Indian futures part 2: the luxury strategy

How can India counter the industrial giant on its doorstep?

In the previous post I briefly looked ahead to the relationship between India and the UK over the next few decades: it is only going to become deeper and more intertwined to the mutual benefit of both countries.

But India is also in the position now of crafting its own future as a “new” country, as Modi leads it out of the retardation after the Congress corruption of the last seven decades. What sort of culture and economy will India follow as part of its growing identity and prosperity? I suggest it will be determined partly by the political realities surrounding India and partly by the artisanal DNA that India possesses and must now cultivate anew and capitalise on.

The biggest factor is China. Soon to be the world’s largest economy, it is aggressive in all sorts of ways and is throwing its weight around – economically rather than militarily so far, although that will change. How can India hope to compete with the enormous factory on its doorstep? Is there a clever, divergent course it can follow?

To answer this question, I think we have to look at a similar situation that occurred in Europe 250 years ago when Britain embarked on its industrial revolution. What essentially happened, in economic terms, was that Britain “scaled up” and embraced the factory system, automation and mass production. This meant it could eventually supply vast quantities of goods much cheaper than any other economy in Europe – because they were all still operating mostly on the small-scale cottage-industry model inherited from previous centuries.

Just at the time that Britain’s industrial production was ramping up, its military forces, and primarily the Navy, were opening distant markets by encouragement and force and subduing foreign powers so that cheap raw materials could be imported from them, and then finished goods exported out again. The British Empire was starting to take off.

China now is like Britain then

What I want to draw attention to is the similarity of the choice made by Britain then with the choice China has recently made to become the cheap manufactory of the modern world. They both chose large-scale industry and cheap mass production and this brought with it certain costs. Britain’s reputation as a dingy, uncultured, ugly country with terrible food and ocean-going philistinism stems from the time of the industrial revolution. The social upheaval destroyed much of the fabric of rural life and tradition, and brutalised so very many of its people, robbing them of much culture and identity they had inherited over hundreds or even thousands of years.

The British poor, who mostly had roots in the countryside, were herded into slum dwellings in filthy new dormitory towns and cities to labour for the profit of their capitalist masters. The working class was born painfully, shorn of traditions and roots, from the uprooted country people; it took many decades to re-establish and invent new cultural lines that would help to provide a civilised existence. In the meantime poor nutrition, disease and drunkenness were a terrible scourge; some would say the British working class has never really recovered.

So. China has similarly destroyed much of its cultural heritage – although this was a process already undertaken with considerable violence by the Communists before the recent economic revolution even began. China has literally and metaphorically concreted over vast parts of its homeland – and its history and its culture – in its “dash for growth”. Over the past 30 years the Han peasantry has flooded into new cities and been similarly deracinated as was the nascent British working class. Cut off from their roots, village life has dwindled (only the old people left behind) or been destroyed, and centuries of cultural heritage has vanished. Now they have endless factories producing steel and cheap plastic goods for the West. A minority, the oligarchs, Communist Party nomenklatura and those connected to them, have grown stupendously rich. The vast majority of the population has seen an absolute rise in monetary income (although not enough to escape the middle-income trap when growth slows down) but a terrible diminution of cultural and spiritual life. Whether the trade-off has been worth it the Chinese will have to decide.

India now is like France and Italy then

The situation facing India with respect to China is similar to that facing France and Italy after the rise of Britain as a mass-producing, factory-style economic power in the eighteenth and nineteenth centuries.

As a thought experiment, then, we should try to imagine India as France or Italy in the nineteenth century. India of course already has its own developed industries and in many ways is well-positioned to compete in several areas with China (chiefly technology, computing and services). But in many ways it must now do what France and Italy did when confronted with the powerhouse of the industrialised British empire: where China zigs, India must zag.

So what did France and Italy do? In short, quickly realising that they could not outcompete Britain in the game it had decided to play, they elected to play a different game, and instead of going for profit by volume, they would seek a greater margin of profit per unit by adding value in the production process. In other words Italy and France played to their pre-existing artisanal strengths and went upmarket just as Britain went mass-market. France and Italy chose luxury, a reputation they still enjoy today. Seth Godin put it eloquently in his book, Linchpin (2010):

Let other countries find the raw materials; the French would fashion it, brand it, and sell it back to them as high-priced goods. A critical element of this approach was the work of indispensable artisans. Louis Vuitton made his trunks by hand in a small workshop behind his house outside of Paris. Hermes would assign a craftsperson to work on a saddle for as long as it might take. The famous vintners of Champagne relied on trained professionals – men who had worked their whole lives with wine – to create a beverage that could travel around the world.

At the same time that France was embracing handmade luxury, Great Britain was embracing the anonymous factory. Looms that could turn out cotton cloth with minimal human labor, or pottery factories that could make cheap plates. “Made in France” came to mean something (and still does, more than three hundred years later) because of the “made” part. Mechanizing and cheapening the process would have made it easy for others to copy. Relying on humanity made it difficult–it made the work done in France scarce, and scarcity creates value.

My contention is that India possesses a similar richness of native assets, cultural heritge and artisanal skills that can be made use of to uniquely position the country as an effective competitor against China and many other countries in the region.

France has its food and drinks, cheeses, wines and champagne, fashion and fabric, visual and media artistry, not to mention the assets of history (castles, river villages, artworks) scenery, beaches and natural beauty, much of which Italy shares, along with Ferrari and fine leather, jewellery and metalwork, and so on.

