Manufacturing isn’t special because it’s “old economy.”
It’s special because it forces binding constraints.
Energy, logistics, quality standards, export discipline, scale, these can’t be simulated or selectively adopted. They compel coherence across the whole economy.
Many service-led growth stories look impressive, but remain non-binding, they scale until conditions change, then unwind.
That’s why countries don’t skip industrialization.
They can delay it, but they can’t bypass the phase where development is forced to become durable.
This is a pretty interesting comment. Could you please also share what is it about manufacturing that forces binding constraints (and perhaps how) as opposed to services-led growth?
Good question. Manufacturing forces binding constraints because it has to close the loop in the real world. You can’t scale it without energy reliability, logistics discipline, quality control, skilled labor, and export competitiveness all working at once.
Services can grow by arbitrage, wages, regulation, demand without forcing those systems to cohere. Manufacturing doesn’t allow that slack. It converts abstract growth into physical obligations, and those obligations harden institutions.
That’s why services-led growth looks impressive early, but only industrialization forces durability.
Hmmm I think I kind of see the point you're making. I am trying to draw parallels of your description with some of excessive financialization that we see (to get a sense of tangible understanding), in terms of how it can boost your GDP numbers but it will be driven by arbitrage & be more susceptible to speculative activities that does not contribute to the real economy, as opposed to the manufacturing led growth. Would that be somewhat close to your description?
Yes! Another interesting angle… Industrialization rewires how societies think, organize, and behave. It reorganizes society. It forces the creation of management cadres, standardized procedures, accounting systems, time discipline, and operational hierarchies. In doing so, it instills a form of economic rationality — a culture of planning, measurement, and performance — that reshapes behavior far beyond the factory floor.
Our service sector has only created enclaves of First World optics while being surrounded by the Third World outside its immediate boundaries, due to its informal heaviness and lack of manufacturing, as our farmers shift: Farm → informal sector instead of farms → factories.
In spite of having brilliant minds, we lack R&D and lose them to the First World through brain drain, as we do not have a globally competitive manufacturing base.
There is no other shortcut by which a large, highly populous country can become developed without undergoing industrialisation - especially like India, with its high labour surplus and long coastlines as a peninsula. Its strategic geographic location, manpower, and land would all be wasted without rapidly speedrunning industrialisation.
Also, the automation part needs nuance. Firms will always optimise labour costs - if recruiting 10K poor, unskilled labourers is cheaper and workable than purchasing 100 robots, they will do the former.
Especially if some human capital investment is made for AI-augmented labour, then instead of replacing workers, automation will make labour many times more productive, giving firms a multifold advantage over full replacement.
(India has the potential to do this by skilling + scaling with its demographics.)
Valid thesis. I suppose the next logical question would be how to promote the growth and development of domestic manufacturing industries in global periphery states that - as a result of western hegemony and core/state economic relations as perpetuated by monetary policies of IFIs like the World Bank and IMF and other development-oriented intl. organisations - are resigned to this dynamic of supplying the raw materials (at arguably inequitable rates of compensation) to foreign (primarily western) states for processing, production, and eventual commercial profiteering.
This is where some possible dissonance between normative ‘best-practise’ development mandates and empirical analysis of state behaviour may arise
I’d argue the most viable method to bridge the global industrialisation gap would be through
(1) Equitable FDI - the infrastructure for cross-border investing already exists and is a particularly advantageous system (particularly for foreign firms from countries like China or the US that have pioneered the contemporary era of FDI. Equity in this sense would mean specified ownership/partnership structures between foreign firm and host state (*I’m reluctant to suggest governments themselves in light of expropriation history and tensions between political ideologies i.e. democratic vs autocratic states and the risk of expropriation and/or illegitimate seizure/business management practices associated with each) private companies (with impartial boards of directors who have controlling interest)
(1)(a) Perhaps a multilateral coordination mechanism orchestrated through WTO reforms or OECD-style tax frameworks could introduce a mandatory global tax policy incentivising foreign investment firms to contribute reciprocally to host country training and education initiatives directly related to the sector that the firm itself operates in
(2) State investment in education at all levels, with an initial primary focus on retraining/ups killing the current youth workforce in sectoral innovation. This should be funded by intl. development organisations in partnership with local private firms (perhaps with profits from some sort of additional structured corporate tax system with contributions dependant on the company’s net societal, environmental, etc. impact on the local community) over-sought by regional CSOs.
