The handbook for economic growth in developing countries has traditionally involved moving subsistence farmers into manufacturing jobs and selling goods internationally. This recipe, utilized by countries like Hong Kong, Singapore, South Korea, Taiwan, and China, has been successful in lifting millions out of poverty and improving standards of living. However, as technology advances and supply chains shift, doubts are arising about the future efficacy of this model. With manufacturing representing a smaller share of global output and increased competition from emerging countries, the benefits of industrialization may not be as pronounced as they once were.
Bangladesh, a country that found success through transitioning farmers into textile workers, is now facing challenges as automation replaces manual labor. The shift towards automated technology means that many low-skilled workers are at risk of losing their jobs and lack the necessary training for new roles. Global events, such as the Covid-19 pandemic and geopolitical tensions, have further accelerated the transition away from traditional manufacturing models. With rising inflation, debt levels, and shifting supply chains, developing countries are facing economic uncertainties.
One alternative to traditional industrialization lies in service jobs, as seen in cities like Bengaluru, India. Global capability centers and high-tech industries have attracted multinational companies and generated thousands of jobs. The service sector, which now accounts for two-thirds of the world’s output, offers a diverse range of opportunities from low-skilled roles to highly specialized professions. This shift towards service-oriented growth challenges the traditional development model of moving from farming to manufacturing to offices.
While many developing countries continue to focus on building export-oriented industries, there is a growing recognition that free markets alone may not be sufficient for sustainable growth. Industrial policy, which was once taboo, is being reconsidered as a means to support the private sector in overcoming market failures. Countries like China and South Korea have successfully implemented industrial policies that have fueled economic growth. Education also plays a crucial role in determining the success of both manufacturing and service sectors, as many service jobs require advanced skills and training.
The challenge for developing countries is to generate broad-based, large-scale, and sustainable growth, regardless of the sector. While service jobs are on the rise, many high-income opportunities require advanced skills that are lacking in developing nations. The Future of Jobs report highlights the need for widespread retraining, but access to such opportunities remains limited. As the global economy weakens, developing countries must leverage growth from all sectors of their economy, with a particular focus on smaller service firms and households. This more diverse approach to growth may result in modest gains that require significant effort to achieve.
