Synthesis of the old and the new: General Electric’s Immelt shows the way;

 

 

“Capitalism is by nature a form or method of economic change and only never is but never can be stationary. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation  that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in”.( Schumpeter Joseph, 1942.  ‘Capitalism, Socialism and Democracy’, London: Routledge. pp. 82–83).

 

These words of the great economist, Joseph Alois Schumpeter, have a searing resonance in the contemporary world. The past couple of decades or so have witnessed creative destruction in almost every sphere of commerce, industry and society. Think of a prosaic product or service like the postal services and letter writing. Both have become redundant and have been supplanted by the internet and emails. Industrial and business organization of the past –for example, the top down and top heavy, hierarchical firms- belong to a past which is receding into distant memory.  The new mantra has been lean, flat, decentralized organizations, vertically decentralized structures where the boundaries of the firm, in the classic formulation of another great economist, Ronald Coase, have become blurred. The contemporary industrial and commercial landscape is littered with instances of creative destruction.

 

The question is: Does creative destruction, to use the phrase coined by the business guru, Andy Grove, make only the paranoid survive? That is, does the phenomenon totally destroy the old and create the new, repeating the cycle, ad infinitum? No, appears to be the answer, if the trajectory of the behemoth, General Electric, is held to be the yardstick.  The diversified conglomerate  focus on financial engineering during the pre-2008 crisis and the ‘roaring nineties’ is gradually giving way to a refocus on the ‘nuts and bolts’ or widget making businesses, in plain vanilla terms, complemented by software making and integration of technology into its businesses.  The behemoth’s acquisition of the French engineering group, Alstom and the attendant rejig and focus on what the group calls the ‘industrial internet’ suggests this. The ‘industrial internet connects physical machinery to a digital network.( see The Economist: http://www.economist.com/news/business/21605916-it-has-taken-ges-boss-jeffrey-immelt-13-years-escape-legacy-his-predecessor-jack).

 

The dot com ‘mania’ of the nineties led many to believe that a ‘knowledge economy’ or a ‘new’ economy would supplant the ‘old’ one. This ‘new economy’ was alleged to give short shrift to economic fundamentals, economic logic and would , some held, even make the business cycle-the contractions and expansions in the level of economic activity and an intrinsic feature of capitalism- redundant. ‘Widget making’ was passé; the new fashion was anything and everything pertaining to the internet, computers and communication technologies, many believed. Bits and Bytes supplanted bricks and mortar, so to speak. The lessons of economic history were ignored and businesses, consumers and even governments, to an extent, went on a manic binge. This ethereal atmosphere was punctured with the onset of the bust. Economic and financial reality hit severely bringing back a semblance of sobriety and repose back into the markets, market participants and the world of commerce.

 

Many business, consumers and economies, as is the wont, suffered. This was the price that was paid for what has been termed as ‘irrational exuberance’ and whose parallel could be the ‘tulip mania’ of yore. As sobriety and common sense sunk in, people realized the importance of the ‘old economy’. Not that the knowledge economy was discarded entirely but a new synthesis appeared to be arrived at that integrated the old and the new. General Electric’s refocus and reorientation may constitute a classic example of this. The old and the new then co-exist till a new mean and normal is found.

 

Does this carry lessons for economic and industrial policies and development paths of developing countries? Yes. Poignant ones.  Essentially, economic and industrial development in the contemporary world means a synthesis of classic bricks and mortar industries and the new information ones.  This holds true for both the developed and developing countries like India which have latched onto the IT sector and ICT development as the new frontier. Competitive advantage may be the new, fashionable buzzword in policy and academic circles but comparative advantage has not lost its salience. Countries should specialize in areas where they have a comparative advantage and at the same time proactively develop their information and technology infrastructure. In other words, synthesis of the old and the new  should be the focus of companies, industries and economies. This may be the most important lesson of General Electric’s acquisition of Alstom and the attendant refocus.  Prudence dictates that this development be paid heed to and factored into policy making.

Osborne and Hague Visit: the Saxon’s last sigh?

