Robots may cut off the path to prosperity in the developing world
‘Radical inshoring’ trend means western companies are taking back manufacturing
There is a gloomy view you hear in the developed world that goes something like this: first the factories went overseas, now the robots are coming for the jobs that are left. In other words, automation will sweep up the crumbs that globalisation left behind.
Take Adidas. When Herbert Hainer, chief executive, joined the German sportswear company in 1987, factories were beginning to close in Germany and move to China. This month, he announced Adidas would bring some shoe production back to Germany for the first time in three decades thanks to a highly automated factory in Bavaria. “I find it almost uncanny how things have come full circle,” he said.
Ditch the complex global supply chains and you save transport and storage costs. You are less polluting and your customers do not have to worry that your products were made in sweatshops. You are also more nimble and responsive to demand.
Spanish retailer Inditex, owner of the Zara chain of stores, owes much of its success to its “nearshoring” strategy: it can adapt to fluctuating fashions because more than 60 per cent of its clothes are made in Spain, Portugal and other nearby countries such as Morocco and Turkey.
Only wardrobe perennials, such as shirts and chinos, are made in low-cost factories in Asia.
Adidas says it is moving closer to a future in which customers can have shoes made on demand, perhaps even by a robot in the corner of the shop .
“Why should a wealthy nation buy from a poorer exporter when it can automate and produce similar goods at home without incurring high labour costs?” he asked in a recent paper.
Industrialisation was the west's route to riches. There are strong links between manufacturing jobs and the development of a secure middle class. Exporting manufactured goods powers “catch-up growth” and technological convergence with advanced economies, so the theory goes.
But developing countries are displaying signs of what Harvard professor Dani Rodrik calls “premature deindustrialisation”. While manufacturing jobs peaked at about 25 per cent of the US workforce and 40 per cent of Germany's, they already seem to have peaked in Brazil, India and China at less than 15 per cent.
It is not all gloom. Technology may threaten the old development model but it brings cheaper renewable energy, medicines, internet and smartphones to people in poor countries. Prof Cowen foresees a developing world where phones, software, films, drugs and ideas are plentiful but many basic goods are expensive.
Technology can also create opportunities for developing countries to sell to the world. It is already delivering microfinance loans to entrepreneurs and online education to bright young people. And there is still time to find a new path: all those factory jobs making things for domestic and export markets will not disappear overnight. But nor will they be there forever.
Last month a company called Kuka, which makes industrial robots, became the target of a €4.5bn takeover bid. The owner? German. The bidder? Chinese.