Thursday, January 05, 2006

Why What’s Good for India Is Good for US

In this article in Yahoo! Finance, Charles Wheelan has tried to draw the need for greater US-India cooperation. Unlike others, he has pointed out how US will gain out of it, both morally and economically. At the end, he tried to adress the problems arised out of growing India, and a optimistic conclusion to it.

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.

Because it's 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?

Because it's where large number of starving people 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.

Economic gains for US by a richer India

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?"

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.

Challenges and Conclusion

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.

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