Monday, August 13, 2012

Can Poor Nations Manufacture Wealth?

Following up on Saturday's "The Theory of Everything".
From Felix Salmon at Reuters:
Dani Rodrik has a provocative piece for Project Syndicate arguing that the quest for growth has gotten more elusive over the past few years. During the second half of the 20th Century, he says, if poor countries wanted to grow up to be rich (and didn’t have the patrimony of natural resource wealth), they would have to first “move their labor from the countryside (or informal activities) to organized manufacturing”. Manufacturing industries are relatively easy to replicate; they create rapid growth in productivity and incomes “regardless of the quality of domestic policies, institutions, or geography“.
That world is gone now. Achieving an Asian Tiger-style growth miracle is trickier for a couple of reasons:
Technological advances have rendered manufacturing much more skill- and capital-intensive than it was in the past, even at the low-quality end of the spectrum … It will be impossible for the next generation of industrializing countries to move 25% or more of their workforce into manufacturing, as East Asian economies did.
Second, globalization in general, and the rise of China in particular, has greatly increased competition on world markets, making it difficult for newcomers to make space for themselves. Although Chinese labor is becoming more expensive, China remains a formidable competitor for any country contemplating entry into manufactures.
Ryan Avent points us to a recent column in the Economist that reaches the opposite conclusion: “[m]odern supply chains are making it easier for economies to industrialise”...MORE