Between Dependency and Autonomy: India's Experience with the International Computer Industry

By Joseph M. Grieco

This title is part of UC Press's Voices Revived program, which commemorates University of California Press’s mission to seek out and cultivate the brightest minds and give them voice, reach, and impact. Drawing on a backlist dating to 1893, Voices Revived makes high-quality, peer-reviewed scholarship accessible once again using print-on-demand technology. This title was originally published in 1984.

• Language: English
• Publisher: University of California Press
• Release date: Nov 15, 2023
• ISBN: 9780520323919

Joseph M. Grieco

Enter the Author Bio(s) here.

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Between Dependency and Autonomy

Science, Technology and the Changing World Order edited by Ernst B. Haas and John Gerard Ruggie

Scientists and World Order:

The Uses of Technical Knowledge in International Organizations, by Ernst B. Haas, Mary Pat Williams and Don Babai Pollution, Politics, and International Law:

Tankers at Sea,

by R. Michael M’Gonigle and Mark W. Zacher Plutonium, Power, and Politics:

International Arrangements for the Disposition of

Spent Nuclear Fuel,

by Gene I. Rochlin

Between Dependency and Autonomy:

India’s Experience with the International Computer Industry, by Joseph M. Grieco

Between Dependency and Autonomy

India’s Experience with the International Computer Industry

Joseph M. Grieco

University of California Press Berkeley • Los Angeles • London

University of California Press

Berkeley and Los Angeles, California

University of California Press, Ltd.

London, England

© 1984 by

The Regents of the University of California

Printed in the United States of America

123456789

Library of Congress Cataloging in Publication Data

Grieco, Joseph M.

Between dependency and autonomy.

(Science, technology, and the changing world order)

Bibliography: p.

Includes index.

1. Computer industry—India. 2. International business enterprises— India. I. Tide. II. Series.

HD9696.C63I44 1983 338.8'87 83-4866

ISBN 6-520-04819-9

To my parents, Mauro and Mary Grieco

Contents

Contents

Tables

Acknowledgments

Abbreviations

Chapter I Introduction

Chapter II India’s Changing Fortunes in Computing, 1960—1980

Chapter III The International Creation of Computer Opportunities

Chapter IV India’s Exploitation of International Opportunities

Chapter V Policies, Politics, and Computers in India

Chapter VI Conclusion

Notes

Bibliography

MULTINATIONAL ENTERPRISES, THE ASSERTIVE UPPER-TIER DEVELOPING COUNTRIES, AND INTERNATIONAL RELATIONS

INTERNATIONAL COMPUTER TECHNOLOGY AND INDUSTRIAL STRUCTURE

THE INDIAN EXPERIENCE WITH THE INTERNATIONAL COMPUTER INDUSTRY

THE EXPERIENCES OF OTHER COUNTRIES WITH HIGH-TECHNOLOGY MULTINATIONAL ENTERPRISES

Index

Tables

1. Percentage of U.S. Affiliates Encountering Performance Requirements and Incentives in Selected Developing Countries, Through 1977 and 1970-1977, 18

