Friday, March 22, 2013

Billions of Entrepreneurs Book Review

Stephen Allison

Billions of Entrepreneurs Book Review

1.    Overview
It’s no secret that the rise of China and India has been on the minds and tongues of Americans for the better part of the last decade. Tarun Khanna, professor at Harvard and expert on emerging markets, attempts to give readers insight into these two countries by explaining their differences, such as:

“Why can China build cities overnight while India has trouble building roads?”
“Why does China prohibit free elections while Indians, in free and fair elections, vote in officials with criminal records?”
“Why has China ‘Indianized’ in the past while India shunned China?”

Khanna concludes that due to cultural, religious, and ideological differences in their histories, India’s strengths have become China’s weaknesses and vice-versa. For example, because of China’s communist history, China now has developed a very strong public sector but weak private sector. In contrast, India’s history of British rule has influenced its current democratic model, which promotes a strong private sector and underdeveloped public sector.

2.    How China and India Differ
i)     Information Transmission
For years China has claimed that media channels, like television and newspapers, can be used to promote destabilizing propaganda. “Stability overrides everything” is a central belief in the Chinese government and censorship is a long accepted tool to promote stability. The problem is that censorship can potentially interfere with profitable communication. As the world is now listens to China and China listens to the world, transparency of information can lead to valuable connections.
In India, no subject is taboo for the press. Every shade of opinion is expressed free of government influence. Every political crisis is reported and politicians are openly criticized in magazines, newspapers, and on television. But although India’s information transmission is transparent, it is affected by what statisticians call white noise. Because everyone is free to express whatever he or she likes, the truth is hidden in a sea of irrelevant, although not necessarily inaccurate, information.
ii)   Private Rights vs Public Interest
China excels at providing public services at the expense of private rights. For example, in the early 1990’s China began development of the marshy farmland Pudong (on the side of the river furthest from the photographer) into a sprawling metropolis:

Three hundred thousand farmers were displaced as a result. Many farmers received cash compensation for the land they lost and now work in the factories of Pudong. To Americans this may not seem fair, but in China the needs of the state always trump the property rights of individuals.
In contrast this would never happen in India. Hundreds of thousands live in desperate poverty in India’s slums. The rich want the slums bulldozed, however the poor have the rights to the land and the state fears treading violating these rights. Democracy is upheld even if it results in underdevelopment. It is up to private land development firms, such as Delhi’s DLF Group, to transform farmland into cities.
In China, development is the result of fiat authority of the state. In India, it is the result of entrepreneurship.
iii) Financial Infrastructure
A major difference has emerged in the two countries’ banking landscapes. China has made no effort to separate banks from CCP (China Communist Party) control. The result is banks that lend money based on political rather than economic criteria. Funds were wasted in unprofitable “state-owned enterprises” totaling $300 billion in bad loans, 40% of all loans made in China.
Unfortunately, the Chinese stock market doesn’t run any better than their banks. On any given day the majority of stock prices move together. In contrast, about half of the stocks on the NYSE move in tandem. When stock prices move together to the degree they do on the Chinese exchange, it means that the stock price of a company isn’t an indicator of their performance. With no firm specific information available, no market can exist because particular investors cannot determine if one company is worth investing over another.
In India, the state of banking is better but still flawed. Despite many reforms enacted since a 1991 fiscal crisis, the public does not trust banks to service their needs. This is due to bankers’ reluctance to loan to anyone outside of the government. Seasoned bankers have made careers out of government-approved loans set at government-approved interest rates and are exceedingly cautious of loaning to the private sector. Even worse, bankers’ salaries are fixed so they have no incentive to loan beyond the minimum required to be active. This overinvestment in government securities means less financing available for entrepreneurs.
India’s stock exchange is a different story. The Bombay Stock Exchange (BSE) is India’s original stock market, with history going back to 1875. However, the BSE had a monopoly on stock trading in India making it an inefficient, underperforming institution. The BSE was another target of the 1991 reforms, but instead of imposing new regulations on the BSE a competitor was formed called the National Stock Exchange (NSE). The NSE was a well-run, transparent system for stock trading that dominated the BSE. To remain competitive, the BSE had to clean up their act or go out of business. Competition worked where reform and threats did not.

