'Suddenly, doing business in India and China has become the only hope for Western companies'

September 13, 2007

You write in The Elephant and The Dragon, 'China is flying along fast as a dragon, India is trudging into the future, steadily as an elephant.' What are the prime differences in these momentous journeys and what are the implications?

The similarities are that India and China are both enormous economies and the fastest-growing big economies in the world. And that's why people often lump them together and call them the silly name of 'ChIndia.' In a few short years, China and India have become a source of employees, co-workers, customers and competitors to the West. In boardrooms from London to Frankfurt, executives in recent years have contracted India fever in the same way they caught China fewer a decade ago. Business leaders from the West who don't know the difference between a curry and a stir-fry have been checking into newly built five-star hotels. They have been shuttling halfway around the world because the two up-and-coming nations are growing so rapidly that they make the economies in America, Europe, and Japan seem as if they are standing still.

Suddenly, doing business in India and China has become the only hope for Western companies determined to quickly add new customers -- the only way for Western executives to make stockholders happy.

But many American executives and policymakers have not understood how these two Asian giants are progressing along different paths.

To understand how China is flying like a dragon, you must see how a quarter century after it began its transformation, hundreds of millions of Chinese have seen their prospects improve dramatically. The Chinese economy has blasted off. Foreign companies have poured more than $600 billion into China since 1978, far eclipsing what America spent on the Marshall Plan to save war-raged Europe after 1945.

The foreign investment in India is far smaller than in China. Foreign companies' investment in India was just about $7.5 billion in the fiscal year that ended in last March. The companies invested the same amount in China every six weeks. India's economy was lumbering alone, while China's was flying into the future.

But India has one strong and hidden advantage over China. What is that advantage? How could it help India?

The hidden advantage is India's intellectual capital. As I write in the book, while China's strengths are on display, many of India's are less visible. India's educated class is one of the nation's strengths. When China closed its colleges during the Cultural Revolution, India nurtured its universities, educating a generation of doctors, scholars, scientists and engineers. When China persecuted capitalists, Indian managers gained experience by battling it out in local markets. Indian businesses are usually better run today than China's because of this.

India's invisible human infrastructure is its biggest resource now that India has reconnected to the global economy. If China, which has few English speakers and no consistent rule of law, has raced ahead of India, there is no reason why India, which is democratic with a vast English-speaking population and an established court system and plenty of ties to the West, cannot zoom ahead too.

We have seen a tremendous amount of growth in the high-tech industry in the last ten years. How did this happen despite the license raj?

India's economic reforms -- starting in 1991 -- began to beat back the license raj. The Indian tech industry back then had an advantage: Because the high-tech industry was new, red tape had not had as much time to grow up around it and strangle it. There is still much more bureaucracy than necessary, along with its cousin, corruption. But in some cases, it is a matter of technology helping Indians adapt. For instance, the telecom sector rules were relaxed in the mid-1980s, but the competition from mobile phones really gave Indians choices.

Now, Indians wouldn't dream of waiting 10 years for a phone line to be installed -- they just buy a mobile phone

Continuing your thoughts on why China has forged ahead of India and the key differences between the two nations...

Despite all the achievements in the high-tech industry, by and large, India is stranded in the past. India's airports are decades old and crumbling.

There are hardly any new expressways. India has grudgingly begun allowing foreign investment since 1991, a full 13 years after China opened its economy. True, the average Indian is better off than before the reforms began but not by nearly as much as the average Chinese.

But India and China are opposites. They are as opposite as Gandhi and Mao. Their political systems are very different; China is authoritarian, India democratic. Though India has embraced capitalism in recent years, it is often anti-business, while Communist China is usually pro-business.

Think of how each country looks and sounds: India is chaotic! It is a riot of bright colours, a cacophonous nation with 30 languages. China seems more straightforward: the national language is Mandarin Chinese. And -- no doubt about it, the Communist Party runs the country.

And the journeys of the two countries have been very different: the Chinese journey has moved much faster since economic reforms began in 1978. By that I mean the government has set a goal of economic growth and has put in place a number of policies that put economic growth first. And that has worked: The government has spent billions and billions on infrastructure development. It has built roads, highways, airports and ports. This is much admired around the world.

China has built roads and dams and factories at any cost, even if it meant demolishing neighborhood after neighborhood. There is a human cost, human pain, but at the same time, that relentless focus on economic development has helped lift hundreds of millions of Chinese out of poverty.

One time, I visited a new factory next to an ancient village, and I asked the people, 'It looks like this factory is ready to expand. Where will it expand?' The people answered, 'Right there!' And they pointed to the village.

