does not pay any attention to that. how about romney? well, romney is going to appear. the edges sketch where we know. but the answer to your question, in my opinion, is that the primary process is republican nominee so far to the ride he is going to have to make a sharp u-turn, a persuasive one. >> you can watch this and other programs online at booktv.org. >> which countries will make up the economic success stories in the future next on book tv. this is about an hour-and-a-half. >> welcome to the cato institute. my name is ian boss does. rent direct the center for the liberty and prosperity. everybody is always looking for

the next economic success story. in the 1960's and 70's that was supposed to be brazil. at other times it has been the ivory coast, mexico, kenya, venezuela, and a number of other countries that have turned out to have less than stellar performances. instead, has sometimes surprising list of countries in the past couple of decades is pulled ahead, including georgia, india, peru, and estonia. professional economists and investors, local scientists and all sorts of abundance are not particularly good at predicting success. for that matter it they're not even good at looking back and explaining why some countries have succeeded and why some have failed. the inability to predict the future is understandable since that depends on all sorts of complex factors and also the very frequent arbitrary

decisions of politicians. there is, however, such a thing as detecting patterns of development and causes for growth. we at the cato is to have done quite a bit of work with our friends and colleagues at the fraser institute in canada on the importance of economic freedom in establishing prosperity. while we publish an index of economic freedom around the world, that does establish strong, empirical relationships with human progress, that index by itself cannot tell you why some countries are more likely to reform or why some will stick to building the types of sound institutions that lead to growth. to do that requires a lot more detail about a particular country circumstances and an eye for relevant information. i am pleased that today we have the author of breakout nations

in pursuit of the next economic miracle who has developed precisely those skills to combine a good sense of what is the proper policy environment with keen observation about what is going on inside of the country in terms of politics, social attitude, economic trends , and other factors that can determine where our country is heading. his book is a useful guide to understanding the growth potential of countries around the world and contains much inside and some unexpected conclusions. warsaw business culture, for example, is fundamentally different than that of moscow. vietnam is not come in fact, following in the footsteps of china, as many people believe. this is cartels explain why mexico's markets are hot, stock market is hot with its economy not. the future may look brighter than many people think in the united states and germany.

breakout nation is a reminder that understanding the development process requires a lot of judgment about which intelligent people can disagree and that development cannot be understood by taking a technocratic approach. all the more reason why we should be skeptical of grand schemes coming out of aid agencies are other sources claiming to have the answers to the world's very diverse set of nations. fortunately, he does not suffer from a messianic approach. he offers rules of the road, which i think are very useful. let me introduce you to him and allow you to judge for yourself how sound his evaluations are. the head of global emerging markets and of global macro at morgan stanley investment management. he is a columnist at newsweek and writes for publications like the wall street journal and other leading newspapers around the world.

he is a regular contributor to the economic times in india and has been writing financial columns since the early 1990's. please help me balkan. [applause] >> think you very much. it is a pleasure to be here. i am told that for the first time this auditorium. okay. it is a delight to be here. as he mentioned, i have been an investor for nearly two decades now in the developing world. i try and stand -- spend about one week each month in some country obsessing about its. i find that at least for me there is no substitute than to be on the ground in some country

and to meet with all of the people, the various players from the government offices, corporate ceos, local investors. and that is what i have done for nearly two decades now and try and put a formal view on each country on a continuous basis. so i have been a writer for longer than i have been an investor. i started writing back in 1991. i started out back in india. those days to my first order out to right, very little interest in india about what is happening in the rest of that global economy. and i had this idea back then about writing a column exactly based on that. i was pretty young when i started out, but precisely because no one else was interested in starting about the global economy, i managed to squeeze my collar and, in large part due to negligence. he was the editor in those days

back at the economic times. that is how i started out writing. finally i, after two decades of riding said i have to read my own book. that is what this effort led to. i spent much of last year putting together my thoughts about various emerging markets and to try to read something in the form of an economic travelogue which is in the impressionist use of each emerging market, but a lot of it is also based, obviously, on some economic observations. what got me to write this book is a big idea. when you want to write a book to you need a big idea behind it. the big idea that sort of struck me was in late 2010 in terms of what is going on. i have been investigating emerging markets and i have seen

a lot of cycles. i have seen the we started out. first started investigating emerging markets, the mid-1990s. and then we had a series of crisis after that, emerging markets, 1994 and 2002 were considered the problem child of the world economy. the crisis included the financial crisis, the russian default, the argentine crisis, and then, it all started, mexico in late 1994. so that was the sort of history we went through. then there were is this magical time from 2003 onward where every single developing country did well, from 2003-8. and it was captured in a couple of statistics. between 2003 and 2008 the average growth rate of the developing world was seven and a half%. and just to -- and the global

economy in recorded history had never gone through such a time with so many emerging markets growing in such a synchronous manner. so in it the growth rate of emerging markets, 1918 and 1990's, it was about three and a half%. the long-term growth rate of emerging markets in post-world history was about 5%. we went through this time, the average growth rate was seven and a half%. and the rising tide of countries doing well, no country was left in weight. in 2007 the 108 economists track by the imf, only three contracted. those were fiji, condo, and zimbabwe. who cares. and the history, otherwise, the history otherwise is that in any particular look back about 20% of economists report a negative gdp growth rate in any year on

average. around 20%. only about one-third of economies are able to grow at about 5%. that is the split in terms of what we got. 2007, the peak year, three economies out of 180, negative gdp growth rate. we had more than 50 percent of the world economy growing at about 5%. this is really a very exceptional time. the question was, what caused this? and then it led to the history of economic development. what causes exceptions, two or three special factors. one was the fact that these economies were catching up. a very poor performance in 1918 and 1919. and because of the poor performance a lot of the balance sheets had been cleaned out in the economies in terms of macroeconomics finances, put an order from indonesia to russia.

