The Struggle for Power by Keith Hart



Book Review: The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World by Ruchir Sharma, London: Allen Lane, 2016; pp 464, £25.

Ruchir Sharma grew up between Mumbai,  Delhi  and  Singapore. He entered the world of international investment in the early 1990s as a specialist in emerging markets. He has travelled  a  lot  ever  since—around  one week a month on average. He was also an  active  journalist  at  first,  posting vignettes drawn from his travels in the mass media. In 2012, he published Breakout Nations: In Pursuit of the Next Economic Miracles which is said to have broken sales  records.  He  is  now  the  head  of emerging markets and chief global strategist  at  Morgan  Stanley  Investment Management in New York. In his earlier book,  he  reported  the  views  of  village barbers as well as celebrities, but in the present one, we just get the celebrities.

Ten Thumb Rules

According to Sharma, the financial crisis of 2008 and after was a watershed. Before it,  some 60  countries  were  growing  at 7% or more a year, now just nine. Trade is stagnant  and  capital  flows  have  halved. The  BRICS  (Brazil, Russia, India, China and South Africa)—a term that Sharma never  liked  because  they  had   little  in common—are  in  poor  shape.  China  is heading for a credit crunch, Russia is a busted autocracy, Brazil is in rapid political and economic decline,  India is chugging along at its own pace, and South Africa is a mess. So what is an emerging markets investor going to recommend? Long-term predictions are out. We must respect  the  logic  of  the  trading  floor where short-term bets rule. Most boom/bust cycles last no more than 5–10 years. The smart investor gets in before anyone else and sells at the boom’s peak. Sharma recommends 10 rules of thumb as a guide to a country’s likely success or failure.  He  scores  individual  countries on a scale of 1–10 points for each rule. Readers are not admitted to this level of detail  which  presumably  must  be  paid for. Some factors—(“rules” is to put them too strongly)—are taken to be more critical than others, depending on circumstances.  Thus,  China’s  debt  trap  will  cancel out its pretensions to world leadership. The 10 factors are: population growth, political  cycles,  inequality,  state  intervention, geography, manufacturing, inflation, exchange rates and the cost of living, debt, and media hype. Long-run developments and social classes are ignored, and the politics of reform and inequality are  reduced  to  individual  leaders  and “good” or “bad” billionaires. The lack of social depth to these analyses, which are just  indicators  supported  by  unsystematic  analysis  and  enlivened  by  anecdotes, is signalled early on by Sharma’s use of African wildlife as a metaphor for the big cats and herds of finance. This is not to say that the contents of each chapter are worthless. Many sections have catchy headings and the ordering of priorities often shows keen intellectual judgment, as one might expect of someone  given  responsibility  by  a  big  Wall Street firm for channeling capital investment  to  the  world  or  at  least  to  those parts  deemed  to  be  worth  betting  on. For example, after a chapter on “impermanence”—(nothing lasts, so forget the hype suggesting otherwise)—the chapter on  population  is  full  of  good  sense. Economic growth has always been linked historically to population growth. Sharma goes on to make some astute observations  that  contradict  attitudes  now rampant in our times, especially in the West,  with  regard  to  overpopulation hysteria, the failure of public attempts to boost  fertility,  the  delayed  economic effects  of  educational  expansion,  the positive influence of immigration, women’s changing role in the labour force and so on. Much of this is too long term for his investment  perspective,  so  he  has  to come up with meaningful short-term indicators. But his overall assessment here is both humane and realistic.

