Four key employment focused strategies for services-led economic development
livemint.comThe future of developing countries is in services. This may sound odd in view of the fact that industrialization has been the traditional road to growth and eventual prosperity, one travelled by all of today’s rich economies and by more recent successes such as South Korea, Taiwan and China. Manufacturing seems even more essential given that industrial policies to revive it are back in fashion in the US and Europe.
But today’s manufacturing is different. Innovation in manufacturing has taken a predominantly skill-biased form, reducing demand for workers with relatively low levels of education. New technologies such as automation, robots and 3D printing directly substitute physical capital for labour.
While firms in developing countries have an incentive to use more labour-intensive techniques, competing in the global marketplace requires employing production techniques that cannot differ significantly from those used in the frontier economies, because the productivity penalty otherwise would be too high. The need to produce according to the exacting quality standards set by global value chains restricts how much unskilled labour can substitute for physical capital and skilled labour. Thus, the rising skill- and capital-intensity of manufacturing in turn means that globally competitive, formal segments of manufacturing in developing countries have lost the ability to absorb significant amounts of labour.
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