Countries That Emerge, Up to a Point

By Cowen, Tyler | International Herald Tribune, June 22, 2013 | Go to article overview

Countries That Emerge, Up to a Point


Cowen, Tyler, International Herald Tribune


There are signs that developing nations may no longer be capable of sustained high-powered growth.

A growth slowdown in the so-called BRICS nations -- Brazil, Russia, India, China and South Africa -- could be impeding the expansion of the global economy. That is serious enough, and indeed we are seeing unrest in Brazil over stagnant living standards. Yet a graver problem may be lurking behind the headlines -- namely, that sustained, meteoric growth in emerging economies may no longer be possible.

The disconcerting truth is that the great "age of industrialization" may be behind us, a possibility that has been outlined most forcefully by the economist Dani Rodrik, who is leaving Harvard University for Princeton University next month. Evidence for that view is coming from at least four directions:

The rise of automation First, machines can perform more and more functions in manufacturing, and sometimes even in services. That makes it harder to compete by offering low wages.

Say you run a company in a developed nation and have been automating many of its processes. Because your total bill for employee wages would be low, why not choose the proximity and familiarity of investing in labor in or near your home country? That change would help the job picture in the United States and probably in countries like Mexico but could hurt many other lower-wage nations.

Global supply sources Supply chains are now scattered across many countries. Think of the old development model as a nation, like South Korea, trying to build a nearly complete domestic supply chain for its automobile and other industries. The newer model is more distributed, as reflected by the iPhone, with the bounty from the investment spread across many locations, including mainland China, the Philippines and Taiwan. As for cars, Thailand has courted automobile factories with success, but the parts usually come from outside the country, and the benefits for the Thai economy are limited.

Richard Baldwin, a professor of international economics at the Graduate Institute in Geneva, refers to the internationalization of the supply chain as "globalization's second unbundling." He sees the new world as one of "development enclaves," in which parts of countries will stand out as advanced or wealthy, without fundamentally transforming entire national economies.

Wider economic gaps Another barrier is the difficulty of sustaining a cultural vision for catching up economically. South Korea was a poor nation in the 1960s, and its economic rise required sacrifices from millions of people in terms of work hours, savings and investment in education. But within 20 years or so, one could see that South Korea would most likely join the ranks of the economically developed nations. Indeed it has, so those sacrifices yielded satisfaction within a reasonable time. Many of the poorer nations of today seem to be more than 20 years away from competing with the global leaders, which are now themselves more advanced, and that slower and longer path to the top may discourage some countries from even trying.

Aging populations Finally, many lower-income countries will be old before they are rich. …

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