Wednesday, March 31, 2004

Yet another unintended victory for Al-Qaeda? 

Robert Gates, the president of Texas A&M University (and former director of the CIA) has written an interesting op-ed in the New York Times that argues that post 9/11 security measures might be affecting the United States in the one area where they dominated the world -- higher education. This is a subject that has been discussed earlier on this blog as it became clear that the unwelcoming nature of America's new security aparatus was forcing foreign students to look elsewhere for their higher education.

Unfortunately, this does not merely mean a loss of revenue for US Universities but also a loss of skill sets that were in great demand within the United States because the demand for these skill sets were demonstrably not being met from within the domestic pool of applicants. Case in point -- computer science and electrical engineering. Gates wonders whether the new security measures may hand yet another unitended victory to Al-Qaeda. In addition, he also provides some numbers to make his case.

After 9/11, for perfectly understandable reasons, the federal government made it much tougher to get a visa to come to the United States. Sadly, the unpredictability and delays that characterize the new system — and, too often, the indifference or hostility of those doing the processing — have resulted over the last year or so in a growing number of the world's brightest young people deciding to remain at home or go to other countries for their college or graduate education. Thousands of legitimate international students are being denied entry into the United States or are giving up in frustration and anger.

At 90 percent of American colleges and universities, applications from international students for fall 2004 are down, according to a survey by the Council of Graduate Schools that was released earlier this month. According to a recent article in The Chronicle of Higher Education, applications from China have fallen by 76 percent, while those from India have dropped by 58 percent. Applications to research universities from prospective international graduate students are down by at least 25 percent overall; here at Texas A&M, international student applications have fallen by 38 percent from last year.

Not surprisingly, universities in Australia, Britain, France and elsewhere are taking advantage of our barriers and are aggressively recruiting these students. According to the Chronicle, foreign student enrollment in Australia is up 16.5 percent over last year; Chinese enrollment there has risen by 20 percent.

Why should we be concerned? For starters, it is a sad reality that relatively small numbers of American students pursue graduate degrees in engineering and science. As a result, the research efforts at many American universities depend on international graduate students. They do much of the laboratory work that leads to new discoveries.

More troubling is the impact that declining foreign enrollments could have in the war on terrorism. To defeat terrorism, our global military, law enforcement and intelligence capacities must be complemented with positive initiatives and programs aimed at the young people in developing nations who will guide their countries in the future. No policy has proved more successful in making friends for the United States, during the cold war and since, than educating students from abroad at our colleges and universities.
[Ed: This is absolutely true whether it be the Chicago Boys in Chile or the reformers in Russia in the 90's]

The last line in this paragraph highlights what I believe to be the real problem.

Senior officials in the White House and in the Departments of State and Homeland Security understand the importance of solving the visa processing problem. But carrying out post-9/11 visa policies and procedures has been badly hamstrung by a lack of resources, unrealistic deadlines and shortcomings in scanning technologies and background checks. American universities have had a difficult time tracking foreign student applicants as they move through the screening process — and there are just too many people in visa offices who are indifferent to the importance of these students to America.

Double digit growth at last in India 

The Financial Times is reporting that the returns from the bumper monsoon are in -- India's economy grew at 10.4% in the third quarter, finally overtaking China as the fastest growing large economy in the world. Like the BJP needed anymore good news!! However, the good news comes with plenty of caveats, especially since the agriculture sector seems to be the main driver.

Much of the 10.4 per cent growth in third-quarter gross domestic product, which has coincided with national elections that will be held this month, continues to be driven by the effects of the bumper monsoon rains last year. Growth in agriculture, which accounts for almost a quarter of the Indian economy, was almost 17 per cent in the quarter ending on 1 January. India’s new financial year begins on Thursday.

Overall GDP growth, which is expected to reach 8 per cent for the year, was also boosted by a strong services sector, which accounts for more than half the economy. However, economists said that India was unlikely to sustain 10.4 per cent GDP growth without more vigorous reforms, particularly in rural infrastructure. "We are still feeling the after-effects of a strong monsoon," said Shankar Acharya, an economics commentator. "These double-digit numbers are more of a one-off windfall which do not suggest equally high growth next year or the one after."

The strong GDP numbers further bolstered the Indian rupee, which on Wednesday touched a four-year high of 43.88 against the US dollar. It has appreciated by almost 6 per cent against the dollar in the last 12 months.

Tuesday, March 30, 2004

An Indian liberal party? 

In the early days of this blog, I had suggested that the time was ripe for a truly liberal party to emerge in India. I meant liberal in the original sense of the word, not the sense in which it is used in modern-day America. Fiscally conservative and socially liberal was what I had in mind (Clintonism is the closest America got to the idea, though I am not convinced at all about Clinton's social liberalism -- case in point, the defence of marriage act).

True, a liberal party in India will not really work at a national level for a bunch of reasons, but I do think there could be some purchase of the idea in urban areas -- enough anyway to influence some level of policy. And yes, this purchase in urban areas of the ideas of liberalism would come at the expense of the BJP (which has a seeming lock on the urban middle class as a business-friendly party) and would probably return urban politics to its moderate and liberal past. I even wrote to former finance minister P. Chidambaram once suggesting that someone like him become the fountainhead for such a party, Needless to say, I got no response (I had written to him at his generic Indian Express address).

Given this background, it was great to read Niranjan Rajadyaskha's economics column in Businessworld suggesting the very same idea. He goes one step further and suggests Rajagopalachari's erstwhile Swatantra Party (which had 44 seats in Parliament at one time) as the model one could emulate.

It should be one that respects individual liberties, supports a market economy and swears by constitutional methods. All three are essential if India is to eventually develop further as an economy and society. We do not have even one mainline party that believes in these core tenets of liberalism. They all prefer the old way of statist meddling, a way that has ravaged our country and condemned it to poverty.

India's liberals have been reviled over the decades; often because they were foolish enough to take principled stands on various issues. Though the first lot in the 19th century made early critiques of imperial economic policy, they were condemned as agents of the Empire, because of their support to the government on matters of social reform. In the 1930s, the liberals were swept away by the fervour of Gandhiji's movement.

And the Swatantra Party, led by Rajaji, was time and again attacked as a tool of rich capitalists and princes. This party had its own unpopular positions - it opposed the invasion of Goa in 1962 and the abolition of the privy purses in 1969. More importantly, it opposed nationalisation and attempts to collectivise agriculture.

One problem, obviously, is the lack of leadership. The Swatantra Party was led by Rajaji, who was Gandhiji's political heir as much as Nehru and Patel were. There is no one liberal politician today who has the same stature. There are some liberals who work away at the fringes of the established political parties. But do they really have a chance in parties that get excited about mafia dons and matinee idols?

Gaddafi of Tripoli meets Blair of Mesopotamia 

(Via Amit C) There is only one Robert Fisk. Not many journalists I know can be quite as acerbic when writing about the Middle East as the Independent's correspondent. So, it was great to read this Fisk piece on the rather dodgy meeting between President Blair and Col Gaddafi. The timing was spectacular -- Blair chose to head to Tripoli to meet a man accused of inspiring the Lockerbie bombing right after he attended the funeral in Madrid. Far more importantly, I have been curious as to why Blair chose to make such a bold move (given the U.S. still has sanctions in place) and mend fences with Gaddafi.

Robert Fisk writes an interesting account on just how bizarre Gaddafi can be while arriving at his own take as to why Blair chose to meet with Gaddafi at this particular point in time. A few excerpts are below.

Indeed, I recall an Arab summit in Cairo a few years ago at which - after arriving in a golden robe escorted by his gun-toting women - Gaddafi greeted President Mubarak and promptly pretended to confuse a public lavatory with the door of the conference chamber. I shall always remember Mubarak's thin, suffering smile. Lord Blair of Kut, sitting perhaps in Gaddafi's famous tent, will be able to practice that same thin smile today.

At least he won't have to suffer the embarrassment of Tito's old head of protocol who told me how Gaddafi once arrived in Belgrade with a plane load of camels for his fresh milk and a white charger upon which he intended to ride in triumph to the non-aligned summit in the Yugoslav capital. This is the same man who supported a bi-national state for Palestinians and Israelis called Isratine. No wonder Jack Straw now calls Gaddafi "statesman".

Of course, it's not difficult to see what lies behind today's charade. Having taken his country to war on a cocktail of lies and distortion, Lord Blair must commit yet another fraud by claiming that the "defanging" of Libya is a direct result of the illegal invasion of Iraq - and thus justifies the whole disastrous occupation of Mesopotamia. I don't blame him for trying. Anyone with the conscience which our PM should be suffering is bound to search for a get-out. What does amaze me is his choice of fall-guy: one of the weirdest, battiest, funniest, deadliest Arab dictators of them all.

For one of the strangest elements to the Libyan saga is the newness of all those centrifuges and nuclear gizmos which the UN, the Brits and the Americans have been "finding" in Gaddafistan. Were they really there for decades? When did Gaddafi decide to install them? And how come the US intelligence service - which could identify non-existent railroad chemical weapons labs in Iraq - failed to pick up the radiation from Gaddafi's supposed nuclear programme? It was a humble Independent reader - thank you, Willy McCourt of Manchester - who pointed out to me that Libya has a population of only six million; "imagine Ireland having a nuclear programme and nobody knowing about it," he wrote. Quite so.

The Independent story is only for subscribers. If you want to read the story in full and are not an Independent subscriber, go here. My own take on this episode is that Gaddafi has been trying to claw his way back into the international community for a while now (settling Lockerbie, new African leadership etc), so to claim the Iraq war had anything to do with convincing him is just patently absurd. I do not, however, believe anyone benefits from holding Gaddafi's crimes against him forever -- if he wants to change, let him. Moral absolutism never got anyone anywhere. None of this answers the timing of Blair's visit though. It is very curious indeed and at the very least, Fisk has an interesting version of events.

