Dean’s Doctors and India’s Software Engineers
The history of India’s Software Engineers supports economist Dean Baker’s case for Free Markets
Economist Dean Baker drew (and continues to draw) criticism for pointing out an obvious fact of life — “the United States pays more than twice as much per person for health care as other wealthy countries”. Bringing doctors’ pay to parity with other wealthy nations, he says, will be the equivalent of giving all American households a tax break of $700/year.¹
I don’t discuss here the causes of American doctors’ high salaries but do a comparative study with the software industry. I’ll look at the history of how India became synonymous with the software industry and show that it became so by following the same Free Market principles Baker recommends for doctors. I’ll also argue that Free Markets in the software industry has been mutually beneficial for both the US and India’s economies.
But before we get to my comparisons, let’s look at Baker’s reasons in more detail.
The funny thing about Dean Baker’s argument is that the argument itself isn’t new — he’s been arguing for this since at least 2006.² The suggestion he makes in his book, Rigged (2016)³, goes as follows:
[I]t’s cheaper to train doctors in other countries than in the United States. Given the large gap between the pay of physicians in the United States and other wealthy countries, and the even larger gap between the pay of physicians in the United States and developing countries, it is reasonable to expect a large supply response to a policy that allowed foreign-trained physicians to practice in the United States as long as they completed an equivalent residency program. (pg 171)
Replace “doctors” with “programmers”, “physicians” with “software engineers” and you have today’s world (except for the equivalent residency-program-requirement).
Here’s how I’m going about this. In §1, I look at history to understand how India’s software engineers went from almost absent in the 80s to synonymous with the software industry, in §2 I look at how this has helped the Indian economy and finally, §3 connects back with Baker’s points regarding doctors — how would India (and other countries, perhaps) benefit from US applying Free Market principles for doctors (and dentists and lawyers…). I don’t discuss how Indian Software Engineers have helped the US economy because I think it’s mostly obvious and neither do I discuss the benefits of freeing up US markets for doctors because Baker’s work already covers it. Why gild refined gold and all that.
1. The history of India’s Software Engineers
The presence of software engineers from India is impossible to miss, of course. Right from, perhaps, Sabeer Bhatia’s 1998 $400 million sale of hotmail.com to Microsoft to Shantanu Narayen becoming Adobe’s CEO in 2007. At the time of this writing both Google and Microsoft have CEOs who were born and educated in India. And these are just the CEOs. Diversity reports by the big American software firms indicate that about 31–50% of their tech workforces are of Asian origin.⁴ Assuming 40% of those are Indian, it’s a fair assumption that 12–20% of the big software firms have Indian software developers.
How did this happen? How did the software industry go from Indians-mostly-absent⁵ in the 1980s to approximately 15% in 2010s?
1.1 Five Year Plans⁶
The answer, in short, is macroeconomic planning. India, since its independence in 1947, has implemented Five year Plans where it lays out its broad economic plan for a five year period.