pay down their debt. a lot of improvements, the macroeconomics. they had their back to the wall which is typically when the emerging markets tend to reform. after the crisis these economies reformed considerably. and so there were catching up. the second most important point, which i think is really underestimated, as we know, in the western world, u.s., europe, there was a huge increase in financial leverage. and in overall indebtedness. and a lot of that liquidity it flew to emerging markets as well. so we analyzed a lot of the liquidity and the house in bubble. also it led to epic flight of capital to emerging markets and lowered their risk of returns in terms of the cost of capital and

the very strong demand in the u.s. commentary in the export boom. this combination of factors of catching up from a very bad time in the 1980's and 90's, global liquidity which restored the cost of capital, and also, the fact that the u.s. consumer was reasonably strong and a big source of exposing emerging markets, helped lift the growth rate -- growth rate to exceptionally high levels from the 03-08. now, after the crisis happened in 2008-9 the emerging markets were able to use some of their on spent bullets to try and keep demand going for a while. india, china, there was a lot of stimulus that was put into the pipeline to try to keep demand coming. what is happening now is many of these countries are experiencing their own difficulties.

growth rates across the emerging market are slowing down quite a bit. i think that this is what is setting the stage for a very different kind of outcome in this decade. i think we are diverging to the old emerging markets experience which is that there will be some this is not going to be the exceptional time that we had last decade where every single emerging market recorded high growth rate on the back of liquidity, global liquidity is no longer there to lift every single emerging market. and i think that what we need to do is to start distinguishing, the long history of economic development is that there are more flops than starts. failure rather than success is the rule and economic development. look at the economy today, the global economy, the only 25 are developed economies.

everyone else is emerging. they spend, as you mentioned at the outset, one could ticket for a particular economy or region, and then that sort of economy falters because the gains that come from the boom. the reforming, often when they have their backs to the wall. so that is what begins to happen. development and sub being a process. you sort of go up some. you get bitten by a snake. you come back down and start all over again. the leapfrog and make it to the top. but the game of extrapolation does not happen. you go from the bottom to the top in a straight line. that is exactly the kind of belief i think it got built over the past decade because so many emerging markets did well. that is captured and the fact that these acronyms became very popular. the most popular was prick. why did prick become so popular?

brick captured the imagination as it was the four largest economies in the world. in the developing world. and because every single emerging market was doing well, it seemed brick got the maximum spotlight on them. there were the largest economies. there were all soap opera wing above the historical averages, so it's into something special was going on. but akron's went on and on. we had something called the in 11. the most ridiculous one that i heard was something. the only reason was because it sounds good. columbia to my indonesia, vietnam, egypt. all countries that have nothing to do with each other. the package it well, get a good marketing. these things work because every single emerging market was doing well. no matter what acronym you created, it sounded like a very

-- very sex abuse everything was fine. that is what was going on by the end of the last decade. note in emerging market investor, my interest is to sort of go out there and sell emerging markets. a lot of people are willing to buy this argument that because you are in any emerging market you are bound to grow faster. that is rare opportunity lies to miss a put more capital out there, a diversified that way, and that is you're sort of road to becoming rich. i find that there is someone who invested for many years, the contrarian frame of mind, you don't go with the herd. you basically distinguished and see the fall in the conventional argument all the time. and a couple of anecdotes which took place in late 2010. told me this trend has gone too far and that this trend also, we go down the way that many others have gone. it becomes very popular for one decade and then continue to be popular in the subsequent

decade. 1990's, the big fat was technology. 1980, how japan would rule the world. 1970's, all the resource and inflation play. inflation was the index were concerned about. in the 1960's it was all about the u.s. and the nifty 50. every decade there is some bad which covered -- captures the imagination of people. by the time that everyone buys into it, the fat has gone out. so there are a couple of and the cuts which happened in late 2010. one was the cup back to indian, as i frequently do for a visit. i was invited to a fancy party on the fringes. they call these farm house parties. the farmers have long left, but the farm houses, because they got this land, still exists out there for many of the rich to have their fancy, sort of, homes out there, the sprawling mansion

which have all sorts of fancy features. the one that i went to for this party had have railroad running around it as part of the extravagance. you enter. you get shipped all over the world. preparing the food. it is an atmosphere of decadence. here i was at this party in late 2010. i got into a conversation with this young 25 year old, a typical deli type wearing a tight black t-shirt, hair spiked to michelle, sun of an exporter, a guy who is making some money on the quick. and so this guy has only worked with his dad, 25, a ketches need for a bit. very quickly sort of figures out that i am a global investor who is backing in the looking for opportunities. and he goes, where else does the money go? and such overconfidence that the

west is in decline, the money will come here. where else? and he was starting to be not only with his belief, but what i think a lot of us came to believe. this myth of the west is in decline and the money is bound to flow to these places. that is where it has to go. this along with another anecdote that happened to me back in moscow shortly thereafter release of the seed for the spoken that yet about the coming decades. the other, i would to moscow. there was a conference being organized up there. and the prime minister wanted somebody to present to him at the conference about the state of affairs in russia. and then for the conference organizers to the best that i make the presentation. i said to find a mile to it. there was making this presentation. i did not know it would be such a big deal.

televised. cameras were on and stuff. and i give a very blunt assessment about russia and how was optimistic of russia a decade ago when things work and to the chaotic and values were cheap and people hated it. now a decade later the cabinet, $12,000. russia basically it was regressing. just be reliant on oil and gas was not enough. the rich country makes rich kids. russia better get some sort of manufacturing sector going or some new business going. so a very blunt assessment of how russia was doing. and, you know, peach and was being very courteous. he was there taking notes as if he was actually listening. the next day, i found out what this was all about. the entire russian media went after me. state control.

and they're stake was, who needs your money. 2010, you know, the hell with all of her advice. to really need your money. and this sort of show me how the attitude had changed. a country that i visited quite frequently over the years. and right there after there was a client conference that we had organized. and in that climate conference we had called the former president george bush to be a guest speaker. i was having a fireside chat with him in that format, like an interview for the audience. i asked him, what is it that you saw? he commented fearlessly like a decade ago that he looked in the eye and saw a friend. what is it that you saw and still hold the police? he also told me something which sort of mirrored my own sort of change in russia.

