In the 1960s, Asian economies were sometimes compared with flying geese.
As Japan ascended the manufacturing value chain — into electronics, for example — then Taiwan or South Korea could move into the textile market left behind. The result was development by echelon, like migrating birds. But if automation and robotics can now compete with even the cheapest labour then these opportunities will never open up. Developing countries will either have to find a new growth model via services or be forever stuck selling commodities.
Such fears are mistaken. It is more likely that Bangladesh heralds the start of a new wave of industrialisation in poor countries; one that will, in time, extend even to sub-Saharan Africa.
Researchers at the UN confirm that the share of manufacturing and manufacturing jobs in the average developing economy has fallen. But for developing economies as a whole, they find the share of manufacturing and manufacturing jobs is ata record level. In other words, it is not that there is less manufacturing going on, or that robots are doing it all. Rather, all the manufacturing has become heavily concentrated in one place, causing a loss of industry everywhere else. That place, of course, is China. The geese were trying to migrate across China but getting gunned down by its formidable comparative advantage in making things.
If other manufacturers are to grow, they must displace this industrial giant, and Bangladesh suggests that is now possible. China’s factories are investing heavily in automation and robotics in order to raise productivity and stay competitive as local wages rise. But there is little reason to think it will work any better than it did for the rich countries China itself displaced in the 1990s.
Robotics technology has moved forwards but fully automated production lines are still vastly expensive and difficult to adjust. For that reason, robots are little used beyond automobiles and electronics, where the volumes are high enough. Robots are decades away from displacing skilful human fingers willing to work for dollars a day in an industry where customer demand changes as quickly as clothing.
If China’s population stops making cheap clothes but wear more of them, it will mean the available market is larger than ever in history. China had hundreds of millions of rich consumers in Europe, the US and Japan to sell to in the 1980s. Now there are billions of people buying clothes, shoes and toys. Whatever automation there is, bigger markets will offset it.
For the global economy, Bangladesh and others offer fresh growth with less reliance on China.
There are important implications for prices in advanced countries. One cause of low global inflation is the impact of China’s entry into global markets. The rise of Bangladesh suggests prices will not pick up as China’s own income rises. There are still others wanting to manufacture their way to wealth — not least in Africa.
Ever since the industrial revolution began in the mid-18th century, manufacturing has been the path from poverty to plenty, and despite a bout of congestion as China followed it, the route is as open as ever. The geese are ready to migrate again.