The Futurist

Economic Trendline Reversion Does Not Happen Evenly

If we could point to one aspect that makes the modern era different from centuries past, the premier candidate for that distinction is how the centuries-established exponential, accelerating trend of technological progress manifests in economics, and the fact that the trendline is now in a steep upward trajectory.  These are all worldwide metrics, and have to be.  But if one examines the components, the variance contained therein is immense.

One table that I use relatively often is the one that depicts relative GDP gain by country, and have in the past used it to describe how the 2008-09 crisis led to the rebound happening elsewhere.  Google has just updated its economic data engine for 2017, enabling a full decade to be included from the start of the prior crisis.   This enables us to see what happens when the global economy experiences a major dislocation.  The Great Depression (1929-39) was one such dislocaton, and while the trendline is too steep today for a downturn of similar duration to manifest in the global economy, the more recent dislocation was almost as dramatic in terms of how it reoriented the tectonic plates of the global economy.  

From the table, we see that the World Economy grew by 40% in Nominal GDP.  We do not adjust for inflation in these metrics for reasons detailed in the ATOM publication, and we take the US$ metric as universal.  

The US, remarkably, did not grow at a much slower rate than the world average, and hence has not yet experienced a substantial proportional shrinkage.  By contrast, the rest of the advanced world has scarcely grown at all, while European economies have outright shrunk.  An advanced country, of course, does not have the same set of factors to contend with as an emerging economy that is at a stage where high growth is easier, hence this is really two tables in one.  India's underperformance relative to China is just as substandard as the UK's underperformance relative to the US.  

China has effectively dominated the entire world's growth.  China has grown at an astounding 245%, partly due to a structural strengthening of its currency, which itself is partly due to their more advanced understanding of technological deflation and the monetization of such through their central bank (as per the ATOM concepts).  India has not experienced any such strengthening of its currency (quite the opposite, in fact), which is why India's economy has grown at a far slower rate despite starting from a very low base.  

Consider this other chart, of GDP distribution by country (as per the current borders) from the year 1 until 2017.  The growth of China (and to a lesser extent, India) appears to be a reversion to a status quo that existed from the dawn of civilization all the way until the early 19th century.  If this factor is combined with the exponential trend of world growth, then China's current outperformance seems less like an aberration.  

This begs the question of what the next decade will look like.  There is almost no chance that China can outperform the RoW by the same magnitude from this point onwards, simply due to the RoW no longer being large enough to manage the same intake of Chinese exports relative to China's size as before.  But will the convergence take the form of China slowing down or the RoW speeding up?  Will India experience the same convergence to pre-19th century proportional size, or is India a lost cause?

Under the ATOM program, it could certainly be the latter, since the advanced economies already have enough technological deflation that they can monetize it through central bank monetary creation.  China, by contrast, will not be technologically dense enough for it until 2024 or so.  The US could rise to 5-6%/year Real GDP growth by 2025.  

The current mindset in the Economics profession is vastly outdated, and there is little to no curiosity about accelerating economic growth rates, or about the relationship between technological deflation and central bank monetary action.  If China can no longer be an outlet to accommodate the entirety of the trendline reversion force that is seeking to work around these obstructions, then explosive growth combined with chaotic disruption will happen somewhere else.  

 

Related ATOM Chapters :

2.  The Exponential Trendline of Economic Growth

 

 

Why Government is Set to Constrict Silicon Valley

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

- Robert Heinlein

The secret sauce of Silicon Valley is the tradition of leaving established companies to start or join new ones, secure funding from venture capitalists, build the company to a suitable size, and then either float or sell the company for a windfall to the founders and early employees.  The incentive to continue this practice is the engine that keeps the fire of human technological innovation alive. 

Silicon Valley's unique ecosystem has so far been nearly impossible to eclipse.  The combination of research universities, the best and brightest immigrants from India and China, a culture of entrepreneurship, and a nearly perfect climate has kept the competitors to Silicon Valley at bay.  In the 1990s, the prevalent belief was that the high cost of living in Silicon Valley would enable Austin, Dallas, Seattle, and Phoenix to attract technology workers and cultivate their own tech sectors.  This did not happen, as the Silicon Valley ecosystem just had too strong of a gravitational pull. 

This, however, should not be an excuse for complacency, or a belief that Silicon Valley is a bottomless supply of tax revenue.  There are four steps that would make Silicon Valley prohibitively inhospitable to the formation of new ventures. Any one of these by itself would not be enough to dent the might of the Silicon Valley engine, but all four combined would exceed the breaking point.  The first two of these four steps have already happened, and the final two are set to happen, barring direct intervention. 

The four steps are :

1) Sarbanes-Oxley : This attempt to reduce the risk of another Enron-style fraud has inflicted a cost on the US economy greater than 100 Enron collapses.  In Silicon Valley, the crushing costs of Sarbanes-Oxley compliance (up to $3M a year) have dried up IPOs to a trickle, as the prospect of spending money of compliance that could otherwise be spent on R&D is unappealing.  IPOs are less frequent than they were even in the early 1990s, before the bubble, and start-ups can only hope to be acquired by a larger company.  In the last 8 years, only two IPOs were large enough to be considered 'blockbuster' : Google and VMWare.  This crushes the incentive to leave stable jobs to go work at a new venture. 

2) Tortuous Immigration Process : Any list of the most successful people in the history of Silicon Valley will quickly reveal that at least one third of them were born outside of the US.  In response, America has chosen to make it much harder for more such people to come here, even as the quality of life in their home countries is rising. 

While politicians pander to illegal immigrants with minimal education, they somehow refuse to make immigration easier for legal, highly-skilled immigrants who start new ventures in America.  This is significant given the fact that about half of Silicon Valley's skilled workforce is Indian or Chinese.  Many are choosing to return to their home countries in exasperation, and are advising their younger relatives that the US immigration process is so tedious that it is better to pursue their careers at home, working for Indian or Chinese branches of HP or Microsoft. 

Under current procedures, an engineer from India or China has to be on an H1-B visa for 6 years before he can get a greencard.  If he changes employers during that period, he has to start the clock again.  The immigrant's spouse cannot work during this period.  Even after the greencard, it takes 5 more years to become a US citizen.  Unsurprisingly, the best and brightest are deciding that this 11-year limbo is not worth it, and return to their home countries (eventually starting companies there rather than in Silicon Valley).  In the 1990s, Americans had not even heard of Bangalore or Suzhou. 

I have written up a detailed solution to this problem over here. 

___________________________________________________________________________

If these two factors weren't bad enough, two more negatives are about to be piled on. 

3) California State Income Taxes are Set to Rise : The budget shortfalls and underfunded pensions in California are a ticking time bomb.  CalPERS, which invests in many of the top venture capital funds that nurture the growth of start-ups in Silicon Valley, is in a shambolic state, and has to add $80 billion in assets just to meet present obligations.  The top income bracket in California is already taxed at 9.3%, and this is set to rise.  Sales taxes are also set to rise.  Due to this horrendous mismanagement worthy of a banana republic, California will soon reach a tipping point where taxes are so high as to destroy California's private sector, which until now has been the envy of the world.  It would, of course, be better to reduce CA state expenditures, but government officials have made it clear that raising taxes is their preferred course of action. 

Victor Davis Hanson explains California's black hole in more detail. 

4) Federal Income Taxes are Set to Rise : If the Bush tax cuts are allowed to expire, then from 2011 onwards, the top income bracket will be taxed at 39.6% rather than the current 35%.  Here, too, the concept of reducing expenditures is not palatable to Washington decision-makers.  While this does affect the entire US equally, when this is combined with the increase in California Sate tax, the combined marginal tax rate in California rises several percentage points, and possibly rises well above 50%.

The danger here is that each of these factors by themselves are not life-threatening.  But all four of them in cumulative combination are deadly.  So on top of the difficulty of conducting an IPO, and the brain drain out of Silicon Valley back to Asia, if the financial windfall that a worker receives after his startup makes a successful exit is taxed at a grand total of 50-55%, fewer and fewer people will aspire to toil away for years in a startup.  As a result, fewer startups will form in Silicon Valley, and instead will form in Bangalore, Shanghai, and Taipei. 

