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Idea: "Country-in-a-country" special economic zone

The reason for outsourcing is usually cheaper labour costs.But the people who are doing this work are actually having a good quality of life. Because in real terms even though their wages are lower ( eg: in Bengaluru, India) compared to a developed country ( eg:USA), the cost of living is lower as well. At same time jobs are lost in USA. If americans unemployed due to outsourcing can go and work in India they have beter quality of life. But this is always not possible ,due to family commitments , distance etc.

My proposal is special economic zone similar to Charter city , but in reverse. This will be in a developed county ( Say USA). To start with set aside a few thousand hectares of land in say florida for this economic zone - call it CIC ( country in country). It will be a replica of eg: Bengaluru. It will have offices, houses,schools, health care , shopping , entertainment , banks etc. The crucial issue it will have indian rupee as currency. With all these similar to the Indian city , the cost of living and working should be on par with Bengaluru. Now companies can establish call centres in these CIC zones. The pay for call centre operatives will be same as in Bengaluru and paid in indian rupees. So from the company's point of view this call centre on american land costs the same as if it were to be in India.

But the people employed here will be americans who chose to move to this mini India in USA. They have jobs, relatively good earnings as cost of living is less with all amenities. Most people would stay and work in this CIC zone say for one or two years and then move on to jobs in america.
It is bringing american jobs to america while maintaining standard of living and cutting through the barriers of currency exchange rate etc.

It appears to be a win win situation.

But I have a feeling that there must be a fundamental flaw in this idea. I hope somebody who knows these things will be able to point it out.
thanks

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    Nov 19 2012: I believe to a degree what you are describing is already happening. If you want to be a farmer in Nebraska or a factory worker in rural Atlanta you will probably earn less than a bar tender in New York, but the cost of living in Omaha versus Manhattan is strikingly less. We have these regions in the United States known fro doing less glamorous work and those areas typically have a lower cost of living. The problem with entirely replicating India's cost of living is complex. From my understand, part of the problem is the quality of life a job at a call center in India will get you in India is lower than people in the US for the most part are willing to accept. Whether it be because of Unions or Government regulations or government subsidies for unemployment or just a different understanding of what people deserve.
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    Lejan .

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    Nov 11 2012: To find the 'flaw in this idea' it may help to reduce the complexity of your scenario.

    Find the source of the 'purchasing power' of rupee and dollar and 'what' and 'who' defines it.

    This will tell you, why the workforce of 1.241.491.960 Indians is considered 'less in value' than those of 311.591.917 US Americans. You may find, that this difference is more artificial in its nature than it seems to be on first sight.
    • Nov 11 2012: Can you please elaborate on the "purchasing power" and " less in value" or give links where there are discussed in simple terms.?
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        Lejan .

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        Nov 11 2012: You could have a start here:

        http://en.wikipedia.org/wiki/Purchasing_power_parity

        And if I was you, i would not expect those terms to be simple... :o)

        Good luck!
        • Dec 2 2012: it is not simple. I suppose one needs to be an economist to under stand this.
          it would be interesting how cost of living varies on huge ships? CIC is like a big ship moored in the county for long time.
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        Dec 3 2012: You don't have to be an economist to understand that, enough interest would do just fine.

        But if you wan't to understand the scope of your own idea, you should possess this knowledge- :o)
  • Nov 11 2012: "The reason for outsourcing is usually cheaper labour costs.But the people who are doing this work are actually having a good quality of life. Because in real terms even though their wages are lower ( eg: in Bengaluru, India) compared to a developed country ( eg:USA), the cost of living is lower as well."

    It's true that to some extent you can have the same standard of living in India for less money because, for example, land prices are lower (so homes are cheaper), but in the end a barrel of oil will still cost just as much in India, as does advanced technology. There is also the little matter of many things in India being cheaper because there is a labor class that really does live in poverty because of very low wages, this cannot (and should not) be recreated in a "special economic zone". If you really want to change something you should bring down land prices in the developed world so most people can maintain their standard of living with lower monetary wages (of course a few rich people would see their income from land trading fall) and make sure that in developing countries no children are working and adults are not working 12 hours per day, then it should only be a matter of time before wealth grows even around the world (unless of course some governments are paid to keep local wages low).
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      Nov 11 2012: You say down below that: "Businesses don't need to be pampered as long as they can still afford to give away tens of millions to executives."

