Friday, October 20, 2006

a prof with conventional wisdom

oct 20th, 2006

this prof must be san's pal: insistent that cheap manufacturing is a must.

well, i think there is a good case to be made for indian exceptionalism. india is not like other nations, it is not a 'developing' nation, but a 'redeveloping' nation, one that was the economic superpower for millennia.

the economist (this is a letter published by them) probably agrees with this conventional wisdom.

Walk before you can run

SIR – After reading your leader on technology leapfrogs one should not conclude that it makes sense for developing economies to jump "from agriculture straight to high-tech industries" ("Behind the bleeding edge", September 23rd). Granted, such jumps may be productive at the level of single commodities, but countries with large agricultural sectors containing significant surpluses of labour, including India, which you cited as an example, cannot afford to skip past a development phase of unskilled labour-intensive industries and low-tech services if they are not to experience diminished growth and a level of income distribution with dire poverty consequences.

Gustav Ranis

Frank Altschul Professor Emeritus of International Economics

Yale University

New Haven, Connecticut


san said...

Rajeev, regarding your previous comment on agrarian economy, I'll say that chopping down trees to clear farmland results in destruction of biodiversity

Look at Japan, which is arguably a much more concentrated manufacturing power, especially in relation to its much smaller land size. Their country is still more well-known for its pristine beauty than for its pollution -- although certainly it does have the latter.

India already has plenty of natural pollution. Just try drilling a tubewell on the Gangetic plains without drawing arsenic and other ugly heavy metals.

The thing is that you've seen how quickly India is migrating through the low-end of outsourcing into the higher value-added industries. Our conglomerates likewise only a few years ago started going for the international export market in earnest, and now after less than a decade they're already raising eyebrows with major international acquisitions.

So my point is that similarly the Indian masses will be able to quickly traverse these ugly alleyways of industrialization in short order, to get to the much niftier value-added industries which depend much less on raw and crude exploitation, in favour of much more intellectual inputs.
But cross through the alleyways we must. There is no other way to get the masses active and competitive. Once they do get active, engaged and competitive, they'll make progress up the socio-economic ladder just as fast as Tata Steel and Ranbaxy did. But without industrialization, the masses will continue to live marginalized and un-engaged by the Indian economy.

They are suffering far more without industrialization than they would with it. Look at Japanese life-expectancies -- they are the highest in the world. And as I've said, India's period of smoggy smokestacks would be brief, because our evolution would be very rapid. Newer manufacturing technologies have increasingly reduced impact on the environment, as sustainable growth has become a very powerful industry imperative.

We need to go for it. We can transition through it quickly -- it's not in the nature of the over-inflated Indian ego to be satisfied with low quality of life. In an economically stagnant situation, that ego leads to socialist activism, but in an economically active environment, that same ego will lead to real solution innovation, and evolution to more preferable industries.

Right now the un-engaged masses are a dangerous political liability -- a liability that is far more toxic and poisonous to India than any factory having small footprint. The "Hindu rate of growth" has produced a dangerously high population level of unmanageable proportions. We like to boast of ourselves as the "biggest" this-or-that, but really we're just the most populous this-or-that. There is nothing to be proud of in breeding like rabbits or mosquitoes. We are dangerously unsustainable, and this extreme unsustainability will only lead to the emergence of radical and rabid ideologies that are brewed in our strained social environment -- just like that stark religion that was born out in the barren Middle Eastern deserts. If we have to strain our ecology somewhat/temporarily in order to take strain off our socio-political situation, then I say go for it. It'll only be a temporary stepping-stone to more ecologically respectable living anyway.

All this cannot happen with local manufactured goods. There have to be economies of scale, otherwise all these little home-craftsmen will never get off the ground. We have to seek to offer economic advantage in order to attract the capital inputs that we need to energize the masses. If local crafts and cottage industries could do that, then they would have done that a long time ago. Let's stop portraying everything traditional as utopian, or we might as well include malaria and encephalitis in our utopian definition.

Let's stop being insular and have the self-confidence to engage with the global economy. We're not some "recovering empire" -- ask people in Chattisgarh or Jharkhand which past imperial "glory" they used to belong to. Like the midget in the crowded elevator, being at the bottom of an empire is quite a different experience than being at the top of it. Therefore, not everybody is going to take pride in some past glory that never even touched any of their forefathers.

Let's go for the flat economy. Japan's and Britain's industrialization pulled them out of their infamous social stratification, which pre-industrialized India is still saddled with. Even Ambedkar rightly advised lower castes to flee to the cities to leave their village-defined castes behind. The cities can be melting pots - engines of assimilation.

All these centres of learning like Benares would never have been possible without the migration and mingling of people (aka. "pilgrimage") - things which helped to forge more cultural unity across the landscape.