BRICs are preemies!

In the UK, the percent of the labor force in manufacturing peaked at 45% in 1912. In the US it peaked at 26% or so in the 1950s. In both countries it is now below 10%. Germany peaked around 40% in 1970.

As Dani Rodrik pointed out last year, this path is the historical path to rich country status. Get out of agriculture and into low level manufacturing. Become urbanized, get your kids in school, raise human capital, raise the level of sophistication of your manufactured goods, continue to raise human capital, start innovating and de-industrializing.

Brazil, India & China are not on this path. Their level of industrialization peaked at a fairly low percentage of employment (no more than 15%) and their deindustrialization started when they were much poorer than the countries in my opening graf (they were only around 1/2 to 1/3 as rich).

(all of the above is basically from Rodrik’s excellent piece)

So, the BRICs are definitely preemies! Two interesting questions are (1) why? and (2) can they overcome this and make to the rich country club?

For (1) I’d point to increased globalization and increased automation. Value added in manufacturing does not follow this inverted U pattern, but it’s the mass jobs in manufacturing that seem to have led to the rise of the middle class and the investment in children that raised human capital. Can you think of other reasons?

For (2), I hate to say this, but I don’t think so. China and India have over a billion people, and for the life of me, I don’t see where they are ever going to find good jobs for all of them (I know, babies and grannies don’t work)!

In a country like the US I can see how low labor force participation could coexist with good living standards and happiness for “all”, in the sense that there will be enough $$ to cover everyone. But I don’t see how the semi-singularity of the rise of the machines is going to be a picnic for India or China. In an increasingly winner-take-all global economy, being competent at something is going to get you your ass kicked. India and China are not really the best at anything and unlikely to produce as much surplus with their global “winners” as the US or Germany or even South Korea.


Will manufacturing ever boom in Sub-Saharan Africa?

We observe that in recent decades, manufacturing jobs have moved around the world looking for spots that minimize costs. From the US to say South Korea, then to China, and now to Vietnam and others.

Will African countries be next? Well, a recent working paper from the Center for Global Development suggests that one factor standing in the way is comparatively high labor costs in SSA.

Here’s the “money shot” from the paper:


Now, those lines might look close to each other, but the chart is in a log scale so the gaps are pretty large. At around $4000 value added per worker, the gap is about 50%!

At this rate, it’s not going to be the lure of cheap labor that will draw global manufacturing to SSA.

PS: the paper uses, 

 “comparable, cross-sectional data from 10,502 manufacturing firms in 12 Sub-Saharan African countries (Angola, Ethiopia, Ghana, Kenya, Mali, Mozambique, Nigeria, Senegal, South Africa, Tanzania, Uganda, Zambia) and 13 comparators from four regions (Indonesia, Philippines, Vietnam, Russia, Turkey, Ukraine, Argentina, Brazil, Chile, Colombia, Mexico, Uruguay, and Bangladesh).”


“He was spotted dressed as a moron in Nairobi”


Thanks to Africa Is a Country for the laugh.  The caption states that “A tourist from Sweden, a Mr. X, has fallen in love with Kenya and the Masai culture. He was spotted dressed like a moran as he went about his business in Nairobi on Wednesday.”

Makes me wonder what that “business” may be…

Update: many angry tweeters have taken me to task for interpreting “moran” to mean “moron.”  Apparently moran means warrior in the Masai language.  Be that as it may, I think my original title still pretty much sums up the situation.

How many Mexicos are there?

According to McKinsey, there are two! One growing and one stagnating:




The productivity of small firms is falling, while that of large firms is rising. In itself this would not necessarily be terrible, but the size of the large firm sector is not growing much, so around 40% of workers are “stuck” in the falling productivity sector.

Maybe this is just Baumol, and the small firms are all string quartets, but maybe this is a real problem for the country.

Of course, this is just accounting so there’s no guarantee that if the share of workers in the more productive sector doubled, that productivity in that sector would continue to be high. That is to say, there may be a “supply of qualified workers” constraint operating in the country.

How many Mexicos do you think there are?



Kidnapping in Mexico: no longer just for the rich and famous

Business Insider has an article called “Even The 99 Percent Get Kidnapped In Mexico.”  Apparently, the kidnapping trend has reached the middle class.  Here are some of the depressing details:

1.”Shopkeepers and family physicians, carpenters and taxi drivers: All have been targeted in recent years as minions of young criminals enter a trade long run by guerrillas and gangland bosses.

2. Ransom demands here in Morelos, a small state just south of the capital Mexico City that by some counts tops the nation in kidnappings, have ranged from $13,000 to as low as $250, according to the state police. 

