The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World

by Ruchir Sharma

To be fit to rule, the prince must be able to hear that which does not make a sound.

lions are relatively slow and short-winded and catch their prey on less than one attempt in five. Cheetahs are faster, but because they are smaller and often hunt alone, they are forced to concede many kills to scavengers working in packs. Less than one cheetah in ten lives longer than a year.

Wall Street is fond of old sayings about how only the paranoid and the fittest survive. I would phrase the issue a bit differently. The challenge is how to channel a wise paranoia in the service of survival.

gains are now more likely to accrue to investors who trade less, proving, as one wag put it, that “sloth is a virtue.”

Do not expend energy on daily or quarterly blips in the numbers. Adapt to a changing landscape rather than let ego obstruct a strategic retreat. Focus on big trends, and watch for the crossings. Build a system to spot important signs of change, even when everyone around you is comfortably going with the current flow.

the next global recession is likely to be “made in China,”

Arthur Miller once observed that an era has reached its end “when its basic illusions are exhausted.

in 2015 reports emerged that government authorities were instructing developers to keep the lights on even in empty apartment complexes. The aim was to drive up electricity consumption data so that it would confirm official economic growth claims.

sharp decline in the price of copper has almost always been an ominous sign for the global economy, earning the base metal the moniker “Dr. Copper”

Back in 1966 the Nobel Prize–winning economist Paul Samuelson quipped that the stock market had “predicted nine out of the last five recessions,”

The probability that a boom is about to end will rise as a nation gets too comfortable and as private companies and individuals run up debts to buy frivolous luxuries, particularly imported luxuries.

The big winners will come from among those countries that are blessed with strong growth in the working-age population or are doing the best job of bringing fresh talent into the labor force.

as the European Commission warned in 2005, “Never in history has there been economic growth without population

the fallacy of the “demographic dividend,” the idea that population growth pays off automatically in rapid economic growth. It pays off only if political leaders create the economic conditions necessary to attract investment and generate jobs.

To figure out which nations are most vulnerable to aging and its costs, simply compare the number of working-age people between 15 and 64 to the number of dependent people who are older than 64 or younger than 15—also known as the dependency ratio.

analysis in 2010 by Booz and Company showed that closing the gender gap in emerging countries could yield even larger gains in GDP by 2020, ranging from a 34 percent gain in Egypt to 27 percent in India and 9 percent in Brazil.

pampered leisure in retirement. Be that as it may, a strong practical argument can be made that the answer to fewer young people is more robots. An alarmed interviewer recently asked the Nobel economist and author Daniel Kahneman about the threat posed by the “rise of the robots” to a heavily industrialized country like China. “You just don’t get it,” Kahneman responded. “In China, the robots are going to come just in time” to rescue the country from population decline.14 In the future, economists may count growth in the working robot population as a positive sign for economic growth, the same way that today they analyze growth in the working-age human population. Whether by design or happy accident, many of the countries with the most rapidly aging populations also have the largest robot populations. According

Fragility can be tenaciously durable.

In How Asia Works, Joe Studwell writes that no nation, going back to Tudor England in the sixteenth century, produced competitive industrial companies without significant help and protection from the state in the initial stages. Tudor England was followed by the United States, France, and Germany.

The most successful postwar development stories, starting with Japan in the 1960s, all began by manufacturing simple goods, such as clothing, for export to rich nations.

the manufacturing share of GDP typically rises steadily before peaking somewhere between 20 and 35 percent, when the nation’s average per capita income reaches about $10,000 in purchasing power–parity terms.

the top five nations ranked by investment as a share of GDP in 2014, four were also among the top five by manufacturing as a share of GDP: China, South Korea, Malaysia, and Indonesia.

In the key emerging nations, the share of manufacturing in the economy currently ranges from 10 percent of GDP in Chile to more than 30 percent in China; the commodity-driven economies of Russia and Brazil are in the low teens, near the bottom of the list.

The Harvard economist Dani Rodrik calls manufacturing the “automatic escalator” of development, because once a country finds a niche in global manufacturing, productivity often seems to start rising automatically.

The modern outlier is India, where investment as a share of the economy exceeded 30 percent of GDP over the course of the 2000s, but little of that money went into factories. Indian manufacturing had been stagnant for decades at around 15 percent of GDP. The stagnation stems from the failures of the state to build functioning ports and power plants or to create an environment in which the rules governing labor, land, and capital are designed and enforced in a way that encourages entrepreneurs to invest, particularly in factories. India has disappointed on both counts: creating labor-friendly rules and workable land-acquisition norms.

Informal shops, many of them one-man operations, now account for 39 percent of India’s manufacturing workforce, up from 19 percent in 1989, and they are simply too small to compete in global markets.

High inflation is always a bad sign, and low inflation is often a good sign.

In general, an economy is in a sweet spot when inflation is low and GDP growth is high, especially when growth has recently started to take off—because the absence of inflationary pressures may suggest it is the beginning of a long run. If GDP growth is picking up but inflation is rising with it, the boom can’t last long because at some point—sooner rather than later—the central bank will have to respond by raising interest rates, in order to dampen demand and subdue inflation.

Between 2009 and 2014, India’s well-credentialed political elite had reason to explain away the ominous signs of inflation because the rising price of essential food items such as onions was threatening to end their political careers. Singh’s government was in its second five-year term, with prices rising at an average pace of about 10 percent, one of the worst bouts of inflation in India’s postindependence history.

New Zealand’s central bank became the first in the world to explicitly declare that fighting inflation would be its number-one priority, and within two years its inflation rate fell from near 8 percent to 2

Rather than investing in ways to help contain inflation, India was spending in ways that made its economy exceptionally vulnerable to inflation. Trying to protect people from the effects of the global downturn, it threw money at populist schemes that tend to push up both wages and prices, including an expensive scheme to guarantee at least one hundred days of paid work to every poor rural household, and another to bolster farmers’ incomes by buying wheat and rice at artificially high prices. These programs encouraged Indians to stay in their villages rather than move to factory jobs in the cities, making the economy less productive and more vulnerable to inflation.

The bottom line: If a country runs a current account deficit as high as 5 percent of GDP each year for five years, then a significant economic slowdown is highly likely, and so is some kind of crisis.

Elie Wiesel, the writer and Holocaust survivor, said the opposite of love is not hate; it is indifference.

Austrian-born economist Joseph Schumpeter had to say: “Pessimistic visions about anything usually strike the public as more erudite than optimistic ones.”

For the first two decades of my alternative career as a writer, I was resigned to author Christopher Hitchens’s advice: “Everybody does have a book in them, but in most cases that’s where it should stay.”