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0:01:25 Episode 305.
0:01:27 305 is Erica, belonging into parts of Florida.
0:01:29 True story, a man after killing his partner
0:01:33 and then eating his partner took his dog for a walk.
0:01:37 How come you just knew that guy lived in Florida?
0:01:41 Not a joke.
0:01:42 Not a joke.
0:01:43 Go, go, go!
0:01:54 – Welcome to the 305th episode of the Prop G-Pod.
0:01:57 I am still in the South of France, the Cannes Line Festival.
0:02:01 My Pivot co-host, Kara Swish, and I recorded live
0:02:03 on stage at the AddWeek house.
0:02:05 You can hear that episode over the Pivot feed tomorrow.
0:02:08 It was lovely.
0:02:09 It was lovely.
0:02:09 We had Rosé after.
0:02:10 It was very nice.
0:02:11 Also, the Olympic torch came marching through.
0:02:15 Does anyone care?
0:02:17 Does anyone care about the Olympics anymore?
0:02:19 I got invited to the Olympics and I said to my kids,
0:02:21 “Hey, do you want to go to the Olympics?”
0:02:22 And they’re like,
0:02:23 “What are the Olympics?”
0:02:23 Literally they’re like, “Do we have football tickets?”
0:02:26 Which, you know, soccer.
0:02:27 And I’m like, “No.”
0:02:28 And they’re like, “No, we’re not interested.”
0:02:29 We don’t want to hear.
0:02:31 We don’t want to see 100 hours of diving, swimming,
0:02:33 and discus throwing.
0:02:34 They just, it’s such an interesting case study
0:02:37 and I don’t know the answer
0:02:38 in why the Olympics have fallen so far
0:02:41 and the World Cup has ascended
0:02:43 at such an incredible pace.
0:02:45 Anyways, I’m making the rounds again.
0:02:47 I like it here because people come up to me and say hi
0:02:49 and I purposely take my boys into town
0:02:51 because I’m desperate for their affirmation.
0:02:52 I want them to see that what I do
0:02:54 actually gets some recognition.
0:02:57 So what are we doing?
0:02:58 We’re skipping our news headlines
0:03:00 and busting right into our conversation
0:03:01 with Ruchir Sharma,
0:03:03 the chairman of Rockefeller International and founder
0:03:05 and chief investment officer of breakout capital
0:03:08 and investment firm focused on emerging markets.
0:03:10 We hear all about Ruchir’s new book,
0:03:11 “What Went Wrong with Capitalism.”
0:03:14 Okay, Ruchir, where does this podcast find you?
0:03:16 – I’m here in New York in midtown.
0:03:18 – Oh, nice.
0:03:19 Well, let’s bust right into it.
0:03:20 In your new book, “What Went Wrong with Capitalism,”
0:03:23 it’s really a critique of capitalism,
0:03:26 a capitalist critique of capitalism, as you say.
0:03:28 So tell us, how has the system been ruined?
0:03:31 – Yeah, I think actually showing the book here, Scott,
0:03:34 which is the fact that if you look at what’s been happening
0:03:38 in America, pretty much a lot of the Western world
0:03:40 over the last few decades,
0:03:42 is that we have progressively seen
0:03:45 greater and greater government intervention in the economy.
0:03:49 The suite of habits extends to just more
0:03:52 than government spending.
0:03:53 Government spending of the share of the economy
0:03:55 has gone up from a century ago at just 3%
0:03:58 when the government would do little more
0:03:59 than deliver your mail to about 36% today.
0:04:03 But it’s not just that.
0:04:05 It is if you look at the regulatory state,
0:04:08 we look at the impulse to bail out,
0:04:10 the proclivity to manage the business cycle.
0:04:14 Just across the board,
0:04:16 we have seen a massive increase
0:04:18 in government intervention in the economy
0:04:20 with the consequence that it’s destroyed,
0:04:23 the creative, destructive fiber of the economy,
0:04:27 and productivity growth has been declining
0:04:30 for the last few decades as well.
0:04:32 So that’s the point I try and make,
0:04:34 which is that there are lots of perverse consequences
0:04:37 that have come out of this systematic intervention
0:04:41 in the economy,
0:04:42 and those consequences include declining productivity,
0:04:47 rising inequality,
0:04:48 and also this feeling amongst most Americans
0:04:53 that the system they have in place is not working.
0:04:55 Nearly 70% of Americans want big economic change
0:04:59 or want the current economic system to be torn down.
0:05:02 – So let’s break that down.
0:05:04 So it’s impossible to deny that government spending
0:05:08 is not out of control, right?
0:05:11 Seven trillion dollars on five trillion receipts.
0:05:13 There’s been unbelievable or staggering bailouts,
0:05:17 I think, what, six, eight trillion dollar COVID relief.
0:05:20 The only thing I would push back on and require,
0:05:22 or would double click on,
0:05:25 is this notion that we’re over-regulated.
0:05:27 My sense is that some of the biggest industries
0:05:29 are under-regulated and we’ve had monopolies form.
0:05:32 Your thoughts?
0:05:33 – Yeah, so, again, yeah, let’s look at the data, right?
0:05:36 Which is the fact that America is introducing
0:05:38 3,000 new regulations a year.
0:05:41 And that’s gone up over time.
0:05:44 And I argue in the book that, in fact, regulation
0:05:47 tends to be pro-incumbent and pro-big business
0:05:51 because when you introduce new regulations,
0:05:54 the existing people are able to game the system much better,
0:05:58 get the regulations they want,
0:06:00 and also it makes it that much more expensive
0:06:04 for new companies to come up.
0:06:06 So therefore, it’s one of the reasons I think
0:06:08 that the number of startups in America
0:06:10 has been declining right up until the pandemic.
0:06:13 We saw a big decrease in the number of startups in America
0:06:17 over the preceding two or three decades.
0:06:18 So I would say that, yes,
0:06:20 that we possibly can do with better antitrust regulation,
0:06:24 which is what I think that you’re alluding to.
0:06:26 But I think that we sort of have to see
0:06:29 that in every industry otherwise,
0:06:31 we have seen regulations increase
0:06:33 and that tends to hurt small and medium-sized businesses
0:06:36 from coming up.
0:06:37 I know it from personal experience
0:06:39 that the cost of, let’s say, setting up a new fund
0:06:43 is up 10 times over the last 20 years.
0:06:46 So that makes it very difficult
0:06:47 for someone looking to set up a new fund
0:06:49 and breaking even compared to some large fund
0:06:52 which is already there, has the resources,
0:06:55 has the legal compliance departments to deal with all this.
0:06:59 – So it makes sense that certain industries,
0:07:02 such as financial services where more compliance,
0:07:06 you know, Sarbanes-Oxley, whatever you want to,
0:07:09 it just gets harder and harder and harder to compete
0:07:12 or to start up.
0:07:13 My understanding is there were more new business applications
0:07:16 or permits filed last year than in history.
0:07:19 And two, it does seem though that some of our biggest industries
0:07:24 have figured out a way to weaponize government
0:07:26 or weaponize lobbyists.
0:07:29 But what you’re saying is the majority of industries
0:07:31 are over-regulated and this suppresses economic growth.
0:07:35 Do I get that right?
0:07:36 – Absolutely.
0:07:37 So I’d say, you know, and you’re correct,
0:07:39 that we did see like a spike up in new businesses
0:07:42 or so over the last couple of years,
0:07:44 but a lot of that was because during the pandemic,
0:07:47 many had to shut down.
0:07:48 So that’s a bit of a churn which is going on.
0:07:50 That’s not been the true trend over the last 30 to 40 years.
0:07:55 So I think we have to keep that in perspective.
0:07:57 And the second point, as you say, is that, yes,
0:08:00 you know, there has been some deregulation.
0:08:02 For example, there’s been financial sector deregulation,
0:08:04 which is why financial markets have exploded a lot.
0:08:07 But I’d say for most industries in things like hospitality
0:08:11 and things like restaurants and stuff,
0:08:13 the number of regulations that any small business
0:08:15 has to deal with has gone up a lot.
0:08:17 And that shows up in all sorts of ways.
0:08:19 For example, if you look at the number of lawyers in America,
0:08:22 America has always had a very large legal population.
0:08:26 The number of lawyers per capita
0:08:28 is about the largest in the world.
0:08:30 But again, that this growth has exploded
0:08:34 in the last 20 years or so.
0:08:36 So it’s clearly in terms of who’s benefiting
0:08:39 and even in terms of lobbyists that you point out,
0:08:41 which is that the number of lobbyists in Washington
0:08:44 have been captured by all the Big Tech firms.
0:08:47 The Big Tech firms dominate the number of new lobbyists
0:08:51 in Washington or just total spend on lobby.
0:08:54 – So in your book you say in the 2010s,
0:08:57 economies worldwide began to slow.
0:09:00 Why did this happen and where are we today?
0:09:02 – Yeah, so productivity growth across the world
0:09:04 has been slowing.
0:09:05 And so I think that this is what in fact
0:09:07 looks America a bit better,
0:09:08 which is that the productivity growth in places like Europe
0:09:12 has been slowing even more than what’s happened in America.
0:09:15 But the point I make in the book is that’s partly
0:09:17 because they’re the kind of state intervention
0:09:21 they have, the regulatory phalanx that they have
0:09:24 is much greater than even here in America.
0:09:27 So that’s not the right benchmark.
