Posted by: Vikram | January 22, 2009

Can a culture of entrepreneurship emerge in India’s hinterland ?

Okay a quick Q & A session,

Where was Hewlett Packard founded ?

Where were the foundations of Dell Computer laid ?

Where are the headquarters of one of America’s largest management consulting firm ?

Well, New York, Chicago or Los Angeles are not the answers to any of these questions.

Enterprise and innovation in America are geographically diffuse. You can find the global leader in orthopaedic manufacture (replacement limbs) in an otherwise obscure Michigan town. One of the world’s largest banks can be found in Omaha, in the American heartland, far away from any of the big cities. There are a few reasons I can identify personally, the most prominent being that enterprise is embedded in American culture, quite like it is in the culture of Gujarat, the difference being that in America, innovation and technology drives enterprise, not just a ‘knack’ for business. The other important is the amazing uniformity of this nation when it comes to technology and services. I have been to some very small cities in Colorado and Texas but the infrastructure is no different, there are always good roads, power is not an issue and this whole country is wired to the world. Finally, the people who set up this country were very smart with its setup, important governmental and educational institutions that encourage the growth of business around them are scattered across different cities.

Contrast this with the centralization that marks India today. Mumbai is the country’s financial capital, and also the administrative capital and the seat of judiciary of a state larger than most countries ! Dont forget Bollywood. That it is India’s New York, Houston and Los Angeles put together is something that Mumbaikars can be proud of, but not the rest of India. Wouldnt it be wise to start moving some institutions to Maharashtra’s hinterland ?

But more broadly, can we see the rise of innovation and enterprise in interior India ? The man and womanpower is certainly there in abundance. There is a diffusion of educational institutes and some services into the hinterland. Certainly India’s interior is more connected to the ‘first India’ through migration, media and movies today than ever before. And India actually does pretty well when it comes to the spread of credit and banking institutions. Indeed, the British foreign secretary thinks small Indian cities are ‘ripe’ for investment. But that is mostly looking at them as a market, not as centres of entreprenuership.

There are two tracks of economic growth that I can see in the cities of interior India. One is the growth of large-scale manufacturing to service the sizeable middle-class of the larger urban centres and towns. The other is through the higher level skills of young graduates of India’s new NITs and Central Universities, which have been wisely set up in small towns/cities. Although the quality of education in these institutes is a matter of debate, what drives innovation in young graduates is mostly the ability of finding like-minded motivated people (which universities provide), intellectual freedom (which is a problem in most Indian education), and a good exposure to research (which is also question mark). Some cities show a strong correlation between educational institutes and economic growth, examples are Pune, Chennai and Hyderabad. But whether this can be extended more broadly is not clear right now.

Certainly such a development is possible, but I havent seen much evidence of anything like this happening. In recent years we have seen interior India assert itself politically and to some extent culturally, but it remains to be seen that can be translated into economic assertion.

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Responses

  1. “De-Centralization”, I think it is the solution to this and a lot many things 🙂

    Indeed. 🙂

  2. Vikram, the colleges/universities may be set up in small towns and cities, the students mostly come from the big, maybe top 3-5 cities of each state? Innovation has to be from school, a school that allows students to experiment, and do whatever they want with their free time, and parents who allow an all-round development instead of pushing everybody to study, teachers who do not punish students for not having a perfect margin or for talking to members of the opposite sex.. I dont know how the last point contributes to innovation 😉

    Manoj, I did mention the problems regarding teaching and freedom in Indian Universities. You are absolutely right, that is why the air of uncertainty in most of my article. It can happen, but it might not.

  3. @ Vikram : It is also about efficiency I do not really believe that centralization/decentralization is an issue. If you do something properly results will follow. America may be decentralized but there are other countries out there who have centralized everything and had results as well. The problem in India is that we do not take things seriously enough or do not consider ramifications of our and other actions on the collective wellness.

    Development needs sacrifice and hard work. It also needs people to think out of their own boxes. Some of these boxes are just mental blocks. Also we are now so used to taking things as they are that we never question. Someone in a village for example is completely passive about the fact that he has no power for hours but he does know that in the city the power stays on longer. He will not gather enough courage to ask why? I have often observed that even though people can even improve their lives by themselves even then they do not take an initiative. In fact people in small villages can radically change the way they live by themselves more easily than people in big cities.

