As loathe as I am to admit it, jobs in finance look very sexy on paper. Managing a small business involves running to OfficeMax, the post office, or the bank – nothing that will grab one’s attention. There are no million dollar deals, or headlines in the newspaper announcing the bonus levels of other office managers. During a lunch break, I’ll come across a story about some new merger, or read those stories about the year-end bonuses that will exceed my salary by several degrees. Being a good capitalist, I understand the role that a vibrant financial sector plays in a modern market – allocating capital efficiently, allowing entrepreneurs a new source of investment funds, and rewarding investors who are taking risks with their money.

What I’ve always wondered though, is how prominent should finance be in a nation’s economic profile? You can even go down to the city level – how much role should Wall Street play in New York’s local economy? What role do the futures exchanges play in Chicago today, and what role will they play 20 years from now? For a developing nation like India, how prominent a role can financial firms play? Should the rules governing their behavior be different than in a developed country? Continue reading →

Religion and politics in India make for a combustible combination, but a recent article in The Wall Street Journal on Azim Premi entitled Secular Engineer: How a Muslim Billionaire Thrives in Hindu India raises the matter of religion and economic advancement. The article profiles Premji, and gives a brief history of Wipro – transforming it from a seller of vegetable oil to the IT powerhouse of today.

A couple of things about the article rubbed me the wrong way. Part of it was the mention of religion in the title. Does anyone know of the religious background of billionaires from China, Japan, or Western nations? Only recently did I find out the owner of the Marriott hotel chain is a Mormon.

The article repeats one of the standard explanations of why Indian Muslims are under-performing their neighbors – that after partition, the best and brightest Muslims left for Pakistan. If that is the case, then Pakistan should be further along the development path than India, and there should be a number of world-beating Pakistani (or Bangladeshi) companies. Such is not the case – while both nations certainly have wealthy families, they are more likely to have garnered that wealth through methods usually seen in many developing nations – graft, monopolized markets, government favors, feudal relationships, etc. Continue reading →

We’re heading into an election year in the U.S., which means facts are largely going to be irrelevant to most public discussions of issues for the next fourteen months. Instead, we’ll be treated to spin, counterspin, and more spin. The big Indian software & services companies realize this, and the Times reports that they’ve decided to hire lobbyists to counterspin the inevitable protectionist rhetoric (the original spin, as it were) that “outsourcing is costing America jobs.”

The economic impact of outsourcing is complicated, far too complicated to be given justice in a 30 second ad or crowd-pleasing stump speech. While it’s hard to argue that no jobs have been lost to outsourcing, there’s no reliable number on how many jobs are actually being lost (it’s certainly nowhere near 3.3 million, as was predicted earlier). There’s also some evidence that “insourcing” creates far more jobs than outsourcing takes away (the U.S. remains a net exporter of business services, for instance). And yes, some Indian companies are now opening up decent-sized offices in the U.S., and hiring American workers. (As you’ll recall, this came up back in June, with the infamous Obama campaign memo on Hillary Clinton’s purported connections to India.) See the conservative Heritage Foundation for more; and see this article at IHT for why it may not matter anyway.

The lobbyists quoted in the Times article are even adding some new arguments and approaches to their arsenal:

But the core of the Indian vendors’ new strategy appears to be removing themselves from the limelight. Outsourcing is not about us, goes the new pitch to lawmakers, it benefits Americans, including ones in your district.

The Washington lobbyist who asked not to be identified said that a focus of the campaign was to collect data on Indian companies’ investments in the United States and then to lobby members of Congress from districts where those investments have created jobs.

For example, a lawmaker from Washington State might be told something like this: Indian outsourcing companies may funnel some Seattle-area technology jobs to India, but with the affluence that creates in India, more and more Indians are flying. That has made India a huge buyer of Boeing aircraft and thus a creator of jobs in the Seattle area, where Boeing does much of its manufacturing.(link)

I don’t know — the tradeoff described here seems awfully indirect, and I’m not sure a politican could really sell the rising Indian middle class as a positive to an American middle class that’s currently dealing with economic uncertainty. Readers, do you buy the argument above? Can people think of other instances where the trade-off works this way? What about cases where it doesn’t? Continue reading →