[FoRK] Ithaca, indeed :)

Gordon Mohr < gojomofork at xavvy.com > on > Fri Jun 9 00:29:58 PDT 2006

Owen Byrne wrote:
> I found this piece and this other similar piece  - 
> http://blog.guykawasaki.com/2006/06/how_to_kick_sil.html
> 
> - kinda insular and self-serving. How to innovate? - the only way is the 
> way we did it. I found Paul Graham's mention of Detroit evocative - once 
> upon a time Detroit was an innovative place (and the main driver of the 
> US economy), then suddenly it wasn't. What happened? Did
> Especially since there are people 
> (http://www.isc.hbs.edu/econ-clusters.htm) who have done systematic 
> research on just this subject, rather than just pontificating.
> Its interesting that these similar pieces appeared so close together. It 
> seems like the hype is at a peak now. In 2002 these would be laughable. 
> I suspect they'll be laughable again in 2007.

It looks like a thought got chopped off there right after the
Detroit question.

Anyway, funny you should ask about Detroit, because I just read
the following article (appended below) earlier today:

  What Detroit Can Learn From Bangalore
  A booming city’s lessons for a town in decline
  by Shikha Dalmia
  http://www.reason.com/0606/fe.sd.what.shtml

- Gordon

# June 2006
#
# What Detroit Can Learn From Bangalore
# A booming city’s lessons for a town in decline
# Shikha Dalmia
#
#
# K.G. Nanjappa, the mustachioed, 35ish driver I hired for my
# five-day stay in Bangalore, was not given to many
# opinions. But there was one thing this soft-spoken,
# diminutive man was certain of: “It is bery good thing
# I.T. companies here, madam.”
#
# Yes, he admitted, the influx of information technology
# companies into this South Indian city of nearly 6 million
# people had made his job more stressful. The sudden burst in
# traffic had cratered the streets faster than municipal
# authorities could say “pothole.” (Bangalore residents je
# that while elsewhere people drive on the left of the road,
# they drive on what’s left of the road.) Commute times had
# quadrupled, and road rage was on the rise.
#
# But just a few years after Nanjappa and his family had moved
# from a nearby village to Bangalore, his base salary had
# doubled from $60 to $120 a month. In addition, he routinely
# took in as much as $60 a month in tips, putting his income
# in a range he had scarcely imagined possible.
#
# It’s not that he doesn’t miss his old village life, he
# explained. But by carefully managing his finances, he can
# send his daughter to a private school while planning for a
# second child. All of this, he maintains, is well worth
# trading the simple pleasures of his bucolic past life for
# the hassles of his new, grungy city existence.
#
# Evidently, Nanjappa is not the only one who feels this way:
# Every week, nearly 3,700 new people from all over
# India -- from high-tech professionals to semi-skilled
# service staff -- vote with their feet by moving to
# Bangalore, the I.T. and outsourcing capital of the East. A
# fraction of them, as we’ll see, were driven from their
# homes by a land-grabbing government, but the vast majority
# are simply pursuing the city’s many opportunities. Even
# skilled expatriates from Australia, California, and Europe
# are returning, undeterred by Bangalore’s ubiquitous
# poverty, squalor, and chaos after years of life in plush,
# clean, and orderly surroundings. The city’s population has
# ballooned from just 1 million residents in 1960, giving
# Bangalore a 5.7 percent annual rate of growth that has made
# it one of the fastest-growing cities not just in India but
# in all of Southeast Asia. There are signs this influx is
# beginning to slow, due to the city’s dismal
# infrastructure. For now, however, it has injected new energy
# into a town that was once so dull that Winston Churchill
# compared it to a prison.
#
# Giant multinationals such as Microsoft, Intel, and Dell are
# cramming the city with glittering new glass-and-steel
# buildings. Every inch of real estate in the city proper has
# been spoken for, pushing Indian computer behemoths such as
# Infosys and Wipro to erect their sprawling, lush, and
# unabashedly opulent campuses on the outskirts. Hotels
# ranging from the sumptuously luxurious five-star Leela
# Palace to the low-budget Woodlands run at full
# capacity. Trendy little boutiques and high-rise malls
# selling everything from ethnic wares to Western goods are
# everywhere. New restaurants featuring Italian and Thai food
# are challenging the culinary domination of traditional
# Indian restaurants.
