The other side of the IT boom

Yesterday, I was watching one of those programmes which deals with "Great Infosys Story". Narayanmurthy in the programme said that if one were to point of the one single success of liberalization it was Infosys. I don't disagree with that, and I actually think that Infosys is a great Indian firm. But IT is neccesarily an island of excellence and high productivity. This high productivity has translated into high wages and high profitability of the firms. The profitability bit has in part contributed to the stock exchange story, but it is the wage bit that I will to deal with.

The IT boom in India has created a class of people who are young, with high disposable incomes and concentrated in a few urban areas like Bangalore, Delhi (Noida / Gurgaon), Chennai, Hyderabad and Bombay. In my mind, this boom has created some totally new urban dynamics which are best reflected in cities like Bangalore, Hyderabad and chennai.

The first change in urban dynamics has been the boom in rent rates in these metros. IT folks have gravitated to these cities since the jobs are here. Considering the highly constrained housing availability in metros in India, these guys with more money and fewer responsibilities/obligations, are willing to pay more than others for their houses. Our historic middle classes (government/PSU/bank employees and people working with manufacturing concerns) have been priced out of the prime housing markets. Just try finding a house in one of the "hip" Bangalore localities (Koramangala, National Games village and Cox town) with a manufacturing industry salary.

The second change has been in services getting more expensive. Again due to younger guys with more money to throw around, maids and domestic help market has seen a big demand surge. Consequently wages for these kinds of work has increased. I used to pay a lady 1000 rupees a month for something like 2-3 hours of work a day at my place. Although the domestic help market is not supply constrained, it does create some really unstable and undesirable equilibria (like taxi costs at tourist spots) in certain places.

The third key change is the sprouting up of expensive leisure zones in our cities. Our citie s are seeing the emergence of expensive watering holes, really expensive movie halls, really really expensive restaurants and so on.

The downside of these urban dynamics is that the traditional middle classes are hurt the most. There salaries have not kept pace with the IT sector but the costs of houses and services definitely have. This not only creates heart burn, but our cities develop a schizophrenic character - really swank rich zones and not so swank not so rich zones.

Another reason about why we need equitable growth across manufacturing and services.

The High tide lifts all boats up

One of the key discussions which has emerged post the IT and services boom in India is the so called "Bangalore Bug". The phenomenon goes this way - IT pays big money to fresh engineers, non IT cannot. Consequently non IT industries which need skilled manpower become non competitive due to high labor cost or are starved of high skilled labor. If an engineer can make 20,000 rupees a month in the IT, why would he be willing to work in a manufacturing set up with half the pay, longer working hours and no foreign trips? Also this wage inflation is hurting the IT industry's global competitiveness.

The "Bangalore Bug" is principally due to the pool of skilled labor being finite and subject to laws of demand and supply. My current engagement is with a very old economy manufacturing concern which is struggling to attract and retain talent in face of an onslaught from IT and services boom in India.

In services, the west grew rich before it become uncompetitive. Is India likely to become uncompetitive before it grows rich? Or is there a way out.

The current way out is to dig deeper into the hinterland and attract qualified labor there. There are two problems to this - (a) the IT / BPO firms are probably a little ahead in this, just witness call centers sprouting all over hitherto smaller towns like Vizag and Coimbatore (b) high skilled labor in India is pretty mobile, so if you passed out of university in Delhi, very rarely would you be unwilling to take up a job in say Bangalore or Bombay. So the pool of talent from small towns might already have been drained.

The more permanent way out is to invest heavily into engineering colleges and other such establishments. This will remove the supply side constraints i.e. the pool of labor will become larger, increasing supply and depressing wage growth. But this is beyond the industry's locus of control.

Besides these two, there is a third solution is emerging, at least in my current engagement. As engineers go scarcer, industries are now rationalizing jobs which they were doing. So some of these jobs are now being downgraded and being opened up to non engineering graduates like diploma holders and B.Sc. This solution is attractive due to two reasons - (a) engineers are being put to more productive uses in the old industries (spiking productivity per man-hour) hence greater firm profitability (b) on an overall national basis, the high tide of service growth is actually lifting the smaller boats up.

Finally the IT boom might be helping the non IT brethren.

History, Science and the art of writing

Of late I have been reading two books - "The Decline and Fall of the Roman Empire" by Edward Gibbons and "Guns, Germs and Steel" by Jared Diamond. The first book is arguably one of the greatest work of the "What" of history. Written by Edward Gibbons, this is one absorbing book to read - sarcastic, ironic and simultaneously entertaining and immensely knowledgeable.

The second one is an eye opening and supremely illuminating treatise on the "Why" of history (for example why did Francisco Pizarro beat the Inca king Atahuallpa at Cajamarca and not Atahuallpa beating the Spanish king Charles I at Madrid). This is a supremely interesting read which will answer questions which you never thought you had.

The thing about the two books is that both have made history an extremely interesting subject. Gibbon converts history of Rome into an english language story like say any work by James Michener. He takes the novelists' approach to history. Diamond on the other hand converts history of the world into a scientific treatise not one of the greek letter scientific papers but more in the genre of Richard Dawkins. He presents the problem, the possible solutions, presents the evidence to support his preferred solution and raises questions on other solutions.

The other thing about these two books is the background of the authors. Gibbons is not a historian and neither is Diamond. For that matter the greatests of treatises on history like Carlyle (on the French Revolution) were written by non historians.

So am I hinting that history, like war and generals, is too serious a business to be left to the historians? Or is history readable only when it is woven into a thrilling narrative or into a hypothesis evidence and explanation set up? Or am I trying to broach the issue that like Chomsky on language, only outsiders seem to do path breaking work in any field.

I actually don't know what I am raising, but what think is true is that for any subject to be widely followed, read and appreciated a little of the three needs to be done - get rid of the experts who would not be able to simplify the message, weave it into a interesting narrative and lastly expertise in other areas needs to be tapped.