It Is All About The Soft Infrastructure

The period from 2007 to 2008 was unique in many ways. In the midst of a big increase in oil prices, food prices had started sky-rocketing. As the food versus fuel debate was raging, the world became concerned with its ability to produce enough food in the future.

While the Malthusian concerns were at their peak, African countries like Madagascar and Ethiopia opened up huge tracts of land in their countries to foreigners for farming. One of my contentions at the time was that land does not grow food, people do.

Karuturi Global, one of the largest producers of roses in the world was smitten by the bug of agricultural colonization of Africa.
What happened subsequently is detailed in this article from Business Today magazine (

My biggest takeaway from this article is that wealth is always created by human beings and not by hard assets, raw materials and factors of production. Wealth is created by the know-how, ingenuity and execution ability of humans. The embodiment of the above attributes are the institutions (companies, regulators, courts, universities etc. etc.) or the soft infrastructure of an economy. That is why I believe that equities have been and will continue to remain the most powerful engines of wealth creation.

The world is smitten by physical infrastructure and the power and might they project. I contend that in the absence (or during breakdown) of soft infrastructure, physical infrastructure is absolutely useless. History has demonstrated this repeatedly.

The starkest display of this was right after the collapse of the Soviet Union. This was visually depicted in the Nicolas Cage movie Lord Of War, in which arms dealer Yuri Orlov smuggled arms out of leaderless warehouses full of state of the art weapons after the collapse of the Soviet Union.

When Argentina's government defaulted on its external debt in 2001 and the banking system seized up, things came to a complete standstill.

We recently saw things completely come to a standstill in Egypt. It is anyone's guess how and when things will even return just to the state that existed before the Arab Spring revolution.

If anyone has visited a state of the art factory or office building that has been mothballed because its owner filed for bankruptcy and could not fund it, he or she knows what I am talking about.

This is the biggest reason why I am bullish about the US economy and why I believe that the 21st century will be the American century. As much as Americans complain about the breakdown in the economy and the problems the economy faces because of the country's fractured politics and its indebtedness, the US has some the biggest, best and strongest (relatively) institutions in the world.

The US has the best soft infrastructure in the world and there is no country that it is even remotely in competition with the US.