 

 

Britain’s foreign secretary William Hague and its Chancellor, George Osborne are in India. The purpose of the visit obviously is to boost ties between Britain and India. The visit comes after a landslide victory for the Modi led BJP and the anointment of Mr. Modi as India’s prime minister. Britain and India share deep historical ties: India was a British colony-albeit an important one so much so it was held to be the ‘jewel of the crown’ in colonial Britain’s possessions. It is from the yoke of British colonialism that India attained independence. While colonialism was bad-morally and ethically- it is held by some that India owes its post independence institutional configuration and the deep imprimatur of democracy to the legacies left by what was called ‘Great Britain’.

 

Alas Britain is not great anymore. Gradually and inexorably, British power, prestige and position have waned.  Britain is no more the power it used to be. It is a shrunken shell which may even shrink further if the Scots opt for outright secession or independence from the ‘mother’ country in the referendum slated to be held later this year. A whole host of reasons account for the country’s decline and weakness. Structural changes in world politics and the global economy, the bipolar structure of world politics after the Second Great War, the revival of Europe, and contemporarily globalization and the putative emergence of a more multipolar world are some of the salient ones.  Even Britain’s so called ‘special relationship’ with the United States did not count for much. (Apart from support in the United Nations on issues of salience to the United States- for which Tony Blair was lampooned as a ‘poodle’-, intelligence sharing and some degree of military support to the United States, British support was mostly rhetorical).

 

Perhaps the most important factor that explains British decline is the lack or even loss of will to be a player, in its own right, after decolonization and the Second World War British was exhausted and drained. And it has never really recovered. The country could not re-invent itself as a player (state) of some reckoning in a decolonized world of mostly free and sovereign states. British insipidness does not appear to accrue from post imperial political decay , as was the case with the Ottoman empire or other imperial metropoles that were relegated to the dustbin of history. Rather, at the risk of repetition, it was because of structural factors and the loss of will and confidence by the British.

 

After the Cold War, the country tried a novel tack to carve for itself a niche in international relations and the global economy. It marketed itself as ‘ Cool Britannica’ and generated for itself competitive advantage by transforming London into a hub of global finance and banking. It achieved a degree of success in this but the financial crisis of 2008 threw this paradigm into a tizzy. In the domain of international relations and politics, it latched onto the United States and approved of every misstep that the sole superpower took. Under this patina and veneer of international relations dominated by the United States and a unipolar world, profound structural changes were occurring. The centre of gravity of economics was gradually moving to the East, emerging powers were stirring, the country was stuck in Euroskepticism and the contours of a more multipolar configuration of power could be discerned. Politically, instead of the End of History where a democratic and liberal nirvana was predicted, authoritarianism has not died; it has made a comeback. China is held to be a competitor to the United States; India an emerging pole of power along with the BRIC’s. All in all, it is even held by some that the West is in decline.

 

This is the world that Britain finds itself in and has to operate in. Can the country rebound?  Will the India visit by Osborne and Hague do the trick? Unlikely is the answer.  The reasons again are structural. Too much water has passed under the bridge for Britain to make a vigorous comeback. The world has moved on and there is talk of general decline of the West-politically and economy. The India visit may draw some form and quantum of investment into Britain and vice versa. However, this would amount to a trifling which would not make much of a dent in the political economy of both countries. India would stand to benefit more; a demonstration effect of world leaders making a beeline to India would boost India’s image. This may also generate pressures and momentum  for fourth generation reforms in India.

 

Is Britain doomed? Not really. It may, in the final analysis, be prudent for Britain to ‘look East’’, so to speak, and leverage its diasporic connections with most of the world and build a different profile for itself. This does not mean disavowing the United States but rather balancing and leveraging Britain’s strengths proportionately and crafting both a domestic and foreign policy that speaks to the needs of the times. The world has and is changing; the speed and scale the transformation is stupendous. It calls for radical departures from the past and , in the least, attempting to catch up. A new and bold paradigm is needed by Britain to reclaim for itself space that it forfeited after decolonization. Delaying this would be at the country’s peril.

