The article is first appeared in The Economic Times on Nov 20, 2024.
Donald Trump and Narendra Modi both aim to revitalize their nations by heavily subsidizing and investing in manufacturing to create desirable jobs. However, historical trends suggest differing outcomes. Trump’s efforts to restore manufacturing jobs in the U.S. face formidable challenges, while Modi’s potential for success in India may remain unfulfilled due to systemic issues.
In high-income countries like the U.S., manufacturing jobs have declined steadily over decades. While many Americans lament the offshoring of these jobs to countries like China, which leveraged manufacturing to fuel its historic growth, Robert Z. Lawrence, a former member of Bill Clinton’s Council of Economic Advisors, argues this trend is irreversible. In his book, Behind the Curve: Can Manufacturing Still Provide Inclusive Growth?, Lawrence explains that deep-rooted factors such as technological advancements, shifting consumer preferences, and global trade have permanently reduced manufacturing’s role as a source of inclusive growth.
Historically, the industrial sector spurred economic opportunity. However, reviving manufacturing jobs in developed nations today could hinder inclusive growth rather than promote it. Lawrence emphasizes the need for innovative policies to help individuals and communities adapt to inevitable changes in job composition.
Global economic history illustrates these patterns. In 1810, agriculture accounted for 81% of U.S. jobs, while manufacturing and services represented just 3% and 16%, respectively. By 1950, manufacturing peaked at 24% of employment but fell to 8% by 2020, with services dominating at 91%. Mechanization has been a significant driver of this shift, eliminating jobs in agriculture and industry while boosting productivity. For instance, modern farming allows one family to cultivate 200 acres using machinery without additional labor.
While Trump seeks to reverse these trends through protectionist measures, including tariffs on steel, aluminum, and other industries, economists like Gary Hufbauer note these policies have historically led to net job losses rather than gains. Protectionism in the name of national security ultimately slows economic growth and discourages competitiveness.
India, meanwhile, has 43% of its population in agriculture, suggesting significant potential for job growth in industry and services. Yet, despite a decade under Modi, promised manufacturing job growth has not materialized. Initiatives like the PLI scheme have seen limited success, with Apple creating 150,000 jobs—a drop in the ocean for a nation with 12 million new workers annually. Structural issues, including high labor costs, excessive holidays, and complex regulations, deter large-scale job creation.
While political resistance makes significant reforms unlikely, India has seen booming growth in services, particularly in IT and e-commerce. This sectoral shift may shape the nation’s economic trajectory in the coming years.
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Reference: The Economic Times