Polish Perspective points us to a recent FT article: Window for poor countries to industrialise ‘closing fast’
1. Services trade is increasing much faster than goods trade(60% faster over the last decade, to be exact), and developed countries have a structural advantage in services trade. Moreover, this advantage has increased over the last decade. The few poor countries that do well in services tend to do so in more easily automated services (call centers), so their future prospects are shakier than for high-value added services, which they don’t well in.
2. Labour arbitrage is falling in importance for labour intensive manufacturing. It is now at levels not seen since the 1990s. This is bad news for poor countries given that manufacturing has been the traditional path to wealth unless A) you’re tiny and oil rich or B) you’re a tax-haven or C) you’re a city-state. But those are outliers.
3. Value-chains are increasingly becoming more knowledge-intensive. The figure is that spending on R&D, software development, IP etc has gone from 5.4 percent of revenue in 2000 to 13.1 percent in 2016. This is self-evidently not a strong suit of poor countries, else they wouldn’t be poor.
4. Trade regionalism is growing, led by Asia and Europe. If you’re outside of these tightly regional supply chains, then your scope to sell to the rich in order to get rich yourself is becoming harder.
As PP points out, while many of these factors might apply, the Occam Razor explanation that these people studiously avoid is that the remaining developing countries do not have the human capital – or the national IQ needed to generate that human capital – to ever converge.
This is Our Biorealistic Future, which continues to steadily come to fruition.
While it is true that globalization has maximized the potential for rapid convergence, provided that countries open up and try to adopt institutional best practices (i.e. which is now easier than ever), the key caveat is that this convergence doesn’t happen relative to developed country levels, but relative to the maximum level made possible by their national IQ. Though this is still a pretty good deal for the Third World, as poor institutions and restrictions on international capital movement on top of atrocious human capital have long prevented them from realizing even their limited potential.
What I would, however, additionally note is that countervailing technological trends may well widen the “natural” or institutions-adjusted gap between high IQ and low IQ nations.
1. It is well known that smart fractions contribute disproportionately to the wealth and poverty of nations even today, and this may be even more true tomorrow. More knowledge-intensive value chains and lower labor arbitrage means a continuing shift to the O-Ring sector (characterized by multiple, complex operations) of the economy, and “smart fractions” becoming ever more important. Due to the basic mathematics of the bell curve, the “smart fractions” advantage that smarter nations enjoy becomes more and more preponderant as you go up the IQ scale.
2. There will be steadily more automation, which will put an even greater premium on “smart fractions.”
3. Any further intensification of globalization – should it hold – will allow both capital and high IQ labor to migrate to countries with optimal legal and regulatory environments with ever greater ease; environments that are in turn produced by an informed, high IQ citizenry. While most of Latin America and Asia has dropped dead ends such as import substitution, they are not going to become Switzerland or Singapore even with the best intentions in the world. Indeed, since manufacturing no longer needs huge labor pools, the day may dawn when it abandons even the less competitive First World nations (e.g. Italy) to low-tax, offshore havens with superb institutions.
4. Any genetic augmentation of IQ will likely first take place in these elite countries and/or jurisdictions, which will lock in their human capital predominance.