Ruchir Sharma is Head of Emerging Markets and Chief Global Strategist at Morgan Stanley. His job is to watch global trends, looking for sound investments – which countries are growing or likely to grow in the short term, and which ones are on the verge of decline? When is growth sound and sustainable, and when is it a bubble? To make these kinds of calls, in the interest of managing investment portfolios, Sharma has developed ‘ten rules of change in the post-crisis world’.
I’m not particularly interested in investment opportunities, but I am interested in development, stability, and human progress. A man like Ruchir Sharma wouldn’t have got to where he is without having a pretty good grasp of international affairs, so I figured the book would be worth the time. And so it proves. This is a broad ranging and original book, truly global in scope, and full of unusual insights and details. (Did you know that India had an ‘onion crisis’ in 2010 and had to bring in an onion export ban? Or that Nigeria has a problem with textile smuggling? Or that 7% of the Chinese government’s revenue comes from selling cigarettes through its state tobacco company?)
There are plenty of big and serious books with similar titles to The Rise and Fall of Nations, most of them giving a historical overview of a nation or empire. There’s plenty of history here too, along with politics, economics, and anthropology. There’s lots of data, and painstaking statistical research from him and his team. Most importantly though, the book is rooted in observation. Sharma has spent 25 years traveling, making fact-finding missions to countries in periods of change. He is a senior figure at Morgan Stanley and benefits from unusual access, so he is able to speak directly to presidents, finance ministers, and CEOs. He is just as likely to make his observations from the behaviour of ordinary people, or the prices of basic goods on local markets. It makes for a diverse set of ‘rules’ for change, combining data and theory with on-the-ground wisdom.
You may be able to guess some of those rules – the general trends to watch to see whether a state is succeeding or failing. Debt, for example. Sharma suggests it’s not so much the total debt that’s the danger, but a rapid increase in debt that doesn’t match the overall state of the economy. Hype is another. We all know the sorts of meta-narratives that the media picks up on, from the Asia Tigers to Africa Rising, or the BRICs. According to Sharma, these stories are generally over by the time the mainstream picks up on them. “Mainstream opinion about which countries are rising or falling typically gets the future wrong, because it extrapolates recent trends and grows more enamored of a country the longer the growth run lasts.” In reality, “the longer a growth spurt lasts, the less likely it is to continue.”
Better prospects are always found on the margins, with countries that are placed to capitalise on their geographic advantages, or on a demographic transition, or who have genuine and fresh reforming governments. Signs of decline include reforming governments that overstay their welcome and cling to power. Shrinking or aging populations are a challenge, or countries that are over-reliant on commodities and neglect industry. Inequality matters too, and Sharma’s preferred measure is “the scale of billionaire wealth relative to the size of the economy.”
Putin’s Russia and Erdogan’s Turkey do not come out well by Sharma’s criteria. Neither does China, for using debt to artificially force high rates of economic growth during the global downturn, a strategy that must unwind, and could prove very dangerous when it does. Less obvious countries that appear to be in trouble include Australia and South Africa. Conversely, Argentina, Peru, Poland, and India are among the places to watch.
These are useful conclusions for investors, but any politician or decision maker ought to be aware of how trends unfold. There are plenty of examples of over-confident politicians in the book, no shortage of common mistakes to look out for. It should matter to us ordinary citizens too. The more we understand about globalization and the challenges of running a country well, the better equipped we will be to hold our governments to account.
Inevitably, the book is very focused on economic growth as the be all and end all of development. That’s fair enough for Sharma, as it’s his job to look for growth. But obviously health, education, democracy, human right and sustainability are not things we should be neutral about. Sharma’s attitude to what I would see as ‘real’ progress is sometimes exasperating. “Investing in education is often seen as a sacred obligation,” he writes, “and too few questions are asked about whether it is getting the job done.” By ‘getting the job done’ he means delivering growth, as if better educated citizens is not a good thing in its own right. Likewise, the environment is completely invisible, even though the effects of climate change may well devastate whole economies in the coming years. His view that rapid population growth can be a major driver of economic growth could lead to some terrible policy choices if governments concern themselves too exclusively on boosting GDP.
In summary, The Rise and Fall of Nations is a smart, well-informed and very readable set of guidelines for understanding how countries grow or fail to grow. But it does represent an overly narrow view of progress. If you’re interested in globalisation and development, then you will find much to explore and enjoy – just don’t let it be the only perspective you investigate.