0:09:28 But in general, I make the point that productivity growth
0:09:31 has been slowing everywhere in the mix of what is otherwise
0:09:35 such a powerful tech boom.
0:09:36 And this is a trend that predates even the 2010s.
0:09:39 It’s been like on a decline apart from a, you know,
0:09:41 like a brief surge in the late 1990s and early 2000s
0:09:45 when you had the internet revolution.
0:09:47 Productivity growth has been generally slowing everywhere.
0:09:51 And I deal with this productivity paradox
0:09:53 in the book extensively saying that
0:09:55 what could be causing this?
0:09:57 You know, all these arguments that
0:09:59 it’s because of mismanagement and all,
0:10:01 but that’s not true because, you know,
0:10:03 like in the late 90s on the back of the internet,
0:10:05 boom, you did see a temp research.
0:10:07 So I think that the reason economic growth
0:10:09 has been slowing a lot
0:10:10 has to partly do with demographics,
0:10:12 that he has population growth across the world
0:10:14 has slowed down.
0:10:15 That does not much we can do about that.
0:10:18 But as far as productivity growth is concerned,
0:10:20 that too has slowed down significantly
0:10:23 despite some tech innovations that have taken place.
0:10:26 And now we are hanging our hat on AI boosting productivity.
0:10:29 But I think that the, as I said,
0:10:32 that the capitalist creative destructive fiber
0:10:34 of the economy has been undermined
0:10:37 because we’re keeping alive so much dead wood.
0:10:39 I mean, today, the number of zombie companies, as I say,
0:10:43 that we have in the economy today
0:10:45 by some measures is close to 20%.
0:10:48 What do I mean by that?
0:10:49 These are companies that are defined as firms
0:10:52 that have not or are not earning enough profits
0:10:56 to even cover their interest payments
0:10:58 for three years in a row,
0:10:59 but keep going back to the market to refinance themselves.
0:11:03 And when we do that,
0:11:04 we sort of obviously undermine productivity growth
0:11:07 in the economy.
0:11:08 – Yeah, I’m a big believer that you need churn
0:11:11 for a robust economy
0:11:13 and that the incumbents don’t want churn.
0:11:15 Just let me put forward a thesis
0:11:18 and I’d like to get your response,
0:11:19 that one reason why we’ve seen a decline in productivity
0:11:23 is because of low corporate tax rates.
0:11:25 And that is corporations have a memory
0:11:29 and when they can get 80 cents on the dollar
0:11:32 out to a shareholder,
0:11:33 they will choose to distribute earnings.
0:11:36 Whereas if the tax rate is say 40%
0:11:38 and they’re only gonna get 60 cents out
0:11:41 and they get sort of a 40% reduction in the price
0:11:45 of reinvesting in the company
0:11:46 and plan property and equipment to grow the top line,
0:11:49 that the incentive is to or the hurdle rate
0:11:52 for a go on investment is lower
0:11:55 when tax rates are higher.
0:11:56 Is there any truth to that?
0:11:58 – Well, the evidence again doesn’t really back it up, right?
0:12:00 Because if you look at what’s happened in Europe,
0:12:03 or wherever the corporate tax rates have been higher,
0:12:06 they haven’t been able
0:12:07 to sort of get higher productivity growth either.
0:12:10 So I just don’t see the evidence of that.
0:12:12 Yes, I do feel the fact that the tax system
0:12:15 could do with a big overall.
0:12:16 I think we all agree with it.
0:12:18 There’s too much of a disparity
0:12:19 in the way that a W2 wage earner is taxed
0:12:23 compared to how much lower capital gains taxes are.
0:12:27 So yeah, there are other distortions
0:12:29 which I completely agree with.
0:12:31 But I think that in the book,
0:12:32 what I’m gonna focus on is the fact that
0:12:34 what happened to capitalism?
0:12:36 What did the founders have in mind?
0:12:38 Is the system today what we have capitalism
0:12:41 and why are so many young people in places
0:12:44 like America disillusioned with the world capitalism?
0:12:47 As I say in the book that the surveys show
0:12:49 that most young Americans, particularly Democrats,
0:12:53 say they would rather have socialism than capitalism.
0:12:56 That’s a really big statement for a country
0:12:59 that was the founder of pro and practical purpose
0:13:02 as a capitalist system.
0:13:03 We’ll be right back.
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0:16:14 – So let’s assume that we agree,
0:16:24 that most people agree that we need
0:16:26 to cut government spending.
0:16:27 Where do you think we cut it?
0:16:29 – So that’s the point, right?
0:16:30 Which is that, how do you prioritize that?
0:16:32 I mean, what has the Biden administration done?
0:16:34 It has just doubled down on its spending.
0:16:36 So now it’s spending on everything.
0:16:37 It’s spending on industrial policy.
0:16:38 It’s spending on the Chips Act.
0:16:40 And I think on an individual basis,
0:16:43 when you look at government spending,
0:16:44 we all think that yes, in terms of each one is justified.
0:16:48 But I think that we need to prioritize
0:16:52 that don’t we need entitlement reform?
0:16:55 Should we really be spending on industrial policy?
0:16:57 Because our priorities are different.
0:16:59 If you want a welfare state,
0:17:01 if you want to give people lots of,
0:17:03 like in terms of even cash benefits,
0:17:06 as some people want to do,
0:17:09 I think it’s about prioritizing
0:17:10 that what can we do realistically?
0:17:12 And this thinking that debt and deficits don’t matter
0:17:15 because so many people for so long
0:17:17 have been crying wolf about this, right?
0:17:19 Which is that in New York,
0:17:21 we have had these debt clocks,
0:17:23 which have been up for decades.
0:17:26 And it’s because nothing has happened.
0:17:28 We think that what’s the problem?
0:17:30 We can go on spending this way and we can,
0:17:33 and there is no real consequence to that.
0:17:36 And what I try and sort of show here
0:17:38 is that yes, there is a consequence.
0:17:40 One, that because of this,
0:17:42 we have already seen a decline in terms of productivity
0:17:45 because of the suite of government habits.
0:17:47 And two, that now we are taking this
0:17:49 just to a ridiculous extent
0:17:51 that America used to run a budget deficit
0:17:54 of around 3% of GDP for the last couple of decades.
0:17:57 It was in line with other developed countries.
0:18:01 Today, we’re running that at 6% of GDP,
0:18:04 way higher than any developed country in the world.
0:18:07 And our public debt as a share of the overall economy
0:18:11 has crossed 100% and is only behind that of Japan and Italy.
0:18:16 And at this pace, we’ll be higher than Italy
0:18:18 by the end of the decade.
0:18:20 So I think that the problem is this,
0:18:22 which is that the argument that debt and deficits
0:18:26 will cause a crisis seems very stale now
0:18:29 because nothing has happened
0:18:31 despite these crisis warnings for so long.
0:18:33 And there is this real confidence
0:18:36 which almost borders on arrogance
0:18:39 that because we are America,
0:18:41 the world will keep funding it.
0:18:43 We have the world’s main currency which people use.
0:18:46 So they keep buying dollars and we’ll never have a problem.
0:18:49 It’s that kind of complacency and arrogance
0:18:52 about where else will the money go?
0:18:54 It has to come here, which sort of bothers me.
0:18:57 And we were not that way.
0:18:59 And in fact, I have still like a lot of great things
0:19:02 about America, but I think that what’s happened now
0:19:05 is that we’ve just taken this to another extreme.
0:19:08 – So the Biden administration calls you
0:19:11 and says, okay, give us two or three things,
0:19:14 magic one, you would want to see implemented right away
0:19:17 in terms of policy or laws or tax policy,
0:19:19 what would those two or three things be?
0:19:21 – Yeah, I’d say that in terms of,
0:19:23 if I know that nobody listens until they have a crisis.
0:19:27 So I doubt I’m gonna get that call,
0:19:29 but still I think that, you know, let’s think about it.
0:19:31 I’d say that in terms of one thing, you know, like stuff
0:19:34 is that think about every time you do a new regulation,
0:19:37 who’s it hurting and who’s it benefiting?
0:19:40 I mean, I’d put a freeze on that.
0:19:42 I mean, Trump tried something like that,
0:19:43 but it was a failure by the end
0:19:45 because you know, you couldn’t focus on anything.
0:19:48 So talked about not putting new regulation,
0:19:51 but by the end of the administration,
0:19:53 there were tons of new regulation which were going on.
0:19:55 So I’d say that in terms of focusing,
0:19:57 in terms of, okay, some tougher anti-trust regulation,
0:20:02 yes, I’m in favor of that,
0:20:04 but the vast swath of regulations that are put in there
0:20:07 really hurt small and mid-sized businesses.
0:20:09 So think about, you know, putting in like new regulation.
0:20:13 Two, you have to think about the debt and deficits,
0:20:15 which is that don’t have this callous attitude
0:20:18 that nothing has happened, there’s been no crisis.
0:20:21 So we can keep running deficits.
0:20:22 We are at full employment in the economy
0:20:25 and we have a 6% budget deficit already.
0:20:27 Imagine if you have a downturn, it’ll be nine or 10%.
0:20:30 So I would say that in terms of, you know,
0:20:32 these open-ended chips acts, industrial policy,
0:20:36 we need to put a check on that.
0:20:37 And I think that the other thing that I would say also
0:20:39 is the fact that to make a very clear statement
0:20:42 that we’re not gonna bail out companies
0:20:44 at the slightest hint of trouble.
