‘Reshoring’ brings many jobs back to the rich coun­tries

The Star Early Edition - - OPINION & ANALYSIS - Su­jata Rao

IN 2014, ARNOLD Kam­ler, chief ex­ec­u­tive of New Jer­sey-based Kent In­ter­na­tional, took a big step: he re­sumed mak­ing bi­cy­cles in the US, 23 years after up­root­ing pro­duc­tion to China. This year, he hopes to sell half a mil­lion US-made bikes.

For busi­ness and po­lit­i­cal lead­ers gath­ered in the Swiss Alps town of Davos for this year’s World Eco­nomic Fo­rum, Kam­ler’s ex­pe­ri­ence – part of a process Mor­gan Stan­ley once dubbed the “re-in­dus­tri­al­i­sa­tion” of the US – is a cause for some anx­i­ety.

If a mix of ac­cel­er­at­ing au­to­ma­tion and trade pro­tec­tion­ism is the defin­ing eco­nomic cli­mate of the mo­ment, glob­al­i­sa­tion may well be in de­cline, and devel­op­ing na­tions that failed to cap­i­talise on the past two decades of eco­nomic in­te­gra­tion – no­tably those in Africa – may have missed the boat al­to­gether.

It is an is­sue with pro­found con­se­quences – for emerg­ing economies that have built their for­tunes on ex­ports, and for richer na­tions that hope a “reshoring” of in­dus­trial pro­duc­tion will ap­pease dis­grun­tled blue-collar work­ers at home and re-ig­nite stag­nant wage growth.

Global trade likely grew last year at just 1.7 per­cent, lag­ging world eco­nomic growth for the first time in 15 years and for only the sec­ond time since 1982, ac­cord­ing to the World Trade Or­gan­i­sa­tion, which ex­pects a fur­ther slow­down this year.

While there are com­plex rea­sons be­hind the slow­down, it’s hard to ig­nore the ris­ing pop­u­lar­ity of trade pro­tec­tion­ism and anti-glob­al­i­sa­tion. US pres­i­dent-elect Don­ald Trump’s cam­paign pledges and plans for “a very large bor­der tax” on firms pro­duc­ing over­seas.

But per­haps even more in­flu­en­tial is busi­nesses’ push to­wards au­to­ma­tion, digi­ti­sa­tion, ro­bot­ics and in­no­va­tions such as 3D print­ing that un­der­mine low-wage coun­tries’ big­gest com­par­a­tive ad­van­tage.

That con­trib­uted to the re­turn of 250 000 man­u­fac­tur­ing jobs to the U S be­tween 2010 and 2015, ac­cord­ing to data from Reshoring Ini­tia­tive, a group that ad­vises US busi­nesses.

Au­to­ma­tion

Kam­ler’s state-of-the-art plant, for in­stance, will soon be able to pro­duce bi­cy­cles with just 12 em­ploy­ees per shift.

“Most of those peo­ple will be sit­ting look­ing at com­puter screens. The same op­er­a­tion in China would need 60 peo­ple,” he said.

Au­to­ma­tion tends to see jobs re­turn to the coun­tries which de­velop the tech­nol­ogy – car maker Ford’s de­ci­sion to ex­pand a Michi­gan plant rather than start one in Mex­ico is seen as partly mo­ti­vated by a fo­cus on high-tech elec­tric ve­hi­cles.

“Reshoring” is bad news for emerg­ing economies trans­formed by the man­u­fac­tur­ing-for-ex­port boom and now suf­fer­ing from its re­ver­sal. But for coun­tries only now get­ting in on the man­u­fac­tur­ing act, things were worse, said Hung Tran, the man­ag­ing di­rec­tor of the Washington DCbased In­sti­tute for In­ter­na­tional Fi­nance.

“The con­clu­sion to reach is that the busi­ness and growth model which worked for many coun­tries, es­pe­cially in Asia, won’t pro­vide the same growth op­por­tu­ni­ties as be­fore,” Tran said. “That’s the big chal­lenge for emerg­ing economies that are only just try­ing to take off… it’s much harder to do than 20 years ago when all you needed to do was at­tract in­vest­ment, pro­duce and ex­port,” Tran said.

Lag­gards in­clude swathes of Africa and also In­dia, the world’s fastest grow­ing econ­omy. With a 1.2 billion pop­u­la­tion, it ac­counts for just 2 per­cent of global trade, but needs des­per­ately to cre­ate jobs for the 10 mil­lion youth en­ter­ing the work­place each year. The fear is that as low-level fac­tory jobs for un­skilled work­ers be­come scarcer, work­ers in th­ese coun­tries, un­like in early birds such as China or Malaysia, will be ill-pre­pared for the higher-tech man­u­fac­tur­ing of the future.

Against that back­drop, In­dia may strug­gle to meet its goal of rais­ing man­u­fac­tur­ing’s share of the econ­omy to 25 per­cent. That share is cur­rently 16 per­cent, half of China’s level.

Oth­ers are even worse off – man­u­fac­tur­ing com­prises 10 per­cent of Nige­ria’s econ­omy and 6 per­cent in Tan­za­nia, ac­cord­ing to the World Bank. The pic­ture is mir­rored across Africa where the pop­u­la­tion could dou­ble by 2050 to 2.5 billion.

Not ev­ery­one is pes­simistic. In­dia for in­stance may be able to cap­ture the bur­geon­ing trade in ser­vices. It and peers such as In­done­sia are mov­ing to re­form their economies, un­lock­ing faster growth and mak­ing ex­ports less im­por­tant.

It could even­tu­ally prove a game in which ev­ery­one loses. Take Trump’s tirades against Mex­ico. US firms have in­vested more than $200bn (R2.72 tril­lion) in Mex­ico, em­ploy­ing more than a mil­lion peo­ple, but are now un­der pres­sure to shut­ter fac­to­ries pro­duc­ing for US mar­kets.

Yet reshoring may not de­liver the kind of ben­e­fits Trump and US unions hope for. The new high-tech plants will likely cre­ate far fewer jobs than ex­pected.

Sec­ond, the loss of man­u­fac­tur­ing jobs – and fail­ure to cre­ate them in coun­tries with huge pop­u­la­tions – may trig­ger more mi­gra­tion to rich coun­tries, ex­ac­er­bat­ing the ten­sions that are fu­elling the lurch to­wards right-wing par­ties.

Mi­gra­tion pat­terns al­ready sug­gested peo­ple’s move­ment was in­creas­ingly dic­tated by “push” from poorer ar­eas of the world, rather than by “pull” from richer coun­tries, UBS said.

As former Mex­i­can pres­i­dent Felipe Calderon warned Trump in a tweet: “The more jobs you de­stroy in Mex­ico, the more im­mi­grants the Amer­i­can peo­ple will have.”

PHOTO: EPA

Swiss Fed­eral Pres­i­dent Doris Leuthard shakes hands with China’s Pres­i­dent Xi Jin­ping as they launch the Sino-Swiss year of tourism next to a panda ice sculp­ture on the side­lines of the 47th an­nual meet­ing of the World Eco­nomic Fo­rum in Davos, Switzer­land, yes­ter­day. The an­nual meet­ing brings to­gether busi­ness lead­ers, in­ter­na­tional po­lit­i­cal lead­ers and se­lect in­tel­lec­tu­als to dis­cuss press­ing is­sues fac­ing the world. The over­ar­ch­ing theme of the 2017 meet­ing, which ends on Fri­day, is “Re­spon­sive and Re­spon­si­ble Lead­er­ship”.

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