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How "Breakout Nations" Balances "The Growth Map"
September 16, 2012 - 9:00pm

Breakout Nations: In Pursuit of the Next Economic Miracles by Ruchir Sharma

Published in April of 2012.

Is it possible that I've become too enamored with Jim O'Neill's BRIC (Brazil, Russia, India, China) concept? This summer I gave O'Neil's book, The Growth Map: Economic Opportunity in the BRICs and Beyond, a glowing review.

Sharma's Breakout Nations has caused me to re-think, or at least question, some of my BRIC enthusiasm.

Like O'Neil, Sharma is a money guy. Sharma runs the emerging market equity team at Morgan Stanley. (Jim O'Neill is a chairman at Goldman). 

Rather than spending lots of time on the history, politics, or culture of each country analyzed in Breakout Nations, Sharma writes something of an economic travelogue. He visits a country (repeatedly over the years), and takes the measure of its workers, its industries, its consumer goods, and its infrastructure. This method of observation and reporting, when placed in the context of the economic statistics and trends that Sharma reviews, makes for an effective and convincing method of explaining globalization and predicting future economic developments.

For Sharma, the changes in the global economy are not abstract research concepts but a set of concrete opportunities and risks for investors. Breakout Nations seems to have been written as an explicit rebuttal of the BRIC frameworks main points - mainly that Brazil, Russia and India will grow as quickly (or provide as large investment returns) as O'Neill claims.   

Of all the countries on the BRIC list, Sharma seems to be the least impressed with Brazil. He believes that Brazil's currency is seriously overvalued (making everything from hotel rooms to factory building prohibitively expensive), while the country's welfare commitments for the poor are too generous. Where O'Neill sees in Brazil an energy (Petrobas), mining (Vale), beverages (Ambev) and manufacturing (Embraer) powerhouse - Sharma sees terrible infrastructure (airports, roads, power, water), corruption, and crime.   

It is also India's terrible infrastructure, and the country's dysfunctional political class, that Sharma believes will also hold India back from the sort of rapid growth that O'Neill predicts.  Sharma sees many economic and cultural parallels between Brazil and India, few of which are flattering. The sins of bad airports, bad roads, and bad ports, and bad power grids seem to be particularly galling for Sharma.  Nor does Sharma have much sympathy for government programs to alleviate the plight of the very poor, believing that both countries have created welfare states that are economically unsupportable.

Russia does not fare much better. Sharma views Putin's Russia as a petro-kleptocracy, surviving on high oil prices in lieu of any real investments in its people or infrastructure that could support long-run growth.   

The only BRIC country that Sharma is more optimistic about is China, owing mostly to the ability of China's authoritarian rulers and pay for new airports, roads, and dams with manufacturing exports. China may be the best of the BRIC bunch in Sharma's eyes, but he still doubts that China will continue to grow at nearly the same pace in the years to come.

So what are the "Breakout Nations" of the books' title? Sharma loves South Korea (I can't disagree), is bullish on Turkey (another good call), and thinks that Malaysia and Indonesia are good investment bets.   

I remain more positive than Sharma about the possibilities in Brazil and India, particularly in area of change and innovation in education and technology. 

My guess is that Sharma under-estimates the potential of the mobile revolution, (in both devise and connectivity), to leapfrog traditional development and education patterns.  

Yes, Brazil and India need to improve they're infrastructure. But I foresee that the quality of the human capital in these nation's will grow much more quickly than anything we have previously witnessed. 

The economic potential of hundreds of millions of newly educated citizens in India and Brazil, made possible by new models of educational delivery supported by mobile and open learning, will create conditions for change and growth that are difficult to estimate.

Despite these disagreements, I definitely recommend Breakout Nations, as Sharma's keen eye for detail and fluency in the economic conditions of the emerging economics makes for an insructive and enjoyable read.  

More than recommending Breakout Nations, I hope that we find a way to bring global business people and international investors to our campuses. 

I think that we could both benefit from the conversation.

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