Monday, March 29, 2004

Spiegel on Science and Religion 

(Via Petra) First the good news. Seems like Der Spiegel has decided to publish an English edition. The English edition will apparently include articles when they feature international affairs. You can get a flavour of Der Spiegel in this piece on the dodgy relationship between fervent religiousness and scientific policy within the Bush administration. This is an issue I have seen several American friends of mine tearing their hair over, especially friends who have anything to do with the life sciences, public health etc.

In Bush's America, critics complain, religious fanatics, corporate lobbyists, and fundamentalists on questions of security now have control over science. In league with the administration, they have created a medieval climate that worries many people: Ideology is winning out over information; America's hard-liners are not afraid of falsifying the facts.

More than sixty prominent scientists have signed an open letter, among them are twenty Nobel laureates, pre-eminent authorities from some of the country's foremost universities, and former scientific advisors to Democratic as well as Republican presidents. All accuse the Bush administration of politicizing scientific research, of suppressing, distorting or manipulating scientific facts to support its own policies. The signatories call on Congress to investigate.

Previous administrations may have acted similarly, but "I don't ever recall it's having been so blatant in the past," says Val Fitch of Princeton University, winner of the Nobel Prize in physics in 1980. There is a method to this madness. At many schools, in spite of the risk of AIDS, teachers have been forbidden to use the word "condom." Wherever federal funds support sex instruction, the lesson plan says it isn't prevention but abstinence that can protect against pregnancy and sexually transmitted diseases. Bush already supported this policy when he was governor of Texas, for his supporters in the ranks of the Christian right believe anyone who explains the use of condoms is encouraging premature sex and promiscuity.

The devout powers-that-be are not interested in the fact that researchers have found nothing to support this belief, but rather that there is excellent proof of the effectiveness of condoms. Texas is near the top on the list of states with the most teenage pregnancies.

Moreover another danger threatens scientific research in the United States. Following September 11th, new visa regulations have been making entry into the U.S. more and more difficult for foreigners who do a large part of the research work at U.S. universities. Many have to endure weeklong security checks and interviews at embassies and consulates.

At Cornell University, for example, the number of applications by Chinese students has dropped by 36 percent. Senior researchers are not being spared either. Charles Weissmann, a renowned 72-year-old prion expert from Switzerland, was supposed to have headed a research institute in Florida beginning March 1st. But he'll probably arrive six weeks later because prions are on the list of possible terrorist weapons, and so his entry application is being scrutinized with special thoroughness.

Blog du Jour -- Tablatronic 

Folks who know me well know of my huge interest in the Asian Underground music scene -- from Karsh Kale to Talvin Singh to Medieval Punditz. I really think the Asian Underground produces some of the most original sounds in music today. I have probably watched Karsh Kale more times live than any other artist. So, I was thrilled to come across Tablatronic -- a site devoted to notes from the Asian Underground. The site includes everything from reviews of albums and concerts to radio streams. There is also a mailing list that keeps you updated on stuff happening on the AU scene -- for example, I discovered that Badmarsh (one half of Badmarsh and Shri) was hanging up his turntable, which is really unfortunate news given the quality of music he was capable of conjuring up. Highly recommended to those of you who have an interest in the scene and also for those who are curious.

Terrorist sponsored states 

In light of Richard Clarke's accusations against Team Bush, Fareed Zakaria has an interesting take on terrorism -- a move away from state-sponsored terrorism to terrorism sponsored states. Obviously, he is making the comparison between Iran sponsoring Hezbollah and Al-Qaeda "sponsoring" Taliban-ruled Afghanistan.

The Bush administration came to office with different concerns. During the 1990s conservative intellectuals and policy wonks sounded the alarm about China, North Korea, Cuba, Iran and Iraq, but not about terror. Real men dealt with states.

Even after 9/11, many in the administration wanted to focus on states. Bush spoke out against countries that "harbor" terrorists. Two days after the attacks, Paul Wolfowitz proposed "ending states that sponsor terrorism." Beyond Iraq, conservative intellectuals like Richard Perle and Michael Ledeen insist that the real source of terror remains the "terror masters," meaning states like Iran and Syria.

Once again, one notices Pakistan being left out of this elite list of states sponsoring terrorism, despite there being incontrovertible evidence of this (and not just from Indian intelligence agencies). I believe this is the single biggest mistake being made by western intelligence -- this strange reluctance to call a spade a spade when it comes to Pakistan to Saudi Arabia. Unless a concerted effort is made (never mind what Musharraf claims to be doing) to cut Saudi financing and the extraordinarily dodgy relationship between the Pakistani army, intelligence services and the militants, this is a scourge that's not going away in a hurry.

Thursday, March 25, 2004

A retail anthropologist's mall 

KAW is carrying an interesting review of Paco Underhill's new book, Call of the Mall, which apparently goes into great detail about the anthropology, ethnography and geography (I always wanted to use all 3 in one sentence) of shopping malls. At the very least the review makes the book sound very interesting!! Anyone read this book or Underhill's previous books?

Underhill explains why the stores closest to mall entrances tend to be occupied by hair salons or banks, not shops catering to impulse buyers: "When we enter any building we need a series of steps just to make the adjustment between out there and in here," he writes. "We need time to allow our eyes to adjust. We are not ready to make any buying decisions. If there is a sign close to the door, you won't read it."

Thus the best locations are further in the mall. And since the mall owner charges tenants a flat rent based on space plus a percentage of sales, it is in the mall's own interest to have the hottest stores in prime locations, says Underhill. He says every mall has a food court because they prolong a shopper's stay.

For example, he says that research has shown that if a clerk approaches a shopper who comes up to a department store cosmetics counter in the first 30 seconds, it scares her away. The customer has to first browse unaided, but "if she raises her head even a little," writes Underhill, "it's like a jerk on a fishing line."

He reveals that the reason fragrance is traditionally right inside the entrance in a department store is "because back in the days before cars, the perfume section was a bulwark against the stench of horse manure coming in from the street."

Tuesday, March 23, 2004

English in decline? 

For the longest time, I have been interested in the historical trends of languages, especially dominant languages. For example, how did Latin and Sanskrit, languages once widely spoken, go into such decline? What happened to the proto Indo-European language? Will English go the way of Latin, where people in different places speak it in so many different accents that they eventually become new languages -- will Indian-English become an entirely new language the way any of the Romance languages spun off from Latin? So, I was intrigued when I came across this National Geographic article that claims that English could well be into its decline already.

The main thrust of the article is that English as a first language is well into its decline, though it remains the language of science the way Latin remained the language of science well into the 17th century. In addition, it goes on to say that people will start to learn Mandarin Chinese as the Chinese economy starts to power ahead of the U.S. economy.

Long gone is the idea, first suggested in the 19th century, that the entire world will one day speak English as a "world language." In fact, the relative decline of English is continuing. In the mid-20th century, nearly 9 percent of the world's population grew up speaking English as their first language. In 2050, the number is expected to be 5 percent.

In the next decade, the new must-learn language is likely to be Mandarin. "Chinese is demographically huge, but when the Chinese economy has overtaken that of the United States, no one will be able to ignore its global power," Graddol said. "We know from the past that great languages of science can be overtaken.

I agree that English as a first language could well be into its decline. However, I think English as a second language will actually overtake Mandarin pretty soon as the most widely spoken language if it isn't aleady (think of all those Europeans who speak English as a second language, for example). What this article seems to forget is that Mandarin speakers are learning English in large numbers along the eastern seaboard. And most importantly, the Indian middle class is fast growing and almost every last one of them will eventually speak English as a second, if not first language. And the aspirational value of English to the remaining 70% of the population is immense, as the admission levels at any English-medium school in villages in northern India will show.

I think it was Brad DeLong who once commented that it was amusing that the Indian middle class would eventually save the English language from an early demise :)

Monday, March 22, 2004

On the killing of Sheikh Yassin 

I was shocked this morning when I heard the news of Israel assasinating Sheikh Yassin. I really have to wonder what gains Sharon expected to make from killing the Sheikh besides unleashing an incredible wave of violence, which I am certain will follow given what I've read coming from Hamas, Al-Aqsa etc. The Sharon government seems to have a knack of doing things that instantly backfire, be it the wall, the resumption of assasinations etc. What's worse, in this case, they've given Sheikh Yassin exactly what he wanted -- to become a martyr.

I could go on and on about the stupidity of this assasination, but the Polish Foreign Minister Wlodzimierz Cimoszewicz does a good job of articulating all of my thoughts in one sentence -- I understand that Israel defends its own country. However the picture of a wheelchair-bound person who was killed with a rocket is probably not the best way of promoting Israeli security.

Sunday, March 21, 2004

Searching for a winner 

Newsweek is carrying a cover story on Google, its explansion plans, and the various attempts by competitors (including the 800 pound gorilla of Redmond) to catch up/compete/eliminate. Go forth and read.

To not re-invent the wheel 

Folks, I am a little under the weather and therefore the infrequent blogging. So, I figured that this is as good a time as any time any to link to Atanu talking about one of my pet peeves -- the strange ability of developing countries to keep reinventing the wheel and waste time and resources in the process.

People, societies, economies which can successfully adopt innovations tend to do better than those that don't adopt innovations. The operational word is adopt. Innovations happen all over the place and all the time. Who innovates and how is not what I am concerned about although it is a fascinating subject in itself. What I am concerned about is the adoption of innovation rather than the causes innovations.