US- Iran Agreement: Is the United States on the decline?

 

 

Pentagon chief, Chuck Hagel, has stated that the interim deal with deal to roll back its nuclear program was  a risk worth taking but that Western diplomacy must not be misinterpreted.  He added that, ‘diplomacy cannot operate in a vacuum and that the Pentagon will not make any adjustments to its military forces in the region or to its military planning as a result of its interim agreement with Iran. A senior defence official, in support of Hagel’s assertions, said that ‘Hagel had sent a message of solidarity to the Gulf allies  and that ‘any sort of mythology of American retreat was wrong headed’.

 

Both Hagel’s and the defence official’s remarks are meant as reassurance to the jittery allies of the United States in the wake of the deal with Iran over scaling back its nuclear ambition. The fear, for the mini Gulf statelets and Saudi Arabia is that this deal may signal the drawdown of US forces from the region and leave them vulnerable to Iranian hegemony. This could potentially have a ripple effect on nuclear proliferation in the region, impact its security structures and the end of extended deterrence in the region. In turn, this development could  alter the balance of power in the region in Iran’s or Shi’ite favour.

 

Some analysts have also taken the US-Iran deal to mean and imply the retreat and waning of US hegemony as a reaction to putative developments in the global system polarity and the attendant decline of American power. Hagel has debunked all the myths and rightly so.

American power, especially in the domain of hard power , remains pre-eminent and paramount. Yes: its prestige and soft power may have taken a bit of a hit after the second Gulf War ,the war in Afghanistan and the 2008 economic crisis but the fact remains that America is the uncontested hegemon of the world. The reserves of power it has and holds have no real challengers. The China bogey , used at times, to suggest either as an alternative to American power or as a competitor is a bit of a myth. Yes: China has made stupendous strides-economically and militarily- over the years but it is a stretch to believe that the country can match the United States either in terms of capability or influence as far as the eye can see. American hegemony and provision of security for the world has been good and salutary. Consider the Middle East. Without the American security umbrella, the region would have been in anarchy and potentially a war zone with constituent states of the region at each others’ throats. Or consider South Asia. American interventions or to use a more politically correct term, interest, may have kept peace in the region to a large extent. Similarly, American security guarantees to its allies in Southeast Asia have kept peace in this region too. In Western Europe, it is well known how peace was maintained and how the European Union was incubated and formed under the American security umbrella.

 

This peacekeeping( a term and practice usually associated with the United Nations but whose performance in this domain has been found wanting) role of the US is underwritten by American power, influence and capability. And , it is not in decline. American primacy is as strong as ever and no country or power can really supplant it.

 

Now consider Chuck Hagel’s remarks and the entente between Iran and the United States. The ‘deal’ between the two countries is a victory for diplomacy over war. In this sense, it reflects prudent and sagacious statecraft. War, hich means bad politics, has been shunted aside in favour of a diplomatic resolution of Iran’s vexing nuclear ambition. This has been made possible by the backdrop of America’s hard power combined with diplomatic overtures. Hagel’s remarks that diplomacy does not operate in a vacuum becomes pertinent here. A US troop drawdown from the region is not part of the deal. If this were the case, it would be a coup for Iran for who the field would then be open for pursuing its long held dreams of Persian and Shi’ite hegemony of the region. All in all then, the interim agreement while dealing with the nuclear issue maintains the balance of  power in the region with the United States holding the balance.

 

This naturally maintains the security situation and condition of the Gulf region; prevents nuclear proliferation; assuages the worries of America’s Gulf partners and maintains peace and stability in the region. Status quo ante is maintained and preserved but with the new development of roping or drawing in Iran towards normal politics. This is sanguine and , to repeat, a  tribute to diplomacy. Not only has war been averted but also the perils and dangers  of nuclear proliferation and all that this would entail in the region thwarted. How this could be an indication of American decline and the attendant drawdown of its forces in the region is rather inexplicable.

