Obama's R-day visit: Lame game has no takers; visit will be strong and meaningful, experts say
Saturday, November 22, 2014
मोद्जी शांघाय दूर अस्त, दिल्ली सुदूर अस्त, हिंदू
साम्राज्य अतिदूर अस्त!
मोद्जी शांघाय दूर अस्त, दिल्ली सुदूर अस्त, हिंदू
साम्राज्य अतिदूर अस्त!
Modi knows what I am talking. Persia, former Iran, had a robust trade
with what is Saurashtra-सोरठ. Modi knows all about its glory days. Ain't
that right, Mr Modi?
...and I am Sid Harth
That is a distressing prospect. The United Nations
estimates that sub-Saharan Africa’s population will roughly triple over
the next half-century, to about 2.7 billion. A development model in
which rapidly rising incomes are limited to a highly skilled few is
unlikely to be sustainable. Many talented workers are already thinking
about emigrating, yet rich economies trapped by growing social spending
and shrinking tax bases are more likely to slam their borders shut. Over
the past decade or two inequality, despite rising within many
economies, has shrunk at the global level, thanks to rapid growth in
large emerging markets. But in the absence of a new development model,
that happy state of affairs may soon be reversed.
From the print edition: Special report
It also saves a lot of trouble. Vast areas of Foxconn’s
Longhua campus are given over to support services for the roughly
quarter of a million workers employed there: shops and restaurants, a
massive central kitchen with automated rice-cooking equipment,
dormitories that house about half the staff, schools for workers’
children and counselling services for distressed employees. Foxconn’s
dormitories are ringed with netting, a precaution prompted by an
epidemic of suicides by workers that set off a torrent of bad press for
the company and its customers. Indeed, notes Mr Woo, it is often
customers that are behind the push for greater automation of Foxconn’s
facilities.
The falling cost of automation makes the use of robots attractive even
in India, where cities are swarming with underemployed young workers.
The main reason for that is the country’s thicket of red tape. Mr
Subramanian thinks India’s best hope now may be to concentrate on
churning out more highly skilled workers, rather than count on
manufacturing to mop up its jobless millions.
The rapid growth in emerging economies over the past 15 years was good
for many very poor countries in Africa and Central America, but most
still grew more slowly than richer developing countries in Asia and
South America. Given the institutional weakness, inadequate
infrastructure and modest skills base in many of the world’s poorest
places, even rock-bottom wages there may be insufficient to attract much
manufacturing.
India has masses of cheap, unskilled labour that ought to
be attractive to firms wanting to set up low-cost manufacturing
facilities. Yet operating them would require at least some skilled
workers, and the rising premium on these created by trade in ICT
services makes it uneconomic for many would-be manufacturers to hire the
necessary talent. Mr Subramanian and Raghuram Rajan, another Indian
economist, have dubbed this the “Bangalore bug”, a reference to the
extraordinarily successful ICT cluster in the southern Indian city of
Bangalore. But other emerging economies are similarly affected.
Other advances are eliminating the need for human labour altogether.
Walking through an electronics production line at Foxconn’s Longhua
campus in Shenzhen, a worker points out places where people have already
been replaced by machinery—“to reduce injuries to workers”, he says.
Elsewhere on the line he indicates a place where a robot is being tested
to take over a range of tasks from humans. Perhaps 10% of the staff at
Longhua now consists of engineers working on such automation.
Successful solutions will be rolled out to other Foxconn facilities,
says Louis Woo, a special adviser to Foxconn’s chairman, Terry Gou. And
Foxconn has even greater ambitions. In Chengdu it is working on a
“lights out”, entirely automated, facility which serves a single, as yet
unnamed, customer. In fast-developing and rapidly ageing China workers
are becoming increasingly expensive, as well as hard to find. Automation
provides a means to hold on to work that might otherwise pack up and
move to another country.
From stuff to fluff
Another mechanism through which new technology is changing the process
of development is the dematerialisation of economic activity.
Consumption the world over is shifting from “stuff to fluff”, reckons Mr
Subramanian. People everywhere are spending a larger share of their
income on services such as health care, education and
telecommunications. This shift is reflected in trade. Messrs Subramanian
and Kessler note that, measured in gross terms, goods shipments
dominate trade as much as ever. They accounted for 80% of world exports
in 2008 (the most recent figure available), down only slightly from 83%
in 1980. Measured in value-added terms, however, the importance of goods
trade tumbled, from 71% of world exports in 1980 to just 57% in 2008,
because of the increasing weight of services in the production of traded
goods. Much of the value of an iPhone, for example, derives from the
original design and engineering of the product rather than from its
components and assembly.
A recent report by the McKinsey Global Institute put the value in 2012
of “knowledge-intensive” trade—meaning flows of goods or services in
which research and development or skilled labour contribute a large
share of value—at $12.6 trillion, or nearly half the total value of
trade in goods, services and finance. Physical assembly accounts for a
declining share of the value of finished goods. The knowledge-intensive
component of trade is also growing more quickly than trade in labour-,
capital- or resource-intensive products and services. At the same time
the dramatic decline in the cost of information and communications
technologies has opened up trade in some high-value services. Skilled
programmers in India, for example, can sell IT services around the world
despite the low overall level of development of the Indian economy.