      First, is lowering taxes and red tape really pampering? In my opinion it is not, so if we consider SEZ as zones were taxes are low and bureaucracy limited no one is pampering anybody.

      Second, giving ten of millions to executives while underpaying workers is shameful, but then again, it is a matter of personal culture, not business regulations.
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    Nov 11 2012: Well, they would be paid in rupees, but wouldn't they have to buy most of their goods and services in America at American prices? For example, the food that came into the city would be grown on surrounding American farms outside the special city, and the American farmers would place the same price on it as they expect to receive from all the rest of the Americans. Even if the special city had its own farms, they would still have to buy farm machinery and seeds from the rest of America at prevailing American prices. Thus the rupee wouldn't stretch as far here.
    Do you have any other ideas of how to create more jobs? How is the employment in India? If it is better, do you know why?
    I have the idea more employment would be created if more people bought organic food. I'm thinking it takes more care and manpower to grow organic food, although I'm not sure. If it takes more people to grow it, that means more employment.
    • Nov 11 2012: May be this special area would grow its own food later on.

      For the first few years at least, grocery items and energy ( petrol / natural gas etc) would be bought in international market at prevailing prices. This would be same for any other county - USA /India / Mexico. The same applies to machinery - all in international market - probably some made in China. For example consumer durables cost the same or nearly same in most countries. This should not put the special city at any disadvantage compared to rest of USA.

      As per services, most will be available with in the economic zone and will be paid for in rupees. These including health care, should be cheaper in the special city as by their nature the service industry is labour intensive.As the cost of living of these service providers will be cheaper , in turn their services will be less costly than mainland USA. Does it make sense?
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        Nov 13 2012: Mmm, this is getting big, if they are a city and also an agricultural area. Land is rather expensive, how would they pay for it, wouldn't they have to pay American prices? Then they will pay their property taxes in American prices.

        But you know, it's a good question. I think my friend and I discussed this once, why the dollar buys more in other countries. I think we concluded it's because many people in other countries are willing to live in very poor conditions, to not get very good wages and thus not be able to live very well. Would you agree? This is in contrast to America, where most Americans expect a high quality of life. I'm thinking the Indians in the Indian city in America would observe the high standard of living of Americans, and not be willing to live poorly.
        • Dec 2 2012: real estate / land/ property price is an issue. This is all artificial any way - like game of Monopoly. though i do not propose capping / contolling land price in any way - some mechanism is to be found to over come this.
          Air is free (till now!).
          a person employed in this CIC will have a better quality of life / higher standard of living than an unemployed person in nearby America
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    Dec 4 2012: Muralikrishna, I'm still seeing problems with your idea, although I'm sorry to be a downer. One is the problem of taxation discussed below.

    Here is another problem: what would you do if workers in the city became psychologically depressed and unable to work, or disabled from a car accident, or a similar situation? Are they to return to India? Who will pay?

    Also, you must consider that there is some resentment of outsourcing in America, and the people in your city might be very disliked here. This would be psychologically hard.

    Also, you must consider the cost of transportation of goods into your city. For example, it is conceivable that clothes could come from India for these people, but transporting them into your city would add large costs to them, costs that people who buy them in India will not have to pay. It is conceivable tht people in your city could make their own clothing, but then they will not get what they call economy of scale. Economy of scale means that things are cheaper when you make them in large quantities, for example a clothing company makes thousands of shirts, or thousands of pants, and because they make so many, they are cheaper.

    To my mind, your idea would take a great deal of effort to implement, and the rewards would not justify the effort.
    • Dec 8 2012: one essential requirement is - people who work in the CIC should be citizens of the country where it is located. Americans in this example . Goods including clothing will come from international markets be it Mexico,China,India or America.
  • Nov 27 2012: Well, considering that there are aprox 248,752 cities in the world, at what point does the USA, or whatever country (since there is no such thing as no-mans land today) stop being the USA and begin being a completely universal territory, only owned by people from a "country" full of CIC's? And What about the government? Laws? Borders and limitations? Religion? What if Nahre Sarraaj, the most dangerous city in Afghanistan, wants to have a CIC close to Washington? What are the permits? What are the limitations? Its a cool idea, but like many, it would work only in a specific reality in a specific world.
  • Nov 19 2012: It is a noble idea and a very good one to kick start a discussion.