2. Computer Market Structure of India, 1960—1972, 26

3. Lag of Foreign Computers in India, 1960-1972, 28

4. Computer Market Structure of India, 1960-1977, 34

5. Lag of Foreign Computers in India, 1960—1977, 36

6. Per-Bit Costs of ECIL and Selected IBM Main Memories, 37

7. Computer Market Structure of India, 1960—1980, 41

8. Partial Value of Indian Computer-Base at the End of the 1970s, 43

9. Lag of Foreign Computers in India, 1960-1980, 45

10. Processing Times and Costs of Computer Systems, 1955-1976, 54

11. Per Bit Main Memory Costs, 1955—1978, 55

12. Minisystems, 1955-1975, 57

13. Operations of U.S. Computer Enterprises in Developing Countries, Late 1960s to Late 1970s, 61

14. Operations of U.S. Computer Enterprises in Upper-Tier Developing Countries, Late 1970s, 65

15. Electronics Research and Development Funding Support by the Indian Government, 1970s, 76

16. Indian Government Support for Computer Research and Development, 1971—1978, 77

17. Indian Electronics, Mid-1960s to Mid-1970s, 123

18. Research and Development Funding of Electronics Commission and Department, by Recipient, 1971—1979, 124

19. ECIL System Recipients, 1971-1978, 127

20. Janata National Leadership: Ideology, Former Party Affiliation, and Position as of Early 1977, 143

Acknowledgments

First and foremost I wish to thank Richard N. Rosecrance and Peter J. Katzenstein for their guidance during my graduate training in general and the development of this study in particular. For their suggestions and criticisms I would also like to thank Duncan L. Clarke, Jack Donnelly, Howard Erdman, Glenn Fong, Frank Golay, Ernst B. Haas, Stanley A. Kochanek, Frederick V. Kratochwil, Michael Mastanduno, John J. Mear- sheimer, George H. Quester, Myron Rush, and Louis T. Wells.

I am grateful to many institutions for their generous support of the research reported here: at Cornell University, the Center for International Studies, the Peace Studies Program, and the South Asia Program; at Princeton University, the Center of International Studies; at Harvard University, the Division of Research in the Graduate School of Business Administration; the Institute for the Study of World Politics; and the American Institute for Indian Studies.

In preparing the study, I have relied upon information provided by individuals with firsthand knowledge of India’s experience with the international computer industry. These individuals have requested that their identities not be reported, but they are aware that their names and notes taken by me of conversations with them are available to my special committee at Cornell. I shall not soon forget the assistance and, in many instances, the hospitality of these persons. To all persons I interviewed I offered an opportunity to review my write-up of conversations with them and to review chapters (and in the case of IBM executives, the entire manuscript) relating to their knowledge of computers in India. Many errors of fact were corrected as a result of these review procedures, and I thank these individuals for the time they devoted to the study.

Of course, I alone am responsible for any error of fact or of interpretation.

Abbreviations

Chapter I

Introduction

This study is concerned with an important dimension of change in the contemporary international system: the increase in power of certain developing countries in their political-economic interactions with the advanced capitalist societies. The study seeks to document a recent shifting in power away from high-technology multinational enterprises (originating from the advanced capitalist societies) and toward certain developing countries in which the firms operate. To explore this shifting in power, the study describes and explains India’s experience with the international computer industry between 1960 and 1980. The major empirical finding of the study is that India did increase its capacity to manage its ties with the international industry: there was in fact a shift in the balance of power away from individual international computer firms and in favor of India. As a result of this shift in the power relationship, there was also a change in the behavioral relationship between India and the international industry. India transformed its linkages with international firms in the industry and thereby enlarged its share of the benefits resulting from interactions between the country and the industry.

One major objective of this study is to document and to explain how this power shift took place between India and the international computer industry. A second objective is to use this particular case as a way of evaluating two competing schools of thought on whether power balances between developing countries and agents of advanced capitalism can indeed change very significantly. One school of thought contends that longterm power balances typically favor developing countries at the expense of multinationals. This argument is in accord with the more general perspective which emphasizes the variety of ways developing countries increase their power in interactions with the advanced capitalist societies? Another school of thought contends that developing countries are unable to enhance their power significantly over multinationals. This argument is a part of the more general perspective which emphasizes the.basic powerlessness of developing countries in what is considered an unchanging and unjust capitalist international order.² India’s experience with computers, it is suggested in this study, points to the overall analytical superiority of the first over the second school of thought. As with relations between the superpowers or among the advanced capitalist societies, changes in power are a fundamental characteristic of relations between developing countries and advanced capitalist societies.

We will first discuss more fully the two schools of thought on relations between developing countries and multinational enterprises and then evaluate the usefulness of India’s computer experience as a test case for the two schools. A brief discussion follows on the range of other developing countries to which India’s experience with high-technology multinationals may be relevant. A chapter-by-chapter guide to this study’s empirical findings and theoretical arguments is then presented, along with a few concluding thoughts on the limits or qualifications of this study’s arguments.

