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The Rise and Fall of Nations


S SATHYA | Issue Dated: October 5, 2016, New Delhi
Tags : The Rise and Fall of Nations | Ten Rules of Change in the Post-Crisis World | Morgan Stanley | Factories First |


The Rise and Fall of Nations

Author : Ruchir Sharma and Penguin Random House

Edition: Hardcover

ISBN: 9780241188514

Pages: 464

Price: Rs 799

Hit by a global financial crisis in 2008, the world continues to reel under its impact even today. Credit crunch, decline in manufacturing, dwindling exports and global job losses haunt us. Consequently, it has ended the trajectory of high growth of economies around the world. The burning question is how and when the current crisis will turn around.

More importantly, is how we can recognise nations which will fail and thrive when the actual turnaround takes place in a world marked by weak global economic recovery and mounting political unrest.

This is what Ruchir Sharma, who has been travelling the world for more than a quarter of a century now, attempts to answer in his latest book, The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World. He virtually takes readers on a global tour to identify the likely winners and losers in the near future.

Free from any mathematical models, the book is a pioneering field guide to understand the financial crisis that has come to dominate the global economy. Sharma, head of Emerging Markets and Chief Global Strategist at Morgan Stanley Investment Company,  has used interviews, impressions, storylines, facts and data gathered by him to identify the ten rules for spotting the rise and fall of nations in real time.

Each of the ten chapters in the book identifies a principle on which foundations will be built by nations that will dominate their success and failure on the global stage.

The first rule is to study demography. Explored by economists since the times of Adam Smith and Malthus, Sharma has pointed out various aspects of demographics that can make a huge difference to a country’s economic growth.

The second rule is to understand whether heads of governments are willing to continually reform to face the emerging situations. Sharma who has travelled and met many heads of governments, finance ministers and governors of central banks writes it is important to ask if the nation is ready to back a reformer. Venezuela, Turkey and Argentina embraced populism while the US, Britain and China turned to real reformers — Regan, Thatcher and Deng. Reforms, political will and popular support are keys to growth.

The third rule is to do with the popular theme — is inequality threatening growth? The author explores this rule by measuring the wealth of billionaires in relation to a country’s GDP.  Next, he turns his attention to how nations spend lavishly on subsidies or running loss-making hotels and airlines. Having grown up in an India where socialists’ influence still lingers, Sharma warns that the economy will be poorer in the longer run.

For a country to be launched into an orbit of higher growth, Sharma mandates it needs to open up its door on three counts; to trade with its neighbours, the wider world as well as its own provinces and second cities. “Poland is perhaps the leading example of a European nation firing on all three fronts”, Sharma observes, and adds that in Asia the leader is China.

In the chapter titled, ‘Factories First’, he discusses the role of investment in spurring growth. He further identifies that the best investment binges are those that go towards manufacturing, technology, and infrastructure, including roads, power grids and water systems. And investment in the property sector is a case of bad binge.

The seventh rule mentioned by Sharma concerns inflation. This chapter is worth a read especially by those policymakers who defend successive Indian governments on high inflation. Describing high inflation as a ‘cancer’ that kills growth, the investment banker points out miracle economies like South Korea, Singapore, Taiwan and China, which witnessed booms,  rarely saw inflation accelerate to a pace faster than the emerging world average. High price inflation is useful for spotting outliers in a world where most countries have won the war on inflation. Pointing out how India was the only big country suffering from double digit inflation  in the five years after the 2008 global financial crisis, Sharma blames policies pursued by Oxford-educated economist, Prime Minister Manmohan Singh and his acolytes.

Stability of currency and growth of debt form the eighth and ninth rules.

Though unconnected to any of the nine economic rules, Sharma writes about ‘The Hype Watch’ that focuses on how a country is portrayed by global opinion makers and warns about hype created by global media around countries.

Pointing out that no countries will score well on all the ten rules, Sharma is optimistic about India and its immediate neighbours — Pakistan, Bangladesh and Sri Lanka — who are contributing to the quiet rise of South Asia, Kenya in East Africa, Philippines, Indonesia and Vietnam in South East Asia and Germany and the United States in the developed world. Whether Sharma’s forecast will come true or not is not that significant. How we tackle each one of the ten rules he has flagged is far more important. 

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Issue Dated: Feb 5, 2017