Innovations are primarily discovered or invented by what I call 'micro-agents'. That is, the suppliers of innovations are individuals or very small groups of people. These are the real smart people who have understood some problem very well and figured out a solution to the problem. This is hard work and it requires truckloads of inventiveness, intelligence, luck, and all sorts of fortuitous circumstances for innovations to arise. Therefore, the number of successful innovators is small relative to the overall population and so is the number of real innovations very small. But what is significant is that any real innovation has a multiplier effect in its implementation when the innovation is adopted by society at large. We all don't have to invent a wheel or a wheel-barrow. Someone somewhere came up with the innovation of a wheel-barrow and for ever not so intelligent people have been using wheel-barrows to cart stuff around with much less effort than would be required without one.

Ever been to a construction site or a farm where they did not use wheel-barrows? The answer is: depends. I have seen hundreds of constructions sites in India and they don't use wheel-barrows. The one right outside my window, where three massive buildings are being built, don't use use wheel-barrows. They pile the stuff up on their heads and carry small loads. The lever and the wheel (two innovations that form the basis for a wheel-barrow) have been known for ages. I have seen the use of wheel-barrows all over in developed nations. But not in India. In India, it is stuff on their heads. Go to a railway station and coolies will be lugging stuff on their heads for the majority of the loads. If you insist they will get a huge luggage cart but then you will have to wait for a while for them to track down one and they will have to charge you extra for that.

So as I was saying, micro-agents invent the stuff and macro-agents adopt them. Micro-agents have to be very smart to invent clever things. The society at large, the macro-agents, don't have to be particularly smart: only smart enough to be able to use them. You have to be a veritable genius to invent the wheel-barrow but you have to be a certifiable moron to not use a wheel-barrow after it has been invented.

I am going on about adoption of innovation because that is the important bit. It does not matter who came up with the innovation. What matters is whether a society uses or adopts the innovation. What causes one society to adopt innovations and others to neglect them is a fascinating question and I have my theories about them.

For now, I will continue to explore this topic next.

In the process of writing this post, Atanu has provided me a line I intend using everywhere -- "You have to be a veritable genius to invent the wheel-barrow but you have to be a certifiable moron to not use a wheel-barrow after it has been invented." :)

Friday, March 19, 2004

Spanish surprise redux 

In response to my post on the results of the Spanish elections, Steve wrote this comment. My response follows.

Disagree completely. The result is horrifying .. Al Qaeda throwing an election, using not just the West's technological infrastructre but its democratic instutitions against it, by playing on the populace's dissatisfaction with the policies of the outgoing PM. Got to hand it to them .. very smart. What's harder to understand is the Spanish electorate's response, which is plainly something more than a typical anti-U.S. reflex, but has really bad wider consequences in that it rewards terrorist acts by handing the perpetrators exactly what they want. And this is true whether you were a supporter or an opponent of the Iraq war. What's next: Here, take Andalucia back, we were only just keeping it clean and prosperous for you?? Horrifying.

Steve, perhaps the result of the spanish election is a boost for Al-Qaeda. But let me ask you -- one of Bin Laden's demands was that the U.S. remove its troops from the holy land. Post 9-11, the U.S. troops were pulled out (by the Bush administration), thereby giving into one of Bin Laden's key demands. Why is it that American conservatives do not see that move as *giving in* to terrorists while the Spanish election is seen as one?

Digress a bit -- how and why did Al-Qaeda get this big in Iraq? Under Saddam Hussein, the only group with a seeming Al-Qaeda link in Iraq was the Ansar al-Islam. However, they did not operate in Saddam-controlled Iraq, but in Coalition protected Kurdish areas. In effect, the Iraq war has literally invited Al-Qaeda operations into the rest of the country, not to mention give them yet another excuse to recruit their own coalition of the willing (to die, ie). This incredible can of worms was precisely what several experienced Iraq hands warned Team Bush against opening.

Now coming to Spain, why don't America and its allies give a damn about *popular will* -- that bedrock of democracy everyone in the west seems to love paying lip service to? Spain is a very pacifist country, given their experience with the excesses of Franco's rule. A good 90% of the population totally opposed Spain's involvement in the Iraq war. Aznar did not seem to give a damn about the will of his people when he subscribed to the misadventure. What's worse, its being established now that the whole ETA angle the administration was tom-tomming was clearly a ploy to distract voter attention. Unfortunately, the voter wasn't deceived and they threw Aznar out.

In the mind of the vast majority of Spanish voters, the Madrid bombings were a price they paid for their govt's involvement in a war that most of them did not support. I, for one, cannot for a minute fault the Spanish people's disgust as expressed in the polls. I cannot fault the Polish prime-minister's remark yesterday that Poland was tricked into the war on spurious WMD claims. One of the beautiful things about democracy is that the govt is accountable to the people and if they make decisions sharply opposed to popular opinion and then the people pay a price, they are liable to be punished when the voter next gets a chance. It also underscores the weakness of the line -- "coalition of the willing." The "willing" were the ones in govt, not the ones who put them in office in the first place. Piss the people off, be prepared to pay a price.

This is also a good time for U.S. policy makers to reflect on the fact that the only place on earth where the Iraq war (in the form it eventually took) had popular support was in the United States itself (compare with the Afganistan campaign). So perhaps the next time the U.S. undertakes an adventure of this sort, it might be useful to listen to world opinion (and even the opinion of American diplmats who have experience in the middle east) and not just domestic opinion.

Thursday, March 18, 2004

Virgin Design 

You've got to hand it to Sir Richard Branson and Virgin Atlantic. They have been responsible for so many innovations that make international travel a little less boring. But I think they've outdone themselves with this new design in the Virgin clubhouse at Terminal 4, JFK. If you want to see a larger image, go here.

Monday, March 15, 2004

Consider a move to Bangalore, angry American techie?? 

I have suggested to more than one American complaining about outsourcing that they had an option none of them seemed to want to consider -- moving to India. After all, lots of people in developing countries have moved all over the world looking for better opportunities (as did former foot soldiers of the British empire). It's not like I pulled the idea out of thin air though. I have been noticing the number of foreigners in Bangalore increasing every time I visit, though the majority of them seem to be Europeans rather than Americans. So, I was mildly surprised that this fledgling migration to India had caught the attention of CNN Money.

As it turns out, Dunn isn't the only American starting to look -- and even move -- abroad for work. And his contention that American workers can still find opportunity in this dawn of offshoring isn't a case of wishful thinking, according to the Indian employers he's contacting.

"We need overseas people to work in our country," agrees Kris Lakshmikanth, founder and CEO of Head Hunters India. "In fashion, health care, biotechnology, there are areas where India needs special knowledge that is available in the U.S. and Europe. The other thing we need are people who can speak different languages, American English, French, German."

Gotta love the dig about American English being a *different* language :))

Una sorpresa española 

I was pretty shocked to see the results of the spanish elections this morning. After all, all the opinion polls were unanimous in declaring Aznar's Popular Party as the runaway winners. That was before the Madrid blasts. In a post I made that day, I had wondered out aloud why the Spanish government was that quick in pinning the blame on ETA, though the modus operandi seemed distinctly un-ETA. Turns out my instincts were probably right and that it was in fact an Al-Qaeda operation.

What I had not mentioned in my post were thoughts in my ultra-cynical head as to why the Aznar govt would want to pin the blame on ETA. After all, if it were ETA, Aznar would probably win by an even bigger margin, given his strong anti-ETA credentials. Of course, if it were Al-Qaeda, the blame might have fallen on Aznar because the attack would then be seen as Qaeda's retribution for Spain's involvement in Iraq -- involvement that over 90% of the spanish public dissaproved of (not that any of that bothered those paragons of democracy, Blair and Aznar). So, in a way I was not surprised when I read these lines in the Economist.

On Saturday there were protests in a number of Spanish cities by anti-war protesters, accusing the government of holding back information on the bombings to manipulate the election results. This came as one of Spain’s leading newspapers, El País, revealed a memo that it said the foreign minister, Ana Palacio, had sent to Spain’s diplomats. In it, she instructed them to “use any opportunity” to blame ETA for the attacks, “thus helping to dissipate any type of doubt that certain interested parties may want to promote.”

If El Pais is right, this is truly disgusting and ranks right up there with Andrew Card not wanting to introduce new products (the Iraq War) in August. And a good thing Aznar is gone. Both Aznar and Blair are guilty of providing more alcohol to alcoholics. Too bad Blair hasn't paid an electoral price for his lies as well. Of course, there's also Berlusconi, but I am sure the courts will take care of him at some point. Seriously though, I think this is very bad news for Bush, assuming at least some American voters are paying attention to whats going on in Spain. If only a majority of the American voting public would come to their senses and throw Bush out as well!! Then, the United States and the world-at-large could actually fight the *war* on terror where it needs to be fought -- in Pakistan and Saudi Arabia.

Friday, March 12, 2004

Blog du jour -- Blame India Watch 

It was only a matter of time before Indians put together some organised resistance to the outsourcing storm brewing in the U.S., which has resulted in some vicious anti-India venom being spewed all around. This is especially true on the Internet, where I have noticed the line between frustrated techies blowing off steam and downright racism has become a very thin one. I think Blame India Watch is a good beginning at articulating a response to the nonsense.

Blame India Watch is concerned with the increasing anti-Indian/anti-India sentiment among tech workers, as well as media coverage that focuses disproportionately on Indian workers or propagates anti-India(n) sentiment. What began a few years ago as IT grumbling about Indian-specific H-1B "Temporary Guest worker" and L-1 "Intracompany Transfer" workers and immigrants has now morphed into the outsourcing issue, and is now gaining international attention. We aim to highlight this scapegoating, encourage IT workers to put a stop it, and redirect the anger to where it belongs.

