Musings on Manufacturing's Delaborization, & Development Strategy for the Next Two Generations

We can see approaching us the end of the export manufacturing-based Royal Road to successful economic development. So what straws should we grasp at?...

We can see approaching us the end of the export manufacturing-based Royal Road to successful economic development. So what straws should we grasp at?...

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Let me try to think semi-systematically about what we can do to deal with whatever problems for future economic development are being created and will be intensified by the falling labor share in manufacturing.

Historically, a focus on boosting manufacturing—especially export manufacturing—as the Royal Road to economic development for a poor country (and back in the early 1800s all countries were poor countries) worked for five reasons:

1. Manufacturing provided the most effective way to generate a sector in which unskilled labor released from agriculture could be highly productive elsewhere.

2. Manufacturing was the most effective—perhaps the only—was to build the required community of engineering practice.

3. Export manufacturing was a judo move to turn a disadvantage—poverty and low wages—into wealth via exploiting a comparative advantage in labor-intensive goods to earn the necessary wherewithal to buy producer goods in which so much of more advanced technologies were embodied.

4. Export manufacturing enabled an economy to grasp the benefits of both state-led resource mobilization and market judgment about how to use resources productively by borrowing the demand of foreign middle classes as sources of market discipline.

5. Specialization in elastic-demand manufactures enabled the capture of surplus for the domestic economy, while specialization in elastic-demand commodities let foreigners reap the lion's share of surplus from productivity improvements.

(4) and (5) depend on (3), which is now almost gone. And (1) appears to be rapidly ebbing into insignificance as well. Only (2) seems secure, and a powerful factor for the next two generations.

Let me expand: