Economic value of industrialisation

Admittedly, an industrial economy is vital for creating a large number of better-paying jobs. The success of the industrial economy is the underlying factor of the rise of major economies like Japan, Germany, the UK, and the USA. Hence, other nations have been after it. No wonder, Bangladesh has been developing 39 high-tech and software technology parks and numerous special economic zones. But how does industrialisation create economic value and better-paying jobs? What is the purpose of developing an industrial economy? Does the purpose vary across the nations? Furthermore, do all purposes equally pay off for every nation?
An industrial economy creates economic value by extracting and transforming natural resources so that those can play an improved role in helping customers to get their jobs done better. For example, silicon-bearing sand has a limited utility role in its raw form. But transforming it into silicon chips increases its economic value creation ability by a factor of 1,000 or more. To shed light on pertinent questions, let's look into how industrialisation creates economic value. There have been three broad windows of creating economic value through industrial development.
Creating market for natural resources and labor: Right after independence in 1947, India pursued an industrial economy to transfer low-cost labour and locally available natural resources into economic value. Hence, India pursued an import substitution strategy. The focus was to make copies of imported products by operating imported capital machinery. Like India, many less developed countries such as Bangladesh have followed this strategy. But as the purpose of the industrial economy in transferring labour and natural resources into economic value does not focus on advancing the products, underlying technologies, and production processes, such a purpose of benefiting from the particular type of economy has been failing to create a sustainable wealth creation base. Thus, like India and Bangladesh, many other countries could not develop a robust industrial economy by focusing on labour and natural resources.
In the context of import substitution strategy's failure to create a labour market, the opportunity of offering labour to multinational companies by manufacturing their products arrived in the latter part of the 20th century. This opportunity gave birth to export-oriented manufacturing for developing the industrial economy. But the purpose remained the same --- creating a market for labour. Despite initial success in creating jobs for the unemployed low-skilled workforce, such a model is neither sustainable nor scalable --- let alone creating high-paying jobs. On the one hand, technology has been progressing in reducing the role of labour in manufacturing. Due to better infrastructure and higher incentives in other countries, low-cost labour still enjoys demand there encouraging migration but rendering source countries' economic progress transient.
Making a few people rich at the cost of mass population: Due to the growth of the import of industrial products, special interest groups in less developed countries pursue import substitution. But unfortunately, the low-cost labour advantage is not good enough to profit from assembling imported components. Hence, they seek tax differentials, preferential loans and cash incentives. As local value addition in assembling most finished products like mobile phone handsets is less than 5.0 per cent, such incentives are the only option for profiting from import substitution. For example, mobile handset assemblers in Bangladesh enjoy more than 40 per cent tax differentials.
Thus the more than 90 per cent locally produced handsets is all about allowing the assemblers to profit from incentives instead of creating economic value. Due to decreasing role of labour, such purpose keeps increasing the incentive. As a result, the goal of building an industrial economy makes a few people rich at the cost of the mass population. Such a purpose shows the initial success of locally made tag but it fails to scale up economic value creation capability. Most less developed countries have this purpose. Consequently, besides the failure to develop an industrial economy in driving broad-based economic growth, the approach has been increasing the gap between the rich and the poor. This explains the rise of billionaires in less developed countries without the success of the development of a globally competitive industrial base. Hence, rising inequality (Gini index) in less developed countries is of no surprise.
Creating market of knowledge and ideas: Upon making initial advancement in economic status, primarily through remittance income and export-oriented labor-centric manufacturing, less developed countries like Bangladesh, India have envisioned to be high-income countries. But how to attain that status is an important question. Two popular prescriptions have been around. The first is to increase investment in education and the next is to incentivise high-tech firms. A common argument is that there is a positive correlation between higher education and R&D and economic growth in advanced economies. Besides, there have been high-density high-tech firms in those economies. But how to transfer the knowledge and ideas created through education and R&D investment into an economic value is mostly absent in the discourse of developing industrial economies in less developed countries. Thus staggering growth in graduate production has become a significant cause of unemployment.
The industrial economy's strength lies in transferring knowledge and ideas into economic value. They have focused on improving products and processes by continually producing knowledge and ideas. Their purpose in developing an industrial economy has been to create a market of knowledge and ideas. Unfortunately, without having adequate understanding and focus on this vital issue, less developed countries have been pursuing higher education, university ranking, publications, and patents. Unless they address this key issue, neither will they succeed in creating a sustainable, solid industrial base, nor will they create high-paying jobs for their growing number of graduates.
True, the industrial economy underpins economic development. But the implication depends on the purpose. The focus on creating a market for low-cost labour and natural resources has a limited scope for helping nations to prosper. Then the industrial economy, out of import substitution, has been suffering from the erosion of value addition. Unfortunately, in many less developed countries, the purpose of the industrial economy through incentive-driven replication has a natural tendency to make a few people rich. How to engage local graduates to produce knowledge and ideas and transfer those into economic value through the industrial economy is overlooked or misunderstood. It is time for the less developed countries to take a fresh look and leverage the industrial economy on way to scaling up higher development parameters.

zaman.rokon.bd@gmail.com