“The name of the game was globalization of goods, services and finance” and India was increasingly part of it – Interview with Michael Gadbaw

Stefan Tetzlaff, social and economic historian and former research fellow at the German Historical Institute Washington, D.C. had the chance to interview Michael Gadbaw, former vice-president and Senior Counsel of General Electric (1990-2008) about his involvement with India. The interview was conducted in Potomac, Maryland, in April 2019.

Stefan Tetzlaff: You were Vice-President and Senior Counsel of General Electric between 1990 and 2008: How did you get there?

Michael Gadbaw in conversation with Stefan Tetzlaff.

Michael Gadbaw: I am a lawyer by training. Before joining General Electric in 1990, I had a fairly long career of 5 years in the US government and then 10 years in private practice. At the law firms, we represented the US semiconductor industry in its big trade battle for opening up the Japanese market. This actually involved German companies, as there was the US semiconductor industry association and a similar European association, both wanting to open up the Japanese market. We were worried about Japanese industrial policy then, so we talked to strategists at Siemens about how to engage governments to deal with Japan’s industrial policy and its impact on the cost of capital. We eventually brought a series of US trade cases against Japan for dumping memory chips and a §301 case aimed at opening the Japanese market. §301 of the US Trade Act of 1974 is now famous as it is the instrument Donald Trump is using to sanction the Chinese but back then it was in its infancy and relatively untested. The US Government ultimately reached an agreement with Japanese officials based on the notion that if the Japanese market were truly open, US suppliers would have roughly 20% and both sides committed to identify measures that would allow the market to operate. This forced Japan to open up its market, and it opened up not just for us, but for many others. At some level, all global companies have a common interest in level-playing fields, non-corrupt governments, effective policies – basically the idea that business actually can be aligned with national interest in competitive global markets. We have not fully met that aspiration, but still there is no other way to go.

 

“The golden era of globalization”

Working for a corporation must have been different. What was the background to it?

My job at GE really evolved during a period of intense, policy-driven globalization. There was the Uruguay Round and NAFTA that were both at issue in the campaign that led to Bill Clinton’s election in 1992. That was followed by China’s entry into the WTO. Meanwhile, in addition to trade, there was a massive proliferation of bilateral investment treaties, so the name of the game was globalization of goods, services and finance. Companies made investments abroad and began to outsource. GE created Research & Development centers in China and India. Both the perception and the momentum were very important, and it translated into successful growth. Of course, one cannot forget the tech culture. India was certainly a big part of the tech revolution, particularly southern India taking advantage of a healthy geographic distance from the bureaucracy in Delhi. This is what Richard Baldwin calls the great unbundling – first of trade, then of ideas and finally of jobs, people. The last stage referenced the fact that call centers and back-office operations were no longer tied to where you produced or consumed, but could be located anywhere. Multiple pieces all came together and were happening at the same time. How do you capture that? To me, it was the golden era of globalization.

There were several other important threads. The Indian community in America grew stronger, also because many Indian entrepreneurs came to the US, and especially to Silicon Valley, in the 1990s. Indian Americans (NRIs) played an increasing political role and eventually broke into the American political system, as they began to organize themselves, became actively involved in political campaigns and supported congressional candidates who understood India and eventually candidates of Indian heritage like Bobby Jindal and Nikki Haley. By the 1990s, the House of Representatives in the Congress had an India Caucus with some very powerful people, all supporters of policies promoting closer US-India relations. One of the first leaders of the caucus, Congressman Frank Palone from New Jersey, had never been to India in those early years but he had a sizeable number of Indian constituents. A little later, the US government kicked in with several initiatives on India, such as the US-India Commercial Alliance and the US-India subcabinet group. This involved dialogue with Indians on economic reforms, which triggered a whole series of meetings and engagements in which both sides tried to promote themes that helped business and encouraged growth in both countries. All this was blooming as a consequence of the economic reforms under the government of Narasimha Rao starting in 1991. The mood of the time was that India was really changing and opening up, and Indo-US ties grew strong.

What were your responsibilities in GE then?

