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Monday, July 16, 2018

Cross Country Rating

An intelligent,sharply observed,often mordantly witty tour d’horzion of several emerging economies

Written by Pratap Bhanu Mehta | Published: April 28, 2012 12:27:01 am

Book: Breakout Nations

Author: Ruchir Sharma

Publisher: Allen Lane

Pages: 292

Price: Rs 599

What determines the economic success of countries? There are two approaches to answer this question. One takes the form of deep-sea diving. This tries to understand the underlying and often hidden dynamics that make for economic success: from demography to political structures. The other approach is the form of artful surfing: follow the ripples. Ideally,you would want to combine both approaches,but it is remarkable how few books manage to do that. Breakout Nations is decidedly in the artful surfing camp,and in that genre it is a virtuoso performance. It provides an intelligent,sharply observed,often mordantly witty tour d’horzion of several emerging economies: winners like South Korea and Poland; disappointments like Hungary and Mexico; success stories that are now under the shadow of their own past like Malaysia; potential powerhouses like Turkey and Indonesia; enigmas like Sri Lanka and the big BRICS. Sharma is pessimistic on Brazil,predicts a slowdown for China. He diplomatically gives India a fifty-fifty chance though the analysis is far more pessimistic.

What lies behind these judgements? Shorn of all the complexity,the answer is simple: does a country have the political will to take the right decisions? Political will is one of those interestingly ineffable things. Sharma’s contention is that there is no mechanism which guarantees this will exist: democracies can stumble as much as authoritarian regimes,vernacular nationalist politicians like Erdogan and Rajapaksa can often display more of it than their liberal cosmopolitan counterparts. It can be on display in times of prosperity or distress; some corrupt states have immense political will,others don’t. What is more interesting is the various proxies that Sharma uses to assess political will: everything ranging from inequality to urban chaos. Brazil will not grow because prices of real estate are too high,which in turn suggests a governance deficit. Turkey has the potential not just because prices are low,but because successful attempts to create industry outside of the Ankara-Istanbul-Izmir corridor suggest state capacity of a high order. Some states get inclusion just right: to create a productive workforce that can participate in the modern economy. Others like Brazil,South Africa and potentially India get a “premature welfare state” where welfare commitments don’t empower,but cause a fiscal drag.

The thumbnail sketches of countries are wonderfully done: they combine historical analysis,pop anthropology,entertaining observation,sharp economic analysis and a great eye out for conjunctures,telling sociological detail and plain good luck. These are the perfect few pages you want to read before you set out to visit the country,a Fodor’s guide to recent economic history. The book’s greatest strength is its refreshing antidote against herd behaviour and hype. It also has a rare intellectual quality: a sense of the contingent character of most economic claims. Creating growth is “more an art than a science”. What might be true in one context might not be in another. The book’s simple rule of the road is,“don’t get hung up on rules.”

Breakout Nations is also a cautionary tale for investors: if countries can sin by not displaying the right political will,investors often sin by falling prey to herd behaviour. The book has some sharp observations on bubbles of all kinds,for asset prices,technology booms and the impending commodity bubble. The immediate future suggests more treacherous surfing waters — greater volatility,return of inflation,political uncertainty — and less of the Panglossian optimism of the 1990s. Investment will require more discrimination and sense of judgement.

But the book is a missed opportunity. Political decision-making is important. But what are the dialectics that govern it? India is in a state of paralysis at the moment. But is this a moment in great churning that will lead to an eventual cleansing of the system or is this a downward spiral? It would have been nice to have some answers to how investors make calls on a question like this. In the book there seems to be a little bit too much of the “I like the face of this politician quality,” with assorted characters like Kabila and Rajapaksa coming out looking more promising than you might imagine. If investing can be driven by herd behaviour,political credibility can also be the function of false branding. Credibility,even more than beauty,is in the eye of the beholder.

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