Chindia: How China and India Are Revolutionizing Global Business edited by Pete Engardio; Tata McGraw-Hill; Price: Rs.395; 384 pp
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Goldman Sachs (GS) started a shindig when they came out with their first BRIC (Brazil, Russia, India, China) report in 2003. The conclusions of the report were astounding: by 2050, of the six largest economies in the world, only two top spots would be occupied by non-BRIC countries, forecast Goldman Sachs. China would be the largest economy, having overtaken the US by 2041, while India would be close behind the US, but bigger than everyone else, including Japan and Germany.
This book is a collection of features, reports and comment articles published by the popular international business magazine, BusinessWeek, over the past several years about China and India, and the social, political, economic and environmental changes that have facilitated their growth. It is also a compendium that deals with the Western, and in particular the American experience of dealing with the shifting balance of power — the huge influx of cheap goods that have benefited American consumers while robbing workers of their jobs, of enormous increases in productivity in the wake of outsourcing, and of opportunities presented to American corporations following the opening up of Asian markets. Pete Engardio, editor of this book, is a prize winning journalist with BusinessWeek, and an old Asia hand who has covered the region since 1990. Therefore the compilation is fairly thorough, spanning a wide range of China and India stories. And since it is essentially a collection of articles from a popular business magazine, the style is quick and easy.
Most people in India witness China’s growth with envy, and occasional worry. We are bewildered by reports of a government that builds new highways, dams, airports, and power plants every month while ours, with much cooing, lays an egg every once in a decade. Our smaller manufacturers, like American industry, are also rapidly coming to terms with ‘the China price’ — a price for products so low, that it is often below the cost of raw materials. So are Indian consumers, who are lapping up the sticker prices on their toys and electronics.
Nevertheless we can derive comfort in the fact that we are ‘better’ at IT than the Chinese. Ask our IT folks to define ‘better’, and they usually fall back on our proficiency in English. Is this a sustainable comparative advantage? In that case what is our advantage over the software developers in America and the UK? What finally, is a competitive, comparative or absolute ‘advantage’?
Classic trade theory states that a country has a comparative advantage in manufacturing products in which it is relatively well-endowed with inputs that are intensively used in producing the product. Thus countries like India and China should focus on labour intensive industries where they have a comparative advantage, export these goods or services to labour scarce markets like America and Europe, and import products or services from those countries that require scarce skills or high capital investment. Both sides are subsequently better off than they would have been had they followed strictly ‘swadeshi’ policies. However, as the book shows, some economists, including Nobel laureate Paul Samuelson, are now questioning whether this is really happening with India and China, and whether free trade is really all that good for America.
The American IT worker (there are 10 million of them) who becomes unemployed because his/her job gets ‘Bangalored’, says the book, could see his/her wages drop by more than 10 percent — and that only if he/she manages to find a second job (only about 68 percent of them do). The stories are worse in manufacturing industries affected by China prices.
The author argues that one of the reasons why India has become ‘better’ at the software game is because our government has subsidised institutions like the IITs and IIMs, which have produced the technical and entrepreneurial talent that has made the Indian outsourcing story a reality. But it can also be argued that subsidised higher education for the urban middle classes has flourished at the expense of primary education for the rural poor.
While companies like Infosys and Wipro canalise billions of dollars into tiny islands in Bangalore and Gurgaon, the price of the prosperity of these companies and cities has been paid by millions of preventable deaths among the rural poor because of poor health and sanitation, both of which can be substantially improved by additional investment in primary education.
Similarly, the price of China’s industrial and infrastructure revolution may have been at the cost of tremendous social and environmental damage, cheap capital raised from millions of Chinese savings accounts and the undervalued Yuan, all of which need to be factored into ‘the China Price’.
On the whole, this is a book well worth picking up at an airport bookstore before that long business flight. It will be both time and money well spent.
George Karimundakal