The Hindu Business Line : Bush victory — Golden opportunity for India

THERE were two basic differences between the US President, Mr George W. Bush, and his Democrat challenger, Mr John Kerry, in the presidential elections. Mr Bush saw terrorism as a military problem which can be solved by armed intervention. Mr Kerry, on the other hand, believed that the US has made a mistake by launching a war in Iraq. Mr Bush is a supporter of outsourcing. He believes that outsourcing will make American companies stronger and it will ultimately be beneficial for the American people though they may have to suffer for a short while during the period of readjustment. The rise in the US stock market after the Bush victory is ample proof of the positive impact of outsourcing on American companies.

Mr Kerry, on the other hand, was negatively disposed to outsourcing. He believed that the loss of American jobs has to be stemmed by some market intervention. According to an Associated Press report from Washington African-Americans, Hispanics, women and youth voted more for Mr Kerry. These groups are most directly hit by job losses due to outsourcing. White, Anglo-Saxon adult men largely voted for Mr Bush. These persons stand to gain more from the growth of American companies due to outsourcing. It is widely recognised that the immediate impact of outsourcing on the US economy will be negative. The crucial question from India's point of view is whether this decline will be short or long?

Second, what will be the impact of continued aggressive military actions on the US economy? It is difficult to predict the future of the US economy because the final result will depend on the ability of that country to make new technological innovations.

Henry Ford made cars on the assembly line. Thereafter, atom bomb, jet airplanes, computer and Internet have all been American contributions. American companies benefited mightily from these innovations. The decline of the US economy will be short-lived if this stream of technological innovation continues into the future; and it will be long term if this stream dries up. It is difficult to predict the course of technological innovations. However, indications are that there is a pause in the stream of technological innovations. The price of shares of biotechnology companies is flat. Scientists have not been able to generate commercially viable uses for cutting edge technologies such as superconductor, supercomputer, hydrogen fuel solar energy and genome sequencing. One feels, therefore, is that the decline of the US economy will continue in the long run.

The aggressive military activities undertaken by Mr Bush will only deepen this decline. The US Government has had to run up a huge budget deficit to finance its wars in Afghanistan and Iraq. The US has also taken huge loans from the global investors for this purpose. The central banks of Japan, India, China and other developing countries have purchased US treasury bonds in large quantities. Mr Bush's victory means that the US military expenditure will rise and with it the dependence of the US on these countries to finance its deficit. The condition of the US economy today is akin to that of the zamindar of a poor country who builds a magnificent palace, even as he starves. The AP report also mentions that 75 per cent of American people considered the economy to be in a good condition four years ago. That number is substantially down now.

Mr Bush's victory presents a golden opportunity for India. His soft attitude on outsourcing could see more hi-tech jobs such as those in research and development coming to India. This will lead to improvements in the country's technological capabilities even if immediate profits accrue to those American companies for whom Indian scientists will be working.

After some time, however, some of these employees will become competitors to their erstwhile employers. Simultaneously, the US will need more money to finance its military expenditure. The Reserve Bank of India holds Foreign Currency Assets to the tune of $110 billion now. A substantial portion of these holdings will be of the US dollar. The Prime Minister, Dr Manmohan Singh, is planning to use these reserves for increased public investment in infrastructure such as import of electric turbines and so on.

The US will not get India's wealth for free and the dollar will decline fast if the Government of India implements this correct strategy. The US economy will decline speedily if India is able to persuade countries such as China to follow it in using reserves for domestic investment. The situation of the US economy today has a historical parallel.

Two thousand years ago, the Roman Empire ruled the world much like the US today. The Roman army was the best. The prosperity of Rome was based in large measure upon the acquisitions from military expeditions. However, Rome had two failings. One, it could not come up with new technologies and its military supremacy was soon lost.

Two, it imported luxury consumption goods in huge quantities. Indian traders exported lions for the games of the Roman Emperors, dancing girls, speaking parrots, incense and other such goods. The wealth brought by the Roman army after conquering other countries found its way to India through the traders. India became the "Golden Bird" while Rome slowly went bankrupt. The treasury of the Empire was found to be empty when the Barbarians attacked. That was the end of the Roman Empire.

India is in a position to repeat that story with the US today. Mr Bush is engaging in aggressive military action while the US' technological lead is slackening. Almost the whole world is unhappy with the US military expeditions.

The US is importing large quantities of luxury consumption goods. Its treasury is empty. It is possible, therefore, that under Mr Bush's leadership the US empire will decline. India may become the "Golden Bird" once again.

(The author, a freelance writer, can be contacted at bharatj@nda.vsnl.net.in)