, the attitude of pigeon had changed. when he had first come to the white house back in the early 2000's he would talk about his dead and how he spends them is that and what all he is doing in south. one of those visits bush introduced into his dog, barney. and did not really react much. he said, at the peak of the boom in 2007 he went to moscow. back then his confidence was huge. he was really believing that russia had truly re-emerged because of the massive boom that russia had enjoyed. and so he said, his questions were much more about needling bush about the mortgage-backed securities and other debt, a sector, which the u.s. had. and then out of the blue he goes

to bush. if you want to meet my dog? appeared. let's meet your dog. out comes his dog, this big talk he says to bush, see, bigger, better, stronger. this was a massive change in attitude which had taken place. telling me about how seriously the attitude had changed and emerging market. that a decade ago nobody was willing to listen. valuations were really cheap. and the whole, do know, sort of place appeared to be a real mess. now all of a sudden a decade later any sort of country within the larger market had a lot of hype around it. so that is when i decided i would write this book. the idea of the book really was that if you look at economic history, you have to distinguish emerging markets are now nearly 40 percent of the global

economy. you cannot treat them as a homogenous entity. the differences are incredible. you have countries in africa with a per-capita income of less than $1,000, large economies like india with a per-capita. and you have created with a per-capita income of 20,000 plus. in the middle you have a bunch of countries like brazil, mexico , turkey, russia, per capita income of ten to 12,000. even china, things have changed dramatically. the attorneys per capita income has grown to $6,000. and if we look at economic history, typically when countries get to that per-capita income level, obviously the exchange rate valuation, growth tends to slow down. in china's case china today is exactly what japan was of the 1970's in terms of its economic development. correa and taiwan, subsequently with the 1980's and 90's. these are the gold medalist of

growth, countries that have gone on to successfully industrialize themselves. even these gold medalists of growth ended of slowing down. and i think that coming to me, is something which is happening in china as we speak. yet the english is such that them only speak to people, the chinese economy, a lot of nervousness out there. even the imf projects the chinese growth rate will be more than 8%. and you have -- and the sort of sociological games which have nine very worrying. when china overtakes the u.s. all sorts of arguments going on around there. 2018, 2021. it's all based on this extrapolation, 8% gdp growth, currency will appreciate. it is only a matter of time that china overtakes the u.s. economy

, and this is completely ignoring the fact that you have gone through this entire time in economic history. also at this stage days get much tougher. the net income tracked, and just talking about a middle income deceleration. the world is not prepared, especially, of the commodity exporting countries. commodity exporting countries, some sort of massive commodity super cycle. these arguments about how the world is running out of everything from oil to weeds to court because supplies are not keeping pace. and yet if you look at commodities : it is a consistent pattern of one ticket up, two decades down. we just had that one ticket up. the reason for this is that even the demand has increased continuously over time. this human ingenuity in terms of

innovation and other factors in terms of lowering the cost of extraction and other substitutes have brought down the cost of production and commodity prices over time. even allocation mixes, i tell people that commodities historically are the worst performing asset class compared to stocks or bonds. and it should be. why should people make too much money for essentially digging dirt out of the ground which is exactly what i think the commodity businesses. i was looking at this bank. a decade ago the number of billionaires who came from the tech sector represents about one-third of the told lumber. today the number of billionaire stemming from the commodity sector are one-third. this is a massive price move, inflated the fortune and market capitalization of a lot of billionaires' out there. so as i sort of go down in this

economic trouble, i try and come up with rules of the road. i think that the imf and others have done a pretty good job of coming up with all the academic stuff, in terms of the quality of institutions, education, and the rule, but sometimes you also need investors to pay attention. one thing that i come up with in the book is something called a four seasons index. you get to travel the world, stay in the four seasons hotels or similar luxury hotels. often when you look at the prices of these hotels their competitive for doing business. i find it shocking that when you get it to russia you pay for height and room rates, $1,000 night. in places like east asia, the currency is much better, with a check a mockery of, southeast asia, indonesia, thailand, two

or $300 a night for a similar hotel room. to me the entire problem. the currency has appreciated massively. c'mon the boom and the fact that interest rates are high, a huge amount of capital. the rest of the economy is getting hollowed out. no one is producing much. running a current account deficit. they have a commodity boom to back them up. i shudder to think what will happen if they fall as i anticipate there will in the coming few years. that could be a serious problem for alexa brazil and the same thing for russia. the price of oil was $25 a barrel. it would be paranoid. what would happen? because they just suffered from bad in the late 1990's. ..

indonesia. , and then you could find out that they were trying to find a leader who would be more focused on economic reform and delivering some sort of an investment cycle again. that is when i was more positive what i try and say, destination is more important. not as important as the journey. the journey is more important. you need to be flexible. you cannot get locked into view for too long. the other thing, which i have a lot of contempt for his long-term forecasting. as i say in the book, the old rule of forecasting used to be that you make as many forecasts

as possible and provide people when you are right. the new rule of forecasting is that you forecast so far out in the future that neither you or i will know. ..

twisting and turning all the time. because defend russia as to how, because they're ready to an acronym. it's very hard to drop one because it doesn't sound cool anymore. is completely embedded into the stuffy the whole concept of breakout nation which i tried to put out here is that you have to figure which country will exceed expectations and which once will disappoint and be flexible about, to have rules of the road as you travel the world, some will be easy rules, some of them involve assessing to which

countries, how the back to the wall and are willing to refer hundre--willing to reform. tried to be objective is that it does not matter what your economic system which then i looked out about all the high growth cases in the world over the past few decades and figured out that what was a political regime that was backing them. i found of the 124 high-growth? i looked at it was 50/50. it just didn't matter as to what was the system back into. when someone tells me starry eyed about how good the chinese modern control system, but i say that, but i can show you one that does not. the biggest disappointment the last 45 years for me has been the non. in which we are headed to the next chime in that region, and