3. Analysts say as few as 1 in 5 abductions are ever reported, in part because victims’ families fear police agents are involved with the gangs.

4. Investigations and ransom negotiations frequently become complicated because victims are targeted by family members and acquaintances. Victims in such cases often are killed because they can identify their captors.”

The governor of Morelos, Señor Ramirez, made an interesting political choice when deciding to answer critics who say that he has “failed miserably, either from stupidity of complicity.”  He notes that he inherited the kidnapping problem from previous administrations.  Ok, I can see that argument, although he did take over 18 months ago on a campaign to target lawlessness, specifically kidnapping.  Sadly for him, he goes on to argue that there is an “outsize public “psychosis” about “kidnapping, kidnapping, kidnapping, kidnapping.”  Hmm, I’m not a public relations expert, but I doubt that will quiet the critics.


How to Get Filthy Rich in Rising Mexico: A Primer

Two new scandals have shocked Mexicans in recent weeks, no mean feat in a country that has known its fair share of corruption. If only political corruption were a medal event in the Olympics…

First, the leader of the PRI in Mexico City was charged with pimping.  seriously!  He stands “accused of hiring women for sex and putting them on the party payroll.”

Second, a secretly recorded conversation shows that Mexican congresspeople are routinely using federal money as a way to blackmail mayors.  According to the article, the Congress has been relatively untouched by corruption scandals, at least compared to other institutions.  This might be just an issue of transparency though.  I thought it was funny that Barbara Botello, mayor of Leon and head of the Mexican association of mayors, reacted in this way:  “It’s unprecedented for something like this to come out into the open.”  Not that it’s unprecedented for something like this to happen, just for it to be publicly known.  Nice.

The whole thing unfolded when the mayor of Celaya informed his staff that “congressmen were requiring him to inflate a paving contract by 35 percent in exchange for $12.2 million in federal public works money…[and]…they demanded he go with the contractor of their choice.”  One of his staff recorded the talk and then leaked it to Reforma, one of the largest newspapers in Mexico.

From the mayors that have come forward so far, it’s alleged that “senators and congressmen routinely skim off the top of federal funds they allot to cities, money that can add up to three-quarters of the budget for local jurisdictions.”  Hence the “filthy rich” in the title of this post.

Botello goes on to say that many more mayors have faced this pressure/extortion, but are afraid to come forward.  She notes “Many are afraid of reprisals, of their federal funding going down.”





(F)re(e)-Basers Lament

First Ghana re-benchmarked their GDP and made a huge leap. Now Nigeria has done the same and made an even bigger leap.

But Ghana does not appear to be happy about being on-upped by their now even larger neighbor as its president has stated that Ghana is “bullying” the rest of West Africa:

Ghana’s President says Nigeria’s tall list of trade prohibitions has stunted regional trade and by extension, frustrated economic integration in the sub region.

John Mahama told an audience of the Africa Summit at the London School of Economics that he found it befuddling that Africa’s most populous country is not respecting the Trade Liberalisation Scheme of the Economic Community of West African States.

Already seen as an economic giant in Africa, the country just became the Continent’s biggest economic hub after a rebasing exercise which resulted in the oil-rich West African country nudging off South Africa from the top.

Its GDP for 2013 totalled 80.3 trillion naira (£307.6bn: $509.9bn). That compares with South Africa’s GDP of $370.3bn at the end of 2013.

Its GDP now includes previously uncounted industries like telecoms, information technology, music, online sales, airlines, and film production.

Mr Mahama says Nigeria’s protectionist measures do not bode well for regional trade and integration, adding that the country has more responsibility to foster the integration agenda since it wields tremendous economic power in the sub region.

“I believe that Nigeria has a certain kind of responsibility in West Africa, because it is the largest economy and the most populous country.”

The Ghanaian President added that: “Nigeria has nothing to fear from Ghana in terms of competition. Nigeria has nothing to fear from Cote D’lvoire in terms of competition. Nigeria has nothing to fear from Benin or Togo or Niger in terms of competition and yet year in, year out, there is a prohibition list,” he bewailed.

Mahama believes Nigeria must fritter off any such fears harboured since the country’s actions, based on such fears, are hurting the entire region.

“I think it is a certain misconception and a certain not really tangible fear that if the market is open it will bring competition and make some people lose out in the Nigerian market,” he observed.

He wondered why Nigeria prohibits textiles and processed goods from Ghana even though his country has products that have registered under the ETLS and signed the protocol on the ECOWAS Trade Liberalisation.


No word yet if Ghana will re-rebase their GDP to counter Nigera’s re-basing.