Fortune magazine has just

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Fortune magazine has just published an interview with famed management guru Peter Drucker, whose expertise, of course, stretches into law, finance, international economics and foreign affairs. (Unfortunately, it’s subscription only.) Here’s one passage worth noting.

Look particularly at Drucker’s comments on India and China.

FORTUNE: You sound fairly sanguine about the state of the U.S. economy. Do you see any danger signs?

DRUCKER: Oh, yes. The biggest problem I see is our total dependence on foreign money to cover our government debt. Never before has a major debtor country owed its debt in its own currency. It is unprecedented in economic history. Japan, by contrast, owes all its foreign debt in dollars. Now if you devalue the dollar, the Japanese economy benefits, because their imports become much cheaper. And the value of their debt goes down also. The individual Japanese companies that invest in dollars would lose, but the overall Japanese economy gains. But we have no experience about what will happen here when we owe so much debt in our own currency and we’re forced to devalue the dollar. Sooner or later, we’re going to find out.

What’s more, there is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand. So there is a very jittery body of excess money that is desperately in need of returns, and it could become panic-prone. We have no economic theory or model for this.

FORTUNE: Does the U.S. still set the tone for the world economy?

DRUCKER: The dominance of the U.S. is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There’s no one center in this world economy. India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institute of Technology in Bangalore are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.

In contrast, the greatest weakness of China is its incredibly small proportion of educated people. China has only 1.5 million college students, out of a total population of over 1.3 billion. If they had the American proportion, they’d have 12 million or more in college. Those who are educated are well trained, but there are so few of them. And then there is the enormous undeveloped hinterland with excess rural population. Yes, that means there is enormous manufacturing potential. In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious. You don’t have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities–its rural population has gone from 90% to 54% without any upheaval.

Everybody says China has 8% growth and India only 3%, but that is a total misconception. We don’t really know. I think India’s progress is far more impressive than China’s.

If Drucker is right (and<$Ad$> I’ve always been in the camp that agrees with his general point with regards to India and China), that has vast and in most cases positive implications for America’s posture across the globe. With respect to China. With respect to Pakistan. And in many other places as well.

Think how much of our broad, long-range foreign policy thinking rests on the premise that China is the rising economic and military power? What if the premise is wrong? Or what if India, nearly as large a country in population terms, is another rising behemoth? Then consider too that India is a democracy, albeit an imperfect one. It’s also a rule of law based society — again, if an imperfect one. And it’s a country with hundreds of millions of English speakers and, according to Drucker, 150 million speak it as their primary language. (Update: As this page shows, Drucker’s statement in this case is certainly incorrect. Only about 20 million Indians speak English as their native language. A number between 150 and 200 million properly refers to fluent English speakers.)

This is not a partisan issue in American politics, or needn’t be. President Clinton began an opening to India in the 1990s and it’s been continued under President Bush.

We’ll return to this issue.

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