-- and yet the non-tried to copy everything that china was doing and has come up with results that are really disappointing from double-digit inflation on a persistent basis and economic growth that is now falling for it rapidly from the highs that they had three to four years ago. for the need of flexibility, you need some sort of what will work and what will not. and i think that's the concept of "breakout nations." a lot of attention is expectation. expectations are really key. some people say listen, you don't cite china as a breakout nation or even india as a breakout nation. expect the growth rate will be okay. like 6%, it is the growing much faster than the western world. or as china grows at 6% can even that's much faster. but to me, if india's growth goes down to about 6% and china's is now dipping, the domestic mood in those countries

is rapidly. that's much in china but i continue to india this morning i was in a debate on television and it was about the fact that, is depression india a question mark. the growth rate is flipping from highs, and so to me expectations are key. and what makes a breakout nation, is able to exceed expectations because that's what the politicians, investors, business community has come to expect. so india 5%, it may appear to be high but for a country of per capita income of $5000, it feels like a mini depression tackle. i think the same thing with china, that china's economy i think has been a remarkable. the economy is now just maturing because it has grown like very quickly. 120 million chinese move from rural to urban areas over the past decades, china has now reached 50%. that's when things began to slow

down. the numbers you next the to move over from rural to urban areas of the coming decade is a faction over what happened for the previous decade. so things slow down because of the factors. but i think what people forget is the fact is that economies tend to slow down naturally. and yet when you ask even people, like in my community, the question like often as is will china have a hard landing? how did you find a heartland? 7% growth or less. so i think that's what happen. expectations get inflated and the disappointment of those expectations it feels as if that will be a real problem. and i think that's what's happened as far as emerging markets is concerned. that's what i try to talk about. that a decade ago, a lot of my colleagues tried to do in the middle of the tech boom here in the u.s., -- to try to get some

startups from the is because nobody wanted to listen to the. by the middle of the decade, we were at a stage were every man and a stock could raise money for emerging markets. by the end of the decade were as it were just a dog would do. i think what's happening now is once again reassessing ourselves as capital has been flowing into emerging markets and that we have to go back to distinguishing the emerging markets on an individual basis. when policymakers ask me, like what should we do, for me, the closing line in the book, when there is no wind, well. which is you just cannot expect the sort of conversion with the developed world like you did over the past decade when money was really cheap and kind of starting from a low base and catching up after the poor performance. each emerging market needs to reforms and come up with their own sort of agenda to try and catch up with the developed world. so that to me is the main

outline and the main origin of the book, and happy to take any questions after this. thanks. [applause] >> thanks very much, ruchir. it's my pleasure now to introduce a colleague of mine here at the kid institute. he's a research fellow at the center for global liberty and prosperity. he's also a regular columnist at the times of india. and the economic times in india. he has been a correspondent for the economist, the magazine. is the author of a book called escape from benevolence of keepers, which is a collection of his essays. and he is a very prominent and frequent commentator in the major media in india. and an age. help the welcome swami avir. [applause]

>> well, -- [inaudible] a very readable book. something that is all kinds of insights to make you laugh and don't make you want to buy the book to think of some of things earlier. i have to tell you that apart from being a budget they could come -- [inaudible] he takes advantage of loose around with them and we go into these areas to watch all the elections, come back and then we have a vote on how many votes as this party going to get, that party, who is going to win. and let me tell you over the last 14 years, the guy who got it right most often was ruchir sharma. so he is not the typical 1% wall street guys out protesting. there's much to agree with this book. [inaudible] this enormous boom of the last decade that was something utterly weird about it.

we had a situation where the imf, which is supposed to be the rescuer of that economies, there were no bad economies left so what to do? we got a situation where the imf was sacking staff left, right and center. with nothing to linda. the united states, enormous huge deficit, everybody else had supplement. it was iv to somebody this cannot last. alarm bells should have been ringing out the. i was very clear that india is unsustainable. but even after what from 2.5% to 6%. so from india, it is no great deal. we are underperforming africa. when this whole thing came down i was not surprised. ruchir is not surprised. you must remember who wrote this book a year ago. had he made these predictions about the world slow down, try

going down, at the time if it are gone there would have been no confrontation. [inaudible] many things predictions already happening but it's very clear. he has covered a certain number of countries in his presentation but it seems to me he has left out some very important things, which are in the book, and i think it's worth mentioning some of those. the most interesting prediction that he makes is that there are two guys who be the breakout nation's, very important ones, are going to be islamic democracies. on these gets it specifically indonesia -- to be two countries that will be breakout nation's at the next few years. this is interesting not just from an investment banker's point of view but for the whole world point of view but i don't know that sam huntington cannot with a day of national civilization. i was among those who pooh-poohed it.

the problem -- it just focus on the peace. indonesia has more people than the entire middle east. sort of bangladesh has more than middle east. huge area, much softer islam. if you just can't get on the middle east you won't understand what islam is. i think what really happened was because the money was there, the opec countries were rich. bangladesh at 150 million people, mostly muslims, but they are poor. indonesia has -- even though the numbers were there, and since the economic success of the middle is, especially saudi arabia and opec country, they come up witha leadership role in terms of islamic world, but support by the fact that the holy place of islam -- [inaudible] that had a consequence but the consequence was even in bangladesh and indonesia, women

begin testing never happen early fifth century. the rise of militant islamists climate effect on all the area. if ruchir is where, if were not going to see a fall in commodity prices, the whole of opec is going to shrink. he mentioned that russia is going to be an budgetary troubles if the price of light crude falls to saudi arabia will begin to get in trouble is the price falls below 80 or $70. so if ruchir is right, we'll have a situation where the oil producers in the east will shrink considerably within the islamic world. the guys who will rise will be turkey. fundamentally secular, indones indonesia. if this happens, if there's a redistribution of power within the islamic world, i think they will have extremely positive results, infinitely more than american intervention in iraq or afghanistan, or any proposed.