The Great Wall Myth 

Sometime in the dim and distant past, Atanu had reminded me that the story about the Great Wall of China being the only man made object visible from space was nothing but urban legend. Turns out it was not urban legend, but Maoist legend, as China finally admitted that the Great Wall could not be seen from space. Apparently, the recent space mission had a downside since taikonaut Yang Liwei testified that he could not see the Wall from space. The text books are now in the process of being rewritten.

Varian on outsourcing 

While on the subject of outsourcing, let me draw your attention to the excellent, excellent article by Prof Hal Varian in the New York Times yesterday. I dont think anyone could have done a better job of explaining this than Prof Varian. Its such a good read I have posted most of the article below. Read and forward!

The money paid to foreign producers, whether businesses or workers, typically comes back home to buy domestic goods and services, thereby generating domestic employment. That is true whether it is European companies paying American biotech researchers, or American companies paying Indian programmers.

Think about it. If Oracle sends $10,000 abroad to pay an Indian programmer, then that money either finds its way back to the United States or it doesn't. If it comes back, it can be used to buy American goods and services, employing American workers. If it doesn't come back then it's even better from the viewpoint of the country: we've sent them paper, while they've sent us valuable goods and services.

Yes, these days it's more likely bits than paper, and maybe they are sending us more services than goods. And perhaps the way the money comes back is via a purchase of Treasury bonds or other financial securities. But the same principle applies. If the income from the Treasury bonds is used to buy something produced in the United States, it creates jobs. If the money is never spent in the United States, we've gotten something for nothing.

The political problem with trade is simply this: when the dollars flow offshore, it is easy to identify those who are hurt. But when the dollars flow back, it is much more difficult to discern the beneficiaries.

Look at farmers, for example. Stimulated by the decline in the dollar, American agricultural exports are forecast to grow to $59 billion this year, $2.8 billion more than last year, despite the dip reported yesterday. Farm income is up, too, and would be even higher if not for the drop in beef exports because of mad cow fears.

Despite this surge in nonbeef agricultural exports, you do not see farmers demonstrating in favor of free trade. American biotech workers are doing pretty well, too, as the opening example illustrates. But how many of those farmers or technicians attribute their good fortune to foreign trade?

Those who gain from trade either do not know it, or keep quiet about it, for obvious reasons. It's not prudent to brag about your good fortune while others are losing their jobs.

But isn't there something special about trade in services? Well, no. Services have always been traded internationally. In fact, they now account for about 30 percent of the value of all American exports. Last year, the United States had a $550 billion trade deficit for goods, but a $60 billion surplus on the service side.Today, modern communications technology offers a whole new set of opportunities for trade in services.

Imagine a world where American workers could subcontract production to foreign workers on their own. Paul could send an e-mail message with his programming assignments to Avinash every morning and receive the completed work back in the afternoon. In exchange, Paul would buy a money order for one-tenth of his salary each month and send it to Avinash. Paul could take on another job, earning more money, or he could just take it easy. Sound like a good deal for Paul? Of course it is: he would jump at the chance to subcontract on those terms.

Even though Paul would hire Avinash to do his job if he could capture the wage difference himself, Paul would still be understandably upset if his employer laid him off and outsourced his job to Avinash. This thought experiment illustrates that the debates about trade are not about whether we should accept those good deals offered to us by cheap foreign labor - of course we should. The debate is all about who will capture the benefits from those deals and who will bear the costs.

Ideally, those who benefit the most from trade would compensate those who lose. In practice, virtually everyone benefits to some degree from cheaper goods and services, so compensation for those who lose from trade should come from general revenues.

In the next decade, this country will need more foreign workers, whether they live here or abroad. In a few years we will see a large fraction of the work force disappear as the baby boomers start to retire. Yet, those retirees expect to consume just about as much during retirement as they do now.

Who will produce all those goods and services?

In the near future the United States will have to find ways to produce more with less domestic labor. That means increased productivity growth, to get more output from the workers we do have, and expanded international trade, using all that cheap foreign labor. As the population ages, expanding health care costs will trump domestic employment concerns. An inexpensive X-ray analysis from a Bangalore radiologist will be viewed as every American's right - paid for by Medicare, of course.

It is inevitable (but no less depressing) that outsourcing will become a major topic of the election year oratory. Let us hope that the short-run antitrade posturing doesn't get in the way of the long-run interests of the country.

A contrarian view on outsourcing - part deux 

A few days back, I had posted Walker Duhon's piece on outsourcing, written from an American techie's perspective. Walker follows his earlier post with this post on the post-industrial economy.

Why Postindustrialism is a Recipe for Chronic Trade Deficits

In my first post "Outsourcing is the wake up call America needs", I pointed out that the United States is incurring a very large trade deficit and laid the blame on America's rapid shift to a postindustrial service economy. But what is it about a postindustrial economy that makes it a trade loser compared to a manufacturing economy? The short answer is that postindustrial goods and services do not trade very well compared to manufactured goods.

For one, cultural barriers figure more prominently with postindustrial goods and services than with manufactured goods. This is one reason why the software industry as a whole is a very poor exporter. A packaged software product typically must be tailored to the language and practices of the individual locale. Few software producers can overcome this obstacle, but those that do only do so at significant cost. In addition much of that work is done in the foreign market concerned, taking a significant chunk out of foreign exchange receipts. Entertainment and media products face an even greater challenge on this front, as exports from music, television programming, internet content, and movies are inherently limited by language and local taste.

Second, regulatory barriers are often stiff for many postindustrial services. Financial services, the most bloated and babied of all new economy industries, hits a brick wall of regulatory barriers in trying to do business abroad, as most nations prefer to keep a tight grip on their systems of finance. Regulation also affects entertainment products; even postindustrial cousins Britain and Canada regulate to protect their culture from American media content.

Finally, intellectual property, the main currency of postindustrialism, is subject to extensive piracy. Software and Entertainment products are particularly susceptible; Microsoft alone lost $12 billion in revenue from piracy in 2002. The high worldwide rate of piracy is unlikely to change any time soon, as there is really no reason for nations that primarily consume intellectual property to crack down on the behavior. Even the United States, which has every incentive to promote intellectual property rights has a software piracy rate of ~25%. A second and just as significant cost of piracy is that products are brought into direct competition with their pirated clones; this means that the price point for the legitimate product must be lowered, further decreasing export revenues.

All of these obstacles explain why postindustrial goods and services do not add up to much in exports. Combine this with a steady demand for manufactured goods, that now must be imported, and you will have trade deficits in a postindustrial economy.

In addition, future prospects look even worse, at least for the United States and other first world nations, as import competition from the third world becomes a threat in many postindustrial areas. For software, easy entry into the industry and a glut of talent in places like India and China mean that the center of the industry will assuredly move east. And, it doesn't stop there, any task that doesn’t require a lot of cultural awareness and can be done by telephone, computer, and teleconferencing can potentially go abroad.

None of this is to suggest that postindustrial services are not an important part of any developed economy, but poor trade performance is just one reason why they should be a complement to and not a replacement for strong manufacturing.

By Walker Duhon

Kristof on supping with Nick 

A couple of posts back, I had written about Seymour Hersh's take on the extraordinarily dodgy relationship between the United States and Pakistan. Nicholas Kristof addresses some of the same issues in his op-ed on how the U.S. is picking the wrong fight by choosing to go into Iraq (to hunt down WMD's, no less) and then turning a blind eye on Pakistan's proliferation. I have found it quite amusing how guys like Scott McClellan and John Bolton keep a straight face when they say that noone but A.Q.Khan was involved in proliferation activities. Instead they should be hauling the guy into a safe cell someplace (hello, Guantanamo) and get him to reveal whether or not his shady deals involved handing a few centrifuges and some enriched uranium to Al-Qaeda.

Finally, there's the real rogue nation of proliferation, Pakistan. We know that Abdul Qadeer Khan, the Islamist father of Pakistan's bomb, peddled materials to Libya and North Korea, and we don't know who else. "It may be that A. Q. Khan & Associates already have passed bomb-grade nuclear fuel to the Qaeda, and we are in for the worst," warns Paul Leventhal, founding president of the Nuclear Control Institute.

It's mystifying that the administration hasn't leaned on Pakistan to make Dr. Khan available for interrogation to ensure that his network is entirely closed. Several experts on Pakistan told me they believe that the administration has been so restrained because its top priority isn't combating nuclear proliferation — it's getting President Pervez Musharraf's help in arresting Osama bin Laden before the November election.

Another puzzle is why an administration that spends hundreds of billions of dollars in Iraq doesn't try harder to secure uranium and plutonium in Russia and elsewhere. The bipartisan program to secure weapons of mass destruction is starved for funds — but Mr. Bush is proposing a $41 million cut in "cooperative threat reduction" with Russia.

Perhaps what happened in Madrid only increases the urgency for the United States to push Pakistan into revealing how wide-spread Dr.Khan's network is/was even if means some heads in the upper echelons of the Pakistani military and intelligence have to roll. Another interesting insight in this op-ed is Kristof saying that the conspiracy theory about Osama bin Laden being captured conveniently on Oct/Nov is actually shared by Pakistan experts.

Thursday, March 11, 2004

The Madrid Bombings 

Watching Real Madrid play and win against Bayern Munich last night, the last thing I would have expected was that celebrations in Madrid would come to such a horrific end. Given that ETA killed just 3 people in the whole of 2003 and since violence in Spain has scaled back considerably since Franco's bloody rule, it's hard to comprehend that Spain has just become the victim of the worst terrorist attack (190 dead, 1200 wounded at last count) in Europe since World War II. I am also a little surprised by the certainty with which the Spanish government has decided to blame ETA for this attack.

