According to strategic thinkers, including Michael Porter of Harvard Business School, the development of a country progresses through three primary stages: 1. Factor driven, 2. Investment driven, and 3. Innovation driven. At the factor driven stage, endowment of natural resources and low-cost labour are converted into economic outputs. Many natural resource rich countries like Saudi Arabia succeeded in increasing per capita income to a very high-level by bringing raw materials to the global market. But such growth model was not applicable for resource-starved countries like Bangladesh. On the other hand, Bangladesh and many other least developed countries were blessed with low-cost surplus labour force. Emergence of globalisation opened the opportunity to transfer such labour into revenue, either by sending workers outside the country, or by hosting export oriented labour-intensive manufacturing plants. Such low-cost labour commercialisation was an attractive opportunity for many poor countries to enter into industrial economy for creating jobs and increasing income level. Moreover, such model also offered the opportunity to acquire skill through on-the-job learning to support shift towards higher value added segments to manufacture more complex products-to keep increasing the income level. But, such labour commercialisation driven model is facing a serious hurdle: technology.
The progression of Robotics and automation is making technology a cheaper substitute to even the least costly labour of many developing countries. As a result, the development pathway moving from factor driven to other two stages seems to have broken. How to address this discontinuity in the development ladder appears to be a critical issue for development planners.
The situation gets worse with the fact that global manufacturing jobs are shrinking. Despite the expansion of outputs, jobs are shrinking due to the fact that robotics and automation are taking them away. As a result, every country is now seriously taking the advantage from technology to protect jobs-virtually eroding manufacturing job migration. For example, to deal with the rising labour cost in China, a Chinese textile manufacturer prefers latest factory complex--costing $2.4 billion facility-with a collection of rows of huge cotton spools, more than a million bright red and blue spindles, and almost no people as a cheaper option than having highly labour intensive operation in Bangladesh or Cambodia. To deal with rising labor cost, instead of opening well-staffed factories in these countries, Chinese companies that need to expand are building robot-heavy facilities at home. As a result, China has been now pursuing robot driven industrial revolution, which the world has never seen before. Since 2013, China's industrial robot purchase has been accelerating, surpassing the consumption of any other country, including high-tech manufacturing giants such as Germany, Japan and South Korea-amounting to purchasing of 66,000 of the 240,000 industrial robots sold globally last year (2016).
Historically, low wage countries had labour as cheaper option than technology to produce outputs. As a result, these countries capitalised low-cost labour commercialisation to start increasing income level. For example, Bangladesh pursued this strategy to increase income level by trading low-cost labour, either as manual value addition to readymade garments outputs, or by exporting unskilled labour force. Upon having wealth accumulation through labor trade, the next growth option could have been through investment in infrastructure and education. But, due to diminishing demand of labour, such development pathway is facing the threat of discontinuity. As a result, many developing countries, including Bangladesh, are running the risk of being caught in low-income trap. For example, low-cost manufacturing of clothes, shoes and similar products was the first rung on the economic ladder that Japan, South Korea, China, and other countries used to climb to get out of poverty after World War II. Once the economies of the early movers shifted into more sophisticated industries such as electronics, poorer countries took their place in textiles.
Such migration was also manageable, as it was demanding gradual capability up-gradation to produce increasing complex products. For decades, such process was functioning, opening the opportunity to one after another country to move their low-cost labour to higher paying labour-intensive manufacturing jobs. But, the technology progression, particularly robotics and automation, is encouraging countries like China to go for robot-heavy facilities at home to deal with growing wages, instead of exiting labour intensive manufacturing segments, or relocating them in less developed countries.
The window of job migration from one country to another due to rising labour cost looks like closing fast. According to the estimation of the International Labour Organisation (ILO), mass replacement of less-skilled workers by robots could be only two years away. As a result, overall, more than 80 per cent of garment industry workers in Southeast Asia face a high risk of losing their jobs to automation-as stated by an ILO researcher who studies advanced manufacturing.
As manufacturing job migration is coming to an end, how will countries like Bangladesh or Cambodia move to high wage jobs in performing more complex manufacturing tasks? Moreover, higher-level automation is also posing to take back manufacturing jobs from developing countries in the close proximity of western retailers, known as reshoring. As it has been stated in a recent article in Bloomberg Business Week, "Remove most of the workers from the equation, along with the costs and delays of round-the-world shipping, and making clothes or shoes in Dallas or Düsseldorf instead of Dhaka starts to look like a compelling idea."
As a result, there is a strong possibility that many of the countries are going to get stuck at the factor driven stage. There is no denial that in a business-as-usual situation this is going to be an unpleasant reality. The window of opportunity of migrating upward in manufacturing complex products for growing income level is closing in on emerging nations. It appears that they will not have the opportunity that countries like Hong Kong, Singapore or China enjoyed. The vital intermediary steps in the conventional ladder of industrial economy are running the risk of rapidly disappearing. Under the given situation, what are the options newly emerging countries have to keep creating higher-paying jobs, so that income level keeps going up to meet development aspiration?
It appears that the conventional business model of savings from factor driven stage to finance investment driven growth is losing momentum. The growth of technology as cheaper option than labour of even least developing countries is simply reducing the migration of higher value added manufacturing job to lower income countries. As a result, the progression towards higher value added segments to keep increasing income level is coming to an end. Moreover, the existing industrial jobs are also under threat of technology. The challenge is to protect existing jobs and create higher paying ones. One of the options is to engage growing number of university graduates to innovate solutions for increasing quality and reducing the cost of whatever the products these countries are producing. Such strategy will create higher paying innovation jobs for university graduates, and will also protect existing manufacturing jobs. If such innovation progresses in an incremental manner, already employed workers can gradually upgrade their skill level to remain in the workforce. In the absence of such strategic realignment, the massive investment in physical infrastructure to scale up the success of recent past of creating manufacturing jobs, particularly in making shoes or shirts for export, run the risk of failing to produce expected result.
M Rokonuzzaman Ph.D is academic, researcher and activist on technology, innovation and policy.
