(Vanity) The Other Face of India, or, The Social Climber

A lot has been made over the last several years over the economic miracle taking place in India. In particular, there is an impression given within much of the press that the reason India is doing so well is that it is blessed, if not overrun, with a huge contingent of supremely-motivated, highly educated, eager, young, and generally invincible workforce. If this impression were solely from Indians themselves, they might be dismissed as mere bombast. However, this impression is also fostered by highly-placed executives at major Western firms, including household names such as Google, Intel, GE, IBM, Cisco, Microsoft, and Hewlett Packard. And the firms have put (a small portion, given the wage rates) of their money where their mouth is.

IBM for example, recently announced that they will be investing $6 billion in India; as of June 2006, they had 43,000 employees there and plans to hire maybe 20,000 more. Intel has announced that they will be building a 65-nm chip fabrication plant in India. Hewlett Packard’s former CEO, Carly Fiorina, gave the infamous quote, “No American has a right to a job.” And HP continues to walk the talk, as 89,000 people are employed in Asia (read: cheap) to translate legacy code to modern languages. Microsoft is pushing for removal of the caps on H1-B visa holders, following Brian Valentine's “Think India! Two for the price of one!” line. The impression given is that India is the only possible place for any multinational corporation to any hiring short of C-level executives.

However, there is a lot about India which is left unsaid by these same people. On purpose. There is sort of a gentleman’s agreement, at least, among many of the executives, and those trying to increase India’s fortunes. As one example, the highly influential consulting firm McKinsey has actually received a retainer from the government of Karnataka to create 1 million jobs by 2008. Or one may consider the business professors C. K. Prahalad (Michigan) and Jagdish Bhagwati (Columbia) – both ardent supporters of outsourcing. And by coincidence perhaps, both Indian. They have pioneered the idea (among others) that one great way for companies to grow is to market to the large, low-margin Third World. And of course, to do that, one must lower costs enough that people in the Third World can afford your product. As President Bush said in a speech during a trip to India in March 2006, “And the class opportunity for our American farmers and entrepreneurs and small businesses to understand, there's a 300-million-person market of middle-class citizens here in India, and that if we can make a product they want, then it becomes -- at a reasonable price -- and then all of a sudden, people will be able to have a market here. ” Left unsaid is the fact that "middle class" in India means maybe $3000 a year in U.S. Dollars. So there isn't much we can produce here that will be cost effective there. But the effort goes on apace.

In order for this to work, the electronic infrastructure had to be put into place to allow work to be transferred easily across the globe, much as the compartmentalized shipping container made it possible to outsource much of manufacturing to China. Hence the push, back in the heady dot-com days, to hype investment in companies such as Global Crossing and Level Three Communications. And now, it seems, with that bottleneck gone, the multinational companies have come across two other bottlenecks, when attempting to reach and expand India's market.

The first can be seen in this article, The Real India. It points out that most of India is NOT in fact Hyderabad. There is a reason India is a Third World Country. The infrastructure – from transportation to energy to labor practices. Consider this quote: “India needs manufacturing to boom if it is to boost exports and create jobs for the 10 million young people who enter the workforce each year. Suddenly, good infrastructure matters a lot more. Yet industry is hobbled by overcrowded highways where speeds average just 20 miles per hour. Some ports rely on armies of laborers to unload cargo from trucks and lug it onto ships. Across the state of Maharashtra, major cities lose power one day a week to relieve pressure on the grid. In Pune, a city of 4.5 million, it's lights out every Thursday -- forcing factories to maintain expensive backup generators.”

Get that? Regular power outages, masses of manual laborers for transport? This sounds like the “bad old days” of power mismanagement and unionized stevedores in California under Gray Davis. And there is another thing: similar to the agricultural industry, where there are masses of cheap laborers available, mechanical or automated solutions are stifled.

The second is the labor bottleneck. The article above mentions that there are ten million workers entering the job force in India each year. But how many of them are qualified, how many of them can read and write English as opposed to “Engrish”? IBM has adopted a strategy of sucking the oxygen out of the room by hiring as many Indian techies as it can, in order to make the lament (so common in the U.S.) of “nobody with the skills we need” come true for its competitors. But it seems they may have cast too wide of a net. Last year, the CEO of IBM announced The Great Mind Challenge designed to foster the software development skills of Indian students, and to provide solutions for government agencies, solution providers, and academia. Well, how about that! I thought it was *American* students and IT professionals who weren’t up to snuff? Why then is IBM writing solutions for free for distribution throughout India, unless they are admitting India’s tech resources cannot do the job on their own?

”While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. ``Every time we have an outsourcing forum, it's like a GE and McKinsey alumni association meeting,'' says Sunil Mehta, vice-president of NASSCOM, India's software industry association.”