I don't claim to know anything about ETA and I am sure the Spanish government knows what it's doing when it pins the blame on ETA. However, what little I do know about ETA seems to suggest that either they've adopted entirely new methods of attack and murder or its not them. For example, ETA has always tended to warn before its attacks (like the IRA), tended to attack symbolic or governmental targets and most importantly, they always take credit for their attacks, none of which has happened this time. In fact, Batasuna has disclaimed any responsibility. Finally, ETA has never had the sophistication to carry out large-scale, simultaneous bombings either (of course, they could be learning).

Now, simultaneous large-scale attacks and an utter disregard for civilian lives is a trademark of Al-Qaeda. Plus, they have had ample reason to attack Spain, given Aznar's total support of Bush admistration policies, including on Iraq. So, why is Al-Qaeda being ruled out? Anyway, lets hope these murderers are brought to justice soon, irrespective of whether affiliations lie with ETA or with Al-Qaeda.

The jobs conundrum 

Part of the reason outsourcing has hogged so much media attention in the United States is an outsized fear of losing jobs and an even more outsized dependance on data thrown up by firms like Forrester (whose 3.3 million in 10 years is the most oft-quoted number by opponents of outsourcing). One needs to remind oneself of some of the predictions made these very same firms during the height of the dot-com boom. I certainly think some of these fears are exaggerated (and some are not) and the Democrats in particular are simply adding fuel to the fire in an election year. I have to wonder how John Kerry (who I support, just for the record) will wriggle out of some of his own statements if he were to become president. Surely, he doesn't believe he can actually stop companies from cutting costs? In this context, KAW had an interesting analysis on what may be happening vis-a-vis this jobless recovery. It also touches on the the long-term structural change that I have posted about in the past (the first time structural change or the fear of it *may* be affecting white-collar workers etc).

The phenomenon known as ‘offshoring’ accounts for a far smaller percentage than some politicians and pundits claim. “The fears are far greater than the facts,” says Ravi Aron, Wharton professor of operations and information management, who has studied the phenomenon for five years. “You hear all these fantastic projections, but the real numbers are puny compared with the normal churn in the economy.” A key driver of that normal churn is worker productivity. As the economy emerges from a recession, companies push employees harder – leaning on them to work more efficiently and longer – and that manifests itself as more output per worker. Greater productivity lets employers postpone hiring until they are confident that consumers will buy what the additional workers produce.

Offshoring can only take U.S. companies so far. Aron says his research shows that it has risks and thus limits. And that means U.S. employers can’t just keep moving operations abroad. Eventually, they will have to start hiring, assuming the economy continues to grow. “If American Express outsources 3,000 jobs, you might think, ‘Where will it stop?’ But AmEx can’t outsource 300,000 jobs because of the risks.”According to Aron, “There is operational risk – the likelihood that a process will break down when you move it abroad. There is strategic risk – when you transfer a process to a third party, it can behave in ways that are opportunistic. It might cut costs at your expense, for example. And then there is what I call composite risk – if you outsource too many jobs, you erode the capabilities within your firm.” For these reasons, Aron has found that companies typically will limit their outsourcing to about 8% to 10% of their total positions.

Even so, Wharton management professor Steffanie Wilk wonders about the long-term implications of the trend. Initially, low-skill jobs were the ones sent to foreign firms. “But now we are seeing better jobs, even high-tech jobs, going overseas.” That creates an obstacle for less-skilled American workers. Before, they could take call-center jobs, for example, prove themselves, acquire more skills and advance to better-paying positions. But with call-center jobs leaving the country, “there’s not the ladder that you can climb up,” she says. “We lose the chain of jobs that allowed less-skilled workers to get better skills.”

In other words, the U.S. economy may be undergoing some sort of deeper change – the tectonic plates of the economy may be shifting, permanently altering the employment landscape. These sorts of shifts, often hastened by technology, happen in economies, and when they do, they can cause dislocation. “Maybe what we are seeing is fundamental transformation, but so what?” asks Paul Tiffany, a business historian and Wharton adjunct professor. “In the late 19th century, we saw the same kind of change when the U.S. textile industry migrated from the Northeast to the South. Southern workers got lower wages and were non-union and that was perceived as more conducive to business.” Former textile centers such as Lowell, Mass., were hollowed out, as textile makers moved their operations to places such as Greensboro and Burlington, N.C. Over time, though, other industries developed in the Northeast to fill the void.

The difference today is that the job shifts are across national, rather than state borders, Tiffany says. But the underlying process of capital finding the lowest costs is the same and in the long run, he suggests, benefits everyone.

Didn't Keynes say something about the long-run? :))

Chinese brand building 

One of the questions that has intrigued me while keeping abreast of China's spectacular economic growth is how long it would take before Chinese brands become recognised worldwide. Funnily, it has often seemed to me that even India (with Wipro, Infosys, TCS, Ranbaxy etc) has/d stronger international brands than China. However, Chinese brands like Haier and Legend (now renamed as Lenovo) are well positioned to crack international markets. Haier, as I understand it, has major expansion plans in both India and the United States. I think its only a matter of time before Chinese brands become household names. Skeptics only need think back 20 years when Japanese cars were seen as extremely downmarket products. Now, Lexus actually competes with those venerable German cars at the upper end of the market, not to mention parent Toyota's experiments with hybrid cars. How will China get there? The The McKinsey Quarterly has two strategies.

The primary model is a step-by-step procedure in which products exported from China penetrate overseas markets through independent distributors serving discount channels. This gradual process would permit Chinese companies to gain an understanding of customer behavior and to build brand recognition. In the second model, Chinese companies buy an established brand that has fallen on hard times and then move its production to China to benefit from lower labor costs......etc etc

WLL in China 

In December, I had made a post about the Reliance group's foray in the telecoms market in India. Using wireless-local-loop (WLL) as the technology of choice, Reliance has already become the dominant player in the Indian market despite having entered it about a year ago. Obviously, Reliance is competing on extremely low prices and has now introduced prepaid plans ($77 for handset and plan, of which $72 can be redeemed in calls) which are even more aggessive than its post-paid plans. Clearly WLL is all the rage in India.

Asia Times reports the same is true in China as well, albeit with some major differences in the way the technology and its licensing have been implemented. In China, WLL acts more as a substitute for landphones (fixed mobility) while in India, WLL has actually begun to substitute mobile phones and landphones. The reason is the newly introduced unified licensing regime which treats WLL players on par with mobile players, allowing companies like Reliance to provide seamless coverage and roaming (the fracas over differing license fees is too long to go into here). Clearly, Chinese WLL players don't quite have the same clout with their government as Reliance does with India's. Whatever happened to Guanxi?

Salvation for the ailing fixed-line carriers came from an unexpected quarter: a wireless local loop (WLL) technology called Personal Handyphone System (PHS) that had been tried, without much success, in Japan. Retooled for the Chinese market by an obscure US-based company called UTStarcom (Nasdaq: UTSI) and rechristened "Personal Access System" (PAS), the service was quietly introduced in 1998 in small, remote cities in western China.

"The key was that when China Telecom lost their mobile business, they lost their growth point," says Ying Wu, the US-educated chief executive officer of UTStarcom's China subsidiary. "We saw a golden opportunity: Sure, the top 20 percent income earners will be cellular subscribers. But that leaves the middle 50 percent - 650 million people - who need wireless service but for whom affordability is the issue."

China Telecom was quick to recognize that this quasi-mobile phone service offered a back door into the booming mobile market. It gave it a brand - Xiaolingtong or "Little Smart" - and priced it low enough to bring mobility to the masses. A Little Smart handset looks like a cell phone and, for the most part, works like a cell phone: users can make calls, send text messages, disrupt meetings and annoy theater-goers just as they can with a standard cell phone. Technically, however, Little Smart is a limited-mobility extension of the fixed-line phone network. Think of it as a revved-up household cordless phone with a citywide reach: Little Smart users connect to the copper wire network through base stations placed on rooftops around their city. The only functional difference from cellular phones is that Little Smart users can't roam beyond their home cities.

That, and one more major difference - cost. Little Smart users pay about one-fourth of what regular cellular subscribers do for air time - a major draw for China's cost-conscious consumers. Subscribers are charged a monthly fee equivalent to US$3, and a 10-minute call averages out to about 12 cents.

Wednesday, March 10, 2004

Coup foiled in Equatorial Guinea.....again 

CNN is reporting that a coup attempt has been foiled in Equatorial Guinea. The current president blamed "enemy powers" and "multinational corporations" for the attempted coup in the oil-rich country. So, why on earth am I posting this little nugget on this blog?

Well, its got everything to do with Frederick Forsyth. I cant vouch for the absolute veracity of this episode, but the story goes that Frederick Forsyth's "Dogs of War" (a story about white mercenaries acting on behalf of a rich industrialist who find it cheaper to take over a country than pay for its mineral resources) was based on a real-life incident. The twist in the tale came when the Times of London alleged that Frederick Forsyth placed $240,000 in an attempt to overthrow President Francisco Macias Nguema. When the coup failed, Forsyth wrote an excellent book and more than made up that money, I presume. Think this is absurd? Consider Forsyth's involvement in the Biafra conflict.

Forsyth was no stranger to the murky world of mercenaries, since he had spent considerable time in Nigeria covering the Biafran civil war. While he was there, he met a Scottish mercenary named Alexander Ramsay Gay. Gay was only too happy to train and equip a small group of men who would set up a homeland for the defeated Biafrans. It is reputed that Gay was able to purchase automatic weapons, bazookas and mortars from a Hamburg arms dealer, then hire 13 other mercenaries along with 50 black soldiers from Biafra. They then purchased a ship called the Albatross out of the Spanish port of Fuengirola. The plot was blown when one of the British mercs shot himself after a gunfight with London police. The mercenaries were denied an export permit for their weapons and ammunition, and the ship and crew were arrested in the Canary Islands en route to their target.

