Brawn Before Brains?

Manufacturing makes up 16% of India’s GDP, but Prime Minister Manmohan Singh wants to boost that by half, all the way to 25%. Not all economists think it’s a helpful goal. “Some have argued that the rise of services—from outsourcing to finance—means that India won’t need an industrial revolution to bolster its development,” The Wall Street Journal reported this week. “Others point to history, showing that China, Taiwan, Japan, South Korea and, much earlier, Europe and the U.S., could only dramatically advance their economies—and the livelihoods of the masses—with industry.”

About such matters Peter Drucker was non-doctrinaire. “What is appropriate is quite simply what makes the economy’s resources most productive,” he wrote in The Ecological Vision. Nevertheless, when considering the India of 20 years ago, Drucker did see a few apparent dos and don’ts. “Steel mills are inappropriate technology for a country like India. They are highly capital-intensive rather than labor-intensive,” he argued. “But the automotive industry—passenger cars, motorbikes, trucks, and tractors—is probably the most efficient multiplier of jobs around.”

Image source: US Library of Congress

On a broader level, Drucker considered knowledge work (and many finance and outsourcing jobs would surely fall into this category) to be an equalizer of sorts. “The knowledge society will inevitably become far more competitive than any society we have yet known—for the simple reason that with knowledge being universally accessible, there will be no excuses for nonperformance,” Drucker wrote in a 1994 essay in The Atlantic Monthly. “There will be no ‘poor’ countries. There will only be ignorant countries.”

Whatever policy countries such as India choose to follow, Drucker warned, recreating the success of developed nations is unlikely to work. “During the last 200 years, no country has ever become a major economic power by following in the footsteps of earlier leaders,” Drucker asserted in a 1988 Harvard Business Review article.

What’s the way forward for a country like India? Can it skip straight to a knowledge economy without creating a manufacturing base first?