A constant in these plans has been India’s emphasis in education including technical education and this has paid dividends. For instance, in India’s 7th Five year Plan which spanned 1985–90 (the plan itself was put forth in 1984), they shared the following numbers:
There has been a great deal of accomplishment in the field of education since 1947. Any number which may be picked up as a parameter to define growth in education will show the magnitude of the massive quantative [sic] expansion that has taken place (Annexure 10.1). The number of recognised institutions has increased from 2,31,000 in 1951 to an estimated 7,55,000 in 1984–85. The total enrolment over the same period in these institutions increased from 24 million to nearly 132 million. The national stock of educated manpower is estimated to have increased from less than 4 million to about 48 million at present, the annual increment to the stock now being of the order of 3.5 million. It is significant to note that facilities have not only increased but also diversified at all levels and in different subjects. The enrolment for postgraduate studies, for instance has grown from a mere 20,000 in 1951 to over 300,000 by 1984–85 while that in science subjects is estimated to have increased from 4,400 to about 73,000. Extensive facilities are available for education in a variety of branches of engineering and technology. The output of this system has contributed significantly to our achievements in areas like atomic energy and satellite communication and provides the trained manpower for our economic development. [emphases added] [7th Plan, Vol 1, §10.3]
And specifically, with respect to computer science:
During the Sixth Plan period, the major emphasis in technical education was on diversification and optimum utilisation of existing courses and institutional resources. Efforts were made to provide facilities in areas such as computer sciences, instrumentation, product development, maintenance enginerering [sic], bio-sciences and material sciences. [emphasis added] [7th Plan, Vol 1, §10.15]
By 1992 the 8th Five year Plan authors reported that “India now has the third largest scientific and technical work force in the world.” [8th Plan, Vol 1, §1.2.9]
In the 9th Five year Plan (1997–2002) the “Govt. of India… resolved to make India a global IT super power [sic] and a front runner in the information revolution”. “The country… aim[ed] at an annual export target in excess of US $ 50 billion for computer software and a target of US $ 10 billion for computer and telecom hardware by year 2008” because the planners recognized that “Information Technology (IT) is increasingly becoming the technological infrastructure for the service sector”. [9th Plan, Vol 2, §7.5.1]
At the “Mid-Term Appraisal” of the 9th Five year Plan, the Planning Commission of the Government of India made (among others) the following two points:
• Efforts have been initiated to increase students in-take in undergraduate and post-graduate courses in computer disciplines at Regional Engineering Colleges.
• Apart from increasing intake and upgrading facilities in existing institutes to meet the increased demand for IT professionals, there is urgent need to increase the number of Institutions for which action has been initiated. [emphasis added] [9th Plan, Mid-Term Appraisal Highlights, Chapter V. §1]
In addition to adding new universities and colleges, the Plan also adds that “[t]he intake capacity of the IITs [Indian Institute of Technology], other reputed engineering institutions and IIMs [Indian Institute of Management] will be doubled, particularly in high-demand areas like software engineering and information technology.” [9th Plan, Vol 2, §3.3.79]
Furthermore, the Mid-Term Appraisal Final Document’s chapter on Education also noted that:
The Government has accorded high priority to education sector in the Ninth Plan and has allocated, Rs.24908.38 crore [₹249 billion] against an expenditure of Rs.8521.89 crore [₹85.2 billion] in the Eighth Five Year Plan, representing a nearly three fold increase in the funds available to the Union Department of Education. [emphasis added] [§12.1]
The 10th Five year Plan, reviewing the performance of the 9th Plan, said the following:
The Ninth Plan period saw a phenomenal increase in the number of institutions in the technical and management education sector in the country with the AICTE [All India Council of Technical Education] granting approval for the setting up of 1,715 institutions across the country mainly through private initiatives. These cover courses/programmes in engineering, technology, management, architecture, town planning, pharmacy, applied arts and crafts etc. There has also been a corresponding increase in the enrolment of students to meet the growing demand for quality technical/managerial manpower, especially in the field of information technology (IT) and IT related fields. [Vol 2, §2.5.23, pg 57]
Furthermore, the 10th Plan nearly doubled the expenditure for both “University and Higher Education” and “Technical Education”. Where the 9th Plan was allocated ₹2,520.06 crore (₹25B) for “University and Higher Education” and ₹2,373.51 crore (₹23B) “Technical Education”, the 10th Plan allocated ₹4,176.50 crore and ₹4,700 crore respectively — an increase from ₹4,893.57 crore to ₹8,876.50 crore. (Vol II, Annexure §2.5.1 pg 65). The National Small Industries Corporation Limited (NSIC) was tasked with, among others, the “setting up of software technology parks” [Vol 2, §7.1.275, pg 712]
The 9th Plan set up the “creation of an IT Venture Capital Fund of Rs. 100 crore in 1999.” [Vol 2, Box §7.4.1, pg 712]
The 10th Plan went further than the 9th in terms of actively spelling out the steps needed for India’s software industry to develop (they called it “Information Technology”). (Vol 2, §7.4.7, pg 804) Below are some excerpts:
According to a McKinsey-NASSCOM study, India would require 2.2 million IT professionals by 2008–1.1 million in the hardcore IT sector and an equal number for IT-enabled services. The country needs to ensure the right mix of technical, business and functional skills in the workforce to meet the needs of individual business segments and customer markets. Educational and training institutions need to match the demands of the industry. The major initiatives required in this regard are:
• Continuous upgradation of standards at the school level with emphasis on physics, mathematics and English.
