Opinion The tectonic shift

Not many years ago,the expression Third World was one of despair. The North was holding the South in shackles we were told. Only South-South co-operation could offer a way of hope for the poor of the Third World. The UN had a target,that by 2025,the share of South in manufacturing should be 25 per cent. Now the word South and Third World are obsolete. Asian countries took the lead in the 1970s to ‘emerge’ as rapidly industrialising. These Asian Tigers abandoned the Soviet model and grasped the export led growth path. The State played a large role but did not hinder the private sector but strategically helped it. There was a high rate of savings,willingness to work hard rather than get into distributive battles between Labour and Capital and massive investment in education.

The Asian Tigers taught China and the rest of South East and East Asia. Even India got the message after forty years of a futile pursuit of a socialist economic model. Then came the breakthrough with globalisation. The constraint of lack of investment funds was removed as Western private capital began to move southwards. Even the Asian crisis did not quite stop it. High domestic savings plus foreign investment funds and a willingness to work hard lifted Asian countries from low to a high growth trajectory. Their populations became a strength not weakness as younger generation came on to the labour market.

The WTO helped to liberate trade,and manufacturing moved away from North to South. The developed countries moved to high-tech manufacturing and to financial and IT services. They began to lose the demographic advantage they had after the Baby Boom of the 1950s. Sustained prosperity was translated into a generous welfare state. But the Great Recession showed that the roots of the prosperity were fragile. The developed countries are losing their edge in export markets; welfare states have made large scale unemployment tolerable but also irreversible. There is a lot of human capital being wasted since the welfare state cannot be reformed to make work pay for the unskilled and the semi-skilled. This is why,there is a massive budgetary crunch across the developed countries.

Ratan Tata was prescient when he complained the other day that British managers have lost the habit of hard work while Indian managers are keen to finish the job at hand whatever the schedule. Britain used to be like India,but now the shoe is on the other foot. Everywhere the savings rate is low and work practices are lax. These are partly the fruits of sustained prosperity. A rich country may choose to take its dividend in terms of less work and more leisure. There are many attempts to calculate new measures of income and well-being which take happiness and community solidarity,low hours of work etc as positive things. This in itself may be laudable but is also a sign that income growth is no longer possible as it used to be.

Ratan Tata’s ancestor was told by a British engineer that an Indian could not build a steel mill. He now tells the Brits that they can’t build much of anything.