#
# When I return home to the Detroit area, where I have lived
# for the last 18 years, the contrast couldn’t be starker.
#
# To be sure, Detroit has many of the trappings of wealth that
# come from sitting in the lap of the richest country in the
# world: an excellent freeway system, a sparkling riverfront,
# good sanitation. Bangalore, in turn, has many of the
# afflictions of a poor country: pollution, open sewers,
# slums. But there is a palpable buzz in Bangalore’s air that
# comes when industrious people are engaged in creating
# wealth. That’s missing in Detroit, where a big chunk of the
# population lives off welfare.
#
# While Bangalore grows, Detroit continues to lead the United
# States in population decline. Every week, on average, 370
# residents leave its crime-ridden, economically depressed
# neighborhoods for a better life in the suburbs or elsewhere
# in the country. The city’s population, close to 2 million
# in the late 1950s, has shrunk to less than 900,000. Formerly
# the fifth largest city in the country -- bigger even
# than Chicago -- Detroit is now smaller than San Jose.
#
# This is not to deny that some economic movement has occurred
# in Detroit in the last decade: The city in February pulled
# off the Super Bowl at the new state-of-art Ford Field
# Stadium without a hitch -- no mean feat given that,
# until a few years ago, it could not even plow its streets
# after an evening snowstorm for kids to walk to school in the
# morning. General Motors has sunk $500 million to renovate
# the Renaissance Center, a complex of glass office towers
# that sat nearly vacant on the Detroit River for about two
# decades. In part due to generous tax subsidies, Detroit got
# its first significant new office building in a decade with
# the opening of the Compuware Center. Three new casinos have
# opened, including one in the thriving Greek Town
# area -- one of Detroit’s few bright spots, where
# pedestrians actually can walk at night without fearing for
# their lives. And in a burst of government largesse, some old
# rococo gems such as the Fox Theater and Detroit Opera House
# have been restored, along with Campus Martius, once the
# busiest public square in America.
#
# But these grand projects haven’t jump-started Detroit’s
# economic engine. While stores like Esprit, Nike, and Adidas
# open showrooms by the dozen in Bangalore, not a single major
# national retailer has expressed interest in Detroit since
# the closing of Hudson’s department store in 1982. The
# opening of a Ben & Jerry’s ice cream parlor in the
# Compuware building last year was cause for celebration.
#
# In fact, Detroit’s landscape has barely changed since I
# first peered out the window of a friend’s upper-floor
# apartment at Wayne State University in 1987, into a
# hauntingly beautiful abandoned building across the
# street. Its rooms were stripped bare, every piece of
# cabinetry likely sold for firewood by local junkies. And its
# brick facade was marred by row after row of shattered
# windows -- like a lovely face ravaged by pockmarks.
#
# Entire blocks of such buildings have been razed in recent
# years. But with few new investors stepping forward to
# redevelop the sites, many have reverted to urban
# prairies. The 10,000 or so abandoned buildings that have
# escaped the bulldozers serve as both a reminder of the city’
# s lost glory and a taunt to its hopes of a renaissance.
#
# Bangalore, a Third World city beginning with nothing, has
# experienced meteoric economic growth, while Detroit, once a
# formidable industrial powerhouse, can’t crawl out of its
# economic rut. If Detroit wants to boom again, it could learn
# some lessons from Bangalore. The factors that made India the
# world’s economic basket case after it obtained its
# independence from Britain in 1947 are precisely what have
# stymied Detroit’s resurgence: excessive bureaucracy,
# destructive taxes, and bad labor laws. While India has yet
# to address the last, it has attacked regulations and taxes
# with a vengeance, with results Detroit’s leaders should
# note.
#
# Bangalore has also made an important mistake. By favoring
# the I.T. industry with measures that range from preferential
# tax treatment to outright land grabs it has created a town
# too dependent on a single industry. In that respect, it
# could learn a sobering lesson from Detroit’s sad decline.
