In the world of The Black Swan author, Nassim Nicholas Taleb, the biggest mistake by policy makers and investors has been to equate lower risk with lower volatility – or stability.
Stable government by a single consistent leadership is more likely to store up trouble for the future. Just look at Syria – or the risks in Saudi Arabia – compared with a country where governments frequently collapse and rebuild, such as Italy. Like companies failing, nations learn to adapt and grow stronger.
So where does this idea leave some of the biggest emerging markets? At the Global Business Summit in New Delhi, Frontera’s Managing Editor Gavin Serkin asked Taleb to apply his analysis to India – the world’s fastest growing major economy – but grouped among the “fragile five” vulnerable currencies just two years ago by Morgan Stanley.
Here’s what Taleb had to say:
“Fragility is at many levels for the state. In the markers of fragility, India was not one of the fragile countries. A fragile country was Saudi Arabia, Kuwait – although they have financial reserves, we see they’re receding very quickly.
What is a fragile country? The first thing about a fragile country is centralization or size. India has size without centralization, so that’s helping it.
You do not have a move like China – there are good years, but it’s not going to cause a bust.
Another attribute for a very fragile state is concentration of social revenue, like countries that depend on oil or stuff like that. That’s another cause of pressure. And effectively you don’t have that problem in India.
No matter how you look at it, you realize that India has been lagging some other countries, like Korea, like China. You’re not going to have the same bust.
There’s another thing about India – it’s extremely democratic. The only bad thing is a static bureaucracy. Year-on-year, it looks like it has improved. So long as that static bureaucracy is dealt with properly, the system will not suffer.
So I don’t see fragility in India – maybe … some bad properties of the system that needs to be cleaned up. And everybody’s cautious – every time you talk to someone in India, they line up to say what needs to be cleaned up.
It’s not so much the corruption as the fixtures around the system that slow things down.
And finally, sometimes a system can jump. So if you see such a jump in India, it’s more likely to be up than down.”
The above is an edited excerpt of Taleb’s comments at the Economic Times of India’s Global Business Summit in New Delhi on Jan. 30 in response to a question from Frontera’s Gavin Serkin.
4 February 2016
