out that you can see who has their swimming gear on.” I don’t want to diminish the structural improvements, which a number of countries have made. Think about some of the countries in sub-Saharan Africa. Africa has always been the lost continent, it’s always the continent of the future, and every time people think that Africa is the continent of the future, something happens and it regresses. Actually as United Nations reports show, there are a number of countries, particularly around East Africa—Rwanda, Tanzania, Kenya—where there have been very marked improvements in social cohesion and in governance. Across the continent, there is reduced incidence of tribal conflicts and cross-border conflict. We shouldn’t be dismissive about the capacity of countries to self-improve, or about governance improvements, or about the ability of countries to exploit resources and deploy labour and capital well. These things can all be learned and can all be done. But when we look back now on the 1990s and particularly on the 2000s, we can see that a lot of what happened was one of the most virulent commodity cycles which we’ve had, probably since the 1970s — which also ended in tears for emerging countries. Many of them went on to experience economic dislocation and political problems in the 1980s and the early 1990s. Again, why Sharma’s book is interesting about the rise and fall of nations, is that we can see how the cycle helped. It masked what we all thought was a new world in the 2000s, a globalisation cycle which was kicked off by the openness of Deng Xiaoping in China and the fall of the Soviet Union, which both happened around the same time. So the globalisation cycle, the IT or information technology cycle, the commodity cycle, all colluded, as it were, to produce an incredibly powerful economic upswing in the 2000s. It was the proverbial tide that lifted all the boats in the emerging world. But as Warren Buffett reminded us, and seems apt for the period after 2007-2008, it’s only when the tide goes out that you can see who has their swimming gear on. I think this is why Sharma’s book is valuable, because it helps us to understand a little bit about what the cycle basically hid and what’s laid bare, once the cycle has gone into reverse or is facing big headwinds."