What I read in 2024: Part 7 of 9
"Why Nations Fail" - Emerging Markets edition and Tolstoy on Burnout
Illustration 1: Leo Tolstoy the “Therapist”. His “The Death of Ivan Ilyich” was the first mature literary treatment of an emotional burnout
This is the seventh part of my reading reviews for 2024 (Read the sixth part here). The books I talk about today weren’t very thick. Though they were far from being breezy reads.
The first is a pioneering treatment of the diversity - in economic capabilities, possibilities and outcomes - within the broad class of nations categorized as “Emerging Markets”. Its remarkability comes from its ability to highlight the heterogeneity, and hence the opportunity, to extract alpha, that exists in emerging markets, if you are a macro fund manager. The other is a precocious description of “burnout” in the 19th century - and a reminder that a emotional starvation doesn’t just have to come from the workplace. It is one of the world’s greatest novelists’ investigation of authenticity.
Breakout Nations: Ruchir Sharma
Illustration 2: China’s GDP growth through early 2010s. Back then, calling out the timing for Chinese “hard landing” was a necessary task for every economist and fund manager; Source: Trading Economics
I remember purchasing Breakout Nations from the Crossword store next to my office in Hiranandani - during a rainy lunch break, having seen it stacked as a bestseller at the store’s entrance. I had just taken up a job with Credit Suisse in their economic research division. To have owned this book as an emerging economist (alongside Robinson and Acemoglu’s “Why Nations Fail?”) was table stakes. I read a couple of sections sporadically. Liked it. Gifted it to a lot of close friends. But had never managed to read it until a dozen years later on a corporate offsite in Udaipur. Reading it was like eating leftover dinner for breakfast. Some parts of it taste terribly good. Some parts taste slightly off.
When it was written in 2012, Breakout Nations was a tour de force.
I remember working in teams at large investment and private banks where entire teams of economists, fund managers and investment strategists, especially those dealing with emerging markets, could be best described as “summarizers”. Someone I closely worked with, who covered India and Brazil, had been to the latter only for a holiday and had avoided the former because it was “not safe”. Macro coverage of economies was largely an acronym game “BRIC”, “MIST” , “EM” - where fund managers pooled money into heterogeneous economies, united only by their own ignorance towards them.
This book was written to break that mold. Ruchir Sharma was one of the early economists/investors to have relied on channel checks - casting aside armchair analysis for a real immersion experience in these countries. The result is a book that is like a Voyager Space probe for fund managers - showing them how the planets (countries) on the outer edge of the solar system (world) are different from each other. A 10-odd page review of two dozen emerging economies might be perceived as an unfair approximation by people living in any of them. That makes up the bulk of the criticism that Sharma has received for this book. I feel those are very lofty expectations. This book was aimed at creating a framework for institutional investors to understand the differences within emerging markets, add anecdotal and statistical evidence for the framework and then pick winners and losers from their perspective. Based on my personal experience in the industry, it does quite well on those aspects.
There’s much that Sharma gets right in this book. Traveling across emerging markets, he questions the idea of open international markets and private ownership being a medicine for all economic stagnation - one of the strongly held views within the neoliberal Washington Consensus that dominated economic policy thinking from 1990-2010. He singles out the oligarchs in Mexico, Russia and Brazil, who run monopolistic industries, whose profit growth systematically outstrips the country’s economic growth and who often are capital exporters to tax and compliance havens.
He was also one of the first to raise the alarm that India was not automatically destined to become China, especially if it did not increase its labor force participation rate. A decade later, an underutilized demographic dividend remains India’s biggest obstacle on its jump into a Middle Income economy. He is prescient about the US maintaining its technological advantage over the emerging markets through the 2010s, something which has held true, especially from a tech investors’ perspective.
That said, there is plenty that, in hindsight, he gets wrong as well. Back in 2012, the author was one of the first economists to hold up Turkey under Erdogan as an economic poster child in the Islamic world. While Turkey’s focus on domestic light goods manufacturing and its emergence as a premier consumer market in the MENA region was overemphasized, the unholy nexus between government adjacent corporates, banks and a weak central bank was underemphasized. Turkey since then has seen its growth rate move from a 4-5% range to half that and its currency devalued by more than 20 times.
Perhaps an authoritarian regime is like a high-risk, high-reward VC style bet on the economy. With the right reform minded leaders (such as those in Communist China) the outcome is an economic miracle. But in 9 cases out of 10, you could end up with basket cases.
On the other hand, Vietnam, which was termed as “Meh” by the author for its inability to invest in export infrastructure, has since the beginning of US-China trade war in 2018, emerged as the premier offshoring destination for companies looking to diversify their supply chains out of China.
Sharma’s winning leaderboard is populated by Taiwan and South Korea - two of a select club of three countries with a population of more than 20 million people - which has moved from being an emerging market country to a developed economy (GDP per Capita > 20K USD) since the end of the second world war. In there lie some common threads.