Recall the Jack Welch was the one who came up with the idea of “lifetime employability” as opposed to lifetime employment (similar, no doubt, to the lifetime marriageability given to his wife when he left her for a younger woman); and the earlier snippet about India paying McKinsey to push outsourcing in order to create Indian jobs. And finally, allow for the possibility that India is requiring major offshoring initiatives of companies in order to allow them to do business in India. Dangling the carrot of “large markets” (as per Prahalad) in order to secure jobs. From the Business Week article “The Trouble with India” again:

”The first project to take advantage of the new law is the $430 million international airport scheduled to open next year in Bangalore. The facility is designed to handle 11.5 million passengers per year -- nearly double the capacity of the overburdened existing airport. It will be owned by a private company, which will turn it over to the Karnataka state government after 60 years. Global engineering and equipment giant Siemens (NYSE:SI - News) is helping to build the facility, and Switzerland's Unique Ltd. will manage it. These companies are also equity investors. The state had to contribute just 18% of the cost. Without such an arrangement, Karnataka wouldn't be getting a new airport.”

In other words, if you want to build in India, you have to invest your own company’s money in the project, instead of getting paid. And then you have to turn it over to the government. This is not exactly the most business-friendly climate I can think of.

It is because of these factors that I have another image of India’s business environment. It is that of a climbing plant, growing by suction. From a mystery story written by Dorothy Sayers:

”There is a man we both know slightly – a man called Paul Melvile.”
Lord Peter’s eyes narrowed. “M’m, yes, I fancy I’ve seen him about the clubs. New Army, but transferred himself into the Regulars. Dark. Showy. Bit of an ampelopsis, what?”

”Suburban plant that climbs by suction. You know – first year, tender little shoots – second year, fine show – next year, all over the shop. Now tell me I am rude.”

Hi G_W,

Interesting piece. FWIW, my 2 cents.

China and India were like 50%+ of world GDP upto the 1800s and had been so for centuries. The industrial revolution changed that for a time. Is it reasonable to believe that this ‘anomaly’ in wealth creation+distribution given population and resource distributions worldwide would be permanent?

Secondly, before grudging Chindia, consider that their combined economic output even now, after a decade of assiduous offshoring, tech transfers etc is still in the low single digits as a percentage of world GDP. They are projected to overtake the OECD decades later. The OECD could manouvre to slwo them down, create rifts and turbulence, grind them to a halt and IMO, the OECD retains such an option to exercise later at an ‘appropriate’ time, perhaps. A sudden banking system collapse in China or the volcano of the HIV crisis in India suddenly erupting is actually more a matter of focusing press attention at the right parts of the Chinadia edifice than of anything else.

Thirdly, is it reasonable to believe that a McKinset would sellout for whatever peanuts some impoverished indian state could hand out? The downside is that iof McK activities are exposed, what happens to their 98% or some such number of business that resides even today in the OECD?

Fourthly, how does our wealth transfer to the mideast for its oil comapre to that to India? China i actually pumping wealth back into the US by buying US bonds in return for tangible physical goods.

Things to ponder and think about. Whatever the outcome, I wouldn’t grudge India’s rise. A billion aspirations cannot be forever kept pinned down. They’re only now discovering the joys of capitalism and entreprenuership. I wish them well. China’s rise I would be a tad more suspicious about, though.

JMTs. Have a nice day.

This could take anything from a vanity up to an entire textbook to cover.

I'll give not just Cliff's Notes, but the Cliff's Notes to the Cliff's Notes.

During the time you speak of, there was no industry--everything was at a handcart/oxen/small farmer level.

So the countries with the biggest populations, had the biggest GDP.

You are correct that the Industrial Revolution changed things, but that sounds too much like the liberal "oh, woe to the poor indigenous peoples, cruelly repressed by the evil capitalist exploitative Christian white males who are probably heterosexual, too" (OWTTPIPCRBTECECWMWAPHT).

Several other things come in, too, such as:

A strong system of law to allow intellectual and physical property rights.

Well-maintained systems of transport for trade.

An educated populace.

Enough food.

Willingness on the part of the government to get out of the way and not regulate and crony-ize things out of existence.

Access to capital to wield, given the above factors.

China and India have until *very* recently, not had all of these things--e.g. Robert Erlich in his ecofreak bible The Population Bomb predicted in 1974 that India would be cut off from food aid by the United States by the new millenium. He was wrong, of course, but the fact that one of the cognoscenti, the annointed, thought so, indicates that they weren't necessarily on very good ground.

And of course the Socialist or Communist governments did not do much to encourage economic efficiency.

