BRICs are preemies!

In the UK, the percent of the labor force in manufacturing peaked at 45% in 1912. In the US it peaked at 26% or so in the 1950s. In both countries it is now below 10%. Germany peaked around 40% in 1970.

As Dani Rodrik pointed out last year, this path is the historical path to rich country status. Get out of agriculture and into low level manufacturing. Become urbanized, get your kids in school, raise human capital, raise the level of sophistication of your manufactured goods, continue to raise human capital, start innovating and de-industrializing.

Brazil, India & China are not on this path. Their level of industrialization peaked at a fairly low percentage of employment (no more than 15%) and their deindustrialization started when they were much poorer than the countries in my opening graf (they were only around 1/2 to 1/3 as rich).

(all of the above is basically from Rodrik’s excellent piece)

So, the BRICs are definitely preemies! Two interesting questions are (1) why? and (2) can they overcome this and make to the rich country club?

For (1) I’d point to increased globalization and increased automation. Value added in manufacturing does not follow this inverted U pattern, but it’s the mass jobs in manufacturing that seem to have led to the rise of the middle class and the investment in children that raised human capital. Can you think of other reasons?

For (2), I hate to say this, but I don’t think so. China and India have over a billion people, and for the life of me, I don’t see where they are ever going to find good jobs for all of them (I know, babies and grannies don’t work)!

In a country like the US I can see how low labor force participation could coexist with good living standards and happiness for “all”, in the sense that there will be enough $$ to cover everyone. But I don’t see how the semi-singularity of the rise of the machines is going to be a picnic for India or China. In an increasingly winner-take-all global economy, being competent at something is going to get you your ass kicked. India and China are not really the best at anything and unlikely to produce as much surplus with their global “winners” as the US or Germany or even South Korea.

 

One thought on “BRICs are preemies!

  1. I think it is a mistake to put India, China, and Brazil together in the first place (and Russia is an even odder fit). India is dirt poor with terrible governance and economic policies. Major factor in GDP growth is monsoon rains (as it impacts crop yields). Brazil is a poor country that wants to pretend it is a southern European country and have the same type of progressive policies. The truth is they are too poor for that, and depend on their natural resources and do their best to squander that gift from above (look at Petrobras and its efforts to exploit its offshore oil). So we are left with China. In my opinion China made a choice, raise the wages of the big city coastal workers, thereby keeping them happy, but undermining the ability to expand exports and increase manufacturing employment, or keep the wages of the coastal workers low and continue to expand manufacturing. The communist party of China made a choice, keep the coastal workers happy (which helps keep them in power).
    With all do regard, everything else you say is nonsense. That China and India have a billion people does not matter, just as the fact productivity has increased in US has not decreased hours worked. Peoples wants are unlimited, if the billion from China and India were productive enough to command wages to allow them to buy more they would, and employ the billion.
    And other than winner take all being a neat phrase, it is meaningless. Japan became very rich on the back of coping other products and despite the fact that early on “made in Japan” was a sign of poor quality.

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