by Bruce Fenton

“When people have hope, you have a middle class.” This quote from the cofounder of Yahoo, Jerry Yang, to a senior Chinese Government official was reported by Thomas Friedman in his book, The World is Flat. Well, look out world—there is a huge middle class movement taking place in the world’s second most populated country, India.

It’s hard to imagine, but America’s key strategic partnership in the 21st century could end up being this nation of over a billion people, approximately one third of whom are Muslim.

Friedman notes that the existence of large, stable, middle classes around the world is crucial to geopolitical stability. It makes sense … middle classes with hope for the future are less likely to blow themselves up for some radical cause, are more productive, and more likely to eventually save for a life after work.

In a recent column on Yahoo, Charles Wheelan, Ph.D., wrote “What’s good for India is good for us.” He makes his case based upon four reasons that we should hope that the next decade in India is at least as good as the past ten years have been.

First, he notes that if we are going to promote democracy as a worldwide way of life, what better nation to carry that torch than India. With over a billion people, 22 official languages, and enough ethnicities to make everyone a minority, if democracy can work there it can work anywhere.

Despite structural problems within India’s governmental system, Indians still vote in higher numbers than Americans, they enjoy a reasonable amount of stability, a rule of law and a respect for individual rights.

Second, an economy growing at over 6% a year for the past ten years has lifted more than 100 million people out of dire poverty. Despite those numbers, India is still home to about one third of the world’s poor. There is still so much to do, but the possibilities for continued growth and progress are huge.

Third, while many of us think of India as the land of outsourcing and “24/7” call centers, their growth helps our economy. Their growing middle class drink our sodas, buy our computers and software, and I’ll bet most of their kids want, or own, an iPod®. As Wheelan so aptly states, “It doesn’t matter what business you’re in, having 300 new middle class consumers in India is good for you.”

The author notes that Indian firms will design and sell products that make our lives better. Thanks to the dot.com bust, many of the highly skilled Indian engineers working in Silicon Valley on temporary visas went home and put their brainpower to work. Today they collaborate with their former U.S. employers as well as produce their own innovative solutions to a host of technological problems.

This in turn leads to the simple fact that competition from Indian firms, and outsourcing by American companies, lowers the cost and improves quality of many of the goods and services we buy. What we save as a result works the same as a tax cut for American consumers and companies.

Finally, Wheelan makes the point that despite the fact that China’s economy is growing faster than India’s, India is not China. The latter, despite its movement toward capitalism, is still an autocratic, totalitarian state … which in turns leads to unpredictability in its geopolitical relations.

Our relationship with India is not problem-free. India will be a prodigious consumer of energy …and that will drive up our energy bill. We need to find work for Americans outsourced by Indian firms. These are not easy problems to fix, but make no mistake, India is a force to be reckoned with and one we want to have on our side.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.