No Engagement with History

One might think that a book with this title would have to engage with history. But that is not Sharma’s method. He frankly admits that he did not anticipate some of the  big  busts  when  they  occurred  and relies on hindsight most of the time. As Reinhart and Rogoff’s historical analysis of  many  examples  of  the  boom/bust cycle  demonstrates,  against  the  few oddballs who insist that “what goes up comes  down,”  there  are  always  many more  for  whom  “this  time  it’s  different”—this boom is robust and durable. Sharma has a hidden weapon, however, which  he  occasionally  reveals  in  this book. As a big fund manager, he has an army  of  assistants  at  his  disposal  who can research any question. For a suitably long  period,  they  have  identified  four signs of a stock market bubble: prices rising  faster  than  the  underlying  rate  of economic growth; high rates of borrowing to buy stocks; overtrading by retail investors; and ridiculous valuations. Another example is that a major slowdown always follows when the national debt grows by more than 40% over a five-year period; and this rule currently applies to only one country, China. As Sharma surely knows, this kind of analysis depends heavily on getting the timing right. Keynes discovered this unpleasant truth when shorting the deutschmark after the Versailles treaty punished Germany. He lost his shirt when the  German banks somehow kept its exchange rate up for another year. His father remortgaged the house to bail him out. In 1923 at a Cambridge  party,  someone  with  the Weimar inflation in mind told him that in the long run he was right. This was the context for his most famous saying, “in the long run (of markets) we are all dead.” Keynes  never  made  bets  with  his  own money again.

The economic historian, R H Tawney once said of a rival, that his writing reminded him of a Chinese opera, “three hours of curtain-raising and the action over before some might have thought it properly begun.” If the proof of the pudding  is  in  the  eating,  the  eating  here lasts only for a final chapter of some 40 pages  (less  than  a  10th  of  the  book), “The  good,  the  average  and  the  ugly.” Readers might want to mark their race cards before finding out who won. Remember that any forecast is limited to the next five years. Sharma tells us that he  finished  writing  the  book  in  March last  year.  Given  his  breathless  take  on events, much of what he has to say here comes across as yesterday’s news. The United States  (US)  gets good marks, a  position  Donald  Trump  and  I  would agree with, but for very different reasons from those on offer here. The American empire  rests  on  mercantilism  (use  of its third of the global market to bully dependent countries), militarism (all those weapons and bases), intellectual property (its  three  leading  exports  are  movies, music and software), and control of the world currency (alluded to by Sharma). It produces most of the content, hardware, software and giant firms of the digital economy, which is rapidly becoming the world economy. There is nothing liberal, neo- or otherwise, about any of this.

Distracts with Complications

The  failing  BRICS   I  have  already  mentioned. Latin America gets the thumbs down. India receives a middling mark, but  South  Asia  as  a  region  (Pakistan, Bangladesh and Sri Lanka) is identified as  a  major  growth  spot  in  the  coming period. Southeast Asia is less promising, with a rank order of Philippines, Indonesia, Vietnam and Thailand. East Asia is in trouble because of China’s impending collapse, Japan marginally less so, and Australia, after 25 years without a recession, is heading for the precipice. In  Europe,  Germany  is  alright,  but France is inevitably a loser since it is the world’s  most  statist  economy.  Eastern Europe has some bright spots, including the Czech Republic and Romania. Turkey gets a bad write-up here, and the West Asia is largely ignored (Dubai was singled out earlier as a prime example of exploiting a favourable geographical location). Africa is too fragmented and half its countries have economies about a third the size of Vermont’s. The biggest, Nigeria and South Africa, do not seem to be going anywhere. East Africa is promising, especially Kenya. Nothing is made of Africa’s rapid adoption of cell phone technology, with Kenya as the world leader in mobile
banking.  This  relative  indifference  to the  impact  of  information  technology, especially in favour of manufacturing, is a consistent feature of the book. Africa is given headline treatment for media hype about “Africa Rising” based on permanent extrapolations from commodity prices that have fallen drastically in recent years. One useful by-product of the Morgan Stanley research team is an analysis of the world’s fastest-growing countries in a given decade over the last half century. Africa figured prominently on this list in the first decade after the millennium  with  seven  out  of  the  10 fastest-growing economies. None of the leaders in any decade kept up a similar rate in the following one. In this  respect, China’s  rise  was  matched  by  Russia  in 1890–1913 with average annual growth rates of around 10%. We all know what happened next. The book’s main message is that it is easy but invariably false to make long-term  extrapolations  from  short-term trends. The emerging markets of yester-year are not converging with traditional capitalist  powers,  even  less  replacing them, at least not the  US . The norm today is once again uncoordinated booms and busts of the sort that characterized the world economy for 150 years before the  global  settlement  after  1945.  Nietzsche  said,  “intellectuals  simplify.”  This book distracts with its complications.

