As is known to any student of economics, there are three phases for a developed capitalist economy: primary, secondary and tertiary. The primary phase includes agriculture, fishing, mining etc., the secondary phase takes in mainly manufacturing and the third phase is comprised of post industrialized service phase.
All the economies of the developed countries of our time, from the United States to Western Europe, to Japan and South Korea, evolved through all three phases. Most of these developed countries are now in the post-industrial phase, with services as the prime contributor to their GDPs.
The collapse of communism in the late 1980s, and the subsequent globalization and liberalization, followed by the introduction of market economies in the former communist states and third world countries resulted in a theatrical shift in the world economy, but in fact this trend had its origin even earlier.
Without compromising on the monopoly of communist power and despite its reluctance to embrace democracy, China opened its closed economy, began to create a world class infrastructure, and turned to attracting foreign direct investment. This transformation in the Chinese economic policy was initiated by Deng Xiaoping in 1978, a decade before the collapse of communism in Eastern Europe.
India, the second largest country in the world, embraced the spirit of market economy in toto thirteen years later, in 1991, as advocated by then finance minister, Dr. Manmohan Sing, who is currently the prime minister. The beginning of the last decade of the last century witnessed an expeditious change in the business model of Western Europe and the United States with a substantial portion of the manufacturing and services being outsourced to third world countries, especially China and India.
Outsourcing has had a very significant impact on the economies of China and India; both having grown at a very fast pace and their roles in international monetary affairs becoming vital.
But from a long term perspective, how far can India continue the momentum of her economic growth? The availability of cheap labor was the primary reason why western business giants preferred outsourcing to the third world. China made use of the manufacturing outsourcing with the support of the first-rate infrastructure it created and India took advantage of the services outsourcing with the support of the technical talent and English proficiency it inherited from its colonial legacy.
Article comments
1 - Haresh Patel
Excellent commentary. India lacks physical resources like energy and water to develop a manufacturing infrastructure like China and Japan. It is too late now because the world economies are saturating and will probably in decline. The population is too large to spare any resources for infrastructure development so it is catch 22 situation.