Every year, millions of young people enter the labour markets in Asia. Creating sufficient jobs to meet this demand is a huge challenge. What solutions work best needs to be determined in the local context. What this essay aims to do is look into the global opportunity structures for development, and reflect on what changing conditions could mean for the ability to create employment in Asia’s emerging economies.
The global window of opportunity for development is closing
Ever since the Second Industrial Revolution started to peter out in the 1960s, global capitalism has faced a crisis of consumption demand. The decades that followed have been described by Wolfgang Streeck as buying time to address the root cause of the crisis: that consumption demand grows slower than the increase in productivity. The inflation of the 1970s, the public debt of the 1980s, the private debt of the 1990s and the quantitative easing of the 2000s were all strategies to create demand by injecting future resources for consumption at present.[1]
While all of these temporary fixes necessarily led to major crises, they bought the time needed to implement five strategies to “repair capitalism”: 1) the rationalisation of production through technological automation aimed at increasing efficiency; 2) the globalisation of production by offshoring, profiting from cheap labour cost in developing economies; 3) the neoliberal approach to free the supply side from any “political cost,” such as by lowering taxes, cutting back welfare and depressing wages; 4) financialisation as a strategy to sidestep the crisis by looking for profits in the financial markets; and 5) the digital revolution, understood by Philipp Staab as the latest attempt to tackle the consumption crisis by rationalising the consumptive and distributive apparatus.[2]
So far, none of these strategies has succeeded to resolve the consumption crisis. On the contrary, deindustrialisation and automation have contributed to the crisis by creating un- and underemployment in the old industrial countries, leaving fewer people with disposable income for consumption. The series of financial crises has shown the risks of the financialisation strategy. Finally, the promise of digital capitalism to create new consumption demand may equally backfire, when digital disruption automates middle class jobs and further erodes consumption demand.[3]
Which of these global trends will reverse, continue or accelerate?
The technological rationalisation of the production apparatus, propelled by increasing global competition, will certainly continue. Despite the significant contribution of automation to unemployment[4], there has been no widespread political resistance to it. Most of the public anger focuses on globalization and trade. Rising productivity, on the contrary, is celebrated as the only way to survive the breakneck global competition. In the absence of any political pushback, then, digital technologies like 3D printers have the potential to unleash a new wave of productivity increases through automation.
Digital automation is eroding the comparative advantage of cheap labour. This trend is accelerated in those countries that had reached the Lewis turning point, where the reserve army of cheap labour in the agricultural sector has dried up, as well as in ageing societies where the total labour pool is shrinking and wages have started to rise.[5] For instance, in China, hourly wages increased on average by 12% annually over the last decade.[6] Some of this cost has been offset by rising labour productivity.[7] As the competitive advantage of cheap labour cost erodes, however, other factors like product quality, skilled workforce, supply chains and local governance become more prominent. Most importantly, increases in energy efficiently are making their mark. As a result, total costs of manufacture goods in some emerging economies are approaching those of the United States.[8] All things considered, manufacturing in the United States is only 5% more expensive than in China.[9]The tumbling labour cost, together with better energy efficiency, are making manufacturing in the old industrialised countries competitive again.
This cost convergence allows manufacturing industries to be more flexible and react quickly to shifting consumer demands. In the clothing and garment industries, shelf lives are getting increasingly shorter. But the long shipping time is the Achilles heel of these and other fast-moving consumer markets. Consequently, multinational companies like Walmart, Ford and Boeing, as well as small- and medium-size companies, have started to reshore production facilities back to their parent countries. The Reshoring Initiative, a non-profit organisation, estimates that 260,000 jobs have been created in the United States because of this shift.[10]At the same time, the incentives for offshoring have deteriorated. At least in emerging economies with rising wages like China, if not the total numbers, then the composition of foreign direct investment is shifting from manufacturing to financial services. Accordingly, open manufacturing positions in China have been dropping consistently since 2012, indicating that job creation in the manufacturing sector is slowing shrinking.[11] This means we may be seeing the beginning of the reverse of the offshoring trend already.
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