#
# More Than Cheap Labor
#
# The conventional wisdom in the U.S. is that companies are
# flocking to India because its cheap, English-speaking,
# high-tech labor offers compelling cost savings. India
# produces 200,000 or so engineers every year, about three
# times more than the United States. And they typically make
# about a fifth as much as U.S. workers doing similar jobs.
#
# But India’s technical talent pool has been available for
# about half a century. Why did the world discover it only in
# the last 15 years? And why did sleepy little Bangalore take
# the lead?
#
# Outsourcing began as far back as the 1980s, with
# U.S. companies contracting out low-end, noncore tasks such
# as data entry and medical transcription. Although the people
# performing these jobs were often trained professionals,
# American companies had little inkling of their true
# potential until the impending Y2K “crisis” forced them to
# turn to their Indian partners to reprogram the internal
# clocks in computers on short order. This event opened up
# whole new vistas for technical collaboration that are still
# unfolding.
#
# For instance, Progeon, the outsourcing arm of the
# Bangalore-based I.T. giant Infosys, began as a call center
# to deal with customer queries for banks and credit card
# companies. But soon it began handling all kinds of
# sophisticated back-office functions, such as processing
# payrolls and insurance claims. Recently it ventured into
# knowledge services, offering equity research, credit
# analysis, fixed income research, bond analysis, economic
# analysis, industry analysis, and company analysis to
# investment banks around the world.
#
# Far from being low-end or noncore, points out Vijay Menon,
# vice president of marketing and communications at Progeon,
# these services are high-end and essential. “Any service
# that does not require a direct customer interface or
# intimate knowledge of local culture or geography is
# potentially something that can be outsourced,” Menon
# maintains.
#
# Detroit’s auto companies have jumped on the bandwagon
# too. The Big Three -- Ford, G.M., and
# Chrysler -- and many of their major suppliers have been
# quietly outsourcing simple computer programming jobs to
# India for a while. But now they are contracting with
# companies such as Bangalore’s Harita Infoserve to develop
# computer models of auto parts and run computer-simulated
# tests of cars. All three have opened technical centers in
# India for R&D. And G.M. some time ago handed Reva, a small
# company in Bangalore, a plum contract to design an electric
# car. The fastest growing Indian exports right now are not
# computer programs or software but automotive components,
# says C.K. Prahlad, an Indian-born professor of management at
# the University of Michigan business school.
#
# While the outsourcing/I.T. boom that Bangalore spearheaded
# has spread to other Indian cities, Bangalore remains at the
# cutting edge of this globalization-of-work trend. It is
# rapidly moving up the value-added chain so that the foreign
# companies are now flocking to the city not for its cheap
# labor, as wages in India are beginning to catch up with
# those in the West, but for its scientific prowess and
# business-process know-how. “They came for the cost
# arbitrage but are staying for the quality arbitrage,” notes
# Prahlad.
#
# But it was not just serendipity -- the Y2K
# crunch -- that caused the West to discover India’s
# I.T. potential. Nor can you attribute it all to India’s
# technical talent pool, a necessary but not sufficient
# condition for the I.T. boom. What was indispensable was the
# radical restructuring of India’s autarkic
# economy. Karnataka, the state where Bangalore is located,
# aggressively took advantage of India’s new climate of
# economic openness, attracting huge new investments from
# abroad and, as important, unleashing its entrepreneurs at
# home.
#
# Lesson One: Break the Regulatory Shackles
#
# It needs to be said at the outset that no government in the
# U.S., not even Detroit’s, has ever imposed the kind of
# crushing regulations that the Indian government imposed
# during the height of the notorious License Raj in the mid-’
# 50s. Key industries -- steel, telecommunications,
# airlines -- were nationalized, but even more harmful
# was the Kafkaesque web of regulations that the remaining
# private businesses had to endure in the name of ensuring a
# “rational allocation of resources.”
