Writing a new handbook for getting rich
For more than half a century, the handbook for how developing countries can grow rich hasn’t changed much: Move subsistence farmers into manufacturing jobs, and then sell what they produce to the rest of the world.
The recipe — customised in varying ways by Hong Kong, Singapore, South Korea, Taiwan and China — has produced the most potent engine the world has ever known for generating economic growth. It has helped lift hundreds of millions of people out of poverty, create jobs and raise standards of living.
The Asian Tigers and China succeeded by combining vast pools of cheap labour with access to international know-how and financing, and buyers that reached from Kalamazoo to Kuala Lumpur. Governments provided the scaffolding: They built up roads and schools, offered business-friendly rules and incentives, developed capable administrative institutions and nurtured incipient industries.
But technology is advancing, supply chains are shifting and political tensions are reshaping trade patterns. And with that, doubts are growing about whether industrialisation can still deliver the miracle growth it once did. For developing countries, which contain 85 per cent of the globe’s population — 6.8 billion people — the implications are profound.
Today, manufacturing accounts for a smaller share of the world’s output, and China already does more than one-third of it. At the same time, more emerging countries are selling inexpensive goods abroad, increasing competition. There are not as many gains to be squeezed out: Not everyone can be a net exporter or offer the world’s lowest wages and overhead.
There are doubts that industrialisation can create the gamechanging benefits it did in the past. Factories today tend to rely more on automated technology and less on cheap workers who have little training.
“You cannot generate enough jobs for the vast majority of workers who are not very educated,” said Dani Rodrik, a leading development economist at Harvard University.
The process can be seen in
Bangladesh, which the World Bank’s managing director called “one of the world’s greatest development stories” last year. The country built its success on turning farmers into textile workers.
Last year, though, Rubana Huq, chair of Mohammadi Group, a familyowned conglomerate, replaced 3,000 employees with automated Jacquard machines to do complex weaving patterns.
The women found similar jobs elsewhere in the company. “But what follows when this happens on a large scale?” asked Huq, who is also president of the Bangladesh Garment Manufacturers and Exporters Association.
These workers don’t have training, she said. “They’re not going to turn into coders overnight.” Recent global developments have accelerated the transition.
Supply chain meltdowns related to the Covid-19 pandemic and to sanctions prompted by Russia’s attack of Ukraine drove up the price of essentials such as food and fuel, biting into incomes.
High interest rates, imposed by central banks to quell inflation, set off another series of crises: Developing nations’ debts ballooned, and investment capital dried up.
Last week, the International Monetary Fund warned of the noxious combination of lower growth and higher debt.
The supercharged globalisation that had encouraged companies to buy and sell in every spot around the planet has also been shifting.
Rising political tensions, especially between China and the United States, are affecting where businesses and governments invest and trade.
Companies want supply chains to be secure as well as cheap, and they are looking at neighbours or political allies to provide them.
In this new era, Rodrik said, “the industrialisation model — which practically every country that has become rich has relied on — is no longer capable of generating rapid and sustained economic growth.” Nor is it clear what might replace it.
One alternative might be found in Bengaluru, a high-tech centre in the Indian state of Karnataka.
Multinationals like Goldman Sachs, Victoria’s Secret and the Economist magazine have flocked to the city and set up hundreds of operational hubs — known as global capability centres — to handle accounting, design products, develop cybersecurity systems and artificial intelligence and more.
THERE ARE DOUBTS THAT INDUSTRIALISATION CAN CREATE THE GAME-CHANGING BENEFITS IT DID IN THE PAST. FACTORIES TODAY TEND TO RELY MORE ON AUTOMATED TECHNOLOGY AND LESS ON CHEAP WORKERS WHO HAVE LITTLE TRAINING.