THE BARGAINING SCHOOL, THE MARXIST-DEPENDENCIA SCHOOL, AND INDIA’S COMPUTER EXPERIENCE

Three propositions constitute the bargaining school’s understanding of relations between developing countries and multinationals.³ First, the terms by which an enterprise operates in a country, and the distribution of benefits between them, are the result of negotiations and the balance of bargaining power between the country and the company. Second, in early interactions the balance of power and of benefits often favors the multinational. The developing country may control access to its markets and resources, but the enterprise has more important bargaining assets through its control of capital, access to foreign markets, technology, and managerial expertise. Third, and most crucial, over time the host country is likely to gain access in varying degrees to the sources of bargaining power which earlier had been controlled by the enterprise. As the country attains greater bargaining power, it forces the balance of benefits to shift in its favor. In sum, according to the bargaining school, prolonged contacts with foreign enterprises afford developing countries the experience needed to manage these relations more effectively and to the greater benefit of the countries.

The Marxist-dependencia school agrees with the bargaining school in observing that multinationals translate their superior power resources into the establishment of ties with developing countries benefiting the former much more than the latter. However, the Marxist-dependendistas see very litde chance for developing countries to learn to change their relations with foreign firms.⁴ Developing country elites may choose not to be aggressive with foreign firms because they are co-opted by the latter. Alternatively, the elites may wish to be aggressive toward multinationals but are deterred from doing so out of concern for losing vital resources provided by the enterprises or out of fear of retribution by the multinationals’ home governments. In sum, the Marxist-dependencia school believes that developing countries cannot or will not try to change their relations with multinationals, and therefore these countries’ long-term development is inhibited by contact with foreign firms.

Recent commentary on the case study method points- to the utility of India’s computer experiences as a test of the relative strength of the bargaining and the Marxist-dependencia schools.⁵ If the most extreme phenomena predicted by a theory (i.e., hard cases) actually are observed, then strong support is given to the theory. Involving a developing country and a technologically dynamic industry, the present case is just such a hard case for the bargaining school.⁶ According to the school developing countries can, in general, cause the balance of bargaining power to shift over time in their favor. However, causing this shift in power is most difficult for developing countries to effect, according to the school, in bargaining instances involving high-technology multinationals.

For example, Raymond Vernon, a leading influence within the bargaining school, has chronicled the increasing power of developing host countries over multinationals first in natural resource industries and later in a variety of manufacturing industries. At the end of the 1970s Vernon believed, however, that not all multinationals were equally vulnerable to developing country pressures. Vernon argued that developing countries increasingly were gaining control over subsidiaries of some manufacturing multinationals, and in particular he believed that the diffusion of technology among such enterprises weakened individual firms as they bargained with developing countries.⁷ Yet Vernon observed:

As long as a foreign-owned goose can still lay golden eggs … the policy of most developing countries has been to squeeze the goose, not destroy it or have it fly away. Accordingly, multinational enterprises that provide a unique function, such as to provide access to some difficult technology or some otherwise inaccessible foreign market, have generally been less vulnerable to government pressures while subsidiaries where withdrawal is thought to entail very little national loss have been more vulnerable.⁸

Other representatives of the bargaining school have also argued that developing country control over high-technology multinationals is possible but difficult to achieve. As C. Fred Bergsten, Theodore Moran, and Thomas Horst noted in their discussion of the problem:

Some investors will doubtless be relatively immune from this process [of increasing host-country control]. Where technology is complex, rapidly changing, and tightly held—such as computers—the shift in bargaining power toward developing (and other) host countries will proceed least rapidly.⁹

Hence developing countries can exert some control over manufacturing enterprises, but this becomes progressively more difficult (but still possible) as the enterprises are involved in increasingly sophisticated industries. Instances of success by developing countries with high-technology multinationals are at the outer edge of the predictive power of the bargaining school. Therefore, if a developing country like India is successful with high-technology enterprises in an industry like data processing, then even the most extreme observation predicted by the bargaining school can be made, and this would give strong support to the school.

On the other hand, the Indian case constitutes an easy case for the Marxist-dependencia school. According to this school, developing countries generally are unable or unwilling to change their relations with multinationals, but this is especially true in cases involving high-technology multinationals. As Peter Evans recently argued, when a developing country and a multinational bargain: The position of the multinational is never stronger than when it is based on monopolistic control over new knowledge.¹⁰ Evans suggested that in such bargaining encounters: To put the argument in its most simplistic form, the best cards on the side of the locals are political. The multinationals’ best cards are technological.¹¹ Evans also argued that hightechnology multinationals have succeeded in retaining control over corporate research and development programs while at the same time they have succeeded in making the consumption patterns in developing countries increasingly similar. According to Evans, these two factors give multinationals great power over developing countries: Since consumption patterns (especially among consumers with enough income to make a difference) are becoming more homogeneous at a rapid rate while the multinationals’ control over new knowledge is eroding only slowly, technology continues to be a strong card in most industries.¹²

Another recent Marxist-dependencia study of relations between multinationals and developing countries also concludes that high-technology multinationals are especially likely to prevail in bargaining encounters with developing countries. Douglas Bennett and Kenneth Sharpe argue that technological dependency combined with other political-economic weaknesses to cause the Mexican government to be unsuccessful in the early-1960s in negotiations with multinational automobile firms on their establishment of manufacturing operations in the country.¹³ Most significantly, Bennett and Sharpe posit that this initial failure by the Mexican government led to the creation of tight limits on the government’s bargaining power in subsequent negotiations with the foreign auto firms, for the latter became able to form ties with local Mexican political-economic actors (Bennett and Sharpe identify suppliers, distributors, labor, and consumers) that could be used against the government. Bennett and Sharpe conclude that while developing countries may experience an increase over time in their bargaining power with respect to foreign enterprises in natural resource industries, the evolution of bargaining relations between developing countries and foreign firms in hightechnology consumer-goods manufacturing industries is likely to be very different. As they suggest: Other things being equal, then, the balance of bargaining power in such a manufacturing industry may with time shift toward the transnational rather than toward the LDC.¹⁴ It should be noted that the Bennett and Sharpe proposition concerning the possible diminution of developing-country bargaining power over time is precisely opposite that presented by the bargaining school, for the latter emphasizes the probable increase in bargaining power enjoyed by developing countries over time. Through its analysis of a fairly long time period (1966-1980) of actual bargaining between the Indian government and multinational computer firms, the present study may shed significant light on this key question of how power relations between developing countries and multinationals may change over time.

Developing countries, according to the Marxist-dependencia school, are supposed to be at their very weakest when they bargain with high-technology multinationals.¹⁵ They should attain very little if they try to change their ties with this set of enterprises. Hence a country like India should clearly fail, according to the Marxist-dependencia school, in bargaining with computer multinationals. If India is successful with such firms, then even a most obvious set of phenomena predicted by the Marxist-dependentistas is shown not to be observed in exactly the circumstances in which it should be observed. Success by India in computers would therefore cast severe doubt on the validity and strength of the Marxist-dependencia school.

RELEVANCE OF THE INDIAN EXPERIENCE WITH COMPUTERS

Involving, as it does, a major developing country and a key high-technology industry, India’s experience with the international computer industry is interesting in its own right. Also, a focus on this case permits a key test and comparative assessment of two major schools of thought on the power capabilities of developing countries as they interact with multinational enterprises . Moreover, the case itself and the assessment it permits of the two schools may reflect on the more general problem of how much room for policy maneuver developing countries already enjoy or may come to attain in the contemporary capitalist international economy.

However, most other developing countries have not attained the level of national power reached by India, and therefore India’s experience with computer multinationals may not be indicative of the levels of success to which most developing countries can aspire as they negotiate with high-technology enterprises. On the other hand, India’s industrial structure is similar to those of Brazil and Mexico. In terms of scientific manpower productively employed Brazil is close to India, and Brazil and Mexico match or exceed India in terms of financial resources available per science and technology worker. Hence, India’s bargaining success with multinationals might be achieved as well by Brazil and Mexico at present. In addition, countries such as Colombia, Nigeria, and Venezuela have objectives with regard to national control over multinationals that are very similar to those of India, and over differing time horizons they might approach India in terms of potential bargaining power. As they attain the bargaining capabilities currently enjoyed by India, they increasingly will be able to view India’s bargaining successes as a realistic standard to which they can aspire.¹⁶

