Power is returning to asset base as productivity gets distributes more widely
Lowering scale will cost dearly in surplus generation
Thursday, September 15, 2011
Wednesday, September 14, 2011
Linking surplus, investment, innovation and scale to the Indian Varna classifcations
Well it is fashionable to critique caste and I for one do not believe in hereditary caste, but the caste categories stand as memory aids to these four sources of power
Surplus Generation: Profits seems the natural Vaishya Turf
Investment or Sacrifice: Kshatriya turf, involves taking risks
Innovation: R& D , Brahmin , idea driven turf
Scale: Mass markets, the Shudra element
Even one of this failing will weaken the society
Innovation and surplus without scale is the European predicament
Investment , surplus and scale without innovation is the Asian predicament today !
Surplus Generation: Profits seems the natural Vaishya Turf
Investment or Sacrifice: Kshatriya turf, involves taking risks
Innovation: R& D , Brahmin , idea driven turf
Scale: Mass markets, the Shudra element
Even one of this failing will weaken the society
Innovation and surplus without scale is the European predicament
Investment , surplus and scale without innovation is the Asian predicament today !
Surplus, investment, innovation, scale
This is the virtuous cycle to create a super power. Many countries have one of it but not the other and fail.
Let us take European powers, they suddenly had surplus due to the discovery of the new world. Land was capital and that was an infusion in to their system.
Investment was a result of the demographic dividend due to late marriage in Europe as people consumed less as they had smaller families and saved more.
Innovation due to the industrial revolution gave avenues for investing those savings. The progress of the scientific method made innovation a systematic discipline that produced more and more productivity improvements. The invention of the textile mills is an example.
But that alone was not enough, they needed to scale up a good and productive idea. They had the colonial markets to do that.
Bargaining power due to political and military control, siphoned off the surplus and that started a virtuous cycle.
The case of United States, surplus and scale was due to the large size of the country. Innovation and investment was due to the system that came to be because of the founding fathers of the country and the general ethic of limiting consumption.
Asian economies generated surplus due to growth of exports arbitraging the cost differences. They invested, but when it came to innovation they have a huge hurdle to cross still as the institutions are still not mature to churn out inventions at the pace at which the West does. They do have the internal scale.
Russia, had the investment ethos as a communist regime, but innovation was limited to certain spheres. In-efficient non market system squandered surplus, limiting the capability to continue investing and lost leadership
European countries and Japan, have innovation capabilities, investment as a % of GDP was not as much an issue, but lacked scale once the Europeans lost access to colonial markets !
If Brazil and India need to achieve the super power status they need to focus on all four, generate surplus, invest it wisely, innovate to improve productivity of investment and then scale up to generate significant surplus once again !
Let us take European powers, they suddenly had surplus due to the discovery of the new world. Land was capital and that was an infusion in to their system.
Investment was a result of the demographic dividend due to late marriage in Europe as people consumed less as they had smaller families and saved more.
Innovation due to the industrial revolution gave avenues for investing those savings. The progress of the scientific method made innovation a systematic discipline that produced more and more productivity improvements. The invention of the textile mills is an example.
But that alone was not enough, they needed to scale up a good and productive idea. They had the colonial markets to do that.
Bargaining power due to political and military control, siphoned off the surplus and that started a virtuous cycle.
The case of United States, surplus and scale was due to the large size of the country. Innovation and investment was due to the system that came to be because of the founding fathers of the country and the general ethic of limiting consumption.
Asian economies generated surplus due to growth of exports arbitraging the cost differences. They invested, but when it came to innovation they have a huge hurdle to cross still as the institutions are still not mature to churn out inventions at the pace at which the West does. They do have the internal scale.
Russia, had the investment ethos as a communist regime, but innovation was limited to certain spheres. In-efficient non market system squandered surplus, limiting the capability to continue investing and lost leadership
European countries and Japan, have innovation capabilities, investment as a % of GDP was not as much an issue, but lacked scale once the Europeans lost access to colonial markets !
If Brazil and India need to achieve the super power status they need to focus on all four, generate surplus, invest it wisely, innovate to improve productivity of investment and then scale up to generate significant surplus once again !
Sunday, April 17, 2011
Peaks versus Averages
Why is the BRICS phenomenon different ?
It has to do with peaks versus averages.
