Event 19 June, 2024: Tête-à-Tête with the Authors - Economic Success: Is it fate or destiny?

Is a nation's economic success predicated on external factors or internal choices?

Time and time again we witness events around the world that run contrary to economic logic. Here are a few recent examples.

Why are the Chinese not spending? Everyone expected them to splurge after Covid-19, as other countries did. But that didn’t happen. The Chinese have always been a nation of savers. This is a concern to their leadership, who are keen to rid themselves of their reliance to the West and eager for their citizens to purchase higher-value products and services.

Another group of people not spending as much as expected are retirees in most countries. There was an article in the Economist two weeks ago pointing out that the post-WWII generation have a lot of money, and yet they don’t want to spend it. Go to any high-end restaurant in Singapore and you see mostly people in their 40’s or 50’s, not retirees. Economists tell us that as we grow older and wealthier, we should be spending a higher portion of our income, but that’s not happening.

Another mystery is why Japan’s economy isn’t growing. The stock market has rebounded strongly, inflation has finally returned, and yet GDP growth remains negative. South Korea is now richer on a per capita basis. Next year India’s economy will be larger than Japan’s.

In order to make sense of those events, we need to understand what drives people. Economic incentives drive people. A market economy, for all its flaws, supported by strong institutions, is still the best way to achieve prosperity. But people are also driven by their values. Different levels of honesty, kindness, trust and many others determine to a large extent how people behave.

The main reason why the Chinese and the boomers don’t want to spend is that they are thrifty. They’ve been told from a young age that they should save a large portion of what they earn.

In the case of Japan, a fear of taking risks since the early 1990’shas led to several lost decades of slow growth. Stock values have surged because international investors are pivoting away from China. Inflation is mostly imported. But in the domestic market, nothing has changed. Those who expect a revival of the Japanese economy will be disappointed.

A value which is completely ignored by most and yet is fundamental to the wealth of nations is hard work. There are certain communities that always, without a single exception, succeed economically: the Chinese, Japanese, Indians, Jews, historically Protestant nations. Those are the most well-known ones. But there are others.

In this book we talk about the success of the Nigerian Igbo, one of the three large ethnic groups in Nigeria. Prior to Covid-19, about 20,000 Africans, mostly Nigerian Igbo, lived and worked in the Chinese city of Guangzhou, the largest African community in Asia. They act as middlemen, purchasing clothes, handbags, shoes, cosmetics, jewelry and electronics from Chinese suppliers and shipping them to Africa. Those traders act as an interface between two worlds that have become two of the biggest global trends: the ‘factory of the world’ in South-East China that mass-produces cheap but functional products; and a growing African middle class eager to consume those goods.

This is a business fraught with dangers, where only the best traders succeed. A different culture, different language, changing consumer trends, fluctuating prices, foreign exchange exposure. They also face discrimination because of the color of their skin, something that was exacerbated during Covid-19 when many landlords ejected them from their apartment and restaurants refused to serve them. Their success against all odds was achieved because of their ingenuity, their ability to establish strong connections and, above all, their willingness to work hard.

This isn’t just true in Guangzhou. In the US, the median household income for Nigerian Americans, predominantly Igbos, is 40 percent higher than that of Black migrants. At Harvard Business School, more than 20 percent of Black students are of Nigerian ancestry even though they make up just one percent of Blacks in the country.

Another example are Indians. India is a very diverse nation, but overall, Indians have done very well for themselves wherever they migrate to. In the US and the UK, they form the highest income group, but that in itself does not tell us much about their values because many of them represent the intellectual and sometimes financial elite of their country.

But consider how, at the start of the twentieth century, destitute Indian migrants, mostly Sikhs, Gujaratis and Sindhis, were forced by the British to relocate to East Africa to work on a railway project. Working conditions were brutal. It became known as the ‘lunatic line’. Workers had to contend with long hours, oppressive heat, hostile tribes, jungles, diseases, and even man-eating lions. 2’500 workers, mostly Indian, perished. Many were the target of persecution, expropriation and discrimination, first by their colonial masters, and then by the local population, suspicious of their achievements.

They were even forced out of their own country in Uganda, when in 1972 its ruthless dictator Idi Amin Dada gave Ugandans of foreign origin, mostly Ugandan Indians, 90 days to leave the country, threatening them with death if they did not comply. Despite all the hardship they faced, most Indians in East Africa prospered, evolving into a flourishing professional community. Indians represent about one percent of the population of Kenya, Mozambique, Uganda and Tanzania, but they dominate the economies of those countries and feature prominently in local lists of its wealthiest citizens. It is through their hard work, a value transmitted from one generation of Indians to the next, that they have, on average, done very well for themselves.

We cannot think of a single example of any of those communities relocating to another country and not becoming highly successful. But we should also be mindful never to label one society as superior to another because their people identify more strongly with certain values. Some communities will value materialistic gains, and the efforts required to achieve those gains, more than others. This is likely to lead to higher standards of living, more purchasing power and better healthcare. But it may also lead to a more competitive and individualistic society, higher levels of stress and suicide rates, declining birth rates and weaker family ties. Ultimately, the short amount of time that we spend on this planet should be about living a happy and fulfilling life, with each of us having a different perspective on what that means and how to achieve it.

Take Oman as an example, a country in the Arabian Gulf located East and South of Dubai. According to the World Happiness Index, Omanis are the 22^nd happiest population on Earth. All Gulf countries ranking in the top 50. Omanis may not be as rich as Singaporeans or Americans, but they lead a life that they are mostly contended with. They do not have to worry about getting good grades at school, stress at work, losing their job or collecting their pension in old age. Most of them are able to spend as much time as they want to practice their religion and interact with families and friends. Family ties are very important to Omanis and throughout the Middle East. With a life expectancy of 78 years old, the average Omani lives as long as an average American. Would becoming richer make Omanis happier? Not if it implies giving up the quality of life they have enjoyed in the past decades.

Our view of the world incorporates human values and leads us to predictions that are often at odds with most others. We believe China will become a highly-developed nation within the next thirty years, with or without a democracy, and despite its current slump. Yes, China will remain reliant on exports because its people spend little of their income. But those exports are becoming increasingly high-value and sophisticated: electric vehicles, batteries, solar panels, commercial planes in the near future. India is likely to get there as well, but it will take longer because some sectors such as agriculture and manufacturing remain heavily regulated, despite undeniable improvements made in recent years.

Japan’s economy will never escape its ongoing lethargy and will experience several more lost decades. Despite growing concerns from its population, the US is not in decline, but it struggles to come to terms with the fact that other large nations are quickly catching up. American consumers will continue to be financed by Asian savers. Southern and Eastern Europe will never fully catch up to Northern and Western Europe, despite a common market. With very few exceptions, no country in Latin America or in Africa will ever join the ranks of highly industrialized nations.

Economic success: is it fate or destiny? It is a bit of both. Implement the right policies, and you have a much better chance of seeing your economy grow. That’s destiny. But to become a highly developed nation, you also need human values that are conducive to growth. That’s fate. We believe that this interaction between values and policies is the key to better understand the world we live in.