Over A Third Of The People In The World Live In India And China

"We wanted something thoroughly and uncompromisingly foreign-- foreign from top to bottom-- foreign from center to circumference-- foreign inside and outside and all around-- nothing anywhere about it to dilute its foreignness-- nothing to remind us of any other people or any other land under the sun. And lo! in Tangier we have found it."

-Mark Twain, The Innocents Abroad

Having lived in Europe and Asia for nearly 7 years after college, I was always a bit of a globalist when it came to the business world. After I returned to the U.S., my own indie record company survived because I was able to make lucrative distribution and publishing deals abroad. And when I was at Warner Bros. I was one of the few advocates for internationalizing our approach and our business model. Aside from the folks who actually worked in our international department, and the folks who ran the foreign-based subsidiaries, there was one other real champion for this approach, the legendary Sire Records chairman, Seymour Stein, who first brought me into Warner Bros. Like me, Seymour is a world traveler and someone who appreciates foreign history and culture in every way-- from food, style, and literature to movies and, of course, music. He called the other day, having just landed in L.A. after a trip to Beijing and Shanghai. He's making a record in China and is always, always, always fostering relations with and bolstering in every way he can the music business in China. And India. He's been a one-man globalization team. No one in the home office understands what he's doing and many take that a step further and express that ignorance very negatively. But Seymour is a force of nature and he just keeps chugging along. He sure inspired me to do likewise when I worked there.

China has a population of 1,340,570,000 (almost 20% of the world). India has a population of 1,190,080,000 (just over 17% of the world). The U.S. has the third biggest population, 310,688,000, a billion less people than China. And we account for 4.5% of the world's population. When I went to work at Warner Bros, the attitude-- often verbalized-- was that we're an American company and whatever we make by selling our music overseas was "gravy." I remember hearing that in a meeting one day when we were going over sales figures that showed our biggest artists-- Madonna, Eric Clapton, Fleetwood Mac and R.E.M. all had records out at that moment-- were selling far more records outside the U.S. than inside the U.S. So were some of our "baby bands," like the Ramones and Talking Heads. And a significant-- and growing-- amount of business was being generated by artists our affiliates or A&R guys had signed abroad, from Depeche Mode, Erasure and The Smiths to Nick Cave, Barenaked Ladies and Enya. The gravy was drowning the main course.

Americans tend towards the insular and can even imagine they're dealing with someone from Iowa when negotiating with someone from India or China. Sometimes unexpected or even bad experiences make people think it isn't worth the trouble. That's a mistake; it just has to be done right.

Some years ago I was visiting our Indian company in Mumbai. I was the first executive from the home office to do so and it was a big deal. The head guy took me to see a store whose entire window was covered in Chris Isaak posters. That might have impressed me if I hadn't lived in India for 2 years and recognized that the posters would be down within 2 minutes of our driving away. But something worse happened as well. I got an urgent fax from our international chief back in L.A. telling me to immediately stop meeting with the head of our Indian company and to call home as soon as possible. Turns out the head guy was buying CDs at a very low intra-company rate from our German affiliate and then returning them at the full rate, pocketing the difference. Ah... Asia.

Obama's trip to South Korea didn't work out very well, because Korea was not going to give an inch when it came to protecting domestic beef producers while Obama was more in tune to making sure U.S. auto workers (and Ford Motors) weren't sacrificed for a free trade agreement, the way these agreements were always done under Bush-- and the way Boehner had been pushing for it to be done again. But in India, at least on the surface, it looks like Obama may have done well, actually working on "$15 billion worth of contracts that will support 53,670 American jobs" and putting the U.S. in a good position to get a piece of the trillion dollars India plans to spend of infrastructure projects between 2012 and 2017.

Neither India nor China is Iowa-- far from it. As Robyn Meredith pointed out in her NY Times best seller The Elephant and the Dragon, the definitive book on Indian and Chinese economic development, the pollution from a nearly unfettered policy of economic development is almost beyond imagining.

Nothing can prepare visitors for the pollution in China... One of the worst places to breathe on the planet is the world's biggest city: Chongqing, China, with a population of 30 million people counting the exurbs, about the same number of people as live in the entire state of California. There the New China coexists with the Old China: skyscrapers and construction sites decorate downtown, but scrawny bong-bong men wait for work on street corners. Bong-bong men are paid sixty cents an hour to ferry heavy loads-- from building materials to groceries-- up and down the city's hilly streets using bamboo poles slung over their shoulders. They must have powerful lungs, not just strong legs: the city is half dark most days. Sunlight barely reaches the ground, dimmed by thick, gray smog. Skyscrapers just three blocks away are mere outlines because of air pollution. Emerging from the inside of a building onto the streets prompts one's eyes to water. The air is filthy but that is not all. The raw sewage produced by 30 million people-- 30 million-- is dumped straight into the Yangtze River as it flows past. The countryside nearby is not the place to go for fresh air: there you notice that the leaves of trees-- along with everything else-- are coated with black dust from the coal mines and factories in the region. More acid rain falls on Chongqing than anywhere else on earth.

