Billions of Entrepreneurs Book Review

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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 21^st 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?

           

The World Is Flat Book Review

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Overview:

In his book “The World Is Flat: A Brief History of the Twenty-First Century,” Thomas Friedman writes about the events that triggered “Globalization 3.0,” and its effects on the individual, national and international levels. Friedman calls these effects a “flattening” of the world because as the 21^st century progresses, little people have the power to act big and big people are able to connect on the smallest level, thus bringing us closer to operating on a flat plane. Globalization 3.0 has leveled cultural walls and shattered national barriers as business, government, individuals, and even terrorists have the ability to share and connect like never before.

Friedman begins by explaining how it happened in his “Ten Forces That Flattened The World,” which are:

1)   Collapse of the Berlin Wall on 11/9/1989 (Friedman later contrasts this event to 9/11, calling 11/9 “creative imagination” and 9/11 “destructive imagination.”)

2)   Netscape brings the internet browser to the installed base of millions of PCs

3)   Work flow software allows computers to communicate without people

4)   Open-source projects and the self-organizing collaborative communities that make them possible. Examples include Wikipedia and Linux.

5)   Outsourcing has allowed companies to split manufacturing and services into stages, and hire outside parties to complete certain stages in a more cost-efficient way

6)   Offshoring differs from outsourcing in that Offshoring allows a company to take a factory that used to be in the USA, and move it to China or India where the exact same tasks can be done cheaper. Offshored tasks are still internal to the company.

7)   Supply-chaining. Friedman uses Wal-Mart as an example of how business uses technology to manage the supply chain for maximum efficiency.

8)   Insourcing. Friedman uses UPS as an example of a company that creates value for other companies who cannot afford a complex supply chain management system.

9)   In-forming, or the ability to find information.

10)  “The Steriods,” or the cell phones, tablets and laptops. All of the wireless, portable, ubiquitous and relatively affordable ways we connect.

Friedman then writes how these flatteners have and will change world culture, business, economics and politics. For example, on page 183 Friedman writes, “We tend to think of global trade and economics as something driven by the IMF, the G-8, the World Bank, the WTO, and the trade treaties forged by trade ministers. I don’t want to suggest that these governmental agencies are irrelevant. They are not. But they are going to become less important. In the future globalization is going to be increasingly driven by the individuals who understand the flat world, adapt themselves quickly to its processes and technologies, and start to march forward – without any treaties or advice from the IMF. They will be from every color of the rainbow and from every corner of the world.”

Relevance and Analysis:

All who read this book should be alarmed if its contents is news to them, for those who cannot keep up with the flattening of the world will be left behind. This is true on the individual or national level. Before Globalization 3.0, a B student from an American college was more highly valued than a genius from India or China. Now employers will hire that latter. As the world flattens talent becomes more valued than geography and the entire world must compete with each other.

Some fear this shift and want to build barriers such as banning outsourcing. The argument is that outsourcing harms America by giving away American jobs to foreigners. However, by running as efficient as possible, businesses can produce products and services at a lower cost and pass along these saving to the consumer as competition forces prices down. If we don’t utilize the global labor market to remain competitive, other countries will, allowing them to produce superior products at better prices. These products could steal enough market share to put American companies out of business, thus leaving even more Americans out of a job!

We must not bury our heads in the sand regarding what is happening around the globe. As more and more countries become highly educated and economically developed, America won’t be so special anymore.  If America remains ignorant by resisting forces that it cannot control we risk losing our status as the world superpower to smarter, hungrier nations. The fear of being surpassed will stimulate positive change, such as a higher skilled labor force.

Friedman makes another very interesting point regarding the benefits of outsourcing, free trade and modern supply chains in Chapter 12, which begins with the quote, “Free Trade is God’s diplomacy. There is no other certain way of uniting people under the bonds of peace.” If two countries are invested in a business together, they are less likely to go to war because war becomes more costly. Now imagine a world where every superpower is interconnected through business. The cost of war would be a global economic meltdown! This is both good and bad thing. It is good because no superpower would willingly go to war with costs that high. Outsourcing, free trade, and global business would effectually create world peace. The down side is that while the great leaders of nations would not willingly go to war, war can still be brought about by the actions of terrorist organizations. Friedman believes that we cannot separate the good from the bad; Globalization 3.0 unites business, politics, art and culture as well as terrorists.

