Don't be mesmerised by manufacturing, warns Harvard expert

1st March 2018 By: Kim Cloete - Creamer Media Correspondent

Most jobs in the South African economy are likely to be created in the services sector, in line with global trends away from manufacturing, says Harvard University Kennedy School of Government Trade and Investment Professor Robert Lawrence.

“Don't be mesmerised by manufacturing and industrialisation and realise that the economy is hugely diverse. Tomorrow’s economy and wealth will be generated across a wide spectrum of activities that we do not consider industrial,” he told a seminar hosted by Wesgro and the Centre for Development and Enterprise, in Cape Town. 

He said manufactured goods are becoming cheaper per capita in many countries, including in South Africa.

“Even though prices of manufactured goods have been falling, South Africans have responded with rather flat demand.

“You have to take the demand side into account when planning your industrialisation strategies,” he cautioned.

He told the seminar on ‘Manufacturing and the Fourth Industrial Revolution’ that, while manufactured goods were becoming cheaper, consumers often chose to put their money into services instead.

While it costs less and needs fewer workers to produce a motorbike, for instance, consumers don’t plough the amount they may have saved back into buying more manufactured goods. Instead they use it for spending on services, suggested Lawrence. “That phenomenon is being repeated in all emerging economies.” 

Studies have shown that productivity has slowed down throughout all industrial economies. Many developed countries hit their industrialisation peak decades ago.

South Africa peaked in 1981 with 17% of its workers in manufacturing. Brazil peaked in 1986, with 15.4% of workers in manufacturing, while China peaked at 19.2%.

Lawrence said it was important for South African exports to be internationally competitive, but the process needs to be done wisely and efficiently. Adding value to a product and beneficiation was not necessarily the way to go.  

“If you have copper ore, you are vulnerable to commodity prices, and if you beneficiate by becoming a copper refiner, you will become even more vulnerable to copper prices."

Lawrence said the concept of manufacturing was changing all the time.

“The goods we buy today embody a huge amount of services.”

Plenty of information technology, for instance, was going into manufactured goods such as cars. 

“We are living in a confusing period, with a battle being played out between the ‘techno-optimists’ and the ‘techno-pessimists’. One group of people – the techno-optimists – tell us that we are living through the Fourth Industrial Revolution, with technological change never being as rapid, whereas serious scholars tell us we are living in an era of secular stagnation.”

Some leading academics say that today’s innovations cannot compete with early innovations, such as clean water, electricity or automobiles. 

“Evidence in terms of productivity data shows that production growth has slowed down in the last decade throughout all industrial economies. Measured productivity growth in US manufacturing has slumped since 2010. We do not see any compelling evidence that we are going through an industrial revolution.”

However, he added that there was an argument is that it is still too soon to tell, as investment spend on robots for instance is still small.