Nation Watching with Ruchir Sharma

Ruchir Sharma likes to travel, and he does a fair bit of it. For several years now, the author and fund manager has spent about a week each month in an emerging market, travelling from the sprawling farmhouses on the outskirts of New Delhi to the streets of Bhagalpur in Bihar, and from the corridors of wealth and power in Moscow to the more sedate surroundings of Warsaw.

These experiences are in focus in his bestselling book, Breakout Nations, published in 2012. Travelling within these countries, he believes, is essential to discovering signs of growth in them. This kind of nation-watching, however, isn’t an exact science.

“No one can pinpoint the precise mix of reasons why nations grow, or fail to grow. There is no magic formula, only a long list of known ingredients,” he writes.

Four years after he wrote Breakout Nations, Sharma, who is head of emerging markets and chief global strategist at Morgan Stanley Investment Management, is out with another book that revisits those words: The Rise and Fall of Nation is, simply put, a well-researched, anecdote-filled “list of known ingredients”.  

We met Sharma, 42, on a rainy morning in his plush suite at a South Mumbai hotel. While this may be only his second book, Sharma has been a prolific writer for years now. He developed an interest in writing—and economics—when he was barely 14. In fact, at just 18, barely out of school, Sharma, born in the town of Wellington in Tamil Nadu to a navy family, was writing columns for various publications.

Sharma, who is tall, with a slight frame and kind eyes, greets us at the door and we begin with the inevitable comparison with his debut novel. “It’s a more global book,” he says, as we take our seats next to a large window overlooking the Arabian Sea. While Breakout Nations was an economic travelogue, his latest, he says, is more of an “ideas book”. Its fundamental premise: What are the 10 things you should look at to know whether a nation is rising or falling?

Is it then a plea for nuance? “Yeah, it is a plea for nuance in a way that you should look at all the 10 rules and not get hung up on one,” says Sharma. Very often debates get hung up on one rule, he points out. For instance, people ask: “Is Modi reforming or not?” And they form their views on India based on that. “My point is that the view on India needs to be broader than that.”

The rules that he lays out range from looking at how the growth of the working population, or the lack thereof, affects economies, to evaluating a country by accounting for the hype around it among global opinion makers.

Sharma also refutes some generally well-regarded metrics. For instance, he claims that education is not very relevant to the measurement of a country’s growth in the foreseeable future. These are “clichés; motherhood statements,” he says, dismissing them with a wave of his hand. “It takes a very long time for those things to impact growth. So don’t hold your breath for the country’s fortunes to change.”

The book, and indeed our conversation, comes at a crucial time for the global economy. The Brexit vote, that took place a couple of days before we met, is only the latest example of what Sharma, in his book, calls “a world disrupted”.

His reaction to the vote itself is somewhat muted. He describes it as a long-term political process, and not the financial shock that some may have made it out to be.

Importantly, he says, Brexit reflects what is happening in what he calls the After Crisis world, with de-globalisation, a drop in capital flows and a rise in protectionist measures across several nations.  The vote also reflects, he adds, a deep anti-establishment trend all over the world. “There are about 20 countries in the world where we tracked the approval data of the leaders. Those ratings are at an all-time low, given the data we have.”

While on leaders, what did he make of the impending exit of Reserve Bank of India Governor Raghuram Rajan? “A personality issue, more than a policy issue,” is his take. It’s a message, he says, that there’s a limit to how large a personality you can have within the system. He smiles as he recalls a quote from the book by a former central bank governor of Malaysia: “Good bankers, like good tea, are best appreciated when they’re in hot water.” When Rajan arrived in 2013, things were hot, Sharma says. The rupee was collapsing, the foreign exchange accounts were in a crisis, “it seemed like something bad may happen and we needed someone like Rajan.” With a more stable macroeconomic environment, it appears that his value is not appreciated as much. “Things are not hot,” he shrugs.

Apart from being an opinion-maker, Sharma, of course, is also an important investor, and manages assets worth more than $20 billion, according to the Morgan Stanley website. This gives him access to all manner of public figures and businessmen, providing revealing insights into how personalities affect policy, besides being a source of entertaining anecdotes. “Technocrats don’t make good prime ministers,” he says. To effect change, you need popular leaders who have a mass base, he insists.
 
What then does he make of the Modi government’s performance so far? “What I had said about Modi is the fact given the political capital that was there in the first six to 12 months, I wish more had been done, particularly on some very tough issues.”

Now, he says, the government seems to have settled into a phase of incremental reform. But even that is better than many nations that are pursuing outright populism, he points out.

Though Sharma, evidently, does not refrain from commenting on the state of a nation, his intention with the book is not to be prescriptive. “I am an observer.”