The disconcerting truth is that the great “age of industrialization” may be behind us, a possibility that has been outlined most forcefully by the economist Dani Rodrik, who is leaving Harvard for Princeton next month.
A GROWTH slowdown in the so-called BRICS nations — Brazil, Russia, India, China and South Africa — could be impeding the expansion of the global economy. That’s serious enough, and indeed we are seeing unrest in Brazil over stagnant living standards. Yet a graver problem may be lurking behind the headlines — namely, that sustained, meteoric growth in emerging economies may no longer be possible.
The disconcerting truth is that the great “age of industrialization” may be behind us, a possibility that has been outlined most forcefully by the economist Dani Rodrik, who is leaving Harvard for Princeton next month. And evidence for this view is coming from at least four directions:
THE RISE OF AUTOMATION First, machines can perform more and more functions in manufacturing, and sometimes even in services. That makes it harder to compete via low wages.
Say you run a company in a developed nation and have been automating many of its processes. Because your total bill for employee wages would be low, why not choose the proximity and familiarity of investing in labor in or near your home country? This change would help the jobs picture in the United States and probably countries like Mexico, but could hurt many other lower-wage nations.
GLOBAL SUPPLY SOURCES Supply chains are now scattered across many countries. Think of the old development model as a nation, such as South Korea, trying to build a nearly complete domestic supply chain for its automobile and other industries. The newer model is more distributed, as reflected by the iPhone, with the bounty from the investment spread across many locations, including the Philippines, Taiwan and mainland China. As for cars, Thailand has courted automobile factories with success, but the parts usually come from outside the country and the benefits for the Thai economy are limited.
Richard Baldwin, professor of international economics at the Graduate Institute in Geneva, refers to the internationalization of the supply chain as “globalization’s second unbundling.” He sees the new world as one of “development enclaves,” in which parts of countries will stand out as advanced or wealthy, without fundamentally transforming the entire economy.
WIDER ECONOMIC GAPS Another barrier is the difficulty of sustaining a cultural vision for catching up economically. South Korea was a poor nation in the 1960s, and its economic rise required sacrifices from millions of people in work hours, savings and investment in education. But within 20 years or so, one could see that South Korea would most likely join the ranks of economically developed nations. Indeed it has, so these sacrifices yielded satisfaction within a reasonable time. Many of today’s poorer nations seem to be more than 20 years away from competing with the global leaders, which are now themselves more advanced, and that slower and longer path to the top may discourage some countries from even trying.
AGING POPULATIONS Finally, many lower-income countries will be old before they are rich. China’s population, for example, is aging rapidly, given the government’s one-child policy and the decline in birthrates that accompanies rising income. It is less well known that fertility rates in much of the Middle East and North Africa are also falling rapidly. In Iran, for example, it is now estimated at 1.86 per woman, which over time would mean that families are not replenishing themselves. And shrinking and older populations, of course, limit future economic growth.
BY no means do these arguments mean that the living standards of poorer nations must stagnate. A country can improve the lot of at least some of its citizens by selling services, as seen in the relative prosperity of Bangalore, India, which, among other activities, runs call centers and sells many programming services online. Many African nations are marketing their resource wealth, and may also improve productivity in local agriculture. Virtually all poor nations eventually benefit from the innovations of wealthy nations, which they often receive at much lower prices, as seen with cellphones and medications, for example.
So the chances for progress remain, but those poorer nations might never “become like us.” There was something special about the 20th-century mix of widespread, well-paying manufacturing jobs, which enabled the rise of a middle class that would take significant control of government, through its roles as voters and taxpayers. Those manufacturing jobs also created strong incentives for many people to pursue traditional education, whether in Toronto or Tokyo.
The best guess is that the idea of economic catch-up has changed, which means that politics in developing nations could change, too. Just as inequality in income and wealth has been rising in the United States, newly growing nations find themselves in a more stratified world, without developing their own strong egalitarian histories to undergird political institutions or economic expectations. Many of the wealthy may produce their public goods — like secure streets and clean, beautiful parks — in gated communities.
In some countries, there may be a de facto “rule by consent” from abroad — if, for instance, you are an African working in a Chinese-owned mine and living in a company town, while receiving your vaccines from a Western nonprofit organization. Those phenomena might not fit our current notions of national pride very well — and might mean further splits within developing nations.
Indeed, the future path of developing countries could be much different from that of recent, high-growth success stories. The next set of emerging-market winners, for example, may retain very large pockets of poverty. And as the expectation of a single, common path for economic development fades, governments may need to rethink what they can accomplish — and how.
In any case, we should be prepared for the possibility that, while Seoul now looks a fair amount like Los Angeles, perhaps La Paz, Accra and Dhaka will never look much like Seoul.