Pandemic changes nothing on its head; will have no enduring impact: Ruchir Sharma

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September 27, 2020 3:00 AM

"India has to think about its self-interest before banning something from China. We cannot do anything just because it satisfies our ego. Trade with neighbours needs to grow."

The idea is to show to India and the world, based on the research we have done, what other nations have done better over a period of time to achieve high growth, that these are the 10 things that matter to increase prosperity in a world that is deglobalising.The idea is to show to India and the world, based on the research we have done, what other nations have done better over a period of time to achieve high growth, that these are the 10 things that matter to increase prosperity in a world that is deglobalising.

In his new book, Ten Rules of Successful Nations, author and investor Ruchir Sharma revisits his rules from Rise and Fall of Nations with updated data and a simplified format meant for a wider audience. In a telephonic conversation with Ivinder Gill, he talks about his book, how the rules apply to a post-pandemic world and what India needs to do to climb the ladder of economic success. Edited excerpts:

What led to an adaptation of Rise and Fall of Nations after just four years? When you talk of impermanence in your book, does it not merit any change in the rules instead of just data?
I think this is a very different concept of a book. Rise and Fall of Nations was an extensive exercise. This book is for a broader market, a quicker read, and apart from investors and business people, it is also an alternative economics book for students. I always had a big problem with the academic community that it is extremely detached from reality. So I wanted to offer this as an alternative platform for students.

Of course, Ten Rules… has been completely rewritten with updated data. As far as the rules go, they have always meant to be perennial. The whole idea of impermanence is that which nations rise and which fall changes over time. They rise for five or 10 years and then fall off the map.

Has a post-pandemic world thrown all rules to the wind and is demanding new ones? Is there a clear divide between then and now? If yes, how would you rewrite the rules and if no, then what rules still apply and which don’t?
I think the changes we believe the pandemic will bring are highly overrated. If you look at the last three pandemics of the century, whether it was the 1918-1919 Spanish flu or the Asian flu in 1957, Hong Kong flu in 1968, all had greater casualty rates than this one and yet those told you very little about what would happen in the future. In 1919, there was so much pessimism, but it was followed by the roaring 1920s. We have a tendency to think of before and after, but a pandemic itself will not bring any major upheaval and there will not be any enduring changes. There will be some changes in the sense that we will work from home more and the virtual economy becomes more important, but these changes are exaggerated.

Whatever we thought about the global economy, in terms of the trends that will play out, they have barely been accelerated by the pandemic. This has been the unique bit about this pandemic, whether it was rise of digitisation and deglobalisation. Nothing has been turned on its head. In that regard, the rules remain as relevant as ever.

In the short term, over the next year or so, some rules get more important. There will be rise in deglobalisation after the pandemic, importance of tech in investment rises, how much we spend on R&D will be a key ingredient to economic success, the perils of the state. Debt assumes even greater significance in a post-pandemic world. But overall, I don’t want to overplay the importance of the pandemic. It’s a one-in-a-century event that comes and goes.

Your book is rather muted on India, be it population, politics, state control over the economy or other issues. And any mentions are largely critical. Obviously India doesn’t figure anywhere in your list of successful nations. Would you say the book is a 10-step guide for countries like India?
My idea never is to be too prescriptive. The idea is to show to India and the world, based on the research we have done, what other nations have done better over a period of time to achieve high growth, that these are the 10 things that matter to increase prosperity in a world that is deglobalising. How much to spend, how much to invest and what did other countries do when India was at a similar stage of development.

Do you think the government’s Aatmanirbhar initiative can yield dividends, especially as you write that developed countries are reviving manufacturing and the ladder is getting tougher to climb for developing nations?
What I state in the book very clearly is that one key ingredient for most economic success stories is that they have to export their way to economic prosperity. The only way economies historically grow at 7, 8 or 9% is when their export growth rate has been very rapid. In absence of very rapid export growth, it is impossible for India to achieve a high growth rate. Even in the 2000s, when India was growing very rapidly, export growth was absolutely critical.

