May 28 2008
Going With the Real Winners of the Cold War
An article in CNN.com today sent shivers down my spine.
My gut reaction to the story was that America is in an economic nosedive it may never recover from. Then came this sense of anguish that so many Americans are missing out on the long-term opportunity of diversifying into emerging markets.
Why don’t more of us consider emerging markets as the next big payoff? Because we cling to the belief that we won the Cold War. And in turn, we hold fast to the dream that America is less volatile than emerging markets.
American’s surround themselves with the trappings of Cold War victory — the comfortable home, four cars in the driveway, credit cards jammed into our wallets, and an armada of electronic gizmos that shield the new economic realities of the vanquished.
But just look at the CNN.com story…
With the headline “Making a good living, but still feeling strapped” CNN.com showed me that America really did lose the Cold War.
The CNN.com piece profiles the Burris family of Pittsburgh. Mr. Burris earns a “comfortable salary” as a software engineer. Yet, squeezed in the vice of run-away fuel and food costs, the Burris’ are scrimping to get by.
As Mrs. Burris says “We are struggling to stay in the same place. You don’t mind pinching pennies to send your kids to college. You do mind pinching pennies when it’s simply to buy some eggs.”
By comparison, the middle classes of China and Russia are getting great PR in the world press. And why not? Didn’t they really win the Cold War?
The May 2008 issue of National Geographic highlights China — the changes brought about by the so-called Economic Miracle. The theme of the issue is “China’s Journey. The great nation is on the move.”
An article titled “The Road Ahead China’s expectations are rising, with no end in sight. What’s next?” marvels at how factory towns spring up and create new micro-economies throughout the country.
As the author writes…
“In Shifan, one of the dam-relocation communities, I joined a family for the first meal in their new apartment. The father was a moderately successful businessman, and he proudly showed me the finished home. It was full of fashionable possessions: a karaoke machine, a 45-inch television, a bed that came with a telephone in the headboard. Most impressive was the lighting system in the living room. A massive chandelier contained nearly three dozen bulbs, and rows of blue lights had been inlaid along the ceiling to evoke the sky. Red bulbs were hidden in alcoves (”They give a warm feeling,” said the father). Everything could be flicked on and off by remote control.”
Another article in the same issue probes China’s middle class. It’s titled “Gilded Age, Gilded Cage China’s sudden prosperity brings undreamed-of freedoms and new anxieties.”
Yes, the pressure is on China’s children to succeed. But so what? Is there something wrong with that?
For a snapshot of the other Cold War conqueror, Russia, we turn to Moneyweek of May 28, 2008…
“Consumption is gathering momentum - it rose by 12% last year - as Russia’s middle-class expands. The latter has increased sevenfold since 2000 and now comprises over 21% of the population, says Robin Geffen of Neptune Investment Management; it is expected to double over the next decade. Given pay rises in excess of 20% over the past three years, it’s no wonder Wimm-Bill-Dann, one of Russia’s leading food producers, grew sales by 43% in the first nine months of 2007.”
The rise of Russia’s middle class has even spread to frostbitten Siberia. In our own issue of May 21, 2008, we wrote about mall sprawl in Siberia. Yes, the former Soviet gulag has transformed into a consumer haven.
Russia’s middle class is on the march. The Russian Agency for the Support of Small and Medium Business reported the share of middle-class Russians is expected to reach 50-52% of the country’s total population by 2020. It cited Deputy Economy Minister Anna Popova.
She noted that the country’s middle class had grown 20% over the last two years, while its share in the population had increased from 17% to 21% of the total.
Now let’s review a survey by the Pew Research Center of April 2008 on the American consumer…
It found that a majority of all Americans said they had not progressed in the last five years. Twenty-five percent responded their economic situation had not improved, while 31% said they had fallen backward. Those numbers together are the highest since the survey question was first asked in 1964.
Asked about their financial experiences in the last year, 53% revealed they had to cut spending. Nearly one in five (18%) said they had difficulty getting or paying for medical care.
As an American investor, it may be a bitter pill to swallow that the Chinese and Russian economies are now a good place to diversify your portfolio. But if you accept that truth that America ultimately lost the Cold War, Russia, China and other emerging markets start to make real economic sense.
–Irwin Greenstein