#
# Every move of private industry, big or small, was subject to
# licensing. Forget setting up a new plant or a factory. If an
# enterprise wanted to buy or import equipment, change its
# product mix, or even produce more than its allotted quota
# for a product, it had to first obtain permission from the
# Directorate General of Technical Development, a process that
# could take years and a small fortune in bribes, points out
# Gurcharan Das, author of India Unbound and former CEO of
# Procter & Gamble, India. “Large business houses set up
# parallel bureaucracies in Delhi to follow up on files,
# organize bribes, and win licenses,” he recalls.
#
# Confronted with a massive fiscal crisis and the prospect of
# defaulting on its international debt obligations, the Indian
# government dismantled much of this ridiculous licensing
# regime in 1991. In a bid to boost exports to replenish the
# country’s empty foreign exchange reserves, it also
# eliminated all import licensing and slashed tariffs on
# capital goods. Both were relics of India’s
# import-substitution days, when manufacturers were
# discouraged from buying equipment from abroad in order to
# build the domestic industry. This jacked up production costs
# and made the country’s exports hopelessly uncompetitive.
#
# Trade liberalization was a boon for the I.T. industry, which
# already had escaped many of the stultifying controls that
# other industries faced simply because the architects of
# India’s industrial policy had failed to anticipate its
# birth. Thus, while there was a ministry to regulate every
# other sector -- steel, banks, insurance -- there
# was no Ministry of Information Technology until 1999. (After
# India won several international beauty contests in a row,
# one politician quipped that the country had experienced an
# I.T. boom and a beauty boom because the state had stayed out
# of both.) Yet despite the availability of a crucial
# resource -- a ready pool of English-speaking high-tech
# professionals -- the industry was thwarted by the
# country’s restrictive trade laws.
#
# Once those were relaxed, writes Infosys founder
# N.R. Narayana Murthy, the man who pioneered India’s
# I.T. revolution, it no longer took 13 months and 25 visits
# to Delhi just to obtain a license to purchase a computer.
# “Or a wait of five days,” he adds, “to get permission
# from a clerk at the Reserve Bank of India [the government
# bank monopoly] to decide whether the managing director of a
# software firm could travel abroad for a day.”
#
# All this improved the business climate
# dramatically. Karnataka went even further than the rest of
# the country to liberate private industry, especially the
# I.T. sector, from the remaining government shackles.
#
# A 2001 report prepared for the U.S.-based chipmaker Intel by
# Feedback Consulting, one of the most respected consulting
# companies in South India, recommended Bangalore over other
# cities for the company’s India headquarters because along
# with perfect weather -- a huge advantage in attracting
# talent -- Karnataka had the most industry-friendly
# state government in the country. One of the most important
# moves Karnataka made to acquire this reputation (surpassed
# in recent years by other states) was that it signed up for
# the central government’s Software Technology Parks of India
# (STPI) initiative ahead of other states. The importance of
# this initiative in making Bangalore the Silicon Valley of
# India cannot be exaggerated.
#
# STPI gave I.T. companies in Karnataka a nearly complete
# exemption from central government taxes. In addition, it
# enabled Karnataka to release its businesses from the
# government’s telecommunications monopoly by opening
# Internet access to competing private providers. This meant
# better, cheaper, and more reliable lines of communication
# with overseas clients, something Indian companies sorely
# needed to deliver projects in an efficient and timely
# manner.
#
# Aside from prying open the government’s telecom chokehold,
# the most liberating feature of STPI was that it established
# a special liaison between I.T. companies and the central
# government for all the statutory approvals -- project
# approval, import approval, bonding and export
# certification -- they needed to proceed with their
# projects. “This single-window clearance meant that industry
# no longer had to go from department to department to obtain
# licenses,” explains B.V. Naidu, STPI director in Bangalore.
#
# What’s more, unlike other states that limited STPI
# certification to companies located on special campuses,
# Karnataka extended it to any company anywhere in the
# city. “This made all of Bangalore a potential business
# area,” notes V. Ravichandar, Feedback Consulting’s founder
# and CEO.
