Reflections on Australia - Lucky Country for investors!
In Australia we tend to take a lot for granted. Australia is the richest country in the world per capita (a record we have held since 1890) - but why?
It's not just resource riches and/or British colonisation - there are plenty of resource-rich countries, and plenty of ex-British colonies that are economic basket cases today.
How I personally got lucky - twice - in the great lottery of life.
Prison colony to richest nation in just 100 years
More than two hundred years ago, post-British settlement ‘Australia’ started out on a remarkable journey to wealth, driven primarily by resource exports. It started with exporting seal oil and whale oil, then wool and grains, then gold, and a host of other metals, and agricultural products.
By 1890, the colonies of 'Australia' enjoyed the highest level of income in the world per head of population, from a struggling prison colony just one hundred years earlier.
Today, another 130 years after reaching the top of the table, Australia still has the highest median income per person in the world.
Australia has been one of the very few ‘lucky’ countries in the world that have survived for a couple of centuries in relatively peaceful and stable isolation, with more or less continuous economic growth.
Very small club
Also in the club is the US - although it may have been very different for investors in the US, UK, and Europe had the Confederates won the American Civil War.
New Zealand and Canada are also rare members of the ‘lucky country’ club for investors.
For long-term investors, living in a country that has been blessed with uninterrupted growth, stable politics, and progressive, growth-oriented governments, investor protection laws, has meant that long-term investment has been entirely possible, as they have not been subject to major wars on their home soil, invasions, revolutions, colonial plunder, confiscation of private property by despotic rulers, nationalisation, and other destroyers of private wealth.
If we step outside this 'lucky country' club into any of the 200 other countries on earth, people laugh at me when I talk about our concept of 'long-term investing’! (I have spoken at several investment conferences throughout Asia).
In many countries, even today, the idea of 'long-term' means surviving the next civil war, military coup, ethnic cleansing, or surviving the clutches of clepto-dictators, nationalisation, or arbitrary confiscation of wealth.
Most other countries in the world do not offer their citizens the same protection of property rights, rule of law, investor protection, freedom of speech and dissent, and relatively stable political, administrative, regulatory, and judicial systems.
We take for granted these investor-friendly conditions but they are actually quite rare in the world, and they are critical for investment.
We are lucky to have been born in (or allowed into) one of the rare, favourable countries for ordinary private investors.
Far-flung British colonies
It is no accident that Australia, New Zealand, Canada, and the US were all relatively sparsely populated former British colonies that were, and still are, blessed with vast natural resources.
Britain was the last of the European colonial powers to conquer and plunder the as-yet unconquered and unplundered parts of the world.
By the time Britain got its turn, the nearer targets were all taken by earlier European empires, mainly Portuguese, Spanish, Dutch, and French. Britain, as a late starter, was left with the far-flung remnants.
What we now call Australia, New Zealand, Canada, and the US were further away and harder to get to, but as they were sparsely populated, the incumbent natives were easier to displace and/or over-power by colonists and settlers, and it was easier to impose colonial rule and lasting colonial institutions.
(In the case of USA - it is important to note that the original British colonies comprise a small portion of what is now USA. 30% of current USA was purchased (from France and Russia), and 15% was snatched via wars (with Mexico, Hawaii).
As far flung remnants, they were also lucky enough to avoid invasion and destruction in the major global wars.
In stark contrast, the rest of the spoils (in Latin America, Africa, Middle-Eaast, and Asia) were carved up into colonies and plundered by the other European powers.
Their indigenous inhabitants of these colonies were too numerous to be displaced and dominated by the colonists and they eventually rose up and threw their colonial rulers out – in the 1810s and 1820s in the case of South America, and mostly in the bloody post-WW2 wars of independence across Africa, Asia, and the Middle East.
Other colonial legacies
The legacies of these other colonial empires have not been good – in terms of health, welfare, human rights, political stability, living standards, let alone private wealth accumulation for the ordinary citizens.