Let me explain, the whole host of theories of developing poorer economies has focused on averages, good macro economic management to slowly increase per capita gdp, and other indices of human development
Given the gap between west and the rest, there is no way developing countries can catch up this way
The BRICS have focused on peaks rather than averages, in specific industries they have begun producing companies that threaten western peaks- i can name several such companies, infosys and TCS in IT services, Mittal and Tata in Steel, huawei and ZTE in Telecom equipment, JBS and Cosan in agribusiness, Vale, Gasprom, Petrobras, Rusal in natural resources, Embraer in Civil Aviation
These peaks have given greater attention and bargaining power to the developing nations
As a result, investment climate is perceived to be better and both foreign and domestic investment is pouring in, Governments have also become more confident to take up ambitious programmes like UID in India, Bolsa Familia in Brazil as they see a future for their civil societies based on these peaks, for instance the growing commodity exports of Brazil to Asia, spearheaded by these peaks, has given the confidence to increase social spending that is creating a middle class in Brazil
When i was at Mckinsey, in 1999 i met Roberto Newell, Miami's Partner in Charge, Roberto mentioned one thing he would have liked to have encouraged the Governments he advised to do would be to create national champions
I believe this is the key micro economic difference in addition to the general macro economic hygiene factors that has been behind the sudden rise of the brics as aphenomenon
It has to do with peaks versus averages.
Let me explain, the whole host of theories of developing poorer economies has focused on averages, good macro economic management to slowly increase per capita gdp, and other indices of human development
Given the gap between west and the rest, there is no way developing countries can catch up this way
The BRICS have focused on peaks rather than averages, in specific industries they have begun producing companies that threaten western peaks- i can name several such companies, infosys and TCS in IT services, Mittal and Tata in Steel, huawei and ZTE in Telecom equipment, JBS and Cosan in agribusiness, Vale, Gasprom, Petrobras, Rusal in natural resources, Embraer in Civil Aviation
These peaks have given greater attention and bargaining power to the developing nations
As a result, investment climate is perceived to be better and both foreign and domestic investment is pouring in, Governments have also become more confident to take up ambitious programmes like UID in India, Bolsa Familia in Brazil as they see a future for their civil societies based on these peaks, for instance the growing commodity exports of Brazil to Asia, spearheaded by these peaks, has given the confidence to increase social spending that is creating a middle class in Brazil
When i was at Mckinsey, in 1999 i met Roberto Newell, Miami's Partner in Charge, Roberto mentioned one thing he would have liked to have encouraged the Governments he advised to do would be to create national champions
I believe this is the key micro economic difference in addition to the general macro economic hygiene factors that has been behind the sudden rise of the brics as aphenomenon
Is Brazil the new France ?
The Recent brics summit shows the continuing relevance of brics. For the first time a poor country club is attractive enough for another poor country to join.
Also learnt that oecd is desperately trying to add india and brazil without much interest from either of them. How havw things changed ?
I could not but compare these new powers to 19 century European powers. Here is my take :
China is the new Germany, Brazil the next France, India could be Italy or Britain, Russia will always be Russia. Will elaborate these points in this blog over the next few days.
Germany and China.
Homegenous ethnicity, Sense of National Shame, manufacturing excellence, centralized planning, Tibet as Poland
France and Brazil
Sensuality, Life Style, French influence among elite, left of center ethos, distinct language, a general egalitarianism
India as Italy + Britain
Long cultural tradition, Religiosity, hierarchy, diversity of Britain, Cynicism, double faced, weak centre and multiple minorities / barons
Russia as Russia
Pre USSR russia not very different from today's Russia
Also learnt that oecd is desperately trying to add india and brazil without much interest from either of them. How havw things changed ?
I could not but compare these new powers to 19 century European powers. Here is my take :
China is the new Germany, Brazil the next France, India could be Italy or Britain, Russia will always be Russia. Will elaborate these points in this blog over the next few days.
Germany and China.
Homegenous ethnicity, Sense of National Shame, manufacturing excellence, centralized planning, Tibet as Poland
France and Brazil
Sensuality, Life Style, French influence among elite, left of center ethos, distinct language, a general egalitarianism
India as Italy + Britain
Long cultural tradition, Religiosity, hierarchy, diversity of Britain, Cynicism, double faced, weak centre and multiple minorities / barons
Russia as Russia
Pre USSR russia not very different from today's Russia
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