Furthermore, after these forces have been in effect for a few years a simple reversal of the higher tax rates, dysfunctional immigration policy, and Sarbanes Oxley will not simply restore Silicon Valley to its prior grandeur.  The technology centers in Asia will have achieved critical mass by then, and Silicon Valley will have permanently lost its exclusivity.  It would never recover the dominance it once had. 

Silicon Valley will be reduced to a location that still hosts the headquarters of HP, Intel, Cisco, and Google, but 90% of the employees of these corporations will be overseas, and startups will be rare.  Silicon Valley will effectively become like Cleveland or Pittsburgh, which even today host the headquarters of more than 20 Fortune 500 corporations each, but still have a lower population than they each had in 1960, and cannot attract new young people to come and live there.  Cleveland and Pittsburgh are still functioning societies, of course, but their economic vibrancy is irretrievably dead. 

This bleak outlook can certainly be reversed if prompt action is taken now.  Sadly, the current path is one that is set to have a smothering effect on Silicon Valley. 

(crossposted on Techsector)

A Future Timeline for Economics

The accelerating rate of change in many fields of technology all manifest themselves in terms of human development, some of which can be accurately tracked within economic data.  Contrary to what the media may peddle and despite periodic setbacks, average human prosperity is rising at a rate faster than any other time in human history.  I have described this in great detail in prior articles, and I continue to be amazed at how little attention is devoted to the important subject of accelerating economic growth, even by other futurists.

The time has thus come for making specific predictions about the details of future economic advancement.  I hereby present a speculative future timeline of economic events and milestones, which is a sibling article to Economic Growth is Exponential and Accelerating, v2.0. 

2008-09 : A severe US recession and global slowdown still results in global PPP economic growth staying positive in calendar 2008 and 2009.  Negative growth for world GDP, which has not happened since 1973, is not a serious possibility, even though the US and Europe experience GDP contraction in this period.  The world GDP growth rate trendline resides at growth of 4.5% a year.

2010 : World GDP growth rebounds strongly to 5% a year.  More than 3 billion people now live in emerging economies growing at over 6% a year.  More than 80 countries, including China, have achieved a Human Development Index of 0.800 or higher, classifying them as developed countries. 

2011 : Economic mismanagement in the US leads to a tax increase at the start of 2011, combined with higher interest rates on account of the budget deficit.  This leads to a near-recession or even a full recession in the US, despite the recovery out of the 2008-09 recession still being young. 

2012 : Over 2 billion people have access to unlimited broadband Internet service at speeds greater than 1 mbps, a majority of them receiving it through their wireless phone/handheld device. 

2013 : Many single-family homes in the US, particularly in California, are still priced below the levels they reached at the peak in 2006, as predicted in early 2006 on The Futurist.  If one adjusts for cost of capital over this period, many California homes have corrected their valuations by as much as 50%. 

2014 : The positive deflationary economic forces introduced by the Impact of Computing are now large and pervasive enough to generate mainstream attention.  The semiconductor and storage industries combined exceed $800 Billion in size, up from $450 Billion in 2008.  The typical US household is now spending $2500 a year on semiconductors, storage, and other items with rapidly deflating prices per fixed performance.  Of course, the items puchased for $2500 in 2014 can be purchased for $1600 in 2015, $1000 in 2016, $600 in 2017, etc. 

2015 : As predicted in early 2006 on The Futurist, a 4-door sedan with a 240 hp engine, yet costing only 5 cents/mile to operate (the equivalent of 60 mpg of gasoline), is widely available for $35,000 (which is within the middle-class price band by 2015). This is the result of combined advances in energy, lighter nanomaterials, and computerized systems.

2016 : Medical Tourism introduces $100B/year of net deflationary benefit to healthcare costs in the US economy.  Healthcare inflation is slowed, except for the most advanced technologies for life extension. 

2017 : China's per-capita GDP on a PPP basis converges with the world average, resulting in a rise in the Yuan exchange rate.  This is neither good nor bad, but very confusing for trade calculations.  A recession ensues while all the adjustments are sorted out. 

2018 : Among new cars sold, gasoline-only vehicles are now a minority.  Millions of vehicles are electrically charged through solar panels on a daily basis, relieving those consumers of a fuel expenditure that was as high as $3000 a year in 2008.  Some electrical vehicles cost as little as 1 cent/mile to operate. 

2019 : The Dow Jones Industrial Average surpasses 25,000.  The Nasdaq exceeds 5000, finally surpassing the record set 19 years prior in early 2000. 

2020 : World GDP per capita surpasses $15,000 in 2008 dollars (up from $8000 in 2008).  Over 100 of the world's nations have achieved a Human Development Index of 0.800 or higher, with the only major concentrations of poverty being in Africa and South Asia.  The basic necessities of food, clothing, literacy, electricity, and shelter are available to over 90% of the human race. 

Trade between India and the US touches $400 Billion a year, up from only $32 Billion in 2006. 

2022 : Several millon people worldwide are each earning over $50,000 a year through web-based activities.  These activities include blogging, barter trading, video production, web-based retail ventures, and economic activites within virtual worlds.  Some of these people are under the age of 16.  Headlines will be made when a child known to be perpetually glued to his video game one day surprises his parents by disclosing that he has accumulated a legitimate fortune of more than $1 million. 

2024 : The typical US household is now spending over $5000 a year on products and services that are affected by the Impact of Computing, where value received per dollar spent rises dramatically each year.  These include electronic, biotechnology, software, and nanotechnology products.  Even cars are sometimes 'upgraded' in a PC-like manner in order to receive better technology, long before they experience mechanical failure.  Of course, the products and services purchased for this $5000 in 2024 can be obtained for $3200 in 2025, $2000 in 2026, $1300 in 2027, etc. 

2025 : The printing of solid objects through 3-D printers is inexpensive enough for such printers to be common in upper-middle-class homes.  This disrupts the economics of manufacturing, and revamps most manufacturing business models. 

2027 : 90% of humans are now living in nations with a UN Human Development Index greater than 0.800 (the 2008 definition of a 'developed country', approximately that of the US in 1960).  Many Asian nations have achieved per capita income parity with Europe.  Only Africa contains a major concentration of poverty. 

2030 : The United States still has the largest nominal GDP among the world's nations, in excess of $50 Trillion in 2030 dollars.  China's economy is a close second to the US in size.  No other country surpasses even half the size of either of the two twin giants. 

The world GDP growth rate trendline has now surpassed 5% a year.  As the per capita gap has reduced from what it was in 2000, the US now grows at 4% a year, while China grows at 6% a year. 

10,000 billionaires now exist worldwide, causing the term to lose some exclusivity. 

2032 : At least 2 TeraWatts of photovoltaic capacity is in operation worldwide, generating 8% of all energy consumed by society.  Vast solar farms covering several square miles are in operation in North Africa, the Middle East, India, and Australia.  These farms are visible from space. 

2034 : The typical US household is now spending over $10,000 a year on products and services that are affected by the Impact of Computing.  These include electronic, biotech, software, and nanotechnology products.  Of course, the products and services purchased for this $10,000 in 2034 can be obtained for $6400 in 2035, $4000 in 2036, $2500 in 2037, etc. 

2040 : Rapidly accelerating GDP growth is creating astonishing abundance that was unimaginable at the start of the 21st century.  Inequality continues to be high, but this is balanced by the fact that many individual fortunes are created in extremely short times.  The basic tools to produce wealth are available to at least 80% of all humans. 

Greatly increased lifespans are distorting economics, mostly for the better, as active careers last well past the age of 80. 

Tourism into space is affordable for upper middle class people, and is widely undertaken. 

________________________________________________________

I believe that this timeline represents a median forecast for economic growth from many major sources, and will be perceived as too optimistic or too pessimistic by an equal number of readers.  Let's see how closely reality tracks this timeline.

The Culture of Happiness

This is a supplement to my article from Demember 2006 titled The Culture of Success.  In that article, I make a detailed case on how certain cultures are far more likely to produce economic prosperity than others.  A recent chart from The Economist, however, adds another dimension to this thesis.  Economic prosperity is not always a guarantee of happiness.  So which cultures generate greater happiness?

It appears that happiness corelates moderately, but not exactly, with economic prosperity, as Japan and South Korea are less happy than Brazil.  However, happiness certainly does corelate with Western values.  The oldest Democracies, such as the US, Britain, Denmark, etc. are also the happiest countries. 

