'There's No Such Thing as a Failed State'

The father of emerging markets says we shouldn't give up on the world's Somalias and Zimbabwes.

Mark Mobius is the kind of guru to whom other gurus turn for advice. With his signature white suits and gleaming, clean-shaven pate, he very much looks the part too. Executive chairman of Templeton Emerging Markets Group, managing some $45 billion and 18 overseas offices, the half-German, half-Puerto Rican Mobius is a legendarily farsighted investor who sees opportunities around every corner, often in places that aren't for the squeamish. After four decades at the top of his field, his name is on pretty much every list of people who matter in global finance. There's even a comic book on his life that has been translated into six languages: Mark Mobius: An Illustrated Biography of the Father of Emerging Markets Funds. Foreign Policy spoke with him about China's forays into Africa, how to make money in failed states, and why no country is too hopeless. Here are the edited excerpts:

Is Africa a basket case or an opportunity? I would say it's both. In many cases it's the basket case and it's the next best thing, so what's happened is the change in attitudes, the change in perception. But on the ground, of course, things are still not hunky-dory.

Probably the defining variable is what is happening in other emerging markets. China, Brazil, Russia, India -- these countries now are getting to a point where they have excess reserves. They have money to put into other parts of the world. And of course they have been putting money into America, into Europe, but they also are now going into Africa. On the one side they need the natural resources -- China. On the other side they see an opportunity to make money and make better returns.

The range of what's possible in these countries is quite tremendous simply because they are building from such a low base. In the last 10 years, for example, six of the fastest-growing nations of the world were in Africa. But also it's the fact that the printing presses are working overtime in America, in Japan, and even in Europe. There's a lot of money to be invested, and a lot of that is because of the fears of inflation finding its way into equities. So you have a very unusual situation where pension funds are really buffering because investments like U.S. Treasury bills are paying such a low interest rate -- which leads them into emerging markets and frontier markets, with frontier meaning Africa, Central Asia, far Eastern Europe.

The African countries most on my mind right now are South Africa, Nigeria, and Egypt. They're important markets, and they're getting their act together. I know many people don't have nice things to say about Egypt these days, but at the end of the day they will get their act together and they will continue to work.

We were in Rwanda about six months ago, and we were all really shocked at all of the infrastructure, at least in the capital, and the degree of governance, the way law and order was in that country. There are such huge differences in Africa from one country to another: differences in temperament, differences in behavior, and so forth. And Rwanda is a great example of a country that's really got itself in order and is a reminder that, again it has this background, this image of the genocide and all the rest of it.

If you take Somalia, they have natural resources. Large companies want to go in there and drill and look for those resources. And that means money goes into the country, people begin to raise their living standards, and then you have a market. We're not writing off any of these countries. In my opinion, there's no such thing as a failed state. It may be in trouble, but it hasn't failed. The mere fact that it is a state means that it's alive.

Another good example would be Zimbabwe. You mention the name and people just think, "God, what a basket case," but we are investing in Zimbabwe. And again, it's an example where you have to pick and choose the right companies with the right management. Then you can do pretty well.

China is a very positive element to this whole picture, and there are two sides to this: There's the Chinese government and the Chinese entrepreneur. The Chinese government goes in and they say to a country, "Look, we want to be friends." And then they say, "Look, we know you've got this coal, and we need this coal. We can do a deal with you to export the coal into China, but in order to get it out of the country we've got to build a railroad. If you'll do a long-term deal with us, we'll build the railroad." Once that begins, then you have Chinese contractors, Chinese workers coming in and establishing small businesses and trading. And their relatives come in and they see the opportunities. So you begin to get a private market in Chinese products and to expand and attract other people, and you begin to have more of a market economy. Then you have people like retail outlets in South Africa wake up and say, "Hey, they're in the market here. The Chinese are selling this and that. Why don't we go in and set up a business?" So I would say that generally speaking, the influence of the Chinese has been very positive for these countries. Of course there are some downsides. Some countries say that the Chinese are doing all the work and we don't have any jobs and so forth and so on, but these are things that can be ironed out.

The State Department is very much aware of what's going on, but at the policy level they have not committed the kind of resources that the Chinese have committed. And that's highly unfortunate, but I think going forward there will be more private-sector involvement from the U.S. in particular. There also has to be leadership in terms of analyzing what's happening on the ground and conveying that to the American people. A good example would be Sudan. I mean, suddenly, unexpectedly, things have changed in Sudan. Now there's a South Sudan. And the Chinese are saying, "We can work with these people," even though the Chinese were accused of committing genocide by trading with the Sudan government. The Chinese are better [at working in Africa] because they are building whole entities around accepting what's on the ground and then working with that, the local environment. That can lead to accusations that they're corrupt, that they're working with dictators, etc. But I think, personally, if you want to see change, you've got to accept what's on the ground and then work with that.