    Empowerment is mostly a state of mind. It can only come from within and that is something that can only happen when people realise by themselves. No one can make them see it.

  4. @ Odzer, it is an issue, because if the centre of power is far away, your voice of protest and your demands often get drowned. You are right that Indians in general are quite passive, but what they are passive about has changed. 50 years ago, people in this country were passive about overthrowing the caste system and ensuring gender equality, today caste and gender has less of an affect than it did years ago. But that only brings us upto square one in comparison with most other nations. Now people have to stop being passive about getting the basic facilities and economic opportunities.

  5. Vikram, You have made an interesting comparison and I agree with most of what you say.

    An atmosphere that will facilitate innovation is certainly necessary.

    But our political leaders should also change their mindset of looking at only short term gains. For ex- the proposed Singur Nano Factory.

    I know it was not so simple as it is generally shown, but still, the opposers had already made up their minds not to let the plant come up there, no matter what.

    Thanks Manju. I think the politicians will change their attitude once they start being judged on the basis of development. We have seen some evidence of this. But I dont know if its a trend. The motivations of voting are very complex in India and therefore the politics very messy and not totally conducive to rapid economic growth.

  6. Hi Vikram,

    Interesting post – though a lot of your arguments lack statistical backing…

    Let’s think about the companies that you present as evidence of the US’s decentralized economy. Picking a few companies that were not founded in a major city, frankly, doesn’t prove this point in any way. Of course you can find a few companies that were founded in random areas of the US – the true test of decentralization would be if you took a proper statistical sample of major US companies, and found their headquarters. Just cherry-picking a few cases that fit your thesis is the opposite of an academic viewpoint.

    But even your examples don’t make sense:
    #1. HP was founded in Palo Alto – which is in the San Francisco Bay Area (metropolitan area)… by no means in the “hinterland” of the United States. This area has the HQs of HP, Yahoo, Apple, Google, eBay, Cisco, Sun Microsystems, McAfee, Symantec, Adobe, Intel, Facebook, PayPal, Netflix, Palm, etc, etc, etc. Silicon Valley is a major, centralized part of the United States’ economy, with the highest per capita of high-tech workers (30% of all private industry workers) in the nation.

    #2. I am not sure which firm you speak of when you say “one of America’s largest management consulting firms”… Could you please name this firm and state their ranking amongst largest management consulting firms? I tried searching the linked wikipedia article, but couldn’t find a large consulting company in NE.

    But to return to the main issue:
    The US is by no means “decentralized”. In fact, it’s more centralized than India by some measures: the top 6 metropolitan areas constitute 15% of the nation’s population (50.5 mil) – while in India the top 6 metropolitan areas only contain 7% of the country’s population.

    Then there’s the comparison of Mumbai as being centeralized when compared to US cities – because it’s a state capital, the financial hub of India, and has Bollywood. I think it’s extremely problamatic to consider Mumbai as being “Los Angeles, Houston, and New York City rolled into one.” LA is way, way more than Hollywood – it’s also the world’s fifth busiest port (most important in the Western Hemisphere) and the center of manufacturing in the Western half of the US. And New York City is a financial hub of a magnitude larger than Mumbai – it’s the financial hub of the world. As far as administrative capital of states go, well, first off Delhi, Madras, Bangalore, Jamshedpur, Hyderabad are extremely important industrial cities as well – and the capitals of their respective states. The reason why US state capitals are often not the major city in their states is simply due to the nature of US history – when the capitals were founded they were the center of the state at that time – but the states were all so young (when capitals were founded) that the true industrial centers hadn’t finalized. For example, California’s capital is Sacramento – because it was the gateway to the Gold Rush, not because Califonians knew LA and S.F. would be the economic hubs of the state, and wanted to keep everything decentralized.

    I also don’t think there’s an “amazing uniformity” in technology and services in the US. I have lived in the American “hinterland” and let me assure you broadband, mass transit, and good health care facilities – among many other institutions and infrastructure – were not available… There was, though, a Super-Walmart. Of course, infrastructure is better in the US on a whole – but this is a developed country… India simply does not have the capital to catch up to this anytime soon.

