How to get rich in the 21st century

Weekly Business Insights from Top Ten Business Magazines | Week 329

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 329 | December 29. 2023-January 4, 2024

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How to get rich in the 21st century

The Economist | January 2, 2024

Extractive Summary of the Article | Listen

By 2050 there will be a new crop of economic powers—if things go to plan. Narendra Modi, India’s prime minister, wants his country’s GDP per person to surpass the World Bank’s high-income threshold three years before then. Indonesia’s leaders reckon that they have until the mid-century mark (when an aging population will start to drag on growth) to catch up with rich countries. 2050 is also the scheduled finale for Muhammad Bin Salman’s reforms. Saudi Arabia’s crown prince wants to transform his country from an oil producer into a diversified economy. Other smaller countries, including Chile, Ethiopia and Malaysia, have schemes of their own.

These vary widely, but all have something in common: breathtaking ambition. Very few countries have maintained the required growth for five years, let alone for thirty.  Nor is there an obvious recipe for runaway growth. To boost prosperity, economists typically prescribe liberalising reforms of the sort that have been advanced by the imf and the World Bank since the 1980s under the label of the “Washington Consensus”. Among the most widely adopted are sober fiscal policies and steady exchange rates.  Yet these proposals are ultimately concerned with removing barriers to growth, rather than supercharging it. 

The aim is to achieve the sort of meteoric growth that East Asian countries managed in the 1970s and 1980s. As globalisation spread, they made the most of large, cheap and low-skilled workforces, cornering markets in cars (Japan), electronics (South Korea) and pharmaceuticals (Singapore). Industries were built behind protectionist walls, which restricted imports, then thrived when trade with the rest of the world was encouraged. Foreign firms later brought the know-how and capital required to churn out more complex and profitable goods, increasing productivity.

Little surprise, then, that leaders across the developing world remain enthusiastic about manufacturing. There is a snag, however. Industrialisation is even harder to induce than it was 40 or 50 years ago. Technological advances mean that fewer workers than ever are needed to produce, say, a pair of socks.  Across the world, industry now runs on skill and capital, which rich countries have in abundance, and less on labour, meaning that a large, cheap workforce no longer offers much of a route to economic development. Mr Modi and others therefore have a new game plan: they want to leap ahead to cutting-edge manufacturing. Why bother stitching socks when you can etch semiconductors?

The danger is that, in seeking to attract high-tech manufacturing, countries end up repeating past disasters. From 1960 to 1991 manufacturing’s share of Indian GDP doubled. But when protective barriers were removed in the 1990s, nothing was cheap enough to export to the rest of the world.

These drawbacks to both basic manufacturing and attempts to leap ahead are helping convince some countries to try another approach: attracting industries that use their natural resources, especially the metals and minerals powering the green transition.  Governments in Latin America are keen. So are the Democratic Republic of Congo and Zimbabwe. But it is Indonesia that is leading the way, and doing so with striking heavy-handedness.  Fossil fuels have made parts of the Gulf rich, but almost every industry in the world constantly guzzles oil. There is no guarantee that the bonanza from green metals will be as large. 

Meanwhile, fossil-fuel beneficiaries are trying another strategy altogether: to reinvent the entrepot. The Gulf wants to be where the world does business, welcoming trade from all corners of the globe and providing shelter from geopolitical tensions, particularly between America and China.

A few countries will make it to high-income status. Perhaps the UAE’s spending on AI will pay off. Perhaps new tech will make the world more dependent on nickel, to Indonesia’s advantage. India’s population is too young for growth to stagnate entirely. But the three strategies employed by countries looking to get rich—leaping to high-tech manufacturing, exploiting the green transition and reinventing the entrepot—all represent gambles and expensive ones at that. 

Even at this early stage, a few lessons can be drawn.  The first is that the state is now much more active in economic development than at any point in recent decades.  The second is that the stakes are high. Most countries have sunk enormous sums into their chosen path. The third is that the way countries grow is changing. All this means that the race to get rich in the 21st century will be more gruelling than the one in the 20th century.

3 key takeaways from the article

1. By 2050 there will be a new crop of economic powers—if things go to plan.  But there is no one obvious recipe for runaway growth. To boost prosperity, economists typically prescribe liberalizing reforms..  Yet these proposals are ultimately concerned with removing barriers to growth, rather than supercharging it.
2. Three strategies employed by countries looking to get rich—leaping to high-tech manufacturing, exploiting the green transition and reinventing the entrepot.  All these strategies represent gambles and expensive ones at that.
3. Even at this early stage, a few lessons can be drawn.  The first is that the state is now much more active in economic development than at any point in recent decades.  The second is that the stakes are high. Most countries have sunk enormous sums into their chosen path. The third is that the way countries grow is changing.  All this means that the race to get rich in the 21st century will be more grueling than the one in the 20th century.

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Topics:  Economic Development, Growth, Poverty