I was responsible for a very broad portfolio of issues, including global government relations, compliance, project finance, transaction support and the like. Among others, I was responsible to ensure corporate compliance with the Foreign Corrupt Practices Act of 1977 that prohibited US companies by law from giving bribes to foreign government officials. Through the 1980s, US companies complained that they were hamstrung by these rules while non-US companies were not. As a trade expert, one of the first things I did at GE in 1991 was to go around to all the businesses around the world to ask them about tariff and non-tariff trade barrier problems. They actually said their biggest problem was corruption. In the 1990s, we worked on the OECD anti-corruption treaty and figuring out how to do business without bribes became an integral part of the plan. Then it all came together. To be honest with you, Germany was my target, because Siemens was a big competitor in railways and power generation. We were going head to head with them and they did things, for example in India, that we did not. You know, how are you going to compete? In one case, you will find the very first occasion of the World Bank sanctioning a company for a bribe in connection with one of their projects that was based on a GE complaint in India. The point is that what made a difference was that these countries are growing, they have a commitment at the top to reform, one can leverage it by how you do government relations. Basically, you can press them to live up to their commitments. What US companies like GE said about them was important to their reputation.

How did India figure in this larger picture?

In a place like India, corporate compliance is challenging because of all the corruption. Incidentally, the country is challenging in other ways too. GE evolved a strategy that basically aimed at developing relationships at the highest levels of government to promote the business environment, provided we can do so in a non-corrupt way. It gave us sort of a shelter, because we couldn’t tell our businesses that they can’t engage in bribery, when they said that everybody is bribing, without telling them how to manage the process. Basically, we were able, for GE at least and the businesses that were tied into our projects, to demand a very high standard of integrity. But it meant going to the government, saying “Hey look, there’s a problem here. If you persist, at whatever level – state or central – we are not going to be able to participate and we are not going to be silent about it, we are going to make it clear what is happening to us.” Our desire corresponded with India wanting very strongly to project a different image of itself, as the Narasimha Rao government was forced to build off their reforms from 1991. Now, was that image or was that reality? I think they did go a long way with the reforms, because the reforms basically pulled government back from excessive involvement in many transactions. They did not have as much of an opportunity to screw things up because they dropped a lot of petty rules, but it took time. The bigger projects were easier in some respects because they were high-profile. This overall strategy evolved over a number of years.

So how did you get involved with India more exactly then?

Michael Gadbaw at an event of the Confederation of Indian Industry, 1994.

General Electric tried to do things in a whole range of areas in India. We had a joint venture with Godrej in appliances business (Jamshyd Godrej), went into healthcare with Azim Premji and Wipro and sold power generation equipment. At that time, my businesses came to me and said “Look, we’re really trying to get a foothold here. We need help.” At the time, the US-India Business Council was seen as very ineffective, as they had leadership issues and I wasn’t much involved with them. At the same time, as our interests in India grew and Indian interest in the US grew. Business Week had a cover story featuring investment in countries such as Mexico and China and there were prominent Indians who asked why India was not on the map. I said it should be because we are trying to make more business there. Representatives of the Confederation of Indian Industries, headed by Jamshyd Godrej and Tarun Das, (and later FICCI) came to me and asked me to help create a higher profile for India and the importance of the reforms that were being made. Of course, I agreed and thought the best way was by pulling together a group of interested companies. This was the inspiration for the India Interest Group that consisted of some 26 big, blue-chip multinationals (including Exxon and other oil companies, nuclear and telecom companies, Ford, GM, Pepsi and Coke). The concept was incredibly successful for India and the United States while it lasted. In the late 1990s, the US-India Business Council reorganized with more effective leadership and better personnel, while CII and FICCI on the Indian side upped the quality of their work for companies. Projects were also up and running, and companies had a sufficient presence in India so that they relied more on local government relations. After traveling to India back and forth a lot for at least 5 years, I basically became less involved with India and handed the baton over to the US-India Business Council and others to carry on with that work.

What was the work approach of the India Interest Group?