0:20:46 I mean, you know, that statement needs to go out
0:20:48 because today you speak to people in private,
0:20:50 in the private equity world or other places.
0:20:53 There is a simple assumption that, you know, what the hell?
0:20:56 We’ll give it a punt and if it doesn’t work,
0:20:58 yeah, I mean, you know, the government’s there
0:21:00 to back us out.
0:21:01 So that sort of thinking has to go away.
0:21:04 So these are just broad points, I would say,
0:21:07 at this stage that we need to think about.
0:21:09 – And moral hazard.
0:21:12 So, Rishir, you have done a great deal of work on India.
0:21:17 Can you give us, I would love for you
0:21:19 just to sort of use the cliff notes on the Indian economy
0:21:21 and what you think the prospects are
0:21:24 for the Indian economy over the next several years?
0:21:26 – Yeah, so in fact, I begin this book,
0:21:28 like in the prologue by speaking about my journey
0:21:30 from India because as you said, I was born there and I,
0:21:34 and India was a truly socialist economy
0:21:36 when I was born then in the mid 1970s.
0:21:40 And so I saw what socialism could do,
0:21:43 but fortunately for India,
0:21:44 after especially it faced an economic crisis in 1991,
0:21:48 it’s progressively been getting freer,
0:21:51 progressively been moving up the indices
0:21:53 of economic freedom.
0:21:54 And so therefore, I’ve been much more optimistic
0:21:58 about the economy as that’s happened.
0:22:01 But my favorite line about India
0:22:02 that I came up with a few years ago
0:22:04 is that this is a country that consistently disappoints
0:22:07 the optimists in the pessimists.
0:22:08 So there’s a lot of optimism I have,
0:22:11 but I would keep it in check to know
0:22:13 that this is a pretty complex country.
0:22:15 It’s not a homogeneous country like China
0:22:18 which moves in one direction.
0:22:19 It’s very heterogeneous, very diverse.
0:22:22 So you got different things and different places
0:22:25 which play itself out.
0:22:26 But generally, I remain optimistic.
0:22:28 I see that the trajectory is positive.
0:22:31 And of course, we can’t not have this conversation
0:22:33 and speak about the landmark election result.
0:22:36 And that’s a very hopeful sign,
0:22:38 which is the fact that it’s a country
0:22:40 which believes in its democratic tradition.
0:22:44 And I think that that’s something
0:22:45 which also helps in the long term
0:22:47 because this is a lot of research that I’ve done
0:22:49 that under Modi, there was a real fear
0:22:51 that India was moving towards an authoritarian direction.
0:22:55 Now you’ll argue maybe that’s good for its economy
0:22:58 because you’re moving in an authoritarian direction
0:23:00 and you can take tougher decisions.
0:23:02 But the research I’ve done on this
0:23:03 is the fact that under authoritarian regimes,
0:23:06 you end up either getting very good economic outcomes
0:23:09 for a while or you end up getting disastrous economic outcomes
0:23:13 because there’s no one to tell you when you go wrong.
0:23:16 And I think that there was a risk
0:23:18 that India was moving in that direction.
0:23:20 There’s more checks and balances here.
0:23:22 And typically over time,
0:23:24 democracies tend to compound much better
0:23:26 in terms of growth rates than authoritarian regimes do.
0:23:29 So I feel relatively optimistic about India.
0:23:32 Yes, there’ll be some sort of bitter fights politically
0:23:37 after the election result last week
0:23:38 where the opposition feels emboldened.
0:23:40 But I think that it’s moving in the right direction.
0:23:43 The only thing I’ll keep in check is expectation
0:23:45 that this is no next China
0:23:47 which is going to grow at 9 or 10%.
0:23:49 It’s going to be more like a 6, 7% type growth rate at best
0:23:53 that we’ll see in India for the foreseeable future.
0:23:56 – So now do you care?
0:23:57 I live in London and I would just be curious.
0:24:00 You obviously spent a lot of time thinking about,
0:24:03 you know, how your title,
0:24:05 “10 Rules for Successful Nations and Breakout Nations
0:24:07 in Pursuit of the Next Economic Miracle.”
0:24:09 Let’s assume this is not going to be an economic miracle.
0:24:12 I think that ship is sailed.
0:24:13 But what rules are they following or breaking
0:24:17 or not adhering to when we talk about successful nations?
0:24:22 – Well, unfortunately, I think that U.K. doesn’t rank well,
0:24:24 you know, because as you rightly said,
0:24:26 that I maintain this ranking of all these countries
0:24:30 and where they rank on these various metrics.
0:24:33 And in the Anglo-Saxon world, of course,
0:24:35 the country that has been doing the worst,
0:24:38 which I think a bit of a surprise
0:24:40 and I wrote about that is Canada.
0:24:42 That’s been the worst really over the last 10, 15 years.
0:24:45 And then next comes U.K., then Australia.
0:24:47 And the U.S. compared to these countries
0:24:49 has been doing relatively better.
0:24:51 And that’s the irony of it.
0:24:53 You know, in terms of all the problems
0:24:54 we’ve spoken about in America.
0:24:56 But in terms of all the problems we spoke about in America,
0:24:59 in terms of are much more severe in places like U.K.
0:25:02 that in terms of, you know,
0:25:04 what it’s been doing with its deficits,
0:25:07 although America now has overtaken it,
0:25:09 in terms of, you know, what it’s been doing
0:25:12 in the number of zombie companies.
0:25:14 So I’d say that in that regard,
0:25:16 U.K. in fact ranks even worse than America on most metrics.
0:25:20 – So isn’t, it’s really fascinating.
0:25:23 Australia, Canada, and the U.K. not doing well.
0:25:27 So take them at in the U.S.
0:25:30 Are we all guilty of overspending capitalism on the way up,
0:25:37 socialism on the way down, cronyism, bloated government,
0:25:41 bailouts.
0:25:42 But the difference is the U.S. has AI in a tech sector
0:25:46 that just creates so much economic value
0:25:49 and draws capital from the rest of the world
0:25:51 that at least props up or wallpapers over
0:25:54 are problems more so than those other three nations.
0:25:57 What do you think? – Absolutely correct.
0:25:58 Yeah, so that’s the, that’s my summary that, you know,
0:26:01 which is the fact that, you know, like,
0:26:04 it just pains me that in terms of the fact that
0:26:06 I don’t even compare America to these other countries
0:26:08 because America is still the beacon for the world, right?
0:26:12 It’s still the largest economy that everyone looks up to,
0:26:15 to see as to what is American doing.
0:26:16 And the American brand of capitalism, unfortunately,
0:26:20 has been dented, but you’re right,
0:26:21 that these Anglo-Saxons and other economies
0:26:23 that you pointed out are arguably in worse shape
0:26:27 in doing things even worse than America is.
0:26:31 And America, as you point out,
0:26:33 has the success of the tech engine there.
0:26:36 But again, it’s slightly concerning to me
0:26:38 that the, like in America,
0:26:40 the domination is getting so concentrated
0:26:43 that the value is being created,
0:26:45 but it’s being created in just very few select companies,
0:26:49 you know, and I think that that is a real problem
0:26:51 and communities are so big. – And communities, yes.
0:26:54 – Yeah, it is really striking.
0:26:57 What do you think about the notion of,
0:27:00 so the one thing we didn’t talk about
0:27:02 that I think plays a big role in all of this
0:27:04 is immigration policy.
0:27:05 Comparant contrast, different immigration policies
0:27:09 across the nations you look at,
0:27:10 and what do you think is sort of,
0:27:12 if you will, the ideal,
0:27:13 if there is an ideal immigration policy,
0:27:15 and what does it indicate in terms
0:27:16 of America’s immigration policy?
0:27:18 – Yeah, I think that as far as America is concerned,
0:27:22 even though it’s been a big problem in America
0:27:24 and it’s a big political issue,
0:27:26 America’s at least been better at assimilating immigrants
0:27:30 than a lot of European countries in that regard.
0:27:34 And I think that countries like Australia and all
0:27:38 have been pretty good in terms of as well.
0:27:41 So I’d say that generally here,
0:27:42 the Anglo-Saxon world has been better than Europe
0:27:45 in terms of assimilation of immigrants.
0:27:49 But again, as I said, that what is good economics
0:27:51 is not always what’s good politics,
0:27:54 which is that even last year,
0:27:57 like I pointed out that immigration is what really helped
0:28:00 countries like America avoid a recession
0:28:04 and bring inflation down much more than
0:28:07 in other countries did last year.
0:28:11 But the problem is the fact that it’s become
0:28:13 such a political issue about tearing apart
0:28:15 the social fabric and stuff,
0:28:17 that what is good economics in obvious terms
0:28:20 is not good politics, and I don’t see that changing.
0:28:23 So I’d say that, yes, I think that immigration
0:28:26 is out of control for many people out here in America,
0:28:29 and so we’re gonna get a clamp down on that,
0:28:31 regardless, I think, of what happens in November.
0:28:35 But in general, I would say America
0:28:37 and the Anglo-Saxon countries like Australia
0:28:39 have done a better job at assimilating immigrants
0:28:42 compared to European countries like France.
0:28:45 – Well, let me say something that’s,
0:28:47 I don’t know, is wrought with emotion.
0:28:53 Is it that we’ve done a better job of assimilating,
0:28:55 or we attract a different type of immigrant?
