Thursday , October 18 2018
Home / Project Syndicate / The Future of Manufacturing in the Global South

The Future of Manufacturing in the Global South

Summary:
As a growth strategy for low-income countries, the efficacy of traditional manufacturing is waning. To compete in the technology-driven global economy of the future, developing countries will need new models to increase productivity and put people to work. WASHINGTON, DC – In emerging markets, manufacturing has historically been a source of productivity, growth, and jobs. Since the 1950s, industrialization has kept economies in Latin America, Asia, and Eastern Europe on a steady glide toward higher stages of development. The Year Ahead 2018 The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

Topics:
Otaviano Canuto considers the following as important:

This could be interesting, too:

Jared Bernstein writes What’s wrong with upside-down Keynesianism?

Tyler Cowen writes Words of wisdom

Tyler Cowen writes Wednesday assorted links

Timothy Taylor writes Canada Legalizes Marijuana: What’s Up in Colorado and Oregon?

As a growth strategy for low-income countries, the efficacy of traditional manufacturing is waning. To compete in the technology-driven global economy of the future, developing countries will need new models to increase productivity and put people to work.

WASHINGTON, DC – In emerging markets, manufacturing has historically been a source of productivity, growth, and jobs. Since the 1950s, industrialization has kept economies in Latin America, Asia, and Eastern Europe on a steady glide toward higher stages of development.

But as a growth strategy for low-income countries, the efficacy of traditional manufacturing is waning. To compete in the technology-driven global economy of the future, developing countries will need new models to increase productivity and put people to work.

Two factors are conspiring to cast doubt on the wisdom of manufacturing-led development. The first is competitiveness: attracting production to low-income countries has never been harder. Labor costs, exchange rates, and infrastructure are all fiercely contested, which has led to a consolidation of global manufacturing hubs.

The second factor is technology. As robotics and artificial intelligence lower labor costs, the rationale for transferring manufacturing to emerging economies has diminished. This is particularly problematic for countries, such as those in Sub-Saharan Africa, that are just now turning to industrialization to spur growth. In the near term, developing countries that are dependent on manufacturing can compete by improving business environments and training more skilled workers. But sooner or later, wages and workforces will stop offering a comparative advantage.

With traditional manufacturing unlikely to fuel future economic growth in the Global South, economists are exploring new models of productivity. One idea is to encourage a transition toward services such as banking, finance, telecommunications, and insurance. Some even predict that manufacturing centers could become locations for the “production” of services. For developing countries in particular, technology-dependent activities are being championed as an economic panacea, given the low marginal costs of expanding production.

But embracing the service sector in isolation will not solve the economic and employment-related challenges that the Global South faces. Unlike traditional manufacturing, which employs legions of low-skill workers, an expanded services sector will not offset the jobs lost to shuttered factories. With a few notable exceptions – including construction and tourism – nonmanufacturing industries cannot deliver productivity gains while also ensuring adequate employment. For this reason, a full departure from the status quo would be unwise.

Otaviano Canuto
Mr. Otaviano Canuto currently holds the position of Executive Director at the Executive Board of Directors of the World Bank Group and its Affiliates, the same position he held when he was Executive Director of the World Bank from 2004-2007. He represents Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname, and Trinidad & Tobago. He is also a member of both the Committee on Development Effectiveness (CODE) and the Budget Committee.

Leave a Reply

Your email address will not be published. Required fields are marked *