#
# Combined with the state’s lax enforcement of zoning laws
# against mixed uses, broad STPI certification empowered any
# geek with a computer and e-mail to write and deliver
# software to anyone in the world right from his home. So
# while Bangalore has its share of corporations in downtown
# high-rises and on sprawling I.T. campuses, it is also home
# to multimillion-dollar companies operating out of modest
# bungalows in residential neighborhoods.
#
# One such company is Dhruva Interactive, which designs video
# games. It is sandwiched between the walls of two houses on a
# street so narrow that two cars have difficulty scraping past
# each other. Dhruva’s neighbors have been complaining about
# the odd hours it keeps -- a result of the time
# difference with its overseas clients -- so it plans to
# move to another location after 10 years in its current
# space, says Rajesh Rao, 35, the company’s sweetly exuberant
# and immensely tech-savvy founder. But there are other
# streets nearby where people have sold to commercial
# developers the homes in which they had long planned to
# retire.
#
# Bangalore is in the midst of a huge reshuffling of real
# estate, as property, unencumbered by rigid, U.S.-style land
# use rules, freely changes hands from less to more valued
# uses. This is making a lot of people very rich very
# quickly. And it is creating the sort of densely packed,
# mixed use neighborhoods celebrated by the urban theorist
# Jane Jacobs, as doctors’ clinics, home accessory boutiques,
# and roadside cafés -- not to mention the proverbial
# corner grocery stores -- crop up like mushrooms in
# areas that once were almost exclusively residential.
#
# If Bangalore has made giant strides to release its
# entrepreneurs (at least its I.T. entrepreneurs) from
# stifling government regulations, Detroit has taken a few
# baby steps at most. Some of its leaders, such as former
# Mayor Dennis Archer, began talking about creating a one-stop
# shop akin to STPI’s single-window clearance for prospective
# businesses back in 1992. But Archer’s hip
# hop -- loving, earring-sporting successor, Kwame
# Kilpatrick, is preoccupied with attracting big, glamorous
# Aswan Dam -- type development projects and has little
# time for mundane process improvements.
#
# In Detroit the city does not even know what property it
# holds, as a steady stream of abandoned buildings keeps
# reverting to its ownership. Prospective developers trying to
# acquire land are left languishing in limbo for months as the
# city council -- a dysfunctional entity that has to
# approve the sale of all city-held property -- tries to
# clear up title and lien issues. For developers, time is
# money, and more often than not they simply give up in
# disgust.
#
# The city’s bureaucracy and red tape thwart not only outside
# developers seeking to do business in Detroit but an even
# more critical source of urban vitality: entrepreneurship by
# city residents themselves. In the name of protecting public
# health and safety, the city imposes a plethora of licensing
# requirements and fees on 265 occupations (60 more than the
# state government licenses), from street vendors to day care
# centers. A home-based business needs 70 or so building or
# equipment permits to get started. Hair braiders have to
# spend thousands of dollars and 1,500 hours in mandatory
# training for a cosmetology license.
#
# The taxi industry is virtually nonexistent in Detroit, as
# any visitor who has tried to hail a cab can testify. The
# city has restricted the number of taxi licenses so tightly
# that new entrants simply can’t get one, even if they can
# somehow arrange the $10,000 or so that a license costs on
# the open market. As if this were not enough, Detroit revised
# an existing ordinance in 1996 to further regulate and
# restrict the number of limousines and vans, so they have
# been squeezed out of the city as well. If my Bangalore
# driver Nanjappa had moved to Detroit rather than Bangalore,
# he probably would have been crushed by the city bureaucracy
# and wound up on welfare.
#
# Lesson Two: Remove Destructive Taxes
#
# Bangalore has benefited not just from the central government’
# s efforts to reduce onerous bureaucracy and red tape but
# from its radical reform of the federal tax system, once
# among the most punitive and complicated in the free
# world. Now Indian states also have started to simplify their
# tax schemes, something neither Michigan nor Detroit has
# found the will to do.