This could also be an opportunity to set up some sort of Erasmus-style education and training programme either with other periphery states that dominate complimentary national industries to exchange skills and foster South-south cooperation and development or it could be ran on a supranational level through AU/ASEAN partnership with the EU. Particular countries of interest would be China, India, South Africa, Germany, Ireland.
The problem of course, with my proposal is the very real implications of decades of IFI policy and intl. organisational ostracisation restricting periphery state governments making from any meaningful steps toward genuine economic self-determinism and independence from core-state economic hegemony. Whether through predatory lending practises, unequally justified and prolonged sanctions or the perpetuation of a system that extracts growth potential from these periphery states through ‘brain drain’ policies or inequitable compensation.
If the goal really is global (core, periphery, and everything in between inclusive) development and post-development (I’m reluctant to say ‘successful’ because that implies a pursuit of ‘more’ when I’d really like to emphasise a level of beneficial economic stability in which we are less beholden to the whims [trends] of ‘the market’) economic homeostasis, then the key holders of core western economic hegemony must be willing to come to the table with an earnestness to relinquish their upper-hand (unlikely) and work towards a just global order.
Akamatsu’s works remain a classic study of diffusion of productive technique. Some conclusions that might be derived for today: capital or unfettered business and market environment are critical to test, identify and iterate latent comparative advantage. Sovereign state capacity the ability to determine a country’s attributes and strategic path to elevate productivity is critical to equip capital, to fulfill the role of anticipating infrastructure to support latent advantage, such as you mention education. Akamatsu stressed that a state can’t diverge too far from the underlying development of new demand and new technique, but it can anticipate the external needs of capital. Competent state bodies can discern helpful vs harmful FDI arrangements for example. As modi campaigned, the first thing India needs is toilets for all, which remains a distant goal.
Strong case—especially on productivity spillovers and the trade dimension. The historical evidence is hard to dispute.
What feels underexplored is the constraint side: today’s global system isn’t the same one early industrializers entered. Supply chains are consolidated, standards are higher, and incumbents (especially China) operate at a scale that makes late entry structurally harder.
So the question isn’t just whether manufacturing matters—it’s what pathways to industrialization are still realistically open.
This is a well thought out and much-needed corrective to the increasingly fashionable “services leapfrog” narrative. The historical record is remarkably consistent: sustained high-income transitions have run through manufacturing because manufacturing uniquely concentrates productivity growth, scale effects, and export discipline in ways services rarely can. The evidence you marshal from UNIDO and the growth episodes literature makes that difficult to dismiss.
Where I’d extend the discussion slightly is not in questioning manufacturing’s centrality, but in clarifying what kind of manufacturing now matters. The classical pathway was labour-intensive industrial absorption. The emerging pathway may be less about sheer factory employment and more about capability accumulation — engineering density, supply chain integration, materials science, process innovation. In other words, manufacturing as a knowledge ecosystem, not just a jobs engine.
That doesn’t weaken your thesis — it strengthens it. If anything, it suggests industrialization is becoming even more foundational, because the countries that control advanced manufacturing architectures increasingly set the terms of global trade, technology diffusion, and even geopolitical leverage.
I wonder how much of a countries ability to grow through industrialization is hindered by the existence of unions and minimum wages. In South Africa we have some of the worst unemployment statistics on the globe and industrialization has always been a discussion to address this. However reading an article like this makes me think that a countries ability to compete in global trade through industrialization would be impacted by the industries ability to reduce costs and scale. The minimum wage policies we have in South Africa hinder us from achieving this.
The flip side of the historical record matters too. Latin America's severe deindustrialization in the 1980s and 1990s coincided with decelerated growth. Africa's premature deindustrialization caused negative growth. Even OECD countries have experienced growth slowdowns alongside deindustrialization. The post industrial economy narrative often describes what happened to countries after they got rich, not a pathway for getting there.
