Billions of Entrepreneurs

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    Billions of Entrepreneurs

    Reviewed by Salil Tripathi

    Today, China and India are talked about in the same breath, which, by some measures, flatters India. China attracts many times more foreign capital than does India. China’s development indicators are also superior—higher literacy rates, life expectancy and computer access, to name a few. They do rank together, at 72, in Transparency International’s corruption perception index, and it is only in the civil and political freedoms index developed by Freedom House that India leaves China far behind.

    Chinese are free to eat while Indians are free to shout. But words, even expressed beautifully, don’t fill the belly. Explaining the high-handed way China rules its billion people, Singapore’s elder statesman Lee Kuan Yew has often said there is no other way to rule China, given its size and the regional havoc caused by its internal turmoil and political chaos through history. As Mr. Lee described it, Asian values—which place stability and the rice bowl above political freedoms—are the Chinese way.
    Unlike China, the essence of India is synthesis, not binary: it wants its political freedoms too. Mohandas Gandhi, also an Asian, was concerned about poverty, but he also wanted the poor to have rights and guaranteed protection of those rights. One underacknowledged success of India’s economic reforms is that in the past 15 years, India has lifted millions of people out of poverty without suspending their civil rights. Between 1991 and 2001 India added 156 million people to its population and yet the number of poor people in India actually fell by 37 million.

    Billions of EntrepreneursNonetheless, if foreign investment flows, rate of growth of economy and socio-economic indicators are the sole yardsticks used to judge the two Asian giants, it might seem that China has already outrun India.

    Not so fast, says Tarun Khanna, in this entertaining and engrossing book, which draws on several years of travel, detailed research and personal interviews with hundreds of Chinese and Indian officials, business executives and thinkers. Mr. Khanna was born in India and teaches at Harvard Business School, where he has made his mark as an expert on entrepreneurship, emerging markets and strategy. In 2003, he challenged the conventional notions about India and China (that China had outpaced India) through a counterintuitive article, “Can India Overtake China?” in Foreign Policy magazine, coauthored with a Chinese-American colleague from the Massachusetts Institute of Technology, Yasheng Huang. By stressing India’s homegrown entrepreneurial talent, Messrs. Khanna and Huang showed how it was not necessary for a country to depend only on foreign investment to progress rapidly. They pointed out that India has a long tradition of entrepreneurial talent, a factor often misunderstood or underestimated by foreign investors, to their peril once they enter India.

    Having established that polemical point, Mr. Khanna adopts a sober tone in this work, maintaining steadfast neutrality in analyzing the astonishing growth of the two countries, which will surely do much to reshape the way the world looks in the coming years. Besides neutrality, Mr. Khanna combines limpid prose and a sound evidence-based approach to make the book a refreshing alternative to many arcane, elliptical academic tracts on the subject.

    The book’s final great virtue is Mr. Khanna’s tendency to raise provocative questions. Consider this sample: Why has China, despite a supercharged growth rate for over two decades, failed to produce the world-class, homegrown companies India has? Indian triumphalists typically talk of the degree of freedom granted to Indians—which rewards free thinking and allows such companies to emerge. Maybe, but again, Indian democracy does not provide all answers. Mr. Khanna rightly asks, given that China bans elections and India holds them periodically, why are India’s state legislatures and the national parliament itself filled with criminals? The answer lies in India’s tardy legal development, and more important, its pathetic record of enforcement.

    But then consider the question of foreign direct investment, where China outpaces India. Mr. Khanna acknowledges Chinese success in rolling out the red carpet for the “astronauts,” or overseas Chinese, and feting them on their return home. In contrast, India views overseas Indians with far less enthusiasm.

    Indians do take pride when Rajat Gupta, Vikram Pandit and Indra Nooyi head icons of American business (McKinsey & Co., Citicorp, Pepsi), or when Zubin Mehta heads the New York Philharmonic. But when overseas Indians want to invest in India, they do not receive the special treatment China offers its long-lost cousins. Since Deng Xiaoping’s assent, Mr. Khanna says, successive Chinese leaders have fashioned rhetoric and policy to lure this vast group’s wealth and investment. This includes capitalizing on the unwritten code of guanxi, or connections, and specific incentives to businessmen investing in their home provinces. New Delhi has now offered limited citizenship rights to overseas Indians from a few countries, as well as certain incentives to invest in industries and stock markets. But on the whole, India does not woo its diaspora.

    The economic consequences are clear, but again, only up to a point. Several thoughtful Indian economists and stock market professionals say there is no fundamental reason India should offer privileged terms to one set of investors, i.e., overseas Indians. Why not open India for everybody? A related issue is the fact that many overseas Indians built their fortunes in trading (like the Hinduja brothers), or they are professionals (like Mr. Gupta and Ms. Nooyi). There are relatively few manufacturers—Lakshmi Mittal is the exception. And unlike China, as Mr. Khanna himself showed us in his 2003 article, India has a large domestic pool of private-sector companies. What they lack is not capital as such–India’s thriving stock markets are a testament to that–but economic freedom to compete locally and globally.

    This does not mean India can afford to be self-reliant. The fact that Indians launched many Silicon Valley start-ups demonstrates the reason India needs to do more to lure such talent back home. And Mr. Khanna concludes by saying that just as China can become a global manufacturing hub, India can become a tech hub.

    This is where Mr. Khanna sees hope–in India and China working together. He sees great value in a border town opened for trade across the McMahon Line. Mr. Khanna’s Harvard University colleague Amartya Sen has also shown ancient links between India and China–from the Tang dynasty onward, Xuanzang (Huen Tsang), Faxian and Yi Jing (I-tsing) travelled to India, marvelling at its culture.

    Those are good building blocks, but strategically, India and China are destined to compete. Indian hawks point out how China continues to make incursions into India. Indians are cautious about Chinese investment in India, and to make matters worse, the level of scholarship about China in India–in the academia and among journalists–remains poor. In the end, Mr. Khanna believes individual entrepreneurial attitudes will lift the countries. It means India should become a bit more like China–and China, a bit more like India.

    Mr. Tripathi is a London-based writer who was formerly regional economics correspondent for the REVIEW, based in Singapore.

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