As inequalities (income, gender, location, age) are on the rise in all countries – low and middle income, as well as developed – structural transformation is ongoing in the global economy from agriculture to industry and services, but also, in terms of employment: rural to urban, low to high productivity, informal to formal.
South-south trade doubled in the past decade from 12 per cent in late 1990’s to 23 per cent in 2010. Most of this growth has been driven by the Asia Pacific region (84 per cent), 10 per cent by Latin America and only 6 per cent by Africa. The composition of exports also differs and is diverging further: Asia exports mostly manufactured goods, Latin America has a good share of manufacturing, but also other exports, and Africa mainly exports unprocessed natural resources. Thus, economies are increasingly “specialized” in different exports.
Light manufacturing breaking into global value chains: still an option?
While there is still a possibility in low technology industries, such as garments, it is very difficult in advanced industries, such as electronics, as the minimum level of needed skills and infrastructure to develop industries has increased. In addition, the recent global crisis has shown that countries could adopt different positions towards protectionism, which makes it more difficult for them to break into global trade. However, global transport costs and trade barriers allow production of goods in specific components and niche markets. There is a revival in interest in industrial policies, whether using the World Bank structural change approach or ILO STED methodology.
Countries are increasingly learning from each other’s experiences and use specific approaches to globalization challenges, given that no “one size fits all”.
Strategies used depend on countries’ needs: in large emerging economies, emphasis should be made on rising domestic demand and addressing inequality, implement programmes to promote competitiveness, investment and innovation policy. Low income countries, lacking domestic demand, will continue to need relying on export-led growth, agriculture playing a major role. Industrialization remains an important element for resource rich countries as it brings productive capacities and employment.
Integrating value chains and migration into the new development framework
Globalization requires economic upgrading and presents serious challenges in terms of social issues, as it involves not only movement of goods and services, but most importantly, movement of people. Economic upgrading, although a necessary condition in a highly competitive world, it is not a sufficient one to produce the much needed number of decent jobs. Social downgrading remains a real threat even when the economy is booming. It is therefore essential in this context to build inclusive labour markets.
Growth by itself IS transformational and creates structural shifts. One key factor is the inherent employment elasticity which varies for services, industry and agriculture. Productivity is another crucial factor to consider, especially in developing countries where growth is driven by technological effect and importing capital with diminishing absorption of abundant unskilled labour.
In developing countries, facing already pre-crisis decent work deficits, increasing labour productivity lies at the heart of the decent work and overall development objectives. The challenges of poverty and unemployment are best addressed through broad economic transformation, by enhancing productive capacity, promoting the quality of jobs, changing the composition of outputs and facilitating poverty reduction.
Throughout 2015 and beyond, development policies should also focus on transformation of the agricultural and SME sectors. This requires investing in capabilities of farms and rural non-farm enterprises and enabling access to credit lines, business premises and skilled.