Saturday, 29 January 2011

A Holiday in Cambodia

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Is this really the end of capitalism's global resurgence?

Investment Advisor | February 1, 2011 | By John Sullivan, AdvisorOne

Author and foreign policy expert Ian Bremmer recounts a meeting with a highly-placed Chinese official in the wake of the recent financial crisis in which the official began, “Now that the free market has failed …”

The Chinese official isn’t alone in his supposition. The Irish are drinking (again). Greece and Portugal are basket cases, with Spain not far behind. The only EU bright spot appears to be Germany. How this will affect the long-term viability of the union remains to be seen.

So is this really the end of capitalism's global resurgence?

The 2011 Index of Economic Freedom, released Jan. 12 by the Heritage Foundation and The Wall Street Journal, answers with a resounding “no.”

According to the release, the Index records countries' commitment to the capitalist system by measuring 10 categories of economic freedom: fiscal soundness and openness to trade and investment, government size, business and labor regulation, property rights, corruption, monetary stability and financial competition.

The good news, according to the analysis? One hundred and seventeen countries, mainly developing and emerging market economies, improved their scores.

Countries like Cambodia, Ghana, Nigeria and Kazakhstan, all of whom appear in the middle of the list and are being rewarded (many for the first time) with capital inflows and investment. These countries and others are discussed in Savita Iyer’s cover story on the opportunity in so-called “frontier markets,” and why legendary investors like Franklin/Templeton’s Mark Mobius are giving them a hard look.

The one depressing note from the report? The United States dropped to ninth place in the 2011 Index, with its lowest economic freedom score in a decade. The United Kingdom fell even further, all the way to 16th place.

“Economies that stuck to the principles of economic freedom are recovering more quickly from the recession and financial crisis, and growing faster than countries whose governments tried to spend their way out of trouble,” according to the analysis. “There's an amazing 4.5 percentage point difference in average growth rates between the big spenders and those governments that kept their budgets under control.”

Given all we’re hearing of debt ceilings, debt commissions, federal debt, state debt, sovereign debt, mortgage debt and quadrupling of the debt, is anyone really surprised?

About the Author »


John Sullivan is the editor of Investment Advisor magazine and the editor of the Retirement Channel for AdvisorOne.com. Sullivan is the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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