Worldly Wisdom
Over the past year, several befuddling developments have occurred globally. We are seeing a surge in anti-globalisation or de-globalisation forces, a rise in anti-immigrant sentiments and fear of losing jobs. Events such as England exiting the European Union and Americans voting for Donald Trump have perplexed the world. The Rise and Fall of Nations, by Ruchir Sharma, weaves a pattern by piecing together these extraordinary events.
In his earlier book, titled The Breakout Nations, he had predicted a slowdown in the emerging markets - Brazil, Russia, India, and China - after years of high growth. He had argued that sustained economic success is a rare phenomenon. His new book not only takes the argument further, but also reinforces it with examples and anecdotes - from his Safaris in Africa to his ancestral home in India, and from his encounters from Rio to Beijing with business tycoons and nation heads. Sharma is Chief Global Strategist at Morgan Stanley Investment Management and its head of emerging market businesses. His understanding of these countries is evident in the book which, he says, is a byproduct of his 25 years of travel across the globe. He says that there are 'small' events that reshape the history of a nation's economy, and can also impact the global discourse. He educates about identifying ways to spot these turners - political headlines, black markets, onion prices, and billionaire rankings - and gauge the mood of the market for impending booms, busts, distress, or protests.
The book is set in the post-2008 crisis when most economic thoughts of yesteryears and beyond failed to materialise on the ground, the growth pace slowed, and the political calm gave way to revolts. The best part about the book is that it does not merely put forth theories, but presents solid examples, allowing readers to piece together events, and imbibe some great learning, especially about seeing developments from the economic prism. For example, in the chapter where Sharma explains the impact of onion prices - we have seen state governments in India losing elections on this issue - on the economy, he explains the difference between good and bad inflation.
Former Prime Minister Manmohan Singh and his associates during those days advocated that inflation is good for the growing economy, citing examples of South Korea and China. These two countries started out with economic progress along with high inflation in the 1970s. Sharma offers a contrarian view. By giving examples of vegetable price rise, Sharma deftly explains how young economies, such as India's, are more vulnerable to demand-driven inflation if they have invested too little in supply networks. The supply channels include warehouses, freer logistics movement, road and railway networks, and communications, along with power plants and factories. "The country was expecting to become the next China, but his regime made it another Brazil," Sharma says, summarising Singh's regime.
For journalists and keen observers of the world economy, the chapter titled 'The Hype Watch' will be of great interest. It urges you to take analyst reports and papers on various events unfolding across the world - whether it is Italy's probable exit from the EU or India becoming an open market - with a pinch of salt. These reports, according to him, are either the result of or give rise to stories in the international media. Sharma goes deeper to unveil the unsaid. He says that the international media orchestrates the growth model that shows some results, and then dumps it once it loses steam. He talks about how the international media went overboard to describe Japan in the early 1990s as the next big story. It lasted a full decade, only to be followed by the currency crisis in South-East Asian economies. Thereafter, the media turned its back and remained indifferent. He also highlights similar situations when the media romanticised about the growth models in the emerging countries, commodity countries or African economies, but most of them could not stand the test of time.
In the words of Sharma, who has seen the world as a columnist as well as an investor, the mainstream opinion about which nations are rising or falling typically gets the future wrong, because it extrapolates recent trends and grows more enamoured of a country, the longer the growth story lasts. In the past 25 years, the storytelling has improved to bring in the challenges much upfront. His antidote to this misleading romance is to check the media's affection against all the rules. Longer the growth spurt lasts, less likely it is to continue, he says.
The book is an on-the-ground guide to get accustomed to the changes and challenges in this era, or any other era. One may disagree with Sharma's analysis, but he builds a good case for himself. It is a fantastic read, and serves as a great reference material, too. ~@anileshmahajan