India warrants special mention.  While India is a genuine democracy, human development indicators reveal India to be one of the least successful societies in terms of wealth creation, even as it was once the world's wealthiest society for over two thousand years.  However, we additionally see from the above chart that India is one of the unhappiest societies in the world.  Suffice it to say that Indian culture, with thousands of years of accumulated baggage calcifying into a rocklike rigidity, has mutated into the most efficient machine imaginable for stripping away human happiness.  One could scarcely invent a more sophisticated infrastructure for extinguishing the basic joys of life if they tried.  The typical American, Australian, or Dane cannot even begin to imagine the sheer variety of obstacles to the pursuit of happiness that can be constructed around the human soul. 

Much more will be written on this subject in the future.

Related :

The Culture of Success

How Far Can 'Medical Tourism' Go?

Studying what lies beneath the surface of market forces can be fascinating.

BusinessWeek has a slideshow depicting major centers for medical tourism, as well as the cost savings of various procedures in relation to the US.  This got me thinking about several dimensions of this concept, particularly since healthcare is 15% of the US economy, yet is also the sector of the US economy, outside of government, where wastage and ineffeciencies are the greatest. 

Many procedures that cost $100,000 or more in the US can be done with equal competence for $10,000 in Thailand or India.  Normally, if something of comparable quality is available for just a tenth of the cost, demand migrates to the cheaper alternative in a huge torrent.  Even after accounting for travel costs, the gulf is immense.  Yet it appears that only a small percentage of US patients for cardiovascular surgery, joint replacements, etc. are going overseas for their operations.  Medical tourism will still only earn a miniscule $4 Billion in 2008 for India, Thailand, and Singapore combined, of which only one-third is from American patients.  Thus, only a fraction of a percent of the US, European, and Japanese healthcare sectors have been dented. 

This, of course, can be due to two reasons :

a) Fears about quality/safety, either real or perceived.

b) Net out-of-pocket cost to the patient still being lower in the US, due to insurance. 

Regarding quality, many of these surgeons are certified by US boards or even educated in US colleges, and accidents do not appear to happen at any greater rate than in the US.  At the same time, it is not possible to pursue malpractice suits against facilities in India or Thailand, which, while certainly an element of risk, itself is part of the reason for their lower price relative to the US.  It is inevitable that some mishap befalls an American patient in Asia, and the media latches onto the story for a week or more, reversing the market demand for medical tourism for years, even if the incidence of such tragedies may be no more than in US hospitals.  In fact, I am surprised it has not happened already. 

In terms of cost, that brings us to the elephant in the room, which is the revelation that it is not India or Thailand that are too cheap, but rather that US healthcare is too expensive to begin with.  I am no expert in this field, but it seems obvious that a lack of market forces in the value chain, a lack of regulation of lawsuits, the horrendous dietary habits of most Americans, and the tendency of consumers to not care about how much the insurance company pays are all contributory factors to what is arguably the greatest tragedy in US economic history.  Socializing the healthcare system will worsen it, for reasons too vast to delve into here.  It is true that many Canadians come to the US for urgent procedures that would require a 3-month wait in Canada. 

However, millions of Americans don't have health insurance at all, and while for some this is by choice, for some it is not.  For them, traveling abroad for a $10,000 heart procedure may be the only affordable option.  Even if the most experienced and well-frequented facilities are in India and Thailand, nearby options also exist in Jamaica and Costa Rica.  Over 20 other countries across Eastern Europe, Asia, and Latin America are also vying for a slice of the pie. 

As unintended consequences ripple through, herein lies the path to forcing some degree of reform of the US healthcare system.  As more Americans either choose or are forced to seek low-cost procedures abroad, even if it is only a small percentage American patients, this will compel insurance companies to include medical tourism options to patients.  The insurance company can offer their own version of malpractice insurance to the patient, cover all travel expenses for the patient and spouse, and even throw in a vacation package and cash incentive.  Even after all this, if the cost of the $10,000 procedure in India or Thailand has now risen to $30,000, it still outcompetes the $100,000 US alternative handily.  Some insurance companies are already starting this with enthusiasm, and before long, all insurance companies will effectively have to compete on this level. 

As the number of Americans combining surgeries with a tropical vacation becomes a small but significant percentage of the total patient pool, the US healthcare system will have no choice but to undertake the difficult reforms to bring costs down at a systemic level, thus benefiting even those Americans who refuse to go overseas, and even procedures that are not candidates for offshoring.  If software development can be outsourced to India where it is one fourth the cost, surgeries cannot expect to be perpetually immune to competition that is a tenth or twentieth of the cost.  Through some combination of tort reform, free-market principles, and preventative focus, US costs will gradually be brought down closer to a market rate.  Perhaps the US can comfortably sustain prices that are 3 times that of Thailand, but not 10 times.  This will be the next industry in the US that is forced to adapt. 

To review, the expected sequence of events is :

1) Americans with no insurance are forced to make a life or death decision to get their surguries abroad, where the service meets or exceeds their expectations. 

2) More insurance companies offer medical tourism with liability guarantees and cash/vacation incentives to American patients.  Only a small fraction of patients are adventurous enough to do this, but all insurance companies are compelled to offer these options.

3) Major centers for medical tourism, after a track record of about a decade, develop solid brands that can attract American patients. 

4) When we finally get to the point that 10% of Americans are traveling abroad for a wide array of procedures, the US will be forced to begin to take measures to reduce costs throughout the healthcare system.  Losing 10% of the market is all that it will take to force some positive changes.  This could begin to happen by 2020. 

Such a sequence of events, of course, will boost the US economy greatly.  Of the $2 Trillion mentioned above, as much as half of that, a whopping $1 Trillion or 7% of the US economy, is estimated to be wastage incurred due to a shortage of market forces in healthcare.  Imagine if that $1 Trillion could be redeployed elsewhere.  A person who saves $90,000 on a heart procedure can choose to use that money on emerging innovations in biotechnology that may be available in the 2020s, such as treatments to slow down or halt some aspects of aging. 

This is not going to be a trend that moves as quickly as some of the others discussed here on The Futurist.  But the economics involved are massive enough that it has certainly caught my eye.  Let's see what happens, both before and after the predicted media frenzy over a foreign medical mishap. 

Update (4/3/08) : Businessweek has an article on how technological advances in medical instrumentation are enabling some surgical procedures to be done with far tinier incisions.  Patients who previously would have to stay in the hospital for a week to recover now can leave in under a day. 

The article also mentions how hospitals are opposed to these technological advancements, as they reduce the number of days of revenue a hospital can collect while a patient recovers after surgury.  This anti-productive, entitlement mentality will hasten the downfall of the US healthcare cartel, as shorter recovery times due to smaller incisions will make a trip to a tech-friendly facility in Thailand or India even more compelling.  When the cost is a tenth and the recovery time is a fifth of what it would be in the US, how long before market forces dominate?

'Outsourcing' - What a Non-Crisis That Turned Out to Be, v2.0

I wrote version 1.0 of this article on November 26, 2006.  16 months later, it is time for version 2.0 to provide more historical context on how misplaced the hype over some fashionable issues eventually turns out to be, and why what once appeared to be a harbinger of doom is now all but forgotten. 

In the 2001-03 economic downturn, the aftermath of the technology bust resulted in hundreds of thousands of software engineers and assorted high-tech workers losing their jobs.  A jittery public was vulnerable to influence from isolationist politicians, with the likes of Lou Dobbs and Pat Buchanan fanning the flames in the media.  As a result, the simple business practice of moving certain components of daily operations to a lower-cost location, if only to keep up with competitors already doing the same, became a dirty word - 'outsourcing'. 

The cover story of Wired Magazine's February 2004 issue was on the outsourcing of software jobs to India.  Within the article, a core theme was the supposedly tremendous hardships that white-collar Americans were about to experience due to a 'giant sucking sound' of jobs going to India.  In the same month, then Presidential candidate John Kerry screamed about the practicies of "Benedict Arnold CEOs" who outsource American jobs to India, hoping to gain the support of isolationists and the economically ignorant.  Elsewhere, very uncharitable things were said by leftists about brown-skinned Indians, due to their rapid adoption of capitalism and globalization at the expense of the leftist plantation where Indians were required to symbolize Gandhian non-violence, zen spirituality, yoga, curries, and the glorification of poverty. 

