Good piece. India has a tremendous opportunity given it hasn’t yet been hit by the wave of demographic decline washing over most of the rest of Asia (and Europe and the Americas).
The educational system is good at the secondary and tertiary levels and more tech focused than most of Europe, Africa and Latam, so human capital (whether in number or quality) should not be a constraint.
Unfortunately, India has long been run by an anti-competitive, quasi-socialistic mindset at the top and plagued by a corrupt, rent-seeking bureaucracy at the bottom (sounds like a blue state, or maybe Italy!), has poor infrastructure and has a low trust culture that seems somewhat unethical or immoral to outsiders (also Italy). Essentially, the supply side is a mess, infrastructure is a mess, and rule of law (in practice) is a problem.
That being said, there is an entrepreneurial and commercial spirit (a bit like Italy, in some of that is directed toward theft, corruption, gaming the system, etc) though a pretty big divide between the industrialized/modern sectors and pockets of subsistence living.
Democracy is well-established even if honesty, clarity and rule of law is not.
I like their chances. If they can deregulate, educate, build infrastructure and improve rule of law they would be wildly successful. Same might be said of Nigeria, Brazil, Egypt, Iran. Problem is those payoffs are long-term and politicians aren’t benevolent seers (more likely to be rent-seekers and skimmers like Lula, most African leaders) or more focused on suppressing internal/sectarian dissent (or are both authoritarians and skimmers).
you captured a lot in this tight paragraph "Unfortunately, India has long been run by an anti-competitive, quasi-socialistic mindset at the top and plagued by a corrupt, rent-seeking bureaucracy at the bottom (sounds like a blue state, or maybe Italy!), has poor infrastructure and has a low trust culture that seems somewhat unethical or immoral to outsiders (also Italy). Essentially, the supply side is a mess, infrastructure is a mess, and rule of law (in practice) is a problem."
Thanks. The authors covered the top level problems (anti-competitive, anti-business mindset) in much more detail and with good recommendations, of course.
I am a long-term bull on India. And if I am wrong and more smart and hard-working Indians want to come to the US and UK to start a life with slightly less corruption, patronage and hierarchies- that is good, too.
My experience may be of interest. After working with brilliant Indian teams (programmers and statisticians) in a previous career, I decided to make in India the steel assemblies for a new product that I have invented. I mean, India has made steel for 2,000 years, right? It's a relatively simple product, without electronics, but brand new.
We are working with a factory partner in Rajkot. Clearly infrastructure is an issue for them, since the roads can become impassible due to weather and electricity shortages shuts the factory down (involuntarily) one day a week.
While I appreciate the contribution of academic economists (I went to school with Dani Rodrik, after all), I see some cultural issues that may hold some importance as well. These, in my experience, are sometimes a blind spot for economists.
I conjecture that some of these issues are rooted in India's history of exploitative colonialization as well as other differences from Asia, including a very hierarchical social structure.
Stop Being So Polite. My factory partners are deferential in ways, as an American, I don't need. They seem unwilling to bring me bad news that my team and I need in order to work with them effectively to solve fabrication problems. It sometimes feels like a lack of trust, but it may just be rooted in an expectation of hierarchy and arbitrary decision-making. Guys, please just focus on meeting my business needs, not my emotional needs. We're looking for win-win, not to exploit you.
Embrace Innovation. It was genuinely a surprise to my partners that I wasn't just sending them a product to copy more cheaply. This is a new product and all we've got are plans and a rough prototype. At least in the Indian steel industry, the logic of innovation seems less prevalent. When they innovate, we both win, but I'm not sure they believe that.
Orient toward Quality. My understanding is that in Japanese, the verb for "to study" is roughly "to copy" (I could be wrong). It's telling that the Indian government and business community embraced tariffs that protected shoddy domestic manufacture. Apparently, the quality was "good enough" for the masses. I don't think our partner really understood that we were serious about quality until I showed them our colorimeter, micrometer, and paint depth measuring devices we use to inspect their work product, even factory samples. We constantly are asking them to prioritize quality. In my experience, factories in Asia will proudly show off their state of the art QC.
Risk Aversion. This is something I admit to really not understanding, but it was a long search to find the right factory partner who wanted to go on this journey with us. They won't make a lot of money unless the product is a success and we scale production up together. I suspect there is a big cultural difference in risk aversion to working with a startup, even a US one.
