Book Reviews
Ebbs and Tides of Countries
Ruchir Sharma is a head of emerging markets and chief global strategist of Morgan Stanley Investment Management. His previous book, Breakout Nations, appeared in 2010 (and was reviewed in Moneylife) to great critical acclaim. This book is even better. It is a kind of macro checklist of the ebbs and tides in the life of nations. In his own words, “over the past twenty-five years, I have spent long hours on the road, trying to build a system of rules for spotting telltale shifts in political and economic conditions. This is my guide to identifying the ten signs of major turns, for better or worse, in the fates of nations.” What are these 10 signs to watch out for? These are demographics, reformers, inequality, State interventions, geography, manufacturing as a share of GDP, inflation, currency value, debt levels and media hype. I have picked a few to elaborate. 
 
Demographics: The world still echoes with recurring fear about the ‘population bomb’ scenarios which suggest that the number of people will outstrip supplies of food and other resources, with explosive results. Those scenarios rely on the United Nations’ oft-cited forecast for the year 2050 which shows that population will rise by 2.4 billion people, from 7.3 billion to 9.7 billion. However, the reality is different. All over the world, including in India, population growth is slowing down. In some parts of India, there is no growth in population. Fewer young people are entering the working force while people are living longer; it is a sure recipe for slower economic growth.
 
Reformers: “The essential question to ask about the impact of politics on the prospects for any economy is this one: Is the nation ready to back a reformer? To answer it, the first step is to figure out which position the nation occupies on the circle of life,” writes Sharma. “Countries most likely to do well are those struggling to recover from crisis. When a country’s back is against the wall, the general public and the political elites are most likely to accept tough economic reform. Nations are most likely to change for the worse in boom times, when the populace is sinking into complacency, too busy enjoying its good fortune to understand that in a competitive global economy, the need to reform is constant.”
 
Currency: A country’s currency is critical for understanding its economic prospects. If it has an overpriced currency, it will encourage both locals and foreigners to move money out, eventually sapping domestic economic growth. A currency that feels cheap will draw money into the economy, through exports, tourism, and other channels, boosting its growth.
 
Debt: “The decay produced by debt is a progressive disease. Its symptoms become gradually more intense, depending on how fast the debt is growing and for how long.” Sharma’s research shows that “if private credit grew by just 15 percentage points as a share of GDP over five years, the GDP growth rate eased in the next five years, slowing on average by 1 percentage point a year during that period. As the pace of private credit growth picked up, the scale and likelihood of an economic slowdown increased as well. If private credit grew by 25 percentage points as a share of GDP over five years, the slowdown was quite significant.”
 
Media Hype: The longer an economic boom lasts, the more credible a country’s track-record appears to the media and the more warmly they embrace it as the economy of the future, writes Sharma. “The more this love deepens, the more alarmed I get.” Sharma argues that if a period of strong growth approaches the five-year mark, the assumption should be that the growth spurt is nearing its end. “And, yet, many observers assume that strength will build on strength. The praise they shower on economies in the midst of growth booms only sows the seeds of collapse—it makes national leaders too complacent to keep pushing reform and attracts more foreign capital than the country can handle. When a crisis hits, the media's love turns at first to hate.” 
 
This brief review does not do justice to the enormous work that has gone into this 464-page tome. It should be on the shelf of every global investor.
 

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COMMENTS

Ramesh Poapt

6 months ago

how India 'vikas' 'vikas' 'vikas' is debt fueled? much debt='vinash'

BlackBerry reports $ 670 mn loss, may exit smartphone business
BlackBerry, the Canadian mobile company sold just 5 lakh phones globally in the first fiscal quarter - down from six lakh in the previous quarter - reporting a $ 670 million loss which is its biggest loss in over two years.
 
Although much of the loss was down to restructuring charges, sales also fell to $ 400 million, down 39% on a year earlier, The Telegraph reported on Friday.
 
"I really, really believe that we could make money out of our device business," BlackBerry CEO John Chen told financial analysts during a conference call.
 
Last year, BlackBerry tried to revive its handset business by launching Priv smartphone running Google's Android operating system (OS). However, early sales figures have been disappointing.
 
BlackBerry has said it will decide whether to stop making phones for good by September.
 
"The device business must be profitable, because we don't want to run a business that drags onto the bottom line," Chen said at BlackBerry's annual meeting. "I don't personally believe handsets will be the future of any company," Chen added.
 
"Our software business continues to achieve scale and traction, resulting in robust growth and increasing market share," Chen was quoted as saying in CNET report.
 
BlackBerry recently announced its partnership with HCL Infosystems to expand the channel and distribution network for BlackBerry enterprise software products and services in India.
 
"By working with an established partner like HCL Infosystems in India, we aim to create growth for our partners while giving our customers wider access to our leading suite of enterprise solutions with world-class support, helping organisations advance their mobility strategies," said Richard McLeod, Vice President, Global Channels at BlackBerry, in a statement.
 
It is not just WhatsApp that decided to end support for BlackBerry OS 10 services by the end of 2016, Facebook too is leaving the BlackBerry platform after announcing recently to discontinue support of its application programming interfaces (APIs) for BlackBerry.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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EU referendum: Pound falls to 31-year low
Fears of Britain exiting from the Europan Union (EU) as a result of a historic referendum held on Thursday, has pushed the value of the pound on Friday to its weakest level against the dollar in 31 years.
 
Market expectations that Britain is on the verge of voting to leave the EU sent the pound down to $1.35, depths it has not been plunged since 1985, the Independent reported.
 
The pound has already set a record intra-day swing of more than 10% between its high and low points. 
 
The value of the currency soared as high as $1.50 after polls released after 10 p.m. showed 'Remain' in the lead. But that mood changed rapidly when the actual count results started to come in.
 
Analysts have warned that the pound could fall up to 20% in the wake of a Brexit vote
 
Meanwhile, FTSE 100 Index future derivatives - which give an indication of where the stock market will open at 8 a.m. - have slumped 6.1%.
 
US stock-index futures are down more than 3%.
 
The pound touched a low of $1.3640, down as much as 9% on the session.
 
Chris Towner, chief economist at HiFX, said: “We still have a lot of votes to come, however the market cannot ignore the momentum and the reality of where the UK is heading.”
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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