Let's call February 2004 as time when the bubble of 'outsourcing' fears reached a fevered peak.  Now, what happens whenever a bubble of psychology reaches a peak?

A quick glance at a few economic indicators from the Bureau of Labor Statistics in the 4 years since then reveals the following :

So 7.5 million jobs were created in this short time, the unemployment rate is lower than it has been for 33 of the last 37 years, and wages have risen while real GDP has grown at a 3.2% clip.  There is thus no evidence of job losses, wage erosion, or underemployment over this period.  Take that, Lou Dobbs, Pat Buchanan, John Kerry, Dennis Kucinich, and other assorted demagogues, who have no ability whatsoever to truly grasp the trends that shape our world. 

India, in the meantime, has benefited greatly as well.  GDP growth has averaged 8% a year over this same period, pulling 100 million people out of poverty.  Political ties with the US have strengthened in a manner unlike any previous episode in the last 50 years.  The faster these ties broaden, the better the world will become.  A prosperous India is a critical component to the US achieving favorable outcomes in both the War on Terror and with China, as seen from where India resides on this particular map.  Anti-Americans become apoplectic when they learn that India is the most pro-US country in the world. 

What does the future of outsourcing hold?  Is there still a risk of jobs vanishing from the US at a rate faster than they can be produced, as pessimists still maintain?  Unlikely, even though Internet backbone bandwidth has quintupled in the last 4 years, and many more people in India have PCs and Broadband connections today than in early 2004.  This is because aggregate demand growth has saturated even India's vast labor pool.  Salaries in India have been rising at over 12% a year due to labor shortages, causing their cost advantage to erode.  The Wired article from 2004 stated that the average salary of an Indian programmer was $8000 a year; today, it is closer to $15,000 a year in US dollars.  India itself has started outsourcing to Bangladesh and Eastern Europe, which are much smaller labor pools and will also saturate quickly.  Indeed, the trends favor more job creation in America and India. 

Now that we are in another recession, phony issues like this one emerge again.  Democrats are still speaking in protectionist tones, bashing NAFTA and opposing free-trade agreements with Columbia.  But other than a few pessimists, socialists, and racists, it is unlikely to gain much traction, as Americans have seen that the benefits have outweighed the costs by a handsome margin.  BusinessWeek also had an article from 4/24/07, six months after version 1.0 of this article was post, on how misrepresented the outsourcing issue is.

Thus, the bubble of fashionable pessimism has moved to the next topic, which happens to be the decline of the dollar.  This, too, will turn out to be a passing concern that the economy adjusts to after a brief period of pain.  Among other things, a competitively priced dollar has led to Europe outsourcing jobs to the US, and is also working towards reducing US dependence on oil.  A debunking of the 'weak dollar' fad will be posted on another day. 

Related :

Terrorism, Oil, Globalization, and the Impact of Computing

Why I Want Oil to Hit $120 per Barrel

Outsourced Education - the Latest Flattener

Pakistan on the Precipice

As long-time readers know, this weblog has an optimistic outlook on most aspects of our future.  However, there is one particular topic on which I have not yet written, even though I read every available article on the subject.  It is a topic on which I can't assign a sizable probability to any positive outcome.  It is the topic of Pakistan and it's nuclear weapons. 

Pakistan is a country that did not exist until 1947, when it was carved out of British India at the time of Indian Independence.  There were two non-contiguous pieces of Pakistan on either side of India, and East Pakistan separated to become Bangladesh in 1971, after a genocide in East Pakistan killed 1.5 million people (from Wikipedia).   

Today, the remaining nation of Pakistan still has 160 million people, the political boundaries of which still do not corelate to any particular ethnic homogeniety.  In a nutshell, the massive Indus river flows through the middle of the country, to the east of which reside Punjabi and Sindhi groups, which are quite Indian-like in appearance, language, cuisine, and culture, and to the west of which are found Pashtuns and other groups with a distinctly Turkic and Persian culture and appearance.  The Indus river has historically been the natural boundary between Indian and Turco-Persian civilizations for over 2000 years, and evidence of this is visible in Pakistan to this day (image from Wikipedia). 

The 'Indian-like' part of Pakistan amounts to 75% of Pakistan's population, and is experiencing economic growth approaching that of India itself, at 6% to 7% a year.  Globalization is rapidly lifting people out of poverty for the first time.  Despite this, however, Pakistan remains one of the poorest countries outside of Africa, and also a country where democracy is distant, unlike in neighboring India. 

But this 75% of Pakistan is secondary.  The most crucial region is actually the most remote, most medieval, most undeveloped segment of Pakistan, where under 10% of the population resides.  It is the Northwest Frontier Province and Waziristan, where Pakistan's government has never had total control, and where local tribal customs were the only recognized law.  Until the Taliban and Al-Qaeda came to town. 

Now, to grasp the magnitude of the potential horror, consider the following three facts :

1)  Pakistan has 30-50 nuclear weapons.  Whether this technology was delivered directly by China or through North Korea in the 1990s is moot at this point.

2)  Al-Qaeda and the Taliban now control many districts of Northern Pakistan, with Ayman al-Zawahiri and Osama bin Laden (if still alive) also residing there.  Pakistan's army and government have little power to expel Al-Qaeda and the Taliban, and they continually attempt to assassinate President Pervez Musharraf. 

3)  The founder of Pakistan's nuclear program, Abdul Qadeer Khan, was found to be selling nuclear secrets in the black market.  His customer list is still unknown, and there may have been, or still be, others like him.

I can't see how the combination of these 3 facts can result in anything other than the detonation of a nuclear weapon in an act of terrorism against a major US or European city, between now and 2020.  Can anyone say with confidence that the probability of this is low?

Pakistan has already had nuclear weapons for 9 or more years, so why is the risk greater now?  This brings us back to point 2), and to understand the ominous trend of the Taliban gaining control over a greater and greater share of Pakistan, read some of Bill Roggio's articles.  In particular, this map tracks the rate of advancement of the Taliban's control, and distinctly shows them to be metastasizing deeply into Pakistan at an alarming rate. 

President Musharraf is nominally an ally of the US in the War on Terror, to the extent that he cracks down on terrorists when US demands to do so reach a certain intensity.  But this secular dictator is the thinnest of buffers between the current state and a nightmare scenario.  If Musharraf is assassinated and theocratic rule prevails in Pakistan, it would be far worse than the 1979 events in Iran.  Whatever remaining chance there is for terrorists being prevented from gaining access to nuclear weapons (if it is already not too late) resides with President Musharraf, or a similarly secular successor, remaining in power. 

If the Taliban do come into power, the options are few.  While a simple invasion by the US, India, and NATO would dispose of the Taliban quickly, it may not prevent them from retaining and smuggling out the nuclear weapon capabilities.  While most Punjabi and Sindhi Pakistanis have no desire to be ruled by the Taliban, they may not be able to throw off the yoke of subjugation even through a massive civil war (again, with the nuclear technology easily walking off). 

Be afraid.  Be very afraid. 

Outsourced Education - the Latest Flattener

I have come across a modest yet revolutionary concept from an Indian startup by the name of Tutorvista.  The concept is not a complex one, but if this company or others like it are even moderately successful with this business model, we stand to chip away at one of society's most stubborn obstacles to economic upliftment. 

Tutorvista offers unlimited online tutoring in English and Mathematics for just $100 a month, as well as preparatory coaching for standardized tests at fees under a tenth of those charged by traditional brand-name classes.  All 500+ tutors are in India, have degrees in education and the subject taught, and work from home.  I believe there are about 2500 students subscribing to the service to date.  Tutorvista does, however, need to make substantial improvements to their website if they hope to acquire hundreds of thousands of new customers.

The tutoring sessions are interactive through the use of technologies that were not even available to consumers just 7 years ago.  Real-time verbal dialogue is conducted via VoIP, while an onscreen electronic whiteboard enables written exchanges.  Soon, low-cost videoconferencing technologies will combine with high-bandwidth Internet connections to expand interactivity into not just face-to-face lessons, but even multi-party discussions with each participant's face in one division of the screen.

