I understand his statement to mean that within the up and coming third world countries ( i was born in one of these places so i don't mind calling them such. besides i hate euphemisms) most are nominally democratic but really are run for and by an oligarchy and in the case of china which is flatly a gvt of kleptocrats on top of being totalitarian, there will be a reckoning day when the masses would wake up and demand fundamental changes like the Arab spring. To him it is a matter of when not if (and I would agree with that) waiting for a catalyst like the Arab spring revolutions.
To take a concrete example I would name China. John Hempton of Bronte Capital called it a giant kleptocracy (I agree totally with that assessment: http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html). The rich and connected because of capital control measures imposed by the gvt , whenever and wherever they can, smuggle their wealth out of the country while the great mass of people hoard their savings in the form of gold which is the only way left available to them to safeguard their savings from the rapacious hand of the state. The disparity between the savings rate set by the state and the true cost of inflation translates into a forced wealth transfer from the common people to the state. This process is well documented by michael pettis on his blog http://www.mpettis.com/ (he is a professor of econ in Peking university ). Back in 05, I was reading Calculated Risk and I became aware of the housing bubble and I knew it will pop, just don't know when. I feel the same way about the China economy. Massive misallocation of capital, opaque reporting financial system both private and public, it is a bubble waiting to be popped. Only the timing is uncertain.
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