The End of Development

tags: economic history, history of capitalism

Tim Barker is a historian of modern American capitalism and a member of Dissent’s editorial board.

When I was in high school, my economics class read The End of Poverty by Jeffrey Sachs. The book is a passionate appeal to help those living in the worst poverty in the world. Sachs writes that we should not worry too much about the people in second-to-last place, such as the poorly paid workers in labor-intensive industries who were then the focus of considerable debate and activism on U.S. college campuses. Sweatshop workers, Sachs conceded, were on the bottom rung of the ladder. But subsistence farmers were not on the ladder at all. Once we helped them get a foothold, they could begin ascending from textiles all the way up to high tech. I internalized Sachs’s argument, sensing it would help me feel better about the world we live in.

This idea that sweatshops are good is so convenient that it will probably live forever. It provided the basic logic behind Matthew Yglesias’s defense of unsafe workplaces published after more than 1,100 people died in the 2013 Rana Plaza factory collapse. Safety is nice but “money is also good,” and who could deny that “Bangladesh has gotten a lot richer” in recent decades? History might be a slaughter bench, but at least it had a clear direction, namely the upward sloping trend of GDP per capita. Vox, cofounded by Yglesias in 2014, ran similar takes, including the charge that Bernie Sanders’s “war on trade” “would hurt the very poorest people on Earth” by depriving them of low-wage employment in export industries. So it was striking when Yglesias took note of a new trend “in which countries start to lose their manufacturing jobs without getting rich first.” Disturbingly, this was not because of protectionism or misguided safety regulations but because of dynamics internal to capitalist development. “Structural change,” he wrote, “is moving in the wrong direction.” The ladder was broken.

Since 2013, there has been increasing discussion in the United States about secular stagnation, a long-term tendency toward weak business investment and slow growth. The conversation is often centered on wealthy countries, which makes it possible to imagine that we’ve become so rich that we’re sated with physical products and naturally spend more and more of our income on services and experiences. Thus, the titles of recent books: Dietrich Vollrath’s Fully Grown: Why a Stagnant Economy Is a Sign of Success, or Tyler Cowen’s The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better.

These reassurances look glib when confronted with global economic stagnation. Slowing growth around the world cannot be explained as the sign of economic “maturity.” Instead, many countries are experiencing “premature deindustrialization,” a term coined by José Gabriel Palma and popularized by Harvard economist Dani Rodrik. Earlier processes of deindustrialization left rust belts across the poorer parts of rich countries, from Kenosha to Osaka. It is usually assumed that the old factory jobs moved to other countries. Rodrik’s observation is that deindustrialization has been happening across the Global South as well, where industrial employment has already peaked and begun to decline. This is “premature” in the sense that the peaks are coming at a lower level (measured in share of employment and output or the level of national income) than they did in the now-rich countries that industrialized earlier. At the height of the golden age of capitalism in 1973, Japan, Germany, and the UK had roughly 40 to 50 percent of their populations working in manufacturing. In Brazil, by contrast, the peak, reached in 1986, was 23 percent; for Nigeria, in 1991, it was just 13 percent.

It is easy, and appropriate, to be skeptical of the common attitude that good jobs are necessarily manufacturing jobs. There are a wide range of valuable economic activities, and there is no historical necessity that makes some kinds of jobs worse than others. Anyway, plenty of workers hated (and still hate) their manufacturing jobs. The trouble is that it is hard to find successful examples of alternative development models. As economic historian Robert Allen has pointed out, countries that are rich today were generally rich in 1820. Among large countries, the exceptions are Russia, Japan, South Korea, Taiwan, and China. In addition to radical and unpleasant institutional transformations (whether socialist revolution or Japanese colonialism), these countries all underwent industry-led growth. Manufacturing was just as important elsewhere, even when the project remained incomplete: per capita income in Latin America doubled between 1950 and 1980, the years of import-substitution industrialization. It is this historical reality, not just nostalgia, that leads people all over the world to vote for politicians promising to bring back smokestacks and steel.

Read entire article at Dissent