Normally, such tutoring would cost $30 to $50 an hour or more.  Yes, pessimists, racists, and socialists (sometimes the same people) will whine about private tutors losing their wages to 'outsourcing'.  But this loss is dwarfed by gains derived from having access to competent individual tutoring now available to underprivileged or simply ambitious students in America.  Is a 5th grader so keen on algebra that he wants to soak up 8th grade material?  The risk to parents is just $100 (and even that fee can probably be transferred to a lower grade if the material turns out to be too advanced).  Does a student feel embarassed about persistent difficulties with a particular subject?  This model offers privacy that did not exist before. 

Of course, to benefit from Tutorvista, an American student needs both a broadband connection and the self-discipline to study hard.  It is arguable that students for which these two conditions are true do not corelate very closely with those who need the most help.  Yet, I could predict the formation of innovative scholarships devised to grant high-school students some form of 'unlimited Tutorvista access until high-school graduation'.  It may even become a popular perk offered by the parent's employer.

This, like Skype, Wikipedia, Zillow, and MapQuest, is yet another dramatic deflation in the costs (whether monetary or time/hassle-oriented) of accessing a key human need, and is a necessary step in the acceleration of economic growth.  If Tutorvista or a similar company can succeed, the benefits to the US, Indian, and global economies will colossally dwarf the losses of in-person tutor wages and private school fees.  Step back and take a moment to ponder what you have just read - the paradigm for the delivery of education has just changed. 

World and Asian Semiconductor Revenue Growth

I stumbled upon something while reading the Asian Development Bank's report on the world economy.  No big surprises here, but one tiny chart stood out.  The column chart of WW and Asian semiconductor sales from 2001 to 2006 indicates that while Asia accounted for just one third of semiconductor sales in 2001, they comprise half of it today. 

This encompasses a number of the main topics I discuss on The Futurist.  From The Impact of Computing (which is thus higher in Asia than in the rest of the world) to the accelerating rate of GDP growth (which necessitates so many large Asian countries, totaling 3 billion people, to all grow at 6% or more per year, just to keep total world GDP at its trendline).  From cellphone dispersion to PC adoption to enterprise server and router usage, semiconductor sales are just about the best indicator of economic and technological progress. 

Let's see how big of a share of world seminconductor revenues Asia can ultimately consume before the relative maturity of the US market is emulated. 

Related :

Are You Acceleration Aware?

Economic Growth is Exponential and Accelerating

America, in Relation to Peers

Do you feel that America is having a bad time?  That economically, politically, and culturally, we are in a rut?  Do you even wish that America had something that some other nation or region currently has?

Be careful what you wish for.

A European study has estimated that the EU economy is only as developed as the US was 22 years ago.  This does not even include the newest, poorer members of the EU like Romania and Bulgaria, which would drag down the EU stats even further.  Furthermore, the EU has a growth rate slower than that of the US, guaranteeing that the gap will continue to widen. 

Related : More on the Decline of Europe.

But China has a rapid economic growth rate, that enables it to catch up with the US, does it not?  With China's huge population, it needs to merely achieve a per-capita GDP that is one fourth that of the US in order to surpass the total size of the US economy.  That should be relatively easy, no?

China is not permitting new Internet cafes to open in 2007.  So much for free-market supply/demand, or supercharging economic growth through participation in the information age.  It appears that the question of how high prosperity can rise before the demand for personal freedoms directly forces the PRC to curb progress has been answered.  The PRC will continue to face more direct tradeoffs between economic growth and the restriction of personal freedoms.  It will be interesting to see which area they choose to make concessions in over the coming years.

How about India, then?  India will never restrict Internet access for the public, and has a young, growing population that Europe lacks.  GDP growth topping 8% certainly qualifies as enviable.  Surely, India has potential.

And it will always have potential.  If Europe is 22 years behind the US in economic growth, it would be impossible to calculate how far behind India is by that metric, as the US is only 231 years old (and has never been as poor as India is today).  India's infrastructure is so shabby that highways have an average speed of 20 mph, and large cities have to resort to restricting electricity availability to six days a week in order to ease grid overloads.  On the UN Human Development Index, India ranks a miserable 127th, even lower than many dictatorships and communist states.  India's per capita GDP is just $700 a year, a number which, by American standards, seems scarcely higher than zero.  8% annual GDP growth for the next 30 years will still only bring prosperity in India to where Mexico is today.

But, despite India being the poorest entity in this article, all Americans should note that India is the only entity here that is pro-US, and actually wants to emulate the US, rather than create an alternative model like the EU and China have attempted.  India deserves pity, but also encouragement from America. 

So there we have the state of three other regions that America is often compared to.  I will also throw in this chart of per capita GDP on a PPP basis, over the last 60 years.  The biggest takeaway from here is that basic growth appears easy, as a developing nation merely has to copy what was done by advanced nations before, but once a certain ceiling is reached, incremental growth becomes harder.  No large country of over 50 Million people and a per capita GDP greater than $20,000 a year has managed to sustain a growth rate higher than the world average (currently 4.5%) for an extended period.  Thus, China's rapid growth will moderate long before high per-capita GDP is reached, just as Japan's and South Korea's has.  Also note that India was richer than China all the way until 1991, and was probably at parity with South Korea and even near Japan in 1950, until India foolishly allowed itself to fall behind. 

Remember, the true measure of a country is the net of how many people want to get in, and how many want to get out.  This metric appears to rank America right on top. 

Related : Why the US Will Still be the Only Superpower in 2030. 

India-China Growth Rate Comparison

The Economist has a cover story on India's recent acceleration in economic growth, and how irrational exuberance among excitable Indians has led to an unsustainable overheating and the risk of a correction. 

One chart that I have sought for years is a comparison of the historical growth rates between India and China.  This article had that chart, going back to 1974.  Both nations had pathetic growth between 1950 and 1970 (and were indeed even poorer than most African nations at the time).  Since 1980, however, China's lead over India has ranged from large to enormous, with India only (maybe) breaking away from the the 6% trendline now.  As a result, China has gone from being poorer than India in the 1970s to having over twice the per capita income today.  Even now, the narrowing of the gap is questionable at best, as India is amazingly unable to fully cash in on the democratic system that China lacks.   

What prevents India from making common-sense reforms and infrastructure upgrades that the rest of the world has been telling them about for decades?  India's cultural limitations are the primary reason - most of India's key politicians are over the age of 70 and hail from an era and ideology that produced little other than poverty, embarassment, and misery.  Their passing will remove the ideological glass ceiling that prevents further reforms in India.  When any country achieves faster economic growth, it is not just wealth that rises, but intellectual maturity, the quality and diversity of entertainment options, and safety rise as well.  People even become taller and better looking after a generation of economic growth.  I will write a much more colorful article on this subject in the future. 

Update : CNNMoney has an article that is somewhat harsher, but some of the author's statements are poorly reasoned.  Statements 'India has more HIV infected people than any other country' are meaningless unless taken as a percentage of the total population, in which India does not appear anywhere near the top of the list. 

Update 2 : BusinessWeek also has an article.

Related :

World GDP Grew 4.3% in 2005

The Biggest Event of the Last 15 Years : The Stunning Defeat of Socialism

New UN Human Development Data Released

The Culture of Success

This is going to be an article riddled with violations of 'political correctness'.  As a result, we have an opportunity to think about a subject in an informative and unique context, two characteristics that 'political correctness' preclude. 

First, let us put the United States aside for a moment, and look at the recent Human Development Index map :

The first question we can ask is why Australia and New Zealand are wealthy, while Haiti and Liberia are among the world's poorest.  All four are countries that are inhabited and governed by people who have been there for under 200 years.  Let me also provide the disclaimer that the reason is not because of the skin color of the inhabitants of those countries. 

So why is the outcome of the two populations of African origin so incredibly worse than that of the two populations of Anglo-Saxon Protestant origin?

One word : Culture.