    Apologies for pointing the negatives. But it is impractical purely for the very reason of its establishment - the ECONOMIC one. It will cost a lot more to replicate a city in a developed country than a developing one.
    The scenario under consideration is too narrow - using a singular outsourcing issue from a particular country. As this would mean creating many different CICs for each outsourcing issue (eg. China for mfg, etc.)
    Also, will these SEZ areas be dynamic as to adopt other currencies as other countries come up with cheaper and better solutions/services in future (eg. Vietnam, Myanmar, etc.).
    Then there is this whole arena of Political Will and considering soft costs (eg. environment pollution control costs, parallel economy costs, etc.)
  • Nov 19 2012: My concern with this idea is how would a state like Florida get funds.
    For things outside the state. Say Florida was trying to improve there streets and wanted to build bridges. They would need to buy supplies from outside the state. Since their currency is rated so low they won't be able to get supplies from the US.
    • Dec 2 2012: most of supplies for building - iron, cement etc will come from international markets. initial cost will be by a development company set up for the purpose. Given scale of the project this company should have some collaboration / backing from government
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    Nov 17 2012: Not fundamentally flawed provided you control the currency (eg all electronic money, tagged to each individual, so not swappable or it just dissipates into nearby communities). The people in this 'new land' would of course have to do everything within it as the outside will be a no go area as they will not have any external currency to spend. Imports and exports would require tight control both physically and monetarily for it to work.

    I have done a fair bit of similar thinking, for regeneration areas of high unemployment.

    see: Job Hubs, from welfare to work:-

    http://www.commonsensethinking.co.uk/health.html

    JP

    :
  • Nov 17 2012: This idea is of creating this community is ideally a great idea. This problem as always comes in the implementation. There have been many comments pointing out all the reasons for it not to work. Maybe if you set it up an a way that that money that these individuals would be getting from the government would be put towards supporting the difference in costs of living. This would allow individuals to work and build up experience thus not being a total drain. It would keep the jobs in the country and promote individuals to get back on their feet. If they wanted benefits from the government they would have to go to one of these areas located around the country. There would be a time limit of two years promoting those to move forward. Training and education would be offered maintaining the standard of work. The housing and accommodations would be moderate but not lavish promoting upward movement.
    • Dec 2 2012: "This would allow individuals to work and build up experience thus not being a total drain. "
      Makes it more workable.
  • Nov 13 2012: i understand your premise, and it sounds nice on the surface, but it couldn't possibly work. to achieve a good standard of living on low wages, the goods must also be low. they couldn't be 'imported' into the area because they'd be too expensive, and if they were produced inside the area at low cost, they'd get bought out by the people outside the area on higher wages.

    outsourcing really is bad for all but a few execs. they say they are making things cheaper for their customers, but people who are well employed don't need things to be cheaper - they only need cheap stuff because their jobs have gone. they say they are providing jobs to developing countries, but really they are just exploiting them. india is a good example - many indians are producing an american salary's worth of goods or services, but receive only an average indian salary, and everything they have made likewise goes overseas meaning their country gets nothing.

    tax outsourcing so rich countries can't benefit from cheap labour (make them pay the difference in labour cost), and ban outsourcing in developing countries too. have them work for the better of their own country, not their rich masters!
  • Nov 12 2012: Probably it's a nice idea, but it really hard to establish due to cross-market competition:)
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    • Nov 11 2012: like European union?
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        Nov 11 2012: EU is not a special economic zone unless we mean 'a special economic zone of indolence'.

        For me SEZ means first and foremost low taxes and business friendly regulations, so that entrepreneurs do not waste their time on the unnecessary paperwork.
        • Nov 11 2012: "For me SEZ means first and foremost low taxes and business friendly regulations"

          That's just code for corporate welfare and making a (bigger) profit at the expense of the environment and future generations. Businesses don't need to be pampered as long as they can still afford to give away tens of millions to executives.
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        Nov 11 2012: Sorry for accidentaly removing the original statement to which muralikrishna garikipati refers above. The statement was:

        Special Economic Zones should be extended over the whole world.