It's a New World, and America Is Not Leading It
I’ve followed Chris Mayer’s work for many years, and come to admire his capacity for seeing around corners with unusual prescience. He was warning of a housing bust, and explained precisely how it would play itself out, fully two years before the reality dawned on everyone else.
Here is why I think his new book, World Right Side Up, is important. In the last decade, something astonishing has happened that has escaped the attention of nearly every American citizen. In the past, and with good reason, we were inclined to imagine that if we were living here, we were living everywhere. We were used to being ahead. The trends of the world would follow us, so there wasn’t really much point in paying that close attention. This national myopia has long been an affliction, but one without much cost. Until very recently.
One symptom of the change is that it used to be that the dollars in your local savings account or stock fund paid you money. The smart person saved and got rewarded. It seemed like the American thing to do. It is slowly dawning on people that this isn’t working anymore. Saving alone no longer pays, thanks largely to a Federal Reserve policy of zero-percent interest.
But that’s not the only reason. There’s something more fundamental going on, something that Mayer believes is going to continue for the rest of our lifetimes and beyond. The implications of his thesis are profound for investors. It actually affects the lives of everyone in the digital age.
Mayer points out that sometime in the last 10 years, the world economy doubled in size at the same time the balance of the world’s emerging wealth shifted away from the United States and toward all various parts of the world. The gap between us and them began to narrow. The world’s emerging markets began to make up half the global economy.
When you look at a graph of the US’s slice of global productivity, it is a sizable slice, taking up 21 percent, but it is nothing particularly amazing. Meanwhile, emerging markets make up 10 of the 20 largest economies in the world. India is gigantic, larger than Germany. Russia, which was a basket case in my living memory, has passed the UK. Turkey (who even talks about this country?) is larger than Australia. China might already be bigger than the United States.
Check these growth rates I pulled from the latest data, and compare to the US’s pathetic numbers: Malaysia and Malawi: 7.1%; Nicaragua: 7.6%; Dominican Republic 7.8%; Sri Lanka: 8.0%; Uruguay, Uzbekistan, Brazil, and Peru: 8.5%; India: 8.8%; Turkey and Turkmenistan: 9%; China: 10%; Singapore and Paraguay: 14.9%.
Then there’s the measure of the credit-default swap rating, which is a kind of insurance against default. The French rate is higher than Brazilian, Peruvian and Colombian debt. In the last 10 years, the stock markets of those Latin American countries far outperformed European stock markets. Also, many emerging economies are just better managed than the heavily bureaucratized, debt-laden economic landscape of the US and Europe. As for consumption, emerging markets have already surpassed the United States.
“These trends,” writes Mayer, “will become more pronounced over time. The creation of new markets, the influx of hundreds of millions of people who will want cellphones and air conditioners and water filters, who will want to eat a more varied diet of meats and fruits and vegetables, among many other things, will have a tremendous impact on world markets.”
Why does he see the trends as creating a “world right side up”? Because, he argues, this represents a kind of normalization of the globe in a post-US empire world. The Cold War was a grave distortion. In fact, the whole of the 20th century was a distortion too. Going back further, back to 1,000 years ago, we find a China that was far advanced over Western Europe.
I read Mayer’s prognostications with an attentive ear, for several reasons. His book is not the result of thousands of hours of Internet surfing or cribbing from the CIA World Factbook. He is an on-the-ground reporter who will go anywhere and do anything for a story about emerging wealth. The result is the kind of credibility that can’t be gained any other way.
But there is another reason. Mayer is often cited as one of a handful of people who saw what was happening in the housing market in the mid-2000s and issued several lengthy and detailed warnings. Not only did he foresee the bust, but he explained why the boom was taking place. He saw a perfect storm brewing with a combination of subsidized loans, too-big-to-fail mortgage agencies and a Federal Reserve policy that was designed to distort capital flows. He called it like few others.
This is not because he is a magic man. It is because he is schooled in solid economic theory — this becomes obvious in page after page — and also because he is intensely curious to discover the workings of that theory in the real world. In his way of thinking, if we can’t understand or expect change, we can’t understand markets, much less anticipate their direction.
Another thing: Mayer is less interested in big aggregates like GDP (and other such “economic monstrosities”) and more interested in taking a “boots-on-the ground view, a firsthand look.” His aim: “stay close to what is happening and what we can understand in more tangible ways.” And he seems close to everything: cement factories, the hotel industry, ranches and farms, coal and cellphone companies, financial houses, glassmakers, water purification companies — all the stuff that makes up life itself.
And what he discovers again and again are localized institutions that are cooperating globally (trade!) to build capital, wealth and new sources of progress that no one planned and hardly anyone anticipated. Here is the story of the building of civilization as it has always happened in history, but tracked carefully and precisely in our times.
In this book, he uses this combination of smarts plus fanatical curiosity to examine all the main contenders for the future: Colombia, Brazil, Nicaragua, China, India, the UAE, Syria, South Africa, Australia, New Zealand, Thailand, Cambodia, Vietnam, Mongolia, Argentina, Russia, Turkey, central Asia, Mexico and Canada. Here he finds innovation, capital, entrepreneurship, creativity, a willingness to try ideas and a passion for improving the lot of mankind.
His reporting defies conventional wisdom at every turn. Page after page, the reader will find himself thinking, That’s amazing. Nicaragua is not socialist. Medellín, Colombia (the “city of eternal spring”), is not violent. Brazil is no longer a land of rich and poor, but rather home to the world’s largest middle class. China is the world’s largest market for cars and cellphones; even in the rural areas you can buy Coke and a Snickers bar. India is the world’s leader in minting new millionaires. Cambodia (Cambodia!) ranks among the world’s most powerful magnets for investment capital. Mongolia has one of the world’s best-performing stock markets.
He also discovers many large American companies that have seen the writing on the wall and opened up factories, manufacturing plants, financial services and retail shops all over emerging markets. These companies are attracted by the intelligence of the workers, the relatively unregulated and low-tax legal environment and the cultures that have a new love for enterprise. And the returns are there too. The bottom line is sending a signal for them to expand.
It’s particularly intriguing to read about how all these emerging-market entrepreneurs overcome terrible and destructive bureaucracies — they exist everywhere! — that try to gum up the works, as well as bureaucrats who know nothing of business yet have the power to kill it off. Yet their very inefficiency is the saving grace. They can’t control the future. The brilliance of the market somehow finds the workaround.
Mayer’s main interest is in finding investment opportunities, and he lays them out in great detail here. If you think about it, this is just about the best vantage point from which to examine a new and unfamiliar world. Commerce is the driving force of history, the road map of where we’ve been and where we are going. To track down the profitable trade is likely to provide more valuable insight than all the academic speculations.
This is a very exciting book. It weaves history, geography, economics and firsthand reporting into a marvelous tapestry, one that is as beautiful as art and as complex and varied as the world itself has become in our times. A fine stylist, Mayer offers some fantastic one-liners in every section (“Change is like a pin to the balloons of conventional wisdom”) and his detailed stories give you the sense that you are traveling alongside him, like walking with Virgil in Purgatorio and Paradiso in one trip.
Mayer quotes Marco Polo: “I have not told half of what I saw.” In the same way, I’ve not told even 5 percent of what’s in this extraordinary tour of the world most people don’t know has come to exist only in the new millennium. There is no way a short review can do this book justice. There is so much wisdom packed in its pages. It is a meaty and enormously credible look at a world most people have never seen. In ten or twenty years, people will point to this book and say: this guy chronicled and understood what few others did.