http://finance.yahoo.com/columnist/article/economist/2074?p=1 The Naked Economist by Charles Wheelan, Ph.D. Finance Home > The Naked Economist > Why What's Good for India Is Good for Us Why What's Good for India Is Good for Us by Charles Wheelan, Ph.D.Utility Links Printable ViewEmail this Page Wednesday, January 4, 2006 I spent two weeks last month in India, one of the most fascinating places on the planet. Where else can you stroll through the gleaming high-tech Bangalore campus of Infosys only hours after getting stuck in a traffic jam on a major highway caused by a collision between a tractor and an ox cart? So far, India has attracted mainstream attention mostly as the place where the guy booking your airline ticket -- or transcribing your medical records or even preparing your taxes -- happens to be sitting. That's true enough. But India is far more than a telemarketing curiosity, and "outsourcing" is only a tiny piece of the economic transformation going on there. Having grown at roughly 6 percent a year for the past decade with the potential to do even better, India is likely to be one of the most important economic stories of the next decade. America has a huge stake in that success -- even as some jobs migrate across the Indian Ocean. Indeed, here are four reasons we should hope that the next decade in India is at least as good as the last decade has been. 1. Because it's the world's largest democracy. If we're going to promote democracy around the globe, particularly as a solution for what ails the Middle East, then we ought to wish success upon the world's largest and most vibrant democracy. India has a billion people, 22 official languages, and so many ethnicities that everyone is a minority. If democracy can work here, it can work anywhere. And it is working. Indians vote in far higher numbers than Americans, even when it means trekking for hours to the closest polling place. India's government is plodding, fractious, and permeated by corruption. But it has also brought stability, the rule of law, and respect for individual rights to a place that looks ungovernable on the surface. And did I mention that India has the world's third largest Muslim population? 2. Because it's where a large proportion of the world's poor live. If you don't care about starving people, then skip to number three. If you do, then India matters a lot. It's just basic math; roughly a third of the world's poor live in India. Robust economic growth will help these people far more than any check you might mail to one of those places that sends you free return address labels. It's already started. India's growth over the past several decades has lifted some 100 million people out of dire poverty. 3. Because a richer India will make for a richer America. How can a place that "competes" with American companies and replaces American workers make us better off by growing wealthier? First, a growing Indian middle class will buy our products. The guy in Bangalore who answers questions about your Dell computer probably drinks Coke, uses Microsoft Word, and reads my column on Yahoo! Finance. (Okay, I can't prove that last one, but you get the point.) It doesn't matter what business you're in, having 300 million new middle class consumers in India is good for you. Second, Indian firms will design and sell products that make our lives better. That's what happens when you unleash new human potential. Imagine the following scenario: Your child has just been diagnosed with a rare form of leukemia. The doctor sits you down and says, "I have good news and bad news. The good news is that the disease can now be treated successfully. The bad news is that the treatment was discovered by an Indian scientist, and the drugs are produced by a leading Indian pharmaceutical company." Actually, that's not really bad news, is it? Third, at a minimum, Indian competition and outsourcing by American companies will lower the cost and improve the quality of all kinds of goods and services. Do you remember the crap that Detroit produced before Honda and Toyota became serious players in the American market? (True, Detroit still produces a shocking amount of crap, but now we don't have to buy it, as GM shareholders and bondholders have learned.) Cheaper imports from places like India or China are just like a tax cut; there is more money left in your wallet at the end of the month. And they create American jobs, too, which is less intuitive and therefore often overlooked. If you save money on cheaper cotton towels, much of that extra cash is likely to be spent on American goods and services. A Canadian trade minister made this point to me once when he asked rhetorically, "Look, a DVD player used to cost $500. Now it costs $40. What are you doing with the other $460?" 4. Because it's not China. China has an economy that's growing even faster than India's. But China still has some major issues -- like the whole autocracy and repression thing. I speak from experience on this one. In 1989, my wife and I were in Lhasa, Tibet, for several weeks that coincided with the 30th anniversary of the Dalai Lama's flight. The Tibetans held huge protests, and the Chinese responded with a warm-up exercise for Tiananmen Square: Encircling the city with tanks, shooting protesters, arresting journalists -- the whole totalitarian starter kit. China is a geopolitical problem waiting to happen, whether it's Tibet, Taiwan, encroachment in the South China Sea, selling weapons to nasty regimes, or any number of other problems that stem from being an autocracy on the move. Which brings us back to our new ally in that part of the world: India. If China is the bad drunk at a party where a lot of liquor is being served, then India is the muscular guy in the corner quaffing mineral water. He looks like a good person to get to know. When the U.S. Ambassador to India David Mulford spoke in Chicago not long ago, he predicted that the U.S.-India relationship will become America's most important strategic partnership. I fully understand that an ascendant India, like any other economic change, creates problems. The first is energy. On the fossil fuel front, the whole world is locked in a zero-sum game. Every newly prosperous high-tech worker in Bangalore (or Beijing or Bangkok) wants a car or at least a "two wheeler." That new demand for oil is a key reason prices are skyrocketing. The only long-term answer is far more investment in alternative energy -- but that's another column. The second challenge will be taking care of those who are "outsourced." Capitalism does a great job of rewarding those who build a better (or cheaper) mousetrap. It's not so good at taking care of those who produced the old mousetrap. I've pointed out in an earlier column that technology displaces more American workers than trade -- with India or anywhere else -- but that's a semantic point to anyone who gets a pink slip. The long-term solution is upgrading skills. I know that there are lots of things to hope for in 2006. Add one to your list: Continued growth for the 1-billion-plus people in the world's most vibrant democracy. You won't regret it.
