Thursday, 26 December 2013

Why Nations Fail? - Book Recommendation

My lovely cousin studying in US mailed me this book as a birthday gift. It was on my bookshelf for quite some time. I had heard about this book from ex-classmates and knew that it is a must-read for those who are interested in economics, or in particular why some nations are so wealthy, and some are so poor. I started to dig into the book recently, and was totally amazed by the ideas of "inclusive/exclusive society". Essentially it means whether the economic development and social wealth are institutionally accessible to all classes in a society or not.

The chapter about China presents a fresh and enlightening perspective. Many recently published books by Western intellectuals, who are awed by China's economic progress, openly celebrate the incoming China century or China's rule etc. This book, however, concluded that China, with its exclusive economic institutional structure, can never become a successful economic model or an admirable society, unless changes be made in its exclusive economic structure.(not to be confused with political structure).

The book discussed "elitism" too. Elitism society can create wealth fast from low starting level under good management, but its success usually can not last for long, because not only the elitism class will revert to mean level ( hence revert to mediocre or poor management), but also the elitism class will find ways to protect their own interest and stop the social mobility, thus suffocating the country's creativity and leaving the country's brain power underutilised or drained. When the country are left with mediocre leaders with a "nodding" people, you know the results. (The author did not make reference to Singapore though. )

A country's sustainable economic growth is the foundation to long term stock investment. I came across the articles written by fellow bloggers advocating long term investment (or buy-and-hold strategy): " those old uncles in KopiTiam and old aunties in Pasar who are still holding to their IPO lots of SIA, DBS, UOB, OCBC, JCC, F&B, APB can call themselves Investment Gurus."  Check the article out on : http://createwealth8888.blogspot.sg/2013/12/how-to-invest-in-blue-chips-and-make_14.html

True. But this can only happen in a politically stable society with economic freedom and rule by law, and at its growing phase, such as Singapore's golden growing age(1960s-1997). ( or as the book will tell you, those inclusive societies.) The Former Soviet Union also had stock market. Can you guess the fate for investors who bought-and-held 
Soviet Union stock shares all the way until 1990?  North Korea's 30-year sovereign bond underwritten by French banks in early 1990s are still trading in European markets at over 99.999...% discount to face value. Those are indeed extreme cases. But in China, Vietnam, or many other exclusive societies' stock markets, some state-owned companies can call for seasonal offering frequently and pay zero or very little irregular dividends. Buy-and-hold strategy hardly works in these cases.

If Singaporean uncles and aunties, who had done little active investment intentionally, but had made a fortune from their long-term-holding shares or properties, that is not because they had done little active investment, that is in spite of doing little active investment, they were born in the right country and grew up in the right time.

Check the book out on Google e-Book below. It is also available at National Libraries. 
 

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