Cultures of specific ethnic groups are formed over the the course of centuries, not just decades.  The early inhabitants of Australia and New Zealand (and Canada) were already conditioned with centuries of Anglo-Saxon Protestant culture, wherein the necessary ingredients of democracy, industry, and rule of law were already internalized.  Hence, Australia, New Zealand, and Canada, despite being on separate paths for two centuries, still have produced remarkably similar outcomes.  At the other end of the scale, Haiti gained independence in 1804, yet is still the only country in the Western Hemisphere with African levels of poverty - even Mexico is a paradise by comparison.  Liberia is a country created for freed US slaves to return to in order to create a new home in Africa, with a constitution modeled off of the US constitution, and with ongoing benefits of US financial aid and mentorship.  Nonetheless, Liberia is no more advanced that the traditional African countries that surround it.  This leads to a conclusion that most sub-Saharan African cultures, over the course of centuries, never developed the intellectual or philosophical foundations of science, legal institutions, or productivity.  Being separated from African society for two centuries is not sufficient to undo the millennia of anti-advancement conditioning that generations of people received in Africa, and hence the outcomes are still inevitably similar. 

Ponder that for a moment, and then let us return to the United States.

Today, African-Americans in the United States have lower incomes than whites, even decades after the Civil Rights Movement and 140 years after the last slaves were freed.  In 2006, average annual household income for whites is $49,000 while for African-Americans is just $30,134.  It is true that institutionalized discrimination, segregation, and the forced separation of families are all sad chapters in the history of how African Americans were treated in the US.  At the same time, they have received benefits like affirmative action, special scholarships, and other programs to help undo the damage previously inflicted upon them, and do have dominance in lucrative fields such as sports and music.  The examples of Australia, New Zealand, Canada, Haiti, Liberia, and Africa in general make it illogical to view the US as a microcosm, and the logical conclusion becomes that African-Americans still are within the partial clutches of African cultural traits that make economic advancement difficult.  Centuries of life in the US have undone a portion of this, resulting in African Americans being far wealthier than blacks anywhere else in the world.  However, it will still take a long time for them to fully gain economic parity with whites, in the US or in any other country in the world.  The accelerating rate of change may help compress what would have previously taken centuries into mere decades, but the sheer enormity of the process of cultural transformation should not be underestimated. 

Here is an article with more details on what cultural factors result in societal failure, and much of this can be seen in African societies.

Again, this has nothing to do with skin color, and there will be many individual exceptions to the majority.  A black infant adopted by a Jewish or WASP family will achieve the same success as others of those groups, provided his childhood interactions are predominantly with others of his adoptive parents' ethnicity, rather than with poorer blacks.

Thus, the notion of 'racism' in the US is no longer an accurate one, and the concept of 'culturism' provides a better assessment of why income disparities exist between whites and blacks across and within dozens of nations today.  The evidence is overwhelming, but discussion of culturism may also become a societal taboo. 

But this concept is not complete without mention of the third type of culture that exists in the modern world : the Wheelbarrow cultures. 

When using a wheelbarrow, a person can move greater weight than without the wheelbarrow.  But when the person stops pushing it, the wheelbarrow cannot move at all.  If a person were analogous to a wheelbarrow, such a person would be capable of greatness if guided by the right people, but would achieve nothing without such mentorship.  This characteristic can even be seen in entire cultures. 

India and China are countries that as recently as the 1970s, were just as poor as most African nations.  At the same time, Indians and Chinese are the two wealthiest ethnic groups in the US, with an average educational level and household income substantially higher (greater than 1.5X) than that of whites.  This is also true of Indian and Chinese communities in Britain and Australia.  Even after adjusting for educational levels, the natural question arises about why India and China themselves are so poor despite the remarkable consistency with which their emigrants outperform the members of their new host countries. 

It appears that Indians and Chinese often succeed in corelation to the quality of their surroundings.  Speaking from direct experience, Indians tend to be people who are driven to do well when they feel they are guests in another country, and greatly fear the prospect of appearing unimpressive to non-Indians.  The subconscious need to gain the approval of white people is very important to many Indians, and I suspect the same is true for many Chinese.  When Indians are in India, on the other hand, they often default back to unsophisticated and unproductive habits, often with little interest in self-improvement or the betterment of Indian society.  Leading Indian entrepreneur Kanwal Rekhi once said, "Indians are a first-rate people in a third-rate country.  We compete with the best and brightest everywhere, but fail collectively."

Other examples abound.  Countries like Taiwan, Hong Kong, and Singapore speeded ahead of the PRC in economic growth, despite having the same Han Chinese population, due to each having active American/British economic mentorship.  The same can even be observed in North and South Korea, where the economic disparity between the two can be described as one group of wheelbarrows being successfully pushed by the US while the other got no suitable mentorship, and thus remains Communist (a byproduct of wheelbarrows not being pushed by the right people). 

This, therefore, brings us to the final concept of this treatise, which is the "Double Wheelbarrow Effect". 

For a society with untapped wheelbarrow potential to achieve prosperity within the confines of its own culture, it becomes necessary to see examples of members of their culture doing well en masse.  This permits traditional inferiority complexes vis-a-vis whites to vanish and permit previously disenfranchised people to gather the courage to ask "Why not us?".  The prosperity of the first few wheelbarrows can then be multiplied.  This can also be called 'globalization'.

Taiwan and Hong Kong were extremely poor in the 1950s, but rapid wheelbarrow-driven growth leading to prosperity by the 1980s, combined with the Chinese-American community in the US reaching critical mass around the same time, created an army of ethnic Chinese with the knowledge and skills to rapidly expand business ties with the PRC.  So the former wheelbarrows themselves are now enabling mainland Chinese to achieve their full wheelbarrow potential.  Hence, the rapid growth of the PRC became possible when it did, and the double-wheelbarrow growth is going strong even after 20 years. 

India, unlike China, does not have the equivalent of Taiwan, Hong Kong, and Singapore where the wheelbarrow effect could begin 20 years prior due to Chinese seeing other Chinese attaining wealth, so India had to wait for the Indian community in the US (and to a lesser degree in the UK) to achieve critical mass and visible wheelbarrow maturity.  This did not happen until the 2000s, and so the Double Wheelbarrow Effect could not benefit India until recently.  Now, India is finally growing rapidly as US corporations open divisions in India and teach Indian workers about American corporate practices, which long ago had origins in Anglo-Protestant value systems.  This Double Wheelbarrow education results in India being widely discussed in business magazines that just 10 years ago scarcely found any reasons to mention India. 

In other words :

Step 1 : Indian engineer comes to US in late 1960s/1970s, gets job, feels xenophobic, but does well in career.  Bonds with other Indians he would normally not be friends with in India. 

Step 2 : He and his friends rise to senior management or start companies, and by the 2000s, are multimillionaires. 

Step 3 : He helps his company start divisions in India, teaching Indians how productive businesses are run in America, what habits are good to develop and what traditional Indian practices should be jettisoned in the interest of producing something of value.  He meanwhile teaches white American colleagues how many opportunities exist by using what India has to offer and persuades them to invest further.

Thus, the Double Wheelbarrow Effect is what is responsible for the rise of China starting in the 1980s and India starting in the 2000s.  The conventional wisdom credits China's 1979 reforms and India's 1991 reforms, but those merely represent the locks being taken off the wheelbarrows.  The actual pushing could only have happened when it did, not sooner, due to the need of the first diaspora wheelbarrows to achieve critical mass.  But now, the double wheelbarrow tide is so strong that India and China are even devising ambitious space programs. 

I'm going to give this subject a bit more thought and make some tweaks to the article (I, too, am a wheelbarrow).  There is more to be done on this subject.

'Outsourcing' - What a Non-Crisis That Turned Out to Be

(Please see Version 2.0, posted on March 18, 2008).

In the 2001-03 economic downturn, the aftermath of the technology bust resulted in hundreds of thousands of software engineers and assorted high-tech workers losing their jobs.  A jittery public was vulnerable to influence from isolationist politicians, with the likes of Lou Dobbs and Pat Buchanan fanning the flames in the media.  As a result, the simple business practice of moving certain components of daily operations to a lower-cost location, if only to keep up with competitors already doing the same, became a dirty word - 'outsourcing'. 

The cover story of Wired Magazine's February 2004 issue was on the outsourcing of software jobs to India.  Within the article, a core theme was the supposedly tremendous hardships that white-collar Americans were about to experience due to a 'giant sucking sound' of jobs going to India.  In the same month, then Presidential candidate John Kerry screamed about the practicies of "Benedict Arnold CEOs" who outsource American jobs to India, hoping to gain the support of isolationists and the economically ignorant.  Elsewhere, very uncharitable things were said by leftists about brown-skinned Indians, due to their rapid adoption of capitalism and globalization at the expense of the leftist plantation where Indians were required to symbolize Gandhian non-violence, zen spirituality, yoga, curries, and the glorification of poverty. 

