Friday, March 17, 2006
Dependency among Democracies
Few days ago I listened to one of the brightest VC minds in the Silicon Valley - Pramod Haque from Norwest Ventures - discuss the power of US superiority in technology and how aging "baby boomer" population may impact that superiority. Pramod is a charismatic and thoughtful speaker. He made a great case for investing to sustain the technical superiority of the US economy that has resulted in our global superpower status - economically and militarily. I wonder if any one would argue against that point.
He highlighted the entrepreneurial significance of "integrated circuit" coming out of Rockwell labs and the Internet coming out of DARPA efforts, spread across various national labs. He used that foundation to discuss why US government must continue to invest in product development labs, not just in theoretical research, to sustain that advantage. He then pointed to the aging demographic profile of our population and argued that we are unlikely to have enough "thinkers and engineers" to staff these labs and create new products that create new markets and sustain the technical advantage. China and India are two natural potential sources of such engineering and scientific talent, according to college graduation and population statistics quoted by him. However, there is now a "reverse brain drain" occurring due to those economies experiencing "red hot" growth, creating ample opportunities for entrepreneurs. His basic case, therefore, is that US must foster joint national development labs with these countries, that turns this trend into an advantage and still gives U.S the necessary technical edge.
Without a doubt, US has strong ties to China in the manufacturing sector. Ties with India are growing stronger every year in the high technology products and services area. Citing that strength and growing inter-dependence, he argued that US and India must create "product development labs" with joint government funding. Of course, the vested interest for him and other VCs (which he did not shy away from mentioning) is that the commercialization of those products will be left to VCs. In other words, his case is that let the tax payers fund the risky early stage technology "development" and he and other VCs will get the "upside" later.
There was a sound logic to his argument, despite the obvious selfishness. Yes, government level involvement is necessary to build strong technical infrastructures that result in new products and new markets. Yes, such a growth and technical superiority is necessary to continue to grow our economy, that will result in tax payments to fund our current debt and future entitlement program needs. This argues for protecting and growing our economic interests through strong national investments - great idea. Yes, aging baby boomer population and "reverse brain drain" can adversely affect our future competitive advantage - we must act.
However, part of his speech alluded to the growing strength of the Chinese economy and how a "strong dictatorial" China poses a security issue and needs a counter balance in that region to protect our "defensive interests". This part of the discussion that alluded to "US India development labs" are part of a "national security", "geo political balance" investment was confusing me. Frankly it was distracting from the main case.
From my observation of history, I think democracies strike partnerships based on at least two out of three anchor interests. (1) Political interests (2) Defense interests (3) Economic interests. For example, the strong relationship between South Korea and US was formed based on (1) and (2) but it is stronger and growing today because of (3). However, as time progresses, if the economic dependency between democracies do not increase the strength of the relationship deteriorates. Any time US has stuck relationships based solely on political and military reasons, they end up becoming "alliances" of convenience that often fade away over time and occasionally turn against us. Our historical "strategic" relationships with dictators of Iran, Iraq should present the strongest clue here.
Granted China and India represent two different set of choices when it comes to political, defense and economic choices. China with it's single party rule, lack of free speech, artificial currency, highly regulated financial markets, limited property and foreign ownership rights, partially fair legal system and language barriers continue to be an enigma for the western capitalistic minds. India on the other hand, depsite its dilapidated infrastructure, continues to show strength in nurturing democratic principles, rule of law, open financial markets and secular population. Indian entrepreneurs have certainly seized the moment in the information revolution era by creating a burgeoning IT industry that competes efficiently in global markets. India's ties with Soviet union in the past have given pause to US policy makers, but India seems to have made substantial strides in opening up it's markets the past decade and letting economic matters influence public policy than the convoluted "enemy of enemy is our friend" style of the past. The most telling of this attitude is the recent budget speech by Indian Finance Minister, P. Chidambaram, that is summarized in his quote, "Growth is the best antidote to poverty"
Considering the fact Indians seem to have adopted a capitalistic attitude towards their future, albeit with a socialistic bent (perhaps true compassionate capitalism?), I think US is better off strengthening this relationship on this principle alone. Positioning that relationship as a counter balance to China would be a mistake. First, as someone stated, there is no faster way to clear a room full of Indian politicians and strategists than to suggest that India be a political and military counter balance to China. As nervous and cynical as India is about China based on past military conflict, I believe Indians are more interested in growing their economic prosperity in co-existence with China, not necessarily in conflict with China. By the way, this happens to be true for US and China too. Who do we think is funding the billions of dollars in debt that we issue every year? Who is funding the booming real estate market by gobbling up "mortgage based securities?". There is no strategic case for making the Chinese nervous by posturing to build a counter balance in the region. On the contrary, the strength of US India relationship, joint labs and other forms of collaboration stands on it's own political, economic merit.
I think a strong US-India relationship is necessary for sustaining the growth of both economies. Enabling the economic growth of a strong democracy such as India through entrepreneurship is the "motherhood and apple pie" aspect of the stated U.S foreign policy. Interestingly, such a growth may also help US national security. First and foremost, Prospering democracies are unlikely to foster religious fundamentalism - the bigger threat we face than communism today. A stronger, propserous and free India may also inspire the Chinese population to accelerate the already subtle change occurring in their political system.
