Wednesday, 25 February 2009

The World As Emerging Market

Mature economies increasingly behave as if they were emerging ones. If you look closely, they are.

When dealing with emerging markets, you always have a problem: figuring out which country is really your subject matter. When does an economy leave utter hopeless poverty and get on the - always bumpy - road towards affluence? When, during its rather rocky past decades, did Cambodia enter the emerging market category, for instance? Or Morocco? Or Colombia?

(Drawing the line at the political transition is always tempting, but often wrong: think about the hopeless early years of the European post communist countries, or, the ultimate example from the other side: China and the Gulf states. The first bunch went through more or less free elections, but did not really get onto the emerging path until the mid-90’s, while the second lot clearly embarked on the typical rapid structural change pattern that characterises the emerging markets, but with, let’s put it this way, no landmark events towards democracy.)

Maturing emerging markets pose similar problems: when do they leave this category and become ‘developed economies'? Isn't it ridiculously silly, for instance, to treat Singapore and South Korea as emerging markets? Or, from the other side of the category: are Portugal and Greece really ‘mature’?

Maybe the term emerging market is not useful after all. At least by the mid 2000’s the line was already blurred: everyone was going through some form of rapid structural change, institutional reforms, and those who did not - we learn these days - should have done exactly that. Was the debate about the role of government in the economy in Germany really that different from that in Central Europe? Was the economic strategy, and the consequent structures, that different in Dubai from Switzerland? Was the role of the financial sector in Iceland really on another planet compared to, say, the UK? And, was the structural dynamics due to the new technologies that different in the US than in India?

Arguably, in all of the above examples, there are large differences between the two sides. But are those large enough, distinct enough, to justify a different category? Or is there, instead, a continuum of behaviours that are associated with integration into the emerging global economy and the adoption of a technology-intensive economic development path?

Thus we end up sceptical about the usefulness of the term emerging market during the past decade, at least retrospectively. But then, consider the behaviour of the mature economies during the current crisis. The ineffectiveness of the policy measures. The lack of proper data. The immature reaction of the political class. The depth of the social consequences. The unanchored systemic risk. And most importantly, the wildly uncertain future. Who is the emerging market now?


  1. interesting point. but it is unclear whether what you say is that every country is an emerging market now, or whether the term does not make sense any more

  2. Well, if everyone is in it, then it's usage is redundant. Maybe the only meaning retained that suddenly everyone behaves as only a smaller set of countries behaved some time ago. But then, the world economy, as the environment to them changed so much in the meantime, that even that meaning might be without a real reference.

  3. then the title does not makes sense either, no?

  4. Perhaps.

    Although, one might observe that the global economy shares a set of characteristics that were typical for classic emerging markets (although the "opening up is not one of them ... trivially). The emerging global political process, which seems to be taking place in the course of discussions about global level societal action might be seen as similar to the new polities in emerging markets. The probably emerging global governance institutions would not be that different from 'institutional reform' in emerging markets. And there is clearly a 'rapid structural change' pattern in place.

  5. Tamas, this is all speculation.

  6. drago tamer

    what's the prblem with speculation?

    fyi, that is where innovation comes from

  7. Speculation is unsubstantiated. Innovation comes from somewhere. That's the difference.

  8. or goes to somewhere, no?

    in any case, this one has both


    tamas, if this argument is correct here, then there will not be economic prosperity for while -- agree?

  9. 'Speculation' is academic-speak for unsubstantiated BS... It's the ultimate insult.

  10. To bee's question:

    This argument might not imply anything about the length of the crisis. In emerging markets it is policy innovation/adaptation that matters, and what really determines how long the hardship lasts. Perhaps that is the message here, too.

  11. So what comes out all of this for "real emerging markets"? They are doomed to go bankrupt. Their only role in the eyes of the Western politicians was to keep up the momentum of the world economy. Once it became clear that no such will take place, they are off the scene.

  12. Peter, the evidence is against your prediction: Iceland, Ukraine, Hungary. All emerging markets, all bailed out.

  13. Dragon_tamer,

    Your comment is about the past not the future.

    A back-of-the-envelope calculation would tell you that if ALL emerging markets would go under, there simply would not be enough money around to bail them out. If the crisis will last long, I can guarantee you that there will not be a lot of emerging markets unaffected...

  14. A couple of days ago, the FT had an interesting observation about the IMF's future abilities, and how uncertain they were. Here is the link.

  15. One of those posts where one can't really decide whether it actually wants to say something or rather not.

    The usage / abolishment of the term 'emerging' in itself is completely irrelevant, i.e. it is relevant only to the extent of implied change on how one is to look at mature economies. Alas Tamas remains silent on this.

  16. The mature economies are increasingly behaving like emerging markets used to. They have a problem with buffers (even those that had some, are seriously running out of them), they have a problem with flight to quality (their currencies can’t decide whether to wobble or not -- so all of them does so), and they have considerable inadequacy in their policy setup (witness how little the western policy institutions were able to achieve, even those we all thought of as ‘mighty’ in the good old days: the leading central banks, the banking and capital market regulation authorities, or even the fiscal ability to bridge over any recession crack).

    Yet, the criticism that the post has not decided whether to actually say something might still stand. Perhaps the something would be that bone again: the inevitability of the global governance institutions. The true level of organisation has moved onto a higher level, i.e., global, and thus all the economies (mature or emerging, alike) behave as if they were going through a ‘rapid structural change’ process (which used to be an emerging market trade-mark). Thus all the policy anchors are gone, everywhere. Until the relevant, new policy institutions are set up, that is, meaningful global governance functions, ‘wobble’ will be the name of the game.

    Is that a ‘say’?

  17. Tamas,

    Same thing again. You are drawing conclusions from a theory of sorts, which must be in your head, probably you are even playing with it on your computer, but without sharing it with your readers.

    Tell us what is in it. We can tear it apart otherwise.