…
• Updating the syllabus of computer engineering, electronics and IT in various technical institutions in line with the demands of the industry. The curriculum in other branches of engineering should also be reoriented and broad based to include IT subjects.
…
• Augmenting and upgrading facilities in existing RECs and engineering colleges under deemed universities to Indian Institute of Technology (IIT) level so that the country has at least 100 such institutions by the end of the Tenth Plan to meet the requirements of quality manpower. [emphases added]
Note that the emphasis on Software was thrust by the government planners and, to meet demand, they even pushed for software proficiency in other engineering departments.
2. Benefits to India
The best-laid schemes o’ mice an’ men
Gang aft agley — Robert Burns, “To A Mouse”, 1785
Plans are wonderful. I make them all the time. The only downside to plans is they sometimes don’t work. However, in this story, India’s macroeconomic planning paid dividends. First, in §2.1, we’ll look at how the education fared and next in §2.2, at how the software industry performed because, for the planners §2.1 was undertaken for achieving the success of §2.2. A common objection that arises in advocacy of immigration are concerns of brain drain — the thesis that educated and skilled natives leaving a country will keep the country from developing. While I know nothing about the issue in general, I discuss it from India’s context in §2.3, i.e. how the planners saw it and sort of welcomed it.
2.1 Education
The Statistical Year Book of India, 2015 gives data on the number of colleges between the years 2000–2014 and the number of students that enrolled in them. I’ve plotted these below.⁸
As can be seen, over a decade and a half the number of colleges quintupled and the number of students tripled.
Additional indicative information is available from The Institute of International Education (IEE), a non-profit organization, has a page⁹ that lists students coming to the United States with their the country of origin and level of academic study. They list data from the years 2001–2016 which I’ve plotted in the below graph.
This above data is particularly interesting and telling because it further reinforces Dean Baker’s thesis. Given that undergraduate education in India is much cheaper than in the US, it follows that Indians opting for higher education would complete their initial studies in India before leaving to the United States. And the data matches this expectation. While the year-on-year growth of undergraduate students from India has been 3.59%, the same number for graduate students is nearly triple at 9.74%. This 3x factor also closely matches the earlier data on college enrollment.
2.2 Growth of the Software Industry
According to 2004 Annual Report of the Indian government’s “Ministry of Electronics and Information Technology” (MeitY) below is how the Indian software industry grew during the period 1998–2004:¹⁰
The Indian software and services export is estimated at Rs. 78,230 crore (US$ 17.2 billion) in 2004–05, as compared to Rs. 58,240 crore (US $ 12.8 billion) in 2003–04, an increase of 34 per cent both in rupee terms and dollar terms.
Using data from MeitY I plotted the annual revenues from software exports below.
See footnote¹⁰ for caveats about data on years 2015–2016.
2.3 Brain Drain
The story of brain drain goes that when skilled people leave to work in a host country, they enrich the host to the detriment of their home country. While Indian scientists leaving abroad was not in India’s best interests — certainly not when India’s goals were to be self-sufficient — the economic planners also had to balance out a most basic economic reality: all foreign oil trade happens in US Dollars. For example, Sri Lanka wishing to purchase crude petroleum from Qatar must pay for the same in US Dollars. This makes holding foreign exchange reserves (primarily, though not solely, US Dollars) an important part of any country’s economic planning. Thus, carrying forward the earlier example, if Greece wished to import Sri Lankan tea, it is pragmatic of Sri Lanka to require payment in US Dollars that it may use to pay Qatar.