ruchir also says what he expects in europe are the shake republic and -- [inaudible] not countries that you immediately think of, defines a large number of characteristics have done reform. they don't have high school -- they become competitive. these are countries that may not have looked like -- they will do very well in future. i think it is possible. the baltics did very well briefly for a greater time. i think poland has gone through the great recession in pretty good shape for the shake republic of the reason why i think ruchir may turn out to be wrong is the european banking system. the imf cannot just the other day with, after all that happened, the european banking system is to so choose an

excessively over risks. it has to deleverage by $3 trillion, $3 trillion. now, a lot of that money is not necessarily -- a lot of it is loans to latin america, which is one more reason i'm skeptical about the future prospects of brazil and argentina somewhat. but if a significant effect i think he should and center your. for good reason. i think that, you know, ruchir is very gung ho on poland and the czech republic. you of course argue if the european banking system collapse, the whole world is in trouble. i think probably the ecb will rescue the banking system one way or the other. some of the potential guys perhaps without actually benefit.

commodity prices general i think he's right. there's been this huge boom would have been kept going up five, six times the. [inaudible] when he says he thinks one commodity followed by two bad ones, i think he is wrong. the reason i think he is wrong is because what we have today is an attention to the economy, -- [inaudible] has never been done in history before. the order of funny oil is something everybody wanted to do. and you know, you go to all times -- kinds of areas. he we have the training which has been altering on the east coast and the west coast. there are only three states in the country in america that allow drilling for it at all offshore. which is texas, louisiana, alabama.

so now prices have gone up, large gas prospects. there was -- [inaudible] oil is leaking. let us at least drill for gas. the incredible reaction you got was that, how do you know you won't strike oil? for the first time in history, striking oil has been a disaster. environmental objections to every kind of undermining has risen. if you want to open a new mine in many countries, get an environmental impact assessment and so on it will take you two years, four years, five years. india itself is an example. indy has the third largest coal reserves in the world but because of problems with environmental area, tribal area, india has become one of the most biggest importers of coal. one time i write a column saying

does in the import oil? india has a massive coal reserve and we're importing coal because of environmental issues. for this reason i think commodities will be somewhat more resilient than ruchir things, except i would agree with him that oil and gas company, the discovery of shale oil and shale gas in the united states, that is a relatively super technology. they can be replicated. china has the biggest oil probably. china conceivably once again becomes an exporter of hydrocarbons. so outlook for the opec countries i was a not particularly good at all. [inaudible]

both india and china, in terms of trade effect. with the rise in the commodity price. that i think will not be quite so bad. ruchir was specific about any. i think i spent all a bit of time on the since we both are from india. he talks of india and maybe doing 25%, maybe doing only 6%. he is quite right in saying on the political scene that political process, political reform. many things have gone wrong at the same time. yet, the same great recession of '08-'09. in the two subsequent years, india hit 8.4 at 8.5%. now just suddenly slipped down from one year to 6.5. can they really disappear in a year or two? i don't think they can.

ruchir said again, i think is quite dismissive about demographic evidence. indy is a country which allows a problem called population explosion. population explosion has now been renamed demographic -- [inaudible] you have too many guys. you are an expanding workforce. china, a one child policy. china will have a complete break. the population growth especially the working group, working age could rise resolve. in actually going to decline to india on the other hand, in addition to people of working -- maybe 300 million people next year. not just the numbers of people. the question is of the workforce of a particular age group, what percentage of them are actually members of the workforce? in the countries of the west, up to 70% of the people are in the

workforce. the figure i've seen for china is 83%. india believe it or not is only 39. the chinese are doing much better. china is doing 83% of the working age. india is only doing 39%. [inaudible] one peculiar thing that's happened in india is there's been a certain collapse of female participation in the world. the question is why has this happened almost certainly it's our classified. all the working class people do for. [inaudible] so as indy has risen, party for education, girls much more in education, and now -- [inaudible] fortunately the demographic show

that as women get more educated, then they reenter the workforce. so i mean, idc very major benefit coming to india in the form of demography. that is a plus point but the other thing that ruchir does talk on, if you've been doing very, very badly your ability to grow faster and catch up sometime is quite bad. india is not only a poor country, and having -- your chance of catching are very high. [inaudible] even within india, we have a large number of backward states which used to be will be blow a nationally. they were very large states. they have 209 peoples. had been one of the largest countries in the world. at this country has three, 4%.

this state has begun to grow at 7%. the backward state which was beyond all the retention is improving. 11%. this has been growing at 10%. india has a modest problem a large number of its jungle areas. [inaudible] this seems to be a major problem and indy. the biggest problem is in a state, for one decade it has grown at 10%. they catch a possibility in india is backwards. with the advanced indian states is an immense. you have the backward states catching up, existing, much of any. that will have a huge growth potential to do so i deeply for these reasons and his prospects are somewhat better than -- if that's what "wall street journal" things.

i think it does grow. [applause] >> thanks very much, swami. we now have time for questions it so if you have a question, raise your hand and wait for the microphone and then identify yourself, and to you you who are asking the question to. a question in the back. >> my name is mohammed. i have been all over the place. have you been to egypt? what do you see for egypt? my second question is, max is a guy who might be in india. so -- [inaudible] them. >> firstly, egypt is something which, in fact, i have to say, with all humility that it's a country that we were warming up to before the outbreak of the crisis. i mean that the local crisis in

like 2010. that was partly because, i remember a meeting i had with mubarak in 2009. this was optimism. this was march 2009. i met mubarak here in a meeting in 2009 come in march 2000. of so much talk and what about the end of capitalism, the end of free markets because it was in the midst of the financial crisis out there. and i asked mubarak back then, what do you make out of all this? with a world turned its back now on opening of globalization? that was the feel. that was then. and what he said to me, something very striking and he said in a great time because optimism about the world back then, basically he said is that the problem here is not that we need more regulation but we need better regulation but more