0:28:58 – Well, it could be both.
0:28:59 I think a combination of both, right,
0:29:01 which is that in terms of what’s happening,
0:29:03 but I just look at it more from a simulation,
0:29:06 but then you start getting into cultural issues
0:29:07 in terms of who’s coming and what’s happening,
0:29:10 and that just gets a very slippery slope
0:29:12 in terms of looking at immigration in that regard.
0:29:14 – So, looking at all the economies in the world,
0:29:19 what two or three economies are you most bullish on
0:29:22 in terms of you mentioned that Canada
0:29:24 is doing really poorly, the UK is doing really poorly.
0:29:27 America, you would argue, is kind of like,
0:29:28 it sounds like average is slightly above average.
0:29:31 Any other role models for, you know,
0:29:33 I think of certain countries in Southeast Asia,
0:29:35 I think of Singapore, where we can look at
0:29:38 the way they’ve managed their economy
0:29:40 and think this is the role model?
0:29:42 – Well, I see, yeah.
0:29:43 I think it depends on the time frame,
0:29:45 but I think that the economies that have been sort of good.
0:29:49 Again, which is the economy
0:29:50 that’s doing the best in Europe these days?
0:29:53 It’s Greece, right?
0:29:54 Which is that this is a country
0:29:55 which till 10 years ago was like an example of a complete,
0:29:59 yeah, if I can say so, a basket case in terms of that.
0:30:03 But just look at how well Greece has come back.
0:30:06 It’s booming now.
0:30:07 It was, again, forced.
0:30:08 This is what crisis does.
0:30:10 It is one silver lining of a crisis.
0:30:12 It’s the only time when governments reform
0:30:15 or change things is when you have a crisis.
0:30:17 So, Greece runs out of money, it’s on the verge of default,
0:30:21 and then you end up getting a lot of reform.
0:30:23 So, Greece, I think, has been a comeback story.
0:30:26 In fact, in general, the club-made countries of late
0:30:29 have been doing better than their continental peers,
0:30:33 but Greece is an example of that.
0:30:35 Then secondly, I would point to is a country,
0:30:38 like in Eastern Europe in general,
0:30:39 I’d say Poland is a shining example of that,
0:30:42 which is that it’s a country
0:30:43 which I think is next classified
0:30:45 to becoming a developed country.
0:30:46 Remember that in the world today,
0:30:47 there are more than 200 nations.
0:30:49 Only 40 or so are classified as developed countries.
0:30:52 Everybody else is classified as emerging,
0:30:55 and many of them, from Brazil to Mexico,
0:30:58 have been emerging forever.
0:31:00 So, but I’d say that it’s been a while
0:31:02 since a major nation joined the ranks
0:31:05 of the developed countries.
0:31:06 I think the next one to do so could be Poland,
0:31:09 which is on the brink of getting up
0:31:11 per capita income of $20,000 or so,
0:31:14 which makes it like a developed country.
0:31:16 Again, a lot, it’s done right
0:31:18 from having a very competitive manufacturing sector,
0:31:21 not too many flashy billionaires.
0:31:23 And in general, I’d say that the election result
0:31:27 in Poland last year sort of also took away
0:31:30 some political risk
0:31:31 because it’s a much more cooperative government
0:31:33 that have in place vis-a-vis the EU
0:31:37 and the European Union helped to give it
0:31:39 some pretty strong institutions.
0:31:41 So I’d say that it like,
0:31:42 I feel relatively optimistic about these countries
0:31:45 outside of the core of Europe from Greece to Poland,
0:31:48 as like for different reasons,
0:31:51 one’s a comeback star
0:31:53 and the other one’s been a consistent star
0:31:55 in the post-communist world.
0:31:56 – And just before you go, we’d be remiss
0:32:00 if we didn’t ask you about China, your thoughts?
0:32:03 – Well, I’ve been banished on China for a while now
0:32:05 because in terms of what’s been happening
0:32:07 to it’s both the two pillars of growth really,
0:32:11 which is that it’s been relying a lot on,
0:32:14 like when China boomed, it had great demographics.
0:32:16 And of course, when the boom slowed down,
0:32:18 it could still rely on taking on more and more debt
0:32:21 to keep going.
0:32:22 Those engines are now down.
0:32:25 So I feel that China is in a secular decline.
0:32:28 On a fundamental basis,
0:32:29 I don’t see China growing at a rate of more than 2% or 3%
0:32:32 for the foreseeable future.
0:32:34 So I’d say that, yeah, for now it seems
0:32:37 that the risk of a blow-up in China has sort of been
0:32:42 papered over because they’ve again done what it takes
0:32:45 to keep the economy afloat.
0:32:46 But the problem in China is the fact
0:32:48 that they can’t get away from the basic notion
0:32:51 that there is no country in the world
0:32:53 which is able to grow rapidly
0:32:55 or even grow when it has a negative population growth rate.
0:32:59 That headwind is just very hard to overcome.
0:33:03 And then second obviously is the debt issue in China,
0:33:06 where China has took on so much debt over the last decade
0:33:09 because it ambitiously wanted to keep its growth rate up.
0:33:13 But now it’s being forced to pay back that debt
0:33:15 in a way with the property sector
0:33:18 and all which took a lot of that debt in the doghouse.
0:33:21 So I feel that, yeah,
0:33:23 the China may not have a blow-up or a crisis,
0:33:26 but it’s sort of going the way
0:33:28 where the growth rate keeps slipping and sliding
0:33:31 and 2% or 3% is the growth rate for China,
0:33:34 which is a far cry from where it was a decade ago.
0:33:37 Rashir Sharma is chairman of Rockefeller International
0:33:40 and founder and chief investment officer
0:33:43 of Breakout Capital,
0:33:44 an investment firm focused on emerging markets.
0:33:46 He moved to Rockefeller in 2022 after a 25-year career
0:33:51 at Morgan Stanley Investment Management
0:33:52 where he was head of emerging markets
0:33:54 and chief global strategist.
0:33:56 Rashir is also the author of five books
0:33:58 including The 10 Rules of Successful Nations
0:34:01 and Breakout Nations in pursuit
0:34:03 of the next economic miracles.
0:34:06 His latest book, What Went Wrong with Capitalism is out now.
0:34:09 He joins us from the greatest city in the world,
0:34:12 New York City, Rashir.
0:34:14 Thank you very much, really enjoyed this conversation.
0:34:16 – Thanks, Garth.
0:34:17 Thank you for having me.
0:34:18 – We’ll be right back.
0:34:21 Support for this episode of Prop G comes from listening.
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0:37:32 (upbeat music)
0:37:39 – The most famous study on happiness,
0:37:46 actually every study on happiness,
0:37:48 we never get data that says clean across.
0:37:50 Geographies, cultures, income levels, shows the same thing.
0:37:54 If on the y-axis you have happiness
0:37:57 and on the x-axis you have age, happiness is a smile.
0:38:01 Zero to 25, Star Wars prom making out.
0:38:04 25 to 45 are what I call the shit gets real years.
0:38:08 Life is hard, money troubles, relationships,
0:38:11 someone you love a great deal gets sick and die.
0:38:13 I mean, life just hits you in the fucking face.
0:38:15 It really does, you get beaned in the face.
0:38:17 And you think, wow, this is harder than I thought.
0:38:19 And what I can tell you is a lot of people out there
0:38:21 are feeling the same way.
0:38:23 And if you’re a good person and you work hard,
0:38:24 I’m not just saying everything will work out.
0:38:26 You need to make sure you’re not stuck, right?
0:38:28 You’re still working.
0:38:30 Every now you saying, what are the three, four things
0:38:31 I gotta get done tomorrow?
0:38:32 You’re getting up, you’re trying, you’re showing up.
0:38:35 You’re asking others for help, right?
0:38:37 You’re expressing your emotions.
0:38:39 And then when you’re in your 40s and 50s,
0:38:43 something wonderful happens.
0:38:44 And that is you start to take, I don’t know,
0:38:47 you start to find joy in the most mundane things,
0:38:50 nature, food, your friendships.
0:38:52 So what I would tell you is if you’re struggling
0:38:54 in your 30s and 40s, I’m not suggesting just lay back
0:38:57 and everything’s gonna work out, that’s bullshit.
0:39:00 But what I can tell you is for the majority of people,
0:39:03 it does get better.
0:39:05 And again, if you’re in your 30s and things are tough,
0:39:09 you’re kind of where you should be.
0:39:10 And what I would tell you is to keep on keeping on,
0:39:13 that life does get better, that happiness waits for you.
0:39:16 (upbeat music)
0:39:18 This episode was produced by Caroline Shager
0:39:20 and Jennifer Sanchez as our associate producer.
0:39:23 And Drew Burroughs is our technical director.
0:39:25 Thank you for listening to “The Prodigy Pod”
0:39:26 from the Vox Media Podcast Network.
0:39:28 We will catch you on Saturday
0:39:29 for “No Mercy, No Malice” as read by George Hahn.
0:39:32 And please follow our Prodigy Markets Pod
0:39:35 wherever you get your pods for new episodes
0:39:38 every Monday and Thursday.
0:39:39 Please, if you can right now and you enjoyed the show,
0:39:43 go to Prodigy Markets and subscribe.
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0:01:14 and versatile clothing on the planet at Viori.com/PropGee.
0:01:18 That’s V-U-O-R-I.com/PropGee.
0:01:25 Episode 305.
