Which Developing Country is Rising Next?

“Folks, where is it written that [we] can’t once again be the manufacturing capital of the world?” 

Joe Biden

I was intrigued at the variables in the developing world that either fostered or hindered economic growth. We are desperate for natural resources of every kind – from basics like bauxite and iron ore to rare earths for sophisticated electronics to vast tracts of land capable of growing essential crops. If the playing field can be leveled, maybe that rash of colonial exploitation (today often substituted with greedy local politicians, magnates and cartels) can begin to put more money into the world of subsistence labor. Some nations, with vast mineral and petroleum resources, have already cashed in… and have a litany of decisions to make about their wealth.

On February 3rd, writing for The Economist, International economics correspondent, Cerian Richmond Jones, posited: “On the one hand, developing countries’ metals are now a source of envy in the rich world. On the other, automation has knocked out much of the edge that poor countries once had in basic manufacturing. As the world changes, so do the ways countries can get rich. India, Indonesia and Saudi Arabia are each striking their own paths. The question is which will succeed in the decades to come.”

All of this is made increasingly complicated by climate change, local civil wars, the proxy wars reflecting hegemonic expansion/preservation by larger global and regional powers, BRICS, Belt and Road Initiatives, trade agreements, mutual protection alliances, foreign aid, multinational corporate power and market access domination… and simple but massive global graft and corruption, with instability even among what once were assumed to be rational and stable developed democracies (a polarized, gridlocked, legislatively dysfunctional United States is a prime example).

China, which was the global manufacturing behemoth for almost half a century, which began to rival the economic power of the United States and now fights for military parity and regional dominance, is facing unprecedented economic challenges. Much of this is explained in more detail in my January 10th "I’m Never Wrong Dictators" Can Really Snatch Defeat from the Jaws of Victory blog. Soaring unemployment, banks nearing insolvency, mega-real estate projects and conglomerates collapsing and manufacturing costs, no longer a bargain by any measure, are as much hallmarks of modern China as massive military parades with state-of-the-art weapon systems flaunted in Beijing.

AI-driven automation is returning manufacturing to developed nations where expensive labor costs once pushed making stuff out to an outsourced world of vastly lower worker pay. Vietnam, India, Indonesia, Malaysia and Mexico benefitted greatly, but even these nations are adopting automation to remain competitive. Yet despite riches in some of these nations, cultural and barbaric autocratic practices create pushback in importing nations where cultural tolerance and freedom are major values. Saudi efforts to greenwash golf, soccer and other sports, their allowing women the right to drive, investments in media production infrastructure and offers of subsides for foreign companies to open local manufacturing facilities have been only marginally successful. India’s PM Narendra Modi’s efforts to suppress Muslims and push his country to a clear priority given to the Hindu faith – most recently allowing the building of a massive Hindu Ram temple on the site of a destroyed mega-mosque – are making foreign companies wary of expanding operations into India.

There is also internal grassroots pressure in even the most developed nations to refocus on restoring local manufacturing. Tariffs try and level the playing field. Government investment, particularly in critically advanced technologies or bastions of massive employment, are now commonplace. The working class in super-modern nations is making their voices heard. French farmers mount protests in Paris to press their economic losses. The President of the United States joins Detroit picket lines outside auto plants. Biden has committed roughly $1 trillion to support US-based manufacturing. Politicians who ignore these vectors do so at their peril, but how much of this investment truly justified?

Back on June 13th, The Economist observed: “In the West the aim is to reverse industrial decline, which is keenly felt by voters. As a share of global economic output, manufacturing has dropped from 19% in 1997 to 16% today, with the fall steepest in rich countries. In China and India industry’s share of economic output appears to be roughly where it was three decades ago, but even in these countries it has slipped in recent years…

“Manufacturing boosters make four arguments in favour of attempting to reverse this trend. First, politicians in the West say that factories are a source of solid jobs that produce a bigger and more satisfied middle class. Second, boosters view manufacturing as a driver of innovation and growth. This is urgently needed to fuel the green transition—the third reason—which will be more palatable to electorates if it delivers local jobs. Finally, tensions between America and China have pushed world leaders to reconsider which goods are strategically important, and therefore should be produced closer to home.

“Start by considering the type of employment on offer. The notion of a ‘good manufacturing job’ is an old one. During the 20th century, those without a university education could find decent wages, job security, a bit of personal autonomy and career progression in factories. Indeed, just over a decade ago production jobs in America paid a premium of 5% compared with similar service-sector ones, and offered steady hours and generous benefits.

“More recently, though, the picture has changed: many good manufacturing jobs no longer exist. Across the rich world, employment that requires mid-level technical skills (think machine operators) has given way to a mix of high- and low-level jobs, mostly in service sectors (think coders and baristas). Wealthy populations spend more of their income on services; industrial demand is increasingly met by emerging markets. Whether in Detroit or Dortmund the consequences are obvious and, by now, familiar. At first glance, those who decry the loss of manufacturing jobs have a point. Surely it is worth paying to get them back?

“There is a snag. It is far from clear such jobs can be brought back—no matter how much governments spend. For a start, the manufacturing wage premium has fallen sharply. Production workers’ wages in America now lag behind those of similar service-sector workers by 5%. Moreover, the sort of high-tech factories that America and Europe are attempting to attract are highly automated, meaning they are no longer a significant source of employment for people with few qualifications.” The perks and vestiges of power are rapidly shifting. Undoubtedly, we are wasting trillions on efforts that face long odds in changing the earnings landscape for the better. But massive change is happening no matter what.

I’m Peter Dekom, and so much of what is being “invested” does not seem realistically to address the profound threats inherent in the rise of artificial intelligence, the disastrous impact of climate change, political instability and mankind’s inability to tame roiling armed conflicts.