The 10 Rules Of Successful Nations provides a concise summary of Ruchir Sharma’s international bestseller The Rise and Fall of Nations which looks at the main factors that determine whether an economy is successful on the world stage.
The 10 Rules Of Successful Nations by Ruchir Sharma
This is a book that summarises some of the very best investment thinking in the modern era.
Looking at demographics, political stability, inequality, inflation, investment levels, currency risks, debt and geographic realities, Sharma maps out the reasons why some countries become richer and others falter in the global economy.
Below are some of the key insights I took from this book:
Economists are extremely bad at predictions generally and especially bad at long term predictions where unexpected events, actors and dynamics come into play.
The vast majority of narratives overstate the importance of single factors when attempting to explain the relative rise or fall of a nation state [single factor fallacy / narrative fallacy]
However, looking short term [20 years] we can make predictions based on the following factors:
- Population – Successful nations fight demographic decline.
- Politics – Successful nations rally behind a reformer.
- Inequality – Successful nations produce ‘good’ billionaires.
- State power – Successful nations have right-sized governments.
- Geography – Successful nations have better geography.
- Investment – Successful nations invest heavily and wisely.
- Inflation – Successful nations control inflation.
- Currency – Successful nations feel cheap.
- Debt – Successful nations avoid debt mania/phobia.
- Hype – Successful nations rise outside the spotlight.
The impact of ‘demographic destiny’ on economic growth is fairly straightforward encouraging efforts to expand the labour force through immigration and later retirement.
Politics is primarily about leadership with successful nations rallying behind reformers in the mould of Deng Xiping, Lula, Reagan and Thatcher and failing nations falling under the spell of corruption such as Putin, Erdogan and Suharto.
Successful nations typically produce ‘good’ billionaires [Google, Facebook, Amazon, Microsoft] who invest back into the productive economy whereas failing nations produce ‘bad’ billionaires in dirty industries such as mining, oil and organised crime.
The size of the state relative to economic comparisons is a good predictor of national success with the most successful nations having state intervention that is neither too small nor too large in size.
All things being equal, nations with better geography will prosper as a result of their location close to trade routes [singapore, hong kong], regional economic powers [poland, vietnam] and global economic activity which is currently moving back to Asia.
Successful nations invest their boomtime income back into their economies and do so in ways that leave lasting economic benefits [infrastructure, education, healthcare] rather than real estate and commodities.
Economies that manage to control consumer price inflation are typically more stable with longer and stronger economic booms than those that fail to contain expectations.
Despite popular misconceptions, a strong currency is not always a sign of economic strength but actually a currency that feels cheap relative to the USD will always attract investment, tourism and exports, prolonging the chance of an economic boom.
Successful nations actively make use of private and public debt but avoid manias where national debt rises to unsustainable levels.
Financial markets have a tendency to overhype some emerging economies [e.g. Philippines 1950s, Japan 1990s, China 2010s] and undercook the recovery of others based on past experience.
Consequently, most successful emerging economies will usually rise first outside of the spotlight while the cost of hype will weigh down others and eventually cause their downfall.