How the western recession is the real beginning of great news for India!

Yes! Indeed the western recession is really the beginning of good news for India! But to understand that, I’ve to take you away from the topic of western recession for a while... to the Japanese recession! For years, I’ve admired the Japanese style of management as a management teacher and given its examples in scores of my workshops. However, over the last one decade or so, I’ve been continuously facing one key question from my workshop participants – mostly CEOs from top corporations of India Incorporated. Their question to me invariably has been, ‘If the Japanese management style is as wonderful as described, then why has Japan been in a recession for the last decade and more?’ This question is what I guess one needs to understand first, if one has to really understand the beauty of the current western recession. My answer to this question has always been very simple. I believe culture plays a very important part in shaping up economies. What succeeds in one culture fails somewhere else. Kenichi Ohmae, a famous strategy guru, wrote in his bestseller, The Mind Of The Strategist, that if you want to sell a new kitchen appliance to a Japanese housewife, you have to first enter a Japanese small sized kitchen. And then, from the stacked kitchen appliances on the kitchen shelves, you have to tell her which one of them is to be thrown away to make way for the new appliance. Well, they are all excellent in quality. Long lasting. And tough to throw! And that’s why the Japanese economy has been in a recession for a decade now.

Because culturally, these Buddha lovers are basically non materialistic. And however much rich they become, unlike Americans, they cannot just keep throwing and buying endlessly. And once they have almost everything they need, there is a saturation point. After this point, there are primarily three kinds of demand. Replacement demand, new product demand and FMCG demand. And that can’t keep giving an economy a double digit growth rate! Add to that Japan’s rapidly aging population and negative population growth rate (the Japanese Ministry of Health forecasts that even till 2050, they won’t have a positive population growth rate). That’s exactly what happened with Japan. The government tried everything. They gave shopping holidays. They gave mass discount vouchers. But nothing could increase demand. However, every time a new breakthrough product – say, like an iPod – was launched, it was a sell out in the first week itself in Japan. The same with fancy new Louis Vuitton purses. The stores would run empty on the first day itself! It was only when companies like Toyota realized that they cannot keep selling cars endlessly to their home market that they went really aggressive in the western markets – and the rest is history. While General Motors is about to file for bankruptcy anytime, Toyota is the now the world’s No.1 car maker! Japanese companies grew bigger by catering to the world markets when their home markets shrunk!

And the markets have to shrink finally after one level of affluence! And that’s great for the world. Because Earth needs sustainable development. It doesn’t need monstrous consumers who keep consuming at the cost of the environment and the Earth. There should be limits to growth; and consumers, for their mental wellbeing, should not be converted into material dustbins for the profits of a handful of corporations. That’s why the Japanese recession has been good for the Earth. And what the Japanese – due to their small homes and culture – stopped doing years back, is finally going to happen with the west, now with this recession setting in. And nothing can prevent this from happening. No Barack Obama, no bailout packages. And thank god for that!

It’s the western diehard, capitalistic, greed-driven materialism that made these economies create artificial demand for most of the last decade or so, resulting into the total collapse of the system (as I had predicted five years back in my book The Great Indian Dream). Because of the materialistic culture in the west, it was possible to keep selling them newer products despite having existing ones which served equally good. If someone was happy with his car or house and did not have enough money to buy more, he was lured through advertising and marketing techniques of ‘dustbinisation’ of the consumer; and then finally, once he became a ready customer, he was given loans and credit to help him buy. But credit systems have logical limits. And that is, no bank would be ready to give credit beyond, say, fifteen years of future income. What happens when all the possibilities of excess savings by you over the next fifteen years have already been booked by the virtue of various products you’ve already bought? Well, then you cease to be a part of the market (For example, the US savings rate has declined from around 3% in April 2002 to near zero in April 2008; savings rate in UK fell to around 2% in the last year, its lowest in a decade; similar with other western economies). And what happens when aggressive sellers have lured all creditworthy people into pledging their next fifteen years income (the ratio of average household debt to disposable income is now around 140% in US and 180% in UK)?

Then there is hardly any scope of further selling in this market apart from the replacement demand of people who finish past loans every year. And this is only 6 percent of the market... Let’s assume that even this much was fair. But at least this should have been the time when corporations should have started looking at newer markets and avenues. But instead, they took the shortcut. They went to the non creditworthy people and gave them loans. At double the rate, assuming fifty percent will return the loans. But unfortunately, these non creditworthy people are non credit worthy; and they all expectably defaulted and the entire system collapsed. And now, there is hardly anything that can be done! Bailouts are ineffective because when corporations have debts exceeding two trillion dollars, even the current one trillion dollars loan cannot help them revive. The bailout just disappears into paying back loans. To revive corporations, one needs to give upwards of three trillion dollars as a loan so that while two trillion of those dollars can be used to pay off the loans, another trillion can be used to revive. Unfortunately, that kind of money as well as vision is unseen and unheard of. To that effect, the current governmental ‘bailout’ is not going to help much!

So the question is, what is going to help? Well! Like Toyota, American companies will learn to find newer markets! And that’s the excitement for India. This country – which was till now just being paid lip service, but is in reality a great concept bubbling to make a global mark – will finally make the mark. Not because some Mittal or Tata. But because of its common man! The billion plus population that will in the next twenty five years become a consuming middle class. And that’s the big chance for western companies who are currently in search of a shortcut. Once all such metaphoric ‘shortcuts’ fail to realise, these corporations will indeed look towards China, India and Latin America to begin with, and finally at Africa as well. For just India can give them three times the combined markets of the west. If all the other countries are to be combined, this will be many times more! And that’s the good news for today’s Henry Fords! They won’t die. They will innovate and enter these markets and rule again. Unless of course, the Toyotas and Hondas do it before them. But whoever does it, it’s still good news for the world. Finally, the world’s attention will shift in reality to the developing world. Finally, there will be real surge in income of these people and in the next fifty odd years, one can really hope to see an equal world in terms of material plenty, with poverty being almost nonexistent! And it will happen not by selling more to Americans and Europeans. It will happen by creating markets in India, China, Latin America and Africa. By giving their people purchasing power and by making products for them. And the subprime situation will take another fifty years to hit these markets!

When Japan was in a recession, no one bothered. Now that the west is in it, they will realize that it’s not because of worse management techniques, but because of limits to growth. And they will realize that it is great for Planet Earth. After all, how many cars and houses must the rich own before calling it enough? It’s time for them to look at the others as well. Many years back, to increase his own profits, Henry Ford had started paying his workers more – so that they could buy his cars. Now, the developed world will pay the developing world people more – so that they can buy their cars and washing machines. Henry Ford started a process that made Americans more prosperous in general. This recession will kick-start the process of making the entire world more prosperous, and lay the foundation of limits to growth in the west and the foundation of real globalization in the world – the globalization of prosperity. And one of its first beneficiaries will be India! Thanks to the huge market it has to offer the world. A market that is the only solution to the western recession. Once the current panic in India gets over and the hunt for shortcuts to getting over the economic crisis in the west gets over, their focus will be on India. And India will only grow! Maybe 7 percent this year. But high double digits sooner than later!