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The Therapy Sessions
Wednesday, July 20, 2005

India sagging

There was a recent article in the WSJ about India's path to prosperity, and why it has not been as easy as China's:A Passage to Prosperity.

It notes that while India - because it's national language is English - has made great strides in growing its tech sector, industrial growth has lagged behind:

The single most important factor explaining these differences is the relatively poor performance of Indian industry. Whereas the share of industry in China's GDP rose from a high level of 42% in 1990 to 51% in 2000, it remained virtually stagnant in India. By contrast, Indian service grew rapidly, expanding its share from 41% in 1990 to 48% in 2000. This trend has continued in the last five years.

Why is this? India has labor that is every bit as cheap and productive as China's.

Of course, there are some reasons mentioned that are common to any developing country:
Indian industry needs better infrastructure.

Well, duh. My wife is currently working on a project in India where 130 information workers are attempting to communicate with the US using the equivalent of a single cable modem. And they shut off the power at night when the US offices are open.

Like that's going to work.

But infrastructural needs are something common to every developing country, including China. In most developing nations, industrial growth precedes tech growth, because industry needs less infrastructure.

What is screwing India up?

As usual, government has been getting involved:

(F)irms that employ 100 or more workers in India cannot fire them under any circumstances. This law has understandably deterred multinationals as well as large domestic firms from entering labor-intensive manufacturing.

Yeah, that would do it. And this won't help either:

The virtual ban on private universities in India is most puzzling. Many students would be willing to spend significant sums of money for a decent education, as shown by the expenditures they currently incur at U.S. universities. Given the high private returns to higher education, there is also a good case for the introduction of significant tuition fees in public universities to generate funds for the expansion and improvement of the quality of education.

India needs to learn some basic lessons about delivering services (readers who think national health care is going to solve anything, take note). As with any commodity or service, a government provider would like to promise three things:

1. It will be available to everyone
2. It will cheap
3. It will be high quality

You can have any two of those, but YOU CAN'T HAVE ALL THREE.

India is just rationing. And it is very unwise ration education, especially when there are people willing to pay for it.

I'd wager that if India were to change those two stupid laws, it's industry would take off like a rocket.

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