Government can help or hurt, but I don't believe there's some magic government policy rooted in economic models that will enable India's industrial base to grow smoothly and without risk or occasional retrenchment. Rather, I hope they try more pragmatic flexible experiments, tailored to each region's strength.
I'm optimistic about our collaboration with the Indian factory, and I believe we'll product a great product together. However, I've tried to be clear-eyed about the constraints and challenges we both face, both overt and implicit.
Interesting article.... In looking at India, it appears that the issues are a bit deeper, and likely not solvable easily because they are cultural in nature. Beyond what is mentioned in the article,
1) Political Governance: There is a vast difference between the south and north. The southern states drive most of the GDP/growth. Meanwhile, the northern states have most of the poverty, literacy issues, and crime. In the current system, political power will increase for the north... there needs to be a fundamental accommodation ...very likely similar to the US Senate.
2) Identity: The role of government is to promote "the common good." However, if the cultural view is a fundamentally stratified view of society (caste system), whose "good" is promoted? "Culture eats strategy" it has been said. This is certainly the case in India. The actual operation of law, police is through the lens of this stratified structure where some humans are more valuable than others. Thus, in operation, the country acts in a very tribal fashion. The common good is defined as my family, my tribe...not much more.
3) Government: Today, the government is seen as the "other" which is the prime "free" mover. This mental model crowds out "bottom-up" activity, and the lack of governance creates a disincentive for positive action.
Overall, there are deeper cultural issues which stand in the way of progress which likely need a generation or two to work through.
Human capital is also a big factor. A lot of the people you'd want working in manufacturing need to have the necessary skills but it's hard to educate them now.
In 1988 around 60% of Indian adults were illiterate compared with 22% in China.
Interesting, Suhas, because much if not all of the thriving service sector relies on English speaking, relatively educated workers. For example Wipeo, Infosys, call centers etc. Do you think the service sector has reached a maximum in terms of available/sufficiently skilled workers and can't expand further?
No, the number of graduates from computer science and related courses is in the millions every year. There’s a real but overblown fear that AI adoption will reduce the hiring outsourced software engineers whereas I think they’ll only become better at doing jobs Americans were hired to do. Still, the sectors cannot hire all of these graduates so they will need to migrate to other countries and work in tech industries outside the US, in my view.
Good piece. India has a tremendous opportunity given it hasn’t yet been hit by the wave of demographic decline washing over most of the rest of Asia (and Europe and the Americas).
The educational system is good at the secondary and tertiary levels and more tech focused than most of Europe, Africa and Latam, so human capital (whether in number or quality) should not be a constraint.
Unfortunately, India has long been run by an anti-competitive, quasi-socialistic mindset at the top and plagued by a corrupt, rent-seeking bureaucracy at the bottom (sounds like a blue state, or maybe Italy!), has poor infrastructure and has a low trust culture that seems somewhat unethical or immoral to outsiders (also Italy). Essentially, the supply side is a mess, infrastructure is a mess, and rule of law (in practice) is a problem.
That being said, there is an entrepreneurial and commercial spirit (a bit like Italy, in some of that is directed toward theft, corruption, gaming the system, etc) though a pretty big divide between the industrialized/modern sectors and pockets of subsistence living.
Democracy is well-established even if honesty, clarity and rule of law is not.
I like their chances. If they can deregulate, educate, build infrastructure and improve rule of law they would be wildly successful. Same might be said of Nigeria, Brazil, Egypt, Iran. Problem is those payoffs are long-term and politicians aren’t benevolent seers (more likely to be rent-seekers and skimmers like Lula, most African leaders) or more focused on suppressing internal/sectarian dissent (or are both authoritarians and skimmers).
you captured a lot in this tight paragraph "Unfortunately, India has long been run by an anti-competitive, quasi-socialistic mindset at the top and plagued by a corrupt, rent-seeking bureaucracy at the bottom (sounds like a blue state, or maybe Italy!), has poor infrastructure and has a low trust culture that seems somewhat unethical or immoral to outsiders (also Italy). Essentially, the supply side is a mess, infrastructure is a mess, and rule of law (in practice) is a problem."
Thanks. The authors covered the top level problems (anti-competitive, anti-business mindset) in much more detail and with good recommendations, of course.
I am a long-term bull on India. And if I am wrong and more smart and hard-working Indians want to come to the US and UK to start a life with slightly less corruption, patronage and hierarchies- that is good, too.
My experience may be of interest. After working with brilliant Indian teams (programmers and statisticians) in a previous career, I decided to make in India the steel assemblies for a new product that I have invented. I mean, India has made steel for 2,000 years, right? It's a relatively simple product, without electronics, but brand new.