Let's call February 2004 as time when fears of 'outsourcing' reached a fevered peak. 

A quick glance at a few economic indicators from the Bureau of Labor Statistics since then reveals the following :

So 5.4 million jobs were created in this short time, the unemployment rate is lower than it has been for 32 of the last 35 years, and wages have risen while real GDP has grown at a 3.5% clip.  That has been the extent of the damage to the US economy.  Take that, Lou Dobbs, Pat Buchanan, John Kerry, Dennis Kucinich, and other assorted demagogues, who have no ability whatsoever to truly grasp the trends that shape our world. 

India, in the meantime, has benefited greatly as well.  GDP growth has averaged 8% a year over this same period, and political ties with the US have strengthened in a manner unlike any previous period in the last 50 years, as evidenced by the groundbreaking US-India nuclear deal, something that seemed unthinkable even as recently as 1998.  The faster these ties broaden, the better the world will become.  A prosperous India is a critical component to the US achieving favorable outcomes in both the War on Terror and with China, as seen from where India resides on this particular map.  Anti-Americans become apoplectic when they learn that India is the most pro-US country in the world. 

What does the future of outsourcing hold?  Is there still a risk of jobs vanishing from the US at a rate faster than they can be produced, as pessimists still maintain?  Unlikely, even though Internet backbone bandwidth has quadrupled in the last 3 years, and many more people in India have PCs and Broadband connections today than in 2003.  This is because aggregate demand growth has saturated even India's vast labor pool.  Salaries in India have been rising at over 12% a year due to labor shortages, causing their cost advantage to erode.  India itself has started outsourcing to Bangladesh and Eastern Europe, which are much smaller labor pools and will also saturate quickly.  If anything, the trends favor more job creation in America and India. 

The next time there is a recession, this could emerge as a phony issue again.  But other than a few pessimists, socialists, and racists, it is unlikely to gain much traction, as Americans have seen that the benefits have outweighed the costs by a handsome margin.

Update (4/24/07) : BusinessWeek also has an article on how misrepresented the outsourcing issue is.

New UN Human Development Data Released

The UN has released Human Development Data for 2004 (it usually lags by about 2 years).  The changes per year are not large, but the website has added a new feature by which the Human Development Index (HDI) of a country can be graphed and compared to other regions of the world.

Currently, if the world is divided into three categories of human development (high, medium, and low), the distribution is as follows (from Wikipedia).  The immediate observation is that outside of Africa, extreme poverty is a rare occurance in the modern world. 

 

The older 2003 data is divided into finer segments to provide greater precision :

Upon examination of the data by country, a few other points present themselves :

Only 20 countries had a score greater than 0.800 in 1975, but by 2004, 63 countries had crossed that barrier.  This can be linked entirely to the diffusion of technology, spread of globalization, and the emergence of the United States as the dominant economic model in the world, creating win-win trade arrangements with many other countries.  The progress in HDI across the world thus mirrors a corresponding rise in democracy, which I have argued has led to a drop in warfare. 

Ireland used to be significantly behind Britain, France, and Germany, but has now overtaken them.  Guess what Ireland's tax rates are compared to those of the other three?

For all the media gloom about the US falling behind other countries, it has been ahead of the composite average of OECD countries by about the same margin for the last 30 years.  The US economic growth rate continues to be higher than the average for OECD nations. 

Mexico is considered to be a poor country, with a reputation for having citizens who seek to escape to the United States.  However, it is still better off than most of the countries in the Eastern Hemisphere, including Russia and Saudi Arabia. 

China will soon overtake Russia, which is still at a lower level than it was at in 1990.  The rapid improvements in China have greatly reduced the total number of the world's people living in extreme poverty.  Russia, on the other hand has been overtaken by at least 25 other countries over just the last 15 years. 

Related :

These Are The Best of Times

The Winds of War, the Sands of Time

Why the US Will Still be the Only Superpower in 2030

The Age of Democracy

Economic Growth is Exponential and Accelerating

The Biggest Event of the Last 15 Years : The Stunning Defeat of Socialism

The Age of Democracy

We often hear about how the US has no business spreading democracy to other nations by force, or how Islamic societies are not capable of functioning as liberal democracies.  But how well do these conclusions stand up to the historical trends in the evolution of democracy? 

First, consider that economic growth is exponential and accelerating, and the trendline of world economic growth is now close to 5% a year at Purchasing Power Parity. 

Next, consider that conflict between nations drops as freedom and economic growth increases.  No two nations that are both democracies and have per capita incomes greater than $10,000 a year have ever gone to war with each other, and the number of countries meeting these two criteria continues to rise. 

Lastly, let us measure the spread of democracy across the world in recent times.  The map below is the result of research conducted by Freedom House (source : Wikipedia).  Countries in green are free, yellow are partially free, and red are unfree.

From this, a few observations can be made :

1) The Western Hemisphere has done a much better job of establishing democracy than the Eastern Hemisphere, with 90% of Western Hemisphere residents living in green counties. 

2) India is hugely important to any discussion of increasing democracy in the world, given its size and what it is surrounded by.  The US would do well to cultivate broader ties with India as quickly as possible, and India would do well to cooperate rather than revert back to 'non-aligned' nonsense. 

The next question is, is there a rate at which the nations of the world have evolved towards democracy?  The same research from freedom house shows the growth in green countries at the expense of red countries from 1972 to today. 

 

The march towards democracy appears to be quite solid, and includes such events as the collapse of the USSR and liberation of Eastern Europe.  This chart unfortunately treats all countries equally, regardless of size, and thus does not take into account that Democracy in India is more valuable to the world than democracy in Estonia.  Nonetheless, a population-weighted chart would still show a similarly rapid migration from red to yellow to green - 1 billion people have upgraded at least one level since 1972 alone. 

The question now becomes, have the prospects for democracy saturated, where any nation that had the basic cultural foundations of democracy has already become one, and those without this foundation will take a very long time to adapt?  Or is the trend we see in the chart still alive?  To believe that the evolution of nations towards democracy will continue unabated, two things have to occur : 

1) China will have to move from the red column to the yellow column.  China is rapidly closing in on a GDP per capita greater than $10,000 per year, and this has usually corelated to greater political freedom in most nations.  I believe China will make such reforms by 2015, when they see that their robust economic growth has trouble advancing further without such freedoms.  Such a change in China would move the entire center of gravity of the world's governments significantly towards freedom. 

2) Afghanistan and Iraq will have to become genuine green countries.  There are many reasons to believe that this will be achieved in Iraq by 2008.  Anti-Americans, who are generally opposed to democracy, have attempted to sabotage these efforts, but have exhausted most of the tricks available to them.  Once these two beacons of democracy are established, the rest of the region will have an open flank exposed to the winds of freedom. 

These two events will trigger another wave of the democratic domino effect in countries throughout the continent of Asia.  Many countries like Vietnam, Thailand, Pakistan, Malaysia, and Iran all have GDP growth rates greater than 6%, and in order to continue this growth, political freedom is a necessity that they will have eventually evolve towards.  Catalysts like the two events above could be just the thing to move more reds to yellows and yellows to greens. 

Related :

The Winds of War, the Sands of Time

Economic Growth is Exponential and Accelerating

We Will Decisively Win in Iraq...in 2008

Stock Market Capitalization in Developing Countries

An interesting table in The Economist compared the market capitalizations of stock markets in developing nations.  The first surprise is that the top seven stock markets are so close to each other in size.  The next observation is that stock market capitalization has less to do with the GDP of the country than one would expect.  China, which has the largest economy by far among countries on this list, has a smaller market cap than India or Russia.  That Hong Kong and Taiwan approach China in size despite vastly smaller populations makes China look even more surprising.  The large and wealthy diasporas of India and Han Chinese of Taiwan and Hong Kong are also a reason why these countries have market caps larger than their GDPs would suggest. 

