Loo seats and asparagus

Looking at China’s experience can give us clues about what India should produce in the future

It’s interesting that the more I think about India, the more I find myself reading about China. Bharatiyata! is supposed to be comparative in spirit, so I guess it is natural for me to compare; it certainly provokes many thoughts.

In fact a very thoughtful piece over at Andrew Batson’s China blog concerns itself with the mystery that, for all its export volume, over the years China hasn’t really specialised in any area but continues to make and sell everything to everyone. Why? Or why not?

Most countries specialise by choice or necessity to partake of what economists call ‘comparative advantage’. It means that you can make or do something more efficiently than somebody else or some other country. (Batson quotes Carsten Holz who refers to Taiwan speedily adapting to supply niche markets globally, and South Korea, which aimed for a broad industrial base but quickly specialised). By each party concentrating on what it does best, everybody makes more money.

By this token autarky, or making everything yourself, equals relative poverty, and history bears this out (see India under the Gandhis, for example). Trade is good, but why it is good continues to elude many – Batson is funny about the ongoing ‘Japanese loo-seat’ controversy in China, and why the Chinese (who adore Japanese loo seats) should just let the Japanese carry on making them without getting paranoid about their own lack of talent in Japanese loo-seat tech.

But China apparently has not specialised, and it turns out that the reason for this is that China is just so darn big – it has for example a population more than three times that of the USA. What this means is that China can produce, (or ‘specialise’) across almost every field of economic activity, can make or provide every manner of product and service, and still be large enough to appear, on aggregate, not to be specialising in anything. It just competes everywhere – although as the economy matures and becomes more sophisticated, it will likely begin to specialise in the most profitable areas, and we will see that competitive advantage has merely been retarded. In China robotics, AI and computing in general seem to be taking off as fields of excellence rather quickly of late.

So how about India? It will soon overtake China in terms of population size. Its economy is small in dollar terms ($2 trillion) compared to China’s $10 trillion GDP (USA is about $18 trillion), but from now on the disparity will shrink every year until in 20 years’ time India and China – which now has to rebalance (deleverage) and slow down just as India speeds up – will be much closer in size.

India’s economy is already by comparison with China varied and sophisticated. Its institutions are democratic and under process of reform, which will inject net efficiency into the economy over time. In a sense India is already mature enough to let it sort itself out in terms of specialisation, so long as the economy is not centrally directed (by subsidy or whatever) into inefficient or declining sectors. The auto industry, for one, will probably look very twentieth century in a couple of decades’ time, as new technologies and power sources and attitudes transform the social landscape.

For example, ‘Millennials’ apparently don’t care about vehicle ownership the way 1950s Americans did; and in fact the ownership model itself may in future give way to a subscription/rental model for many or even most things. The idea that it might be more economically efficient (cheaper) to let a company worry about maintenance and depreciation of almost anything, in return for a regular payment that frees you from worry and trivia, might catch on in a big way as web processes grow ever smoother and more trustworthy/normalised. India would be in an excellent position to take advantage of such a trend.

Also, despite all the economic doom and gloom around (just today the Daily Telegraph declares the demise of the BRICS, with only India having ‘the wind in its sails’) the world is still growing richer every year and every year more millions of people are pulled up from absolute poverty. This means in future bigger markets for more sophisticated and luxurious things, not just computers and platinum earrings but foodstuffs as well. And here, again, India is in a fantastic position.

What happens (what has happened in China) as the economy turns on its afterburners and people migrate in large numbers to the booming cities is that the small family farms get agglomerated into bigger industrial farms. Then, two more things happen: first, production per worker increases but not production per hectare. It is just one half of the efficiency equation that works out: fewer farmers to produce the same amount, but not a bigger amount. I suppose this is partly because the development is big, fast and cheap rather than imaginative, sophisticated and heavily invested: If you can’t lose money how it is, why bother?

Big industrial farms also chase profits and that means paradoxically (in China at least), that going for asparagus tips and baby corn cobs for export instead of rice and grain for the folks at home leads to shortages in staples. China, being paranoid about food supply (China is surprisingly paranoid about quite a few things), is now trying to switch the big farms back on to staples so they don’t have to import rice and so on. Of course, that will affect profitability …

India already produces a vast array of food products; its farms are still on the small side and widely numerous, such that as affluence grows, the possibility of concentrating on gourmet products for export looks real. The appetite for excellent quality food in the West is insatiable – we are not willingly going back to Spam fritters, and lots of people can name three varieties of kale off the top of their head – and India’s agricultural sector could plausibly gear its small producers to the supply of high-margin luxury markets (with the Indian agri-giants growing the rice and grain the country needs at very low cost).

That keeps people on the land or even sends them back to the villages – as happened in Gujarat when rising living standards (due to electrification) saw industries such as clothing and diamond-polishing move back to the countryside where rents were cheaper and the quality of life was better than in the choked cities. And in the Indian countryside, as the irrigation schemes get going and electricity and the internet arrive at even the remotest sites, life is only going to appear more attractive. Moving to the horrible big cities will no longer be a necessity but a choice, which will help both city and village no end.

This is an advantage India has over China, which has basically concreted over everything and strangulated its history and much of its local culture in the race for growth. It has cities and, increasingly, wasteland, whereas India could increasingly come to resemble a tapestry of historic centres surrounded by lush and prosperous countryside resembling nothing so much as rural France, with its farms and castles and vineyards …

Which brings me to the subject of wine. But this post is long enough. I will write about the specific advantages for India in her geography (and climate, coastline and culinary traditions) soon, and explain why I think that Indian viticulture could also be much bigger than the cottage industry it currently is.

But for now, I would only say that my thoughts are running in the direction of India having at least some of its future direction as a hybrid of the French-Italian bespoke/luxury economic model, which would so well suit India’s traditions and talents, as well as its geographic and social disposition. Where China is a mass producer of average goods, India can be a mass producer of excellent goods – and like China it is also big enough to compete everywhere.

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