Have you noticed a change in mindsets or attitudes of the Indians you have interacted with over the past decade because of the outsourcing boom?
I don’t want to pretend that I have met with the entire cross-section of India. There are people in villages that I haven’t encountered. I am meeting a self-selected group. Of that group, I would say that people are more self-confident. But not in an American way, as Indians, by culture and nature, are more reserved and not boastful. I would say, and this is a gross generalisation, they are less interested in politics and more interested in growth opportunities.
In your book, you say that globalisation 3.0—a world of highspeed connectivity—has set in. In this era, where will countries like India and China be 10-20 years from now?
I see India and China as two super highways. Two six-lane super highways. The Chinese super highway is perfectly paved, has great sidewalks, and all the street lamps work. But, off in the distance, there’s a speed bump called political reforms. When 1.3 billion people driving at 80 miles an hour hit a speed bump, one or two things can happen. One, the car jumps up in the air, lands down, the passengers look around and ask "You ok?", "No problems", and the car drives along. The other thing that can happen is that the car hits the speed bump, jumps up in the air, slams down and all the wheels fall off. So, with China, we don’t know what’s going to happen.
India is also a six-lane super highway. But it’s full of potholes, cracked cement, unfinished sidewalks, and broken street lamps. But off in the distance, it looks like the Indian highway starts to smooth out. There are better sidewalks, the street lamps are working. The question I have about India is whether that is a mirage or an oasis. Both India and China have these big question marks.
My view about the world is very simple. Wealth is going to go to those countries, companies, individuals and institutions that get more of their people connected to the flat world platform. And who’s going to get more of their people educated in order to take advantage of this platform, and to be able to innovate on it. Thirdly, who’s going to get the governance that’s needed to provide a frame for that innovative educated population. It’s all about infrastructure, education and governance. No secrets here, it’s right in front of you.
With China, we know the solution—it needs political reforms. How can India to convert that mirage into a reality?
India has a prime minister who really gets it. You don’t have to start by explaining it to Manmohan Singh. He’s the Deng Xiaoping of India. Who you need to explain it to is half the Congress party and others who, in this coalition, are like the ball and chain around his ankle.
In the flat world scenario, the positive impact is restricted to a small segment of the population. How do you take it down to the millions of poor?
It starts by doing the right things. The state has the resources to provide that infrastructure and education to precisely those people who are not in the system. People tell me, ‘Aah, Friedman, you are talking about one per cent of India.’ Well, I’m glad I’m talking about one per cent, instead of a tenth of one per cent. Because 20 years ago, that’s what we would have talked about. Today, we’re talking about one per cent—now that’s progress. You don’t turn this ship around overnight.
I think India’s most debilitating liability is the third leg, it doesn’t have the governance. So, when the state budgets a million rupees for a school between Mysore and Bangalore to give it the infrastructure and teachers, by the time you say school it has become 1,00,000 rupees. Terrible corruption. Good people—all my dynamic and exciting Indian friends—wouldn’t think of going into politics. Because they see it as a waste of time, energy and also as violent and corrupt. China is a Communist country, in name at least, but its institutions work better than India’s.
Critics say that technology cannot bridge the divide between the haves and have-nots. The digital divide is happening even in developed countries like the US.
I think it’s wrong. If you look at the data, you see two things happening. One is that the floor is rising. The number of people in India or China today living on two dollars a day as opposed to a dollar a day, which is to say the lower middle class, has expanded in more numbers, more rapidly than anytime in the history of the world. But the gap between the floor and ceiling is also rising. So, the gap between the poor and the richest people in India is also rising. That’s an issue for governance. Capitalism makes people unequally rich, socialism makes people equally poor. India was an expert at making its people equally poor. It now moves to capitalism to make people unequally rich. But as a general phenomena, it has also lifted the floor. India wouldn’t have the largest number of middle class today if that weren’t true.
In this outsourcing wave, India is getting low-end work due to cost arbitrage, while the high-end one is in the developed world. If that’s true, can’t it go to another country?
My daughter is in love with her iPod. Do you know where the MP3 chip in her I-pod was designed? Hyderabad. Not made, not put together by a bunch of cheap Indian workers, but designed. Microsoft just opened its fourth research centre in the world—in Bangalore. You think they are there for cheap labour. They are there for, what they call, an ‘IQ suck’. They want to, like a straw, suck out as much IQ as they can from India. You know all of India isn’t going to be rich tomorrow. Not everyone in India is going to be designing mp3 chips. But where do you start? Do you make the perfect the enemy of the good? Just because everyone in India overnight hasn’t become Azim Premji, does that mean this system isn’t any good. It’s nonsense. All this criticism is just nonsense.
And how much time will it take for this change to happen?
You bet it’ll take a long, long time. You had 50 years of wacky socialism. And after that, ten years of a sort of capitalism, I look at it as another 50-year process. But over the next 50 years, will the next generation of Indians live better than their parents? Absolutely. You give a farmer a cellphone and you’ll see the biggest leap in anti-poverty that one can possibly imagine. This isn’t about everyone becoming a call centre worker in Bangalore. Poverty will really be alleviated when India, when people who live on the land in agriculture, become more productive. And technology has the greatest chance to do that in the shortest time. You look at the number of farmers in India who want their kids to study English.
Outsourcing has been happening for decades. In manufacturing, the process is nearly complete. So, what’s unique about this wave of outsourcing in the services sector?
What is new is that it is happening in the services sector. Therefore, it is the ability of a country like India to capture real knowledge work. Once you’ve captured it, it allows you the one most important thing in a flat world. You can do it without having to emigrate. The fact that Indians can now innovate without waiting in line at the US embassy, without having to come to cold Minnesota and look for an Indian restaurant to get their chapati and curry, the fact that they can stay home, live in their culture, be in their extended family, eat their native food, wear their native clothes, take part in the most cutting-edge innovation, that is really cool.
Why did India miss the manufacturing outsourcing bus?
Infrastructure. If you have to make something in Bangalore and ship it out, the airport is basically a Greyhound bus station with a runway. But when it became 1s and 0s, when it became bits and bytes, as opposed to boxes and packages, India could play with its weak infrastructure. The way it gets translated into a broad anti-poverty movement is when it comes to non-hi-tech sectors. When farmers can get more from their land, when they can understand global markets better, when they can produce niche products for different markets, that’s when India will really turn around.