0:01:27 305 is Erica, belonging into parts of Florida.
0:01:29 True story, a man after killing his partner
0:01:33 and then eating his partner took his dog for a walk.
0:01:37 How come you just knew that guy lived in Florida?
0:01:41 Not a joke.
0:01:42 Not a joke.
0:01:43 Go, go, go!
0:01:54 – Welcome to the 305th episode of the Prop G-Pod.
0:01:57 I am still in the South of France, the Cannes Line Festival.
0:02:01 My Pivot co-host, Kara Swish, and I recorded live
0:02:03 on stage at the AddWeek house.
0:02:05 You can hear that episode over the Pivot feed tomorrow.
0:02:08 It was lovely.
0:02:09 It was lovely.
0:02:09 We had Rosé after.
0:02:10 It was very nice.
0:02:11 Also, the Olympic torch came marching through.
0:02:15 Does anyone care?
0:02:17 Does anyone care about the Olympics anymore?
0:02:19 I got invited to the Olympics and I said to my kids,
0:02:21 “Hey, do you want to go to the Olympics?”
0:02:22 And they’re like,
0:02:23 “What are the Olympics?”
0:02:23 Literally they’re like, “Do we have football tickets?”
0:02:26 Which, you know, soccer.
0:02:27 And I’m like, “No.”
0:02:28 And they’re like, “No, we’re not interested.”
0:02:29 We don’t want to hear.
0:02:31 We don’t want to see 100 hours of diving, swimming,
0:02:33 and discus throwing.
0:02:34 They just, it’s such an interesting case study
0:02:37 and I don’t know the answer
0:02:38 in why the Olympics have fallen so far
0:02:41 and the World Cup has ascended
0:02:43 at such an incredible pace.
0:02:45 Anyways, I’m making the rounds again.
0:02:47 I like it here because people come up to me and say hi
0:02:49 and I purposely take my boys into town
0:02:51 because I’m desperate for their affirmation.
0:02:52 I want them to see that what I do
0:02:54 actually gets some recognition.
0:02:57 So what are we doing?
0:02:58 We’re skipping our news headlines
0:03:00 and busting right into our conversation
0:03:01 with Ruchir Sharma,
0:03:03 the chairman of Rockefeller International and founder
0:03:05 and chief investment officer of breakout capital
0:03:08 and investment firm focused on emerging markets.
0:03:10 We hear all about Ruchir’s new book,
0:03:11 “What Went Wrong with Capitalism.”
0:03:14 Okay, Ruchir, where does this podcast find you?
0:03:16 – I’m here in New York in midtown.
0:03:18 – Oh, nice.
0:03:19 Well, let’s bust right into it.
0:03:20 In your new book, “What Went Wrong with Capitalism,”
0:03:23 it’s really a critique of capitalism,
0:03:26 a capitalist critique of capitalism, as you say.
0:03:28 So tell us, how has the system been ruined?
0:03:31 – Yeah, I think actually showing the book here, Scott,
0:03:34 which is the fact that if you look at what’s been happening
0:03:38 in America, pretty much a lot of the Western world
0:03:40 over the last few decades,
0:03:42 is that we have progressively seen
0:03:45 greater and greater government intervention in the economy.
0:03:49 The suite of habits extends to just more
0:03:52 than government spending.
0:03:53 Government spending of the share of the economy
0:03:55 has gone up from a century ago at just 3%
0:03:58 when the government would do little more
0:03:59 than deliver your mail to about 36% today.
0:04:03 But it’s not just that.
0:04:05 It is if you look at the regulatory state,
0:04:08 we look at the impulse to bail out,
0:04:10 the proclivity to manage the business cycle.
0:04:14 Just across the board,
0:04:16 we have seen a massive increase
0:04:18 in government intervention in the economy
0:04:20 with the consequence that it’s destroyed,
0:04:23 the creative, destructive fiber of the economy,
0:04:27 and productivity growth has been declining
0:04:30 for the last few decades as well.
0:04:32 So that’s the point I try and make,
0:04:34 which is that there are lots of perverse consequences
0:04:37 that have come out of this systematic intervention
0:04:41 in the economy,
0:04:42 and those consequences include declining productivity,
0:04:47 rising inequality,
0:04:48 and also this feeling amongst most Americans
0:04:53 that the system they have in place is not working.
0:04:55 Nearly 70% of Americans want big economic change
0:04:59 or want the current economic system to be torn down.
0:05:02 – So let’s break that down.
0:05:04 So it’s impossible to deny that government spending
0:05:08 is not out of control, right?
0:05:11 Seven trillion dollars on five trillion receipts.
0:05:13 There’s been unbelievable or staggering bailouts,
0:05:17 I think, what, six, eight trillion dollar COVID relief.
0:05:20 The only thing I would push back on and require,
0:05:22 or would double click on,
0:05:25 is this notion that we’re over-regulated.
0:05:27 My sense is that some of the biggest industries
0:05:29 are under-regulated and we’ve had monopolies form.
0:05:32 Your thoughts?
0:05:33 – Yeah, so, again, yeah, let’s look at the data, right?
0:05:36 Which is the fact that America is introducing
0:05:38 3,000 new regulations a year.
0:05:41 And that’s gone up over time.
0:05:44 And I argue in the book that, in fact, regulation
0:05:47 tends to be pro-incumbent and pro-big business
0:05:51 because when you introduce new regulations,
0:05:54 the existing people are able to game the system much better,
0:05:58 get the regulations they want,
0:06:00 and also it makes it that much more expensive
0:06:04 for new companies to come up.
0:06:06 So therefore, it’s one of the reasons I think
0:06:08 that the number of startups in America
0:06:10 has been declining right up until the pandemic.
0:06:13 We saw a big decrease in the number of startups in America
0:06:17 over the preceding two or three decades.
0:06:18 So I would say that, yes,
0:06:20 that we possibly can do with better antitrust regulation,
0:06:24 which is what I think that you’re alluding to.
0:06:26 But I think that we sort of have to see
0:06:29 that in every industry otherwise,
0:06:31 we have seen regulations increase
0:06:33 and that tends to hurt small and medium-sized businesses
0:06:36 from coming up.
0:06:37 I know it from personal experience
0:06:39 that the cost of, let’s say, setting up a new fund
0:06:43 is up 10 times over the last 20 years.
0:06:46 So that makes it very difficult
0:06:47 for someone looking to set up a new fund
0:06:49 and breaking even compared to some large fund
0:06:52 which is already there, has the resources,
0:06:55 has the legal compliance departments to deal with all this.
0:06:59 – So it makes sense that certain industries,
0:07:02 such as financial services where more compliance,
0:07:06 you know, Sarbanes-Oxley, whatever you want to,
0:07:09 it just gets harder and harder and harder to compete
0:07:12 or to start up.
0:07:13 My understanding is there were more new business applications
0:07:16 or permits filed last year than in history.
0:07:19 And two, it does seem though that some of our biggest industries
0:07:24 have figured out a way to weaponize government
0:07:26 or weaponize lobbyists.
0:07:29 But what you’re saying is the majority of industries
0:07:31 are over-regulated and this suppresses economic growth.
0:07:35 Do I get that right?
0:07:36 – Absolutely.
0:07:37 So I’d say, you know, and you’re correct,
0:07:39 that we did see like a spike up in new businesses
0:07:42 or so over the last couple of years,
0:07:44 but a lot of that was because during the pandemic,
0:07:47 many had to shut down.
0:07:48 So that’s a bit of a churn which is going on.
0:07:50 That’s not been the true trend over the last 30 to 40 years.
0:07:55 So I think we have to keep that in perspective.
0:07:57 And the second point, as you say, is that, yes,
0:08:00 you know, there has been some deregulation.
0:08:02 For example, there’s been financial sector deregulation,
0:08:04 which is why financial markets have exploded a lot.
0:08:07 But I’d say for most industries in things like hospitality
0:08:11 and things like restaurants and stuff,
0:08:13 the number of regulations that any small business
0:08:15 has to deal with has gone up a lot.
0:08:17 And that shows up in all sorts of ways.
0:08:19 For example, if you look at the number of lawyers in America,
0:08:22 America has always had a very large legal population.
0:08:26 The number of lawyers per capita
0:08:28 is about the largest in the world.
0:08:30 But again, that this growth has exploded
0:08:34 in the last 20 years or so.
0:08:36 So it’s clearly in terms of who’s benefiting
0:08:39 and even in terms of lobbyists that you point out,
0:08:41 which is that the number of lobbyists in Washington
0:08:44 have been captured by all the Big Tech firms.
0:08:47 The Big Tech firms dominate the number of new lobbyists
0:08:51 in Washington or just total spend on lobby.
0:08:54 – So in your book you say in the 2010s,
0:08:57 economies worldwide began to slow.
0:09:00 Why did this happen and where are we today?
0:09:02 – Yeah, so productivity growth across the world
0:09:04 has been slowing.
0:09:05 And so I think that this is what in fact
0:09:07 looks America a bit better,
0:09:08 which is that the productivity growth in places like Europe
0:09:12 has been slowing even more than what’s happened in America.
0:09:15 But the point I make in the book is that’s partly
0:09:17 because they’re the kind of state intervention
0:09:21 they have, the regulatory phalanx that they have
0:09:24 is much greater than even here in America.
0:09:27 So that’s not the right benchmark.