Most of these newly independent nations were (and still are) plagued by the effects of failed communist and socialist experiments, revolutions, civil wars, brutal dictatorships, capricious autocrats, suppression of human rights, hyper-inflation, corruption, nepotism, pilfering of national resources, nationalisation of businesses, and civil unrest.
Britain also had dozens of colonies where they were not able to displace the natives. There, too, the conquered and colonised natives rose up to throw out their colonial overlords, only to find themselves bogged down in failed communist experiments, revolutions, civil wars, brutal dictatorships, corruption, unrest, etc since their independence from Britain.
Today those former British colonies are still relatively poor and are now quaintly labelled as ‘developing’ or ‘emerging’ markets – still struggling to ‘emerge’ from the effects of colonial rule.
Former British colonies in that category include: India, Pakistan, Bangladesh, Sri Lanka, Myanmar, Egypt, Kenya, Iraq, Libya, Nigeria, Somalia, South Africa, Uganda, Yemen, Zimbabwe, and so on.
Many of these are ex-British colonies are resource-rich, but their wealth has been siphoned off and pocketed by successions of corrupt rulers and elites, so we cannot simply conclude that Australia’s luck has been its resource abundance alone.
Although Britain has a poor record of success in terms of incubating successful nations from its colonies, the other European powers had even worse records, with not a single 'success story' from any of them.
Politics and People
The key differentiator is not resource riches, nor colonial heritage. It is politics.
In democracies, it is who the citizens elect; in non-democracies, it is who the citizens tolerate (before they eventually rise up and throw them out).
In 1890, Argentina (former Spanish colony) shared top spot with Australia in terms of highest per capita income in the world. Today, Australia is still at the top, but Argetina is now down in the bottom quartile.
The difference is in the policies of the leaders and governments. This is not luck.
Even in non-democracies, some dictators are successful in building a nation of wealthy citizens - like Singapore's Lee Quan Yew and his dynasty. Unfortunately, he was an extremely rare exception.
In Australia, our democratic system has mostly delivered wealth-creating governments - with policies that have been pro-business, pro-growth, pro-immigration, pro-resource exploitation, pro-private enterprise, as well as strong institutional infrastructure - incuding education, health, social welfare, justice.
It has not all been plain sailing of course, and it was not luck.
Some of our elected governments were great reformers that created tailwinds for growth and private investment and wealth - like Macquarie, Fisher, and Hawke/Keating. Others created headlinds - like Chifley, Whitlam, and Albanese.
However, elected leaders and governments in each country cannot operate in isolation. They are also very much constrained and influenced by global conditions, and that largely is a question of luck, as to which global era we happen to be in at various stages in our lives. That is essentially an accident of birth.
Lessons for investors
What can investors make of this? Successful long term investing only works if we get three things right. We need to pick (a) the right companies, (b) the right timing; and (c) the right country!
Even if we happen to live in one of the few lucky countries for investors, we should never simply ‘buy & hold’ or ‘set & forget’ our investments. There are no such things as safe, reliable ‘blue chip’ companies that can be relied upon to survive and prosper for long.
We need to be active, never take company accounts and audit reports at face value, do our own research, learn to ignore the market ‘noise’, sensationalist media headlines, and gratuitous ‘advice’ from friends, neighbours, and websites spruiking the latest ‘hot stock’ or ‘hot fund’.
We need to recognise changing conditions, understand cycles, but also to identify where changes may not be cyclical but longer term.
Make adjustments, never panic-buy in booms (or at least don’t gear up or bet the house in booms), never panic-sell in busts, and be prepared to go against the crowd. Investing is a never-ending learning experience.
My personal 'double-dose' of Luck
It was certainly not just luck that Australia survived and prospered as it has. However, it is pure luck that I have been able to participate in it. I have been dealt two doses of luck.
The first was that I was lucky enough to be born in one of the very few former British colonies in Asia or Africa that subsequently managed to recover from colonial domination to make it into the ‘rich nations’ club.
My second dose of luck was when I was allowed into Australia!
I thank all Australians for the priveleges and opportunities that living here has afforded me.
Happy Australia Day to all!
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