Economist Survey on India Business

The Economist writes:

For business, India is seen as the next big thing: China 15 years ago, as the saying goes. No big international company can do without an India strategy. Some multinationals eye the country and see a vast domestic market about to take off. But even those who doubt that are impressed by its wealth of highly skilled, low-cost professionals. Some Indian firms, meanwhile, have become world-beatersnot just the well-known stars in its IT and other service industries, but manufacturers too, of products ranging from motorcycles to footballs, from medicines to steel.

This survey will argue that Indian business can play a big part in delivering faster growth, but only if the government helps. The successes of the past 15 years have been, in a sense, the easy part. Many of the bars that caged the Indian tiger have been removed, leaving the beast free to roam and roar. In particular, India has been able to exploit its great comparative advantage in an era of broadband communications and globalisation: its wealth of technically adept, English-speaking talent. Now, however, further reforms are needed.

Power of Exponentials

Matt McCall writes: “Nothing is more powerful than the law of exponentials (Buffett refers often to the power of compounding interest). We all like to think in a linear fashion. If I work twice as hard, I will get twice the benefit. Products around me will continue to get incrementally better over time. The next version of software x will look like its predecessor but with added features and functionality. The biggest challenge with running technology firms is that technology advances exponentially. As a result, we get comfortable with a linear view of the world with a specific horizon, and our firm/product/service gets “curve jumped”. Mainframes moved to mini-computers moved to PC’s moved to client/server moved to hosted solutions which is not moving to handheld/portable computing going to ???(bio computing). At each transition, the leader of the former (DEC, Microsoft, Sun, etc) wave is not the leader of the next. As Steve Jurvetson always points out, Disruption occurs at the Edges often out of the mainstream or at the interstices between disciplines.”

Connectivity or Content

David Beisel writes: “I havent been able to shake the theme from the (long and somewhat dated academic) article written by Andrew Odlyzko, Content is Not King, which has stuck with me since I read it last September. Maintaining that connectivity is more important than content, the author cites historical industry revenue figures making the point that spending on connectivity [point-to-point communications] is much more important for communication services than spending on content can ever be. Reflecting what has happened in the past five years since this article was written, with the rise of social networking applications, perhaps we are seeing the rise of the true merging of the two previously distinct forms of communication. Afterall, what is MySpace et. al other than the communication between individuals becoming content?”

Blog Reasons

800-CEO-READ Blog blogs a talk given by Chris Anderson, who is coming out with a book on “The Long Tail” later this year. Chris outlined the reasons he started a blog:

1. To Own the Meme – he wanted “The Long Tail” to be associated with him
2. Feed the Meme – He believe that the blog allows the discussion to continue after the initial Wired article. He show this chart from Google Trends and how the blog’s launch boosted search query. I agreed with this idea wholeheartedly, but I am not sure I buy the causation he was selling.
3. Fill The Dead Space between Article and Book – I can think of a zillion books that have started as articles and become books and this idea of keeping the idea alive and evolving is huge.
4. Tap Into Distributed Intelligence and Research – Anderson says his blog readers made the book better.
5. Beta Test/Peer Review – Anderson comes from the sciences and he says it is unheard of that you would not challenge an idea before publication. Companies don’t release software with beta testing. He felt vetting ideas on the blog was important part of the process.
6. Generate Book Buzz – He knows he has a core audience and believes they will buy the book and lead others to do the same.

Mobile Computing

Ned Porting offers a view on the future:

# Desktop computers at home will become obsolete
# Online services will be widely used for storing and processing personal data (like calendars & appointments, notepads, investments & paying bills, photo albums, sound & video collections, etc)
# Mobile devices capable of performing such tasks will become the new cell phones
# Only tasks that really need large storage or high processing speed will be carried on at regular computers
# And yet another step later, even accomodating computers onsite for such specific tasks will become unfeasible, and those tasks will be out-sourced to CPU-farms, dedicated servers/processors run by IT companies

TECH TALK: Education and Reservation: Atanu Deys Primer (Part 5)

Education matters. Observe the correlation between indicators of human welfare and education levels: they are positively correlated. The causation appears to be circular. Educated people have greater wealth and incomes, and can thus afford more education, and therefore have higher incomes, and so on. Aside from its instrumental role in delivering economic prosperity to individuals and societies, education is an end in itself.

The Indian education system is inadequate. Severe capacity limitations allow only around 6 percent of the estimated 120 million in the age group 17-23 years to attend college. At the very minimum, the undergraduate level capacity has to increase several hundred percent for the nation to join the ranks of the developed nations and to compete in this post-industrial age. Policies which engineered the shortages in the first place continue to apply. Instead of the needed massive capacity increase, the government intends to increase the capacity only by 10 percent by 2007.

The government does not allow free entry of private investment into the education sector. Changing that policy is the most critical first step to solving the problem of capacity constraint because the private sector will step in to fill the gap between demand and supply. Is there any support for this assertion? Yes, indeed in many developed economies, the private sector does a stellar job of providing higher education and does so while making reasonable profits. Even in India, the private sector steps in where it can. For instance, the proliferation of coaching classes and institutes is a market response to unmet demand. Policy changes will allow the private sector to enter the education sector and equate supply to demand.

The anticipated objection from the ossified socialistic mindset will be the predictable: “What about the poor? They cannot afford the high fees that private colleges will charge. Therefore we cannot allow private colleges.” The response is simple: the high fees is a result of the limited supply. If private investment were to be allowed, the supply will increase and competition will reduce the prices to levels that are “affordable.” What affordable means is that the sum of the benefits of the education will exceed the cost of the education. And those who are unable to pay for the education up front, they can be given a loan which is repayable once the person is employed.

Higher education needs no subsidies because the market mechanism is sufficient to provide an adequate supply. The same cannot be said about primary and secondary school education: they have “public goods” characteristics and thus markets fail to provide the socially optimal quantities. The sufficiently poor cannot afford basic school education and therefore need subsidies. There is a role for the government to help level the playing field for all segments of society regarding basic schooling. By ensuring equality of opportunity at the basic school level, all students irrespective of their origin will have a fair chance at going on to college level education.

The education system in India is poor by design and inadequate to meet the needs of the economy my policy choice. It can be and must be changed if the country has to develop. The recent conflict between students and the government of India over quotas and reservations is an indicator of the problems that plague the system. Only by striking at the root cause of the problem will all the symptoms disappear. Will those who control the present system for their own personal gains be willing to let go for the greater good? I hope for the sake of the beloved country that it comes to pass. Else we are all doomed to a miserable future.

Next Week: Education and Reservation (continued)

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