0:09:28 But in general, I make the point that productivity growth
0:09:31 has been slowing everywhere in the mix of what is otherwise
0:09:35 such a powerful tech boom.
0:09:36 And this is a trend that predates even the 2010s.
0:09:39 It’s been like on a decline apart from a, you know,
0:09:41 like a brief surge in the late 1990s and early 2000s
0:09:45 when you had the internet revolution.
0:09:47 Productivity growth has been generally slowing everywhere.
0:09:51 And I deal with this productivity paradox
0:09:53 in the book extensively saying that
0:09:55 what could be causing this?
0:09:57 You know, all these arguments that
0:09:59 it’s because of mismanagement and all,
0:10:01 but that’s not true because, you know,
0:10:03 like in the late 90s on the back of the internet,
0:10:05 boom, you did see a temp research.
0:10:07 So I think that the reason economic growth
0:10:09 has been slowing a lot
0:10:10 has to partly do with demographics,
0:10:12 that he has population growth across the world
0:10:14 has slowed down.
0:10:15 That does not much we can do about that.
0:10:18 But as far as productivity growth is concerned,
0:10:20 that too has slowed down significantly
0:10:23 despite some tech innovations that have taken place.
0:10:26 And now we are hanging our hat on AI boosting productivity.
0:10:29 But I think that the, as I said,
0:10:32 that the capitalist creative destructive fiber
0:10:34 of the economy has been undermined
0:10:37 because we’re keeping alive so much dead wood.
0:10:39 I mean, today, the number of zombie companies, as I say,
0:10:43 that we have in the economy today
0:10:45 by some measures is close to 20%.
0:10:48 What do I mean by that?
0:10:49 These are companies that are defined as firms
0:10:52 that have not or are not earning enough profits
0:10:56 to even cover their interest payments
0:10:58 for three years in a row,
0:10:59 but keep going back to the market to refinance themselves.
0:11:03 And when we do that,
0:11:04 we sort of obviously undermine productivity growth
0:11:07 in the economy.
0:11:08 – Yeah, I’m a big believer that you need churn
0:11:11 for a robust economy
0:11:13 and that the incumbents don’t want churn.
0:11:15 Just let me put forward a thesis
0:11:18 and I’d like to get your response,
0:11:19 that one reason why we’ve seen a decline in productivity
0:11:23 is because of low corporate tax rates.
0:11:25 And that is corporations have a memory
0:11:29 and when they can get 80 cents on the dollar
0:11:32 out to a shareholder,
0:11:33 they will choose to distribute earnings.
0:11:36 Whereas if the tax rate is say 40%
0:11:38 and they’re only gonna get 60 cents out
0:11:41 and they get sort of a 40% reduction in the price
0:11:45 of reinvesting in the company
0:11:46 and plan property and equipment to grow the top line,
0:11:49 that the incentive is to or the hurdle rate
0:11:52 for a go on investment is lower
0:11:55 when tax rates are higher.
0:11:56 Is there any truth to that?
0:11:58 – Well, the evidence again doesn’t really back it up, right?
0:12:00 Because if you look at what’s happened in Europe,
0:12:03 or wherever the corporate tax rates have been higher,
0:12:06 they haven’t been able
0:12:07 to sort of get higher productivity growth either.
0:12:10 So I just don’t see the evidence of that.
0:12:12 Yes, I do feel the fact that the tax system
0:12:15 could do with a big overall.
0:12:16 I think we all agree with it.
0:12:18 There’s too much of a disparity
0:12:19 in the way that a W2 wage earner is taxed
0:12:23 compared to how much lower capital gains taxes are.
0:12:27 So yeah, there are other distortions
0:12:29 which I completely agree with.
0:12:31 But I think that in the book,
0:12:32 what I’m gonna focus on is the fact that
0:12:34 what happened to capitalism?
0:12:36 What did the founders have in mind?
0:12:38 Is the system today what we have capitalism
0:12:41 and why are so many young people in places
0:12:44 like America disillusioned with the world capitalism?
0:12:47 As I say in the book that the surveys show
0:12:49 that most young Americans, particularly Democrats,
0:12:53 say they would rather have socialism than capitalism.
0:12:56 That’s a really big statement for a country
0:12:59 that was the founder of pro and practical purpose
0:13:02 as a capitalist system.
0:13:03 We’ll be right back.
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0:16:14 – So let’s assume that we agree,
0:16:24 that most people agree that we need
0:16:26 to cut government spending.
0:16:27 Where do you think we cut it?
0:16:29 – So that’s the point, right?
0:16:30 Which is that, how do you prioritize that?
0:16:32 I mean, what has the Biden administration done?
0:16:34 It has just doubled down on its spending.
0:16:36 So now it’s spending on everything.
0:16:37 It’s spending on industrial policy.
0:16:38 It’s spending on the Chips Act.
0:16:40 And I think on an individual basis,
0:16:43 when you look at government spending,
0:16:44 we all think that yes, in terms of each one is justified.
0:16:48 But I think that we need to prioritize
0:16:52 that don’t we need entitlement reform?
0:16:55 Should we really be spending on industrial policy?
0:16:57 Because our priorities are different.
0:16:59 If you want a welfare state,
0:17:01 if you want to give people lots of,
0:17:03 like in terms of even cash benefits,
0:17:06 as some people want to do,
0:17:09 I think it’s about prioritizing
0:17:10 that what can we do realistically?
0:17:12 And this thinking that debt and deficits don’t matter
0:17:15 because so many people for so long
0:17:17 have been crying wolf about this, right?
0:17:19 Which is that in New York,
0:17:21 we have had these debt clocks,
0:17:23 which have been up for decades.
0:17:26 And it’s because nothing has happened.
0:17:28 We think that what’s the problem?
0:17:30 We can go on spending this way and we can,
0:17:33 and there is no real consequence to that.
0:17:36 And what I try and sort of show here
0:17:38 is that yes, there is a consequence.
0:17:40 One, that because of this,
0:17:42 we have already seen a decline in terms of productivity
0:17:45 because of the suite of government habits.
0:17:47 And two, that now we are taking this
0:17:49 just to a ridiculous extent
0:17:51 that America used to run a budget deficit
0:17:54 of around 3% of GDP for the last couple of decades.
0:17:57 It was in line with other developed countries.
0:18:01 Today, we’re running that at 6% of GDP,
0:18:04 way higher than any developed country in the world.
0:18:07 And our public debt as a share of the overall economy
0:18:11 has crossed 100% and is only behind that of Japan and Italy.
0:18:16 And at this pace, we’ll be higher than Italy
0:18:18 by the end of the decade.
0:18:20 So I think that the problem is this,
0:18:22 which is that the argument that debt and deficits
0:18:26 will cause a crisis seems very stale now
0:18:29 because nothing has happened
0:18:31 despite these crisis warnings for so long.
0:18:33 And there is this real confidence
0:18:36 which almost borders on arrogance
0:18:39 that because we are America,
0:18:41 the world will keep funding it.
0:18:43 We have the world’s main currency which people use.
0:18:46 So they keep buying dollars and we’ll never have a problem.
0:18:49 It’s that kind of complacency and arrogance
0:18:52 about where else will the money go?
0:18:54 It has to come here, which sort of bothers me.
0:18:57 And we were not that way.
0:18:59 And in fact, I have still like a lot of great things
0:19:02 about America, but I think that what’s happened now
0:19:05 is that we’ve just taken this to another extreme.
0:19:08 – So the Biden administration calls you
0:19:11 and says, okay, give us two or three things,
0:19:14 magic one, you would want to see implemented right away
0:19:17 in terms of policy or laws or tax policy,
0:19:19 what would those two or three things be?
0:19:21 – Yeah, I’d say that in terms of,
0:19:23 if I know that nobody listens until they have a crisis.
0:19:27 So I doubt I’m gonna get that call,
0:19:29 but still I think that, you know, let’s think about it.
0:19:31 I’d say that in terms of one thing, you know, like stuff
0:19:34 is that think about every time you do a new regulation,
0:19:37 who’s it hurting and who’s it benefiting?
0:19:40 I mean, I’d put a freeze on that.
0:19:42 I mean, Trump tried something like that,
0:19:43 but it was a failure by the end
0:19:45 because you know, you couldn’t focus on anything.
0:19:48 So talked about not putting new regulation,
0:19:51 but by the end of the administration,
0:19:53 there were tons of new regulation which were going on.
0:19:55 So I’d say that in terms of focusing,
0:19:57 in terms of, okay, some tougher anti-trust regulation,
0:20:02 yes, I’m in favor of that,
0:20:04 but the vast swath of regulations that are put in there
0:20:07 really hurt small and mid-sized businesses.
0:20:09 So think about, you know, putting in like new regulation.
0:20:13 Two, you have to think about the debt and deficits,
0:20:15 which is that don’t have this callous attitude
0:20:18 that nothing has happened, there’s been no crisis.
0:20:21 So we can keep running deficits.
0:20:22 We are at full employment in the economy
0:20:25 and we have a 6% budget deficit already.
0:20:27 Imagine if you have a downturn, it’ll be nine or 10%.
0:20:30 So I would say that in terms of, you know,
0:20:32 these open-ended chips acts, industrial policy,
0:20:36 we need to put a check on that.
0:20:37 And I think that the other thing that I would say also
0:20:39 is the fact that to make a very clear statement
0:20:42 that we’re not gonna bail out companies
0:20:44 at the slightest hint of trouble.