Basically, we focused on working directly with the Indian government, trying to get them to understand what we were doing, and for us to understand what they were doing. The aim was to create a dynamic, not just for GE, but for the broader set of companies. It was a smart strategy, very similar to what business associations do in other parts of the world. The timing was very good, as it coincided with prime minister Narasimha Rao’s economic reforms. The entire thing really got going in 1992 and picked up steam in 1993-95. Essentially, the India Interest Group was not more complicated than a fax cover sheet that tied together the representatives of key companies. If an Indian official came to town, I assembled rather quickly a group of corporate people, and we would meet up, talk to them about what we were trying to do. This really brought a group of people together that came to know India, because they were directly involved with their companies, and they could translate their needs in policy terms the two governments could act upon. Narasimha Rao’s visit to Washington, D.C. in June 1994 was a very special occasion. His meeting with Bill Clinton opened up a political path leading eventually to the nuclear deal, that was quite significant at the strategic level, as well as created a better relationship with business. During Rao’s visit, I organized a meeting with CEOs, including GEs Vice-Chairman Paolo Fresco, at the Willard hotel in D.C. Such a meeting with an Indian prime minister was unheard of because Indian ministers were notoriously aloof from direct business contacts. They were above it all and very detached, making accessibility of these ministers quite tough. With the reforms around, Rao was trying to open this up, give access and break down the regulatory Raj. So amazingly, we literally sat around a table, and Rao spoke quite casually about his experience as a politician and his aspirations for reform. Manmohan Singh and Montek Singh Ahluwalia sat at his side, ready to talk about technical policy questions. It completely transformed the image of India, in the eyes of the assembled CEOs.

Some German corporations maintained a working group India between 1960 and the early 1970s that industrial public relations and painted German industrial activity in India in a positive light. Was this part of the activities of your India Interest Group?

In the 1990s, when I was most actively involved, this was a delicate matter, because I was not technically a PR person. I was always more or less on my own. If I screwed up, we got bad publicity. That would have been it for me. Fortunately, we never screwed up. The publicity we got was all positive, even our efforts to address corruption. After me, they had some pretty high-profile CEOs of GE India who played that game even more assertively. John Flannery who eventually became CEO of GE was in charge of India at one time. So that is an interesting story. GE realized that we need some high-profile business people, and you need a strategy that dovetails your government relations with your PR and with your business. I can’t compare it to the Germans, but I will say this. I think the German model was basically the Siemens model, which I studied because they were our competitor. Siemens had a strategy in which their local business leader had an empire in each country and he ran everything. I do not really have a sophisticated understanding of the German model, but I think they tend to give a lot of power to the National Executive. In such a model, the National Executive can get themselves into relationships and problems that can come back and hurt the company as a whole. Some companies also look at corporate PR differently. Some of them say, I just want to focus on breaking ground on a new plant. I don’t want to show the connection to the government at all, because that gets me into trouble. I advocated a more integrated approach that you have to align yourself. In fact, I had a presentation in which I showed over time how GE successively discovered products, technology, customers, and then governments. My point was to align them all if you want to have a really successful strategy.

“The transformation of corporate global government relations”

Can you tell us more about the nitty-gritty of your work on and in India? What did it look like on a day-to-day basis? How did you go about in your business with and in India?

The India Interest Group went on the road, even before the meetings in Washington I mentioned took place. We said to ourselves that it makes no sense to sit in Washington and only do US government relations. This was in a way the transformation of corporate global government relations. You had to get out there and connect what was happening in the field with headquarters and Washington. I would bring together groups of companies and visit India. I enlisted the help of Charles Ebbinger (now at the Brookings Institution) and my former professor at the Fletcher School of Law and Diplomacy, Robert F. Meagher, who had been working on India since the early 1950s. Meagher traveled back and forth there all the time, he was involved with a bunch of the development aid people and the Ford Foundation. He also knew everybody in India, all the heads of business and government officials. He was particularly close to Manmohan Singh, Montek Singh Ahluwalia and other technocrats. I came up with the idea that Bob could be a kind of native guide for me so we teamed up. When we went over, I got to see people mainly riding Bob Meagher’s reputation and GE’s growing global presence.

What did we do? This was a peculiar time. As a result of some of the reforms, the Congress Party was actually winning at the chief minister level for some time and they wanted to ride the wave. But then there were so many problems and issues at the ministerial level. In Maharashtra in 1995, the BJP and Shiv Sena teamed up to defeat Sharad Pawar (Congress) and their candidate Monohar Joshi famously campaigned that he if elected he would put the Enron project back in the sea. I think he was most surprised when he won but he came to Washington and met with the India Interest Group in the Watergate Hotel and soon realized that rejecting US investment was not a strategy for attracting more investment. When he tried to reverse his position, Bal Thakerey told him he better tow the line or lose his job. All this was emblematic of processes in the states of India, who wanted to bring the reform process into their states and encourage investment but had to reconcile that with populist anti-business campaigns. Also, everybody initially went to Mumbai. But we would also travel around and meet with Chief Ministers, sometimes in distant places like Calcutta, Bangalore, Bhubaneshwar. Hyderabad was another place we visited, and we met up with Chief minister Nandamuri Taraka Rama Rao, who gained his popularity as a movie star who used to play god in the theaters. After his election, Rao was one of the first chief ministers who really pushed for transformation of Hyderabad into a technology city and that strategy was amazingly successful as a result of this period. Bangalore was also particularly successful in promoting reforms, because they had the technology companies. GE was very active in the whole outsourcing movement, so we did a big joint venture there and created an R&D Center in Bangalore.

