When stocks in emerging nations declined more in 2008 than they did in the US, many saw it as proof that decoupling had not yet occurred. Recently the decade-old debate has flared back up, starting with an Economist article titled "Decoupling 2.0" in May 2009. Decoupling 2.0 is the idea that since GDP growth held up well in emerging markets like China, India, and Brazil during 2009, decoupling is real, regardless of how hard equities in these countries might have been pummeled in 2008. In my opinion, the idea of decoupling gives a misleading view of the world economy. Emerging nations may be able to sustain short-term growth, but the drivers of the world economy are still the developed nations. As an example, consider the state of world football, or soccer as it's called here in the US.
In European football, the "superstars" rarely come from Europe. In 1998, 250 sports journalists voted for the World Team of the 20th Century. Of the 11 players selected, only 4 (Beckenbauer, Bobby Moore, Cruijff, and Platini) came from OECD countries. Yet all the big clubs and the most prestigious football tournament in the world, the Champions League, are European. The divergence between European and other regions is so great that European football fans would be hard pressed to name even one football club outside of Europe, though they could probably name hundreds of non-European players.
A lot of it has to do with the consumer. The European consumer is simply able to pay more for a ticket, meaning the revenues of clubs with strong currencies--such as the Euro--will be able to buy players in countries with weak currencies much more easily. The Deloitte Football Money League ranks the top Football clubs by revenue. All the clubs on the list are European. Fans in Mexico and Brazil are just as dedicated as European fans, the difference is the power of the consumer.
Another factor is business conditions. Disorganization and corruption in Latin America, Africa, and Russia makes it significantly more difficult doing business in these places. A recent FT article reported that of the companies investing heavily in Brazilian football, most have fled with "their tails between their legs and a trail of red ink behind them." Hicks, Muse lost hundreds of millions of dollars in investments in South American clubs like Vasco da Gama, Flamengo, and Corinthians. After these failures, Hicks bought Liverpool for 218.9 million pounds in 2007. Within one year, Forbes valued the club at 605 million pounds.
These problems are evident in Brazil's preparations for hosting the World Cup in 2014. Work has yet to start on the venues and much of the infrastructure, two full years after being awarded the tournament. The WEF rated Brazil's infrastructure 108th in the world. For safety and security, it was rated 130th. Furthermore, the person in charge of organizing the tournament--Ricardo Teixeira--is accountable to no one and has been accused of tax evasion, corruption, and money laundering.
The state of World football says much about decoupling and international macroeconomics. Globally, the popularity of football is certainly growing. Football is growing most rapidly in emerging nations. The percentage of non-European national teams reaching the final stages of the World Cup has increased. Latin American countries have always been successful. Lately, African and Asian teams are a force to be reckoned with as well, as seen in the recent success of South Korea, Ghana, Cameroon, and the Ivory Coast.
However, as football blossomed around the world, Europe benefited. Revenues at European Clubs have risen dramatically. 57% of Manchester United's fan base is outside its home country. That number is 74% for Barcelona, 67% for Real Madrid, and 69% for Juventus Turin (in 2007). European football clubs are also increasingly relying on foreign countries for talent. The number of foreign players in Europe's top five football leagues rose to 42.5 percent last season, an increase of 3.5 percent from the previous year. 52.6% of these teams are now foreign (see here). European clubs are greatly benefiting from the globalization of football.
The same dynamics are seen in the international economic system as a whole. Emerging markets continue to grow at faster rates than developed nations. But the growth of emerging markets is dependent on the demand of the developed ones. Football would not grow as fast in emerging markets without European marketing and capital. At the same time, European clubs are flourishing because of their international exposure, not in spite of it.
This example illustrates the misguided nature of the decoupling debate. No matter what the circumstances, when a country's major trading partner is having difficulties, the country itself will be affected. Emerging nations will continue to grow simply because of the wide gap between the current capacity and potential capacity of their economies. But decoupling implies a change in reliance between emerging and developed nations. This is unlikely to be the case. One effect of globalization is the increased contagion between markets and economies. I would argue emerging nations are more dependent on developed nations now than ever before. But, the same is true for developed nations. Without developed nations, Ronaldinho and Messi would be local heroes, not global superstars. At the same time, without emerging nations, Barcelona's fan base would only be 26% of what it is now.
