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Economy
Friday, June 1, 2007
Will SA fit in?

It used to be that Big Revolutions came one at a time with long intervals between them.
Yet South Africa may be facing multi-track revolutions simultaneously. That makes for much disturbance, but also higher productivity opportunities; more income and wealth creation and the growing ability to spread these gains.
First revolution. Once upon a time we started walking upright; discovered fire; greatly improved our diet; and, discovered the wheel — all the while adapting to changing circumstances.
These initial steps were spread over millions of years and may well have been the greatest of our revolutions.
Agricultural revolution. Modernity and the ability to shape our environment, rather than being shaped by it, came 10 000 years ago with the arrival of agriculture. For a long time this kept us missing in action, accumulating critical cultural mass (and the increased knowledge this makes possible), until three hundred years ago we revolutionised once again, industrially.
Industrial revolution. Industrial productivity gains, driven by compound interest, accelerated stupendously, much more quickly than slow-coach hunter-gathering and agriculture. A modern Chinese peasant making the jump to industry today increases his productivity by 700% overnight.
As a result, within two centuries of the industrial start the next revolution already presented itself, as industrial growth gave increasingly way to services.
Service revolution. And services knew even fewer inhibitions, though benefiting from spreading global economies of scale, and the ever onward march of knowledge and the technologies it made possible. Thus, the timeframe shortened yet again and within less than a century of the services age starting up, the information age burst forth.
Information revolution. This latest revolution has many legs, and we tend to monitor its progress by way of the global computer age, information processing, and its communication (internet).
Yet the true Revolution here is what the new capabilities made possible, just as in the preceding revolutions, namely the shift in the gravity of work.
It used to be that 99% of populations were hunter-gatherers. The 99% then became farmers. Today, agriculture employs only 1.5% of the US workforce.
Industrial activity took off, and even today such activity is still 50% of GDP in Hungary. But in the US, manufacturing now employs less than 12% of the labour force. And it is going the way of agriculture (though not quite the Dodo).
Services are now at the high point of their importance, at least in the US, absorbing 80% of the labour force.
Worldwide, industrial activity as a share of the global labour force will probably peak within decades, as emerging mankind fully mobilises industrially. Within decades service activities will probably also peak, still within this century. Thus the latest revolutions seem to have speeded up, starting earlier each time, but also wrapping up faster.

And the next Revolution?

Its origins are probably already quite dated by now, as was the experience of the earlier revolutions. But really overnight these past few years the latest global revolution appears to have burst on the scene more aggressively, now already displacing a rapidly growing share of rich developed country labour forces.
Offshoring revolution. This New Age doesn’t as yet have a formally accepted name, but Offshoring has been mentioned and may well become in time its recognised handle. Offshoring is an amalgamation of offshore and outsourcing activities.
It is when service activities — previously mainly non-tradable and static —  become tradable through improved technological means that relocation becomes possible and more revolutionary things happen.
As other low-cost regions first took over critical mass in agriculture, and then in manufacturing, now the modern information technologies allow the same thing to happen in services. Increasingly, we are no longer location-bound, except where the requirement of personal contact or the dictates of political realities continue to make it so.
Of late, we find the US economy in this way losing a million jobs annually to foreign destinations, especially India. This process is still only in its beginning phase. Much more will eventually follow.
Alan Blinder has estimated that within a generation something like 30 to 40 million US jobs (20% to 30% of the US current labour force) may become displaced this way, uncorking enormous productivity gains globally as well as achieving suppressed prices in low-cost regions.
It has been estimated that India and China will add over 300 million workers to the global skilled labour pool in coming decades, equal to the labour forces of the United States and Europe combined. Clearly there will be much scope for displacement, in turn laying the foundation of yet another revolution as displaced rich-country workers find new activities to keep themselves occupied.

And South Africa?

Well, some of us are eyeing the land as the ultimate salvation. So those budding agriculturists are still to enter the earliest of modernising revolutions.
The bulk of our population would probably prefer to urbanise and industrialise, using relatively simply labour skills and education levels to get themselves higher up the productivity ladder, just as much of Asia is doing now, and Western countries have done these past two centuries.
But that option may be foreclosed on most of our population by our existing advanced, already mature industrial structure and cost levels.
Relatively few of our population may therefore still be able to make use of the industrial phase of modernisation to advance themselves, as will undoubtedly be the case for the few agriculturalists getting their opportunity.
Instead, the bulk of our population is on the march to get the necessary education to be absorbed into the services revolution. This, though, will necessarily be at the lower end of the revolutionary spectrum due to the challenging nature of our limited mass education effort.
English-speaking South Africa has many of the chances India has, even if some of our labour force is far more costly and somewhat inferior to Indian education skills. But this doesn’t prevent niches from being occupied. Hopes remain for up 100 000 inwardly.
But at the same time in the upper reaches of our services spectrum, as indeed in the case of our agriculture and industrial sectors, we may find ourselves displaced from the outside by lower-cost better-qualified labour forces with lesser hassle factors situated elsewhere. It is the information technologies that make the shift possible.
For the moment, the inward Offshoring may still be more visible than the outward Offshoring, possibly because our companies and businesses have yet to awaken fully to the possibilities being created here. But how long before our full labour spectrum will be under sail, too, as the advantages of Offshoring come fully into view?
And what of the labour so being displaced? Never mind the labour still trying to get on the first step of the agricultural ladder. The second step, the industrial one, is already behind us; and the third step, services, is going the same way. They will instead have to compete much harder with foreign labour forces similarly attempting to modernise and gaining a foothold on any of these revolutionary ladders. They do this by educating diligently, working hard and clever (productively), and offering the minimal of hassle out of fear of being passed over in favour of distant cousins. By Cees Bruggemans is Chief Economist of First National Bank
Footnote: references to Alan Blinder, Offshoring: the Next Industrial Revolution? Foreign Affairs March/April 2006; and Jo Johnson, How India raises an army, Financial Times, 22 May 2007

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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