India-China: Another View

[via Reuben] The Daily Reckoning has an article by Lynn Carpenter presenting a different view of India in contrast to China (you need to scroll down on the page to read the article):

I’ve been looking at both countries, and here’s what I think. India’s not the next China. Not yet. Both countries have many risks, but China’s emergence has a momentum and key support that India’s does not.

So far, the major business model for the more highly touted Indian companies is: copy what’s done in the U.S., do it cheaper, and ship it back to us. Innovation and R&D spending are not robust. But journalists touting India seem to be unaware of a fatal flaw in that plan. Not only are the profits to be made selling cheap substitutes limited, but it’s a plan all India’s fellow emerging economies can copy. Taiwan and South Korea are already cutting into the world IT market.

I’d rather find a sound business engaged in a more sustainable market: capitalizing on the boom at home. A good example of this is or, the Chinese Internet companies. Or CHINA UNICOM, the telecommunications company that is gaining subscribers at home by the millions, not to mention subscribers in nearby countries. They’re not value investments today, but they are sound businesses.

And Indian companies on these models? They’re in short supply, and overpriced, too. That’s because India’s internal progress still has far to go. India’s GDP may be rising on exports, but it is not advancing on consumer spending at home.

Quite simply…India has been on the brink of ’emerging’ and becoming a world force about 40 times in the last 20 years. OK, I exaggerate, about once every two or three years. But it never quite sticks. It’s not trustworthy yet. India has not yet gathered China’s momentum. Or, as they say these days, it hasn’t reached the tipping point.

India is still a story about billions of people hungering to advance. That’s a spurious argument. It applies to Africa as well. Wishes are not ability. What’s more, the problems facing India are just as large as, if not larger than, China’s.

China has heavily indebted banks and high unemployment in its western provinces. India has high unemployment across the country, but a much more advanced banking culture, which would seem to give it an edge in the business world. But it hasn’t worked that way.

China, as a communist country, set upon a course to educate and employ all its population. It came at too high a cost to sustain, but it left a country where everyone had a taste of success for a while and an entire generation of well-educated students.

That never happened in India. Despite progress against poverty in the 1980s, the trend began reversing again during the early ’90s, when inflation hit India. In the 1991 census, 38% of India’s population was again below the poverty line. Not only are millions of adults illiterate, but so are millions of children.

This creates a spiraling vicious cycle for India. It needs progress so that it can afford to aid its own people. But with so many of its people poor and untrainable, it is hard to make that progress. India’s largest industry is agriculture. Textiles come second. The vaunted IT sector we hear so much about is a mere 3% of the economy.

The IMF recently warned that India’s GDP growth this year is likely to be less than last year…and that it will not meet its target 8% growth rate over the next several years without major repairs to the physical and social infrastructure. It needs roads, railroads, telecommunications, training and education to proceed. It must make daunting improvements within the country – in poverty, literacy, energy and free access to improvement for citizens below its small privileged class.

But the government is strapped. Its deficit comes to 10% of the GDP (the United States’ current record deficit is roughly 5% of GDP). Its cumulative national debt equals 80% of annual GDP. But when it comes to privatization, the engine for progress and Western investment, India still has strong, powerful resistance from farmers and labor trade unions.

India’s lack of buying power at the ground level where consumers live is astounding. Partly that’s the result of its attempt to leapfrog from an agricultural economy to a service economy – a model that excludes most of the population. The true path to successful development wends its way through industrialization first. It comes with higher rates of education, literacy and health. And it comes with heightened confidence on the part of large international investors – as represented by foreign direct investment.

Until the big boys put their money down, it’s not safe for small retail investors to get in on the game. Foreign direct investment to India just barely nudged up to $6.7 billion last year. That’s about what flows to Poland or Portugal…though admittedly, it’s a great increase from the $2 billion or less of prior years.

If you’re determined to catch a mainstream trend, catch the China wave rather than India’s. As an investment, I still much prefer China. An impressive portion of China’s growth is coming from industrialization and consumer products with both domestic and international appeal.

Learning to Expect the Unexpected

Edge has a talk by Nassim Nicholas Taleb on the Black Swan:

A black swan is an outlier, an event that lies beyond the realm of normal expectations. Most people expect all swans to be white because that’s what their experience tells them; a black swan is by definition a surprise. Nevertheless, people tend to concoct explanations for them after the fact, which makes them appear more predictable, and less random, than they are. Our minds are designed to retain, for efficient storage, past information that fits into a compressed narrative. This distortion, called the hindsight bias, prevents us from adequately learning from the past.