Forsyth denies the story or any participation in the plot and admits to nothing more than writing a solidly researched book.

On Quarks 

I nicked this straight from Atanu's weblog because I thought it was a really lovely way to describe quarks. Unfortunately, I too could not find a source for this except for the very cryptic "Laws of Physics." I suspect some of you may have a better idea. Please let me know.

Truth decays into beauty, while beauty soon becomes merely charm. Charm ends up as strangeness, and even that doesn't last, but up and down are forever.

Tuesday, March 09, 2004

Defending the Little Guy 

The Economist had carried a hilarious review a couple of issues back about National Lampoon editor Henry Beard's magnum opus, X-Treme Latin: Unleash Your Inner Gladiator. Once again, sounds like an absolute must-read. Here are a few juicy bits that the Economist excerpted.

This book lets the homunculus (little guy) get his own back. And how. There are insults here for every occasion, from air rage (Heia, amice, utrum illae sunt sarcinae tuae, an modo Carthaginem despoliasti?, “Hey, pal, is that carry-on luggage or did you just sack Carthage?”) to computer trouble (Assume plicam damnatam, o tu moles muscaria muscerdarum, “Download the goddam file, you bug-ridden piece of shit”). But there are handy phrases too for bumper stickers (Malim praedari, “I'd rather be pillaging”) and invaded barbarians (Vos non victores, sed liberatores salutamus!, “We welcome you as liberators, not conquerors!”).

First prize for devilish translating goes to “wet T-shirt contest” (certamen inter mammosas tunicis madefactis vestitas), closely followed by “sushi bar” (taberna Iaponica pulpamentorum incoctorum marinorum). The finest-resonance award goes to crapulentus sum (“I'm wasted!”). But since Latin is for lovers, special mention should go to a highly topical chat-up line containing the much-maligned future perfect: Nisi mecum concubueris, phobistae vicerint, “If you won't sleep with me, the terrorists will have won.”

Ceterum censeo, Henry Beard represents a wonderful case of when cacoethes scribendi has serious positive externalities, ceteris paribus of course. Esto perpetua!!

Broadband in India 

One of the things that used to annoy me the first few times I returned to India was the quality of Internet access (yes, one does get used to Internet-2, cable, wireless etc). Dial-up was painfully slow and broadband was nowhere on the horizon. But I had been reading about cable and DSL beginning to catch on in parts of India. The adoption of broadband was inevitable and some of us had been predicting it for years for one simple reason -- dial-up access is bloody expensive.

Though the ISP charges are low ($15 for 100 hours, free night surfing etc), one gets butchered on the phone bill since local access is billed every 3 minutes. At my usage levels, the phone bill alone could cross $100 every month. The East Asian experience has shown that this pricing model actually has a plus point -- uptake of broadband is much quicker. Compare this with the United States (and its flat-rate pricing model for local access) which is having trouble convincing people to move to broadband and thereby use up all that dark fiber. Of course, things will change in the U.S. too as users find applications that work better with broadband like Video-on-Demand and so on.

In contrast, Indians can switch to broadband with very little prodding. The fixed cost is low and mostly refundable. Beyond that, monthly rates hover between $12 and $20, depending on the plan selected. In addition, the fixed phone line remains free. It was very easy then to convince even a techno-peasant like my mother to shift to broadband cable. My first brush with broadband at home has had mixed results. The quality of coax seems a little dodgy. The provider has about 12 MBps of bandwidth (they claim to constantly up this), which it then splits among about 3,000 subscribers (not all of them online at the same time, of course). So, one's download speeds really does vary by time of day. At times you get reasonably fast speeds, but at times speeds drop to dial-up levels or worse. So, the primary advantages of home cable are much lower costs for access (assuming heavy access) and always-on connectivity rather than blazing download speeds, which is the reason why I use broadband in New York.

Today, I decided to check out Reliance's Web World -- a fast growing group of Internet/gaming parlours. According to the managers, each Web World has 26 Mbps available, which is then split among about 50 terminals. They guarantee 256 Kbps or above, which is not bad at all, and that too for Rs 0.35 per minute (don't even bother converting that to USD, it's too low). Like most other major broadband parlours in India, an account created in any one city can be used right across the country. What is *very* different about Web World is the sheer amount of gaming going on. I'd say the average age of the crowd around me is about 16 and these kids are just gaming against each other and against kids in other cities, who are logged in at various other Web Worlds. This is in addition to all the usual Internet based-gaming, chatting etc.

Clearly, Reliance has begin to identify ways to utilise all of that fiber they've laid across the length and breadth of the country (the group invested about $6 billion in laying fiber). So, if any of you are in India looking for faster access than what you would get at dial-up parlours, I'd say try Reliance. And while you're at it, try the gaming too. I just did. Sort-of interesting.

Monday, March 08, 2004

America as a crucible of innovation 

Seems like Tom Friedman has taken a real liking for Bangalore. Given that his other major ports of call are some strife-torn cities in the Middle East, I am not surprised. He has been posting for the past 2-3 weeks from Bangalore, on why Americans should learn to stop worrying and love outsourcing. In this particular op-ed, Friedman describes innovation as one of the reasons why America will remain ahead of the curve for some time to come. America has been the main beneficiary of the various stages of creative destruction that have taken place the past 100 years. Friedman believes America will emerge stronger from this wave of creative destruction as well, thanks to the crucible of innovation it has become.

While I'd instinctively agree with that statement, I also believe there is something structural changing, thanks to the forces of globalisation. Perhaps this time emerging economies will emerge as the main beneficiaries?? Nothing wrong with that though. A little bit of equity was long-overdue.

America is the greatest engine of innovation that has ever existed, and it can't be duplicated anytime soon, because it is the product of a multitude of factors: extreme freedom of thought, an emphasis on independent thinking, a steady immigration of new minds, a risk-taking culture with no stigma attached to trying and failing, a noncorrupt bureaucracy, and financial markets and a venture capital system that are unrivaled at taking new ideas and turning them into global products.

"You have this whole ecosystem [that constitutes] a unique crucible for innovation," said Nandan Nilekani, the C.E.O. of Infosys, India's I.B.M. "I was in Europe the other day and they were commiserating about the 400,000 [European] knowledge workers who have gone to live in the U.S. because of the innovative environment there. The whole process where people get an idea and put together a team, raise the capital, create a product and mainstream it — that can only be done in the U.S. It can't be done sitting in India. The Indian part of the equation [is to help] these innovative [U.S.] companies bring their products to the market quicker, cheaper and better, which increases the innovative cycle there. It is a complimentarity we need to enhance."

What would Indian techies give for just one day of America's rule of law; its dependable, regulated financial markets; its efficient, noncorrupt bureaucracy; and its best public schools and universities? They'd give a lot. These institutions, which nurture innovation, are our real crown jewels that must be protected — not the 1 percent of jobs that might be outsourced. But it is precisely these crown jewels that can be squandered if we become lazy, or engage in mindless protectionism, or persist in radical tax cutting that can only erode the strength and quality of our government and educational institutions.

Sunday, March 07, 2004

The real Deal? 

As far as spy vs spy kind thrillers go, you can't get much better than Seymour Hersh. Yes, there are times when I doubt the veracity of some of the things he says, but you have to hand it to him -- the man has fantastic sources. In his latest column in the New Yorker, Hersh examines why the U.S. did not crack down on Pakistan after the revelation of A.Q.Khan's little nuclear hobby. If Hersh can be believed, the United States has made a pact with the devil that will make the support of Bin Laden, Hekmatyar and gang in the 1980's seem like child's play. In return for not pressuring Musharraf on the Khan issue, U.S. special forces get permission to comb the Pathan areas around the Hindu Kush for Osama Bin Laden. Of course, if Pakistanis get to know about the presence of U.S. forces on their soil, one can safely guarantee that Musharraf will not be around for much longer.

This story, if true, is completely nuts. There were times, after Sept 11th, that I thought perhaps the U.S. had learnt its lesson that to sup with the devil, you need a very long spoon. It was pretty clear to anyone who bothered some cursory reading of the newspapers that the real source of terror was not Iraq, but Pakistan, with its shady ties between the ISI and the army and the various Islamic groups. If America were even moderately serious about chasing down terrorists, it was Pakistan they should have headed to.

So, now, instead of figuring out the exact details of who Dr. Khan was handing out nuclear secrets to, they ignore him and hope Bin Laden can be caught instead, even if it means real political danger to Musharraf. What on earth are the Americans thinking? Little wonder then the persistence of the rumour floating around South Asia that Bush needs Bin Laden as the ultimate trophy to seal his election victory.

Though the U.S. seems to have given Pakistan a free ride on the Khan issue, the IAEA hasnt been quite as forgiving or compliant. AP is reporting that senior UN diplomats are convinced that Khan could not have indulged in his little hobby without active help from the Pakistan government.

Despite denials by the Pakistani government, investigators now are certain that some, if not all, of the country's decision makers were aware of Khan's dealings, especially with North Korea, which apparently helped Islamabad build missiles in exchange for aid with its nuclear arms program, said one diplomat.

"In all cases except Pakistan, we are sure there was no government involvement," he said. "In Pakistan, it's hard to believe all this happened under their noses and nobody knew about it."The diplomats didn't say which parts of the Pakistani government might have known of Khan's black market activity - military, political or both.

Burnt by the spotlight? 

I figured it has been long enough since my last post on outsourcing and so here's Amy Waldman in the New York Times writing about India's reaction to the great outsourcing debate raging in the United States.