...Nearly a third of China's rivers are so polluted that they aren't even fit for agriculture or industrial use, according to Chinese government statistics. Village doctors have documented increased cancer rates near polluting factories and chemical plants. Untreated waste water dumped into China's famed Yangtse River is killing marine life and turning its water "cancerous," according to Xinhua, the state-controlled media outlet.

...Lack of enforcement of environmental laws is also a big problem in India. Its capital city, Delhi, used to have pollution levels ten times higher than the nation's legal limit, mostly because of the high-pollution taxis, trucks and buses on its roads. Delhi has the world's worst air pollution in 2002, but managed to clean up its filthy air after being taken to task by India's Supreme Court. The overhaul began in 1997. Some steps were long overdue: the city finally banned lead gas. However belatedly, the city reduced pollution from Delhi's power plants by installing scrubber to clean up smokestack emissions and requiring them to burn cleaner coal. It banished motorized rickshaws and buses built before 1990 from the roads. In 1998, the court required all city buses to run on compressed natural gas (CNG)-- a cleaner fuel than gasoline-- by 2001... Just 10 percent of sewage is treated in India, with the rest dumped into waterways, along with industrial pollution. India's rivers-- even the holy Ganges-- have become sewers.

While bearing in mind that India planning and India doing are only tangentially related, it is about time the U.S. start taking the trade situation with India seriously. India has had a very well-protected economy but it has been coming out of that, in fits and starts, in the last years. Also keeping in mind that there really are two Indias and that the bigger India is a long way off from being consumers of anything that we make in America, the inequity of U.S.-India trade has been startling. Here's a report I got from the Alliance for American Manufacturing last week:

• India has a steel policy to promote its industry, as well as a $60 billion call/service center industry built on outsourcing.

• The U.S. goods trade deficit with India in 2010 will be more than double the $4.7 billion deficit in 2009.  Through August, 2010 the U.S. trade deficit with India had already reached $7.0 billion. 

• Big U.S. companies are investing in India instead of the U.S.:

1. Motorola performs 40% of its software development in India. 

2. GM has 2 research labs in India.  Pfizer has outsourced significant drug development to India. 

3. Microsoft employs more than 4000 workers in India, and its largest development center outside of the U.S. is in India. 

4. Intel has 2500 R&D workers in India, with more than $1 billion in additional planned investments.

• According the 2010 National Trade Estimate by the Office of the U.S. Trade Representative, regarding U.S. trade with India:  

1. "U.S. exporters continue to encounter tariff and nontariff barriers that impede imports of U.S. products."

2. Regarding intellectual property rights, "India was listed on the Priority Watch List in the 2009 Special 301 report."

3. "India maintains restrictions on the export of certain high-grade iron ore. These restrictions reduce Indian exports of these inputs, and may reduce supplies on international markets for raw materials used in steel production. The Indian government appears to be using these measures to improve the availability and lower prices of inputs used by India's rapidly growing steel industry."

Said Alliance for American Manufacturing (AAM) Executive Director Scott Paul: "India is to American office parks as China is to American factories.  Unless we change course, we're going to see higher trade deficits, more job loss, and deeper frictions, despite periodic announcements about one-off business deals."

Here at DWT there has been a consistent drumbeat against unfair "free" trade policies. But this isn't necessarily that should be used to demonize other countries, not India or even China. As an old friend Guy Saperstein pointed out to me yesterday, America's constant search for a villain sometimes needs go no further than a mirror. "The real problem," he insists, "is that we simply spend too much and save too little." And Guy has some sensible suggestions:

Changing our tax policy could do a lot towards solving our trade deficit problem. Scrap the present tax system and institute a greatly simplified system that lowers income taxes and greatly increases tax on energy and encourages savings. A simpler system alone would save the government and consumers $2-300 billion annually. Approximately half of our trade deficit [$600 billion annually] is the importation of oil. Instead of gas at the pump being one of the lowest in the world we should be at $7-8/gal with a constantly increasing tax in future years so consumers know the price will be rising. That will drive conservation and better protect our currency.
 
China is investing $15 billion in developing an electric car industry. They will be producing the kind of products we need to buy. Where are we?
 
They are investing billions in alternative energy. More in stem cell research. Incredible amounts in transportation systems.
 
AND THEY DON'T SPEND HUNDREDS OF BILLIONS ON WAR IN THE MIDDLE EAST. EVEN IF WE COULD WIN IN AFGHANISTAN [an impossible expectation] WHAT WOULD WE WIN? China conserves its military resources; we squander ours maintaining 800 military bases around the world and engaging in counterproductive, expensive wars.
 
There should be no question why our currency is weak, which allows the Chinese leverage they would not ordinarily have.
 
We need to modify our own behavior, not blame the Chinese.