Champagne and Chateau Pétrus, Hermès, Louis Vuitton, Ferragamo, Lamorghini … India must have and could easily have its own equivalents, its own high-luxury world-renowned brands. India too is a land of great architectural heritage, vast and varied climate natural beauty, with a globally pre-eminent and encyclopaedic cuisine, warm weather and sun-kissed beaches, majestic mountain ranges, artisanal engineering, metalworking and jewellery-making and leather-working expertise inherited over generations (but also allied to a penchant for excellence in hi-tech – two areas I believe will converge this century)

Not only is a move to luxury a good strategy with which to counter China’s bludgeoning dominance; it also has a virtue of being smaller, more granular and by that token much more antifragile.

Scale and massiveness on China’s factory scale might make a lot of money but they also introduce vulnerabilities of size. Modi’s mantra is that local knows best. All governments are dire, and even with the best intentions, the bigger they are the worse they are. He knows this and it’s why he wants as much as possible to happen on a local level. Devolution from the centre is at the heart of what India is attempting right now, by instituting nation-sized simple initiatives (the aadhar electronic identity card and the GST tax for example) that form a simple but over-arching framework within which the vast patchwork of local communities and industries from panchayat level up can organise and thrive.

Strength can be found in grass-roots-level growth of small (and then perhaps aggregated) enterprises – much the same as same as small banks can be far more responsive and far better integrated with local needs than can international financial institutions. India is in a perfect position  for this. Small is adaptable, less susceptible to economic shocks, not so interdependent and can rush to fill a new space. Modi is forging the legal and bureaucratic architecture to allow this and take advantage of “responder advantage”.

In subsequent posts I want to examine particular areas of Indian artisanal and luxury industries that could thrive in future years alongside its traditional mass industries, from wine to jewellery. Luxury/artisanal/handmade is paradoxically ultra-modern and an excellent zag to China’s mass production zig. But as a wise man said to me just the other day, it’s all about the execution, and we’ll look at that, too.

Pakistan and China: India’s strategic challenge in 2017

Examining the tactics India can use to turn the tables on its less-than-all-powerful tormentors

Look at a map of South Asia. I’ve said before that China’s unappealing wingmen are Pakistan and North Korea but luckily North Korea has shown no interest in India, lying as it does to the far east of the Middle Kingdom. China, though, right on top of India, is a threatening presence, while also shaking a fist at all the other countries in its neighbourhood, such as Vietnam and the Phillipines, as the People’s Republic throws its weight around the region. Pakistan is its enthusiastic henchman where India is concerned.

China’s strategy for regional –hemispheric? – domination consists of several elements. Forget for now its economy: nearly all growth in China today and tomorrow is debt-fuelled and will deplete wealth in the long run (Michael Pettis has done the calculations here). In fact it’s exactly because China’s real economic growth is grinding to a halt and its debt load reaching nose-bleed levels that expansion and power must now be projected by additional, alternative means.

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OBOR: China’s bait-and-switch debt trap strategy

There’s a loan shark prowling in the South China Sea

In an important article for Project Syndicate, Brahma Chellaney says that if there’s one thing China excels at, it’s the use of economic tools to advance perceived geostrategic interests. On a petty level that means dredging sand up into little island berms in the South China Sea and parking machine guns on them. In the grander scheme of things it is what has become known colloquially as ‘The New Silk Road’, or to give the project its proper title and acronym, the One Belt One Road initiative (OBOR). It’s a trillion dollar boondoggle that has as its superficial aim the re-establishment, in the interests of commonwealth and trade, of the ancient merchant route that connected East to West, along which the Romans travelled all the way to India and China two thousand years ago (the Chinese name for the Romans, by the way, is ‘lei jun’ – legion).

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China Crisis?

It’s crunch time for China … or for the hedge funds betting against it

2016 is the year when China bites the bullet, the experts say. One way or another the debt is now so large it has to be addressed, no choice – deleveraging, rebalancing of the economy (and much lower growth), or a reckless dash for even more debt-for-growth. The question is, which way will China decide to break?

This matters for India. China is its heavyweight neighbour, used to throwing its weight around. It is a trading rival and a political-strategic competitor, a partner in balancing power – the very definition of a frenemy. India in the old days of fresh independence under Nehru naively believed that China was its best friend: ‘Hindi-Chini bhai bhai’ (India-China best brothers!) was the slogan as the 1960s opened. Then in 1962 Chairman Mao bitch-slapped India when Chinese forces invaded the north-east territories and shredded India’s brave but ill-equipped troops. The country suffered a nervous breakdown it has perhaps never quite recovered from. India even today is still ginger and over-accommodating not only in its dealings with China but Pakistan, too.

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Loo seats and asparagus

Looking at China’s experience can give us clues about what India should produce in the future

It’s interesting that the more I think about India, the more I find myself reading about China. Bharatiyata! is supposed to be comparative in spirit, so I guess it is natural for me to compare; it certainly provokes many thoughts.

In fact a very thoughtful piece over at Andrew Batson’s China blog concerns itself with the mystery that, for all its export volume, over the years China hasn’t really specialised in any area but continues to make and sell everything to everyone. Why? Or why not?

Most countries specialise by choice or necessity to partake of what economists call ‘comparative advantage’. It means that you can make or do something more efficiently than somebody else or some other country. (Batson quotes Carsten Holz who refers to Taiwan speedily adapting to supply niche markets globally, and South Korea, which aimed for a broad industrial base but quickly specialised). By each party concentrating on what it does best, everybody makes more money.

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Fears and weaknesses – comparing India and China #1

India’s fear is that change will destroy its ability to suffer and survive; therefore India fears change.

Although Bharatiyata! Is mostly concerned with India, it is important to compare it with neighbours and competitors. To this end, examining India and China together is interesting, especially because their journeys into the future will run so much more closely together in the political, economic and military fields from now on.

One particular way in which the two countries can be held up to the light, as it were, to see how they differ, is in their weaknesses. What are their Achilles’ heels, psychologically speaking, and how might these affect them in macro terms?

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