This post has been written by Bruce Greenwald and reproduced here with his permission
Indian growth is going to depend overwhelmingly on what happens locally in India.
The reason India and China went from being peripheral players in the world market in 1980 to the powerful forces they are today didn’t have to do with changes in the global market. It had to do with local changes in India and China. In places where these changes haven’t taken place — in Russia for example — you see their participation in the global economy is what it always has been: just as a supplier of raw materials.
The reason so many Chinese goods now sell around the world is not because the demand for those goods has suddenly materialized, but because productivity growth in China — and it’s the same in India — enabled it to provide goods and compete successfully in global markets.
This trend is going to get more — not less — important in the future.
If there is one enormous anti-globalization trend, it is that local services — education, medical care, housing — are becoming much more important for consumption and therefore economic activity than manufacturing or other kinds of services. There is a limited demand for manufacturers — there are only so many suits of clothes you can own, in the same way there is only so much food you can eat, notwithstanding the rising weights of Americans. Manufacturing, in terms of its importance in employment and economic activity, is going to go the way of agriculture in the 20th century.
This applies also to outsourceable services. Remember, for services to be outsourceable, you have to be able to routinize them. If you can routinize them, you can automate them. If you can automate them, those jobs are ultimately going away. So local services are going become much more important in India and all over the world.
Think locally not globally.
Big global markets are extremely competitive. Chinese manufacturers do not make significant profits because they are competing with other Chinese manufacturers. In fact, if you look at the top 25 Chinese companies other than the natural resource companies — this is in terms of profitability and market capitalization — they are all local service companies: power companies, mobile companies, banks and insurance companies. If you can dominate local markets, especially where those local markets are growing, that’s where you’re going to do much better.
This applies to finance too. It is a perpetual surprise to me that overseas investors repeatedly get sucked into the kinds of difficulties that the U.S. has gotten itself in trouble with — mortgages, and before that in many other areas.
Also: when it comes to business profitability, it’s important to think not globally, which is what the propaganda is about, but locally, so that you can take advantage of growth and the benefits of growth are not competed away.
The world is not flat.
There are very important differences across economies. If you spend time in India versus China, it’s immediately striking how different those two countries are. If you think about problems in those countries, they are very country-specific. I think when you arrive in India, you see the most important thing that is going to affect growth and the quality of life is actually land-use planning, and there are obviously other economies in which that is not so important.
The most striking thing I learned on my recent trip to India is this: when you sit down with Indian business people, they are superb marketers and business strategists. You talk to them about what they have to do to succeed in different marketplaces, and they are just extraordinarily well trained in talking about that. But if you go to the manufacturing plants, and if you compare these to plants all over the world, they are not particularly strikingly efficient — nothing like Japanese plants, where nobody is basically there and yet they produce enormous output. And you talk to them about that and they say, “Oh well, yes, we’re not very good at manufacturing because Indian workers are creative and not obedient as opposed to Chinese and Japanese workers.”
So if you’re going to think about growth in India and the interactions between India and the world, you have to have an appreciation for the cultural realities, and not only of India but of the different regions in India.
India is not destroying U.S. jobs.
It has always been the case that productivity growth has caused the loss of many, many more jobs than the overseas movement of jobs. And nobody — not even the people currently running for president — have suggested that we do away with productivity growth. And I think you ought to keep the same thing in mind when you think about loss of jobs to India.
India is experiencing really the miracle of modern life. It used to be that only a very small stratum of the human race had what we think of as modern standards of living — eating a variety of foods, having the freedom to travel and real entertainment. That is happening in India now, and the most important question to keep in mind at this conference is how to persistently generate the local conditions that will allow that to continue.