With this latter reality of the modern economy, India has mostly looked at its Non-Resident Indians (NRIs) positively as a source of foreign exchange. This is how they were described in the 6th Plan:
The Indian economy has, by and large, faced difficult balance of payments situation right from the First Plan [1951–56]…. It was, nevertheless, possible to manage the situation because of the substantial net inflows on account of invisibles which included inward remittances from abroad, particularly from Indians working abroad…. [6th Plan, §6.2]
The 7th Plan said that “net invisible earnings substantially exceeded [6th] Plan projections, mainly because of the unanticipated and continued buoyancy of expatriate remittances.” [7th Plan, Vol 1, §5.2]
By the 8th Plan, the Government of India opened up its economy, introduced Free Market reforms that it hoped, among other things, would “result in increased investment by Non-resident Indians”. [8th Plan, Vol 1, §5.9.2]
While the planners didn’t want pioneering scientists and researchers leaving India, by and large they were unconcerned about others leaving because of these benefits.
3. Incentives for India
Today, the total number of medical seats available for Indian students every year is a mere 60,480¹¹ (source Medical Council of India) compared with an order of magnitude higher enrollment of around in engineering (source All India Council for Technical Education).¹² Recall that since the 9th Five Year plan (1997–2002), India has been heavily investing in engineering colleges to increase enrollment and for the explicit purpose of becoming a software powerhouse.
While the Five year Plans constantly discuss improving health conditions for the vast majority of Indians none of them actively discuss funding medical schools in the manner they did for “Information Technology”.
Note also that the above numbers compare medical college seats available with engineering college enrollment. The seats available are a strong upper bound on how many students can graduate med school. In comparison, according to AICTE, the number of students enrolled in engineering school in 2017 was nearly 500,000. The six year enrollment graph, again from AICTE, is shown below.
Even if we assume a low¹³ 50% graduation rate in Engineering schools, it means that in the last six years India has produced 1.7 million engineers. In comparison, as of Mar 31, 2017 there were only a million doctors in all of India (source MCI Annual Report, page 143. Exact number: 1,022,859).¹⁴
I do not know if the MCI keeps the number of doctors artificially low, whether they have their own lobby to keep things under tight control. But if India sees a market opening up in the First World, it’s in India’s interests to export doctors to the USA for much the same reasons it did for the Software Industry. It can be done in almost the same manner.
And much like the growth of the Software Industry, it’ll be a win-win for both countries.
Footnotes
¹ Dean Baker, “The problem of doctors’ salaries”, Politico, Oct 25, 2017, accessible at https://www.politico.com/agenda/story/2017/10/25/doctors-salaries-pay-disparities-000557.
² From Dean Baker’s blog dated Jun 24, 2006 available at http://beatthepress.blogspot.com/2006/06/minimum-wage-and-doctors-pay.html. It contains the below excerpt and cites his 2006 book, The Conservative Nanny State.
My favored policy is free trade in professional services, so that doctors, lawyers, accountants and economists can enjoy international competition in the same way as autoworkers, textile workers and dishwashers.
I don’t know why his Politico article got so much attention, but I’m glad it did. The Conservative Nanny State is available gratis (i.e. free to download and read, perhaps not to distribute, and not to modify) at https://deanbaker.net/books/the-conservative-nanny-state.htm.
³ Rigged is available in paperback and also gratis at his website, https://deanbaker.net/books/rigged.htm. As with his other books, it’s free to read.
⁴ This is hardly a representative sample but I looked at the diversity reports of the following tech companies. There are notable exceptions also listed after the diversity numbers.