Failed Political Sociology

To all intents and purposes, history began  for  this  book  with  the  neo-liberal counter revolution  of  1979–80  against the  era  of  developmental  states  in  the industrial  West,  the  Soviet  bloc  and newly  independent  countries  that  preceded it. Reagan, Thatcher and Deng are presented  as  political  leaders  with  the vision to implement structural “reforms” liberating  markets  from  state  control, especially money markets. I once saw a televised dinner given in the City of London for Denis Thatcher. He  was  a  figure  of  fun  in  the  British media at the time, but here he entered like a  Renaissance  prince  and  was  given  a standing ovation by the assembled masters of the financial universe. His wife’s achievements  in  the  service  of  finance included the legalisation of gambling on stocks  in  London’s  “Big  Bang”  and  her unconstitutional massing of the national police  force  to  defeat  the  coal  miners’ strike. If the world economy is in the doldrums after 2008, this has not checked the ascendancy of global capital over all forms of opposition. As Philip Mirowski puts it, “Never let a serious economic crisis go to waste.” Far from being weakened  by  the  financial  crisis,  the  super-rich have been emboldened by it to make the working poor and middle classes pay for their debts while continuing to enrich themselves through political privilege. Apart from its lack of historicism and unreflecting ideology of economic liberalism, the political sociology of this book is its principal failing. Nation states were the dominant social form in the second half of the 20th century; but even then supranational entities emerged such as the Cold War coalitions mobilised by the US   and  Soviet  Union,  the  non-aligned movement,  regional  trade  federations like  the  European  Common  Market, Association of Southeast Asian Nations ( ASEAN ),  North  American  Free  Trade Agreement ( NAFTA ) and Mercosul (South American Common Market) (which were supposed to protect weak nation states from a lawless global money circuit), the financial and trade architecture designed at  Bretton  Woods  and  the  administration  of  global  “development”  through United  Nations  agencies.  Is  undiluted nationalism congealed forever in a world without significant wars, revolutions and historical movement? I think not. Sharma, having framed the population question  so  well,  misses  out  the  major scenario for our century. Asia (60%) and Africa (15%) currently account for three out of four human beings alive. By 2100, they are forecast to have 82% between them, but shared equally. All of America, Europe,  Russia  and  the  Pacific  will  account for only 18% of world population. At least in population terms, the relationship that  will  count  is  the  one  between  Asia and Africa. This is because Africa is the only  major  region  whose  population  is growing (at 2.5% a year). No wonder the white racists are worried. Given Sharma’s acknowledgement  that  population  and economic growth are closely linked, even if the trend is too long-term for him, much in the coming century will depend on how this  all  works  out.  Certainly  the  Asian manufacturers, led by China, know that Africa will be the most buoyant sector of demand in the world market. Of course, a lot depends on political developments; but if Germany could go from 40 states to one in  half  a  century,  something  similar  in Africa is not to be ruled out. There is no precedent in the last two centuries for Sharma’s assumption that nation states will remain the dominant political form indefinitely. Indeed, as we have seen, it has never been so, even in the  last  half  century.  Why  would  he make such an assumption? For one possible answer, we must pay attention to a gaping hole in his book’s cast of economic actors today. There are no transnational corporations here, apart from our author’s occasional reference to working for one. Of the 100 largest economic entities on the planet, almost two-thirds are corporations when compared with governments. The ratio is about half and half when corporations are compared with national economies. But this does not take into account the scale of offshore finance which serves the corporations and dwarfs  government  revenues.  A  Cambridge economist, James Mirlees, won a Bank of Sweden Prize for demonstrating that the rich could not be forced to pay more tax than they want to. The  US , with some backup from the European  Union  and  a  high  level  of corporate participation, has been pushing in great secrecy for transatlantic and transpacific trade and investment treaties, now called into question by Trump. The decades since 1980 have seen enormous  shifts  in  the  balance  of  power between  governments  and  businesses under a  regime of neo-liberal globalisation  that  dismantled  the  ability  of governments  to  protect  their  peoples from global capital which was granted almost  perfect   mobility  around  the world.  This  was  in  stark  contrast  with the era of developmental states that preceded  ours,  with  their  focus  on  public infrastructure, popular spending power, managed  currencies,  and  capital  controls that launched the biggest boom in world  history from the late 1940s to the early 1970s.

