Friday, November 15, 2013

Do not de-industrialise too soon?

Dani Rodrik's piece in the Project Syndicate recently brought to light the delicate balance between the role of the manufacturing and services sector in an economy. Titled "The Perils of Premature De-industrialisation" it warns of a shift away from the manufacturing sector too soon and it's possible impact on developing countries.
"The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence with the advanced economies. Manufacturing industries are what I have called “escalator industries”: labor productivity in manufacturing has a tendency to converge to the frontier, even in economies where policies, institutions, and geography conspire to retard progress in other sectors of the economy. 
That is why rapid growth historically has always been associated with industrialization (except for a handful of small countries with large natural-resource endowments). Less room for industrialization will almost certainly mean fewer growth miracles in the future.
The social and political consequences are less fathomable, but could be equally momentous. Some of the building blocks of durable democracy have been byproducts of sustained industrialization: an organized labor movement, disciplined political parties, and political competition organized around a right-left axis."
An indication that manufacturing and services have to go together? 

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