importantly, he said there's no turning back because the people in egypt and we still remember the bad experience we had with socialism. for so many years out here. there is no turning back. as you know, the last few years of the mubarak regime they were beginning to open up the economy again. so that in that optimism, like at that point in the time other with ottawa was shut itself down and the globalization would be reduced. that this would sort of get better. as far as egypt is concerned, it's disappointed subsequently because of the political shade. but i still feel that egypt has a chance because i think we should have, when i was in turkey last year, i spend time with the turkish leadership, they were telling me it was impressive that they would come to that and ask for advice i've

met -- [inaudible] and yet they focus very much on economic reform and set aside some of their hardline religious agenda. i still feel that egypt is -- [inaudible] sort this out. and i have no well i can egypt today after my sort of getting burned in like a bit in the year 2010. but i say that we are looking at it and we still, we think there is an opportunity roadmap for egypt but if it goes down the turkish what and we sort of takes the advice, despite all the criticism. because a decade ago the same fear existed about turkey as well. >> so i think that's the spot that swami me but if turkey and indonesia emerges breakout nation, because and will today with the size of a trillion dollars but if turkey and indonesia join, in the next two was, which is what my forecast

is, the next three to five years, very powerful sustaining effect including for egypt. your other question about whether people sort of putting their money so why the, i hate to say that the party in india is still going on. so i don't know whether this is war, but i've not seen any dancing of the parties as far as india's concern as yet yet even though the business is picking up rapidly. >> another question in the back. >> good afternoon. my name is robert, and my question was based on the concept of human rights, and some of these developing countries. and as the u.s. loses i guess you would say it's a ton in global markets and some of these more merging markets, gaining prominence, how would you say that our relationship, even with hard power or soft power, will change toward some of these countries that may have

historically had issues with human rights, repression, et cetera, and personal liberties as well? so how do you see our relationship with some of these former dictatorships, and just a guess you would say repress of democracies, you might say, in the future? how do you think that will change? ..

>> you may have mentioned africa before i came in. thank you. >> hell africa fits into your description. two theories. seven of the ten fastest economies. the other argument is it is a commodity boom. they have not reformed. india is trying to play a bigger role than africa. the chinese seem to get all the headlines. a two-part question what do you picture africa and your picture? of course, is and you're really going to play a role in these countries are is it going to be a chinese ticket or a chinese 50 years? i don't know. those are the to questions. >> the first one, i think the biggest thing that africa suffers from is one of generalizations. if you look at africa, there are

48 economies in sub-saharan africa. i think you're right. a lot of it is driven by the commodity boom going up and down. the last example, the economist, for me as an investor, of great value. great contrarian value. so if you look at the economist like a decade ago, the hopeless continent. you know, when commodity prices were absolutely at their low. three months ago they had a cover saying the hopeful continent because commodity prices, i guess, would have been high. africa does suffer from a lot of generalizations, but for me, my entire approach and the book and even with regard to africa, economies one by one. so like in africa, i do feel a bit optimistic on nigeria. this is an economy which is exposed to commodities. people ask me how come. my point is that in nigeria that

went through such a terrible time. one of the classic cases. the problem, the political was extremely poor. for the first time we get somebody out here. that has been the history of nigeria. so i think that as far as africa is concerned, it is going to be a case by case basis and you have to study countries individually. the have to be cognizant of the fact that some of these economies look better than they are because of the commodity boom which will not last. to me it is back to the economic and political management of this country rather than making generalizations about africa which is what i think a lot of us tend to do with that comment. >> yes. he is right. from the commodities, tanzanian, solid leads to muscle lead consolidated the problems. considerably good prospects.

they have also done a lot of good work, even though they are not talking about as great commodity stars, they will have a future. you asked about the indians of the chinese. substantial indian presence always in africa. indentured laborers along with the british. set up shop there. they became business people. and they weren't much hated by the local people. moneylenders. so i mean, they did not have a good cachet when african countries became independent. many indians were forced to leave one way or the other. doing business, nationalized. expelled them. they were told, traffic. you know, the huge anti indian bias. the chinese did not suffer. the chinese basically.

in the last seven, eight years, the chinese have gone in a very big way with investments in a large number of various. it has made them important. it does not necessarily made them like to. they have the standards. if you want to build chinese robe you bring in 5,000 chinese laborers all the way from china. not really -- doing things extremely efficiently. try to do it using local labour. many of these projects. for various reasons. i mean, project after project on building roads. and somehow any road that you build disappeared and then there is a new diet that these technical assistance and more money was given to technical assistance, and that disappeared months later people said, you know, the real problem, only wants to swallow money. that is the real reason why the

rose don't get built. okay. the chinese are coming. they have done a lot of miracle sessions at the right time. and it has helped them, i would say, in some sense because they have gotten and at the time of oil prices. yet, if commodity prices are going to collapse, a lot of those things are going to look less oppressive than they are right now. china has a large foreign exchange surplus. the question is what you do with this? american treasures at 1 percent or something else? i think part of the investments that take place in africa has been a form of diversified debt. in the, on the other hand, is much, much poorer, less than one-third per capita gdp of china and much less to show by way of foreign exchange. there is no question of india even attempting to match it. all they do is to the extent that we want to exports and capital goods, machinery, and so on. all those credits put together,

now i am told, 5 billion is available. it disperses very slowly. on the other hand, some have. the copper mine, biggest copper mine in the world. this big global giant. privatization. give up. turn it around. so, i mean, there are a few examples like that of a successful entry, but by and by sir is no competition. the chinese are behind. >> a question right here. >> strategic straits international business training from. my quick question, what did you take about debt levels, rising debt levels of turkey? because i know you are talking,

well, the turkish economy, but i am worried about it. >> the indebtedness in turkey, the current account deficit are you talking because the overall debt to gdp ratio has improved significantly from where it was a decade ago? >> to you feel that way? >> i think so. the current account deficit is an issue. an overarching issue, but the fact that this is one emerging market which has zero commodities, zero. and i think that if that reverses a lot of that will come off. as far as turkey's overall indebtedness is concerned, not that concerned about it too much. the overall government debt is stabilized. quick -- credit growth has been quite stabilized, but the overall indebtedness in turkey remains pretty manageable. >> there is a question in the back please.

