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OM in the News: Poor Countries and Manufacturing Jobs

November 29, 2015
Cows on the streets of Ahmedabad, India. India has vowed to build better roads and clear red tape to pull it into the leagues of Asia's industrial powerhouses.

Cows on the streets of Ahmedabad. India has vowed to build better roads and clear red tape to pull it into the leagues of Asia’s industrial powerhouses.

The U.S. and Europe—and East Asia more recently—first got rich because of their factories. Over time, as incomes rose and their economies became more sophisticated, they shifted into modern services like health care and finance. But today, parts of South Asia, Africa and Latin America are failing to create thriving manufacturing sectors even though their wages remain low. Manufacturing employment and output are peaking and declining at vastly lower levels of income and development than they did in the West. When manufacturing peaked as a source of jobs in the U.S. in 1953, it employed 26% of American workers, and overall per capita income was around $17,700 in today’s dollars. By 2010, manufacturing accounted for around 9% of U.S. jobs.

Factory automation and robotics are reducing the need for unskilled workers from the countryside to staff assembly lines. Industrial latecomers now have to compete against China, whose massive, integrated manufacturing machine has made it the world’s factory floor and created a huge barrier to entry. Lower trade barriers and better communication have made it easier for supply chains to be spread over farther-flung locales, bringing more countries into direct competition for factory investment. “The factory-led model of advancement—which, for more than a century, has offered the quickest route out of poverty—is simply no longer available to today’s poorest nations,” writes The Wall Street Journal (Nov. 25, 2015). India must joust more often with other cut-rate producers like Bangladesh or Vietnam for slices of the manufacturing process—a component or an assembly here, some product development there—rather than for “start-to-finish industry.”

More factories also might not translate into as many jobs, at least not for humans. Sales of industrial robots shot up by 29% last year to a record of nearly 230,000 units and are expected to keep climbing, to 400,000 units shipped by 2020, especially in Asia.

Classroom discussion questions:

  1. U.S. ever recoup the manufacturing jobs it lost since 1950? Why?
  2. Why is it harder for India to catch up with China?
One Comment leave one →
  1. November 30, 2015 3:48 pm

    This doesn’t bode well for Modi’s “Make in India” campaign.

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