‘Forget industrialisation – focus on services sector’

Industrialisation is not necessarily the panacea for job creation. That’s the view of Harvard University Kennedy School of Government Trade and Investment professor, Robert Lawrence, who believes tomorrow’s wealth and economies will be generated across a wide spectrum of activities that we do not consider industrial. “Don’t be mesmerised by manufacturing and industrialisation,” he said during a seminar hosted by Wesgro and the Centre for Development and Enterprise in Cape Town recently. “The economy is hugely diverse and manufacturing productivity growth combined with an unresponsive demand is driving an international phenomenon where manufacturing employment is declining,” he said. “Our studies have shown that when rapid productivity growth in manufacturing occurs, goods become cheaper. Consumers respond not by buying more goods, but rather purchasing services.” Lawrence said more jobs were likely to be created in the services sector than in manufacturing. “This is a trend that we are seeing around the world – even in countries with large trade surpluses in manufacturing.” According to Lawrence the United States – which industrialised early – saw a peak share of manufacturing employment in 1953 at 25%. Since then it has been steadily dropping. In the UK it was in 1961 at 32%. “What we have seen is that countries that industrialise later struggle to reach these high share figures. China is now peaking at only about 19%.” According to Lawrence South Africa peaked in 1981 at 17% of its workers in manufacturing. “Productivity has slowed down throughout all industrial economies and we are seeing the same happen in the emerging economies.” At the same time if one looks at job availability of men in the United States in 1970 compared to now, it’s clear that the number of jobs for non-college educated men is declining while their earnings have been stagnant for more than 50 years. He said in 1970 more than 35% of Americans without a college degree had a job in manufacturing. While this figure had not only decreased, the income in this category had increased by less than 10%. He said in South Africa manufactured goods were also becoming cheaper per capita, and demand remained flat. “You have to take the demand side into account when planning your industrialisation strategies,” said Lawrence who added that the feasibility of massive job creation in manufacturing was low. “I am not saying that manufacturing should not be a part of the solution for inclusive growth, but it is unlikely to be a big part of the story.”