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India’s Economic Revolution

Last week, everyone was focused in on America’s Black Friday retail shenanigans – as well they should be.  There’s no doubt the world economy desperately needs some conspicuous consumption right now, and those half-crazed American shoppers didn’t disappoint us – although the pepper spray was a bit much.  However, on the other side of the world, getting largely ignored outside of India, there was some even better economic news.  This news was largely ignored outside of India because, beyond the outsourcing debate, India itself is largely ignored by the Western World.  While all economic eyes are hypnotized by the Great Chinese Dragon, the Indian Juggernaut (a Hindi word, by the way) is steadily gaining momentum.  Nobody is ever going to say that the Indian economy will save the world from international recession. (Dare I use the d-word?)  However, it’s certainly going to be a game changer.

Here’s what happened last week.  It’s all very complicated and you can read a slightly slanted version here, but in essence the Indian government opened up the country to foreign, hypermarket chain, investment.  What does this really mean?  In a word — Walmart.  The international retail bogeyman is coming to the sub-continent!  Just as an aside: in North America, we are blinded by Walmart.  However, around the world there are several other hypermarkets — including France’s Carrefour and the UK’s Tesco plc, ranked two and three by revenue — and they are major retail players internationally.  For example, Walmart has 189 outlets in China, but Carrefour has 184.  Walmart might be the biggest kid on the block, but — to mix a metaphor — it’s not the only game in town.  I’m not going to debate the various merits and demerits of Walmart here — that’s for another time – but Walmartophobia aside, this is excellent economic news.  Let me explain.

To most North Americans, India is a combination of Russell Peters, Slumdog Millionaire and Apu from The Simpsons.  In general, most of us don’t ever get past Bollywood or the local tandoori restaurant.  We are walking encyclopaedias of ignorance when it comes to what’s south of the Himalayas.  This isn’t because we’re stupid; it’s because, for the last decade, we’ve been looking at the Yangtze, not the Ganges.  However, times are changing.

I’m not going to bore you with statistics, but here are just a few incredible numbers.  There are over one billion people in India.  Although nearly half of them live below the poverty line, the Indian middle class is huge, and it’s expanding faster than any other place on the planet.  In real numbers that translates into 350 million people with disposable income.  In 199,1 the average per capita GDP in India was (U.S. dollars) $329.00. This year, it’s $1,265.00, and by 2016 it will almost double to $2,110.00.  Do the math!  The standard of living in India is growing at a phenomenal rate.   Those are all pretty spectacular numbers, but the one that tops them all is the median age in India is 25.  That means half a billion people between the Indian Ocean and the Bay of Bengal are under 25 years old.  This is primo, prime time purchasing power.  The market for Levis alone is breathtaking.

This brings us full circle back to India’s new government policy to allow what they call “multi-brand retail” outlets — superstores.  Last Thursday, the Indian government opened up a vast retail market.  It doesn’t take a genius to figure out that we’re not just talking about a couple of big box stores out in the suburbs.  The ripple effect of adding 350 million potential customers to the world economy is going to be huge – and it’s not only because of end-user retail goods, either.  For example, there are going to have to be warehouses, fleets of trucks, forklifts.  How many shopping carts do they need?  How many computers and cash registers?  How much cash register tape?  Coat hangers?  Staplers?  The little tags that show the price?  The list goes on and on, and this is just the beginning.  All this stuff has to be manufactured and purchased before the first family in Mumbai lays down a single rupee in retail sales.

The folks in Cincinnati are still part of the largest retail market in the world, but while they’re fighting over a big screen TV at Target, there’s been a seismic shift in Asia.  The potential is huge, and we’d better pay attention to it.

The European Crisis Just Went from Bad … to Better

Just as we see the Arab Spring turning  brown in the Moslem Autumn, brace yourself because we’re about to experience a cold, hard European Winter.  In the last couple of weeks, our friends, the Euro spenders, have finally woken up to their financial debacle, and nobody’s made the coffee.  Austerity is the watchword, and there’s about to be enough tough love around to make everybody south of the Alps think they’re in rehab – and, to a certain extent, they will be.  There’ll be the usual demonstrations and condemnations, but march and chant all you want, people: the party’s over.  Let the hangover begin!  That’s the bad news.

The good news is for the first time since the EU bailiffs threatened to put a lien on the Acropolis there is actually some light at the end of the tunnel.

A couple of weeks ago, the Greek Tragedy took a definite turn for the better when Papendreou, the Prime Minister, decided to step down and collect his pension — before it disappeared entirely.   Remember, this is the guy who was going to hold a referendum to see if his fellow citizens, rioting in Athens, would vote yes to a couple more brutal kicks in the financial groin.  Not the sharpest skewer in the souvlaki, he was replaced by Lucas Papademos, who — believe it or not — is actually an economist.  Fancy that!  Hiring an economist to deal with a financial meltdown!  Who says the Greeks haven’t done dick since Pericles?

Around about the same time, over in Rome, class clown Silvio Berlusconi was given his walking papers, complete with dancing in the streets.  Apparently, somebody took time away from eyeballing Ruby Rubacuori and took a gander at the books.  As of this morning, Italy is a little over two trillion dollars short of a down payment on a cappuccino.  In other words, they’re up to their Armanis in debt, and this time, bread and circuses aren’t going to save them.  “Bunga, Bunga” retired gracefully, rather than be thrown to the lions, and he was replaced by Mario Monti.  Once again — wonder upon wonders — the guy’s an economist!  He better be a good one.

