One thing we heard several times throughout the workshop and in subsequent email traffic was how so many of our participants were excited about long term investment prospects in India, primarily in information technology but also in pharmaceuticals and energy.

India is hard for Westerners to grasp due to its enormous and eclectic population. If you took the population of the entire Western hemisphere and crammed it into the U.S. west of the Mississippi, you would have something like an India. There would be plenty of very rich people, about three hundred million middle class, a similarly sized working poor, and then even more people living in abject poverty—all in the same country. And then there is the incredible diversity: the religions, the languages, the lingering caste divisions.*

But as we stated earlier, India is a very important country for the future of globalization.** With everything it offers the New Economy, the world needs India to be a success story. But for that story to be written, India needs substantial foreign investment.

To date India has attracted about as much FDI inward stock ($16 billion through 1999) as long-isolated Vietnam ($15 billion), with roughly half of that coming in a three-year spurt between 1995 to 1998, peaking in 1997 at a flow of 3.5 billion but declining since then.***

What struck us about the workshop was the enthusiastic sense of many participants that India was turning a corner in terms of global perceptions of its investment climate. In some ways, the manner in which participants spoke about India’s prospects reminded us of how people spoke about China’s prospects half a decade earlier. Can India make such a leap into "star"economy status? Much depends on how its IT sector holds up during the current slowdown in the West.

* On India as a nation, see Shashi Tharoor, India: From Midnight to the Millennium (New York: Harper Perennial, 1998).
**On how globalization is changing the lives of average citizens in India, see James Traub, "Keeping Up With the Shidhayes: India’s New Middle Class, New York Times Magazine, 15 April, p. 20.
***Data comes from UNCTAD, World Investment Review 2000, p. 297.

It has been said so many times about China, but we will say it again here: something has got to give over the coming years. Either the politics will come unglued from the social pressures created by all this economic development or, if political leaders cling too tightly to their controlling ways, the economy will eventually fall victim to one of the several "train wrecks" predicted (e.g., banking crisis, regional disparities growing too large, massive unemployment due to foreign competition).

In terms of FDI, China remains one of the world’s most intriguing products, trapped within one of the world’s worst packages. Deng Xiaoping decided to reform economics before politics, and since Mikhail Gorbachev proved just how hard the opposite course was for the former Soviet Union, it is hard to argue with his strategic choice. But China will be dealing with those political reforms over the coming decade, whether it wants to or not.

In short, what the Second Generation of leaders (Deng) started in economics has not been matched by the Third Generation (Jiang Zemin, Zhu Rongji) in the political realm, largely in frightened response to the Tianamen Square protests of 1989. Now as the so-called Fourth Generation rises to power in the next two to three years, questions abound about their willingness to further political reform in response to economic advance.

This Fourth Generation, however, is rightly described as the stay-at-home generation. They did not travel to Russia for education like the Third Generation, nor do they resemble the Fifth Generation that spent so many formative years in the U.S. and Europe.* One thing is clear: this cohort is relatively non-ideological and technocratic in outlook. Oddly enough, a few prescient Soviet watchers were quietly pointing out the same things about the Gorbachev generation just as they came on the national stage in the mid 1980s.

* On the Fourth Generation, see John Pomfret, "China’s Generational Shift: People’s Congress May Signal Rise Of New Leaders," Washington Post, 5 March 2001, p. A12.

Much has been made about Developing Asia’s tremendous future requirements for foreign investment, especially in infrastructure development and energy. Given the huge sums projected, many have made the case—including us—that Asia has no choice but to turn to the West for a good portion of that investment flow.

While not backing away from previous statements, we do feel the need to point out the tremendous sums of personal savings in Asia that remain largely untapped in this development process, primarily because the region lacks efficient capital markets that are broadly accessible to the bulk of the population. Looking at just China and Japan, we have come across numerous estimates that suggest if Asians had the same access to capital markets as most Americans do, Developing Asia’s opportunities for intra-Asian FDI might be significantly enhanced.*

Our fifth and final cosmic conclusion is, in many ways, a larger argument (and advertisement) for the NewRuleSets.Project as a whole. It is the same argument upon which we ended our first report on Asian Energy Futures.

After each of the Economic Security Exercises we’ve conducted over the past five years, participants walk away from the experience speaking excitedly about a new sense of understanding of the connectivity between the security and economic worlds—namely, how the two work in tandem to provide international stability.

We like to describe this combination effect as the global rule set, or what we’ve come to understand as the ultimate international peace dividend arising from the end of the Cold War. As stated earlier, the collapse of the Soviet Bloc and its long-standing challenge (or rejection) of the Western economic rule set made possible—really for the first time in human history—a truly worldwide rule set for how military power buttresses and enables economic growth and stability.

How so? For the first time in human history we have a true global military Leviathan in the form of the U.S. military, and no peer competitor in sight—not even a coherent alternative economic philosophy (although one clearly brews in the anti-globalization protests of Seattle Man). This unparalleled moment in history both allows and compels the United States to better understand the security-economic nexus, in large part because of its complete reversal of priority from the Cold War. During the strategic stand-off with the Soviet Union, economic might was seen as supporting military power, but now that situation is completely reversed: to the extent that the military matters, it matters because it stabilizes the global economy.

How do we define this ying-and-yang relationship between the military and economic worlds?

First we speak of stability, which comes from military security, and then we speak of transparency, which is both demanded by, and engendered by, free markets. These two underlying pillars form the basis of the single global rule set that now essentially defines the Era of Globalization.

Within those two pillars, the U.S. clearly plays a crucial role:

As such, it is essential that these two worlds—military and financial—come to better understand their interrelationships across the global economy.

Uncovering and better understanding this fundamental relationship is especially important because—the vast majority of the time—the military and business communities operate in oblivious indifference to one another.

One’s tempted to counter, "So what? They don’t need to be aware of one another on a day-to-day basis."

And in a basic sense, that’s true. But if you consider the rise of system perturbations as a new form of international security threat in the 1990s, and if you understand that most of these perturbations come in the form of financial crises that can engender serious subnational violence (e.g., Indonesia today), then perhaps this connectivity seems more pertinent. Because ultimately the global economy operates on trust, which is based on certainty, which in turn comes from the effective processing of risk.

Invariably, these two problem sets merge in the increasingly interdependent, IT-driven, globalizing New Economy, so understanding the military-economic connection isn’t just good business, it’s good national security.