BOOK REVIEWS

Breakout Nations: In Pursuit of the Next Economic Miracles By Ruchir Sharma New York: W.W. Norton & Company, 2012, 292 pages, ISBN 9780393080261. Reviewed by Selim Erbağcı

In the last decade, the world has According to Sharma, starting from witnessed an unprecedented de- 2003, the harsh interest rate reduc- velopment of many countries. The tion of the US, which aimed to al- speed of this process has not only leviate the effect of the tech bubble caused surprise but also has gener- that burst in 2001, has been the ated questions: How did these coun- common factor that has triggered tries manage such significant im- the rapid development in devel- provements? Why have some other oping countries through the high countries failed to reach a similar levels of money flowing into these level of success during the same period? How economies. Between the 1990s and 2007, the long could this rapid development last? Ruchir money flow to emerging markets increased Sharma answers these issues, explaining the from 2% to 6% of the emerging market GDP. common reason for rapid development during The author further emphasizes that in addi- the last decade and also the country-specific tion to having a common development dy- internal dynamics behind the rapid develop- namic, each country has its own individual ment of countries such as China, India, Brazil, development dynamic as well. Turkey, Russia, Mexico, and South Korea. Fi- nally, He also identifies the potential breakout China is Sharma’s first example for rapid devel- nations for the next decade. opment. One of the main drivers for its rapid development is that China’s export increased At the beginning of the book, to present the 20 % per year over the last decade and the in- whole picture, the author combines different vestment share of GDP increased from 35% to factors that he distilled from his analyses of 50%. However, Sharma is not optimistic about different countries: the persistence of this level of improvement for several reasons. First, China’s total debt “There is no magic formula, only a long list of has been increasing. According to the official known ingredients: allow the free-market flow numbers, their government debt is just 30% of goods, money, and people; encourage savings, of GDP, yet this ratio does not include debt and make sure banks are funneling the money of companies, many of which are government into the productive investments; impose the rule owned. Therefore, the author recalculates the of law and protect property rights; stabilize the debt to GDP ratio of China as being 200% by economy with low budget and trade deficit; keep including also the shadow banks, which are inflation in check; open doors to foreign capital, informally funding risky companies. A sec- particularly when the capital comes with tech- ond reason for China’s future slowdown is nology as part of the bargain; build better roads its rising labor costs. As a result of the one- and schools; feed the children; and so on”(p x). child policy of the communist party, the labor

222 Insight Turkey supply will significantly decrease in the next ficult to compare Brazil with China and India decade. Last, China has already increased its because of the different income per capita lev- legal minimum wage for factory work at least els ($12,000 for Brazil, $5,000 for China, and by 18% each year since 2003, except for 2008, $1,400 for India). Moreover, the productiv- which was an economic crisis year. Therefore, ity growth rate of Brazil was 0.2% per year in cheap labor will no longer be a triggering fac- comparison to a 4% annual increase for China tor of rapid development. between 1980 and 2008, which indicates that China has invested to make workers and ma- Sharma identifies India as the second break- chines work more efficiently. In addition, the out country of the last decade. After China, current total investment of China is approxi- India is the second fastest growing economy mately 50% of GDP, while only 19% for Brazil. with an average 9% increase in real GDP be- Furthermore, Brazil also keeps trade barriers tween 2003 and 2007. The main difference so naturally, trade is low: only a 20% of GDP. between China and India, however, occurs Due to these reasons, Sharma does not con- in the demographic structure. In compari- sider Brazil as a rising economy with its aver- son to the expected decrease of China’s labor age 2.5% growth rate. supply, India has a growing population of youth to participate in the labor force. As a According to Sharma, like Brazil, Russia is result, India has begun to identify its youth as one of the biggest beneficiaries of the last de- a competitive advantage. On the other hand, cade’s increases in the prices of oil and natural the author highlights the increasing official gas imports. As a big energy exporter, Russia transaction costs of initiating new enterprise shares this energy price risk with Brazil, so in India, which discourages growth. As a re- Sharma indicates that Russia should find an sult, investments by Indian entrepreneurs alternative income source to hedge this risk. have diminished from 17% to 13% of GDP With a 56% share of government in the econ- from 2008 to 2012. omy, Russia is similar to China in this respect.

The third country that Sharma concentrates In an analysis of Turkey as a potential break- on is Brazil, a top exporter of every commodi- out nation, Sharma asserts that one of the ty that has seen enormous price increases and main differences between China and Turkey as such, is one of the largest beneficiaries of is the saving ratio. The saving ratio of Turkey the last decade’s rally. The potential risk in this is 20% of GDP, which is low compared to Chi- situation is that once prices decline, as a result na with a ratio of 50%. The author further ar- of a slow down in the world’s growth and a de- gues that the money flow to Turkey is mainly cline in the demand, balancing the reduction short term and may cause an economic crisis of prices will become more complex. Second, in case of rapid cash out. To visualize the po- the value of Brazilian stocks and bonds has in- tential risk of its economy overheating, Shar- creased from five billion dollars to 50 billion ma likens Turkey to a sport car that can be dollars from early 2007 to March 2011. The accelerated easily, thanks to its young popula- value of Petrobras, a government owned oil tion. He also underlines the increasing effect company, reached 300 billion dollars in 2008, of the Middle East countries on both Turk- which is greater than 200 billion dollars: the ish foreign trade and tourism. He says that 10 total stock market value of Turkey at the same years ago only 7% of the Turkish exports went time. However, Sharma indicates that it is dif- to Middle East, but now it is 20%. The num-