I would simply suggest that Pramod tweak his brilliant speech by focusing more on the political and economic reasons rather than alluding to India as a counter balance to China. A strong China, strong India and a strong US brings about more peace and prosperity to the world than two at a time.
What do you think?
He highlighted the entrepreneurial significance of "integrated circuit" coming out of Rockwell labs and the Internet coming out of DARPA efforts, spread across various national labs. He used that foundation to discuss why US government must continue to invest in product development labs, not just in theoretical research, to sustain that advantage. He then pointed to the aging demographic profile of our population and argued that we are unlikely to have enough "thinkers and engineers" to staff these labs and create new products that create new markets and sustain the technical advantage. China and India are two natural potential sources of such engineering and scientific talent, according to college graduation and population statistics quoted by him. However, there is now a "reverse brain drain" occurring due to those economies experiencing "red hot" growth, creating ample opportunities for entrepreneurs. His basic case, therefore, is that US must foster joint national development labs with these countries, that turns this trend into an advantage and still gives U.S the necessary technical edge.
Without a doubt, US has strong ties to China in the manufacturing sector. Ties with India are growing stronger every year in the high technology products and services area. Citing that strength and growing inter-dependence, he argued that US and India must create "product development labs" with joint government funding. Of course, the vested interest for him and other VCs (which he did not shy away from mentioning) is that the commercialization of those products will be left to VCs. In other words, his case is that let the tax payers fund the risky early stage technology "development" and he and other VCs will get the "upside" later.
There was a sound logic to his argument, despite the obvious selfishness. Yes, government level involvement is necessary to build strong technical infrastructures that result in new products and new markets. Yes, such a growth and technical superiority is necessary to continue to grow our economy, that will result in tax payments to fund our current debt and future entitlement program needs. This argues for protecting and growing our economic interests through strong national investments - great idea. Yes, aging baby boomer population and "reverse brain drain" can adversely affect our future competitive advantage - we must act.
However, part of his speech alluded to the growing strength of the Chinese economy and how a "strong dictatorial" China poses a security issue and needs a counter balance in that region to protect our "defensive interests". This part of the discussion that alluded to "US India development labs" are part of a "national security", "geo political balance" investment was confusing me. Frankly it was distracting from the main case.
From my observation of history, I think democracies strike partnerships based on at least two out of three anchor interests. (1) Political interests (2) Defense interests (3) Economic interests. For example, the strong relationship between South Korea and US was formed based on (1) and (2) but it is stronger and growing today because of (3). However, as time progresses, if the economic dependency between democracies do not increase the strength of the relationship deteriorates. Any time US has stuck relationships based solely on political and military reasons, they end up becoming "alliances" of convenience that often fade away over time and occasionally turn against us. Our historical "strategic" relationships with dictators of Iran, Iraq should present the strongest clue here.
Granted China and India represent two different set of choices when it comes to political, defense and economic choices. China with it's single party rule, lack of free speech, artificial currency, highly regulated financial markets, limited property and foreign ownership rights, partially fair legal system and language barriers continue to be an enigma for the western capitalistic minds. India on the other hand, depsite its dilapidated infrastructure, continues to show strength in nurturing democratic principles, rule of law, open financial markets and secular population. Indian entrepreneurs have certainly seized the moment in the information revolution era by creating a burgeoning IT industry that competes efficiently in global markets. India's ties with Soviet union in the past have given pause to US policy makers, but India seems to have made substantial strides in opening up it's markets the past decade and letting economic matters influence public policy than the convoluted "enemy of enemy is our friend" style of the past. The most telling of this attitude is the recent budget speech by Indian Finance Minister, P. Chidambaram, that is summarized in his quote, "Growth is the best antidote to poverty"
Considering the fact Indians seem to have adopted a capitalistic attitude towards their future, albeit with a socialistic bent (perhaps true compassionate capitalism?), I think US is better off strengthening this relationship on this principle alone. Positioning that relationship as a counter balance to China would be a mistake. First, as someone stated, there is no faster way to clear a room full of Indian politicians and strategists than to suggest that India be a political and military counter balance to China. As nervous and cynical as India is about China based on past military conflict, I believe Indians are more interested in growing their economic prosperity in co-existence with China, not necessarily in conflict with China. By the way, this happens to be true for US and China too. Who do we think is funding the billions of dollars in debt that we issue every year? Who is funding the booming real estate market by gobbling up "mortgage based securities?". There is no strategic case for making the Chinese nervous by posturing to build a counter balance in the region. On the contrary, the strength of US India relationship, joint labs and other forms of collaboration stands on it's own political, economic merit.
I think a strong US-India relationship is necessary for sustaining the growth of both economies. Enabling the economic growth of a strong democracy such as India through entrepreneurship is the "motherhood and apple pie" aspect of the stated U.S foreign policy. Interestingly, such a growth may also help US national security. First and foremost, Prospering democracies are unlikely to foster religious fundamentalism - the bigger threat we face than communism today. A stronger, propserous and free India may also inspire the Chinese population to accelerate the already subtle change occurring in their political system.
I would simply suggest that Pramod tweak his brilliant speech by focusing more on the political and economic reasons rather than alluding to India as a counter balance to China. A strong China, strong India and a strong US brings about more peace and prosperity to the world than two at a time.
What do you think?
