Breakout Nations

Breakout Nations

In Pursuit of the Next Economic Miracles

Book - 2012
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To identify the economic stars of the future we should abandon the habit of extrapolating from the recent past and lumping wildly diverse countries together. We need to remember that sustained economic success is a rare phenomenon.As an era of easy money and easy growth comes to a close, China in particular will cool down. Other major players including Brazil, Russia, and India face their own daunting challenges and inflated expectations. The new "breakout nations" will probably spring from the margins, even from the shadows. Ruchir Sharma, one of the world's largest investors in emerging markets for Morgan Stanley, here identifies which are most likely to leap ahead and why.After two decades spent traveling the globe tracking the progress of developing countries, Sharma has produced a book full of surprises: why the overpriced cocktails in Rio are a sign of revival in Detroit; how the threat of the "population bomb" came to be seen as a competitive advantage; how an industrial revolution in Asia is redefining what manufacturing can do for a modern economy; and how the coming shakeout in the big emerging markets could shift the spotlight back to the West, especially American technology and German manufacturing.What emerges is a clear picture of the shifting balance of global economic power and how it plays out for emerging nations and for the West. In a captivating exploration studded with vignettes, Sharma reveals his rules on how to spot economic success stories. Breakout Nations is a rollicking education for anyone looking to understand where the future will happen.
Publisher: New York : W.W. Norton, c2012
Edition: 1st ed. --
ISBN: 9780393080261
Branch Call Number: 330.91724 Sha
Characteristics: x, 292 p. : ill., maps ; 25 cm


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Feb 04, 2018

Breakout Nations is a snapshot of the world economy, particularly the emerging markets and those that are on the verge of "breaking out" or achieving the next level of income. (Although the term "emerging market" is used in different ways in different places, here it refers to nations in which the average annual per capita income is less than $25,000.)

China itself is an emerging nation and has driven the growth of many of the others, particularly those that are dependent on commodity exports. Much of the low-hanging fruit has been grabbed in China, and much of that is dependent on demographics: while China was able to add about 90 million workers between the ages of 35 and 54 to the workforce in the last decade, in this decade they will add closer to 5 million such workers. The smaller workforce translates into higher wages and thus higher prices, and that will almost undoubtedly lead to a shrinking of demand for their manufactured goods. In other words, growth rates of 8 percent or more are most likely a thing of the past. However, Sharma is more bullish on China (at least compared to the bears) in part because while many of the easy gains have been realized, there is still a need to modernize its manufacturing infrastructure, and those are the kinds of investments the Chinese governments have been keen on.

While there were fortunes to be made from commodities, the rule seems to hold that an economy highly dependent on them is more likely to overheat and then eventually crash than one that isn't. Russia and Brazil are good examples of a such; they were living large at one point but didn't have a cushion to fall back on when demand inevitably recedes. Of all of the commodity economies Sharma profiles, only Indonesia seems to know how to work the dynamics to its favor, possibly because they were burned by the cycle in The Fifties.

While Taiwan grew significantly because of its manufacturing output, its weakness is that it never made the transition from a destination for other nation's factories to a nation that had its own industries. Against the prevailing wisdom at the time, South Korea did make that transition, fostering corporations that built innovative products (and subsuming those that weren't competitive in the market). And while many of the largest South Korean companies are family-owned, they tend to be professionally managed. Of all of the countries profiled in the book, South Korea is the one Sharma seems to be betting will be the breakout.

While many nations in Europe are going through a downturn, Poland and the Czech Republic are quiet standouts, in large part because they have paid attention to the fundamentals of a good economy, including putting money away to make strategic public investments.

While India's large population and cultural dynamism are now seen as strengths, its political system, rightly charged with corruption and cronyism, is what is holding it back. Modern Indians seem more engaged in local than national politics. Also, India, like many of the other countries profiled in the book, has been guilty of believing its own public relations campaign and presuming that it will be the next China. The extent to which the Indian government can implement policies to make it so- even if it's at the expense of its traditional clients- will determine the extent to which they can make their advertising a reality.

The emerging market miracles are a direct result of the stimulus the United States implemented to smooth out the dotcom bust of 2000 and 2001. The low interest rates did exactly as intended and increased money available for investment. Unforeseen, however, was the extent to which that money would flow into foreign markets, which led to the booms in these nations. Easy money was key to growth for some, but intelligent policies are necessary if those gains are going to be maintained or built upon. Those well-positioned to do that are the ones who will break out.

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