2014 Wınter 223 BOOK REVIEWS

ber of tourists from the United Arab Emirates of which countries will be the breakout na- visiting Turkey between 2005 and 2010 has tions of the next decade, the author’s nomi- increased by 246%. nees are the Czech Republic, South Korea, Turkey, Poland, China, India, Nigeria, the Sharma considers South Korea as the stron- Philippines, Sri Lanka and a number of coun- gest developing country during the last de- tries in East Africa. cade. Today, South Korean exports generate 53% of its GDP, and it has 30% of the global I found the book very insightful. However, IT market. He also emphasizes that South Ko- there is still room for improvement. In Break- rean enterprises are among the major players out Nations, apart from just the economic in a variety of sectors and they are also open data and social indicators that can be found to foreign investment: More than one-third anywhere else, Sharma clearly explains con- of the Korea’s stock market is owned by for- ditions in different countries through com- eigners. South Korea, like Taiwan, is one of bining data with an analysis of the countries. the only two countries that managed to reach This makes it easier for readers to visualize growth above 5% per year for five decades. On the countries and draws them into the atmo- the other hand, the author considers South sphere of the country that he writing about. Korea’s household debt ratio as one weakness, He also transfers the knowledge in a way because it has one of the highest debt ratios of that enables even those without background the world. knowledge in this field to easily understand how various factors lead to the divergent de- Apart from these countries the author also velopment outcomes of different countries. mentions some other countries, which are Undoubtedly, there are thousands of re- less likely to be breakout nations in the next sources that can be used to obtain this type decade. According to Sharma, the number of information, however, a profound under- of Mexican citizens who emigrated between standing of a country really occurs by visiting 2006 and 2010 is 2.4 billion. He indicates that that country and inhaling its air. Therefore, with an income level of $11,000 per capita, an “Breakout Nations” must be read by those average of a 3% economic growth rate, and who are interested in understanding the rap- diminishing oil production, Mexico is not id development process in the last decade but among the potential breakout nations. After who do not have financial means or time to mentioning Taiwan, South Africa, Sri Lanka, visit all these countries. and Vietnam, the author highlights that he does not consider Saudi Arabia as a potential After reading the book carefully, I have two breakout nation because although Saudi Ara- possible suggestions on how to improve this bia owns almost half of the world’s crude oil book. My first one relates to Russia and India, resources, it also has one of the largest gaso- and my second suggestion relates to Turkey. line deficits of the world, which means that it does not have enough refineries or other Although, the author presents compelling ar- manufacturing activities. guments about the individual factors that de- fine Russia and India’s development path, he The breakout nations of the last decade, how- does not address the brain drain issue away ever, may not be the breakout nations of the from these two countries. Some of the best- next decade. As for the answer to the question educated and most promising citizens of these

224 Insight Turkey nations emigrate abroad, which hinders their sition party’s current situation when he was rapid development. Therefore, while evaluat- explaining the political success of the rul- ing the development of these two countries, ing party, which has been at the helm of the the increasing brain drain problem should country for three consecutive terms. Finally, not be omitted. The main causes of Russia’s to effectively argue that Turkey is one of the brain drain include, the difficulty of start- potential breakout nations for the next de- ing a business, the lack of political freedoms, cade, the analysis should have relied on more poor education, and better job opportunities economic data analyses instead of mainly the elsewhere.1 As for India, the main causes of analyses of the political situation. the brain drain are the difficulty of finding a job, the unemployment rate, the lack of facili- Aside from these critiques, the book is highly ties for research, and better living standards successful in meeting its goals. Instead of just abroad.2 interpreting the data, the author profession- ally depicts the true atmosphere of the coun- Another issue is Turkey. The author portrays tries and gives a comprehensive understand- Turkey’s atmosphere as successfully as a na- ing of their situations. tive Turk could, especially in terms of his viv- id and accurate description of the economic Endnotes success and political situation of the country 1. http://online.wsj.com/article/SB1000142405274870481 in the last decade. On the other hand, the 6604576333030245934982.html Turkey section of the book would have been 2. http://www.indiastudychannel.com/resources/71129- richer if the author had analyzed the oppo- Problem-Brain-Drain-India.aspx

The Everlasting Empire: The Political Culture of Ancient China and Its Imperial Legacy By Yuri Pines Princeton: Princeton University Press, 2012, 256 pages, ISBN 9780691134956. Reviewed by Hsiao-wen Cheng

While dynasties rose and fell in chism; the theoretical omnipotent the geographical area now called monarchs and the practical “checks “China,” in this book Yuri Pines and balances” of the imperial bu- treats the Chinese empire since the reaucrats; the literati class as the lo- Qin dynasty as a whole and inquires cus of both political and moral/cul- into its longevity. This inquiry is tural authority; and the exclusion justified by Pines’ in-depth discus- of commoners from actual political sion on several continuous charac- processes. Focusing on the intel- teristics of Chinese imperial system lectual aspect, Pines draws connec- and political culture: the persistent belief in tion between pre-Qin thought and political the “Great Unity” and in absolute monar- ideology of later times, effectively synthesizes

2014 Wınter 225