Premature Deindustrialization

One of the biggest challenges facing the developed world is static population growth. Japan's population is actually decreasing. China too, despite its 1.3 billion people, is bracing for a population crisis as it reaps the consequences of its notorious "one family one child" policy. In China, Japan, Europe and the U.S. dwindling populations of workers will be required to support mushrooming populations of retired elderly. Fewer people also means fewer households being formed. The developed world is struggling to grow amid declining consumer demand.

But the picture may be even worse where population growth is robust. India is expected to surpass China in population by 2022, and have 1.7 billion people by 2050. India adds a million working age people each month. Population growth is even more impressive in Africa where the population is expected to double by 2050 to 2.5 billion people. There will be almost 400 million Nigerians by then, making it more populous than the U.S.

Theoretically, India and Africa could serve as growth engines for the world as all of those people creating new households provide almost unlimited consumer demand. But for consumer demand to flourish there must be a strong economy endowing consumers with spending power. History teaches that a strong economy begins with a viable manufacturing base.

Unfortunately, in both India and Africa strong manufacturing sectors are struggling to be born. Harvard economist Dani Rodrik sees what he called "premature deindustrialization" as manufacturing shrinks in poor countries that never industrialized much in the first place. India with its armies of low wage workers could have gone on a manufacturing binge like China, but its manufacturing output is actually declining as a percentage of the economy. The story is the same in Africa. In South Africa, for example, manufacturing was 15 percent of output in 1962, peaked at 25 percent in 1981, but by 2011 was down to 18 percent.

There are many obvious reasons for the failure of manufacturing to lift off in India and Africa. The first and most obvious is that manufacturing needs a solid infrastructure to enable efficient transfer of raw materials and shipment of finished goods to market. The roads, rails, ports and air service in India and Africa are woefully inadequate. We think our infrastructure is bad, and for sure it needs more investment, but it is light years ahead of India and Africa.

For manufacturing to flourish, there must be effective government. India has democracy but too often that enables citizens to block needed modernization of infrastructure. With a few exceptions, the governments of Africa are conspicuously inept. Africa's abundant resources somehow never benefit the people or provide capital for industrial development. In Nigeria, which should be a rich country, only 9 percent of adults are employed full time by someone else.

India and Africa, like the rest of the world, are today flooded with low cost manufactured goods made in China and other Asian nations, and with the advent of the robot age the value of unskilled labor is declining everywhere. Now India and Africa must find a viable path to prosperity without passing through an industrialization phase. This is not likely to happen. It is by no means clear that it is even possible.

Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. December 2015