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The golden age of finance, some proclaim, has now
ended. If that is true (and let us hope that it is),
what follows will most likely be a new golden age of
industrialisation.
Historically, except for a few oil exporting
economies, no country has ever become rich without
industrialising. Thus, all eyes nowadays should be
on real sectors. Confronted by the global financial
crisis that looms over Europe, political leaders
around the world are waking up to a stark new
reality. Unless the developed countries stop relying
excessively on financial deal-making and start to
rebuild from the ground up, they will lose their
current standard of living.
The global community must look beyond the sovereign
debt crises and pay attention to the opportunity of
structural transformation in the developing world’s
real sectors. Structural transformation means the
process by which countries climb the industrial
ladder and their workforces move into higher
value-added manufacturing sectors as their sources
of production advance.
Throughout 2011, the potential for less-developed
countries, including Sub-Saharan Africa, to emulate
successful industrialising East Asian countries such
as Japan, South Korea, Singapore, Malaysia, China,
and Vietnam was striking. Indeed, by focusing
development efforts on the comparative advantages of
poorer countries, confidence in the business sector
can be rebuilt and investment in job creation can be
reinvigorated, not only in developing countries, but
also in advanced economies.
The current global financial crisis, which is rooted
in the advanced countries’ structural problems,
requires investment and innovation policies, in
addition to monetary or fiscal measures.
In advanced countries, research and development
costs are quite high, because their technologies and
industries are already in the vanguard. By contrast,
developing countries, including those in Sub-Saharan
Africa, have the potential to expand their
industrial sectors rapidly, because they can borrow
technology from the advanced countries with little
risk and at low cost. Thus, the backwardness of
developing economies in terms of technology and
industry means that they can grow for decades at an
annual rate several times that of high-income
countries before they close the income gap.
Recently, in Maputo, Mozambique, a speech was
delivered at the United Nations University’s annual
lecture on development that explained how the
winning formula for developing countries is to build
up the same tradable industries that have been
growing for decades in wealthier countries that have
endowment structures similar to their own.
The pattern of flying geese is a useful metaphor to
explain this idea. Beginning in the eighteenth
century, the less-developed West European and East
Asian countries followed their more successful
neighbours, emulating a flying-geese pattern, they
benefited from the leaders’ tailwind as they first
industrialised and then became advanced countries
themselves.
Large, dynamic emerging-market economies that have
industrialised quickly offer unprecedented
opportunities for other developing economies to
emulate their success and, thus, jumpstart their own
industrialisation processes. As one emerging giant,
China, once a follower goose, is on the verge of
becoming a leader, with the potential to relocate 85
million low-skilled manufacturing jobs in the coming
decade.
The scale of this shift is huge when compared with
the 9.7 million jobs that Japan created in the
modern sector in the 1960’s, or South Korea’s 2.3
million modern jobs in the 1980’s. A similar trend
will arise in other emerging-market economies. In
fact, it is already happening. China’s outward
foreign direct investment (FDI) reached 68 billion
dollars in 2010, exceeding that of Japan and the
United Kingdom. India, Brazil, Russia, and South
Korea are not far behind. Moreover, India’s outward
FDI is heavily concentrated in the manufacturing
sector, accounting for 42.7pc of the total between
1999 and 2008.
For developing countries to benefit fully from
industrial upgrading in China and other large
emerging-market economies, their governments must
identify tradable industries that are consistent
with their latent comparative advantages. They also
must help private firms to resolve information,
coordination, and externality issues in the process
of industrial upgrading.
Rapid industrialisation in developing countries will
require large imports of capital equipment from
advanced countries. Given that developing countries
have accounted for as much as two-thirds of global
growth in GDP and imports over the past five years,
focusing on how to foster development in their
industrial sectors could benefit advanced countries
by helping to boost demand, thereby pulling the
world out of its economic malaise.
In short, the imminent golden age of
industrialisation in developing countries will help
to create jobs and spur recovery in advanced
countries. The benefits of this new era will be
two-pronged. It will contribute to the achievement
of the UN Millennium Development Goals (the plan to
cut world poverty in half by 2015) and also will
help to drive a global recovery. Then, we may see a
golden age for all. |
