NCPA - National Center for Policy Analysis

WHAT DETROIT CAN LEARN FROM BANGALORE

June 15, 2006

Bangalore, India, a Third World city beginning with nothing, has experienced meteoric economic growth, while Detroit, once a formidable industrial powerhouse, can't crawl out of its economic rut. If Detroit wants to boom again, it could learn some lessons from Bangalore, says Shikha Dalmia, a senior analyst at the Reason Foundation.

The factors that made India the world's economic basket case are precisely what have stymied Detroit's resurgence: excessive bureaucracy, destructive taxes, and bad labor laws. India has attacked regulations and taxes with a vengeance, with results Detroit's leaders should note:

  • In 1991, India dismantled much of its licensing regime, eliminated all import licensing, and slashed tariffs on capital goods.
  • The Software Technology Parks of India (STPI) gave I.T. companies in Karnataka a nearly complete exemption from central government taxes, released businesses from the government's telecommunications monopoly and established a special liaison between I.T. companies and the central government for all statutory approvals.
  • Lax enforcement of zoning laws and broad STPI certification empowered any geek with a computer and e-mail to write and deliver software to anyone in the world right from his home.

Additionally:

  • In 1991, India lowered the marginal income tax rate for corporations and individuals to between 30 and 35 percent, slashed the wealth tax to 1 percent, and abolished the estate tax.
  • Last year 21 states ended multiple state-level sales taxes.
  • Around 1999, New Delhi declared a 10-year holiday from corporate income taxes for all STPI-registered companies.

By allowing companies to access the best minds and best resources anywhere on the planet, globalization has enriched just about everybody touched by it. Detroit and other depressed cities, both in the United States and elsewhere, desperately need to learn this lesson, says Dalmia.

Source: Shikha Dalmia, "What Detroit Can Learn From Bangalore," Reason, June 2006.

 

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