June 23, 2013

...AND CHEAPER...:

Emerging Markets, Hitting a Wall (TYLER COWEN, 6/23/13, NY Times)

The disconcerting truth is that the great "age of industrialization" may be behind us, a possibility that has been outlined most forcefully by the economist Dani Rodrik, who is leaving Harvard for Princeton next month. And evidence for this view is coming from at least four directions:

THE RISE OF AUTOMATION First, machines can perform more and more functions in manufacturing, and sometimes even in services. That makes it harder to compete via low wages.

Say you run a company in a developed nation and have been automating many of its processes. Because your total bill for employee wages would be low, why not choose the proximity and familiarity of investing in labor in or near your home country? This change would help the jobs picture in the United States and probably countries like Mexico, but could hurt many other lower-wage nations.

GLOBAL SUPPLY SOURCES Supply chains are now scattered across many countries. Think of the old development model as a nation, such as South Korea, trying to build a nearly complete domestic supply chain for its automobile and other industries. The newer model is more distributed, as reflected by the iPhone, with the bounty from the investment spread across many locations, including the Philippines, Taiwan and mainland China. As for cars, Thailand has courted automobile factories with success, but the parts usually come from outside the country and the benefits for the Thai economy are limited.

Posted by at June 23, 2013 9:19 AM
  

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