In Chapter 11, ‘The Unflat World,’ Friedman addresses criticisms of his theory. He admits to being a technological determinist (a reductionist theory that presumes that a society's technology drives the development of its social structure and cultural values) and not a historical determinist. A critique can be quoted on page 373: “To listen to you, Friedman, there are these ten flatteners, they are converging and flattening the earth, and there is nothing that people can do but bow to them and join the parade. And after a transition, everyone will get richer and smarter and it will all be fine. But you’re wrong, because the history of the world suggests that ideological alternatives, and power alternatives, have always arisen to any system, and globalization will be no different.”

There is no guarantee that everyone will use these new technologies for the benefit of themselves or their countries. Technology is only a tool; it does not make us smart, moral, wise, fair, or decent. We can only hope that technology will be used for creation and growth, but that does not have to happen. The world is not yet flat and we do not know how it will look when it is.

In ‘The Unflat World’ Friedman lists three constituencies impeding the flattening process: the sick, the disempowered and the frustrated. The sick are the millions of people in India, Africa, China, and Latin America who are not taking off like the middle and high classes. These are the people who are afflicted by HIV, malaria, TB, polio, alcoholism, crime and broken governments. They do not have clean water or electricity. They have much bigger concerns than how Globalization affects them. The disempowered live in between the unflat and flat world. These are the Chinese and Indian peasants and farmers who see the effects of the flattened world, but lack the tools, skills or infrastructure to participate in any meaningful way. The frustrated are the groups who resist Globalization, sometimes to an extreme level such as al-Qaeda suicide bombers.

Assuming that the world does become ever-flatter and the sick, disempowered and frustrated end up joining the flat world, a problem that is already at crisis point will be pushed further into the red zone: pollution. Friedman lists the alarming statistic that in April 2004, over 1,300 cars were added to the streets of Beijing daily. Smog has become so bad that Beijing keeps track of “blue sky days.” The use of clean energy will be necessary in the flat world; its growth must coincide with world flattening or we will choke ourselves in clouds of pollution.

Personal Takeaways:

This is a truly comprehensive guide to the newest phase of Globalization. Friedman covers the past, present and future of the flat world and makes sure to admit that the world is flatter, not entirely flat. With the individual having the power to offer goods and services globally borders no longer restrict the marketplace. Soft powers such as culture and language are bigger barriers than geography in today’s world. Perhaps Globalization 4.0 will see a unification of diverse of culture and language. Until world peace is achieved and borders between nations dissolve I would not say the world is completely flat, and I do not see that happening until more “soft” barriers are broken.

For soon-to-graduate students like myself the book is a scary read. Employers can recruit from anywhere in the world, not just locally anymore. And with the amount of high quality entertainment readily available at extremely low cost, it is becoming increasingly difficult for American students to leave childish pursuits behind and reach adulthood. A portion of America’s youth is amusing themselves to death (as Neil Postman would say). I believe countries where Xbox, Television, Netflix are not so readily available and do not adopt an advertisement-saturated consumption culture may produce a higher quality workforce than America. The geniuses will do fine but the B-students will find it increasingly difficult to find satisfying employment. And as American students continue to amuse themselves to death, we will produce more B-students and fewer geniuses.

One “issue” I have with the book is that it is a little dated. I would love to read a new edition, or “The World Is Flat Part 2.” One flattener that I feel has become more relevant that Friedman only briefly touched on is online education. Online education began with a social stigma but as time passes it is becoming more serious. For example, MIT and Harvard provide free online courses with its website edX. And not just college/professional courses, but something as simple as watching a recorded speeches/lectures online and tutorial videos on Youtube can provide valuable online educational resources.

In conclusion I would recommend this book to anyone who wants a better understanding of just how different 21^st century business and culture is compared to last century. Our world is changing exponentially and if we do not understand this we run the risk of being left behind.