Long caricatured in many American minds as home only to snake charmers and poor people, India is now being caricatured as a nation of predatory brains set on stealing American jobs. The strong reaction to the shifting of jobs is spawning frustration in India, a country the United States was cheering not so long ago as it began to open a largely socialist, closed economy and enter the global arena. It is also surfacing as a potential irritant in relations between the countries. Indians say they are doing exactly what the United States wanted, and bridle at the new criticism as a double standard.

Indeed, the furor in the United States is highlighting India's own ambivalence toward the economic reforms that began here in the early 1990's. The competitiveness of India's new industries stands in sharp contrast to the high tariffs and red tape that still shelter many other parts of the economy.

American officials have repeatedly expressed frustration at the relatively low level of American imports to India. While total exports from American companies to India grew to $4.1 billion in 2002 from $2.5 billion in 1990, the United States still has a trade deficit of about $9 billion with India. On a visit to New Delhi in February, United States Trade Representative Robert B. Zoellick cited India's high tariffs — like a 38 percent applied agriculture tariff, which is three times as much as America's. "We want to keep our markets open," he said, "but to do so we need to be able to open markets abroad."

Mr. Shourie said that when India finally opened its agriculture markets, it would affect "millions of people" — far more than are being affected by India's success in information technology. "If the United States feels we must understand their political compulsions," he asked, "why is it that American politicians or trade negotiators sitting at the table would not understand our political difficulties?" He worries, he said, that the reaction in the United States will strengthen the opponents of India's own economic reforms. "It gives a very strong handle to persons in India who oppose opening up," he said.

Indians say that the beneficiaries of outsourcing are far fewer than Americans realize. Well under a million people work in information technology services. Most of India's population of more than a billion, still largely rural, has never heard of outsourcing or benefited from it. Unemployment in India — far higher than in the United States — is at its highest level in decades, many economists say. Officially pegged at 7 percent, with more than 40 million registered job seekers last year, the real unemployment rate is probably three times that, economists say.

Vivek Paul, vice chairman of the Bangalore-based Wipro Technologies, calls it "perceptual amplification.""If three million jobs have been lost in the U.S., and 100,000 jobs created in India, every one of those three million thinks, `That's my job,' " he said.

The secret of steel price hikes 

I had been reading with interest in the Indian press about rising domestic steel prices. This was interesting because recent cuts in import duties (5%) clearly weren't helping cool the price of steel. So, I was wondering what was causing international steel prices to rise so fast. Indrajit Basu has a one-word answer -- China. Apparently, the attempt to overhaul infrastructure in time for the Beijing Games, was causing the Middle Kingdom to consume so much steel so as to become the largest ever buyer of steel in history.

Indeed, driven by an economy that is reportedly growing at over 8 percent, combined with the colossal facility and infrastructure development in preparation for the 2008 Olympic Games in Beijing, China has emerged as the largest steel consumer, accounting for one quarter of the world's total steel usage which in turn has resulted in the global demand for steel vaulting to record highs. Global prices for finished steel - hot rolled coils - has almost doubled to a peak of $580 per ton in the past nine months.

In India, too, the rise of steel prices has been equally spectacular. Industry sources say that steel prices rose 12 times in the past year, but the rise has been particularly sharp since August last year. Prices of hot rolled coils, the key ingredient for downstream steel products, shot up from $400 per ton in August 2003 to $511 per ton in the beginning of February. And in one of the highest one-time price hikes in recent years, domestic steel manufacturers increased the price of hot rolled coil by up to $90 per ton last week, to take it to the all time high of $600, effective from March. That's a 17 percent rise in less than a month.

Small wonder then that the impact of China's huge appetite for steel on the India's steel industry has perhaps been greater than any other steel industry elsewhere in the world. But there's yet another reason why China's hunger for steel has rattled the country: despite the fact that at almost 255 million tons per year, China's steel consumption is almost eight times than that of India's, the country has had the highest rate of increase in market share of Chinese steel imports in 2003. In other words, India's steel exports have increased multifold over the past few years, thanks solely to Chinese demand, which is also flushing out some of the steel meant for the domestic market.

India's gain from growth in the Chinese steel market has been so lucrative that presently, reckon industry sources, about half of India's 5.5 million tons of annual steel exports go to China. This had caused the trade balance to swing in India's favor for the first time in 2003. Chinese demand today accounts for a major part of the country's largest steel makers' exports: 29 percent of Tata Steel's exports, 35 percent of SAIL's and 35 percent of Essar Steel's.

The U.S.S. Economy is not the H.M.S Titanic!! 

Everyone from Paul Krugman to Jim Rogers to George Soros have expressed great concern about the current state of the U.S. economy. I happen to agree with most of their points. I also think some sort of corrective action is required on debt, taxation etc if the U.S. economy is to not tank (and take the rest of the world's economy along). So, I read with interest Mark Erikson's piece on why the fears about the state of the U.S. economy are overblown.

The US dollar fell by 20 percent against the euro and 10 percent against the yen last year. Since George W Bush became president, the United States has lost well over 2 million manufacturing jobs. New jobs are slow in being created. The 2003 current account deficit totaled US$580 billion (5 percent of gross domestic product, or GDP); the 2004 budget deficit will be about $500 billion - the vaunted "twin deficit". The US savings rate is near zero. So has the US economy once again become the basket case it was under Jimmy Carter before Federal Reserve chairman Paul Volcker and president Ronald Reagan rescued it and restored it to renewed vigor in the 1980s?

The short answer is, not by a long shot. At an average 6 percent GDP growth rate in the second half of 2003, the US economy grew at a rate 30 (!) times the eurozone's. Without such fast US growth, which Europeans can only dream about (most likely forever) and which drew in huge exports from the eurozone and Asia, eurozone growth would have been negative, much-admired Chinese growth zero, and recently picking up Japanese growth 1.3 percent instead of the reported 2.7 percent. A few simple calculations prove the point: The eurozone's 2003 trade surplus with the US was $75 billion or 0.85 percent of GDP, more than double the eurozone's 0.4 percent GDP growth. China's trade surplus with the US was $124 billion or 10.4 percent of GDP - slightly higher than GDP growth. Japan's trade surplus with the US was $66 billion or 1.4 percent of GDP - about half of GDP growth.

Current account deficits? Budget deficits? Low savings? One nation's current account deficit is another's capital account surplus. As things stand, Asian exporters and public and private investors are demonstrably prepared and eager to invest their surpluses where they find the best markets and best risk rewards - the United States. Capital inflows to the US well exceed, and increasingly so, the trade and current account deficits.

The budget deficit, like any debt, is more easily financed and built down in a fast-growing economy. The Congressional Budget Office (CBO) estimates that this year's deficit will come in at $477 billion. Were GDP to grow by 5 percent to $11.815 trillion in 2004, the deficit would be about 4 percent of GDP, roughly in line with the deficits of the major eurozone economies. The CBO also estimates that the deficit will be nearly cut in half in three years' time to $242 billion. With continuing moderate economic growth, the deficit will be below 2 percent of GDP by 2007 - another number Europeans can only dream about.

Why do I get the feeling Mr. Erikson has plucked some of these numbers out of thin air and twisted them to suit his beliefs? If Erikson is to believed, the reduction in manufacturing jobs, for example, is coming to an end. Am I the only person who thinks he's lving in la-la land?

Guest Post -- Aggregation and the Blog 

Today, it's Anand Chandrasekaran's turn to write in his thoughts about aggregation, especially as he applies the ideas of aggregation to blogging.

Aggregation and the Blog

We see it all around us, from movie multiplexes to information portals to malls. Aggregation. It's defined by Merriam-Webster as a : the collecting of units or parts into a mass or whole b : the condition of being so collected.

Since my first conversation with Atanu, aggregation has been at the root of why a model like RISC makes sense to eliminate the co-ordination failure in rural economies. For longtime followers of the PC industry, the horizontalization of hardware VS software and of skill sets around PCs and the software that runs them (away from the verticalization that defined early technology companies like Wang, DEC, Sperry, UNIVAC and even IBM), is another common example of how aggregation can change formative industries.

The effects of aggregation manifest in three ways: scale, scope, and agglomeration. Economies of scale are required to make any concept that employs aggregation practically feasible and extensible, both for end-users and for those who create it. Economies of scope and aggregation are made possible because of the variety of service providers!

In the context of blogs and their proliferation, aggregation seems to be an underlying concept. As I mentioned to Reuben a few days back, blogs will quickly move from being a name to being a place. Topics du jour might differ, but people will hang out in places where they are amused, entertained and even stirred into writing their own opinions. While the economy of scale is a moot point (given the comparitively low costs to achieve scale), the economies of scope and agglomeration and spot-on relevant to making a blog successful.

Guest blogs are a good way to start giving a diverse set of people a good reason to care about a blog. Joi Ito is one example of how blogs are likely to look like! It's probably time to revisit the Cluetrain Manifesto (and its fresh perspectives on keeping a live conversation going with one's customers) in the context of blogging.

By Anand Chandrasekaran

Jim Rogers, Marc Faber and Dan Yergin on life, the universe and everything 

Thomas sent me this slightly dated, yet highly readable conversation between Daniel Yergin (Commanding Heights fame) and two of the best known investors/thinkers in the world, Jim Rogers and Marc Faber. They talk about everything from the roots of terrorism, the need to learn Chinese, a Dutch proclivity to being handicapped to the state of India's infrastructure. Though it's a stream of consciousness kind of conversation, the transcript is still worth a read.