Black swans can have extreme effects: just a few explain almost everything, from the success of some ideas and religions to events in our personal lives. Moreover, their influence seems to have grown in the 20th century, while ordinary events the ones we study and discuss and learn about in history or from the news are becoming increasingly inconsequential.

The puzzling question is why is it that we humans don’t realize that we don’t know anything about the significant brand of randomness? Why don’t we realize that we are not that capable of predicting? Why don’t we notice the bias that causes us not to realize that we’re not learning from our experiences? Why do we still keep going as if we understand them?

Bus. Std: Constructing the Memex

My latest column from Business Standard:

In the past decade, the Internet has extended our world by making accessible a vast quantity of information that was unimaginable earlier in our lives. It started in the early days with bulletin boards and newsgroups, pooling together a collection of documents on a single server, and then the ease of hyperlinking combined with directories and search engines made the physical location of information irrelevant. If it was out there on the Internet, it could, in theory, be found.

For many of us, our first Internet website memories are probably linked to Yahoo. Navigating through its hierarchy of categories or doing a search helped us get to what we were looking for. Altavista and Excite started providing search within pages, allowing us to type a word or a phrase and know that there were tens of thousands of matching documents. Google then came along and refined the process to perfection by using its PageRank algorithm, giving us results very much relevant to what we were looking for. In effect, Google became our other memory.

In its efforts to provide uniformity and consistency, Google has become a mass-market search utility. But it is not good enough. What is missing is the context that each of us have this is embedded in the web we browse, the documents we chose to save (or email to ourselves), and the subject-matter experts we know (or would like to know).

To begin thinking more deeply about this, we need to go back in time and learn more about a person called Vannevar Bush.

According to Randall Packer and Ken Jordan [writing in their book Multimedia: From Wagner to Reality], Vannevar Bush rose to prominence during World War II as chief scientific advisor to Franklin Roosevelt and director of the governments Office of Scientific Research and Development, where he supervised the research that led to the creation of the atomic bomb and other military technologies. His contribution to the evolution of the computer ranges far and wide: from the invention in 1930 of the Differential Analyzer, one of the first automatic electronic computers.

In 1945, Bush published a paper As We May Think, outlining a prototypical hypermedia machine. He called this mythical machine as the Memex meaning a Memory Extender.

Adam Brates wrote in his book Technomanifestos: Visions from the Information Revolutionaries: Bushs immense administrative burden the daily strain of sorting, allocating, researching, analyzing, synthesizing, crosslinking, and filing spurred his idea for an invention that would perform this work for people. Bush popularized the idea that machines could solve the problem of information overload. Bush wondered whether all the sprigs of scientific wisdom, if not somehow preserved, would fall from the tree of knowledge. Information must somehow by connected to be relevant, lest it become forgotten. Knowledge accumulated and stored in massive filing cabinets under lock and key would languish. An idea developed today might not be relevant until some point in the future. What happens, though, if it is forgotten? Application of all new knowledge would require some means of keeping it available, accessible, and relevant.

Vannevar Bush wrote in his paper: [The human mind] operates by association. With one item in its grasp, it snaps instantly to the next that is suggested by the association of thoughts, in accordance with some intricate web of trails carried by the cells of the brain. It has other characteristics, of course; trails that are not frequently followed are prone to fade, items are not fully permanent, memory is transitory. Yet the speed of action, the intricacy of trails, the detail of mental pictures, is awe-inspiring beyond all else in nature[Associative indexing is] the basic idea of which is a provision whereby any item may be caused at will to select immediately and automatically another. This is the essential feature of the memex.

Vannevar Bush wrote his memex essay in 1945 before we had the computer, Internet, Web, Yahoo and Google. Even today, we struggle with information overload. The memex could be the solution, the silver bullet . So, the challenge before us is: can we leverage all the recent developments in technology to construct the memex?

There are two interesting recent developments that need to be connected together. Search engines like Google allow us to search billions of documents in a fraction of a second, while weblogs have made publishing very simple with the result that there are millions of people writing regular journals on the Web. Both are significant in their own right, as a combination they herald something much more profound in the information space.

(This will be continued in the next FutureTech column.)