Your statements show that the period between 1990s and the early 2000s was a growth period for GE and for its operations in India. Can you quantify how important India was for GE in this scenario?

India was an important piece, but still relatively small in the overall scheme of things. China came to be much more important. I also cannot quantify how important industrial operations versus outsourcing were, but both were happening. We did a whole bunch of things. I think we were less successful, frankly, on the industrial operations. You can see this in our various ventures. For example, we tried to manufacture locomotives in Bihar and sell them to the railways. That project fell apart any number of times then until it finally came together after I left GE in 2008 based on a plant in Bihar. The Godrej joint venture with appliances didn’t work out quite the way we hoped it would. Medical equipment was more successful. It was much harder on the industrial side. I think we were quite successful in outsourcing and in using India as a base to reduce costs and develop research and development. Our back-office operations and the GE Research & Development Center in Bangalore were very successful. What happened later was that the reform movement in India really petered out, as you got into the late 1990s. Later, when the Congress Party came back, despite Manmohan Singh as prime minister, there was another resurgence of corruption. In my view, Manmohan was a man of impeccable character but he was not able to do anything to reform the Congress Party. So you had this period of traumatic instability, the back and forth between Congress and BJP, leading ultimately to Modi.

“I was perceived as being an Indian supporter”

There is some discussion about the Indian governments’ approach to business in the 1990s. How did the Indian business scene change during these years?

In the 1990s, Congress Party still had lots of this populist, anti-business rhetoric. If you look into that period, I was especially impressed when there were protests featuring the burning of an effigy of the head of the World Trade Organization. So they did a number of things as populists that worked against their interests. But my experience in the 1990s was that everywhere we went we had an incredibly positive reception. Now, part of that was that I was perceived as being an Indian supporter. There is probably a personality issue there, as there were a lot of arrogant Americans running around. I kind of understood Indians and the Indian press and that you have to treat them with respect. I mean this makes a big difference. I tried to help people understand that Indians can tell in a moment whether you respect them and you can’t fool them. You cannot be nice, and then when they turn their back, insult them. Many Americans do not get that and they cannot just overcome their inherent prejudices. My perception was the openness and receptivity to certain people was really tremendous. This may have also been a response to political necessity at the time. This was the start of relations with India that ultimately prepared the way for the nuclear accord, which became a huge strategic initiative and again changed how the US government thinks about India and continues to this day. It also factored into the strategic rivalry between China and India, the notion that India is a bulwark against or counterbalance to China. You had all of these dynamics through the 1990s that made the decade different from the 1980s and the 2000s, which is that it looked like things were really coming together. I think it wasn’t the last opportunity, but in many respects, it was a big success. It is a mixed picture, but we could have done so much more.

Was there a business side to discussions of the Indo-US nuclear deal? Did it turn out to be a business for GE or other companies?

That was the one big disappointment because the expectations simply did not happen. In my view, the Indians ultimately did not live up to the agreement to meet international standards for nuclear liability and they got the US government to go along with them. The only companies that really took advantage of it were the Russians, who were building a plant at Kudankulam. The bottom line on the Indian nuclear deal was that it was, from my point of view, a failure from the business side, because the idea was that this would pave the way for a whole series of nuclear projects. The Indians were not willing to sign up to the international regime for insurance. This was a kind of populist thing that it got tied up in. US and Indian officials figured out how to do a compromise, which made the Russians happy because their companies felt the Russian government would ultimately insure them, but it did not work for the Americans. We made it very clear what would work for us and that we were the ones that consistently supported the nuclear agreement. In the end, that did not matter and no US nuclear investment in India came about as a result of the agreement.


Citation: Stefan Tetzlaff: “’The name of the game was globalization of goods, services and finance’ and India was increasingly part of it” – Interview with Michael Gadbaw, in: TRAFO – Blog for transregional research, 12.11.2019, https://trafo.hypotheses.org/19868


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