This article is quite interesting! However, it’s worth noting that the World Bank and IMF’s structural adjustment programs often don’t help most developing countries become industrialized. Instead, they tend to keep these countries focused on raw material production, which can hinder economic growth.
Strong piece. One way I’d frame it:
Manufacturing isn’t special because it’s “old economy.”
It’s special because it forces binding constraints.
Energy, logistics, quality standards, export discipline, scale, these can’t be simulated or selectively adopted. They compel coherence across the whole economy.
Many service-led growth stories look impressive, but remain non-binding, they scale until conditions change, then unwind.
That’s why countries don’t skip industrialization.
They can delay it, but they can’t bypass the phase where development is forced to become durable.
This is a pretty interesting comment. Could you please also share what is it about manufacturing that forces binding constraints (and perhaps how) as opposed to services-led growth?
Good question. Manufacturing forces binding constraints because it has to close the loop in the real world. You can’t scale it without energy reliability, logistics discipline, quality control, skilled labor, and export competitiveness all working at once.
Services can grow by arbitrage, wages, regulation, demand without forcing those systems to cohere. Manufacturing doesn’t allow that slack. It converts abstract growth into physical obligations, and those obligations harden institutions.
That’s why services-led growth looks impressive early, but only industrialization forces durability.
Hmmm I think I kind of see the point you're making. I am trying to draw parallels of your description with some of excessive financialization that we see (to get a sense of tangible understanding), in terms of how it can boost your GDP numbers but it will be driven by arbitrage & be more susceptible to speculative activities that does not contribute to the real economy, as opposed to the manufacturing led growth. Would that be somewhat close to your description?
Yes! Another interesting angle… Industrialization rewires how societies think, organize, and behave. It reorganizes society. It forces the creation of management cadres, standardized procedures, accounting systems, time discipline, and operational hierarchies. In doing so, it instills a form of economic rationality — a culture of planning, measurement, and performance — that reshapes behavior far beyond the factory floor.
As an Indian, I find this highly applicable.
Our service sector has only created enclaves of First World optics while being surrounded by the Third World outside its immediate boundaries, due to its informal heaviness and lack of manufacturing, as our farmers shift: Farm → informal sector instead of farms → factories.
In spite of having brilliant minds, we lack R&D and lose them to the First World through brain drain, as we do not have a globally competitive manufacturing base.
There is no other shortcut by which a large, highly populous country can become developed without undergoing industrialisation - especially like India, with its high labour surplus and long coastlines as a peninsula. Its strategic geographic location, manpower, and land would all be wasted without rapidly speedrunning industrialisation.
Also, the automation part needs nuance. Firms will always optimise labour costs - if recruiting 10K poor, unskilled labourers is cheaper and workable than purchasing 100 robots, they will do the former.
Especially if some human capital investment is made for AI-augmented labour, then instead of replacing workers, automation will make labour many times more productive, giving firms a multifold advantage over full replacement.
(India has the potential to do this by skilling + scaling with its demographics.)
Valid thesis. I suppose the next logical question would be how to promote the growth and development of domestic manufacturing industries in global periphery states that - as a result of western hegemony and core/state economic relations as perpetuated by monetary policies of IFIs like the World Bank and IMF and other development-oriented intl. organisations - are resigned to this dynamic of supplying the raw materials (at arguably inequitable rates of compensation) to foreign (primarily western) states for processing, production, and eventual commercial profiteering.
This is where some possible dissonance between normative ‘best-practise’ development mandates and empirical analysis of state behaviour may arise
I’d argue the most viable method to bridge the global industrialisation gap would be through
(1) Equitable FDI - the infrastructure for cross-border investing already exists and is a particularly advantageous system (particularly for foreign firms from countries like China or the US that have pioneered the contemporary era of FDI. Equity in this sense would mean specified ownership/partnership structures between foreign firm and host state (*I’m reluctant to suggest governments themselves in light of expropriation history and tensions between political ideologies i.e. democratic vs autocratic states and the risk of expropriation and/or illegitimate seizure/business management practices associated with each) private companies (with impartial boards of directors who have controlling interest)
(1)(a) Perhaps a multilateral coordination mechanism orchestrated through WTO reforms or OECD-style tax frameworks could introduce a mandatory global tax policy incentivising foreign investment firms to contribute reciprocally to host country training and education initiatives directly related to the sector that the firm itself operates in
(2) State investment in education at all levels, with an initial primary focus on retraining/ups killing the current youth workforce in sectoral innovation. This should be funded by intl. development organisations in partnership with local private firms (perhaps with profits from some sort of additional structured corporate tax system with contributions dependant on the company’s net societal, environmental, etc. impact on the local community) over-sought by regional CSOs.
