We have come to Bombay to get a good look at India – at least the part of it you can see from a 10th floor room at the Taj Mahal Hotel. Which isn’t much. The air is too dense. Still, we can make out the figures of whole families eating and sleeping on the pavement near the dock.
We have never seen families sleeping on the pavement on Regent Street…nor on 5th Avenue. New York and London are great success stories. Turning the pages here, on the other hand, we read a failure story. It is the story of a people who haven’t got much. The world turned against them, relatively, at the beginning of the Industrial Revolution. But if the world turns long enough, it comes back to where it began. To make a long story short, we’re betting on rotation.
The secret of material success is simple enough. In the beginning there is nothing. In the end, there is much. In between is all the dust and noise of a real economy. Everything and everyone moves – the dirt and raw materials…the bussers and schleppers who carry them, heat them up and hammer them into finished products…the merchants who sell them…and the consumers who use them. The money moves too.
But over time…and space…it must all balance out. For every item produced there must be a consumer. For every surplus, there must be a deficit somewhere else. And for every boom there must be a bust.
Taking a train from Washington DC to New York City, you can look out your window and see the equation fastened to a rusty bridge, over a rusty river in a city of rust. It says “Trenton Makes, the World Takes.” It is a sign that might have been hung on any one of hundreds of bridges in hundreds of different factory towns throughout America and Britain. As a bit of civic promotion, the sign is not completely fraudulent; it is only incomplete. It should have been turned around…probably in the 1970s. That was when Trenton became a taker.
For more than half a century, Trenton pumped out exports…then, it spent almost another half a century getting swamped by them. First, it enjoyed a capital investment boom…and then a capital investment bust, followed by a consumer spending boom…and then a consumer spending bust. Now the rest of the world awaits neither its output nor its orders. It is neither maker nor taker, but a dead-end slum.
Where will Trenton’s next boom come from…or when? No one knows. In the meantime, it must pay for what it already got. America’s post-WWII consumer boom came to an end in 2007. For the first time since 1946, consumer credit is falling. Americans are paying down debt.
Which leaves us looking out our hotel window, wondering…
The best form of government, said Voltaire, is democracy tempered by an occasional assassination. India’s government must be as hard as steel by now. In 1984, the Prime Minister, Indira Gandhi, was assassinated by her Sikh bodyguards. Then, in 1991, her son Rajiv Gandhi was also killed, this time by Tamil Tigers. If we were named Gandhi, we’d go into a less dangerous line of work, like being a test pilot. But Sonia Gandhi, widow of Rajiv and the daughter of an unreconstructed Italian fascist, must like excitement. She was elected president in 1998. Her son is also a politician.
Western investors needed courage to put their money in India. Six out of nine governments since 1980 have been coalitions, several including communists. In 1999, Pakistan invaded the country. In 2007 Maoist rebels attacked police and killed 50 of them. Last year, terrorists set fire to our hotel.
When activists, foreign and domestic, failed to destroy India, nature took a whack at it. A cyclone in 1999 killed 10,000 people. An earthquake in 2001 carried off 30,000. A Tsunami struck in 2004. The next year, monsoons flooded much of the country.
Indian stocks paid off anyway. US stock prices went nowhere over the last 10 years; Bombay stock prices more than tripled. Over the 30 years, from the opening of the stock market to the end of 2009, the investor had a return of 17,000%.
All over the developed world, governments are getting a death grip on their economies, taking control of vital industries and increasing the state’s share of GDP. One of India’s advantages is that its feds have been choking the economy for years; now it is becoming a model of negligence. As a percentage of GDP, India offered only perfunctory stimulus to fight the downturn of 2007-2009.
Now, China overheats. America cools down. And India grows at 7% per year without breaking a sweat.
Wage growth is flat or negative in Trenton; in India hourly earnings double every 10 years. India depends less on exports than any other major developing nation except Brazil. And only the Philippines and Indonesia have less credit as a percentage of GDP.
While much of the rest of the world did it…and then over-did it…India hasn’t done it yet. There are more autos in the US than there are licensed drivers, and two chickens in every pot; India barely has one vehicle per 100 people and barely any pot at all. This is a country where the getting has just begun.
for The Daily Reckoning Australia