Tuesday, January 22, 2013

Manufacturing matters

It does for sure. But the graph below just shows the varying share of manufacturing since the mid-18th century (source is Robert Allen, 2011). And I don't intend to say much on whay it matters per se, but note that global economic dominance goes hand in hand with manufacturing.
Note that the West, narrowly defined as England the rest of Western Europe, what was to become the US and Russia (called for the whole period USSR) had a share of less than 20% in 1750, it had expanded to more than 80% on the eve of WW-I. If you add Australia, Canada and Latin America (which are all in Rest of the World, but are what Maddison would call Western offshoots), the numbers are even larger. Most of the changes were associated to the squeeze of China. And most of the recent changes are associated with expansion of China and East Asia (which includes Japan). We have not gone full circle, by the way.

In other words, the process of development (or indutrialization in the center) went hand in hand with the process of underdevelopment (deindustrialization) in the periphery, and old lesson from a little book by Osvaldo Sunkel which is still worth reading.

6 comments:

  1. "I don't intend to say much on whay it matters per se, but note that global economic dominance goes hand in hand with manufacturing"

    Alexander Hamilton did a good job of laying out why in his Report on Manufactures. This same piece also explains that funded government debt is an asset that can serve to underwrite private investment. I really do not understand why economists have ignored our wunderkind of a treasury secretary.

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  2. At the risk of sounding terribly post-modernist, I'm not sure it is still as important. In a world that is plagued with demand problems to an extent that has become in many ways unbelievable, one in which the US and the UK act as consumers of last resort thanks to their respective financial systems and in which Germany, China and Japan have very limited imperial reach I truly think that the dynamic has changed.

    He who controls the derivatives controls the universe!

    https://www.youtube.com/watch?v=dcgft-iiZ_s

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  3. We are in the next transition already as qualified labor becomes more expensive globally. The robotic revolution is underway and the US not lagging there. Even China has seen the handwriting on the wall and is robotizing.

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  4. Yes, Hamilton and List are essential in that process. I have in mind really Prebisch and Kaldor. Particularly Kaldor's second law, or Kaldor-Verdoorn's Law, that suggests that it is manufacturing growth that leads to productivity in the economy as a whole. Jane Jacobs too, in The Economy of Cities suggests something similar. And I would disagree Philip, yes finance has been central no doubt, and American hegemony is based on financial/monetary hegemony, but that is possible because of the military/industrial complex. So without military industry no finance. And yes about China and changes Tom. Interestingly, even the growth in China and East Asia, as it is driven by American corporations, to some extent, there is a significant increase in robotization (see NYTimes piece here http://www.nytimes.com/2012/08/19/business/new-wave-of-adept-robots-is-changing-global-industry.html?pagewanted=all&_r=0).

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  5. I do not find the chart intelligible. The y-axis says "Percentage of world total," but world total of what? Sales, value-added, GDP, what?

    China is not producing credible economic statistics in 2012. What quantitative information do we have on China's manufacturing sector in 1750?

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    1. Hi Michel. Total manufacturing. So the graph basically says that we moved from a situation in which most manufactires were produced in Asia, to one dominated by the West, to a partial reversion of Western dominance. And yes data can be imprecise and should be accepted with caution. Yet, the general picture presented in this grpah is fairly uncontroversial.

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