The companies (listed alphabetically)
Adobe: 38% (2017)
AirBnB: 52% (2017)
Apple: 31% (2017)
eBay: 67% (2017)
Facebook: 49% (2017)
Google: 39% (2017)
Intel: 42% (2017)
Microsoft: 38% (2017)
Netflix: 34% (Q2 2018)
Twitter: 39% (2016)
Notable exceptions:
Amazon, Salesforce: diversity stats not separated by Tech
Cisco, Intel: only lists Caucasian/non-Caucasian
IBM: could not find stats.
https://blog.twitter.com/en_us/topics/company/2017/building-a-more-inclusive-twitter-in-2016.html
https://diversity.google/annual-report/
https://jobs.netflix.com/diversity
https://www.airbnb.co.in/diversity/belonging
https://www.apple.com/diversity/
https://www.ebayinc.com/our-company/diversity-inclusion/by-the-numbers/
https://www.facebook.com/careers/diversity-report#u_0_34
https://www.intel.com/content/www/us/en/diversity/diversity-at-intel.html
https://www.microsoft.com/en-us/diversity/inside-microsoft/default.aspx#epgDivFocusArea
https://wwwimages2.adobe.com/content/dam/acom/en/diversity/pdfs/consolidated-eeo-1-2017.pdf
⁵ I don’t have a full reference for this. The best I have is the below pie-charts from http://www.nber.org/digest/nov16/w22623.html and the associated paper at http://www.nber.org/papers/w22623.pdf.
⁶ All references to the Five Year plans are taken from http://planningcommission.gov.in/plans/planrel/index.php?state=planbody.htm.
⁷ The Mid-Term Appraisal plans are available in the above reference and also at http://planningcommission.nic.in/plans/mta/.
⁸ Data picked from the below two sheets in “EDUCATION — Statistical Year Book India 2017” available at http://mospi.nic.in/statistical-year-book-india/2017/198.
The sheets are:
- No. of Educational Institutions, Schools (All India) Table- 29.1 (A) and
- Enrolment in Institution and Schools (Various Levels) (All India) Table- 29.2 (A).
⁹ IEE data available at https://www.iie.org/en/Research-and-Insights/Open-Doors/Data/International-Students/Places-of-Origin/Academic-Level-and-Place-of-Origin.
¹⁰ Ministry of Electronics and Information Technology, Government of India, “Annual Report” available at page http://meity.gov.in/content/annual-report. For the years 2004–2007 the data is available at the page “Annual Report Archives”, http://meity.gov.in/content/annual-report-archives.
MeitY’s Annual Reports are only available for the years 2004/05–2012/13. The following links are broken:
- Annual Report 2013–14
- Annual Report 2015–16
- Annual Report 2016–17.
The Annual Report 2017–18 does not list Software Revenues at all. I used the MeitY page “Performance & Contribution towards Exports by IT-ITeS Industry” available at http://meity.gov.in/content/performance-contribution-towards-exports-it-ites-industry#tab2. Unfortunately, this page lists all its export revenues in US Dollars. The revenues for years 2015, 2016, and 2017 were calculated using 1 USD=₹63.55, 1 USD=₹63.55, and 1 USD=₹66.7 respectively.
¹¹ The Medical Council of India (MCI), “List of Colleges Teaching MBBS” available at https://www.mciindia.org/CMS/information-desk/for-students-to-study-in-india/list-of-college-teaching-mbbs. There are 497 such colleges providing 60,480 seats.
¹² All India Council for Technical Education (AICTE), “Graphs and Charts” available at https://www.facilities.aicte-india.org/dashboard/pages/angulardashboard.php#!/graphs.
¹³ AICTE, in the above graphs, reports a graduation rate between 70–80%.
¹⁴ MCI’s 2017 Annual Report available at https://www.mciindia.org/CMS/wp-content/uploads/2017/10/Annual-Report_2016-17.pdf.
See also this Aug 11 article in the India daily, The Hindu, by D. Balasubramanian which says “India produces over 1.5 million engineering graduates every year, from 3,345 colleges and institutes” and “India produces 52,000 doctors (MBBS degree) every year from about 1,700 medical colleges”. Available online at https://www.thehindu.com/sci-tech/science/actual-problems-are-solved-only-by-whole-men/article24666123.ece.