#
# At its peak in the 1970s, India’s top marginal corporate
# income tax rate was 93.5 percent. This, combined with an 8
# percent tax on wealth, meant those who played by the rules
# could count on effectively handing over their entire profits
# to the government at the end of the year.
#
# The 1991 reforms dramatically changed this situation. India
# not only lowered the marginal income tax rate for
# corporations and individuals to between 30 and 35 percent
# (not counting deductions); it slashed the wealth tax to 1
# percent and abolished the estate tax. The reforms are
# ongoing and are not limited to the national government: Last
# year 21 of India’s 29 states joined hands -- a major
# political miracle -- to end a bewildering system of
# multiple state-level sales taxes that even seasoned
# accountants couldn’t fathom. This system taxed not just the
# added value but the whole accumulated value of a good at
# each stage of the production process, including the taxes
# paid at prior stages. “In effect, you had taxes on taxes on
# taxes,” explains Anil Sood, founder of Digital Promoters, a
# New Delhi-based company that makes industrial
# equipment. This generated mountains of paperwork, created
# numerous market distortions, and bumped up prices for
# consumers without delivering better products.
#
# This insane system has been replaced with a far simpler
# retail-level value-added tax of 12.5 percent. “This is not
# necessarily lower,” says Sood, “but it is more rational
# and less capricious.”
#
# Tax reforms, coupled with trade liberalization that exempted
# all exports from taxes and slashed duties on imported goods,
# gave a big boost to I.T.
#
# The Indian government, acting on the theory that the
# I.T. industry would propel broad-based economic development
# in the country, has given the industry targeted tax breaks
# as well. Around 1999, New Delhi declared a 10-year holiday
# from corporate income taxes for all STPI-registered
# companies.
#
# But special tax breaks, notes Arvind Panagariya, an
# economist at Columbia University, have at best helped the
# industry at the margins. “If it were up to me, I’d end
# them today,” he bristles. The fundamental reason for the
# software boom, in his opinion, was that India abandoned its
# import substitution approach and made it easier for the
# I.T. industry to acquire cheap equipment from abroad and
# combine it with cheap, high-skilled labor at home to produce
# cost-effective global exports.
#
# India could do this in the manufacturing sector as well,
# argues Panagariya, if the country’s labor laws did not
# prevent it from taking advantage of its massive reserves of
# low-skilled workers. Those rules make it virtually
# impossible for factories with more than 100 workers to fire
# anyone or to shut operations, even when they are losing
# money hand over fist. Factory owners have been known to lock
# up plants in the dead of the night and skip town to avoid
# total financial ruin. Such labor laws have perversely
# encouraged manufacturers to adopt capital-intensive
# technologies in a country with a large pool of unemployed
# people.
#
# Like India, Detroit knows how to use the tax code to play
# favorites. Nearly every large company that has moved to
# Detroit in the last decade, including Compuware and G.M.,
# has done so only after being promised hefty tax breaks. But
# what the Indian central and state governments are also
# doing -- and Detroit and Michigan are not -- is
# reforming the overall tax climate to make it more friendly
# to enterprise.
#
# According to the Mackinac Center for Public Policy, a
# Michigan-based think tank, Michigan is one of just a handful
# of states that levy a sales tax, a personal income tax, and
# a business tax. The last, called the Single Business Tax
# (SBT), has the most pernicious effect on entrepreneurship
# and job growth because it taxes firms on their costs and
# investments rather than their profits. If a company adds
# employees, its SBT goes up. If it raises wages, its SBT goes
# up. If it buys new equipment, its SBT goes up.
