Breakout Nations: In pursuit of the next economic miracles
Ruchir Sharma, head of emerging markets for Morgan Stanley, visits the RSA to discusses emerging markets.
Two great stories of the last decade, the global financial crisis, and unparalleled worldwide economic growth. We here talk about the second, as the first has been told many times.
The IMF tracks some 180 economies. In any one year, we normally see 1/3 grow at rates above 5%, and 1/5 contract. In 2007, everyone grew and only 3 (not 3%, 3) contracted.
The conventional wisdom became that these markets were now unstoppable, and would soon converge to Westerns standards/levels. Mr. Sharma points out that the conventional wisdom is never quite right. He has a principle:
The unexpected always happens, the inevitable never does.
He also notices tremendous arrogance in several BRIC nations. Given that this time is not different, what is the historical pattern, and what drove the growth over the last 10 years?
Historically, the IMF has 35 developed economies, and the rest are not. This has been stable for a very long time. Economic growth is a bit like snakes and ladders, or you can make survival curves for the time-frame that econ growth can be sustained. Only two countries lasted over 40 years (taiwan and korea, if I remember).
What drove the 2000 boom? Easy liquidity, and a rebound from the horrors of the 1990s.
Conclusion: things don’t look good for them over the next few years, though there are exceptions.
How do we find the exceptions? First, define what we are looking for. Economic growth which exceeds expectations over the next 3-5 years. Anything farther out is not interesting.
He gives two examples of metrics he uses to predict breakout nations. He claims to have about 10, the others are in his book in occult form.
The two given in the talk are the 4 Seasons Index and the Billionaire Index.
4 seasons: compare the price of a high-end hotel room. Brazil/Russia it is 1K/night, India is 1/3rd of that. Implies B/R are expensive, making them less, much less, competitive. Reminiscent of the Big Mac index.
Billionaire: Compare #billionaires to size of economy, also look at #millionaires. Does absolute ranking correspond to normalized ranking? Do we see evidence of entrepeneurship? Are the billionaires made by connections to the state or by private inititive?
Sounds like he is measuring if the country’s institutions are inclusive or exclusive.