 

The United States continues to and will be the world’s pre-eminent and paramount power. This condition will obtain and endure for as far as the eye can see. American power has underwritten global peace and development and has been , by and large , benign. The prudent option for other states and countries may be not to confront the United States but cooperate with it for the sake of a more benign and peaceful world order. This may be the lesson of the Iran-US deal. All the rest is pure blarney.

Iftikhar Choudhary's Judicial Activism and the Pakistani state: Time for a rethink?

 

 

Choudhary, the 18^th Chief Justice of Pakistan, has stepped down. Choudhary Iftikhar  became famous after he resisted Pervez Musharaf’s manoeuvres and manipulations with Pakistan’s constitution and for leading or becoming an iconic figure for the lawyers movement in Pakistan. The former Chief Justice of Pakistan also was known for what could be called ‘judicial activism’ and the frequent suo moto notices he issued. (One notable example of Choudhary’s judicial activism was the disqualification of Pakistan’s 16^th prime minister, Yusuf Raza Gilani. Gilani was forced to resign after he resisted calls to reopen corruption and graft charges Benazir Bhutto and Asif Ali Zardari).

 

While Choudhary’s judicial activism did restore a degree of sanity to Pakistan, it came at the expense of other institutions and created an imbalance of power among the country’s institutions. This perhaps, along with the ideational and ideological confusion that defines Pakistan, goes to the heart of the country’s problems. Weak institutionalization has led to a situation wherein Pakistan can be termed as a weak state. Or more accurately a weak state with praetorian, patrimonial features. This institutional morass and torpor has affected almost every dimension of Pakistan’s polity and has led to dysfunctional governance, poverty and even its foreign and security policy which has come to be dominated by the Army and its allied intelligence agencies. Apparently and on the face of it, Iftikhar Choudhary’s judicial activism was mean to restore a semblance and patina of normalcy to the institutional fabric of Pakistan. This, besides being controversial , could only mean a short term palliative for Pakistan’s structural problems but , in the final analysis,  may have even reinforced the institutional imbalance of the Pakistani state. Pakistan, to become a normal state, at peace with itself and the world at large, may not need institutional tinkering but a wholesale rejigging of its institutional superstructure and substructure.

 

How can this be done? This is a billion dollar question. A good start may be to revisit the foundational premises of Pakistan and try to build a consensus over the nature and identity of Pakistan. Contemporarily, the pulls and pressures that bedevil the state and society of Pakistan perhaps emanate from an ideological confusion. Is Pakistan a theological state? Is it a secular state? Or is it a hybrid and synthesis between the two? Various quarters in Pakistan would perhaps offer different answers to these rather existential questions. However, a consensus answer would be that it is a Muslim state. This would be accurate and it would be almost impossible for Pakistan to be become a liberal democratic, secular state. Prudence then dictates that Pakistan conform and correspond to its Muslim identity but arrive at a consensus on the nature of this state. This may mean integrating modernity and Islam in both the state and society of Pakistan.(Hoping that Pakistan becomes a pure liberal state(if there is one in the world) is fantasy).

 

This may mean a distinct role for Islam in the state and society of Pakistan tempered and leavened by the ideas of modernity. If Pakistan succeeds in synthesizing Islam with modernity, it could serve as a model for the Islamic world and this would its very own idea and practice rather the imitating the so called Turkish model. This ideational and idealogical consensus over the nature and meaning of Pakistan wont be easy and will be challenged. But for the sake of becoming a normal state and perhaps even for existential reasons, Pakistan may have no other choice. The country is going through a painful churn  and an optimistic take on this may be that it is in transition and that these transition points need to be grasped by the political class in Pakistan to reorient and redirect the state to more salubrious directions.

 

This is a challenge that the Pakistani political class should not shy from. After arriving at a consensus on the nature and meaning of Pakistan, institutional rebuilding would be the next logical step. This would be rendered easy given that there would be a ideational consensus on the nature of Pakistan. Phoenix like Pakistan may emerge from the ashes and be a force for good at/on a range of levels- political, regional and security. The country would be doing favors to none but itself if it does embark on this exercise. If it continues with the drift that defines it contemporarily, then only gloom awaits the country. This can neither be good for the country nor for the region or the world at large given that a failed Pakistani state would pose insuperable dangers to all. It then behoves the thinking, sober  political class to rethink the nature of Pakistan and restore its institutional balance. The world and even India has a stake in this. Let Pakistan be encouraged to have and hold a dialogue with itself and last but not least redeem  itself in its own eyes. The consequences will only be benign- for the region, the world and above all Pakistan itself.