The families of the 100+ people of my old company's IT department who got our jobs outsourced to India strongly disagree with the writer of this article. We also continue to be insulted by reports that it is hard to find computer workers in the US.
i didnt know the two were mutually exclusive. but anyways, i wanna run one of those damn call centers in india, it would be pretty sweet to get paid big american dollars while living in india... now what would the easiest way for that be.
Ultimately, if we're going to build a true globalized market where every country is co-dependent on others, then it's true that what's good for India, China, whomever else is good for America, and vice versa. However, there are huge obstacles to that happening, and a good chunk of the world's population will have no stake whatsoever in that globalized world, but it does have it's advantages and disadvantages if it were to be truly realized; however, I don't think it's possible.
the problem is that current western world's standard of living is much higher than most of the developing nations like India and China. If the world is truly a global economy then the difference in standard of living can not be too great, are you willing to lower your standard of living some in order for the people in the developing nations to increase their standard of living until such a time where everyone will have a higher standard of living?
a similar social system didnt stop the US from becoming a fully modernized nation (the caste system in india isnt much different than the old racist social structure here). and the same social system never prevented india from being one of the richest regions in the world until the 1800s... India needs to continue to move away from the old closed, quasi-socialist economy towards a more open, liberalized economy. Among other things, it needs to contine lowering trade barriers, lessening restrictions on foreign direct investment, and disinvesting the government from many of its publicly owned enterprises
regardless of practical realities to assume that standards of living are a zero sum gain is a pretty disheartening way to look at life. so lets assume that it isn't a zero sum game. and figure out how to translate the ideal into reality.
I do not believe it is zero sum. However, I believe there will be decreasing in the standard of living in western countries, the gains in the developing nations will be more than the loss in developed nations.
I understand that, that's why I referred to it as an 'ideal' and something that will likely never exist.
Que? Thanks for the help in Iraq. Even Latvia pitched in. I'm dreading the day everyone has a car and makes as much trash as we do. I hope we can develop some alt sources of energy and keep this crowded planet clean.
Innocent until proven guilty. To India, it's holy before it has done a damn thing. To China, it's guilty unless she proves otherwise. Pretty convinient way to make new allies and new enemies.
If you have a chance, Panda. could you elaborate on your point? I certainly can understand why you would have a problem with this part of the column... China is a geopolitical problem waiting to happen, whether it's Tibet, Taiwan, encroachment in the South China Sea, selling weapons to nasty regimes, or any number of other problems that stem from being an autocracy on the move. Which brings us back to our new ally in that part of the world: India. If China is the bad drunk at a party where a lot of liquor is being served, then India is the muscular guy in the corner quaffing mineral water. He looks like a good person to get to know. When the U.S. Ambassador to India David Mulford spoke in Chicago not long ago, he predicted that the U.S.-India relationship will become America's most important strategic partnership. The author appears to go out of his way to slam China and make India appear to be a "white knight," in comparison, and India doesn't have a "clean" history of it's own, by a long shot. However, he makes good points as well. There is a huge difference in the amount of personal freedom there. Yes, the caste system is barbaric, but it's being chipped away at. Is the difference between how the hundreds of millions of Chinese farmers are being treated, compared to those who live in the cities, or the way those who have strong religious beliefs are treated, compared to those who choose to be "non-religious," that much different? If one were to argue that they were at least comparable, then the real democracy practiced in India, as flawed as it is, provides more personal freedom than China has yet to give it's citizens, certainly in regards to having a voice in choosing their government. I frequently hear about China needing to deal with it's huge population, and that being a factor in the autocracy remaining in power, but India has had a huge population for millenia itself. In a way, perhaps India provides a template for China in how it's political system may evolve in the future. Just a thought. Keep D&D Civil.
I don't think that comparison is accurate. the caste system is far, far, far different, and more deeply ingrained, than western style class differences - as many have said, one of the reasons why the British were so fascinated with India is because they finally found a country with a really awesome class system. Anyway having spent a lot of time in India this year, I can tell you the place is a land of huge paradoxes which exhausts me to even think about, much less write volumes about, which I think I could if I had the energy.
You have no idea how ****ed up that caste system is there. I always heard of it when i was little but now that i can understand it, you realize how appalling it really is. It is true that its worst than the racism that was in this country. The only good thing is that it is being taken away but slowly
Deckard: I agree with you that the writer made some good points on India, my point is beside those points there's elements perpetuating creation of new opposition with little basis, such as: "If China is the bad drunk at a party where a lot of liquor is being served, then India is the muscular guy in the corner quaffing mineral water. " It sounds like India is this strong good guy doing nothing wrong while China is a volatile bad guy getting worse by the minute(a bad drunk that keeps drinking at a party). In U.S. perspective, what has India done for the U.S. in the past 30 years that make this country a knight in shiny armor? what had China done in the past 30 years to the U.S to warrant such despicable description? IMHO there's not enough basis to make such a stark contrast and stir up confrontation based on a cold war mindset. Once the holy priest image of India and bad drunk image of China set in, the U.S. then forms an alliance with India against China, and China needs to make alliance to protect herself, then the blame war between two sides start, leading to a downward spiral that creates unnecessary instability around the world. The WWI happened as countries created confrontation, lumped into groups, got into arms race, stirred up conflicts and eventually - bang! Not saying it's bound to happen, just a possibility that needs to take caution at. The first step IMO is to avoid falling for hyberbole and stereotypes first, hence my complaint.
The tone of this article is such condescending bullcrap -- it's almost like a guy calling one of his dogs "good boy" and yelling at another "bad boy."
