Earlier this month Gov. Steve Beshear was in India drumming up economic development opportunities for the Commonwealth.
While in India, let’s hope he took time to stop in Gurgaon, an economic boom town of 1.5 million just outside the capital of India, New Dehli, and place that can offer Louisville some valuable lessons in terms of economic growth.
The city was established as a satellite city for the overcrowded capital in the early 1990s when Gurgaon was nothing more than a farming village. Vast amounts of farmland primed for development and easy access to Dehli International Airport, coupled with favorable tax incentives for companies willing to locate there, made it especially popular with multinational companies looking to offshore operations.
As a result, the population has increased by 75 percent since 2000 and is projected to double again by 2025.
With the likes of Google, McKinsey & Co., Microsoft and PricewaterhouseCoopers setting up shop, jobs are plentiful and a steady stream of jobseekers has flooded into the city looking to fill them. This seems to prove that India’s 1991 market reforms delivered the goods in terms of economic growth, until one realizes there was never any type of master plan to guide this growth.
As a result, there has been almost no corresponding development of city infrastructure.
From stable electricity to clean water to public transportation to a public school system to a competent police force, the city lacks almost all of it. This forces companies to subsidize these services on their own dimes.
And this, my friends, is the ugly side of hyper-growth. As the International Herald-Tribune/New York Times wrote, “(India’s future growth) will be propelled by unorthodox engines like Gurgaon, which is both a complete mess and an economic powerhouse, a microcosm of India’s dynamism and infrastructure.”
So what could Gov. Beshear learn from Gurgaon?
The first lesson is obvious. Investment in infrastructure must at a minimum keep pace with growth. We can see a clear example of this here in Louisville with the lack of an East End bridge inhibiting the development of the River Ridge Commerce Center across the river in Jeffersonville, Ind. Air connectivity in and out of Louisville has also failed to keep pace with a global economy requiring increased mobility.
The second lesson is clear, too. There must be a plan to help guide growth. While ad hoc growth may seem flexible and market driven, this type of growth also consumes a disproportionate share of infrastructure and leads to opportunity costs that devalue the nominal prosperity that has been generated.
This is just one reason why Mayor Greg Fischer’s 25-year visioning project could be so important for Greater Louisville, as long as it delivers concrete plans for the future.
Most importantly for the Louisville and the state of Kentucky, there is opportunity in Gurgaon’s struggles. At some point, possibly in the very near future, multinationals will start re-evaluating the cost savings achieved by offshoring to take advantage of India’s lower labor costs.
Cheap labor is an enticing draw for large enterprises.
But cost accounts must certainly be starting to question the value of companies producing their own electricity via private generators to offset power cuts, employing fleets of private taxis and buses to shuttle workers to and from their offices and establishing their own private schools to educate the children of those in their employ – all to save a few bucks on the front-end labor costs.
These ancillary labor costs are starting to bring parity to Indian and American labor costs, particularly among middle management.
Economic trends and precedents elsewhere suggest a bounce back of jobs, particularly in manufacturing and back office administration, is in the offing.
Over in Japan, Tokyo-based Canon decided to close down some of its manufacturing operations in China and on-shore them to better manage quality control. Canon determined the cost savings of Chinese labor did not compensate for the damage caused to its brand by poorer quality due to lesser-skilled Chinese workers.
Japan is one of the highest labor-cost countries in the world but Canon determined is was more cost effective for some products to be produced in Japan rather than China.
Locally, General Electric reversed a decision to sell its Louisville-based GE Consumer & Industrial to foreign suitors and instead decided to reinvest in Appliance Park and produce higher-end appliances domestically.
Kentucky needs to be prepared to embrace this bounce back of jobs when Indian labor costs and infrastructure issues hit a tipping point. Instead lamenting the loss of a once robust manufacturing sector, regional leadership needs to strategize how to have the local economy ready to compete for some of the jobs that may soon return to the U.S.
Having a qualified labor market and the necessary infrastructure are critical. The Louisville-Lexington regional BEAM initiative and the establishment of a manufacturing accreditation program, The Manufacturing Skills & Assessment Center, are a good start. However, more work needs to be done.
Construction of the East End bridge is critical to unlock the potential of the River Ridge Commerce Center, as is full development of the Renaissance South Zone Industrial Park near the airport, which has struggled to find tenants and expand since being privatized. The region must also decide how to build a mass transit system and improve passenger air service.
With a clear vision and a sound plan, there is no reason why the Louisville-Lexington corridor cannot become the advanced manufacturing hub envisioned in the BEAM initiative. For a community whose decision-making moves at the rate of global warming, this will be a challenge.
The bounce back window will be short and hyper-competitive. Louisville cannot dawdle as it has in the past with airport expansion and bridge building.
Louisville must have plan and infrastructure in place.
Or continue to fall behind in the global economy.