According to Raymond Zhong’s recent research parts of South Asia, Africa and Latin America are failing to create thriving manufacturing sectors even though their wages remain low. Manufacturing employment and output are peaking and declining at vastly lower levels of income and development than they did in the West. The West and East Asia more recently first got rich because of their factories but over time, as incomes rose and their economies became more sophisticated, they shifted into modern services like health care and finance But economists worry that the factory led model of advancement may no longer be available to today’s poorest nations. This poses a huge challenge for places like India where its working age population is growing by a million people every month. Even though logically having lots of young people working, earning and spending should turbocharge growth for decades. But it can turn into a disaster if jobs don’t materialize. For instance when Recently, Gujarat state government ( an industrial state in India) sought to hire 35,000 clerks, accountants and other low-level officers at salaries as low as $120 (INR 8000) a month. The state received 700,000 applications.
Harvard economist Dani Rodrik, who began compiling data on manufacturing world-wide a few years ago, says he is seeing growing evidence of what he calls “premature deindustrialization” the idling or shrinking of manufacturing sectors as a share of the economy in poor countries such as India is very unsettling. This trend is not unique to South Asia only, in South Africa, manufacturing was 15% of output in 1962 and peaked at 25% in 1981. By 2011, the share was closer to 18%. Factory activity in fast-modernizing Ethiopia hasn’t managed to grow beyond 6% of the economy. In Tanzania, it peaked at 13% in 1976 and dropped since to around 10%.
Many reasons such as inefficient infrastructure, cumbersome business regulations and corruption have been cited for this trend. But factory automation and robotics are reducing the need for unskilled workers. More factories also might not translate into as many jobs, at least not for humans. According to the International Federation of Robotics, sales of industrial robots shot up by 29% last year to a record of nearly 230,000 units and are expected to keep climbing, especially in Asia. This tragedy is compounded when Industrial latecomers now have to compete against China, whose massive, integrated manufacturing machine has made it the world’s factory floor and created a huge barrier to entry. With tariffs falling and trade becoming freer, it is tougher for developing countries to shelter their producers from foreign competition.Lower trade barriers and better communication have made it easier for supply chains to be spread over farther-flung locales, bringing more countries into direct competition with each other. This phenomenon only perpetuates the canabilizing of already limited global factory investments.
Even though some industry leaders and experts may argue that service industries, such as real estate, back-office business and tourism, can create as much of a jobs-and-growth engine for developing countries as they have been for the postindustrial West, we think that it is time that public administrators and policy makers start thinking of other alternatives.
By Naved Jafry & Garson Silvers