The rise and fall of Infosys: Is Indian capitalism flawed?

Infosys-the IT bellwether firm- which could be said to have been the face of Indian capitalism and the visage of the New India is in trouble. The pioneering firm took advantage of globalization , India’s meshing into the global economy and other germane structural factors is no longer the firm which animates and captivates the market. What accounts for this? Has the law of diminishing returns set in? Did the firm merely ride the tide of reforms that swept India after 1991 and given this, does this mean that it was destined to be second class? Has the firm reached its ‘strategic inflection point? Have its competitors been more nimble? Do cultural and sociological factors account for this?Or is it the Scumpeterian creative destruction kicking in?



It would appear that the catch all explanations that may explain the plight of Infosys are a combination of cultural and sociological explanations coupled with creative destruction. What does this mean?



Pared down, these assertions mean that India, sociologically and culturally, may not have capitalism wired into its DNA. As a corollary, dynamic risk taking and entrepreneurship may be missing in India. The reasons for this are manifold: the socialist legacy bears down heavily on the Indian psyche. However, more poignant reasons may be nature of Indian society and culture. That is to say that given that India is what may be called a communitarian society, the nature of society and its dynamic revolves around the group. This stifles creativity and the thrust of the group’s approach is toward seeking security and overall, in the main, the group is risk averse. Was Infosys an aberration then? Are Indian firms and potential entrepreneurs condemned to mediocrity?

No. Neither. The percolation of capitalism to India and India’s intermeshing into the global economy means that the country made its tryst with an altogether different, hypercompetitive, turbocharged capitalism. Infosys benefited and profited from this initial foray but may have reached or hit the law of diminishing returns. Can it recover?



The answer lies in creative destruction. By creative destruction, the reference here is not to apocalyptical , Marxian visions and prognoses of capitalism’s ultimate demise but the dynamism inherent in capitalism. The phrase creative destruction was popularized by the genius of geniuses, Joseph Alois Schumpeter. In Schumpeter’s schema, capitalism was defined by an inherent dynamism that destroyed the old and created the new. It is worth quoting Schumpeter here:



“Capitalism [...] is by nature a form or method of economic change and not only never is but never can be stationary. [...] The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. [...] The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation [...] that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in”( http://en.wikipedia.org/wiki/Creative_destruction).

This is what may have happened to Infosys. That is, while the firm itself was beneficiary of the creative destruction process, it too may have been overtaken by the same dynamic. Infosys may or may not recover its pivotal position. Whether it does or whether some other Indian firm takes its place or even goes beyond, the principles to bear in mind are that in the contemporary world, capitalism is turbocharged and hypercompetitive. Creative destruction them takes at a faster pace and speed. No firm can rest on its laurels and continue to survive let alone thrive.

To recover then, Infosys needs to rejig itself. This rejigging cannot and should not merely mean tinkering revamping its business model but realigning the entire concepts upon which it was premised upon. This means more entrepreneurial verve and risk taking which in turn means reviewing cultural assumptions and even creating new ones instead in the new Infosys culture. Once this is done, the rest-creating and crafting a new business model, and other issues of business structure and strategy- become mere detail.



India has made its tryst with capitalism. This is irreversible. To reach a level that is coeval or commensurate with the developed world, it is imperative that the country develops a culture that is aligned with the needs of capitalism. It is then that the country can boast of Bill Gates or Steve Jobs. Till then, the country and its firms can go only so far. Infosys demonstrated that India and Indians could compete. Now it’s time to demonstrate that India stands prepared for any challenge that capitalism throws at it.

The Iranian Sisyphus: Would nuclear proliferation in the region lead to peace?