iv)  Soft Power
Much of China’s strength lies in its hard power, or power to motivate/attract people based on economic forces. Soft power is the ability to motivate/attract people based on cultural influences. Soft power is where China is weak and India is strong.
Consider India’s film industry, Bollywood, which now produces more movies than Hollywood. Or Buddhism, which was heavily adopted by the Chinese at the end of the strictly Confucian Han dynasty. Or Yoga, which was introduced to the United States by Swami Vivekananda and popularized by Deepak Chopra. Or Ravi Shankar, who taught George Harrison Indian classical music and influenced some of the most well loved popular music in history.
In contrast, China has no cultural ambassadors that have shaped the world like India’s have.

3.    Khanna’s Strengths
What I loved about this book was the thoroughness of it. Tarun Khanna is obviously an extremely intelligent individual and passionate about the subjects of his book. Khanna writes with the confidence of a true authority on these two emerging markets, as he leaves no stone unturned in his goal to educate his readers about his subject.
I believe many Americans have a foggy idea of what is happening in China and India but are generally clueless as to the details. Even worse, I have see true hatred I the form of xenophobia from some people regarding China (but not India, most likely a result of India’s supreme soft power). I believe that anyone afraid of China should make an effort to understand its importance in the 21st century and Khanna’s book is an excellent way to achieve this.
Khanna makes fascinating contrasts between the two countries that I will not soon forget. Because of this book I now have a clear understanding of the cultural differences between China and India that have substantial impacts on their economies and societies. The best thing of all is that Khanna backs up every point made with evidence that he himself found venturing into the real world and meeting with powerful figures in both countries. It must have taken him many years to acquire the first-hand the level of understanding he has gained, as it shows in his writing.

4.    Khanna’s Weaknesses
The one weakness that I found is that this is one thick read. Unlike “The World Is Flat,” which I can imagine almost anyone with a college education to find readable without squinting too hard, “Billions of Entrepreneurs” asks much of the reader. This is especially true if, like me, you go into it with an average American’s understanding of India and China and much of the information here is new to you.
Also, due to Khanna’s intensely detailed writing, the book can feel unfocused at times. There were a couple chapters when I had to go back to the beginning to remind myself what the main idea/point being made was due to becoming lost in the details. Also, I had trouble finding a narrative, especially in Part II: Enterprise. Khanna goes from discussing the rise of Infosys to Microsoft’s troubles in China to India and China’s differing attitudes towards their diaspora. It reads very much like a collection of scholarly journals instead of a book. Not that this is necessarily a bad thing, as the stories and information here are gold, but because of this I think that “Billions of Entrepreneurs” is a book best read the second time when the reader knows what to expect in Khanna’s flow.
      Finally, the title of the book is misleading. While catchy, at no point did I believe that there are "billions of entrepreneurs" in China and India from the evidence provided here. In fact, in China private entrepreneurship is very hard to pull off in the face of overpowering government.

5.    Closing Thoughts
“Billions of Entrepreneurs” is an excellent book in throwing the reader deep into the emerging markets of India and China. Khanna goes into the utmost detail, providing numerous real-world examples he himself observed to prove his main point: that China and India are mirror images of each other, with one country’s strengths the others' weaknesses. This is not a “China” book or “India” book; It is both because understanding one without the other is not seeing the whole picture.
This is a thick book, demanding more than just one read-through. But the readers efforts will be rewarded as the knowledge contained here cannot be underestimated for those about to visit China or India, international business professionals, politicians, and thinkers.
“Billions of Entrepreneurs” is a tremendous achievement because after reading it I feel much more informed on the book’s subject and able to have an intelligent conversation about China and India when the topic comes up. Really, what better praise is there?


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