I have just completed reading this book called ‘The 10 Rules of Successful Nations’ by Ruchir Sharma. It was pretty insightful book on global trends, politics and economics. Ruchir Sharma, as a global investor, has tried to define the 10 rules to look for the country that will do well in the coming years. While reading the book I came across several facts that blew my mind. He has tried to bust many myths that one usually believes (or at least I believed). So, here I present you the 10 astonishing facts you must know.
1) One may have heard that the reason India is not able to grow is because of its large population. But, Ruchir finds it to be an extremely important factor for development, especially the growth rate of working age population. He writes, “Consider my database of fifty-six postwar cases in which a country sustained an average economic growth rate of 6 percent or more at least for a decade. In three out of every four… the working age population grew at an average pace of at least 2 percent a year. In short, if a country’s working age population growth rate is not above 2 percent, the country is not likely to enjoy a long economic boom.”
Lately, the global working age population growth rate has declined to close to 1 percent a year. Although, India is above the global average, but still under the rule of 2 percent. This may be an important factor of growth, but not a sufficient one, as capitalizing this growing population is also essential.
2) I have been part of various debate competitions where competitors have argued that the rise of artificial intelligence and robots will soon destroy the human jobs. Sharma has a very interesting take on this. He writes, ‘ According to Berkeley’s Machine Intelligence Research Institute, the standard forecast for when artificial intelligence will “arrive” is the same today as it was in 1955: in five years.’ He also gives the example of someone like the US which has installed robot tellers in their banks. This helped them to expand a lot, open more branches, therefore it also increased the numbers of human tellers. Also, they would help in increasing the labour force population and productivity. So, all the hype that is being made about the robots is just nonsense.
3) We all know how dirty Indian politics is and that’s why most liberals believe that a technocrat should be the leader of a country. But, the fact is technocrat is not much likely to lead the country well, be it the euro crisis of 2010 or some specific examples like the Mexico under the PRI. While technocrats are good in assisting the leaders who are willing to listen, yet they are not the best while leading.
I am currently in 10th standard and have read that country under dictators or autocracies produces good economic growth. Maybe the Chinese model made the academics believe that. But the statistics showed that “autocrats are no more likely to produce long runs of strong growth.”
4) The question which often arises is that whether we need billionaires. Before answering that question, one must ask if the billionaire is a good billionaire or a bad one. The reason I am reading books on kindle is because one man took all the risks to make something like that in spite of facing a backlash from the society. If a billionaire has emerged because of creative destruction, then he has improved the lives of many in that process. Sharma made his own billionaire index of countries. As he writes, ‘I track the wealth of “Bad Billionaire” in industries long associated with corruption, such as oil or mining or real estate. It is the rise of … Bad Billionaires … and unproductive industries that it is more likely to choke off growth.’ Bad Billionaires or inherited wealth is not much of a problem In India, but the fact that most billionaires tend to depend of foreign funds and investment is. The strict rules and meddling state creates a barrier for a businessman to prosper domestically.
5) Talking about the state, the popular Indian belief of socialism is what creates a problem for the country. The fact is, successful nations have invested more on infrastructure and less on welfare. This made Sharma write, “Even low-income countries like India are rolling out full-service welfare systems, a luxury that the Asian miracle economies began to adopt only much later in their development.” The perfect example is the Indian banking system, a bulk of which is owned by the government and who runs it badly (as I described here).
6) Cutting trade deals with big economies always makes headlines in the media. The recent example is of Rafale jets. But, Sharma writes something very fascinating. He writes, “Rising intraregional [emphasis added] trade was one of the main drivers of the long economic miracles in Japan, Taiwan, South Korea, and lately China.” All of the economies traded extensively with their neighbours.
India has been pretty bad in terms of trade with its neighbours. For a comparison, India’s exports to Togo (a country in west Africa) is greater than Myanmar, Afghanistan and Pakistan. I know our relation with our neighbours have not been good so far, yet Taiwan has had good trade relations with China despite their conflict. Or Britain, for that matter, had good trade relations despite the fact that it fought with every other country in the past.
7) A course book of economics will also tell you the most common formula of GDP= C + G + I + X, where C is consumption, G is government spending, I is investment and X is net exports (or exports – imports). Even so, none of them will tell you the insight that investment, although has a less share in the GDP, but is the most important of all. As Sharma goes on to say, “Looking at my list of the fifty-six highly successful postwar economies in which growth exceeded 6 percent for a decade or more, on average these countries were investing about 25 percent of GDP.” Investment in any emerging country to grow rapidly is between 25-35 percent of its GDP.
8) India never saw a major boost to its manufacturing sector. It accounts for roughly 13% of total employment. Politicians always have said that India has emerged as a nation of IT and service sector. But, that is one of the reasons why it lags behind. Sharma writes, “India’s tech sector is still focused on back-office operations. Only about 4 million people work directly in IT, barely more than 1 percent of workforce… workers can move quickly from farms to assembly lines…[But] leap from farm to modern services… is tougher.”
9) We always attach nationalistic feeling with our currency. We always think it is better to have an appreciating rupee against dollar. But, a cheap currency has proved to be the key for success. Growth depends on how cheap one feels while visiting your country, in this globalized world. Although, political meddling with currency will not keep the country out of trouble.
10) The last and one of my favourites is the media hype. “Media love is a bad sign, and media indifference is a good one.”
India’s economy was being praised by the Economist, but India started to dwindle right from the next year. This is precisely what Sharma writes. “the backward looking nature of journalism is captured in an old joke: By the time a story reaches the cover of Times or Newsweek, it’s dead.”
All the 10 points mentioned above as well as their exceptions have been explained briefly by Ruchir Sharma. There were more but I chose to write only the ones I found extremely staggering. The book is abridged from his previous book The Rise and Fall of Nations, with some updated stats. Also, I have been specific to India in the above points whereas the book covers the global perspective and trends. All in all, it has been a great myth-buster for me.