Ugh this was a bit delayed (pardon the slight-out-of-orderness). This follows on from Post 64 (duh).
In this post, I add to my thoughts on the economy from a macro perspective. From the broad trends and history of the global economy, to intangibility and rise of bullshit transition, and finally towards contextualising economic development models for developed economies.
The world has undeniably been shaped by global powers and major economies - driving technology, competition and consumption trends. An anecdote - I recall finding a Chinese restaraunt in the middle of a fringe city (Teresina) in Brazil; while similarly being able to find Peruvian grocies halfway across its country of origin Singapore. Its fascinating and indisputably beneficial - surely.
Many speak of the end of globalisation, and I consider the consequences of the oft-quoted “K-shaped” recovery which will likely fragment the global economy further. At this point, it seems that the world is still recovering from is Covid fever, and the true consequences and radical reshaping is yet to come, like a dark cloud looming on the horizon. What is might the future look like?
While developed eocnomies might be shaping up…alrightish, what might the future hold for underdeveloped countries? And what key assumptions should we question in the execution of developmental economics?
Why it will be Harder to Develop
The “trigger” for this post was at a time I was ruminating about my own thinking of the economic cycles/chapters(2019 or so). Someone maade ab offhand quip that OBVIOUSLY China will eventually progress further into services, and leave the ever-so dirty manufacturing behind.
I disagree.
In my view, there are four key trends that will redefine the shape of the global economy and challenge the conventional opportunity (namely, low cost manufacturing) for growth in developing countries.
- Technology and Automation
- Climate Change
- Pax Technologica
- Structural Inequality
Technology and Automation
First, manufacturing is no longer the surest pathway to development, as it was in the 1960s+. Labour arbitration has been weakened due to automation. I find it difficult to rationalise a country that - though labour is cheap - can compete well with a heavily automated, well contacted, mass producing, and all around better ecosystem.
Moreover: China. I am convinced that, as long as it doesn’t threaten the Common Prosperity ideology, China will not give up being the manufacturing powerhouse of the world. If anything, they may be well on their way to slowly automate certain areas away aggressively and deliberately - well within the ability of a central political party. One way this may stop is if there aren’t enough jobs for its population - though I am of the mind that the CCP will be able to find the right balance far faster than any 4-year-term democratic country.
Generally speaking, which country can possibly dream of replacing China sheer size, cost, vast supply chain, and now - technlogy? Certainly, there are some factors favouring the reoirentation of supply chains but the world will take a long time to reduce its addiction to cheap, chinese manufacturing.
Climate Change - Natural and Financial Capital
Second, industrialisation has gotten more complicated.
If we believe that the urgency of climate change will take hold (still a question mark, btw), then the future of manufacturing and tangible production will increasingly shift to areas enriched with the right geographic conditions for renewable energy.
Huge foundational industries, like steel making or concrete making, will drive a lot of this. Rich countries with a combination of both investment as well as natural geography (as opposed to fossil fuel resources) will thrive in favour of poorer, unstable and geopolitically insignificant ares.
Pax Technologica
Change. Specifically radical change, occurs at times of revolution and great turmoil.
I premise that a tense protracted peace and global interconnectedness will be maintained. Albeit in different forms, and just as systems go - waxing and waning. Would China and Russia truly come into conflict with the western powers? Difficult to say - and I can’t fully agree with the Thuclidydes trap argument.
While we seem to be headed towards conflict in some areas, I believe that the current system would be kept structurally intact due to Pax Omni-Technologica. (haha..look at me, tying to coin terms). That is: the all present role of technology improves lives and strengthens interdependencies between one another; underpineed by a lever for mutually assured destruction (nuclear).
I ought to write a future post on this.
Irreversible Global Inequality
Lastly, the debt and monetary constraints in this segment of the global cycle, will increase domestic unrest. Should something blow up (not globally, as per Pax Technologica, so likely regionally), I believe they are more likely to happen in the underdeveloped / locations of proxy wars.
So, the net-winners of which are the already rich, will only ge richer.
- Fund wars as they happen
- Progress in developing countries / the battlefields are undone.
- Rich countries continue to fund, profit and control assets out of the aftermath.
As I type this, Lebanon, Sri Lanka, Yemen and Pakistan are all facing the prospects of deep financial crisis. Hunger, death and the ultimate imprisonment of being too dependent on a global economy will continue to play to the disadvantage of countries not having enough chips to buy-in on the global poker table. Especially at a time when the playesrs are gambling harder with an every-man-for-himself mindset.
Some Specific Cases:
These were older thoughts fated not to be its own blog post, but hell, I’ll leave them here:
Small Countries
Most economic theory is largely centred on the big countries who have the ability to deeply shape the world. But what about the small guys?.
Small countries will probably be forced to carve out certain niches - gaps left behind by the macro trends. Is there enough global demand to be built solely on being a niche mittelstand? Perhaps in areas playing with a narrative built on passion, culture and a premium.
The African Question and Steady States
This was sparked by a video I had watched on the downcycling of goods. How does one grow a domestic textile industry, if its dependent on the scraps left by larger economies? Is there a permanent lock-in that is almost impossible to get out of?
Another thought experiment - what if we played labour arbitration out to its steady state - what happens when global labour costs reach equilibrium? For example - in a state where there is no difference in labour wages cross the world.
As rich countries keep their manufacturing, I believe ASEAN could be the last region in this time where manufacturing offshoring move to. But as ASEAN gets wealthy, would things go to AFrica? I’m not too sure…
Conclusion
So I submit that underdeveloped coutnries will continue to find difficulties to develop in the future. Gone are the days of good honest investment. One can wish for a domestic economy boom for such economies (where the beneficiary elite who keep the doors open to globalisaiton), but the opportunities and windows of differentiation to do so are getting smaller.
Looking back this thinking could be far more airtight, but I suppose many of my posts are just gut-feelings anyway :).