Ruchir Sharma has an enviable job: he has to manage a few billions that Morgan Stanley invests in underdeveloped countries for its clients. It could be made very simple: all he would need to do is to keep looking at the leading companies in these ever-emerging markets, talk to local stockbrokers, spot rising stars when he can and avoid undue risks when he cannot. But he takes his duties seriously, and travels to those emerging markets a quarter of his time. He no doubt consults the big shots in those markets over drinks and dinner; but he also occupies those free hours in airports and waiting rooms reading widely.
Four years ago, he turned those extensive literary inputs into his first book, Breakout Nations: In Pursuit of the Next Miracles. It chased an enticing question: which countries would next show extraordinary performance? A racily written combination of scholarship, travelogue and gossip, it sold well. But, I suspect, it did not entirely satisfy Sharma. He came to realise that the 2008 crisis has seriously affected the fates of nations; the old rules of success and failure no longer apply.
He has now worked out 10 new rules. They are the heart of the book, so I will not reveal them. But the book is so lively and wandering that it is possible to miss the 10 rules and enjoy it just as a record of Sharma’s learning them.
For instance, he points out how much difference geography can make. Indians do not like to hear this, but India’s biggest international airport is Dubai. It is not because its runways are straighter or terminals more comfortable; it is just because Dubai is so much more open and less bureaucratic than Indian airports. It even helped out Iran through hawala when the western countries were hounding it. But it could not have succeeded if it had not been sitting on the air route between India and the west. East Asian nations have pushed one another’s growth by opening up amongst themselves; South Asian nations have spectacularly failed to do so — because of the elephant in the room, India, whose customs department would never let itself go out of business. It is just the other South Asian countries’ geographical misfortune.
Trade can grow only if there is no payments crisis; nations have to manage their currencies sensibly. As a global traveller, Sharma experiences this personally: countries feel cheap or expensive, depending on whether their currencies are undervalued or overvalued, and he puts his trust in his feelings. But he cannot go about visiting 180 countries to get a feel of their currencies; so, he has worked out a rule: if a country runs a two-four per cent payments deficit over five years, it will experience a moderate slowdown, and if it runs a five per cent deficit, it will face an extreme slowdown. Such figures come in too slowly; so Sharma watches what the nationals of a country are thinking about their currency. If Indians are running to invest in gold, they know something that foreigners do not — and their finance minister does not want anyone to know.
Sharma contrasts the East Asian crisis of the 1990s with the more recent crisis in southern Europe. The East Asian crisis was sorted out much more quickly because the affected countries let their currencies fall; Greece, Italy and Spain did not have that option because they are tied to the euro. Without mentioning Surjit Bhalla, Sharma rejects devaluation as a way to prosperity; he says that it may work for a small country, but after 2008, world trade is growing too slowly to give devaluation a grip (he also entitles one of his chapters ‘The Price of Onions’ without acknowledging my book). He points to the possibility of China running into a debt crisis — so real because China has no equity worth the name.
One of Sharma’s most interesting chapters is about journalistic fashion: international media hype up particular countries from time to time, and give rise to capital flows that give them an experience of boom and bust they could do without. But assuming Sharma’s calculations are correct, if the magazine story was downbeat, the country was likely to experience an uptick, and vice versa. International organisations are also in the business of forecasting; usually, their forecasts project the current trend, and sooner or later, they go wrong. Just now, it is the fate of the many optimistic forecasts for China.
Sharma has so much to say that it is difficult to find a direction or a pattern. But in the middle of it all is a polemic about the contemporary problems of the world economy laid out with a good deal of unfamiliar detail. This book is great for reading randomly.
Book name-The Rise and fall of Nations: Ten Rules of Change in the Post-Crisis World
Author- Ruchir Sharma
Publisher- Penguin/ Allen Lane
Price- Rs 559