>> thanks. this question, what is your take i know you spoke about middle income. vietnam, brazil, is there something that you mention in your book? where is the next growth going to come from? >> i think that, you know, my point is to identify which countries will do better than we think and which ones will do worse. i think that growth will still come. my average growth forecast for emerging markets is for nafta 5%, which is reasonable. but to me it's going to be quite high. so if the countries have the ability to be more optimistic on how they could exceed expectations, the ones that i mentioned, southeast asia, indonesia, philippines, possibly thailand to my shows some signs of settling down.

i think that many of the -- i think turkey can still do reasonably well. india and china, as far as they're concerned growth rates will remain high. disappoint expectations in terms of that. the adjustment is already happening as we speak. and i think that some of the frontier markets, also, nigeria, speak about it. south asia, i find that a prolonged air may benefit from a peace dividend. you know, these frontier markets out there which could do well. this person is going to be white, but it is still going to be quite broad and coming from different places where expectations are exceeded. >> simply right. quells with the money go. >> after the adjustment is over. india, just now facing. >> so do you believe in this notion of a middle income drift? >> i think that if we look at it from the purpose of the book,

the middle and come track, it is so wide that you can drive anything through it. look at the history. you have countries which sell for the middle of contract. to stand or 15% of the per capita income level. you have others that suffered from 20 to 40%. the life of argentina, venezuela , which converge 50 to 60 percent of the u.s. economy per capita income and then began to regress. i think the problem with this concept, very loose concept which covers a huge range. but all it suggests is at some level of per capita income things begin to stall. there is no scientific point at which you can identify that. >> i would say its particularly likely to stall if you're a commodity export. you know. once upon a time, he landed an infinite amount. never been exported before. huge increases are possible.

the other problem that happens is that when that happens wages, so you have a situation where countries like let america, eastern europe, on the one hand, we are not as productive as americans and they're wages are not as low as in china or india. the guys in the middle get squeezed. i was in south africa talking to the person in charge of education. you know, the blacks have been left behind. the blacks, as of now, 17 years of education. i said, well, what happens when they have to compete? willing to work a 20,000? she turned pale and said i don't even want to think about it. but the problems, the truth this, the productivity, some of the low-wage countries, that is created a very serious problems for the middle income countries and will continue to. >> i'm not sure i buy that argument, but i have a question.

what about argentina? paul krugman the other day had a blogger post that suggested that argentina is not doing so bad. just look at its growth record over the past ten or so years and the people who actually criticized argentina for its policies a practicing bad economics or just bad journalism some of us, of course, have been criticizing the argentina policy for a long time and suggesting this cannot go on. what is your view? >> i think that -- i mean, luckily, for me it is too small to matter. sort of gone off the cliff. who cares about it. but, to cite argentina as a paragon of economic virtue, one thing, look at the growth rate, a superficial level. inflation as well. currently the growth rates are beginning to fall off. in the economy king go well for 45 years if you have a massive

expansion in the play around with the system on that. but in argentina what is happening is the inflation rate is also. low inflation. very high inflation. i can't think of a bigger tax on the poor that having a high inflation rate. eight doctor the data. the inflation rate is not reflective of what is going on. so it is a bit of a joke and the community about argentina. anybody who wants to "that to me is really sort of coming from the extreme. >> the question and the back. >> my name is giant. i have a question. you know, the indian stock market is very vulnerable. you probably agree with that. how does this fit in with the elements in your book? you know, you talk about commodities. you talk about various aspects that you mentioned to your talk today.

how do you explain the indian stock markets given the contents of your book? >> i think the indian stock market is no different from any other emerging market these days in terms of volatility. emerging markets, what i found is that getting the country's gdp growth rate break in dollar terms is the single most important thing in terms of predicting how the stock market is cooling to do. expectations. so i think the indian stock market is this in the trend of what is going on. the book talks about the fact, you know, and this chance of being a breakout nation are 5050. makes it out to be. 5050 on that. and i think that as far as the stock market is concerned, the problem is that the growth expectations are built into it at 8-9%. currently coming down to growth expectations built into it of about six to 7%. and it depends as to what the pick is. if you think the economy is

growing to grow at about 67%, the indian stock market is a buy. if keeping gdp growth will fall below that it is a sell. and i said. most countries, like in the book, even in my portfolio, i have a pretty strong view. in the is the only one that i'm 5050. >> okay. we have time for just a couple more questions. okay. will we will do is take to questions at once. one from him and one from him. >> they que very much. my name is tyler and kneele. a question from the national journalism center. >> could you speak up. >> sure. tyler o'neill with the washington. i would like to ask the question that is the elephant in the room. earlier you mentioned that you think the united states and

germany, western nations, they have a bright future ahead of them. what makes you -- >> sure. >> nuclear energy. my question is, have you factored in going forward geopolitically, factors into play, for example, fragments of harsh era winter or pakistan falls apart. our euro falls apart. the track to factor then these global destabilizing factors? are you looking strictly economic? >> the book comes up relatively optimistic on the u.s.

