Saturday, June 16, 2012
The breaking-down momentum
Book Review: Non-fiction/ Breakout Nations by Ruchir Sharma, Penguin/Allen Lane, 292 pp; Rs599 (Hardback)
Ruchir Sharma is possessed with both knowledge and narrative, which is not an ordinary blend. As an investment banker, he heads Emerging Market Equities and Global Macro at Morgan Stanley Investment Management, exposure he gained from his global career in high finance makes the strong foundation of his book -Breakout Nations. The major focus of his highly publicised book is on emerging economies and on the sliding developed world, but in patches book also looks on the issues related to business itself in straight terms.
The story hits the headlines quite often, how China and India have become the world's major economies. How Russia recuperating its old materialistic might by transforming sic British football. News are on global scale about the economic miracles and power shift from the so-called advanced world to what has been categorised the emerging world, including the BRIC countries, Goldman Sachs's shrewd acronym for the four largest economies of that caliber- Brazil, Russia, India and China. This diverts attention from the other powerful middle-income economies, such as Indonesia, Mexico, Turkey, or the few African countries, notably Nigeria.
Ruchir does thorough introspection on the other strong emerging economies too, where his judgement appears apt. He superlatively rates South Korea for evolving as manufacturing hub; he calls it ‘Germany of Asia’. Though only recently, in the Asian financial crisis of 1998, it was bailed-out-by the IMF in emergency, but ahead, crisis was taken proactively by the industry and its policy regime. So things are structurally different now, he also believes Korea’s unification is not a utopian imagination.
For investors, Breakout Nations is a rare cautionary tale- if countries can act wrongly by not displaying the right political will; investors often reverts the same by relying on herd behaviour. The book has some sharp observations on bubbles of various kinds, for asset prices, technology booms and the impending commodity bubble. The future appears more shaky-greater volatility, unjustified inflation, political uncertainty-and end of incorrigible optimism of the 1990s and even of the time spent few years back. Now, investment climate would be based on more skewed judgments than even before.
What decides the economic success of countries? Book provides meticulous observations on emerging economies and their cases-winners like South Korea and Poland; disappointments like Hungary and Mexico-foregone success stories of Malaysia; potential hope like Turkey and Indonesia; wonder like Sri Lanka and the BRICS. Ruchir is not exuberant on Brazil, forecasts a slowdown for China with intelligent reasons. India gets a fifty-fifty chance though the actual analysis is far more pessimistic- he finds many problems in categorising India as ‘breakout nation’. One of them is erratic political decision-making. Only damage control on persuasion he performs by quoting scientist Antoine Lavoisier, ‘Nothing is lost, nothing is created, everything is transformed.’
Author stress that there is no mechanism which guarantees the state of political will; democracies can stumble as much as authoritarian regimes-regionally inclined nationalist politicians like Rajapaksa and Erdogan can often perform more than their liberal counterparts.
Sharma also examines a handful of countries he classifies as the Fourth World of Frontier Economies. These are countries where the rule of law has a limited occupancy and where the prospects are as uncertain as are the stock markets across the world. All Gulf States fall into this category. So do the African countries, though some of which show promise. Sri Lanka is classified as a Frontier economy but he corrects it to admit lastly as breakout nation.
World is not passing through a decent phase, Breakout Nations reveals it, offers some solution too for coping the dangers around the corner…its realisation is though not so easy!
Atul Kumar Thakur
June 6th, Tuesday, 2012, New Delhi
(Published in The Financial World/Tehelka,June08,2012)