To be sure, the title does not refer to us getting individually rich but to countries making the leap from a developing economy status to the rich world, measured by per capita incomes rising to levels that the IMF classifies as a developed economy. The 20th century saw some of the East Asian economies make the transition. The 21st century has seen many more in Asia and Africa, including India, set goals to become a developed economy by the middle of the century. This article captures the strategies deployed by such economies and the likely outcomes and challenges to the same.
“The aim is to achieve the sort of meteoric growth that East Asian countries managed in the 1970s and 1980s. As globalisation spread, they made the most of large and cheap workforces, gaining an edge in markets for cars (Japan), electronics (South Korea) and pharmaceuticals (Singapore). Industries were built behind protectionist walls, which restricted imports, then thrived when trade with the rest of the world was encouraged. Foreign companies later brought the know-how and capital required to churn out more complex and profitable goods, increasing productivity.”
Whilst China hasn’t particularly made the cut to the rich world yet, it has used manufacturing to boost economic growth and lift hundreds of millions out of poverty over the past few decades. However, given rising use of automation in manufacturing today, it is not obvious that industrialisation can show similar results for aspiring economies.
“Industrialisation is even more difficult to induce than it was 40 or 50 years ago. As a result of technological advances, fewer workers than ever are needed to produce, say, a pair of socks. In India five times fewer workers were required to operate a factory in 2007 than in 1980. Across the world, industry now runs on skill and capital, which rich countries have in abundance, and less on labour, meaning that a large, cheap workforce no longer offers much of a route to economic development. Mr Modi and others therefore have a new game plan: they want to leap ahead to cutting-edge manufacturing. Why bother stitching socks when you can etch semiconductors?”
However, there is a tailwind from geopolitics. Given the west’s need to reduce its reliance on China as a source for manufactured goods, often referred to as China+1, countries are offering incentives for manufacturers to set up base.
““Production-linked incentives” give tax breaks for each computer or missile made in the country, as well as for other high-tech products. In 2023 such subsidies carried a bill of $45bn, or 1.2% of gdp, up from $8bn or so when the scheme was launched three years earlier. Similarly, Malaysia is offering handouts to firms that establish cloud-computing operations, and helps with the cost of factories set up in the country. Kenya is building five tax-free industrial parks, which will be ready in 2030, and has plans for another 20.”
Another strategy adopted by some resource rich economies is to use that to build downstream capabilities, such as oil rich countries building refining capacity domestically than just shipping crude oil to the world.
“it is Indonesia that is leading the way, and doing so with striking heavy-handedness. Since 2020 the country has banned exports of bauxite and nickel, of which it produces 7% and 22% of global supply. Officials hope that by keeping a tight grip they can get refiners to move to the country. They then want to repeat the trick, persuading each stage of the supply chain to follow, until Indonesian workers are making everything from battery components to wind turbines.”
However, there is little precedence of resource rich countries making the manufacturing leap. The article goes onto highlight further challenges to this journey yet shows why this remains the best path to prosperity.
“According to work by Mr Rodrik, manufacturing has been the only type of work where poor countries have improved their productivity at a faster rate than rich countries, and so caught up. Modern industry may not offer the same benefit. Rather than spending time attempting to make factory processes marginally more efficient, workers in countries trying to get rich increasingly mine green metals (working in an industry with notoriously low productivity), serve tourists (another low-productivity sector) and assemble electronics (rather than making more complex components). All this means that the race to get rich in the 21st century will be more gruelling than the one in the 20th century.”
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