So any strategy primarily based on domestic demand is not going to get you very rapid growth on its own.

Aatmanirbhar, you can argue, is a recognition of the reality that it has become very difficult now to export your way to prosperity because of the deglobalised world, rise of protectionism, rise of onshoring in the developed world.
There has to be a balance in terms of what you do because a large domestic market makes India a very interesting place to be, but in absence of very rapid exports, you can kiss chances of rapid growth goodbye.

Automation is a hotly debated topic, yet you have batted for it cautiously. Don’t you think a crisis like the present is the strongest case for increased automation? Do you think it has been a factor in China’s rebound after the initial Covid setback?
The point I make in the book is that professions are lost, jobs are not lost. There are going to be some segments of the market that will be substituted with automation. Some new jobs will always come up. That is broadly underestimated.

At the same time, we don’t take into account that the working age populations are declining in many countries. That is a very new phenomenon. The line I use is that the robots are coming but they are coming just in time to help offset this decline in the working population. It is happening in countries with ageing populations and where working populations are declining. So any fear is unnecessary. They need to come in at this time because we are running out of people to do the jobs and the demographics have changed.

China has emerged as this big powerhouse. What China has done successfully in the past four-five years is that its virtual economy, its tech economy has boomed. There is a rise of tech giants in China and that is the larger story. Automation and robots are just a part of that story.

What about the ban on various Chinese tech companies and apps by the US and India? How is that going to dent China?
China has to be very careful about that and this is one of the reasons why I don’t include China on my list of which nations are doing well in a post-pandemic world. This is because of the backlash around the world given its handling of the pandemic. In the end, India has to think about its own self-interest on banning something from China; it also has to think if it is a global phenomenon. We cannot do anything that hurts our self-interests just because it satisfies our ego. That is not a good policy.

Another point I make in the book is how one of India’s big faultlines is its low trade with neighbours. Successful nations tend to trade a lot with their neighbours. We saw that in Europe, we saw it in east Asia, particularly south-east Asian countries, that they tend to be very interconnected with very strong intra-regional trade. Two areas that have been very weak on that are south Asia and Africa. In a deglobalised world, with US and China bashing each other, regional trade becomes even more important.

So you are suggesting more focused geographical models of growth than just a one-nation kind of theory?
Yeah. Strong inter-nation trading is still important in a deglobalised world where bilateral trade agreements are important. That may not gel with the politics of a country, but my job is to show what historically nations have done to succeed economically.

How much of a ground report kind of feedback about the economy do you base your books upon, instead of just relying on data? Human stories instead of figures; something like the migrant crisis India saw?
Absolutely, my basis of research is very much travel. As I have said in my previous books, too, in my 25 years of investing in emerging markets, I have been spending at least one week a month travelling in some country. So if I pick some observation on the ground, we run the data to cross check if empirical observations can be backed by facts or they are just anecdotal. For example, I wondered why is there so much social tension in Thailand, to which someone said to me that Bangkok has far too much economic and political power, which is not good for a mid-sized nation like Thailand. I ran this data and found it to be true for many other countries as well, that power is concentrated in a single city.

Are you thinking about a new book, one that looks at a battered world reviving from the pandemic?
I don’t think I want to write a book on the post-pandemic world, as I think the changes are not going to be so monumental. What happens in a pandemic is often not a good guide on what happens after. I am hoping to return to travel when the world opens up, as there is no substitute to travelling to know how things are working. A great line someone told me goes like this: What you hear you tend to forget. What you see you tend to vaguely remember, but what you experience is what you internalise.

Where would you like to start your travels in a post-pandemic world?
My first stop is New York, which is my base. Whenever I am allowed, I am curious to know what exactly is happening in China. There has been so much talk about China that I want to see for myself what the situation is.

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