India, Brazil, and Mexico at present, together with countries such as Colombia, Indonesia, Nigeria, and Venezuela over the longer term, constitute most of what might be termed the emerging assertive upper-tier of the developing world. These important and increasingly advanced countries have contacts with a wide variety of multinational enterprises in contrast to upper-tier countries such as Saudi Arabia which thus far have interacted mostly with oil multinationals. At the same time, these more or less assertive upper-tier countries are extremely sensitive about possible threats by multinationals to their national autonomy, and they seek to control and to compel an improvement in the terms of their relations with foreign enterprises through the employment of stringent legal/admin- istrative regimes on foreign capital. (This assertive strategy on foreign firms contrasts with that followed by newly industrializing developing countries such as Hong Kong, Malaysia, the Philippines, Singapore, Taiwan, South Korea, and Thailand, which seek foreign-enterprise-assisted growth through relatively accommodating regimes.)¹⁷

India’s experience may be illustrative of what can be achieved by only a narrow band of other developing countries as they bargain with multinationals in high-technology enterprises. However, while few in number, the assertive upper-tier developing countries are especially important hosts of foreign direct investments from the advanced capitalist societies. According to an estimate of the Organization for Economic Cooperation and Development, the total book value of foreign direct investments from the advanced countries in 101 developing countries reached $88 billion in 1978; of this total about 40 percent was accounted for by investments in the assertive upper-tier countries. In contrast, only about 14 percent of all such investments were in the accommodating members of the upper tier, and only around 6 percent of all investments from the capitalist countries were in the oil-exporting countries (excluding Indonesia, Nigeria, and Venezuela).¹⁸

A discussion of India’s computer experience may yield important insights about possible power shifts between developing countries and a very large percentage of foreign investors from the advanced capitalist societies. In addition, many studies have already been conducted on power shifts in favor of a wide range of developing countries as they negotiated with foreign firms in several natural resource, and a few manufacturing, industries.¹⁹ Together with the Indian case the studies span almost the entire range of possible bargaining encounters between developing countries and multinational enterprises. Hence, together with these examples of successful bargaining encounters the Indian case reveals the growing power of many developing countries over almost all types of multinational enterprises.²⁰

AN OVERVIEW OF THE STUDY

This study seeks to describe and to explain India’s increasing capacity over a period of fifteen years to transform its ties with the international computer industry in such a way as to increase its share of the benefits resulting from interactions between the country and the industry. Chapter 2 begins this effort by reviewing the factual record of India’s experience with computers and the international computer industry. The chapter analyzes the objectives of the Indian government with regard to the country’s computer industry and to foreign computer firms operating in India. These objectives were publicly specified in tbe mid-1960s, and their analysis permits the establishment of a standard or measuring rod against which progress can be observed and assessed in India’s performance in the computer field. An examination of key governmental policy statements indicates that the overall goal set by the government for itself and the country was to become autonomous and technically sophisticated in the shortest time possible. This general goal was operationalized by the government through the enunciation of three specific objectives: Indians should participate in the ownership and control of any units established in the country by foreign computer firms; wholly Indian firms should emerge quickly and satisfy the bulk of the nation’s computer requirements; and Indians should have access to the most advanced computers and computer fabrication technologies available internationally.

This specification of performance standards is then followed by a report on data reflecting upon changes in India’s success in meeting its computer goals. On the basis of government documents and relying especially on interviews conducted by the author with governmental officials and corporate executives, a measurement is taken of the government’s changing ability to offer incentives and to bear costs sufficient to reformulate the country’s ties with the international computer industry in terms of corporate control and the activities of the foreign computer firms in India. Chapter 2 also presents data (collected through interviews and analysis of governmental and private reports) on the structure of the Indian computer market during the 1960-1980 period and on the levels of technological sophistication of the foreign-origin systems installed in the country during these twenty-one years. Evaluation of these data allows for an assessment of changes in success of indigenous systems suppliers and of changes in the ability of the country to gain access to increasingly sophisticated foreign-origin systems. Finally, a comparison is made of the