    You also talked about decentralizing the Mumbai economy to move it to the “hinterland” – this makes me ask – what is your background in Economics/Business? It is not possible to “move” companies willy nilly… first of all, much of India’s “hinterland” is arable land, used for agriculture (however unprofitable it may be). Given that India remains a democratic country, the farmers have a right to the land they own, and cannot be displaced as they would be in China (case in point – Tata Motor’s nightmare in West Bengal).

    Moving a company to the hinterland is not simply a question of creating a building – it also requires large scale infrastructure investments – Highways, Airports, Hospitals, School system, Police, Fire Dept, Shops, and a plethora of other support systems that would have to be migrated.

    I would argue that essence of America’s growth as a economic super-power lies in the high quality of life, and high disposable income. As people have better education, more leisure time, and more disposable income – it enables them to have a economic freedom that promotes entrepreneurship. This is why cities and a few towns in India are seeing the phenomenon of the Indian Entrepreneur… It will take a long time for rural India to catch up to the economic development that will afford this freedom, but we will get there.

    (Gori Girl notes that the regulatory differences in India & the US are considered a large factor in explaining the differences in the number of small firms in the economic literature. Very roughly speaking, it takes about 1 month on average to get a small company off the ground in the US vs. 1 year in India.)

  7. Thank you, Aditya. I dont have a background in Economics/Business, and these were mostly conjectures/informal arguments. The academic part of this blog is directly presenting papers from academia, which are not easily available outside a university setting. This was not a post in that vein, simply some thoughts of mine.

    Yes, you are right about a few companies not being evidence enough, but in India I cant think of any that have been founded/have headquarters outside the big metros. Just to be clear I did not say HP was founded in the hinterland, only that was not founded in a big city, it was actually set up in a garage!

    I believe the concentration of tech workers began after the inital stages of the tech economy were firmly established there, there was quite a bit of competition from Route 51 in Massacheusetts. Anna Lee Saxenian, argued in her book, Regional Advantage, that one of the reasons the valley eventually triumphed was because of the west coast’s decentralized ways. But that has nothing to do with the main matter of this post.

    Your point though about India’s population not being very centralized is not correct. If you look at India’s urban population which is about 300 million, the top 6 metropolitan areas have about 65 million people, that is about 22 % of the urban population. So it is quite centralized. The other 70 % of the rural population is quite separate from the point of view of economics, I think.

    About moving industries inland in Maharashtra, I had said,
    “Wouldnt it be wise to start moving some institutions to Maharashtra’s hinterland ?” I am talking about moving instis not industries. Stuff like the capital and the bureaucracy, educational instis, and other state offices, which promote the growth of other services/industries.

    I realize companies cannot function without the supporting infrastructure and manpower, and that was precisely the point of this post. That if we want inner India to thrive, we need to get the infrastructure and some supporting instis there. And I consider setting up higher ed instis in small cities a step in the right direction.

    Posts like these from me are more a set of questions I have than assertions, thanks your comment it cleared a lot of things up.

  8. Addressing point by point:

    1) You should still cite or link academic papers if you’re using them as the jumping off point of posts. First of all, it’s good academic etiquette. Second, more people than you would guess have access to journals, at least in the US – I have standing access to my graduate university’s subscriptions, for instance, and the general public can often get them from their community library.

    2) Just because you can’t think of any doesn’t mean that there aren’t any. The point I think Aditya was trying to make (he’s busy packing for a business trip, so I’m responding) was that in order to take an “academic view” you need to have something beyond your personal experience. At the very least, if you don’t know of/can’t find any data regarding the issues you’re talking about, you should make it clear up front in your post, and be sure to hedge your statements by saying things like “in my personal experience …”. This is just the rigor that is required of academics, at least in the social sciences (which seems to be the main focus of this blog).

    Also, have you ever been to the Bay Area? It’s “suburban”, in the sense that the population density is lower than you’d see in Manhattan or Mumbai, but the entire Bay Area, and especially Silicon Valley is one big city – only the signs tell you you’ve gone from one town to the next. The density is only about 30% less than Los Angeles’, actually. People drive from four hours away to get to their Silicon Valley jobs (or did during the dotcom boom) because that’s the closest they can afford to live. The West Coast just didn’t develop the cities like NYC & Boston – we sprawl more since we have the land to do it.

