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The Great Opportunity for India -



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IPI_Marker

Hi all,

Read the great article on "new" economy - The People Economy.

I think what we are experiencing today is what Europe experienced
during Industrial Revolution. We have an "Services Revolution". Today,
list of millionaires and billionaires is dominated not be 70 year
industrialists but 50 something Bill Gates and Azim Premiji.

The new Economy - The People Economy - has a very profound implications
for India. We have to seize this opportunity. Its the only opportunity
for millions of people living in poverty to escape from it. So instead
of whinning about "cheap imported goods from abroad", high cost of
capital in India, or worry that foriegn capital will cause speculation
and volatility or protecting domestic farmers and industries from
unfair foriegn competition we should gear ourselves to seize this
opportunity.

Uptil now, we were living in an economy dominated by Capital. Capital
was a major requirement and lack of Capital a major impediment for
development and growth. However, with huge overcapacity in various
manufacturing sectors like Cement, Steel, Automobiles etc. it is not
the Capital that determines the success but the innovation, talent, and
knowledge that determines the success or failure.

Earlier, innovation and development of new technology like say steam
engine was once in a decade affair. Thus, once the technology gets
popularized, all one needs to have is savings, a system (like stock
market and corporations) that can channel and pool together the savings
and deploy them as Capital. The one who produces the products at a
faster rate and with least amount of costs is the winner. This was
because the products were related to basic amenities like clothing,
housing, food etc. So, identifying the needs of the customers and
targeting them (Marketing), convincing them to buy the products (Sales)
were not critical to the success. You don't have to convince the
customers to buy your products if there is not much choice and people
desperatedly wanted the products as basic necessities. Thus, access to
capital, physical transportation (port, Airport, roads etc.) determined
success. Services like doctors, financial consultants, teachers (most
people used to complete high school, take a diploma and join work
force), hair dressers, entertainment were costly and were not easily
affordable to millions of people. Because fulfilment of basic
necessities was a priority. Poor people spent most of the time working
in the factory. However, the situation has changed and is changing
rapidly.

With tremendous improvement in technology and thus corresponding
increasing in production capacity there is suddently a huge glut in
consumer products. Thus, capital is no longer in great demand. Also,
with basic necessities satisfied in the developed countries, savings
also increased. The capital is no longer in short supply. Together with
huge supply and low demand of capital means decreasing return on
capital investments.

That means, talents of people who identify specific customer needs and
target them (Marketing), convincing and educating customers about their
products vs. competitors (Sales), rapidly customizing manufacturing to
suit customers taste (Software rather than Hardware), maintaining
customer relationship, supply chain (Web and Internet) etc. has become
very critical. Not only that, with basic necessities taken care of,
people in developed world spent more for entertainment (sports, movies,
art, music etc.) and other personal services (hair dressing etc.) than
on basic goods. They are also living longer which means more
requirement for nursing, elderly care, financial advice (if you live
longer in retirement you need advice on handling), insurance etc.. This
business is not that capital incentive, plus whatever capital is
required is getting cheaper. Here personal qualities like talent,
honesty, sincerity, punctuality, respect, style etc. matter more than
anything else. Plus, the competitive advantage lies with the talented
people and not with the Capital. Thus, more and more portion of the
returns of the companies go to these talented people rather than
shareholders. This has given rise to a huge services sector. It is
growing faster than Agriculture, and manufacturing. Also, since talent
is highly differentiated and intimately a part of the person, it is
very difficult for capitalists to exploit it (when you leave a job you
take your talent with you. Also, finding similar talent is difficult
and costly). Plus, employess develop strong customer relationship. That
means, if they leave they take their customers with them. In fact, lack
of personal touch in the customer service in the developed countries
because of shortage of talent is the primary reason that countries like
India will benefit tremendously.

I am really concerned that even though this presents a unique
opportunity to the people of India, we are still obsessed with
equality, socialism and continuously crib about high cost of capital
(even though rest of the world is figuring out how to get more returns
from their excess capital). We might miss the boat if we continue to do
that. We need to gear our system (labour policies, infrastructure etc.)
with this in mind and stop bothering about protecting ourselves from
"unfair competition". In fact, let the other countries supply us with
their cheap consumer goods and agricultural produce (which they have in
plenty) and cheap capital. We will supply the talent and reap the
benefits. No need to reinvent the wheel by building our own capacities
for producing the same products that the world already has in plenty.
If we allow free imports of consumer products poor will benefit because
of lower prices. They will come out of poverty early and will be able
to invest those savings in education to take advantages of "services"
business. Poor people will increase invest in Education not by our
continously telling them so but because they can save on their basic
necessities by buying cheap foriegn products and because of increasing
salaries in the service sector. Combine this with the ageing population
in the developed world which means almost no or little competition from
them.

If we allow cheap foriegn capital to come in poor will benefit because
we have tremendous amount of hardworking, talented people. The
combination of cheap capital and human resources and telecommunications
and internet infrastructure will allow us to market and profit from
huge number services like: medical transcription, proof reading,
editing, language translation, software development, etc. just to name
a few. In fact, anything that is connected with processing of
information is good for India. Anything that is related to service like
entertainment, teaching, consulting, medicing practice etc. is a great
opportunity. Imagine when the high cost of medical care for the ageing
population forces developed world to allow medical consultation through
email and internet. What an opportunity for India! We should be really
be prepared for this. Our Govt. should be designed to protect and
honour "services" agreement instead of worrying about complicated
labour laws. That will make India an attractive destination for such
"outsourced" services.

Hope we will seize this historic opportunity.

I have included just few lines from the article. Lets have some serious
debate on this article.

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The People Economy


There have been several developments in human history which have
altered
the way in which people live, often by developing new possibilities.
The
ability to make fire was one of the earliest. The development of the
wheel on
land and the sail on the seas also increased the range of what people
were
able to do. One of the most far-reaching was the domestication of
grains and
animals ten thousand years ago, which made agriculture a viable
alternative
to hunting and gathering. With the agricultural economy, value could be
stored. People could stock up food for the winter, and could save it
for times
of need. Agriculture could generate surpluses, which could be exchanged
for
other supplies, leading to the spread of trade.




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