0:20:46 I mean, you know, that statement needs to go out
0:20:48 because today you speak to people in private,
0:20:50 in the private equity world or other places.
0:20:53 There is a simple assumption that, you know, what the hell?
0:20:56 We’ll give it a punt and if it doesn’t work,
0:20:58 yeah, I mean, you know, the government’s there
0:21:00 to back us out.
0:21:01 So that sort of thinking has to go away.
0:21:04 So these are just broad points, I would say,
0:21:07 at this stage that we need to think about.
0:21:09 – And moral hazard.
0:21:12 So, Rishir, you have done a great deal of work on India.
0:21:17 Can you give us, I would love for you
0:21:19 just to sort of use the cliff notes on the Indian economy
0:21:21 and what you think the prospects are
0:21:24 for the Indian economy over the next several years?
0:21:26 – Yeah, so in fact, I begin this book,
0:21:28 like in the prologue by speaking about my journey
0:21:30 from India because as you said, I was born there and I,
0:21:34 and India was a truly socialist economy
0:21:36 when I was born then in the mid 1970s.
0:21:40 And so I saw what socialism could do,
0:21:43 but fortunately for India,
0:21:44 after especially it faced an economic crisis in 1991,
0:21:48 it’s progressively been getting freer,
0:21:51 progressively been moving up the indices
0:21:53 of economic freedom.
0:21:54 And so therefore, I’ve been much more optimistic
0:21:58 about the economy as that’s happened.
0:22:01 But my favorite line about India
0:22:02 that I came up with a few years ago
0:22:04 is that this is a country that consistently disappoints
0:22:07 the optimists in the pessimists.
0:22:08 So there’s a lot of optimism I have,
0:22:11 but I would keep it in check to know
0:22:13 that this is a pretty complex country.
0:22:15 It’s not a homogeneous country like China
0:22:18 which moves in one direction.
0:22:19 It’s very heterogeneous, very diverse.
0:22:22 So you got different things and different places
0:22:25 which play itself out.
0:22:26 But generally, I remain optimistic.
0:22:28 I see that the trajectory is positive.
0:22:31 And of course, we can’t not have this conversation
0:22:33 and speak about the landmark election result.
0:22:36 And that’s a very hopeful sign,
0:22:38 which is the fact that it’s a country
0:22:40 which believes in its democratic tradition.
0:22:44 And I think that that’s something
0:22:45 which also helps in the long term
0:22:47 because this is a lot of research that I’ve done
0:22:49 that under Modi, there was a real fear
0:22:51 that India was moving towards an authoritarian direction.
0:22:55 Now you’ll argue maybe that’s good for its economy
0:22:58 because you’re moving in an authoritarian direction
0:23:00 and you can take tougher decisions.
0:23:02 But the research I’ve done on this
0:23:03 is the fact that under authoritarian regimes,
0:23:06 you end up either getting very good economic outcomes
0:23:09 for a while or you end up getting disastrous economic outcomes
0:23:13 because there’s no one to tell you when you go wrong.
0:23:16 And I think that there was a risk
0:23:18 that India was moving in that direction.
0:23:20 There’s more checks and balances here.
0:23:22 And typically over time,
0:23:24 democracies tend to compound much better
0:23:26 in terms of growth rates than authoritarian regimes do.
0:23:29 So I feel relatively optimistic about India.
0:23:32 Yes, there’ll be some sort of bitter fights politically
0:23:37 after the election result last week
0:23:38 where the opposition feels emboldened.
0:23:40 But I think that it’s moving in the right direction.
0:23:43 The only thing I’ll keep in check is expectation
0:23:45 that this is no next China
0:23:47 which is going to grow at 9 or 10%.
0:23:49 It’s going to be more like a 6, 7% type growth rate at best
0:23:53 that we’ll see in India for the foreseeable future.
0:23:56 – So now do you care?
0:23:57 I live in London and I would just be curious.
0:24:00 You obviously spent a lot of time thinking about,
0:24:03 you know, how your title,
0:24:05 “10 Rules for Successful Nations and Breakout Nations
0:24:07 in Pursuit of the Next Economic Miracle.”
0:24:09 Let’s assume this is not going to be an economic miracle.
0:24:12 I think that ship is sailed.
0:24:13 But what rules are they following or breaking
0:24:17 or not adhering to when we talk about successful nations?
0:24:22 – Well, unfortunately, I think that U.K. doesn’t rank well,
0:24:24 you know, because as you rightly said,
0:24:26 that I maintain this ranking of all these countries
0:24:30 and where they rank on these various metrics.
0:24:33 And in the Anglo-Saxon world, of course,
0:24:35 the country that has been doing the worst,
0:24:38 which I think a bit of a surprise
0:24:40 and I wrote about that is Canada.
0:24:42 That’s been the worst really over the last 10, 15 years.
0:24:45 And then next comes U.K., then Australia.
0:24:47 And the U.S. compared to these countries
0:24:49 has been doing relatively better.
0:24:51 And that’s the irony of it.
0:24:53 You know, in terms of all the problems
0:24:54 we’ve spoken about in America.
0:24:56 But in terms of all the problems we spoke about in America,
0:24:59 in terms of are much more severe in places like U.K.
0:25:02 that in terms of, you know,
0:25:04 what it’s been doing with its deficits,
0:25:07 although America now has overtaken it,
0:25:09 in terms of, you know, what it’s been doing
0:25:12 in the number of zombie companies.
0:25:14 So I’d say that in that regard,
0:25:16 U.K. in fact ranks even worse than America on most metrics.
0:25:20 – So isn’t, it’s really fascinating.
0:25:23 Australia, Canada, and the U.K. not doing well.
0:25:27 So take them at in the U.S.
0:25:30 Are we all guilty of overspending capitalism on the way up,
0:25:37 socialism on the way down, cronyism, bloated government,
0:25:41 bailouts.
0:25:42 But the difference is the U.S. has AI in a tech sector
0:25:46 that just creates so much economic value
0:25:49 and draws capital from the rest of the world
0:25:51 that at least props up or wallpapers over
0:25:54 are problems more so than those other three nations.
0:25:57 What do you think? – Absolutely correct.
0:25:58 Yeah, so that’s the, that’s my summary that, you know,
0:26:01 which is the fact that, you know, like,
0:26:04 it just pains me that in terms of the fact that
0:26:06 I don’t even compare America to these other countries
0:26:08 because America is still the beacon for the world, right?
0:26:12 It’s still the largest economy that everyone looks up to,
0:26:15 to see as to what is American doing.
0:26:16 And the American brand of capitalism, unfortunately,
0:26:20 has been dented, but you’re right,
0:26:21 that these Anglo-Saxons and other economies
0:26:23 that you pointed out are arguably in worse shape
0:26:27 in doing things even worse than America is.
0:26:31 And America, as you point out,
0:26:33 has the success of the tech engine there.
0:26:36 But again, it’s slightly concerning to me
0:26:38 that the, like in America,
0:26:40 the domination is getting so concentrated
0:26:43 that the value is being created,
0:26:45 but it’s being created in just very few select companies,
0:26:49 you know, and I think that that is a real problem
0:26:51 and communities are so big. – And communities, yes.
0:26:54 – Yeah, it is really striking.
0:26:57 What do you think about the notion of,
0:27:00 so the one thing we didn’t talk about
0:27:02 that I think plays a big role in all of this
0:27:04 is immigration policy.
0:27:05 Comparant contrast, different immigration policies
0:27:09 across the nations you look at,
0:27:10 and what do you think is sort of,
0:27:12 if you will, the ideal,
0:27:13 if there is an ideal immigration policy,
0:27:15 and what does it indicate in terms
0:27:16 of America’s immigration policy?
0:27:18 – Yeah, I think that as far as America is concerned,
0:27:22 even though it’s been a big problem in America
0:27:24 and it’s a big political issue,
0:27:26 America’s at least been better at assimilating immigrants
0:27:30 than a lot of European countries in that regard.
0:27:34 And I think that countries like Australia and all
0:27:38 have been pretty good in terms of as well.
0:27:41 So I’d say that generally here,
0:27:42 the Anglo-Saxon world has been better than Europe
0:27:45 in terms of assimilation of immigrants.
0:27:49 But again, as I said, that what is good economics
0:27:51 is not always what’s good politics,
0:27:54 which is that even last year,
0:27:57 like I pointed out that immigration is what really helped
0:28:00 countries like America avoid a recession
0:28:04 and bring inflation down much more than
0:28:07 in other countries did last year.
0:28:11 But the problem is the fact that it’s become
0:28:13 such a political issue about tearing apart
0:28:15 the social fabric and stuff,
0:28:17 that what is good economics in obvious terms
0:28:20 is not good politics, and I don’t see that changing.
0:28:23 So I’d say that, yes, I think that immigration
0:28:26 is out of control for many people out here in America,
0:28:29 and so we’re gonna get a clamp down on that,
0:28:31 regardless, I think, of what happens in November.
0:28:35 But in general, I would say America
0:28:37 and the Anglo-Saxon countries like Australia
0:28:39 have done a better job at assimilating immigrants
0:28:42 compared to European countries like France.
0:28:45 – Well, let me say something that’s,
0:28:47 I don’t know, is wrought with emotion.
0:28:53 Is it that we’ve done a better job of assimilating,
0:28:55 or we attract a different type of immigrant?
0:28:58 – Well, it could be both.
