| Gary Becker
– a Nobel laureate in economics – has noticed that real per capita GDP
has increased faster since 1950 in smaller nations than in bigger nations.
Gary points out that smallness may be an asset provided the countries’
economies are open to international trade.
Quite a
radical example to illustrate Gary’s point is Bermuda. The population
of the island is about sixty thousand. Even though Bermuda is not blessed
with natural resources worth mentioning, its per capita income hovers around
over a little more than thirty six thousand US dollars per year. Bermuda
has prospered because it pursues an economic policy that proves successful
again and again and again. The levels of public expenditure and taxation
deserve to be called rather low by international standards. The government
hardly shoves its nose in the affairs of private business. As far as I
am aware, there is no welfare dependence in Bermuda.
Even though
the details are entirely different, countries like Hong Kong, Singapore
and Mauritius confirm the impression. Smallness may be an asset for
a country provided its economic environment manages to attract capital
and investors.
Another
small country with an impressive economic track record is Chile. A
bunch of folks are presumably a little disinclined to mention Chile in
this context because of the guy who ran the show there when the country
was being turned around – Augusto Pinochet. During his rule Pinochet and
his team of economic advisors laid the foundations for Chile to become
the most deregulated and open economy in Latin America.
That is
reason enough for me to have some sympathy for him. Even though the
ends may not justify the means, at least he did achieve some impressive
economic results. Compare that with the bunch of pathetic politicians in
Europe, who are in charge there at the moment. Suss the so called economic
reform agendas out of Gerhard Schroeder, Jaques Chirac and Silvio Berlusconi,
and you grasp why I am grateful for not having to live there. Europe and
its leaders either appear to be too exhausted (from what?) or they lack
the backbone necessary to demonstrate focused and visionary leadership.
Emerging Markets
To come across
that sort of thing and interesting opportunities – which often go hand
in hand – you are better off looking somewhere else. In carefully selected
emerging markets for example. It goes without saying that the accent is
on “carefully selected”.
To briefly
define the term “emerging market”, an emerging market is a country
that makes an effort to improve its economic performance to catch up with
the economies of more advanced nations. The term “emerging market”
does not necessarily imply that the respective nation is small. China,
Mexico and Brazil as well as Nicaragua are thus emerging markets. As far
as yours truly has been able to get a grip on it, the term “emerging market”
was coined by Antoine W. van Agtmael, an employee of the World Bank’s International
Finance Corporation. However, the idea of placing investments in less developed
countries is not really a new concept. You come across the concept throughout
history.
Anyway, it
looks as if the reasons for possible growth in certain emerging markets
currently may be different to the growth of – in particular – certain Asian
economies in the 1980’s. Countries like South Korea, Japan and Taiwan economically
prospered in the 1980’s primarily because of their exports of consumer
goods. Looking at economic and financial indicators, the US of A is about
to face a recession.
In recessions,
protectionism often prevails. Just listen for a while – but please
only for a while – to the noise that the presidential candidates are making
in the United States. Even considering that the purpose of the exercise
is to gain the votes of the hoi polloi who form their world view on what
they see and hear in the box, it does not sound promising for a boost n
international trade.
This time
around the circumstances are a little different. Sooner or later, presumably
rather sooner than later, China is going to become a very significant importer
of commodities like coffee and copper, timber, plywood and meat. Countries
– like Malaysia, Vietnam and Indonesia – that produce that sort of thing
will benefit from it. We can also include Australia and New Zealand, possibly
a few Latin American countries as well. The Far East of Russia may benefit
from it too. Of course it remains to be seen whether Vladimir Putin can
pull off with the Russian economy what Pinochet did in Chile.
After digging
a little in material that not a bunch of folks are fond of reading, these
are a few reasons why my humble self does tend to the assumption that carefully
selected sectors in emerging markets offer more upward potential than the
United States or Western Europe. Moreover, getting one way or another involved
in an emerging market in a hands on role may also entail a very pleasant
change of lifestyle.
Cities And
Companies
After having
a glance at economic geography and its changes in the course of history,
let us continue by having a look at the reasons why cities and empires
eventually decline or even vanish. It is amazing to see that there
are a few similarities between them and modern companies. But sort of organizations
rise and decline – or even vanish – for similar reasons. The empires of
the Romans and Mongols serve as striking and telling examples. Both resorted
to takeovers and management buyouts as well as asset stripping.
At the peak
of their power, they became arrogant and complacent. During the time of
Jesus, for example, Rome was head and shoulders above the rest of the world.
It was fond of consuming heaps of luxury goods, which it imported. Rome
suffered from a tremendous trade deficit, which resulted in the cratering
of its currency and hyperinflation. At the end of the day, Rome lost its
power.
Are there indeed
similarities between the Roman empire and today? Does it ring a bell?
As far as yours
truly is able to tell, the oldest company in the world is currently the
company “Stora”. “Stora” is a Swedish organization. That
outfit is more than seven hundred years old. Why has “Stora” been
able to survive the Middle Ages and the Industrial Revolution as well as
two world wars and who knows what else? A.P. de Geus explored the reasons
why certain companies thrive and survive. According to his findings, those
companies tend to apply rather time honoured principles in handling money.
They have cash available. The availability of cash leads to flexibility.
Moreover, these outfits quickly adapt to new developments and other changes.
Finally, successful companies are generally noticed by flat hierarchies.
They do tend to encourage delegation.
In a nutshell,
economic geography and history can teach us a few lessons. It is possible
to derive principles from these disciplines that are still applicable today.
When people share with you their “wisdom” that this time around
everything is different and time honoured rules no longer apply, better
turn around, grab your legs and run away. Just look at the South Sea Bubble
and the dot com bubble. There are hundreds of years between them. But the
lessons to be learned are pretty bloody much the same.
Trading The
World’s Markets
Leo Gough has
written a book with the title “Trading the World’s Markets”. The
book consists of interviews that Leo Gough did with top notch investors.
“Trading the World’s Markets” appeals to those of our contemporaries
who are capable of thinking beyond next week. It appeals to folks whose
intellectual horizon stretches beyond the crummy little fiefdom of Joe
Sixpack and Johnny Paycheck.
For example,
Leo Gough does an interview with Jim Rogers. Jim Rogers wrote the book
“Investment Biker”, in which he cruises around the world on a Harley
Davidson looking for investment opportunities. While doing the interview
Leo and Jim visit a Buddhist temple in Xi’an, China, have dinner and do
a few more things together.
Leo Gough
also interviews Marc Faber. Marc Faber reckons in the interview that
real estate in Hong Kong is still overvalued. Marc recommends purchasing
a large luxury apartment in Shanghai instead of a small apartment in Hong
Kong. He reckons that the property market in Shanghai offers a bunch more
upward potential that the property market in Hong Kong.
No matter whether
or not you agree with all the conclusions drawn in “Trading the World’s
Markets”, the book is thought provoking and offers perspectives that
deviate from the consensus. Having access to perspectives that deviate
from the consensus and the mainstream fluff always broadens your horizon
and is often rewarding. The French philosopher Jean Jaques Rousseau was
aware of it when he gave the advice: “Follow the course opposite to
custom and you will almost always do well”.
The following
is a list of articles written by Jurgen for the magazine:
To contact Jurgen
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