    3) I think you misunderstand the point made in Regional Advantage. The decentralization discussed in that book is one of corporate culture, not geographical. Rather than having a few major firms and smaller firms that feed the major firms, Silicon Valley has a network of small firms and no centralized industrial power. But part of the point of the book is that it’s a dense network of communication and information flow between all of these small companies – employees move from job to job, knowledge moves quickly, and everyone hears about what everyone else is doing. That can only happen in an area where people are geographically close to one another, and workers can change jobs without moving house.

    4) You misunderstand the statistic Aditya cited. The top six metro areas in the United States hold 15% of the total US population, while the top six metro areas in India hold only 7% of India’s total population. US urban areas are growing, and have been for most of the past hundred years. Most American’s live in an urban area as defined by our census. (Oh, and as an economist – we don’t think anything is outside our realm of study 😉 ).

    5) The same problem lies with moving institutions (which are fuzzily defined, anyways) outside of cities as with moving industries outside of cities.

    First off, people don’t like living in rural areas, at least in the US. That’s why there’s been steady migration from rural to urban areas. If people don’t want to live there, then why should institutions move there? If you want good institutions you need good workers, but that happen if you’re only offering jobs in undesirable locations.
    Second, what would be the point of moving institutions outside of cities where they serve the largest population? The whole point of cities is that you get economies of scale and thus specialization. Mass transit doesn’t make sense in rural areas, but it does in urban areas. Big medical centers with specialized doctors don’t make sense in rural areas, but they do in urban areas. Higher education can make sense in more rural areas, since they’re mostly self-contained – but you still have a problem of finding professors willing to teach there. Aditya and I went to a university in the middle of the cornfields of Indiana, and, while the academics were great, our university had to offer special incentives to lure the faculty there, since none of them wanted to live in a small town without the cultural benefits that you see in a city. Even with the incentives the university lost a lot of minority faculty who didn’t feel comfortable living in a small town without large populations of their ethnicity – and obviously that hurt the diversity of the points of view offered to the students.

    I guess my main point (probably not Aditya’s) is that, for the most part, people prefer living in cities. Why insist on moving things out to the rural areas when people don’t want to live there?

  9. In India we did start with developing new industrial towns like Bhillai, Bokaro, Durgapur, Paradip, Vizag, Kakinada-Rajamundhry, Tuticorin, Vadodara and so many others.

    Educationally too, the IITs at Kharagpur, BHU-IT, Pilani IIMs at Ahmedabad, XLRI, IIS at Bangalore, CFTRI at Mysore were an attempt in this direction. Pune and Vadodara were long considered superior learning centres than many metros even thirty – forty years back.

    Most companies have Head Offices in Mumbai but the economic activity is all in the hinterland.

    Important industrial centres have developed inspite of infra constraints but not many have grown to be large international conglomerates but they are thriving well.

    Let me quote some companies like Jain Irrigation(Jalgaon), Shanthi Gears(Coimbatore), Ajanta Industries (Rajkot), Haldirams (Nagpur), Renuka Sugars(Belgaum), which have gained significant prominence.

    Re: Mumbai decongestion. Navi Mumbai was planned to take some administrative functions away from Mumbai. The move failed as the employees would not shift.

    The dismal quality of life may see some reverse migration provided all urban amenities are also provided at these smaller places.

  10. Entrepreneurship basically comes from the ability to take risks. This ability is seriously in short-supply in India : (1) Extreme poverty is all around, and even nouveau-rich families have good memories of days where they went without food, and so they know how sharp poverty can be. (2) Even corporate giants with a lot of money to manage are governed by conservatist management ethic, and would not want to invest in risky products or services. (3) There are absolutely no social safety nets for innovative scientists/engineers who want to take risks. When there is no back up plan, far fewer people will be willing to take risks.

    All these three are major reasons why India will not see a culture of entrepreneurship or innovation any time soon. That is a pity because such a culture is vital for the creative, artistic or scientific development of any society. The fallout can be seen in Indian universities, where students hardly make an effort to build new cool electronics gadgets, or new websites, or computer games (as is common in Japan or in USA).

    We Indians are missing out on a LOT.


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