The world cannot be just flat: It should be a straight line by Danny Quah dq@econ.lse.ac.uk December 2006 Every billion-people economy that humanity has yet produced shows within itself wide contrasts and great divides. The larger that something is, necessarily, the more extreme the opposites it generates, regardless of the underlying reality. In the eyes of the outside world, however, perhaps nowhere shows greater polarization than India today. The cutting-edge dynamism, cool success, and global impact of high-tech, plugged-in, globalized India are lauded in reports ranging from Thomas Friedman’s The World is Flat and numerous articles in Wired magazine, to regular features in The Economist and almost daily accounts in the Wall Street Journal. Bright shining monuments dot the Indian landscape, marking out award-winning global leaders in information technology, pharmaceuticals, Bollywood entertainment, and much else. Steve Hamm’s book Bangalore Tiger (published, obviously, before the name change to Bengalooru) argues that it is conceptual models and management insight at Infosys, Tata, and Wipro, rather than low labor costs alone, that have allowed Indian information technology and business-processing to run circles around their more established Western counterparts. A quarter century of fierce pharma competition, without the straitjacket of overly-restrictive product patents, made India the world’s largest producer and a major exporter of bulk drugs and essential medication, in the fight against that bacterial infection prevalent in tropical countries. But switch perspective only minimally. Then one immediately latches onto a debate regarding the extent of grinding poverty in India. World Bank data tell us that the top 10% of India’s population makes 28% of its national income; the bottom tenth, only 4%. India has 80% of its population live on less than $2/day; 35%, on less than $1/day. By contrast, in the East Asia and Pacific region the counterpart fractions are only 41% and 12%; for China, they are 47% and 17%. One reads both business surveys and scholarly studies about India’s dismal physical infrastructure in roads, ports, and power supply; India’s fractured distribution networks, India’s stifling government bureaucracy and ineffectual public sector; and India’s restrictive red tape and onerous labor market regulation. Every country in the world, though, faces challenges in infrastructure. China still has no nation-wide highway distribution network. Regional tastes fragment a putative national retail market, disrupting possible economies of