3 BOOKS THAT TELL US HOW COUNTRIES BECOME RICH

Over the years, the definition of the Indian economy has been changing. 

Pre-1990s          - Third World Country

1992 - 2001        - Developing nation

2001 - 2008        - BRICS, on track to becoming superpower 

2009 onwards     -  Stalled growth, high inflation, corruption 

Fifth BRICS Summit Image Source: NPR.org

In 1992, when India liberalized, the answer to India's economic growth seemed simple: 'let capitalism flourish and India will grow'. Through the 2000's, this solution seemed to be working well; India's growth seemed unstoppable. But since 2008, there is a realization that economic growth needs more than just capitalism. The Indian economy, despite being capitalist, is floundering. The simple answer of 1992: 'let capitalism flourish' seems simplistic today. 

Cracks In the BRIC Image Source: Forbes India

Having realized this, I was looking for books that go beyond  the simplistic and explain how economic growth really works. Quite delighted to have found three books that I recommend (to be read in this order)

1) Breakout Nations - Ruchir Sharma 
2) The Great Stagnation - Tyler Cowen
3) Why Nations Fail - Daron Acemoglu && James A. Robinson

Breakout Nations is written by the head of emerging markets at Morgan Stanley and is completely based on empirical data. We learn from it that economic growth is not 'destiny' and it is not necessarily India's 'turn'; India, just like several other nations, has to compete to win by doing well at  investing in infrastructure & education, governing well, encouraging innovation and  periodically reinventing itself. Every nations wants to grow but only a few will. 

The Great Stagnation explains how America became rich (from 1770 to 1970) by eating up low hanging fruit; limitless land, technology innovation and education access for all. It also tells us that America cannot continue to do this because the low hanging fruit are all eaten. From this, we realize that India cannot copy the American model because it has no low hanging fruit at all. India is scarce on land and technology. 

Why Nations Fail is a scholarly work spanning 500+ years of economic history - from the city state of Venice to the Mexico/US border today - which argues that economic success is almost completely dependent on how inclusive and free the political and economic institutions of a country are. Countries which have had inclusive and well functioning institutions - the democratic era of Rome, Venice in its early years, Industrial Revolution England, Botswana, the US do far better than those with extractive institutions - the Roman Empire, Venice in its later years, pre-Industrial Revolution England, several African countries. 

Put together, the three books tell us that India has to focus on building inclusive, well-functioning government and institutions to grow. It has to invest in infrastructure and education. It has to encourage innovation. But the solutions are not formula based. Several aspects of politics and economics have to be addressed. It is a long and difficult journey. 

Finally, it is interesting to note that democracy is certainly not the reason for India's patchy growth. All 3 books praise South Korea && Taiwan which have recorded five decades of growth over 5%, the only two in the world to do so. They are both  vibrant democracies.