Emerging
Markets and Economic Geography
Economic
Growth Around The World ~
by Jurgen Klemann
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us have a brief glance at economic geography. That glance will help us
realize that throughout history a great deal of cities and civilizations
have prospered and later on virtually gone south. Early strongholds of
prosperity in history clustered along the Nile and Euphrates as well as
the Silk Road. Babylon, Persepolis and Samarkand may serve as illustrations
here. When the Phoenicians prevailed because of their extensive trade,
the Mediterranean flourished economically. Strongholds of prosperity were
then – among others – Athens and Rome. Cities like Florence and Venice
evolved eventually into the first clusters of capitalism. When Portugal
and Spain ran the show with their empires, wealth shifted to Lisbon, Mexico
City and Lima. During the Industrial Revolution London, Manchester and
Liverpool flourished economically. In the nineteenth and twentieth centuries
significant commercial hubs developed on the US – East Coast and afterwards
on the US – West Coast.
These changes
in economic geography have been triggered by discoveries and inventions.
The development of new industries has led to more demand for commodities
and resources. Take Manaus for rubber and Houston for oil as examples.
These changes and shifts in economic geography have not ceased of course.
Of course they still continue. For example, Hong Kong and Taiwan have prospered
as long as China was economically and politically isolated. Since China
has started to open up economically, a city like Shanghai appears to offer
a bunch more opportunities than Hong Kong or Taiwan. |
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| The ancient
Persian city of Persepolis was burned by Alexander the Great in 330B.C.
Alexander burned the palace of Xerxes. This was done to show that
Alexander had ended his Panhellenic war of revenge againist the Persians.
The revenge stemmed from the Persian occupation of Alexander's homeland
of Macedonia. Alexander would push beyond Persia - today's Iran - and travel
as far East as the Indus River in present day India. |
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Please do
not get me wrong. I am not uncritically bullish on China. “The Economist”
put it very well when the newspaper recently noted that….”as long as Chinese
corporate governance remains an oxymoron it seems likely that this latest
act in the Chinese Play will end like the previous ones: in tears”. However,
even though China does have its problems – another one is its banking system
– prosperity is gradually shifting from Hong Kong to Shanghai. This is
just one illustration that clusters of prosperity continue to shift. In
case India is ever going to get its act together, we may see Mumbai and
Bangalore turn into new clusters of prosperity as well. Economic geography
continues to be alive and fascinating.
Before leaving
Germany, I cannot claim to have been interested in this sort of thing.
Since living and working in the United States, South Africa, New Zealand
and Mexico, those global trends and shifts manage to attract my attention.
The lesson to be learned for the individual is quite clear cut as far as
my humble self is concerned. Do not spend all your life in your home town
or home country. Instead, get out of your little bailiwick and gain international
experience. It helps you develop an international and global perspective.
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After
more than a decade overseas, the significance of it is starting to dawn
on me. You just have to watch a significant portion of my valued contemporaries
in Colima, who never manage to get out of their little bailiwicks and fiefdoms.
Their body language and their eyes tell you everything. They lack the certain
nonchalance, which you can neither buy nor determine to have. Depending
on what sort of life you live, you either develop the certain nonchalance
or you will never have it. Moreover, what you want to talk about with folks
who never get out of their crummy little comfort zone? They do not have
the foggiest clue about the world. Even worse, their favourite phrases
sound like “that is not possible” or “I cannot do that”. You will be amazed
how many things are possible.
Smaller
Versus Bigger Nations
Despite or
better because such a great deal of business and investment experts are
uncritically bullish on China, it may be worth again deviating a little
from the mainstream. There are currently ten countries on earth with a
population of more than one hundred million people. These countries are
the United States, Mexico, Brazil, Russia, Nigeria, China, India, Pakistan
and Indonesia as well as Japan. Of these ten countries, only two – the
United States and Japan – truly deserve to be called prosperous. |
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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.
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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. |
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| Vineyard
in Chile. General Pinochet helped develop the Chilean wine industry by
making it competitive on the world market. Pinochet overthrew the elected
government of Salvador Allende on Spetember 11th 1973. Pinochet would stay
in power until 1989. |
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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.
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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. |
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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.
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| 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”. |
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The following
is a list of articles written by Jurgen for the magazine:
 Working
Around The Globe ~ Tips
On How To Find Work Around The Globe
Living
And Teaching In Colima, Mexico ~ A
Place To Rest
Thoughts
On South Africa And New Zealand ~ Hitchhiking
And Economics
Some
Thoughts On Literature And An International Lifestyle ~ Reading
And Living
A
Journey To Various Places In Mexico - Places
To See
Memories
Of Africa ~ Namibia,
Botswana and Zimbabwe
A
Long Way From Munster To Colima - Travel
And The Self
Some
Thoughts On Capitalism And Investing - In
2004
Canada
From Various Perspectives ~ Montreal,
Vancover And More
A
Critical Look At South Africa - Politics
And Economics
To contact
Jurgen Click Here
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