The end of growth, open borders, feeling pessimistic

I was thinking about economic growth, as you do, and I got really optimistic about how quickly people’s lives can change for the better, in decades not generations, then I got sad because I’m not sure that will last.

There have been lots of growth miracles. First was the UK, which moved from about zero annual per capita growth to 1% at the start of the 19th century (that’s the real miracle, btw, sod China). Then there was Germany which went to 2% at the end of the nineteenth century. Japan got up to 6% in the middle of the 20th century, Korea got towards 8% a year and at the start of this century China was clocking in at 10%.

The living standards for people living in the UK in 1870 were only marginally less miserable than those alive in 1770. And industrialisation had introduced whole new classes of misery. Incomes had more than doubled over a century, but people were still dirt poor. Generations saw change slowly. In China people see change quickly. The same generation of people is twice as wealthy as they used to be and before they retire they’ll be at least twice as wealthy again.

If this keeps but only a handful countries or so begin real catch up growth each year, in a generation we’ll have no more poverty. Plus those last few people who are in poverty will see their income double every couple of years. I know how good a 5% raise feels, imagine 50% wage growth, which is entirely realistic under the above assumptions. It would suck to be poor so long, but it would be awesome (in the proper sense of the word) to see your world change for the better so rapidly.

On my cycle home, I began to think those assumptions were just wrong. 

Manufacturing drives convergence. There’s very convincing evidence that productivity in manufacturing catches up with first world levels quickly regardless of policy. Services, resource extraction, farming just do not have the same kick to them. This is why our list of miracles features exporters.

Sadly manufacturing employment is declining worldwide. I say sadly, but this is good, because factory work is famously dull, arduous and monotonous. Not that being an office drone is a lot better, but at least its easier to tweet at a desk. Even in China manufacturing jobs are being lost as productivity surges ahead.

It is sad because as manufacturing declines there will be fewer factories in the developing world and this will decrease growth. Employment isn’t the best metric, but a similar trend is visible in value add for manufacturing. We want more services as we get richer. But services don’t help pull people out of poverty.

Added to this is a change in how we manufacture. At the moment clusters of factories in certain locations make stuff and send it to you. 3D printing will disintermediate this process and stuff will be made just where you are. This will lead to more investment in labour-free manufacturing in the west (where the money is) and less investment in transport to the global south (where the cheap labour is).

Where does this leave Africa, which is destined by history to develop last?

It is destined to be the continent most reliant on offering service exports because manufacturing will continue to shrink. India has shown there is a market for overnight service, doing paralegal work and admin while the wealthy west sleeps. But most services and admin need doing while people are awake. This means that due to timezones Africa will have to do business with Europe. A Europe which is going to get a bit richer and a lot older. This is not a recipe for a vibrant export market.

This means that Africa is still fucked, my dream of someone waking up on day a Lesotho farmer and quadrupling their income in a decade is receding. We need to look back to the 19th century. Migration improved more lives in the 19th century than automation did. Moving to where the work was or the land was plentiful was how people got on.

It is fashionable to say that we can have open borders, but not until the poor are richer. We will be flooded. But we may be heading for a world where the poor stay poor because there is no wage we can employ them at that distance. The only option will be to watch them suffer and wring our hands or let them come here and open a nail salon. An easy choice right? They haven’t got a chance. 


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