What doesn’t kill emerging markets makes them stronger… right?
Isn’t it nice to finally emerge from the last four years of financial crisis? Oh, you didn’t notice? Are all the pundits’ discussions of fiscal cliffs, debt ceilings and deficit emergencies making you think we’re still in the midst of a never-ending crisis?
Well, they’re wrong. We’ve spent the last four years so conditioned to crisis — The banks are imploding! The dollar is ending! The double-dip recession is coming! — that now, away from crisis, we’re still feeding off it. But note that few of the apocalyptic scenarios came true. The United States didn’t nationalize its banking sector, the primacy of the dollar is unquestioned, and it was England, not the States, that returned to recession. Granted, America did ”suffer” a debt downgrade, but that didn’t lead to disaster: It sent investors scrambling into the safest trade they knew — U.S. treasuries.
These doomsday scenarios didn’t play out as predicted because the United States is actually much more stable than it initially seemed. But the countries leading the world’s growth — emerging markets such as China, India, South Africa, etc. — are far less stable. These are the countries we should be worried about, not our own. Emerging markets make up two-thirds of the world’s economic growth, but they’re countries in which the politics matter as much as the economics. One revolution, one coup, or one sanction can turn growth into risk. This is the precarious global economy in which we now live.
Nassim Nicholas Taleb might call these emerging markets brittle. In his new, insightful book Antifragile: Things That Gain from Disorder, Taleb outlines a different spectrum by which to judge whether an institution is hearty or not. How a country (or company, or organization, etc.) responds to crisis is what really matters. In 2013, the defining characteristic of health isn’t growth, but antifragility.
“Wind extinguishes a candle and energizes fire,” Taleb writes in his prologue. “You want to be the fire and wish for the wind.” Can emerging markets not just withstand crisis, but use it to change for the better? Can they withstand it at all? Mass protests continue in China about the country’s draconian stance on the free-flow of information, most recently stoked by censorship in the Southern Weekly paper. India has been convulsed by a national conversation over women’s rights after a brutal gang rape in December. South Africa’s union members are enraged after police opened fire on striking miners in 2012.
Ideally, these countries will use these crises to become stronger. We’ve seen that happen in Europe, where a financial crisis has helped strengthen the European Union, largely because Europe revealed itself to be antifragile. “The resilient resists shocks and stays the same; the antifragile gets better,” Taleb writes. With the help of existing democratic structures, we’ve seen the European Union move toward a more integrated system for all of its countries, Greece included.
Can we say the same for emerging markets? China is on its way to becoming the world’s largest economy, and when it does we’ll have something to seriously worry about. We like to think the problems of the U.S., whose antifragility hasn’t really been tested since it bailed out banks in 2008, are the ones that are going to matter most. But in the coming years it’s the emerging markets that will. The United States, remember, is stuck binging on crisis even though there isn’t one to binge on. The debt ceiling is just a sideshow, not a real wind of change that could force the country to become stronger.
Which brings us back to emerging markets, and the relative unknown. As I’ve written in previous columns, China, despite sticking with the status quo, is facing pressures from inside and outside its borders. Its Communist Party is governing two countries: one poor and rural, looking for economic growth, and the other urban and globalized, searching for the same rights and benefits afforded to middle-class people abroad. For example, what will the response be to Beijing’s enormously unhealthy pollution levels? Will it force China to think long-term, sacrificing short-term economic growth? Or will, somewhere in that hot, stilted air, a wind emerge that flickers China’s candle? If it’s the latter, China isn’t the only place at risk.
This essay is based on a transcribed interview with Bremmer.
PHOTO: The former Hainan Airlines headquarters topples during a controlled demolition in Haikou, Hainan province December 25, 2012. REUTERS/China Daily