the whole point is expectations. after the great financial crisis the conventional belief was that the u.s. would go down the path of japan, which is a long time of stagnation. and i think what has been recognized as far as the u.s. is concerned are three important factors. this is socked include the book. i come back. hey, not such a bad place as it's made out to be. i think the reason for that is i think like touched upon, the whole oil boom taking place and the shell gas. if an oil supply surprises to the upside, your systematically. the foreign energy independence has been declining. this is related to another product point about technology which is that one thing the u.s. continues to maintain its lead on, and i think this has been shown by the facebook ipo last week. it remains at the cutting edge of technological innovation. anything new which is defining

still happens in the u.s. from cloud computing to social networking to the iphone and other things. one-third of a global standard of r&d in the world takes place in the u.s. one-third. i think that is a very high number, and it is very different than the japanese aren't the. one thing, the japanese also come up with products, but they tend to be much more sort of centered around their own domestic market which doesn't work in the global marketplace. the u.s. production, very well in the foreign marketplace as well. this idea. as far as japan. the other point about the u.s., under estimate currently just how cheap the space has become. the u.s. dollar today is the cheapest that it has been in history. if you -- and if you adjust for, you know, the inflation.

and i think that is why we are seeing some sort of manufacturing renaissance take place in this country, jobs moving back into the manufacturing sector because the fact that our wage growth is low, the fact of the matter is that the low wage growth along with the very cheap dollar is leading to a slow revival here in that sector. wage growth in the other countries, especially such as china, extremely rapid over the past few years. there is a report out that showed that this gap is talking to be closed out in five years' time. so what is happening, a big narrowing taking place, the chinese currency appreciates. the rise rapidly adjust for productivity compared to what is happening in the u.s. so for these reasons i feel both of the optimistic as far as the u.s. is concerned. i think that as far as germany is concerned, the same reasons. it does not have any of the

excess of the other countries in europe, german banks have some excesses, but otherwise the excesses are not there. the currency is super competitive out there as well. help them out in terms of productivity, not in absolute terms, but i find that is optimistic. the real optimistic things go to to expectations, the u.s. average growth rate from 1950 to 2007 was three and a half percent. i don't think we can get back to that because our indebtedness is too high. the fact, these factors that a just pointed out, technology, more open society and the exchange rate peter last question on geopolitics, i have taken into account political factors. the way the political is strong. geopolitics to mind finding that is a wide card to put into a book because i find the predictability of that is so limited.

no one sees these things coming to read it's hard enough to forecast economic and political regime. i talk about politics in the book, how the average life of a political leader at the top is about seven to eight years. they all begin to make mistakes after that. it goes into that, but political facts, speak about, such discontinuous events that to forecast anything on that is really difficult. >> germany bursa's u.s., i have no doubt that the u.s. will come out on top. the main reason is that germany has dew brands, but only german brands. it does not attract people from asia, china, or anywhere else. a great country despite a lousy educational system, but if you depend on american brands will be in serious trouble. in the wind, germany, croatia. silicon valley, 50 percent of all the stocks are indian and chinese. so a reason why for america is

on top. i heard a discussion back years ago. american and a guy from singapore. he said, you guys are in decline . we're all going to overtake you. the american turned back and said, we will win because our asians will beat your rations. there is no other country where this statement could have been made. that, i think, is the u.s. advantage and what will keep the u.s. on top. the geopolitical thing, an area in very serious trouble, the eurozone. fundamentally a very bad idea. they put so much political capital into it, along, difficult, painful thing. europe, up the creek for quite some time. >> well, time will tell whether your predictions come true or not. some of us will try to remember. i am afraid we have run out of time. please help me in thanking both of our speakers. >> every weekend book tv offers 48 hours of programming focused

on nonfiction authors and books. watch it here on c-span2. >> so, my history of financial institutions is a history of learning about these things. so, for example, in 1811 new york, the state of new york, created in new securities law which did two things. first, it allowed anybody to set up a corporation with minimal restrictions. he used to have to go to the legislature to get special permission. and secondly, they created limited liability for investors. what that man is if you invested in a company and the company was later accused of wrongdoing, the complaint, the lawsuit would never go after your assets because you invest in the company. before that people were afraid to invest in companies that did not really know, so it made

everything like a family business. you have to have people he trusted. the law changed everything. it was copied over all the world now, according to david moss, steady these carefully. what i think it did is, it created a sense of pleasure in investing. people used to invest in lotteries. they love to gamble. another human trait. they love the excitement of finding out whether your number came up. by creating limited liability it became fun. the same way a lottery was fun. i mean, people have to enjoy life. there has to be something that makes you get out of bed in the morning and give you some excitement. so we designed things that gives you that feeling. that securities law has been the source of a lot of our innovation because now investors , it looks like they're playing a game. it looks a little selfish, but it drives our economy. other people, karl marx looked

at it and said it is gambling and that we should shut it down. worse than that, worse than that but after years of experimenting people think, well, maybe we have to let people indulge in this feeling. so -- okay. so let me move. i will go for another ten or 15 minutes. i want to talk about the future and about some of the ideas that i talked about. i start tomorrow. and then move of little bit more and more into the wild future. what happens tomorrow is president obama has said that he will assign -- sign the jobs act that name was a little bit misleading, maybe for some political reasons. it is not about jobs. it is called jump-start our business start-ups. that spells jobs. and what it is, it is

controversial. i like it. notably as an experiment it may or may not work, but let me tell you what is the most interesting part of the jobs act. the jobs act was created in response to requests from internet website providers who wanted to create a crowd of funding website for entrepreneurs. if you were trying to start a business you can put it up on their website and say, i'm looking for money. then thousands of investors or millions all over the world can send money and you can start a business. this is a wild sounding idea. it is endorsed by a lot of internet people. i think it is just about as wild as with the pds sounded. so if i came to hugh. before with the peace started. i'm going to open an on-line

encyclopedia, and i'm going to let anybody in the world add to it, my first reaction would have been, that is a dumb idea. it is not going to be a good encyclopedia. we learned something about how people can work together through with the pds. i think this is a good experiments. what congress has done, they all read that -- there are a lot of cheats out there unfortunately. someone will steal money from someone else is why. one thing they have done in the legislation is, you have to document your income to the website. for people with incomes up to $40,000, you cannot invest more than 2 percent of your income, which is $800. so it is small for each individual. and that protect people. it can't go that bad. and i think the maximum is $10,000 that you can put and if you have a higher income. so it is designed to protect