In recent decades, inward investment by corporations around the world ran up against an absence of effective government everywhere as a result of policies hostile to governments known as “structural  adjustment.”  This  led  to  a  rethink—the corporations did not want to have to adjust to separate legislation in all the countries where they now operated, but they did need local police enforcement of a favourable social order, as capitalists always have. International agencies such as the World Bank, International Labour Office and World Trade Organization  acted  as  coordinators  of transnational rule systems in which the legislative powers of governments were curtailed  and  their  police  operations dovetailed  with  the  needs  of  major corporations.

The Transatlantic Trade and Investment Partnership takes this to another level, where corporations would be allowed to sue individual governments if legislation increases their costs, not just their actual costs,  but  potential  costs  for  up  to  30 years.  This  is  hearsay  of  course,  given the secrecy surrounding negotiations.

Myopic Trivialisation

Global  capital  flows  are  governed  by short-term decisions on a massive scale. The  largest  of  these,  foreign  exchange transactions,  had  a  daily  turnover  in 2013 of $5.3 trillion! A focus on this level cannot possibly comprehend the social forces that are already shaping our century.  Sharma’s  myopia  might  be  put down to the trivialisation intrinsic to finance.  But  his  main  readership  is  not you or me, unless we are gullible or daft. The  political  and  legal  structures  of nation states remain an obstacle to the formation  of  a  world  society  where corporations are the only effective citizens and the rest of us have lost whatever social guarantees  we  won  after World War  II . We are sleepwalking into an awesome struggle  to  define  humanity’s  future. Sharma’s book is a sleeping pill for themasses in that struggle. He cannot help show his acumen and judgment at times throughout this book. But its purpose is not public education. At most it is a confusing  entertainment—let  them  eat cake, bread and circuses, reality television perhaps—but definitely not a guide to what is going in our world. I  have  so  far  managed  to  unearth reviews of the book only in Wall Street Journal, Economist and Financial Times, whose main readership actually makes no  appearance  in  The  Rise  and  Fall  of Nations whatsoever. Democracy’s  fragile  toehold  on  this planet  has  hitherto  been  carried  by “national capitalism,” an attempt to control markets, money and accumulation through central bureaucracies organised by elected governments in the interest of national citizens. This was launched by an alliance of capitalists and military landowners in a group of leading countries during the 1860s and early 1870s. It became more general after World War  I , but reached its  apogee  in  the  decades  after  World War  II . Thomas Jefferson considered that the three main threats to democracy were central government, organised religion and commercial monopolies. He sought to introduce constitutional limits on the powers of all three, but was defeated by the Federalists on the third—which he called “pseudo-aristocrats,” instinctively favouring monarchy and rule by the few.If Hitler, Stalin and their allies posed a  lethal  threat  to  global  democracy  in the mid-20th century, a new and more plausible “thousand years Reich” is being planned and implemented under our noses  now.  Nothing  in  Sharma’s  book alerts us to this fact. Instead, we are distracted by tales of celebrities caught up in  an  endless  oscillation  of  short-term economic cycles that it would be futile to try to understand. The real purpose of this  book  is  to  undermine  collective democratic solutions to humanity’s problems  while  disguising  the  plot  of  big capital to steal the world.

Keith Hart is International Director, Human Economy Programme, University of Pretoria and Centennial Professor of Economic Anthropology, London School of Economics. He has taught at a number of universities, for the longest time at Cambridge. He contributed the idea of an informal economy to Development Studies and has written extensively on money. His recent books include The Human Economy (2010) and Economic Anthropology (2011).


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