Both are economies that saw a phased opening to global markets, retain some form of currency control even today and despite having a private sector, have an active industrial policy that promotes certain domestic industries over the others. One wonders if this could be the standard blueprint for an emerging market to grow out of poverty, especially in the absence of a windfall surplus from imperial rule enjoyed by the European economies.
Economists are obsessed with grand, eternal narratives. Breakout Nations is an inverted book. It sets out to break them. Especially the tendency to treat emerging markets en bloc. I would say that in his bid to etch out the idiosyncrasies of each economy and pick winners, he gets it right just 60 percent of the time. Having that hit rate over a decade, without being able to modify his calls, speaks of a remarkably observant economist.
Yes, the frame with which he quantifies success is largely dependent on the performance of financial markets, and sidelines economic equity and sustainability. But that is a book for another writer to write. More so because a lot of Impact and ESG Funds are also plagued by the same nuance-less herd behavior that characterized EM Funds in the 2000s.
Illustration 3: Antonio Salieri, Mozart’s rival in the Habsburg Court. And someone like Chatur from 3 Idiots - one who ticked all the boxes that were considered right in his time. Source: Joseph Mahler
You are born in a well-to-do family. Your parents have the right connections. You do quite well in the university. You land a job in judicial services - a plum bureaucratic post in a society where gaping inequality widens with each year of economic growth. You marry a good looking woman of means. You have a daughter who has a stable partner and is about to marry him. You are still in the middle of your career but you have made enough to buy yourself a big house. Yet, you feel an emptiness inside.
A nagging sense of incompleteness despite having met all of society’s expectations. One day, you fall terminally ill. The Death of Ivan Ilyich is a tale of the disintegration of a man suffering from what we would call a “chronic burnout”. Just that it is 19th century Russia, and it is referred to as a spiritual crisis.
The Death of Ivan Ilyich is a masterpiece of brevity. A man usually known for taking a hundred pages for character development in his masterpieces, finishes an entire novella within a hundred. That awareness of choosing just the right number of words required to say what he wants is exactly what makes him one of the greatest novelists of all time. Unlike his other novels, his pace here is hurried - the characters are fewer.
The question posed is simple - having achieved all you wanted to, Have you lived?
Tolstoy was touching upon mental health and motivational issues even before consulting, hustle-preneurship and high finance were invented.
This novel, in its despondence, also touches on the case of dead relationships - something people drag along, gaslighting themselves into believing that tolerance and compromise will make them bearable. Ivan Ilyich has a similar relationship with his wife, someone who fills a social requirement for a man of his standing. Notably, Tolstoy himself was going through a similar phase in his marriage when he wrote this story. It isn’t that she doesn’t provide for him. Just that she doesn’t relate to a man dying. She is too busy being seen as a carer. And later a manager of his estate until his children come of age. It is a person’s search, in his dying days, of one unconditional relationship in life.
It is also a profound meditation on death. We remain indifferent to it despite its everydayness, until the impending nature of our own makes us treat it uniquely. Ivan faces his death in two ways. First, by shuffling together the pieces of his life for a meaning. Second, by vigorously pushing away anyone who tries to help him, and asking why fate chose this end for him.
Sometimes, when we have never asked ourselves honest questions, developing a mental muscle to confront yourself is its own strain. Ivan doesn’t really know what he wants - he read things other people in the society were reading, believed in ideas which were in fashion- and the effort to figure it out is a big part of his anguish in the terminal days. By examining life from the threshold of death, this novel hits out at the inauthentic conformity of existence.
Tolstoy’s solution, for a character living through this unfilled emptiness is not about pushing him to seek external help - neither in religion or with a doctor. Ivan “meditates” through his pain, confronts his life, looks within. He looks for someone who would understand his loneliness and fear of death, turning away from those who he has clung on due to social conventions. And finds it in a servant boy in his household. Seen from a modern perspective, dealing with depression and death together, through self examination and effort might seem counterproductive.
Today, we encourage people fighting mental battles to talk it out with someone sympathetic, and preferably one with some expertise. But one needs to put Tolstoy’s solution in the perspective of time he lived in. A constant theme in his later writing is a rejection of structures especially religious and political, a personal experience of spirituality and search for authenticity, however awkward it might seem.
This book doesn’t end on a sad note though. It ends with an acceptance - both of a mundanity of the narrative in life and the importance of enjoying the little moments within. With letting go. Like Christ, he dies. And then he lives. Having found that one person that cared for him, having communed with him. And having thus conquered the fear of death
If you have ever had that feeling of not being able to enjoy the journey while chasing the milestones, of being unable to feel anything for people around you - this book is a recommended reading. Think of it not as a medicine, but a nutritious diet. Something that nourishes your soul and fortifies your self-confidence while you seek external help.
The next part of this essay will conclude, with comments about my Dussehra/Diwali and Christmas/New Year holiday reads for 2024. One is a book that redeems the genre of Indian political biographies, by tackling an admired, but complicated man. The other is a collection of cuts left on the floor when the victor’s reel of the second World War was filmed. It talks about how the world looked like in the second half of 1945, soon after the war had ended.