Tuesday, October 20, 2009

The Benefit (and Detriment) of Economic Fertilizers

Thomas Friedman, columnist for The New York Times, and award-winning author of The World is Flat astutely observed, “India, first of all, came to the game with some natural advantages: one, English-speaking population; two, real emphasis on education. You also have a country that is very instinctively able to glocalize, take the best of the global world and meld it with their own culture." The observation comes on the heels of a couple of decades of intense development in almost every business sector of India. The progress has served as a breath of fresh air and opportunities for a country full of a capable work force struggling to find suitable employment and desperate for opportunity. But progress has demanded a price, and that has been the widening gap between the rich and poor (or possibly this is the result of the poverty being even more glaringly obvious in the surrounding opulence) and the waning cultural traditions. Whether India keeps speeding along at the speed of light, and becomes proudly “glocal”, or stays stubbornly rigid and resists the changes, there is always a price to pay. Ultimately, the best option would be that of “the greater good”, and the long term prospects for a country that is moving at the speed of light look excellent.
The ugly facts first: R. Nagaraj, an Indian economist wrote a paper discussing the realities of the economic growth and the rising global presence of India. While the numbers did show that poverty decreased with the increase of economic growth, Nagaraj argues that the poverty had started decreasing prior to the economic boom, and the poverty cannot be considered to have decreased when considering the nutritional aspects of the diets of the poor which had changed due to changes in the agricultural sector. Finally, he asserts, “If the suggested implications for the labour market have any value, then the observed growth process is likely to have been inequalising. In other words, since the improved growth since the 1980s did not result in a proportionate increase in employment (and poverty reduction), it is very likely that the growth has helped only those persons, regions, or segments of the economy that are already employed or better off.” (Nagaraj, pg. 13). His study points to the vast inequity of growth and wealth distribution in India, despite the country fast attaining economic power.
Atul Kohli contends that while India’s business strategies are obviously working in certain aspects, they are severely falling behind in others: “If India’s recent economic growth was really a result of premarket policies, then, in principle, there ought to be very few costs, only widespread benefits: after all, decentralised markets support democracy; competition creates a level-playing field; efficient use of factors of production ought to create labour intensive industrialisation and thus rapid employment growth; terms of trade ought to shift towards the countryside, benefiting the rural poor; and since capital moves to capital-scarce areas in search of high returns, regional inequalities ought to diminish over time, mitigating inequalities.
Unfortunately, many of the trends noted above do not fit these expectations. India’s growth acceleration is instead being accompanied by growing inequalities, growing capital intensity of the economy, growing concentration of ownership of private industry, and nearly stagnant growth in employment in manufacturing industries…India’s success at growth acceleration is to be admired. However, the current growth experiment has to be kept in proper perspective.” (Kohli, p. 1368).
It seems that some of the concerns about free trade creating unfair monopolies expressed in Milton Friedman’s “Free to Choose” episode discussing the “Tyranny of Control” are being epitomized: India has come a long way, but there is quite obviously a long way to go.
This inequity is explained further, with a hope for a better future by The Times of India Columnist and ex CEO of Procter & Gamble, Gurcharan Das in his assertion that most economies developed from being agriculture based to industry based to service based. India seems to be skipping the industry and going right to the service based economy, which he says is “a weak middle step” (Das, pg. 7). Das seems to be incredibly hopeful about India’s future. He claims that a short term relief for the poor would be for the country to encourage another green revolution and bring back strength to the agricultural sectors, since India has an ally in the tropical weather. Das refers to the Indian Democracy as “resilient and enduring”, even though India is far from basic necessities for a higher standard of living such as mass access to schools, health facilities and clean water. However, Das brings everything into perspective when he points out that half of India’s population is under 25 years of age, and therefore, the labor force will grow and strengthen, which he says “will translate into what economists call a “demographic dividend,” which will help India reach a level of prosperity at which, for the first time in its history, a majority of its citizens will not have to worry about basic needs.” (Das, p. 16).
The main advantage of the Indian economy is its entrepreneurial nature. A large percentage of the Indian economy is entrepreneurial. Even in rural areas, small business industries create jobs and minor revenue which add up to the major portion of the total economy of India. The remaining revenue comes from industries and service. The white collar professionals in India are the minority. This varied economic position has actually saved India from a veritable economic meltdown during the global recession. Indian industrialists have invested in education and the local industrialization which has helped generate new jobs and strengthen local communities. This has been an important contributing factor in India's growth and confidence as a self sustaining country. India has also made notable advances in technology; despite being a country which was based on agricultural revenue, India is now on the world map in terms of developing technology in various fields. Of notable mention, is the Tata Nano car, the least expensive car in the world, which has been a great development in the automobile industry. The IT sector in India has exploded giving rise to one of the highest concentrations of IT professionals in the world.
As Milton Friedman eloquently stated, “Economic freedom promotes human freedom.” This is the freedom that is seen in Thomas Friedman’s video of his visit to Bangalore, the hub of out-sourcing to India. Thousands of opportunities have sprung up for college graduates that would never have existed prior to now. As the personnel manager of the call center staff states, youngsters with a basic Bachelor’s degree make more than she ever did starting out with her MBA years ago. The young women in their mid twenties proudly display their apartment, their newfound security, their ability to embrace the future, while (somewhat) holding on to their heritage, while only a couple of decades ago, they would have been married with children at the same age. The out sourcing of jobs to India has indeed contributed not only to provide affordable solutions to world economic powers like America, but also to set the middle class “free”.
The “Indianness” of India has suffered due to this global invasion. Those who are aging are finding themselves increasingly left alone with paid strangers caring for them in place of their children. The offspring, stuck in the frame of gaining economic prosperity are leaving their small towns and cities for other big cities never to return. The clothes, the music, the movies, pop culture is all growing increasingly western, and the generation gap is the furthest apart it has ever been. Still, on an emotional front, these changes are concerning, and on a pure business standpoint, the changes can be seen either as a product of economic progress, or vice versa; but truly they have a symbiotic relationship.
When the United States of America was being faced by the recession, it would have been prudent to stop outsourcing. America had and is still facing a steep unemployment curve and one way of controlling that is preventing jobs being taken over by other countries. Therefore, an obvious knee jerk reaction was to prevent outsourcing. However once the economy stabilizes, outsourcing is a good way for any country to benefit economically. You pay a developing country much less to make your products, make them use their resources and also making them deal with the production and post production problems. The recession has served a blow to the confidence of the consumerist attitude of people and the purpose of the stimulus plan is to allow money to flow in the markets. Once the economy is steadied, outsourcing will once again be a valuable tool in the growth of the United States’ economy (more workforces being paid less with a much lower investment).
Ultimately, a consumer’s memory is selective, and America can and will capitalize on that, and will not need to put an end to out-sourcing in order to reinstate the economy or provide jobs for Americans. The Economic Fertilizers being put in place (as they have been in India for decades) will prevail.


Das, G. (2006, July). The India Model. Foreign Affairs, 85, 4., pp. 7-16. Retrieved September 2, 2009, from www.foreignaffairs.com/articles/61728/gurcharan./the-india-model

Kohli, A. (2006, April 8). Politics of Economic Growth in India, 1980-2005 Part II: The 1990s and Beyond. Economic and Political Weekly, p. 1368. Retrieved September 2, 2009, from www.princeton.edu/~kohli/docs/PEGI_PartII.pdf Princeton.

Nagaraj, R. Indian Economy Since 1980: Growth or Polarisation? February 12, 2001. 1-22. Retrieved September 2, 2009, from isidev.nic.in/pdf/RNagaraj.PDF Google.

No comments:

Post a Comment