In any event, these numbers are dwarfed by the United States, which has a total stock market capitalization of $20 Trillion, or 30 times greater than that of South Korea, India, or China.  One company, General Electric, if placed on this list, would be between Taiwan and Mexico to take 9th place.  And the US market cap grows at 8% a year (without assuming acceleration), which would bring it to $130 Trillion by 2030.  If China or India want to match the US market cap in size by 2030, that means they have to grow at 25% a year for the next 24 years straight. 

This tells you how far any other country is from surpassing the US as an economic superpower.  This will be worth visiting again when one of the countries above crosses $5 Trillion. 

Related :

The Stock Market is Exponential and Accelerating

Why the US Will Still be the Only Superpower in 2030

Who Hates America?

An interesting survey by the PewResearchCenter, cited in The Economist, asks the citizens of several countries for their opinion of the United States.  Comparing this to the socioeconomic history and current characteristics of each of these nations allows some corelations to present themselves.

In the US itself, 17% view their country negatively.  I have claimed earlier that 8-10% of the US population comprises of active or semi-active fifth-columnists, who seek to undermine American strength and security, yet cannot bring themselves to openly admit this deeply held belief, nor move to another country.  This survey appears to offer further evidence of this fifth column. 

Next comes the big surprise.  Most Americans are entirely unaware that the most pro-US foreign country in the world is India.  It is also one of the only countries where George W. Bush is more highly regarded than in the US.  The reason for this is that during the period of Indian socialism and economic isolation (1947-91), Indians were fed a constant diet of anti-American, anti-capitalism propaganda. The utter failure of India's socialist policies, combined with the emergence of the Indian-American community as the wealthiest ethnic group in the US, led to a deep appreciation for a socioeconomic system proven to empower Indians.  As a democracy, Indians could understand America more readily than the Chinese or Arabs could.  All this has led to a nation with 3 times the population of Europe trending towards becoming one of America's closest economic, political, ideological, and military allies. 

Other pro-America nations such as Poland and Russia have also made the assumption that anti-American, socialist practices failed to deliver economic benefits for decades, so the opposite approach must be more beneficial. 

Anti-Americanism does dominate among many non-English-speaking European countries.  Americans may be saddened by this, considering how American sacrifices in troops and resources have saved Europe twice in the last 65 years.  Most of these countries have declining populations and a shortage of children being produced.  It is ironic that people such as the French and Germans, who consider their societies to be so great, have little desire to continue it through producing another generation of French and German people.  Their crushing entitlement programs and demographic time bomb have doomed their societies, and the unwillingness of America to follow them down this path has caused great envy towards America among 55-70% of the population in some European countries.  Read this article from Germany's Der Spiegel, authored by a rare European with a sense of historical context. 

Lastly, the most staunch anti-Americanism is present among undemocratic Islamic societies.  This is not a surprise.  However, not included in this survey are Afghanistan and Iraq, where pro-American sentiments are slightly dominant. 

The next time a fashion-parroting ignoramus or fifth-columnist informs you of how 'the rest of the world hates America', forward them this article, and remind them that India has more people than Europe and the Middle East put together.  The delusions of fifth-columnists represent merely their fanatical hatred of a society that celebrates meritocracy, strong families, a powerful and proud military, and a great thirst for achievement. 

Also refer them to this superb article by Victor Davis Hanson on how America can judge itself on the character of societies that exhibit anti-Americanism, and how most of their rhetoric masks a deep shame at being dependent on America.  He states :

When Europe orders all American troops out; when Japan claims our textbooks whitewash the Japanese forced internment or Hiroshima; when China cites unfair trade with the United States; when South Korea says get the hell off our DMZ; when India complains that we are dumping outsourced jobs on them; when Egypt, Jordan, and the Palestinians refuse cash aid; when Canada complains that we are not carrying our weight in collective North American defense; when the United Nations moves to Damascus; when the Arab Street seethes that we are pushing theocrats and autocrats down its throat; when Mexico builds a fence to keep us out; when Latin America proclaims a boycott of the culturally imperialistic Major Leagues; and when the world ignores American books, films, and popular culture, then perhaps we should be worried. But something tells me none of that is going to happen in this lifetime.

Nicely put.  Also read why America will still be the only superpower by 2030. 

Update : Some anti-Americans have exhibited racism towards Indians in the comments section, frustrated that a group of dark-skinned people can be economically successful and pro-American.  They have also said that the survey has been rigged to falsely show that some countries are pro-US, but simultaneously claim that the same survey has not been rigged in countries that turned out to be anti-US.  These anti-Americans, as usual, cannot answer simple questions posed to them.  Read all about it in the comments section. 

Nuclear Deal Signed with India, American Diplomat Killed in Pakistan

President Bush's critical visits to India and Pakistan were bound to be anything but dull, and two events have occured in the last 12 hours that signify not only the diverging brand images of both India and Pakistan, but also how many issues of global importance converge on this region. 

India and the US have signed a nuclear energy agreement.  This not only helps world oil prices by easing India's demand for oil, it is essentially a stamp of approval for India as a responsible, democratic chaperone of nuclear weapons. 

This cartoon from Cox and Forkum says it all. 

Things are not so rosy over in Pakistan.  A US diplomat was killed by an Al-Qaeda suicide bomber, an attack strategically planned to complicate Bush's visit there later this week.  Additionally, a major terrorist commander was captured in Bangladesh, a country that used to be part of Pakistan until 1971.  The mainstream media barely mentions this. 

As India's brand image evolves to one of a globally influential democracy with rapidly growing, knowledge-based industries, the brand image of Pakistan continues to degenerate into that of a state full of Al-Qaeda terrorists and those sympathetic towards them.  This cannot be attributed to Islam alone, as India still has about the same aggregate number of Muslims as Pakistan, yet Indian Muslims rarely have been the cause of such suicide-bombings. 

This is also apparent in this Pew survey, indicating that India has a higher opinion of the US than almost any other country, whereas Pakistan is at the other end of the scale, mostly viewing the US negatively. 

We are witnessing a divergence in the fortunes of India and Pakistan (and Bangladesh), which were all one country until 1947.  Can Pakistan change from a dangerous path to join Indian on a productive one?  For the future of the world, it must.

India, Indo-US ties, India nuclear deal, Indian economy, India outsourcing

India's Economy grew at 7.5% last year

India's economy is now the second-fastest growing of any large country in the world, albeit still much slower than the 9.9% that China recorded in 2005.  What is interesting is how quickly the mainstream media went from having a blind spot on India to speaking of it in the same sentence as China.

As recently as 1998, most of the mainstream press was spoke of China as an emerging superpower, while India was still spoken of merely in the context of its nuclear tests, rivalty with Pakistan and its poverty.  Most articles spoke of India and Pakistan under a suggestion that they were equals. 

Now, almost all articles about China being a rising economic superpower also include India.  India has, in just eight short years, changed its entire 'brand' from being one of austere poverty and an intractable, stalemated dispute with Pakistan, to being one of the two rising superpowers in this world, a place with an endless supply of knowledge workers promises to reshape the global economy. 

That there are even articles like this, which compare India and China to see which has more promise, is telling.  Such comparisons were nearly unheard of in the late 1990s. 

What has enabled a country as large as India to revamp its entire 'brand', its perception in the eyes of the world, so completely, in such a short time?

I attribute this to four factors :

1) The rise of Internet usage and bandwidth speeds, permitting more business collaboration between India and the United States.

2) The War on Terror, where a stable, thriving democracy, containing 150 million Muslims, is seen as a model and positive influence on nascent democracies in Afghanistan and Iraq, thus receiving indirect moral support from the US, UK, and Japan.

3) The Indian community in the US reaching critical mass.  Their numbers have more than doubled from 1990 to 2000, and continue to grow.  They are also the highest-income ethnic group in the US, and are developing many business ventures between the US and India. 

4) The gradual, ongoing replacement of older generation Indians with a new generation that is globally aware, tech-savvy, better educated, less xenophobic, and has higher self-esteem.  Older generation Indians kept India under socialist stagnation for decades, and kept Indian society at a lower level of Maslow's hierarchy for far too long.  They were, frankly, an embarassment in many aspects of human existence, and their passing on can only lead to massive progress. 

Prediction : India becomes the foremost economic and political 'fad' of 2006, with at least five cover stories on India in major magazines, in 2006.