The change in technology’s role in development began in
the 1980s. Richard Baldwin, an economist at the Graduate Institute of
International and Development Studies in Geneva, explains that for much
of modern economic history the driving force behind globalisation was
the falling cost of transport. Powered shipping in the 19th century and
containerisation in the 20th brought down freight charges, in effect
shrinking the world. Yet since the 1980s, he says, cheap and powerful
ICT has played a bigger role, allowing firms to co-ordinate production
across great distances and national borders. Manufacturing “unbundled”
as supply chains scattered across the world.
According to Mr Baldwin, this meant a profound change in what it is to
be industrialised. The development of an industrial base in Japan and
South Korea was a long and arduous process in which each economy needed
to build capabilities along the whole of a supply chain to manufacture
finished goods. That meant few economies managed the trick, but those
that did were rewarded with a rich and diverse economy.
In the era of supply-chain trade, by contrast, industrialisation means
little more than opening labour markets to global manufacturers.
Countries that can grab pieces of global supply chains are quickly
rewarded with lots of manufacturing employment. But development that is
easy-come may also be easy-go. Unless the economies concerned quickly
build up their workers’ skills and infrastructure, wage increases will
soon lead manufacturers to up sticks for cheaper locations.
Premature non-industrialisation
Early loss of industry (or, in India’s case, what Mr Subramanian calls
“premature non-industrialisation”) is a distressing trend, given the
role that exports of goods have historically played in economic
development. Productivity in export industries is generally high,
otherwise they could not compete in global markets. Over time,
productivity in making traded goods tends to rise as firms and workers
in the industry become familiar with the technologies involved. Past
developmental success stories such as the Asian tigers moved from
low-margin, labour-intensive goods such as clothing and toys to
electronics assembly, then on to component manufacture and, in the
textbook cases of Japan and South Korea, to advanced manufacturing,
design and management.
Export success trickles down to the rest of developing economies. Since
producers of non-traded goods and services, such as housebuilders and
lawyers, must compete with exporters for labour, they need to pay
attractive wages. At the same time the chance of well-paid work in
manufacturing creates an incentive for workers to move to cities and
invest in education. An industrialising export sector is like a
speedboat that pulls the rest of the economy out of poverty.
Loss of industry at low income levels, by contrast, caps the
contribution that manufacturing can make to domestic living standards.
That is no small problem: there is no obvious alternative strategy for
turning poor countries into rich ones.
Governments across the emerging world dream of repeating
China’s success, but the technological transformation now under way
appears to be permanently changing the economics of development. China
may be among the last economies to be able to ride industrialisation to
middle-income status. Much of the emerging world is facing a problem
that Dani Rodrik, of the Institute for Advanced Study in Princeton, New
Jersey, calls “premature deindustrialisation”.
For most of recent economic history, “industrialised” meant rich. And
indeed most countries that were highly industrialised were rich, and
were rich because they were industrialised. Yet this relationship has
broken down. Arvind Subramanian, of the Peterson Institute for
International Economics and reportedly soon to become chief economic
adviser to the Indian government, notes that, at any given level of
income, countries today are less reliant on manufacturing, in terms of
both output and employment, than they were in the past, and that the
level of income per person at which reliance on manufacturing peaks has
also declined steadily (see chart 4). When South Korea reached that
point in 1988, its workers’ earnings averaged just over $10,000 (in
PPP-adjusted 2011 dollars) per person. When Indonesia got there in 2002,
average income was just under $6,000, and for India in 2008 it was just
over $3,000.
THIRTY-FIVE YEARS ago Shenzhen was a tiny fishing village
just over the river from British Hong Kong. Its inhabitants, like most
Chinese, lived in poverty. In 1978 the average income in America was
about 21 times that in China. But in 1979 China’s leader, Deng Xiaoping,
chose Shenzhen as the country’s first special economic zone, free to
experiment with market activity and trade with the outside world.
Shenzhen quickly found itself at the leading edge of Chinese economic
development, using the same model as Japan, South Korea and Hong Kong
itself had done at earlier stages. In the late 1970s China was bursting
with cheap, unskilled labour. It opened its doors (a crack, in lucky
places like Shenzhen) to foreign manufacturers waiting to take advantage
of these low labour costs. Even though wages were at rock bottom, both
productivity and pay in urban factories were dramatically higher than in
agriculture, so China’s fledgling industrialisation attracted a steady
flow of migrants from the countryside.
Over time local production became more sophisticated and wages went up.
Industrial cities served as escalators for development, linking the
Chinese economy with global markets and allowing incomes to rise
steadily. The fruits of this process are clearly visible. As visitors
approach the checkpoints between Hong Kong and the mainland, a modern
skyline rises on the horizon. Great glass-sheathed skyscrapers reach
upwards in central Shenzhen, which boasts some of the world’s tallest
buildings. At street level Chinese workers stroll past shopfronts
displaying Western luxury brands: Ferrari, Bulgari, Louis Vuitton.
Mr Modi, this is dedicated to your glory.
Emerging economies
Arrested development
The model of development through industrialisation is on its way out
Oct 4th 2014 | From the print edition
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