‘Open markets offer the only realistic hope of pulling billions of people in developing countries out of abject poverty, while sustaining prosperity in the industrialized world.’
– Kofi Annan: Former Secretary General, United Nations
The developed world has enjoyed an incredible level of progress since 1920. Life expectancies have been extended due to the eradication of major diseases and improved medical technology providing early diagnosis and treatments to previously incurable diseases.
We have higher living standards due to all the ‘mod cons’ we consider an absolute necessity to function in our society. The ability to hop on a plane and travel to domestic and international destinations for business or pleasure is something we take for granted.
The 20th century was one of rapid change and development. The progress made in the last one hundred years was truly staggering when compared to the thousands of years beforehand. The genie is now out of the bottle and the accelerated pace of advancements in technology means the next century will usher in an even greater pace of change.
The 20th century was a tale of two worlds — the developed and the underdeveloped.
Western society participated fully in the advancements that occurred in medicine, technology, transportation etc. however the underdeveloped world remained in a time warp — washing clothes by hand, preparing food over an open fire, no refrigeration, horse and cart transport and enduring primitive medical services.
Access to the internet has opened up a whole new world to the citizens of underdeveloped countries and they are now playing catch-up with the western world. The new term for the underdeveloped world is Emerging Markets.
The developed world has become fat and lazy after a century of progress. Its citizens, businesses and governments are heavily indebted. The earlier generations greeted the progress and prosperity with appreciation but subsequent generations have simply assumed these twin benefits are their right and entitlement.
Government subsidies for health, education, raising a family, flood relief etc. are a consequence of citizens expecting access to a better lifestyle as opposed to earning access.
Consequently, high levels of debt and an over-reliance on government are burdens on western society. By comparison the emerging markets have low levels of personal debt and the citizens receive little by way of government assistance.
Being free of these encumbrances has enabled the emerging markets (Brazil, Russia, India and China – BRIC’s) to achieve significantly higher growth rates when compared to the western world.
Billions of people are now on a journey to improve their standard of living. It took the developed world the best part of eighty years to progress to its current level, so this journey will go on for years.
While the emerging markets will be a long-term trend that should reward investors, there will be periods when they suffer setbacks. No market goes up and up without correcting.
China’s economy is the most likely to cause a reversal in the emerging market investment sector. China has gradually subsumed agricultural land for industrial and residential usage. Factories and apartments now occupy land that once produced food for the Chinese.
The government knows that hungry and unemployed people riot (look what happened in Egypt and Syria) so to avoid this situation occurring, the government has created jobs by instructing State-owned banks to lend to property developers and investors in an effort to keep people employed in the building and manufacturing sector.
Reports now show that up to sixty five million apartments are vacant; shopping centres have no tenants and newly created cities have no citizens.
From the outside it looks like they are building for the sake of building. If this is indeed the case then it is a giant property bubble that is set to implode and will have nasty reverberations around the world – especially in Australia, as our resource sector has been a huge beneficiary of the China boom.
for Markets and Money
Ed Note: This is an excerpt from Vern Gowdie’s book A Parent’s Gift of Knowledge. Stay tuned for Vern’s special report later in the week on the secret to growing and compounding ‘family wealth’ over time.
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