EMERGING COUNTRIES AND THE END OF LOW WAGES’ COMPETITIVE ADVANTAGE

As Paul Krugman put it some days ago, maybe the solutions are inside old books. I’ve been wondering myself for a long time what will happen when low wages’ competitive advantage disappears of all countries. Well, here goes a likely answer:

“The selection process goes on. Today’s search for cheap labor has moved jobs from rich countries to poor, or more precisely, to some poor countries. Happiness to some, deprivation to others. This mix of good news and bad is what economic change is all about. Economists and moralists applaud such transfers as rational, reflecting comparative advantage, hence reasonable and desirable (…) [But] today’s comparative advantage, we have seen, may not be tomorrow’s (…) The present tendency to global industrial diffusion will entail, for the richer countries, a leveling down of wages, increased inequality of incomes, and/or high levels of (transitional?) unemployment. Many, if not most, economists will disagree. They rely here on the sacred certainty of gains from trade for all. International competition, they tell us, is a positive-sum game: everyone benefits”

The Wealth and Poverty of Nations by David S. Landes.

It’s just astonishing how right was David Landes as far as 1999. You simply need to look around to figure out that he doesn’t forget anything. So, what’s going to happen? I guess almost all industrial plants and factories will be moved toward countries like India, Thailand, etc… And when these countries are no longer able to compete with low wages, we will observe a relocation process to Africa (engineering will play an important role because most of machines will need to be adapted to unsual climate conditions).

But what will happen then, when Africa not enjoy a competitive advantage based on low wages? Reasonably, new competitive advantages will emerge, if they’re not showing up yet. And the ones who get a better quality-output or get it using more efficient ways, will benefit from more investment, higher wages and, consequently, prosperity. Needless to say, we’re talking about a time that has not come yet (it can take even a century). Nevertheless, the key will be, as in the world we inhabit today, to keep up, innovate and do things better than most of people.


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