What doesn’t kill emerging markets makes them stronger… right?

January 17, 2013

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


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Your headline is grammatically incorrect – what “doesn’t” kill “makes” stronger (or what “don’t” kill “make” stronger).

Posted by jjannicola | Report as abusive

Why would anyone worry about South Africa? The size of that country’s economy is equivalent to that of one medium-sized US city.
The situation in Europe is still problematic and volatile, and not really improving. Expect serious social unrest in major countries such as Italy and Spain, and a possible crisis ‘1968 style’ in France, with this ‘core’ country effectively moving into the ‘periphery’ zone.

Posted by reality-again | Report as abusive

Ian Bremmer, where are you from? Do you actually live in America and talk with anybody except the wealthy?

America’s middle class has been hollowed out, and shows no signs of recovery, but rather signs of accelerating damage.

What do you consider America, the physical land, or the people who were born here? Immigration into America is like a hurricane, affecting everything. Two weeks ago it was announced that 155,000 new jobs were created in America.

What failed to make the news was that last month over 100,000 peope immigrated to America LEGALLY. That 100,000 doesn’t count the illegal immigrants, which are thought to be very much greater than the legals.

So, of the 155,000 new jobs last month, bragged about by the Administration, almost 2/3 of them went to immigrants.

Meanwhile the careers of American-born middle class are being destroyed en masse. You tell them to wait, be patient. Their children are growing up, they cannot wait. Their livelihoods, everything they worked for are destroyed.

Immigration has two prominent lethal effects on the American working class:
1. Immigration drives wage rates down.
2. Immigration drives rents up.

So what if GDP goes up, if it is due mostly to the massive influx of immigrants?

So what if railroad tonnage goes up if wage rates everywhere in America are going down?

So what if American real estate prices are going up, because it is wealthy South Americans and Chinese that are buying up properties on every corner?

America the land will be here alright, but according to your line of thinking, perhaps we should be contented if Chinese investors and Saudi Arabian citizens buy all the American real estate, and then gently move the Americans out.

Then you could write that America is doing very, very well — much financial activity, and good antifragility.

Posted by AdamSmith | Report as abusive