#
# Political leaders from both parties have long recognized the
# perversity of this tax, but they haven’t been able to
# muster the political will to wean the state off it. (At
# press time, reformers were making a renewed push to scrap
# the SBT.) Michigan’s political pusillanimity contrasts
# sharply with the bold reform of the state sales taxes in
# India, where leaders divided by language, religion, class,
# and caste managed to unite behind a single tax scheme, even
# persuading local politicians to forgo what they have long
# regarded as their God-given right: selectively handing sales
# tax exemptions to favored groups to build their fiefdoms.
#
# On top of all the state taxes, Detroit adds several of its
# own, including a 5 percent tax on residents’ utility bills
# (which goes, bizarrely, to the police), a 2.5 percent
# personal income tax on residents, a 1.25 percent personal
# income tax on people who work in Detroit, and a 1 percent
# corporate income tax. As if that were not bad enough, the
# city charges such a high assessment on property when it is
# sold that few buyers are willing to pay it, freezing the
# real estate market and forcing owners to burn or abandon
# their houses. For a family of four making $50,000, Detroit
# is the eighth highest-taxed city in the nation.
#
# Radical tax cuts along with deregulation awoke the world to
# Bangalore’s I.T. potential. It is unclear where Detroit’s
# potential is; only a free-market discovery process can
# reveal it. But whatever it may be, it will remain hidden so
# long as Detroit’s onerous tax burden and regulations keep
# scaring businesses away from the city.
#
# What Detroit Can Teach Bangalore
#
# Bangalore -- and India -- have not done everything
# right. On the theory that a continuing I.T. boom will lift
# India out of its poverty, Indian policy makers have made it
# their top priority to satisfy the industry’s needs, as
# opposed to continuing the general liberalization of the
# economy. “We want to promote, not obstruct, I.T.” is a
# mantra among India’s bureaucrats.
#
# That’s a sign of I.T.’s success in transforming the
# country’s Zeitgeist: The intelligentsia that reviled
# private industry as a rapacious exploiter 20 years ago is
# now embracing it as a savior. Former Prime Minister Atal
# Bihari Vajpayee called India’s software technology parks
# the “new temples of modern India.”
#
# But hitching your wagon to a single industry does not a
# resilient economy make. For proof, you need look no further
# than the ruins left by Detroit’s dying auto industry.
#
# While India’s central government has released I.T. from the
# shackles of the License Raj, most state governments,
# including Karnataka, have yet to release other service
# industries from the Inspector Raj. Madhu Menon, the founder
# of Shiok, a trendy Thai restaurant in Bangalore, laments
# that city inspectors trolling for bribes routinely threaten
# to shut him down on the slightest pretext.
#
# Furthermore, while there are entire bureaucracies dedicated
# to helping I.T. companies obtain all the government
# clearances they need, small businesses like Menon’s get no
# help whatsoever. Quite the opposite: To obtain a license to
# open his restaurant, he had to pay four times its cost in
# bribes. Indeed, the I.T. industry’s ability to put more
# grease on bureaucratic palms for the few government
# clearances it does need has significantly bumped up the
# going rate of bribes for people like Menon.
#
# And while the I.T. industry’s tax load has been reduced to
# nothing because of all the targeted tax breaks, Menon’s tax
# burden has increased, thanks to the new value-added tax,
# which applies to previously exempt service industries. Menon
# concedes that in the pre-I.T. days, people wouldn’t have
# had the disposable income to support restaurants like
# his. “But it is simply not fair that I.T. should receive so
# many freebies,” he insists.
#
# Narendra Pani, a columnist at Bangalore’s Economic Times,
# complains that I.T. uses its prestige and economic clout to
# win disproportionate amounts of public funding for projects
# useful to the industry. S. Nagarajan -- founder of
# 24/7, one of Bangalore’s biggest call
# centers -- retorts that the city’s poor infrastructure
# forces I.T. to internalize costs that are traditionally
# borne by the public. For example, his company has to arrange
# for the transportation of thousands of employees because of
# the lack of reliable public transportation. He argues that
# the things I.T. wants -- better roads, a reliable power
# supply -- are things everybody else wants too.
