Consider China. In view of its status as the world’s manufacturing powerhouse, it is surprising to discover that manufacturing’s share of employment is not only low, but seems to have been declining for some time. While Chinese statistics are problematic, it appears that manufacturing employment peaked at around 15% in the mid-1990’s, generally remaining below that level since.
Pointer from Tyler Cowen.
Rodrik’s main point is that newly-developing countries, like China and Brazil, seem to have maxed out on their manufacturing employment without reaching the levels of income achieved by earlier industrializers, such as South Korea. He is concerned that this means poor growth prospects in the newer developing countries.
When the US, Britain, Germany, and Sweden began to deindustrialize, their per capita incomes had reached $9,000-11,000 (at 1990 prices). In developing countries, by contrast, manufacturing has begun to shrink while per capita incomes have been a fraction of that level: Brazil’s deindustrialization began at $5,000, China’s at $3,000, and India’s at $2,000.
By the way, the title of my post is not a typo.
To think about this, start with the idea that employment increases in sectors where demand grows faster than productivity, and employment declines in sectors where productivity grows faster than demand. That is not a very deep theory–it is arithmetic.
In rich countries, the share of goods in consumption has been declining for decades. The best hope for manufacturing growth in the newer developing countries is that their own consumers will want to accumulate physical stuff, the way we did in the middle decades of the twentieth century.
However, households in China today are not going to want what households in the U.S. wanted fifty years ago. Analog television? Stereos? Landline phones? Cars that don’t last more than a few years?
Maybe no country today has to go through a phase in which 1/4 of its labor force works in manufacturing. Middle-class households around the world can get the stuff they want without devoting so much labor to that sector.
It may be that the cost of the manufactured goods that a middle-class household wants nowadays is so low that Brazil, China, and India are already middle class in that respect. Our own middle-class incomes are much higher, but we fritter that away on cost-ineffective health care and education.
I think that this is an important point about the nature of inequality, both in the U.S. and in the world. A higher proportion of people can afford food. A higher proportion of people can afford useful goods, ranging from refrigerators to cell phones. However, a lower proportion of people can afford elite schools and unsubsidizedinsulation from having to pay directly for health care.
This is not your grandfather’s inequality. It may be better or worse, but it is different.
It’s a good example of viewing history as an inevitable progression from barbarism to some enlightened future. If you think that’s how it goes, then the only way to get to a better situation is to go through all the intermediate stages that everyone else went through.
As you say, that’s hard to believe if you take it literally. As an extreme example, there’s no reason to believe that the most impoverished country in the world would spend time with horse and carriages before moving on to better forms of transportation.
Do I not recall reading that Asian countries made a leap to cell phone communication networks without spending much time in the landline-to-all-communities phase that the U.S. spent more than a few decades building out?
It probably has more to do with differences in asset pricing and price levels that fail to show up in income and exchange rates, and that we are more equal than what we can measure but many of our differences are in things like clean air and water.
If 90-95% (I’m making this number up) of U.S. economic growth in recent decades, and prospectively, is captured by a smallish group that already has a lot, why should we care very much about economic growth, compared to other things that we value? And if that group begins to resemble a hereditary caste, due to genetics, assortative mating, semi-exclusive access to elite credentials, etc.? How strong a presumption would there still be that “What you propose would interfere with market processes” constitutes a weighty objection?
This point is not really addressed by saying that under the new inequality the losers will have enough to be comfortable, and access to plenty of screens, at least as long as everyone in their families stays healthy. The issue seems to me important enough to warrant your serious attention after you finish your book.