Nobody can fault the Iranians for lack of subtlety. Be it the delicate dance over its alleged nuclear program or gradually and inexorably building a position of power and strength in the region or maneuvering deftly through the maze of international politics, Iran has done it all with adroitness. It amplified and intensified its nuclear program soon after the George Bush administration labeled it as a component of the ‘ axis of evil’, resisted pressure by the international community over its alleged program, and maneuvered deftly and adroitly in the changing equations and changed balance of power in the Middle East, post Gulf War II.



More recently, it held elections and elected Hassan Rohani with a landslide margin as the president of Iran. What is remarkable about the election of Rohani is that neither the reformists nor the hardliners murmured a word of protest or mumbled against his elections. Iran apparently is unified over his election. What all this tell about Iran, regional politics and Iran’s status?



First and foremost, despite numbers and statistics, that indicate a worrying state of the economy for Iran-30% inflation and over 40% of Iranians living under the poverty line- sanctions have not had the intended effect of splitting Iranians and making them rebel against the regime. To the contrary, Iranians seem to have become more unified with no major differences or splits emerging. What explains this apparent contradiction and counterintuitive theme?



Nuclear nationalism and Iranian pride may be the answers. Both go together. Nuclear weapons not only are the only security guarantors but can potentially- especially in the volatile Middle East region- provide and accord hegemonic status to a state that has a nuclear arsenal. Acquisition of nuclear weapons accord Iran hegemonic status in the region- a status it could never have despite being an Islamic Republic. (Being Shi’ite coupled with the fact that the centre of gravity of Islam remained Saudi Arabia on account of its custodianship of Islam’s holiest places- Mecca and Medina, Iran could not sate this aspiration). Nukes potentially give Iran the much coveted regional hegemonic status albeit in a convoluted way and not at the same level as Saudi Arabia in terms of prestige and standing in the Islamic world.



This along with the squeeze induced by sanctions and the occasional rhetoric of a pre-emptive strike against Iran appears to have unified the Iranians. A new nationalism overlain by Islam appears to be developing in Iran. This is ominous. How can this nationalism approximating what may be called Islamo-nationalism be accommodated by the world and above all what can be done about Iran’s alleged nuclear weapons capability?



Instead of viewing Iran’s emerging combination of Islam and nationalism as a threat, the international community(read the United States) should view it as an opportunity albeit in a qualified manner. Why? A rigid confrontationalist approach would only harden and solidify angst against the west. Moreover, a qualified acceptance of Iran as one of the regional powers would sate the grandiosity complex that Iran collectively suffers from. This may mean accepting Iran’s nuclear quest. This counterintuitive option that will appear bizarre to many in the west may be most prudent. The reasons are manifold: a pre-emptive strike is a non starter, war is a mugs game and continued sanctions useless.



The question now is what would prevent Iran from being an aggressor and a dominating force in the Middle East? Nuclear proliferation in the region may be the answer. Again, this is counterintuitive but may be the most prudent answer. Extended deterrence provided by the US nuclear umbrella in the region would not suffice in this schema. What may be needed is allowing Saudis to go nuclear and deepening the alliance structure with the mini Gulf statelets. This makes the balance of power in the region more even and also leads to a balance of force(s) in the region. Nuclear parity- as the Indo Pak deterrence paradigm so eloquently demonstrates- can lead to over improvement and increase in security. The same may hold true for Iran. What needs to be guarded against is the lapse into proxy wars under the shield of nukes. This can potentially be cancelled out again by engendering a balance of power in the region(this means arms racing) and removing the props for conflict in the region. The reference here is to the Palestianian-Israeli dispute and its resolution. The moribund peace process needs to be revived and a satisfiscing solution arrived at.



In combination, a focus on these factors and elements may lead to a more peaceful Middle East and may keep Iran in check. The price to be paid is proliferation in the region which , on balance, may not be a bad option. The world or the region cannot afford recrudescence into irredentist conflict with nuclear overtones. It is about time a new Iran strategy is formulated and implemented.

