Friday 22nd March 2019

    A chat with Dr Frank Richter, Horasis

    In 2005, Dr Richter founded Horasis, an independent think tank for global business topics. He works with businesspeople, politicians and intellectuals and advises governments and private sector organizations on issues such as globalization, trade, and sustainable development. He has authored and edited 37 books and numerous articles on global strategy and Asian business, covering topics such as the Asian business environment and how Asian firms bounced back from the 1998 Asian crisis. In this exclusive interview with TradeBriefs, he provides insight on the current state of international affairs. Read more

    Countries like China (and several of the Asian tigers) rode the wave of free trade and exported their way to high growth and development. In the current world environment of more inward looking policies and the rise of anti-free trade forces, what options do you see for countries like India to grow quickly?

    >>> I think we must re-visit history to note that all nations’ governments or leaders exhibit a mixture of protectionism, interventionism and plain theft of intellectual property. The Europeans for instance stole China’s invention of gunpowder and magnetic devices that aided navigation; many engineering firms send delegates to inspect, photograph, and perhaps buy new equipment to reverse engineer the systems (which also occurs with electronics), and knowledge of military nuclear devices have also been stolen.

    However, returning to the point, bluntly, if buyers did not exist for the devices produced anywhere in Asia (due to many factors) their speedy increase in trade and local GDP would not have occurred. Trade is a necessity of life, even with subsistence farmers who exchange their labors for products or expertise –working with neighbors to be more effective at planting or harvest time. Individual Asian nations had several reasons to join in the wave of development over the last few decades and have benefitted greatly – we must not focus only on China though it is the present target of the US Administration. We must consider our planet and not manufacture where it is ineffective or plainly inefficient. We should, as David Ricardo said in the late 1700s ‘make where it is most effective and undertake trade to develop our comparative advantage’.

    India therefore has its own development route to pursue. Perhaps it was held back by the English occupation, but after Independence it did not develop quickly – yet it is a massive nation with population scattered not only in coastal regions, but inland without speedy transportation for its trade. Presently it is developing its infrastructures rapidly so its centers of excellence can benefit everyone; and thus its internal trade will link to the rest of the world more easily.

    Automation is taking away jobs faster than before, especially low-skilled manufacturing (and similar) jobs that the poor could look forward to do to feed themselves. What jobs will the poor do in the future?

    >>> It is somewhat true that automation is taking over many jobs. Correctly so for dirty and dangerous jobs, or where a machine can extend its reach in circumstances too difficult for humans. There are other jobs where machines simply work very much faster without becoming tired – sorting mail, placing electronic chips into place, welding metals on cars – the list goes on. However there are times when a new production line will decimate staff and CEOs must take that route to preserve the firm from extinction – crudely put, it is rather like a limb amputation that conserves the body from further damage: if the firm cannot make a profit it will not survive and thus no staff will have a salary.

    The modern race to robotisation is merely a continuation of industrialization beginning long ago. But there is a difference. Decades ago firms relied mainly on muscle power, and its new machines helped create new jobs close by as more in-feeds were needed that absorbed displaced labor. Presently, with globalization this might not occur, or new local jobs will be delayed for some time, as in-feed might be cheaper from a distance or even a different nation. Naturally jobless people become angry – but they have the choice of moving to where there is work. Many however are immobile due to several factors, one of which is poor education in earlier times: they are not employable in a high-tech world.

    Sadly, at the extreme, subsistence families will fall behind unless an effort is made to help them. Their children might have been born into a poorly educated family and thus not persuaded to gain better education: they may thus not be able to read or write and not understand how to progress – they live on a downward spiral. Robotisation will not help them, nor might it be useful for their lives.

    I note that the Indian government is pursuing a multi-strand approach to the education of the poor. First, the initial education of both boys and girls is being strengthened and made pertinent to their futures. And second, for older children and for young persons a specific education is being given so they may be engaged in local work giving them cash, a better social score, and hope.

    Political hardliners (often autocrats) seem to be able to deliver development faster than truly democratic leaders. Your opinion? What does this mean for the future of the world? And what about those left behind?

    >>>> Well that may seem a truism – but it hides a truth. Without a broad development plan a nation will not progress, and sometimes its leader is not really benevolent, but wishes really to hive off government cash into their private bank. There is a great contrast between China and India that is unresolvable. Both nations are developing (India quickly but from a lower base than China) and each has its own mode of governance. Yet, in some respects, Indian governments have been known to bludgeon changes onto its people – recently we note its digitization program that will be seen to offer rich rewards in decades to come and its Goods and Services Tax (GST) that cut regional boundary taxes opening up internal trade.

    As to the benefits of these changes – only time will tell. All nations define boundaries to behavior; and many citizens are directed to options they would not take freely – like take up a unique digital identifier and a bank account; or accept to be moved from a historic family home to new housing to make way for infrastructure developments. A strong leader is needed to press these changes at an instant of time – but the judgment of decision quality has to wait years until “those left behind” have been gathered in. That is the real evaluation.

    When viewed through a socio-economic lens, India is really at least 4 different countries. There's the middle-class, there's the urban poor, the rural poor and the rich/super-rich. How does one balance the tricky business of bringing in investment and creating jobs, while ensuring that the poor don't become poorer while the rich become richer?

    >>>> Years ago an English management consultant devised a theory of ‘span of control’ wherein at any hierarchical level in a firm a manager was responsible for no more than eight others. Naturally this created a pyramid for control. Elliot Jacques was accepting that the CEO’s of these designed firms, having more responsibility than managers lower down the firm, ought to receive a higher salary but not vastly so. Greed and governance irresponsibility is at fault for permitting today’s excesses – not only in India, but globally.

    Change is possible but really only by lifting the poor out of poverty. India is approaching this goal (which is embedded in the targets of the global Sustainable Development Goals) by increasing education, developing infrastructures and thus job creation: and not simply ‘any old job’ but ones with proper outcomes that are needed along supply chains that might extend globally. So, no matter if one considers India as “four segments” increased local wealth will feed back into the local firms and raise the national GDP. Change is happening quickly under Prime Minister Narendra Modi, but its effectiveness is not instant: he has only been in office for four years.

    Please share some unique insights (that our readers might not have heard) from recent Horasis meetings

    >>>> Perhaps the greatest change noted year on year while we have held the Horasis India Meeting over 10 years is that India is transforming ‘hope’ into ‘reality’. Some while back Indian ministers as well as industrial leaders were asking that ‘we give them time to change’. We heard that so frequently we were almost discounting change occurring in the somewhat voluble and discordant democracy. But this year, in the 2018 Meeting, there was a palpable change of voice – ‘hope’ was being expressed in terms of actual change. As I mentioned above, infrastructures at many levels and across many sectors are being built and integrated. Education will lead to better performance; better physical infrastructures will lead not only to shorter travel times, but to facilitating trade; and a developing service sector will integrate with global norms. ‘Hope’ may be aspirational, but the reality of growth is being seen across India.

    - TradeBriefs Bureau