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

by Ruchir Sharma

The stock markets clearly sense this process of decay.

After three and a half years, however, the market started to move sideways.

running the same analysis for developed countries revealed no clear connection between stock market returns and aging political leadership.

politics matters more in emerging ones, where institutions are weaker and new or aging leaders can have a clearer impact on the economy’s direction and therefore on the mood of the markets.

In the end, said Ralph Waldo Emerson, every hero becomes a bore.

aging governments are unlikely to offer people hope of economic reform, the reverse is true for young regimes.

middle-class protesters across the world were attacking regimes they saw as moribund while often giving new regimes a free pass to prove themselves.

Successful leaders often share these two key attributes: popular support among the masses and a clear understanding of economic reform, or at least a willingness to delegate power to experts who do get it.

In contrast, populist demagogues who artfully combine populism and nationalism can be politically successful but tend to be a disaster for their countries.

Politicians this successful tend to be world-class charmers, well prepared to show that they know what needs to be done to reform the economy, much as Putin and Erdoğan had done a decade earlier.

India’s new prime minister Narendra Modi is a bit like that—shockingly nuts and bolts in the flesh.

The markets often take the campaign speeches of radical populists at face value and fail to see the closet pragmatists among them, or they project their own hopes for business-friendly reform onto an election.

The markets also tend to cheer for technocrats,

Technocrats rarely succeed in the top job, however, because they tend to lack the political flair to sell reform or even to last very long in office.

On the other hand, technocratic advisers can often serve leaders well, if they are giving the right advice and leaders are willing to listen.

The best way for technocrats to be successful is therefore as staff members of an authoritarian regime

But technocrats can cause more harm than good to the economy when they try to push reforms that sound smart in theory but ignore local sentiment.

China is the very different case of a successful technocracy that may be growing too confident in the ability of its technocrats to control economic growth. For years, China reported much less volatile economic growth than other developing nations, creating suspicion that it was manipulating the numbers to make the economy look like a smoothly running machine, and to foster social harmony.

Autocrats sometimes do succeed.

Autocrats can suppress special interest lobbies and any opposition to breakneck development, because the threat of the bullet keeps people in line. They can steer the population’s pool of savings toward growth industries, and they can ignore popular demands for wage hikes so those industries become and remain globally competitive. Perhaps above all,

they can commandeer land to build highways and ports and other basic building blocks of a modern economy, in a way no democracy can match.

The threat of stale leadership looms larger in authoritarian nations

Both democratic and authoritarian systems have advantages and disadvantages in the race to generate strong growth, and neither has a clear lead.

Overall, since 1950 authoritarian regimes were at the controls in three out of every four nations that posted growth of more than 7 percent, or of less than 3 percent, for a full decade.

a large majority of these roller-coaster economies were governed by autocrats, and the result was long-term stagnation.

The record of extreme booms and busts should give pause to any nation that ever yearned for the firm hand of an autocrat.

In the long run, however, stable and enduring growth is more likely under a democrat, who lacks the power to engineer spectacular runs of success or failure.

While Deng was no democrat, he understood the problem of stale leadership and instituted the age and term limits that now prevent even the top Chinese leaders from hanging on for life.

The political lives of modern economies follow a similar cycle, exploding in crisis only to re-form and revive before dying out once again.

Many years can pass between the onset of a crisis and the arrival of a leader with the potential to push transformative economic reform, and even that arrival only raises the probability of strong growth.

These family dictators were loathed as usurpers, and their kind of regime tends to leave a vacuum of power when it falls.

Instead, facing the economic depressions of the late nineteenth and early twentieth centuries, political leaders proved capable of reforming liberal capitalism, deflecting popular revolt with the creation of the welfare state, starting in Germany and Britain.

“Bad times make for good policy, and good times make for bad policy.”

“The long history of Latin America,” Piñera told me, “is that when times are good, countries turn to the left, and when times are bad, they turn to the right.”

Inequality starts to threaten growth in part when the population turns suspicious of the way wealth is being created.

However, if a tycoon is making a fortune by cozying up to politicians and landing contracts from the government, or worse by capitalizing on Daddy’s contacts, then resentment surfaces, and the nation’s focus turns to redistributing rather than creating wealth.

To identify countries in which tycoons are taking an unusually large and growing share of the pie, I calculate the scale of billionaire wealth relative to the size of the economy.

To identify countries in which the tycoon class is becoming an entrenched elite, I estimate the share of inherited wealth in the billionaire ranks.

Most important, I track the wealth of “bad billionaires” in industries long associated with corruption, such ...

it is often the popular perception of inequality, even more than the reality, that shapes the political reaction and economic policy.

Developing societies do tend to be more unequal than rich ones, but it is increasingly unclear that their inequality problem will naturally disappear.

One reason for the widening threat of inequality is that the period of intense globalization before 2008 tended to depress blue-collar wages.

The poor were not getting poorer, but the wealth of the rich, and particularly the superrich, was growing faster.

Rising crony capitalism steers money and deals to undeserving hands, but it also sets off a chain reaction in the political system.

At this point it was not clear which was worse: crony capitalism or the backlash.

It seems fair to say, for example, that the countries where billionaire wealth is 5 percent of GDP or less, such as Poland, South Korea, and Australia, may enjoy a certain foundation of political stability; their elites do not form as large a target for social unrest and political agitation.

Some academic research shows that growth typically tends to slow when inequality is very high but also when it is very low.

They have a word, akubyodo, which translates as “bad egalitarianism” and is used by critics to describe a corporate and political culture that rewards seniority more than merit and risk-taking.

Though new faces on the billionaire list can be a favorable sign for the economy, this holds true only if they are good billionaires, emerging outside what economists call “rent-seeking industries.”

reserve the label of “good billionaire” for tycoons in industries that are known to make the most productive contributions to economic growth or that make popular consumer products like smartphones or cars.