We are working with a factory partner in Rajkot. Clearly infrastructure is an issue for them, since the roads can become impassible due to weather and electricity shortages shuts the factory down (involuntarily) one day a week.
While I appreciate the contribution of academic economists (I went to school with Dani Rodrik, after all), I see some cultural issues that may hold some importance as well. These, in my experience, are sometimes a blind spot for economists.
I conjecture that some of these issues are rooted in India's history of exploitative colonialization as well as other differences from Asia, including a very hierarchical social structure.
Stop Being So Polite. My factory partners are deferential in ways, as an American, I don't need. They seem unwilling to bring me bad news that my team and I need in order to work with them effectively to solve fabrication problems. It sometimes feels like a lack of trust, but it may just be rooted in an expectation of hierarchy and arbitrary decision-making. Guys, please just focus on meeting my business needs, not my emotional needs. We're looking for win-win, not to exploit you.
Embrace Innovation. It was genuinely a surprise to my partners that I wasn't just sending them a product to copy more cheaply. This is a new product and all we've got are plans and a rough prototype. At least in the Indian steel industry, the logic of innovation seems less prevalent. When they innovate, we both win, but I'm not sure they believe that.
Orient toward Quality. My understanding is that in Japanese, the verb for "to study" is roughly "to copy" (I could be wrong). It's telling that the Indian government and business community embraced tariffs that protected shoddy domestic manufacture. Apparently, the quality was "good enough" for the masses. I don't think our partner really understood that we were serious about quality until I showed them our colorimeter, micrometer, and paint depth measuring devices we use to inspect their work product, even factory samples. We constantly are asking them to prioritize quality. In my experience, factories in Asia will proudly show off their state of the art QC.
Risk Aversion. This is something I admit to really not understanding, but it was a long search to find the right factory partner who wanted to go on this journey with us. They won't make a lot of money unless the product is a success and we scale production up together. I suspect there is a big cultural difference in risk aversion to working with a startup, even a US one.
Government can help or hurt, but I don't believe there's some magic government policy rooted in economic models that will enable India's industrial base to grow smoothly and without risk or occasional retrenchment. Rather, I hope they try more pragmatic flexible experiments, tailored to each region's strength.
I'm optimistic about our collaboration with the Indian factory, and I believe we'll product a great product together. However, I've tried to be clear-eyed about the constraints and challenges we both face, both overt and implicit.
What about the Factory Girls? China’s industrialization rode on their backs.
Interesting article.... In looking at India, it appears that the issues are a bit deeper, and likely not solvable easily because they are cultural in nature. Beyond what is mentioned in the article,
1) Political Governance: There is a vast difference between the south and north. The southern states drive most of the GDP/growth. Meanwhile, the northern states have most of the poverty, literacy issues, and crime. In the current system, political power will increase for the north... there needs to be a fundamental accommodation ...very likely similar to the US Senate.
2) Identity: The role of government is to promote "the common good." However, if the cultural view is a fundamentally stratified view of society (caste system), whose "good" is promoted? "Culture eats strategy" it has been said. This is certainly the case in India. The actual operation of law, police is through the lens of this stratified structure where some humans are more valuable than others. Thus, in operation, the country acts in a very tribal fashion. The common good is defined as my family, my tribe...not much more.
3) Government: Today, the government is seen as the "other" which is the prime "free" mover. This mental model crowds out "bottom-up" activity, and the lack of governance creates a disincentive for positive action.
Overall, there are deeper cultural issues which stand in the way of progress which likely need a generation or two to work through.
Human capital is also a big factor. A lot of the people you'd want working in manufacturing need to have the necessary skills but it's hard to educate them now.
In 1988 around 60% of Indian adults were illiterate compared with 22% in China.
https://www.economist.com/asia/2024/11/28/is-indias-education-system-the-root-of-its-problems
Interesting, Suhas, because much if not all of the thriving service sector relies on English speaking, relatively educated workers. For example Wipeo, Infosys, call centers etc. Do you think the service sector has reached a maximum in terms of available/sufficiently skilled workers and can't expand further?
No, the number of graduates from computer science and related courses is in the millions every year. There’s a real but overblown fear that AI adoption will reduce the hiring outsourced software engineers whereas I think they’ll only become better at doing jobs Americans were hired to do. Still, the sectors cannot hire all of these graduates so they will need to migrate to other countries and work in tech industries outside the US, in my view.