Allen Lane, £25
Breakout Nations, By Ruchir Sharma
It's not just China and Brazil: from Mexico to Korea, the big beasts of tomorrow's world are already roaring.
Saturday 28 April 2012
The story hits the headlines every day. How China has become the world's second largest economy. How Tata of India has rescued Jaguar Land-Rover. How Russian money has transformed British football. And so on. It is a story of a shift of power away from the so-called advanced world to what has been dubbed the emerging world, or the BRIC countries, Goldman Sachs's acronym for the four largest such economies: Brazil, Russia, India and China.
There has even been a BRICS summit, with South Africa forming the "S". The shift has become so familiar that it is hard to remember that 20 years ago these countries played a modest role in the world economy, aside from reports about economic disasters and the need for aid relief. Now it seems likely that within another 20 years China will have passed the US to become the world's largest economy (it is already the world's largest car market) and India will have become number three. It is an astounding turnabout of fortune.
Yet we know little about it. We lump together countries that are utterly different, not just in their political systems – contrast the four
BRICs – but in the structure of their economies, their policies, and indeed their prospects. That clever acronym diverts our attention from the other powerful middle-income economies, such as Mexico, Indonesia and Turkey, and the African giant, Nigeria. What we need is a primer to guide us. That is the core contribution of Ruchir Sharma's thoughtful analysis of these nations: what they are doing, why they are different, their prospects, their achievements, their errors, and the threats they face.
He starts, as one must, with China. For anyone who has been to China recently and particularly anyone who knew it even a decade ago, the story will be a familiar one: the helter-skelter race for growth, the wealth this has brought to the new middle class, the self-confidence generated by this achievement, but also the human and environmental costs of untrammelled growth – the swagger and the squalor. But this race for growth will come to an end as China's population ages and as development reaches a natural plateau.
Sharma brings out very well the need for the country to become more "normal", with slower growth and more consumption, spreading the fruits of growth more widely. It will still become the world's largest economy but may be an easier bedfellow for the rest of us. "A slower China means a less disruptive China, producing less geographical friction, fewer trade battles, and less fear of a rising 'Red Dragon'. So perhaps this is not a bad thing."
Sharma's day job is head of emerging markets at Morgan Stanley Investment Management, so his focus is that of a potential investor, rather than a political analyst. That means he is particularly interested not just in the pace of wealth creation but also in the quality of governance.
Investors want to make a good return on their investment but they will only be able to if the country has a functioning legal system and the political stability associated with the need to see that wealth spreads down the line. So he is reasonably positive about India, bar its crony capitalism and official corruption: "no other large economy has so many stars aligned in its favour". He is more concerned about Brazil, given its bumpy record of economic management; and he is very critical of Russia, in particular the way it has failed to build a substantial middle class.
There are a series of snapshots about the other important emerging economies, in which he makes a series of sensible judgements. His gold medal goes to South Korea, the "Germany of Asia", in particular for the way it has become a manufacturing powerhouse in one generation and managed to turn adversity to advantage. In the Asian financial crisis of 1998, it had to go to the IMF for a bail-out loan. But it used this crisis to reorganise its industry, allowing many weaker companies to go under or be taken over, and by the middle of 2001 had repaid the debt. Sharma believes South Korea will manage a successful unification with the North.
He is intrigued by Africa, in particular by South Africa and Nigeria; by Turkey; by Indonesia; and by emerging Eastern Europe. These are snapshots, but thoughtful ones that enable one to calibrate ones own views and expectations.
A big message? Well, not really, because there is no magic wand that creates sustainable growth, and we should recognise that much of what is happening is catch-up. He wisely notes: "All the hottest new things, from tablet PCs to cloud computing to social networking, are emanating largely from the United States." But this is a great road-map to the new and better-balanced world in which we will all live, and an encouraging one.
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