Can India Compete With China?

IMG_0131There’s perennial hope in the West that India will succeed. Having won the Cold War, advocates of democracy and rule of law aren’t eager to replay it and have a Communist country win–not even one that yields to market forces in large part.  Citizens of democratic nations want reaffirmation that democratic rule and rule by law, not men, is the superior paradigm. We acknowledge that such a system is rarely easy, but live with the words of Winston Churchill ringing in our ears:  

Democracy is the worst form of government, except for all those other forms that have been tried from time to time.

When I found out that I was moving to India, I read all that I could find on India in magazines I subscribed to, such as Foreign Affairs, National Geographic, and Wilson Quarterly. Needless to say, there was a lot to read. Besides India’s nuclear programs, both energy and weapons, I hadn’t followed its role in the world. These articles took me on a roller coaster ride. If one went back many years, no one expected much of India. Then, a few years back, massive enthusiasm blossomed that India was going to rocket off and leave India in its dust. Then I got to the most recent articles, which did yet another turnabout–saying that India’s growth had been ephemeral and no one should expect much from the country in the near future.

India has a number of advantages. Almost everyone who is capable of publishing is fluent in the de facto international language of business and academic publication–namely English. India has as abundant a supply of cheap labor as anywhere. Indians have a culture that values education. They are building a first-class university system by, in part, having sent students to the very best of academic institutions globally. Their universities are attracting foreign students. This, in combination with such a big population, has given them the potential to build impressive student bodies.

So, why isn’t India competitive? The first thing that should be stated is that things are never as simple as they appear in aggregate. In some domains, India is competing quite nicely–and not just with China. Here in Bangalore, it’s apparent that large IT companies see big advantages in doing business in India.

I made a recent trip to Hampi and was amazed to see how successful India was in building up wind power generation in central Karnataka. India is 5th in installed wind capacity overall. Many democracies have difficulty getting traction with wind because the public views the turbines as an eyesore.

Still, India has its problems. Political and Economic Risk Consultancy (PERC) surveyed business leaders about Asian bureaucracies and found India to be the worst bureaucracy in Asia.  On a 1 to 10 scale, where 10 is the worst possible, India rated a 9.21. This isn’t a surprise in the least. It seems to be common knowledge that business leaders who move to India do so in spite of India’s governance, not because of it.  India’s bureaucracy hasn’t embraced the IT-revolution. It’s interesting being in Bangalore, where IT-companies are state-of-the-art, and being asked for the same copies of documents a half-dozen times because the information is only stored on non-networked PC hard-drives–and paper files are collected but don’t seem to be organized in any way.

An ethos of corruption is ubiquitous in India. Police officers have been known to sit in parks and solicit “admissions fees” from tourists. I’m pretty sure I saw a shakedown in progress this past week when our car went through a toll booth on a toll road we had already paid for and two guys standing outside in front of the toll-taker insisted that our driver pay for the toll that he had already paid not ten minutes before. Being from a country where corruption is punished severely, I’m ignorant of the process of bribes. (I suspect this is why I’ve had so little success in getting anything done that involves the Indian bureaucracy.) For a less anecdotal experience, one can turn to the “Corruption Perceptions Index,” which places India in the bottom half among all nations.

One may wonder how a democracy retains a culture of corruption. Usually, citizens of a democracy get fed up and start voting their disapproval. At the Bangalore Literature Festival, I heard an interesting policy panel featuring a politician, a retired general, and a policy pundit. It was said that there is a high degree of apathy among the Indian middle class. Indian voter turnout rates are generally below 60%. There’s a belief that those most capable of affecting change are relatively happy and, thus, unwilling to rock the boat. I don’t know how true this is, but it seems that India is having trouble defeating some of the problems that wither on the vine in the face of a politically active public.

It also seems that there is a segment of the population who are completely cowed. This is a legacy not only of colonial repression but also of caste repression. While castes have been done away with, there remains a large segment of the population who are accustomed to doing just as they’re told without questioning and without making moves to get ahead.  Perhaps, because they believe they exist in a world in which there’s no getting ahead.

India’s abundance of cheap labor may be a curse as well as a blessing. While cheap labor has brought in foreign direct investment, it has also contributed to a business culture that doesn’t seem to value increased productivity. As an example, if one goes into a small shop in Chicago or Copenhagen or even Beijing, it’s likely that a single salesperson will show one merchandise, ring it up, and bag it. If it’s a big store, there may be a two person interaction–salesperson and cashier. In an Indian store, a salesperson will show one merchandise, a clerk will write up an invoice, one will take that invoice to a cashier, that cashier will take one’s money and hand one a carbon-copy of the “paid” stamped invoice and direct one to a pick up window, a bagger will bag your purchase, and  a “checker” will check your receipt and hand you the bag. I love specialization as much as the next economist, but this is a Rube Goldbergesque approach to retail operations.

If India wants to be a first-rate power, it needs to take on corruption, bring its bureaucracy into the 21st century, and its population needs to realize they can have a more satisfying life than waiting around for someone to need them for a momentary job. The citizenry needs to value good governance, and businesses need to figure out how to increase productivity.

1 thought on “Can India Compete With China?

  1. I remember a friend of mine who visited a night spot in Mumbai observing that it took nine staff members to help them play pool at a self-pay table.

    Interesting commentary. I don’t know where to start in terms of intelligent response – I’m not really knowledgable enough. I can’t help but feel that putting a lid on corruption would go an awfully long way, but there still seems to be a lot of acceptance there at this point.


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