I have noticed that Jim Rogers is very upbeat about China's prospects and very downbeat about India's prospects. In this conversation, Rogers reiterates that he is very bearish on India. He has in the past even suggested that India might get Balkanised and so on. While this is a valid fear, I happen to think Rogers is dead wrong on India's prospects. I would even bet that India's long-term prospects are better than China's. This interview was recorded in early 2003, when the Indian economy was sputtering at about 4% growth. I wonder if the recent numbers has caused any sort of rethink in Rogers' mind or would he simply attribute it to good monsoons?

Water, water everywhere?? 

By now, most of you know that the Mars Rover, Spirit, found evidence of water than once existed on Mars by boring a hole in volcanic rock. According to scientists, evidence was found of small holes and mineral deposits (sulphate salts for example) left behind by water. Of course, the question to ask is where did all that water come/go? NASA scientists have a very intriguing and very probable answer.

The only reasonable answer is comets. Comets were formed farther out from the sun than Earth, but in such abundance that they also rained down in the early solar system. They came into the inner solar system as frozen water — giant snowballs — depositing vast amounts of liquid water on Earth and apparently on Mars too.

Because of Earth's distance from the sun, our planet's surface temperature remains, on average, between the freezing and boiling points of water. Moreover, Earth's atmosphere acts like a lid, trapping most of the moisture. Mars, on the other hand, is too far from the sun to stay warm and too small to gravitationally trap a dense enough atmosphere to bottle up what warmth it does have. The comet-fed oceans it likely had either escaped into space or ended up trapped in cold storage as permafrost.

Saturday, March 06, 2004

Unsafe at any race 

The Boston Globe, quoting the Associated Press, reports that Bush and Kerry are now in a statistical dead heat with Bush leading Kerry by one point. That's a change from a few weeks back when Kerry led Bush by 4-5 points. Given that Kerry had dominated the news with his presumptive nomination as the Democratic candidate, why is he trailing? Well, it's an old friend of the Democratic party and of liberals everywhere -- Ralph Nader. He gobbles up 6% of the vote in this poll, votes that would almost certainly have gone to John Kerry otherwise.

Nader seems to have clearly lost his mind. His whole point in 2000 was that Bush would screw up so badly that people would have no option but to vote for a liberal alternative. Welll, I'd say Bush has screwed up pretty badly, but Nader needs some more gratification by ensuring Bush's re-election? Nader has pretty much buried his legacy with his megalomaniacal behaviour, but I really wonder about those who continue to support him. Perhaps these are former Deaniacs venting their spleen at the Democratic machinery for turning their backs on their man? Talk about missing the forest for the trees!

Let's hope, for the sake of the world, that these people come to their senses. Then again, after Bush unleashes $200 million on attacking Kerry, perhaps this entire argument will be moot.

A setting Sun? 

Another of the poster children of the Internet boom seems on its way out. This one, though, I did not expect at all. The company that defined the computer in terms of the network, Sun Microsystems, probably needs a miracle to stay in business given that Solaris is probably fighting a losing a battle against Linux (forcing Sun to adopt Linux as well) and turning in bad results (11 consecutive quarters of declining revenue) even as the industry seems to be recovering from the crash. And now, Standard & Poors has cut Sun's corporate credit rating to junk status.

"The downgrade reflects weak and inconsistent profitability, and the expectation that Sun will be challenged to profitably expand its market presence," said Martha Toll-Reed, Standard & Poor's credit analyst. She said she did not expect the company's profitability to return to historical levels in the near-to-immediate future.

Friday's move by the credit agency is a big blow to Sun's recent efforts to turn its fortunes around. During the second quarter of fiscal 2004, the company's revenues topped analysts' projections, rising 13.9 percent over the first quarter, the highest growth rate from a first quarter to a second since 1998. Sun's stock closed Thursday at $5.16 after starting off the year at $4.49.

Ms. Toll-Reed said the company continued to face enormous hurdles in the server market where it competes with I.B.M. and Hewlett-Packard, as well as with Dell Computer at the low end of the market. Dell has in recent years moved aggressively into that market, selling less-expensive servers based on industry standard technologies like Linux and Microsoft Windows. By contrast, Sun continues to rely on selling more-expensive servers, based on its own proprietary version of Unix.

Friday, March 05, 2004

Welfare State gone mad 

I have always maintained that a welfare state, german style, was unsustainable and would collapse under its own weight at some point soon. There are so many disincentives to finding work that I am actually surprised anyone bothers. Now, here's a story that amplifies the need for countries like Germany to do a rethink.

A German court has rejected a claim from an unemployed man who wanted the state to provide him with pornographic material and free visits to a brothel. The 35-year-old man took his local authority to court after the foreign ministry refused to pay an airfare for his Thai wife to travel to Germany. He argued that they should compensate him for his lack of sex.

The unnamed man argued that, as his wife lived in Thailand, the local authority had to compensate him for his "considerable sexual needs". The 2,500-euro claim (£1,700, $3,050) a month was to fund weekly brothel trips, eight pornographic videos and transport costs to and from a video store. "I require the brothel visits for my physical and psychological wellbeing," the man said in his application.

Yes, the court turned this guy down, but the fact that he can even ask the taxpayer to fund his visits to a brothel I find completely ridiculous. If episodes like these aren't reason enough for an overhaul, I don't know what is.

Restaurant listings -- Asian food 

(Via Sree) For the New Yorkers among you (and visitors), the Asia Society has launched a listing of restaurants serving Asian food in New York city and the tri-state area. The restaurant listings range from Indian and Chinese to Philipino, Burmese and Afghan. There is also a section called Staff Picks, which feature a bunch of recommendations. Even if doesn't list every single restaurant, still a very useful resource, methinks.

Sam Huntington clashes with civilisation...again 

Jed sent me a reminder to read Samuel Huntington's newest piece in Foreign Policy magazine that's kicked up quite a firestorm. I will admit that I have not read it, due to reasons of time but I figured there might be several of you have the time to read and understand why Huntington thinks hispanics are a grave threat to his America.

In this new era, the single most immediate and most serious challenge to America's traditional identity comes from the immense and continuing immigration from Latin America, especially from Mexico, and the fertility rates of these immigrants compared to black and white American natives. Americans like to boast of their past success in assimilating millions of immigrants into their society, culture, and politics. But Americans have tended to generalize about immigrants without distinguishing among them and have focused on the economic costs and benefits of immigration, ignoring its social and cultural consequences. As a result, they have overlooked the unique characteristics and problems posed by contemporary Hispanic immigration. The extent and nature of this immigration differ fundamentally from those of previous immigration, and the assimilation successes of the past are unlikely to be duplicated with the contemporary flood of immigrants from Latin America. This reality poses a fundamental question: Will the United States remain a country with a single national language and a core Anglo-Protestant culture? By ignoring this question, Americans acquiesce to their eventual transformation into two peoples with two cultures (Anglo and Hispanic) and two languages (English and Spanish).

If you do read the piece in its entirety, please drop me a line and let me know whether it's worth spending a weekend afternoon over.

Guest Post -- A contrarian view on outsourcing 

Most of you will know by now that I am an advocate of free-trade. Most of my posts on outsourcing have been written from an Indian perspective (the beneficiaries of outsourcing). So, it's only fair that I also post a slightly contrarian view, written by an American techie. Over to Walker Duhon.

Outsourcing is the wake up call America needs

All of the sudden attention to outsourcing in America may seem a bit puzzling to outside observers. It has seemingly come out of nowhere to become one of the most important issues in the upcoming election. It is tempting for some to dismiss the uproar as a reaction to the temporary economic downturn; outsourcing, aided by a tinge of xenophobia, then merely serves as a convenient and tangible scapegoat for the current malaise in job growth. And of course it is all too easy in times like these for politicians like Senators Charles Schumer and John Edwards to exploit the pain of those temporarily displaced to gain notoriety or carve a political niche. But, in the end, after all is said and done, the American economy is a dynamic one; new jobs will crop up, and the American consumer will settle down to appreciate the cheaper software products just as they love the cheap goods they find at Wal-Mart. Such is the conventional wisdom, argued confidently by leading economists, and puppeted unquestioningly by mainstream media outlets. But is it true? Almost certainly not.

Outsourcing is beginning to look like the wake up call that Americans need. The segments of the population who most prospered under postindustrialization are now under threat -- well educated, white-collar professionals. Once thought to be invulnerable to the convulsions of relentless globalization, these folks are essential to the political coalition that made free trade and postindustrialization a consensus of both parties. These are people who write letters to the editor, give to political campaigns, and disproportionately show up at the polls. With their defection, the free trade coalition will have lost its base, and the tone of media coverage and politics can't help but change.

The true significance of outsourcing is that it could prove to be the death knell of the postindustrial fantasy. In the 80's and 90's, America allowed its once strong manufacturing base to shrivel and placed its hopes on finance and information services to deliver prosperity. The deal was that Mexico, Japan, China, Korea, etc. would provide the goods, and the US would make a living exporting intellectual property, financial services, and Hollywood movies. Now, after two decades, the results are in -- a current account deficit that amounted to ~$550,000,000,000 in 2003, and shows every sign of growing larger. At an almost unprecedented 5-6% of GDP, the trade deficit is the elephant in the room that almost nobody is talking about (the last time a nation's trade deficit approached this level was 1920's Italy, right before Mussolini took power). The American economy is currently on life support, completely dependent on Chinese and Japanese capital to fund its consumption and power its "growth"; the recent spate of expensive military adventurism doesn't help either. Our trade relationships are unsustainable and there is no easy fix, but unless big changes are made the U.S. will enter a debt spiral.

The economy that we've made for ourselves is flawed in its fundamentals, and outsourcing is exposing the flaws once and for all. A viable economy cannot just be powered by consumption of cheap goods from abroad; there must be strong domestic production as well. The bet was placed that production of intellectual property was the future, and it didn't work.

By Walker Duhon