'What will happen to all the people living there?' I asked. The answer I got is what already happened to the people in other villages where they had to make room for a factory. They tell me that the people in that village moved; the government built some new apartments that housed the people. I tell them that the villagers must have had to move far from where they were used to living, and they may not have wanted to.

Well then, they answer, those people did not a choice. The Chinese government has been accused of being callous which it often indeed is. But then people suffered in China for decades and centuries and nothing good really came out of it. It was a nation of very poor peasants till the economic changes began mounting up in the last 30 years.

The Chinese government is doing this to create the greatest number of jobs for the greatest number of people. The Chinese have few rights now, but they see it as an improvement because they used to have even fewer rights, and they were poorer too.

How does the reaction of the ordinary people in China and India differ when it comes to displacement?

It is very difficult in China for people to know what exactly is happening to the displaced people because there is no free press and no democracy. It is not easy for the people to hear about the downside of the Chinese economic development miracle! But in the aggregate, it is true that China has developed much faster and most of its people would say that they are better off than they were 10 years ago. And, yet there has been enormous displacement and change.

In India, you know it is difficult to imagine this happening! In India you have a hard time ploughing over one home to build a highway, no matter how many people would benefit, and that kind of opposition has really slowed down development in India. The people are allowed to keep their homes. It is very strange what people will fight for: Often, it is a shed by the side of the road that someone has erected and they will cling to it. The opposition comes partly because the government has not given them good alternatives. If the government offered to build better housing elsewhere people would consent to move out.

At some point, if India is going to develop fast and modernise (which I think would be for the greater good of its people) it has got to, politically, get past the knee-jerk opposition to change and development. Otherwise, it will be very difficult for India to build the infrastructure that it needs to create the jobs that would actually help the people. You see, there is a cost in India's approach too -- a human cost with human pain -- in avoiding economic development plans. And that is that more of India's poor people stay poor. That is, the very people who need better jobs the most are kept from them because of efforts aimed at helping them protect the little that they have.

What are some of the things that Americans don't understand about India and China and what you call tectonic economics?

Most Americans do not even understand that India and China are growing so fast. It is not really on Americans' radar screen. It is like the majority of Indians are not paying attention to what's happening in Kansas City, Kansas -- or China, for that matter -- and are getting on with their daily lives.

It is a real shame that many Americans are not aware of the growing power of India and China because India and China are so dramatically affecting Americans in their daily lives. Americans understand or notice that when they go to a Wal-Mart in America almost everything they buy comes from China. They see the impact of China from the falling prices on Wal-Mart shelves. Now, that's on their radar screen but they don't really understand what that means. They understand that their telephone calls are frequently answered in India but they haven't really thought through the implications of that combination of change.

The rise of India and China marks a major shift in post-Cold War geopolitics. The rise of these economies has caused the entire earth's economic and political landscape to shift before our eyes. Because the strands of the global economy are now held together more than ever, the changes in India and China are shaping the future of the rest of the world.

Never before has the global market been so hyperconnected: Imagine if the massive trade flowing over the Silk Road were combined with that of the Spice Route and this mix of global commerce were supercharged with modern technology.

The Chinese and Indian economies are growing so fast that they are transforming the world economy. And the last time a shift of this kind happened was when America became an economic power in the 1800s. After that there were smaller and yet important developments in the global economy: First the German economy became very strong, then in the post-World War II years the Japanese economy took off, and after that the Asian Tiger economies as a group took off.

But India and China are just such big and fast-growing economic powerhouses and their rise, especially their simultaneous rise, is a very dramatic change for the world economy. We have before our eyes two economic giants, each with 1 billion people, embracing globalisation and capitalism at the same time. And that is an amazing change.

India always had a complicated relationship with capitalism but it is really embracing it now. And that is a change I would like to see more of because it would help India.

There is a vast movement of white-collar, back office work to India whether it is tax preparation, medical transcription, reading of x-rays or preparation of corporate tax returns or legal discovery work for trials happening in America or even highly paid investment banking. Those tasks have moved to India in great numbers but most Americans don't have any idea that is happening. It seems so far away, Americans would not even think of it, except when they hear a foreign accent on the phone.

In terms of accents, by the way, in America there are so many regional accents. Someone from Texas knows when he or she is on the talking on the phone to someone from New York. So he can easily tell someone is from New York. By the way, sometimes a New Yorker will have a harder time understanding a Texas accent than an Indian accent! But despite having heard about call centres based in India, most Americans just do not have the full picture of how many white-collar jobs are moving to India.