The Tallinntellect

Talking Nabokov, Rumsfeld, Popeye, and Deng Xiaoping with Estonia's president. 

There are few ways in which a native New Yorker can feel at home in Eastern Europe. Talking to Estonian President Toomas Hendrik Ilves, who speaks with a slight Jersey accent gained from his time growing up in the Garden State, is one of them.

Ilves, who repatriated to his ancestral Baltic home after the end of Soviet occupation, has served as his country's ambassador to the United States and twice as foreign minister. Now in his second term as president, Ilves has already taken on an aura of avuncular elder statesman, the bow-tied free thinker, and even freer talker, of Europe

Ilves's professional background is in journalism -- he worked for Radio Free Europe in the 1980s -- and he speaks in a mélange of 20th-century intellectualism and 21st-century technocracy. He pokes fun at communism and offers mordant criticisms of ideas and people he doesn't much care for, following them up with arcane details about cyber-security and Estonia's military expansion. The president is a man who likes an intellectual fight: In a prior decade, instead of chivvying Paul Krugman on Twitter, Ilves would have been arguing about dialectics with some greying ex-Trotskyist out of Partisan Review.

He's also one of the few remaining continental leaders who marries social democratic politics with an unapologetically pro-American outlook, and he seems to mourn the fact that he's an endangered political species. So at the margins of the seventh annual Lennart Meri Conference in Tallinn, I sat down with Estonia's president to kibitz about the tensions within the European Union, what Donald Rumsfeld got right, and why Vladimir Nabokov's literature makes him nostalgic for a Russia that never came to be. This transcript has been condensed and edited.

Foreign Policy: When Americans think of the EU, if they think of it at all, they don't see the internal distinctions -- the idea of newer member states in the north having different cultural proclivities from older member states in the south.

Toomas Hendrik Ilves: I'm always amazed at the amount of intellectual effort spent by some Americans to bash the EU. I remember reading a piece, a long piece in Foreign Policy six or seven years ago which was lexically incorrect, written by a constitutional lawyer from the United States. It was when we were doing the EU constitution. It was "Europe's Floundering Fathers."

I just want to point out first of all, in English, it should have been "Foundering," which would have been a better pun, because floundering is just a non-word. And all this effort saying why the EU attempted this stupid, bad constitution...I don't know why they do this. This is an attempt by liberal democracies to somehow establish a structure. Why don't you spend your time attacking authoritarian, kleptocratic regimes, not countries who, for better or worse, are trying to find a way of making liberal democracy work?

FP: I think the prejudice, if it can be called that, is that the "United States of Europe" was not only created to keep Europe from going to war with itself again, but also as a bulwark against American hegemony. But Eastern Europe is showing that you can be a liberal or a social democracy and also be pro-American and want to work in concert with the big, bad superpower. 

THI: Just as there are people in the Tea Party movement that rail against Washington in order to get local support, you have people who rail against Washington in France to get local support. A little bit of differentiation would be useful.

Donald Rumsfeld was attacked for two things, but in both cases he was right. First of all, there are known knowns, there are known unknowns, and there are unknown unknowns, which epistemologically is perfect -- it is exactly true. The other thing was the whole New/Old Europe [dichotomy]. And that, in fact, I thought was a very useful distinction.

He was attacked for that, and Old Europe got upset. But there was a commitment of the United States to the Freedom Agenda throughout the 1950s, 1960s and 1970s. There was no European "Radio Free Europe." The U.S. did not badmouth [Polish dissident] Lech Walesa or badmouth Estonia because we rocked the Soviet boat. Western Europe did not have a really great history in Communist-dominated Europe, so why would they be surprised that the 100 million people who then find themselves liberated or actively engaged in liberation actually look toward the United States? This should be a no-brainer.

FP: Britain has cut public spending, several other nations, including Estonia, have done it. In the U.S., there's been a mixture of austerity and Keynesianism. And you had your famous row with Paul Krugman about this, which has been turned into an opera.

THI:I really don't want to get into a debate on austerity for two reasons. One is that, we didn't have any choice. I mean, this is the same thing that Anders Aslund said: [Doing an Aslund impersonation] There was no liquidity! Nothing!

The banks were not giving us money, as Anders also correctly pointed out -- and I've forgotten to mention often -- the [European Central Bank] was not giving us any liquidity. They were giving it to the southern European nations, but not to us. And so, faced with that choice, if I were a Keynesian, [I'd say]: "Well, you borrow money."

