After a decade of rapid growth, the world’s most celebrated emerging markets are slowing down. Which countries will rise to become the next economic stars? In the best-selling BREAKOUT NATIONS: In Pursuit of the Next Economic Miracles, Ruchir Sharma, writer and head of emerging markets at Morgan Stanley, draws on two decades spent touring the globe to offer insights into the most promising emerging markets. Sharma reveals his rules for spotting success stories and lays out a compelling argument for which nations will thrive, and which will falter, in a global economy reshaped by the crisis of 2008. Since the hardcover appeared in early 2012, the story has played out much as Sharma predicted. There has been a slowdown across all the emerging markets, with the most hyped emerging markets—particularly Brazil, Russia, India and China—faring among the worst, and new success stories appearing in previously unsung nations like the Philippines, Turkey and Nigeria.
Now, in a new epilogue written for the paperback, Sharma extends his rules for spotting success to the developed world, and offers a captivating picture of the shifting balance of global economic power. The slowdown in emerging markets is setting up the United States and some parts of Europe are in position to regain competitive ground. The perception that poor nations are rapidly catching up to the rich may well give way to the rise of the west. This shift is relative and unspectacular—a matter of certain wealthy nations slowing less sharply than their peers or emerging rivals—so it is easy to overlook. But for the first time since 2003, the US economy last year grew at about the same pace as the global average, leading to stabilization in its share in the global economy. The potential for a revival in America is growing, and it is spreading to parts of Europe as well.
The American Revival is built on its traditional strengths: its ability to adapt quickly in the face of emerging rivals, and in particular on its technological prowess, which is now helping to draw manufacturing back to the United States, driving the revolution in shale oil and gas that promises to make America less dependent on Middle East Oil, and helping to address the worst of our lingering problems, the debt burden. US companies are reducing debt much faster than foreign rivals, in part because they are able to adopt new technologies to raise productivity and profit. In a world economy defined by competing forms of capitalism, the American brand is winning.
But it won’t be the only winner in the West. In the post-crisis world, two of the key challenges are paring down debt and maintaining a technology edge, and at the moment Germany is in a much stronger position than France, Spain is in a much stronger position than Italy, and Japan has all but given up on challenging the United States as an economic power. Sharma’s basic message is that no economy can be analyzed as part of a faceless group of emerging or developed nations.
Each nation needs to be understood as its own story, and each one points toward success or failure; by every key measure, from cutting government deficits to reducing labor costs, the recent reform star of Europe is tiny Ireland, which makes it a lead candidate to become one of the West’s Breakout Nations—an economy that will grow faster than the average and the expectations for its income class.
Ruchir Sharma’s BREAKOUT NATIONS is the necessary introduction to the post-crisis economic world. Using a persuasive mix of macroeconomic data and lively on-the-ground personal observation, Sharma outlines the vulnerabilities of the fading powerhouses: briefly put, China has simply grown too comfortably middle class, and far too dependent on building new roads and factories, to continue growing at a double digit pace. Russia’s extreme reliance on oil and gas has produced a class of petro tycoons who have turned Moscow into a capital of decadence reminiscent of the last days of Ancient Rome. Brazil is so afraid of a return to the economic volatility of the 1980s and 90s that it has focused almost exclusively on protecting people from economic pain, producing one of the weakest growth records among big emerging markets. India, once hyped as the next China, has given way to gloom as growth slowed in the last year, but its real prospects are very difficult to assess, because it is fragmenting into a collection of state economies.
The picture Sharma paints of the state of global capitalism is careful, nuanced, as blunt on the surprisingly strong prospects of breakout nations like South Korea—still a manufacturing miracle entering its fifth decade—as on the weak prospects of the BRICs. Sharma takes readers on an international tour of nations that wisely managed their growth during the cheap-money-fueled boom and bust and are now in a position to reap the rewards during the slow global recovery. In the new epilogue, he also extends his search for Breakout Nations deeper into Latin America, where Chile, Peru and Colombia are emerging as the continent’s new Gold Coast.
By combining common sense and sound economic principles with a disdain for the received wisdom of trend-chasing commentators, BREAKOUT NATIONS offers a refreshing, levelheaded picture of the state of our global economy. Sharma’s clear voice is a much-needed contrast to the cries of alarmists who say the west is in terminal decline. Beyond the economic analysis, Sharma’s new book is a keenly observed and sincerely felt portrait of the limits, power, and promise of capitalism across the world.
Ruchir Sharma is the head of emerging markets at Morgan Stanley and a longtime columnist for Newsweek, the Wall Street Journal, and the Economic Times of India. He lives in New York City.
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