Digitization. Miniaturization and the Economy: the story of an MP3 Player

To lighten up and relax, or to use the contemporary slang, that is, the ‘in thing, chillax, I scoured a list of items. A friend suggested that I buy an MP3 player. Being a technophobe and a technological neophyte, I did not know what an MP3 player was. Overcoming my embarrassment, I asked the friend to explain to me the device. He said that it was small device on which music could be uploaded and then conveniently listened to. I formed a mental image of the device and held it to be akin to what I was used to in my younger days: a Walkman. In the evening, I ambled into a store and asked for an MP3 player. I pretended to be a knowledgeable person in terms of technology and technological gadgets and asked for an MP3 player. The sales assistant, could barely, hide his surprise, when he handed me the device. I asked,’ Is this it?’.I was referring to the size of the device and was surprised that an MP3 player was the size of a pen drive.

I took a trip down the memory lane and thought once again about the path breaking book written by the NY Times columnist, Thomas Friedman. (I apologize to my readers for referring to the book and the columnist again). Friedman , in his book, had among other things posited that in the era dominated by Keynesianism( economics attributed to the great economist, John Maynard Keynes), it was the heaviness and scale economies that informedeconomic theory and practice. However, in the current phase of globalization, which he referred to as the Schumpeterian era, it was the size and speed that determined the health, vibrancy and productivity of economies. Miniaturization,digitization , and speed were the mantras and buzzwords of this era.

This is almost a veritable truth. Gone are the days when heavy industry was the hallmark of an industrial and industrialized or even an emergingeconomy. Today the health, vibrancy and productivity of an economy is determined by innovation, connectivity (both technological and economic), and linkages to the global economy. The competition is informed by how lighter, smaller, user friendly and effective and efficient your product or service is. Everything is commoditized. (My more environmentally minded and romantic friends will take exception to this and argue with me). The rate and speed of obsolescence is stupendous. In Schumpeter’s phrase, ‘creative destruction’speaks eloquently to this condition. And to quote a business guru, in this environment, ‘only the paranoid may survive’

This is the hard reality of our times. The question then is: what are the implications of this for states like Jammu and Kashmir? How can we find a niche in this competitive atmosphere where speed and lightness are the requisites for success?

Given the nature of our political economy, it would appear that we may be lagging behind in these indicators and benchmarks of success. Our economy, still more or less an agrarian economy supplemented by centre state fiscal transfers and crafts oriented may even be said to be stuck in a bit of a pre –industrial paradigm. This, however, does not mean we are condemned to this state of affairs. It is globalization and the global economythat offers the antidote to our economic problems. The question now is what can be done to integrate the state into the sinews of the global economy?

The answer lies in the domain of public policy and an enabling environment that assists and nurtures individual initiative, entrepreneurship and innovation. The state may have to re-orient itself , focus on areas where it is indispensable and make room and space for the private sector in areas where the private sector can do a better job. This sounds like a typical World Bank prescription and may be attacked as a ‘neo liberal’approach. In fact, it is neither. It is an eclectic solution that acknowledges and encourages a role for the states and a role for the markets. In, then , is a synthesis. Or , more colourfully, it is where Keynes meets Schumpeter.

In this schema, the state can and should focus its energies on developing and nurturing human capital. This approach has been tried and implemented very successfully in the South East Asian countries which have consequently reaped great dividends from this. By making people skilled and empowering them through education, the state then leaves space and makes room for the magic of markets to work through.

This approach may then be supplemented by developing niche industries that have a premium in the global economy. This, in effect , means a tightened, and reinvigorated industrial policy where targeted subsidies and support may be given to promising and profitable industries.

The banks also have another role to play: that of vigorously supporting new entrepreneurship and funding ideas- even crazy ones. It is in combination and in sync that these policies can reorient our political economy and lead to both a qualitative and quantitative shift of our economy. It is then that we may be able to compete and flourish in an environment where speed and miniaturization and economies of scope triumph over size, heaviness andeconomies of scale. It is about time that we choose the latter. In the meantime, I will enjoy the range of music available on my MP3 player while doing other stuff simultaneously and acknowledge my debt to Schumpeter and Friedman.