Dani Rodrik: The Perils of Premature Deindustrialization:
Most of today’s advanced economies became what they are by traveling the well-worn path of industrialization…. Peasants became factory workers, a process that underpinned not only an unprecedented rise in economic productivity, but also a wholesale revolution in social and political organization. The labor movement led to mass politics, and ultimately to political democracy. Over time, manufacturing ceded its place to services…. Only a few developing countries, typically in East Asia, have been able to emulate this pattern…. Consider Brazil and India…. In Brazil, manufacturing’s share of employment barely budged from 1950 to 1980, rising from 12% to 15%. Since the late 1980’s, Brazil has begun to deindustrialize…. India presents an even more striking case: Manufacturing employment there peaked at a meager 13% in 2002, and has since trended down….
The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence…. Manufacturing industries are what I have called “escalator industries”…. That is why rapid growth historically has always been associated with industrialization (except for a handful of small countries with large natural-resource endowments)…. The social and political consequences are less fathomable, but could be equally momentous. Some of the building blocks of durable democracy have been byproducts of sustained industrialization: an organized labor movement, disciplined political parties, and political competition organized around a right-left axis…. Given premature deindustrialization, today’s developing countries will have to travel different, as yet unknown, and possibly bumpier paths to democracy and good governance.