Betting on the LUSTI Nations

In an increasingly global and rapidly evolving economy, we are all motivated to pick the emerging “winners” that will benefit the most from globalization. A lot hinges on the outcomes. Where should we invest? Where should we open offices? Who should we be recruiting into our global networks?

Almost one decade ago, we were urged to focus on the BRIC countries (Brazil, Russia, India and China) as the most likely to become significant players on the global stage.  India and China have especially showed promise over the intervening time, becoming major players in global investment and trade.

Introducing the LUSTIs 

I went out on a limb last week and seem to have survived that adventure, so I am tempted to venture out on another limb and see if it will hold me as well.  In an uncharacteristically short post (OK, relatively short for me), I want to point out some dark horses that I believe have the potential to rise to prominence.  I call them the LUSTI nations.  Who are they? Well, in the world of acronyms, they are Lebanon, United Arab Emirates, Singapore, Tunisia and Israel.

Now that’s a pretty diverse group.  Of the group, perhaps Singapore has made the greatest strides towards carving out a global role.  A number of the others – Lebanon, Tunisia and Israel – are embroiled in local and/or regional political turmoil.

So, what’s the common element that pulls me to this LUSTI group?  At its simplest level, it is a combination of size, culture and aspiration.

Size matters - but not the way you might think

We live in a world rapidly moving from stocks to flows as a source of economic value.  In a world of flows, large size can become a significant disadvantage. Why?  Because institutions and countries with large size have a tendency to focus inward.  After all, they have enormous resources and talent within their boundaries.  There is a temptation to want to rely on those stocks and perhaps see less value in the flows surging around them.

Smaller countries do not have that luxury.  They quickly realize that their internal resources are very limited. They understand that, if they want to grow rapidly, they must find ways to connect with others outside their boundaries in ways that will create value for both sides.  They see that flows across and beyond their boundaries are the only way to succeed. Their opportunity is to develop and pursue strategies to become growing hubs of global flows of people, products, money and knowledge.
So, size can put things in perspective. It helps to focus the mind in terms of what is really important.  But it is not enough.  There are lots of small countries that will likely not become significant players on the global stage.

Culture shapes the potential for openness and trust-based relationships

Culture helps.  What do I mean by culture? In this case, I am referring to a diffuse set of elements, some of them historically derived and others more contemporary.  It helps if a country has a heritage of active trading beyond its boundaries.  It tends to make the people more open to the world economy and often more trusting and tolerant of diverse cultures and values.  Lebanon and Tunisia were part of the ancient Phoenician civilization - some of the most active traders in the world and they still cite that heritage with great pride. The Emirates now banded together in the UAE and Singapore have long been major trading posts.  Israel is a bit of an outlier here, but Jewish culture has a strong trading heritage embedded within it. 

Now, to talk about trust and tolerance in countries like Lebanon and Israel may sound like a bit of a stretch. They both have in recent years been wracked with sectarian strife.  I believe from personal experience, though, that these cultures have these traits deeply embedded within them. These traits remain beneath the surface today, ready to re-emerge when strong leadership can address the conditions that have given rise to domestic strife.

Tunisia is certainly in turmoil as I write this, but I have a strong sense that it is net positive turmoil.  It is providing a beacon to the disaffected youth throughout the Middle East and other parts of the world that regime change may not be as impossible as they once imagined.  Yes, Tunisia is on the edge of the Middle East and a smaller country, but the youth of the Middle East are closely watching what is happening here.  I believe that when the dust settles, we will see a more vital country emerge with much less bureaucracy and corruption and a growing focus on economic growth. Rule of law and an end to systemic corruption will be essential for any country that aspires to build the trust-based relationships required to become a global network hub.

Aspiration and strategy necessary to achieve potential

OK, so is that it?  No, there is a third element that needs to come into place.  The people and their national leadership need to have a strong aspiration to play this role of a global connector. They also need to develop a strategy that recognizes where they are today and that defines a pragmatic pathway to bootstrap into that global role.  At this point, only two of the LUSTI countries – Singapore and the UAE - have this third element in place. The other three countries have diverse challenges to overcome before such an aspiration and strategy become feasible.  Nevertheless, for different reasons in each of these countries, I see a strong potential to develop that aspiration and strategy.

Another scenario

An alternative scenario could also play out.  Rather than focusing on countries, perhaps we should pay attention to the dense urban centers that continue to grow around the world.  A strong argument can be made that these geographic “spikes” (to use a term that Richard Florida popularized) will increasingly establish autonomy relative to the national governments that host them.  These urban spikes could build upon the role that many of them (e.g., New York in finance and Silicon Valley, Shenzhen and Bangalore in technology) are already playing as network hubs in the global economy.

Placing bets

In fact, I will bet that elements of both of these scenarios will play out – they are not mutually exclusive.  Of course, large countries should not be counted out of the game – yet.  But if I had to handicap the evolving global business landscape, I would bet on small countries and urban spikes becoming the focus of economic value creation as large national governments become increasingly marginalized.  In a time of continuing disruption, size (at least as conventionally defined – population and geographic) generally turns out to be a disadvantage.

Comments

[Niti Bhan]

Singapore has been way ahead of the BRIC nations in development, for far longer and with greater success - agreed, that's primarily due to its smaller size but it has managed to overcome the challenge posed by being an island nation the size of Chicagoland. To even imagine it in the same breathe as the rest of your LUTI nations is frankly inconceivable on so many levels, beginning with the fact that its vibrantly multiethnic, multilingual and multicultural. Perhaps you were mistaken with Malaysia or Indonesia, close neighbours and in many ways I can see how they might be associated with your LUTI collation.

I would be happy to provide you with far more information on Singapore if you wish to take another look at your collection, starting here:

http://www.asiaone.com/News/The%2BBusiness%2BTimes/Story/A1Story20100301-201679.html

[Gregory Rader]

I have long found the World Bank Doing Business rankings intriguing because they focus on many factors that often go overlooked - factors like the ease with which a business can be started or construction permits can be obtained. These administrative hurdles are less obvious than tax rates or superficial political freedom but certainly play a huge role in determining how much productive activity takes place (or doesn't).

It would be very interesting to try to create a similar ranking system incorporating even less obvious factors like those included in the Shift Index. I am sure there are some unknown countries that would be surprisingly friendly to pull-centric business. As you have noted before, much of the organizational innovation is occurring in developing countries so there must be some ways in which less developed environments are actually more friendly to that type of innovation...

[Taylor Davidson]

Interestingly, this morning I read this Economist article about "The emerging emerging markets: -> http://www.economist.com/node/17493411

They pointed out a number of countries in Africa, Asia and the Middle East that could be areas for economic growth.

There are some overlap in the countries represented, but more interesting are the reasons you proposed, a beginning of a framework, focusing on culture, aspiration and size. The Economist picked out a variety of countries for different reasons, but didn't create a framework to understand the overall rationale.

Thinking about large urban centers and small countries, it comes down to sufficient size and independence. Enough size to form a critical mass and a large enough pool of economic activity, and enough independence to not be bogged down by nearby economic stagnation.

A couple of thoughts about what else fits into the considerations: how about trading patterns? Will small countries that are heavy trading parties to "the rich world" suffer from the slow economic growth in those countries? Not only is it about trading outside one's borders, but trading with the right dynamic countries.

How about foreign investment? I would expect there to be a different level of economic growth from countries receiving large amounts of FDI from China than from the US and Europe. I saw China's impact firsthand in Ghana last winter.

What else?