1.

There are thousands of techies in India. But if you compare the ratio of techies-to-startups between USA or Israel and India – you’ll see that India lags far behind. Not a lot of innovative ideas come out of India. Why is this so?

2.

History gives us a clue. Many people have pondered over why the Industrial Revolution originated in Britain – and not in China or Spain or someplace.

Trade, especially woolen trade depended entirely upon London’s port. And as trade grew over the years, so did London’s population. London’s population exploded from 50,000 in 1500 to 200,000 in 1600 and half a million in 1700.

And because of the explosion in trade, the standard of living of people in London increased too. The population just didn’t grow in numbers. They had money to spend too!

But London’s energy requirements didn’t grow as quickly as its population. The world relied on wood fuel because it was clean and cheap. The price of wood fuel and coal was the same. But coal was much easier to get than wood fuel. And so as London’s population grew, wood became more expensive because of supply problems, and so they started relying more on coal – even though it led to pollution. Where as, the rest of the world still stuck to wood.

In the 18th century, the French government actually tried to promote British technologies in France. But they failed because their economies of scale weren’t the same as that of Britain. In London, labour was expensive than energy. The opposite was true in the rest of the world. Energy was more expensive than labour.

Expensive labour + comparatively cheap energy = new innovations.

3.

And that is why, even though there are more IT people in India than in USA, more innovations pop out from USA than from India.

Because in India, labour is cheap and energy expensive. While the opposite is true in USA.

And so Indian IT folks take the easy part of providing services. While US IT folks take more risks and innovate more.

4.

How do we change that?

Some thoughts:

i. Increase the minimum wages in India.

ii. Invest in infrastructure.

iii. The IT parks in India could be converted into kick ass charter cities.

October 27, 2009