Tuesday, January 24, 2017

How can you have digital cars, or even toothpaste?

India should "Leapfrog Beyond Manufacturing" to digital services, write Jayant Sinha and Arindam Bhattacharya. Jayant Sinha is Minister of Civil Aviation, having qualified from IIT Delhi and Harvard Business School. Arindam Bhattacharya is Managing Director of the Boston Consulting Group in Gurgaon, having qualified from IIT Kharagpur and IIM Ahmedabad. To become middle-income country with a per capita income of $12,000 we must grow at 7-8% per year for the next 3 decades. That will be almost impossible. So what is the answer? "All large countries have followed the twin strategies of (1) manufacturing growth and jobs, and (2) merchandise exports which typically added 1-2% to GDP growth," they write. "We differ from this consensus and believe that India must proceed on a different development journey, which accounts for different global circumstances and leverages India's strengths." They give the example of Uber which has created more jobs than all car rental companies put together. So should all of us become taxi drivers? Manufacturing industries are shifting to Internet of Things so we should forget about manufacturing and shift to providing digital services. They seem to forget that India has 1.30 billion people, 84 million children do not attend school, and of those that do, learning levels are very poor. Apparently, 900 million Indians cannot access the internet, although with people changing over to smart phones that number could decrease rapidly. As we change over to digital technology we will be open to hacking, not just by criminals, but by intelligence services of hostile neighbors, of which India has plenty. Prof Tyler Cowen blows the myth of economic miracles. He cites the example of Denmark, which has been growing at around 1.9% for over 100 years and has a per capita income of $52,000. Even if all of us became taxi drivers, someone has to produce cars. And bricks and cement to build houses, toothpaste and soap to clean ourselves, and clothes and shoes to protect us from the weather. Prof Ricardo Hausmann wrote that if we are to buy all these products we have to sell something in return and such trade is essential for innovation and productivity. While Donald Trump is forcing US companies to manufacture in the US we are looking to go beyond. Who will give us the money to buy all the products that we need for daily living? The world is suffering from technological stagnation. Airplanes go no faster, air conditioners have the same type of compressors and household goods are much the same as before. Connecting them digitally is not going to make them work better. All doctors are taught to follow the principle of 'Do No Harm'. The authors should be wary.

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