#
# But not all of I.T.’s demands are so broad-based. According
# to Clifton D’Rozario of the Alternative Law Forum, a
# Bangalore-based public advocacy group that opposes
# liberalization and globalization, a budget the state
# government drew up some years ago with the help of the
# Bangalore Agenda Task Force, a group packed with industry
# bigwigs, allocated Rs. 75 million (about $1.5 million) to
# convert a prison in the middle of town into something called
# the Freedom Park to better showcase the city to foreign
# investors. What did Bangalore’s 765 slums -- about 35
# percent of the city -- receive for schools, sewage, and
# drinking water? A mere Rs. 70 million. “What is outrageous
# about this is not just its inequity,” D’Rozario fumes.
# “It is the extent to which I.T. has been allowed to
# insinuate itself in the governance process.”
#
# Worst of all is the state government’s rampant abuse of its
# eminent domain powers to acquire cheap land for I.T.,
# especially from farmers. Gauri Lankesh -- the editor of
# Lankesh, Karnataka’s premier alternative
# weekly -- notes that the government routinely forces
# farmers off land they have owned for generations and pays
# them about a tenth of its market value. “Indian laws don’t
# allow farmers to either negotiate or refuse the deal,” she
# seethes. Many of the farmers become penniless squatters in
# Bangalore’s slums. Farmers are so incensed at these land
# grabs that some in Bellandur, a village near Bangalore,
# staged a big protest when Infosys announced plans to build a
# new campus there. Many of them are being pushed into the
# arms of an atavistic, anti-globalization left -- the
# only group paying any heed to their plight.
#
# Requiring I.T. companies to buy land on the open market isn’
# t just basic fairness. It’s also good economics. Detroit
# paid a heavy price for ignoring this principle back in 1981,
# when city authorities bulldozed a vibrant little community
# of Polish immigrants -- fondly called
# Poletown -- to make room for a G.M. auto plant. About
# 4,200 people were displaced and 140 businesses evicted. Just
# as Bangalore’s I.T. industry is doing now, G.M. promised
# thousands of new jobs and more tax revenues for the
# city. Twenty-five years later, the jobs have not
# materialized, and the city is even more of a
# wasteland. Entire neighborhoods lie totally gutted. The city’
# s tax base has completely eroded, and it is in such a big
# financial hole that half a decade ago it was temporarily put
# under state receivership.
#
# More recently, using the threat of condemnation, Detroit
# authorities bought out thriving businesses, including
# restaurants, pubs, and cement silos, to make room for a
# massive casino project on the Detroit River. The project
# fell through, and one of the last happening parts of Detroit
# is now a ghost town.
#
# The lesson for Bangalore from Detroit’s experience is that
# when government takes the economy in its own hands, three
# things inevitably happen: It tramples on people’s rights;
# it assists not the most promising but the most powerful
# businesses; and it squeezes out the spontaneous economic
# activity that is the source of sustained growth. That is not
# an approach worth emulating.
#
# Lessons for Everyone
#
# By allowing companies to access the best minds and best
# resources anywhere on the planet, globalization has enriched
# just about everybody touched by it, from my driver in
# Bangalore to consumers in the United States. India’s
# poverty rate has been cut by half in the last 25 years, in
# large part due to the I.T. boom; meanwhile, a report from
# the McKinsey Global Institute estimates that global
# outsourcing returns 45 percent to 55 percent in net savings
# to businesses, money they can invest to create better
# products and more jobs. But the biggest advantage of
# globalization is that by allowing people and businesses to
# vote with their feet, it helps sort the policies that work
# from those that don’t, regardless of where they are
# implemented.
#
# For America’s founders, the states were laboratories to
# test diverse ideas. In a sense, globalization has made the
# whole world a giant laboratory whose lessons are equally
# available to all. The greatest lesson of Bangalore’s and
# India’s economic experiment, warts and all, is that
# entrepreneurs unfettered by crippling regulations and
# onerous taxes are capable of doing great things.
#
# If only Detroit and other depressed cities, both in the
# U.S. and elsewhere, would learn this lesson.
#
#
# Shikha Dalmia is a senior analyst at the Reason Foundation.
#
#
# Page printed from:
# http://www.reason.com/0606/fe.sd.what.shtml

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