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Sustained growth, not cheap labour, puts Asia ahead of SA, Latin America

José Gabriel Palma

José Gabriel Palma

Photo by Latin American Centre, University of Oxford

21st May 2014

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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The economic success of Asian countries is not due to cheap labour. “It’s not just low wages,” Cambridge University economics professor José Gabriel Palma has affirmed. Although low wages helped start the modern economic development of Asian countries, the key factor was and is lower unit costs – or, in other words, higher productivity.

Furthermore, Asian countries, unlike those of Latin America, or South Africa, have been able to sustain high rates of economic growth for decades. And they have also increased their productivity throughout this period. In contrast, Latin American countries and South Africa have enjoyed periods of high growth, but have not been able to sustain them. “Asian countries are like marathon runners,” he noted. “This is the point: the sustainability of growth.”

Providing the framework for this Asian success has been industrial policy. “Industrial policy is the proper way,” said Palma. “But it takes a long time.” China, South Korea, Taiwan, India, Vietnam and others are today benefitting from decades of hard work. Moreover, erroneous industrial policy can create problems. “Industrial policy, per se, is sometimes not very effective.”

Asia countries have also, in recent decades, invested more in their infrastructure than Latin American countries have. Investment levels in Latin America today are below the levels of 1980, whereas investment levels in Asia today are far higher than they were in Latin America.

Another important factor in the success of most leading Asian economies is that the rich elites created by economic development reinvest the major part of their wealth back into their businesses and the wider productive economy, unlike the elites in Latin America, who tend to reinvest only a minor part of their wealth back into their businesses. South Africa follows the Latin American pattern, not the Asian.

One thing Latin America is good at is creating jobs. Relative to economic growth, Latin America is better at creating jobs than Asia is, but Asia’s great and rapid economic growth means that many jobs are created and unemployment is low. In the case of Latin America, most of these jobs are in the service sector, and many of them are low skilled and low paid. But there is a high demand for such cheap services in Latin America. And a job is a job – it is better to be employed than unemployed.

South Africa, Palma pointed out, falls between Asia and Latin America, but in a bad way. Since 1994, South Africa has increased its productivity more than Latin American countries (although it has not grown its economy faster), but nowhere near as much as Asian countries have. On the other hand, it has created far fewer jobs than Latin American countries have.

Palma was addressing the International Conference on Manufacturing-Led Growth for Employment and Equality, organised by the Trade and Industrial Policy Strategies think tank (better known as TIPS), on Tuesday.

Edited by Creamer Media Reporter

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