The emerging market countries: the former third world. (Hoover Institution on War, Revolution and Peace Research Fellow George Marotta)(Transcript)

By GEORGE MAROTTA, Research Fellow, Stanford's Hoover Institution

Delivered before the Financial Planning Forum of Palo Alto, Palo Alto, California, January 24, 1995

We all know a person like this. A young father starts his day when his Sony alarm clock goes off, and then he takes a shower using an adjustable Jacuzzi shower head. He goes into the kitchen where his wife is preparing some hot Nestles cocoa for the children. For him, some fresh coffee beans from Colombia are being ground in the Braun coffee grinder. After breakfast, he slips into an English tweed sportcoat and a pair of Ferragamo loafers, jumps into the BMW, and picks up the Toshiba car phone to catch up on the day's events. He makes a quick stop at the Shell station for gas. At the office, he reads some messages from his Panasonic fax machine and copies a few on his Canon copier. After a quick bite at Burger King, he stops at Union Bank's new Olivetti ATM for some loose cash, picks up his new suit at Brooks Brothers. and even has time for a few sales calls. Weary from the day's work, he heads home for a lite dinner of pasta with Ragu sauce, Bird's Eye vegetables, Pillsbury Dough Boy rolls, and some Lipton's tea. After dinner, he and his wife relax: he with Teachers' whiskey and Canada Dry ginger ale, she with Beefeaters' gin and Schweppes' tonic. After the children are in bed, they watch a little TV on the Mitsubishi big screen with some Courvosier for him and Kaluha for her. She asks him how his day went and he says, "You can't believe my financial planner. He wants us to invest thirty percent of our portfolio in international equities. Of course, I told him that we can't do that because we don't know anything about foreign companies."

Of course, all of the products and services that he uses are produced by foreign companies. As professional financial advisors, I am certain that your clients have at least thirty percent of their equity invested in foreign companies. But, how are their investments distributed among those foreign countries? Have they invested in any of the countries that we are going to discuss this evening?

In these countries live seventy-seven percent of the world's population, most are peasants, poverty is rampant, paved roads and running water are rare, electricity and telephones are practically unknown, the life of a self-sufficient peasant is extremely difficult, and life itself is very short. Where are we? The answer is that we're in the poorer nations of the world which are located mostly in the southern hemisphere.

Since it was politically-incorrect to call someone poor, we dropped the term "poor" in the 1950s and referred to them as the "lesser developed" nations. Later, we called them "developing" nations. During the cold war, they became known as "The Third World." They did not like being called "third" so the leader's of India and Indonesia renamed themselves the "non-aligned" nations. Now, …