0:28:59 I think a combination of both, right,
0:29:01 which is that in terms of what’s happening,
0:29:03 but I just look at it more from a simulation,
0:29:06 but then you start getting into cultural issues
0:29:07 in terms of who’s coming and what’s happening,
0:29:10 and that just gets a very slippery slope
0:29:12 in terms of looking at immigration in that regard.
0:29:14 – So, looking at all the economies in the world,
0:29:19 what two or three economies are you most bullish on
0:29:22 in terms of you mentioned that Canada
0:29:24 is doing really poorly, the UK is doing really poorly.
0:29:27 America, you would argue, is kind of like,
0:29:28 it sounds like average is slightly above average.
0:29:31 Any other role models for, you know,
0:29:33 I think of certain countries in Southeast Asia,
0:29:35 I think of Singapore, where we can look at
0:29:38 the way they’ve managed their economy
0:29:40 and think this is the role model?
0:29:42 – Well, I see, yeah.
0:29:43 I think it depends on the time frame,
0:29:45 but I think that the economies that have been sort of good.
0:29:49 Again, which is the economy
0:29:50 that’s doing the best in Europe these days?
0:29:53 It’s Greece, right?
0:29:54 Which is that this is a country
0:29:55 which till 10 years ago was like an example of a complete,
0:29:59 yeah, if I can say so, a basket case in terms of that.
0:30:03 But just look at how well Greece has come back.
0:30:06 It’s booming now.
0:30:07 It was, again, forced.
0:30:08 This is what crisis does.
0:30:10 It is one silver lining of a crisis.
0:30:12 It’s the only time when governments reform
0:30:15 or change things is when you have a crisis.
0:30:17 So, Greece runs out of money, it’s on the verge of default,
0:30:21 and then you end up getting a lot of reform.
0:30:23 So, Greece, I think, has been a comeback story.
0:30:26 In fact, in general, the club-made countries of late
0:30:29 have been doing better than their continental peers,
0:30:33 but Greece is an example of that.
0:30:35 Then secondly, I would point to is a country,
0:30:38 like in Eastern Europe in general,
0:30:39 I’d say Poland is a shining example of that,
0:30:42 which is that it’s a country
0:30:43 which I think is next classified
0:30:45 to becoming a developed country.
0:30:46 Remember that in the world today,
0:30:47 there are more than 200 nations.
0:30:49 Only 40 or so are classified as developed countries.
0:30:52 Everybody else is classified as emerging,
0:30:55 and many of them, from Brazil to Mexico,
0:30:58 have been emerging forever.
0:31:00 So, but I’d say that it’s been a while
0:31:02 since a major nation joined the ranks
0:31:05 of the developed countries.
0:31:06 I think the next one to do so could be Poland,
0:31:09 which is on the brink of getting up
0:31:11 per capita income of $20,000 or so,
0:31:14 which makes it like a developed country.
0:31:16 Again, a lot, it’s done right
0:31:18 from having a very competitive manufacturing sector,
0:31:21 not too many flashy billionaires.
0:31:23 And in general, I’d say that the election result
0:31:27 in Poland last year sort of also took away
0:31:30 some political risk
0:31:31 because it’s a much more cooperative government
0:31:33 that have in place vis-a-vis the EU
0:31:37 and the European Union helped to give it
0:31:39 some pretty strong institutions.
0:31:41 So I’d say that it like,
0:31:42 I feel relatively optimistic about these countries
0:31:45 outside of the core of Europe from Greece to Poland,
0:31:48 as like for different reasons,
0:31:51 one’s a comeback star
0:31:53 and the other one’s been a consistent star
0:31:55 in the post-communist world.
0:31:56 – And just before you go, we’d be remiss
0:32:00 if we didn’t ask you about China, your thoughts?
0:32:03 – Well, I’ve been banished on China for a while now
0:32:05 because in terms of what’s been happening
0:32:07 to it’s both the two pillars of growth really,
0:32:11 which is that it’s been relying a lot on,
0:32:14 like when China boomed, it had great demographics.
0:32:16 And of course, when the boom slowed down,
0:32:18 it could still rely on taking on more and more debt
0:32:21 to keep going.
0:32:22 Those engines are now down.
0:32:25 So I feel that China is in a secular decline.
0:32:28 On a fundamental basis,
0:32:29 I don’t see China growing at a rate of more than 2% or 3%
0:32:32 for the foreseeable future.
0:32:34 So I’d say that, yeah, for now it seems
0:32:37 that the risk of a blow-up in China has sort of been
0:32:42 papered over because they’ve again done what it takes
0:32:45 to keep the economy afloat.
0:32:46 But the problem in China is the fact
0:32:48 that they can’t get away from the basic notion
0:32:51 that there is no country in the world
0:32:53 which is able to grow rapidly
0:32:55 or even grow when it has a negative population growth rate.
0:32:59 That headwind is just very hard to overcome.
0:33:03 And then second obviously is the debt issue in China,
0:33:06 where China has took on so much debt over the last decade
0:33:09 because it ambitiously wanted to keep its growth rate up.
0:33:13 But now it’s being forced to pay back that debt
0:33:15 in a way with the property sector
0:33:18 and all which took a lot of that debt in the doghouse.
0:33:21 So I feel that, yeah,
0:33:23 the China may not have a blow-up or a crisis,
0:33:26 but it’s sort of going the way
0:33:28 where the growth rate keeps slipping and sliding
0:33:31 and 2% or 3% is the growth rate for China,
0:33:34 which is a far cry from where it was a decade ago.
0:33:37 Rashir Sharma is chairman of Rockefeller International
0:33:40 and founder and chief investment officer
0:33:43 of Breakout Capital,
0:33:44 an investment firm focused on emerging markets.
0:33:46 He moved to Rockefeller in 2022 after a 25-year career
0:33:51 at Morgan Stanley Investment Management
0:33:52 where he was head of emerging markets
0:33:54 and chief global strategist.
0:33:56 Rashir is also the author of five books
0:33:58 including The 10 Rules of Successful Nations
0:34:01 and Breakout Nations in pursuit
0:34:03 of the next economic miracles.
0:34:06 His latest book, What Went Wrong with Capitalism is out now.
0:34:09 He joins us from the greatest city in the world,
0:34:12 New York City, Rashir.
0:34:14 Thank you very much, really enjoyed this conversation.
0:34:16 – Thanks, Garth.
0:34:17 Thank you for having me.
0:34:18 – We’ll be right back.
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0:37:32 (upbeat music)
0:37:39 – The most famous study on happiness,
0:37:46 actually every study on happiness,
0:37:48 we never get data that says clean across.
0:37:50 Geographies, cultures, income levels, shows the same thing.
0:37:54 If on the y-axis you have happiness
0:37:57 and on the x-axis you have age, happiness is a smile.
0:38:01 Zero to 25, Star Wars prom making out.
0:38:04 25 to 45 are what I call the shit gets real years.
0:38:08 Life is hard, money troubles, relationships,
0:38:11 someone you love a great deal gets sick and die.
0:38:13 I mean, life just hits you in the fucking face.
0:38:15 It really does, you get beaned in the face.
0:38:17 And you think, wow, this is harder than I thought.
0:38:19 And what I can tell you is a lot of people out there
0:38:21 are feeling the same way.
0:38:23 And if you’re a good person and you work hard,
0:38:24 I’m not just saying everything will work out.
0:38:26 You need to make sure you’re not stuck, right?
0:38:28 You’re still working.
0:38:30 Every now you saying, what are the three, four things
0:38:31 I gotta get done tomorrow?
0:38:32 You’re getting up, you’re trying, you’re showing up.
0:38:35 You’re asking others for help, right?
0:38:37 You’re expressing your emotions.
0:38:39 And then when you’re in your 40s and 50s,
0:38:43 something wonderful happens.
0:38:44 And that is you start to take, I don’t know,
0:38:47 you start to find joy in the most mundane things,
0:38:50 nature, food, your friendships.
0:38:52 So what I would tell you is if you’re struggling
0:38:54 in your 30s and 40s, I’m not suggesting just lay back
0:38:57 and everything’s gonna work out, that’s bullshit.
0:39:00 But what I can tell you is for the majority of people,
0:39:03 it does get better.
0:39:05 And again, if you’re in your 30s and things are tough,
0:39:09 you’re kind of where you should be.
0:39:10 And what I would tell you is to keep on keeping on,
0:39:13 that life does get better, that happiness waits for you.
0:39:16 (upbeat music)
0:39:18 This episode was produced by Caroline Shager
0:39:20 and Jennifer Sanchez as our associate producer.
0:39:23 And Drew Burroughs is our technical director.
0:39:25 Thank you for listening to “The Prodigy Pod”
0:39:26 from the Vox Media Podcast Network.
0:39:28 We will catch you on Saturday
0:39:29 for “No Mercy, No Malice” as read by George Hahn.
0:39:32 And please follow our Prodigy Markets Pod
0:39:35 wherever you get your pods for new episodes
0:39:38 every Monday and Thursday.
0:39:39 Please, if you can right now and you enjoyed the show,
0:39:43 go to Prodigy Markets and subscribe.
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Ruchir Sharma, the Chairman of Rockefeller International and Founder and Chief Investment Officer of Breakout Capital, an investment firm focused on emerging markets, joins Scott to discuss his latest book, “What Went Wrong with Capitalism.” Follow Ruchir on X, @ruchirsharma_1.
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