Perfect article for trade and development

 

Africa’s jobs dilemma

project-syndicate.org

AFRICA’S MANUFACTURING SECTOR IS NOT CREATING ENOUGH GOOD JOBS

Economic development is a result of creating more productive jobs for an ever-increasing share of the workforce, says Dani Rodrik. In the past that has meant industrialisation. Many low-income countries in Africa and elsewhere still hope to walk this well-trodden path out of poverty. “Industrialisation and integration into global value chains are viewed as essential for achieving rapid economic growth… and creating a large number of jobs for Africa’s young population.” 

There is, however, a problem. Even where “industrialisation is putting down deep roots”, few good jobs are being created. Ethiopia, for example, has built an export-oriented sector manufacturing clothes and shoes. Tanzania has a manufacturing base that serves domestic and regional markets. But the bulk of the increase in jobs is coming rather from small, informal enterprises. New research shows that in both Ethiopia and Tanzania larger firms are seeing big gains in productivity, but do not expand employment much, while small firms are absorbing labour but not seeing much in the way of productivity growth. 

SMALL IS BEAUTIFUL

One feature of the larger manufacturing firms that may help account for this is that they are “excessively capital-intensive”. In low-income countries such as Ethiopia and Tanzania, workers are plentiful and capital (machinery and equipment) is scarce and hence expensive. You might think, then, that firms would be biased more toward labour-intensive techniques. We find the opposite. Why? Perhaps because the firms do not have much choice. Manufacturing technologies have become “progressively more capital- and skill-intensive over time” and technologies used in global value chains “appear to be particularly biased against unskilled labour”. 

This leaves African economies “in a bind”. Their manufacturing firms can either become more productive and competitive, or they can generate more jobs. “Doing both at the same time seems very difficult, if not impossible.” 

This dilemma is reminiscent of an old concern. Authors such as E. F.  Schumacher, author of Small is Beautiful, worried in the 1970s that Western technologies favoured large-scale, capital-intensive plants ill-suited to conditions in poorer countries. Developments consigned Schumacher to the sidelines, but we may need to consider his ideas again and begin “a public debate about the direction of technological change” and the tools states have to “reorient it”.