...The OECD could manouvre to slwo them down, create rifts and turbulence, grind them to a halt and IMO, the OECD retains such an option to exercise later at an ‘appropriate’ time, perhaps. A sudden banking system collapse in China or the volcano of the HIV crisis in India suddenly erupting is actually more a matter of focusing press attention at the right parts of the Chinadia edifice than of anything else.

You are quite right; but again, this sounds like OWTTPIPCRBTECECWMWAPHT. There are structural flaws in the societies of India and China; the question is if those countries can become economically self sustaining rather than low-cost cesspools, before the societal problems overtake them. (In China's case, with the surplus of unmarried young men, and their extreme nationalism, I think that they will shift from Communism to Fascism, if they have not already done so. All of their economic growth is geared towards militarism, and they are far more xenophobic and racist than David Duke ever drreamed of being. See here and here here for examples. (Thanks to FReeper Lucius Vorenus for the latter link.) (*)

Pushing India is not "selling out" for them; this is touched on in one of the Vanities below, "A Falling Tide Grounds All Boats"--it is more like an "old boys network" of executives from companies who first started the outsourcing wave, cashing in on their connections.

Fourthly, how does our wealth transfer to the mideast for its oil comapre to that to India? China i actually pumping wealth back into the US by buying US bonds in return for tangible physical goods.

Two points. First, the old saying, "If you owe the bank $1000 and can't pay them back, you are up the creek. If you owe the bank $200,000 and can't pay them back, the bank is up the creek."

What if you the Chinese DUMP all the US bonds, causing a financial crisis in the US, just as they take all their Clinton-acquired missile technology and go for Taiwan, combined with biological warfare attacks (see the link above, and consider the recent pet-food debacle with, say, H5N1 laced into HUMAN foodstocks) combined with a massive internet attack from all of the Lenovo-created PC's which had trojan horses installed at the factory?

Second point, going to the Adam Smith's "hidden hand" argument. From what I have read, China requires 5 times the amount of oil for a single unit of GDP produced, than does the United States. This means one of two things--either the US does much more "finished product" and value added work, or China is grossly inefficient.

If the former, good for the US, except if we suddenly need manufacturing capacity--one strike on Boeing and most of the US airforce is out of business. IF the latter, it means US executives are screwing with the hidden hand, by forcing everyone *else* to pay the price of inefficiently manufactured goods and higher oil prices, just so they can save a few bucks on cheaper labor, and so get higher bonuses.

Whatever the outcome, I wouldn’t grudge India’s rise. A billion aspirations cannot be forever kept pinned down.

I don't grudge India it's rise--I am upset that the US executives lie through their teeth that they cannot find qualified US workers, and then force the US workers who are being fired to train their own replacements. If the US workers were really unqualified, they would be asking the Indians for training. I could give many other examples, but it is clear that it is not the talent of the Indians which is driving this, but merely wage arbitrage by the executives.

Cheers! (*) I have a series of vanities on outsourcing and such; and another series on the decline of the west.

(Vanity) Another Look at Outsourcing

(Vanity) A Falling Tide Grounds All Boats

(Vanity) Peak Labor

(Vanity) The New Colonialism, or, Out of One, Many

(Vanity) As the World Turns, or The Wild, Wild East

(Vanity) As the World Turns, Part II, or Back to the Future

(Vanity) As the World Turns, Part III, or, The Year of Lipstick on a Pig

(Vanity) As the World Turns, Part IV, or The New Dealhi

(Vanity) As the World Turns, Part V, or, The Melting Pot

Howdy, stranger.

3 years, eh? Time flies when you're FReeping.

I don't see the US falling into that ditch, but into another ditch -- we mock smart people. "Big bang theory" is an exception, but in every other show watched by kids and young adults, to be smart is to be a loser.

I'll see you and raise you one -- not only do we mock smart people (at least, in the larger culture); but we are substituting (through Bill Maher, John Stewart, David Letterman, and Jay Carney) snark and posturing as a substitute for intelligence: "Well, you can't challenge ME. I went to HARVARD." (That is, borrowing prestige from where you went to school, regardless of your major, GPA, or how well you learned; and regardless of the faddishness or PC content of the courses. Recall that in the mid-1840's, one had to be able to read Latin at the level of Cicero to be *admitted* to Harvard.)

That, coupled with the disdain for "Dead White Males" (who conceived, designed, tested, built, and maintained almost anything of value in the wider world today) in favor of gender feminism, together with the solipsistic regard for single motherhood, bodes ill for the United States and the West.

My FR vanity on dumbing down:

(Vanity) Getting the Point on Ayers, or, An Act of War

And the inimitable Dr. Paul Rahe of Hillsdale College, from a piece at Ricochet on the decline of the US:

The Deepest Source of Our Troubles.

NO cheers, unfortunately.

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