Day: July 25, 2006

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Hey, Raj, What’s Happ’nin’?

It’s long-ass essay day here at VM! Here’s a piece from the new ish of Foreign Affairs about the economic dynamo in India. I think India’s in a far better position to succeed than China in the long-term. If you read Mr. Das’ article, you’ll see that there are some major reforms India still needs to implement (in order to get itself out of the way), but I think the Indian version of entrepreneurialism trumps the totalitarianism that still lurks over the Chinese model.

I used to think that the main advantage of India was the bureaucracy installed by the British, but Das’ interpretation is that the bureaucracy is a major problem for the country. It’s possible that we’re both right, insofar as the bureaucracy and its focus on education were necessary for India’s development, but have now grown out of control:

Today, Indians believe that their bureaucracy has become a prime obstacle to development, blocking instead of shepherding economic reforms. They think of bureaucrats as self-serving, obstructive, and corrupt, protected by labor laws and lifetime contracts that render them completely unaccountable. To be sure, there are examples of good performance — the building of the Delhi Metro or the expansion of the national highway system — but these only underscore how often most of the bureaucracy fails. To make matters worse, the term of any one civil servant in a particular job is getting shorter, thanks to an increase in capricious transfers. Prime Minister Singh has instituted a new appraisal system for the top bureaucracy, but it has not done much.

The Indian bureaucracy is a haven of mental power. It still attracts many of the brightest students in the country, who are admitted on the basis of a difficult exam. But despite their very high IQs, most bureaucrats fail as managers. One of the reasons is the bureaucracy’s perverse incentive system; another is poor training in implementation. Indians tend to blame ideology or democracy for their failures, but the real problem is that they value ideas over accomplishment. Great strides are being made on the Delhi Metro not because the project was brilliantly conceived but because its leader sets clear, measurable goals, monitors day-to-day progress, and persistently removes obstacles. Most Indian politicians and civil servants, in contrast, fail to plan their projects well, monitor them, or follow through on them: their performance failures mostly have to do with poor execution.

Anyway, Das makes some neat points about India’s development, most notably the fact that it jumped from essentially an agrarian society to a service-based one, without spending much time as a manufacturing/industrial power.

Just another example of stuff I find fascinating, but probably bore the crap out of you.

So here’s Tom Spurgeon’s writeup about the just-concluded San Diego Comic-Con. Enjoy.

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Today’s post is brought to you by the letters R and D

BusinessWeek has an essay about the lack of innovation at the major telephone companies (yet another installment in the “I care about this stuff; no reason for you to” series). Mind-blowing quote:

One way in which these companies are very different from the old phone monopoly is that while the original AT&T had a world-class research operation, its successors don’t. One of the signal facts of the communications revolution is that virtually all the new technologies that made it possible were developed outside the phone world. Last year, Verizon’s revenue came in at nearly $80 billion. AT&T (without BellSouth or Cingular) had revenue of $44 billion. And yet while Intel Corp. spent $5.1 billion last year on research and development, AT&T spent just $130 million. The word “research” doesn’t even appear in Verizon’s annual report.

Now, in the pharma industry, there’s a lot of talk about “rethinking R&D,” as major companies learned that simply pumping more dollars into the process doesn’t necessarily yield results. When I compiled this year’s Top Pharma Companies report, I noticed that plenty of big guns have reduced their R&D budgets — not drastically, but it was certainly a change from past double-digit increases. And these annual R&D figures were at least $1 billion for the top 17 companies on the list.

Obviously, the drug industry is keyed by development of new products; patent terms dictate that every product has a brief lifespan. When the R&D pipeline falls short, companies turn to in-licensing new drugs. In my many Yankees = Pfizer comments, this equates to buying free agents when the farm system isn’t producing good players.

Turns out that this is the main model for the telcos.

There is something to be said for “buying it elsewhere.” If the big telcos built everything themselves, there would be no Cisco and no Motorola. But years of buying it elsewhere has yielded a culture distrustful of technology — and of progress: It’s impossible to imagine Microsoft developing a big new product and having the lead engineer shift from foot to foot in the corner pretending to be just another customer. It has meant, as with AT&T’s Lightspeed, that telcos are likely to offer services that only match, but not surpass, those available from others. And increasingly their approach has put the telcos on the wrong side of technological innovation, leaving them in the position of protecting their investments in their networks from the encroachments of new ideas.

Anyway, I’m fascinated by the ways major industries function, and this essay provides some neat insights into what it’s like to be an $80 billion player with razr-thin (ha-ha) profit margins. So give it a read.