But no one is lending you money at rates that make any sense. You would just dig yourself deeper into a hole if they said, "OK, sure, we'll give it to you at 13, 14 percent." I mean, that's insane. Anything over 7 is already damaging. So you don't have a choice. And instead of recognizing we have no choice, [Krugman] just insults people.

The person [Krugman] has no kinderstube [upbringing]. And so to pick on a small, poor country that had no choice and then to just kick them a lot... Austerity for me was the sole option available to us. You know, we did it by the seat of our pants. So here we are, and we're trying to get out of it. And we managed.

FP: There are cultural proclivities that account for the Estonian experience as well. If you have more of a Nordic-style work ethic, you like to show up on time for meetings and so on.

THI: And the other factor is that if you have significant historical memory of mass deportations by the Soviets, you know -- what's a little austerity? [Laughs.]

FP: One of the things the Obama administration prides itself on is that its national security team mostly came of age after the end of the Cold War. If you read James Mann's book, The Obamians, this is major theme -- being of a younger generation, they're meant to be modern, innovative, and able to navigate multipolarity. Does America still understand how to deal with totalitarianism?

THI: I don't know if you read my piece, that long thing, for the now-defunct Policy Review, "I'll Gladly Pay You Tuesday," based on the character Wimpy from Popeye. In it I quote Deng Xiaoping, who said that "It's glorious to get rich." He didn't say: "It's glorious to have free speech."

There was a not at all necessary connection between authoritarianism and collective ownership. What we see around us is a full embrace of capitalism by an oligarchic elite, and then control of the population through authoritarian methods. What was 1933 to 1945 in Germany? Krupp was not suffering. They were doing well! It was capitalist at one level, on the other hand, in terms of social control and other things, it was pretty fucking authoritarian. 

This is where I think the Right has also made a problem. There are a number of people on the Right in the U.S. who think that, "OK, well, now Russia's capitalist, therefore it's free." I don't see the connection, frankly.

FP: What do you think America gets wrong about Putin's Russia?

THI: I don't think they actually get it wrong from the U.S. perspective, because I think they have a completely adequate understanding of the relative importance of the players in politics. In fact, the problem lies more in posturing from the other side and wanting to be as important as the United States -- there's the term uvajenie [Russian word for "respect"].

The only analogy I can find to it is the concept of "dissing." We're not being respected [the Kremlin thinks]. So if you're a country of 140 million that really doesn't have any sort of mass appeal [opposing] a country of 310 million that wants to project force everywhere, you [rely on] the "nuisance factor." You can be a nuisance in Syria, the U.N. Security Council, over flights over Guam.

FP: Not many people know this, but you're a staunch Nabokovian.

THI: The first thing I read was Pnin, which is his most traditional novel. And then I read Lolita. The first time around, I really didn't like it, but as Nabokov said, there are no readers, only re-readers. Then I read it a second time with the exegesis by Alfred Appel and then I realized, wow. And then after that, having learned how to Nabokov, I then did Pale Fire. It was a whole different thing. It's a literary experience I've not really had.

He represents to me an alternative to what Russia has become, which is the Cadet Liberal democratic road not taken. That's why I in particular object when an authoritarian leader says, "We have a different cultural tradition, therefore, Western democracy is not appropriate to us." I think that Nabokov represents very much the sort of road that Russia could have taken had there not been sort of the "October putsch," as we call it here, and carried on by all kinds of writers.

To bring it to Estonia: One reason I think we do have problems is that if you say, the people in the territory of the former Soviet Union have to have a different form of democracy because they have a different form of history... Well, this is probably why we're so annoying [to people who would make that argument]. This proves you can be a former communist country, you can have been for 50 years part of the Soviet Union, and in fact you can have the best freedom of speech and liberal democracy and all of this.

FP: During the Soviet era, were there debates in Estonia, as there were in Czechoslovakia and Germany and elsewhere,on how best to resist occupation?

THI: There was the "do I subvert it from the inside" argument, which those who had joined the [Communist] Party would make. Or "do I have nothing to do with this society." I want to create a new order, the Order of the Bark Beetle, which I'd give to all the communists who after the fall of communism said, "Well, I was subverting it from the inside." [Laughs.]

That debate I don't think has ended since now everyone is trying to justify their place in history. There are whole series of different political and intellectually based movements that had a role and each one is thumping its chest and saying "We did it" and they completely deny the existence of the others. 

FP: This is "authenticity" as a definition of national identity. Who's the most morally legitimate to make the case.

THI: Also, some of them are trying to save their asses.