The third domino to fall happened in Spain on Sunday, November 20th, when Spanish voters returned the right-of-centre Partido Popular to power after a seven year absence.  As you recall (or maybe you don’t) the Spanish electorate tossed the PP out of power in 2004 when the Jihadists made it clear which way they wanted the vote to go — with a couple of commuter train bombings in Madrid.  For the last seven years, Jose Luis Zapatero and The Spanish Socialist Workers’ Party have been running the show with (to be fair) mixed results.  Unfortunately for the socialists, the only results the Spanish are hearing these days are 20% unemployment and a national debt big enough to choke an Andalusian stallion.  Zapatero saw the escritura on the wall and retired from politics.  Mariano Rajoy is in charge now, with a majority in the Cortes Generales and a mandate to clean up the mess.

Suddenly, all of Europe has turned a conservative blue.  (Just a note to my American friends.  The traditional political designations around the world have always been conservative blue and liberal red — just as they used to be in the United States.  It’s only the recent media manipulation of the colour wheel on election night maps that has changed the colours to Red states Republican, Blue states Democrat.  Coincidence? I think not, but that’s fodder for another blog.)

Anyway, as of last Monday morning, every government west of the Volga (with the exception of Slovakia – don’t ask) is either centre-right or out and out right of centre – in a word, fiscally conservative.  Granted, in European politics, right wing doesn’t mean much until you get to the nutsy fringe, but at least these folks understand that if you have two Euros, you don’t spend twelve.  Obviously, the European crisis is so massive even the most conservative government is going to have to tax and spend more than they want, just to keep the wheels rolling.  However, by understanding the simple accounting principle that the books have to balance eventually they may be able to stop the deficit haemorrhage.  More importantly, during the heated discussions between north and south that are about to ensue, with any luck at all, nobody will be throwing their political monkey wrench into the economic machinery.   It helps that, even though these Euro zone leaders aren’t necessarily all on the same page, at least they’re all finally reading from the same book.

Like it or not, if these new governments do it right, it’s going to be a hard, cold European winter. Unfortunately, there isn’t any second choice.  It would be a fatal mistake to think there is.

Mythology and the New Reality

It’s hysterically ironic that, while pop culture has elevated the End of the World Mayan Calendar to pseudo-scientific status, the real history of the decline of the Mayan civilization is largely ignored.  The thing that makes this doubly funny is that the collapse of Mayan society two millennia ago actually offers some insights into our current situation, whereas the more celebrated Calendar is simply fatalistic hocus pocus.  However, as with a frightening amount of analysis in our contemporary world, facts are largely irrelevant in the face of overwhelming mythology.

The Mayans were a hugely successful civilization that flourished for a couple of thousand years in the Yucatan peninsula, Guatemala and Belize.  These people lived in a well-structured, sophisticated society at the same time my ancestors in Northern Europe were still cracking each other over the head with stone axes.  (Not really, but you know what I mean.)  The scale of Mayan urban development is absolutely breathtaking – even today.   Unfortunately, somewhere around the time of the birth of Christ, things started to go to hell for the Mayans.  A number of theories explain why, but rather than debate them here, suffice it to say that the glory days of Mayan society were over by the time Augustus ruled Rome.

The Mayans faced a series of severe economic, environmental and social changes they simply didn’t understand.  Instead of adapting to these new realities, they insisted on clinging to their old way of life.  They demanded that their leaders call on the gods to maintain their world.  In Mayan society, that meant human sacrifice – more and more of it.  Eventually, however, the old ways were simply unsustainable in a new age, no matter how much blood was spilled.  Out of mindless frustration, the people stormed the pyramids of power and tore their society apart.

It’s a bit of a stretch to compare the later day Mayans to contemporary North Americans but like the Mayans, our society is going through some massive changes that most people do not understand.  Those same people seem intent on preserving the old ways, come hell or high water, and they’re relying on some serious mythology to do it.  We might not be Mayans, but we have a lot in common.

The big myth we’re faced with these days is income inequity.  This is the pointed stick that everybody with a grievance keeps waving.  The problem is … it’s a myth.  It has no factual base.  However, it’s being touted as not only the cause of all our problems but also the solution.  Prevailing wisdom says too much money has been gathered into too few hands.  The rich are getting richer and the poor are getting screwed.   Therefore, to preserve the old ways, we must redistribute the cash through the newly minted “Robin Hood” tax.  It sounds good, but Robin Hood is a fictional character.

The reality is very few people with a tendency to protest have studied economics.  They figure somehow that the money supply is just a big bag of gold coins somewhere, and a bunch of greedy billionaires got there first and took them all.  They also believe that all we have to do is make the billionaires give them back and everything will be fine.  Then there’ll be enough for everybody.

The problem is these ideas are crap.  There is absolute no connection between the fact that George Soros can buy New Hampshire and I’m coming up 45 bucks short on my credit card payment.  I could personally ask George for the $45.00 but I don’t think I’d get past his roomful of secretaries.  Besides, why should he give it to me in the first place?  The idea is absurd.  Yet, it seems to gain immeasurable credibility when it’s distributed across our entire society.  The whole “Robin Hood” tax business is just a bunch of people asking the government to throw their muscle behind all of us poorer folks, asking the George Soros of the world to pay our credit card bills for us.

In actual fact, it doesn’t matter how much money George Soros or any of the other billionaires have; it matters how much us poorer folks don’t have.  The Haves aren’t taking anything away from the Have-Nots (or even the Have-Lesses) but that is the myth that sustains us.  And that’s the real problem.  As long as we abide by our mythology, we can’t face the reality that our world is changing.

Back in the golden days when western economies ruled the world, our government’s largesse was endless.   There were innumerable programs, loans, projects, subsidies and payments.  There were high-paying jobs and whole careers based on government intervention.  Those days are gone.  They didn’t survive the new global economy, and unless we quit whining about it and adapt to this new reality — like the Mayans — neither will we.