This could also be an opportunity to set up some sort of Erasmus-style education and training programme either with other periphery states that dominate complimentary national industries to exchange skills and foster South-south cooperation and development or it could be ran on a supranational level through AU/ASEAN partnership with the EU. Particular countries of interest would be China, India, South Africa, Germany, Ireland.
The problem of course, with my proposal is the very real implications of decades of IFI policy and intl. organisational ostracisation restricting periphery state governments making from any meaningful steps toward genuine economic self-determinism and independence from core-state economic hegemony. Whether through predatory lending practises, unequally justified and prolonged sanctions or the perpetuation of a system that extracts growth potential from these periphery states through ‘brain drain’ policies or inequitable compensation.
If the goal really is global (core, periphery, and everything in between inclusive) development and post-development (I’m reluctant to say ‘successful’ because that implies a pursuit of ‘more’ when I’d really like to emphasise a level of beneficial economic stability in which we are less beholden to the whims [trends] of ‘the market’) economic homeostasis, then the key holders of core western economic hegemony must be willing to come to the table with an earnestness to relinquish their upper-hand (unlikely) and work towards a just global order.
Akamatsu’s works remain a classic study of diffusion of productive technique. Some conclusions that might be derived for today: capital or unfettered business and market environment are critical to test, identify and iterate latent comparative advantage. Sovereign state capacity the ability to determine a country’s attributes and strategic path to elevate productivity is critical to equip capital, to fulfill the role of anticipating infrastructure to support latent advantage, such as you mention education. Akamatsu stressed that a state can’t diverge too far from the underlying development of new demand and new technique, but it can anticipate the external needs of capital. Competent state bodies can discern helpful vs harmful FDI arrangements for example. As modi campaigned, the first thing India needs is toilets for all, which remains a distant goal.
Strong case—especially on productivity spillovers and the trade dimension. The historical evidence is hard to dispute.
What feels underexplored is the constraint side: today’s global system isn’t the same one early industrializers entered. Supply chains are consolidated, standards are higher, and incumbents (especially China) operate at a scale that makes late entry structurally harder.
So the question isn’t just whether manufacturing matters—it’s what pathways to industrialization are still realistically open.
This is a well thought out and much-needed corrective to the increasingly fashionable “services leapfrog” narrative. The historical record is remarkably consistent: sustained high-income transitions have run through manufacturing because manufacturing uniquely concentrates productivity growth, scale effects, and export discipline in ways services rarely can. The evidence you marshal from UNIDO and the growth episodes literature makes that difficult to dismiss.
Where I’d extend the discussion slightly is not in questioning manufacturing’s centrality, but in clarifying what kind of manufacturing now matters. The classical pathway was labour-intensive industrial absorption. The emerging pathway may be less about sheer factory employment and more about capability accumulation — engineering density, supply chain integration, materials science, process innovation. In other words, manufacturing as a knowledge ecosystem, not just a jobs engine.
That doesn’t weaken your thesis — it strengthens it. If anything, it suggests industrialization is becoming even more foundational, because the countries that control advanced manufacturing architectures increasingly set the terms of global trade, technology diffusion, and even geopolitical leverage.
Really thoughtful piece. I enjoyed reading it.
I wonder how much of a countries ability to grow through industrialization is hindered by the existence of unions and minimum wages. In South Africa we have some of the worst unemployment statistics on the globe and industrialization has always been a discussion to address this. However reading an article like this makes me think that a countries ability to compete in global trade through industrialization would be impacted by the industries ability to reduce costs and scale. The minimum wage policies we have in South Africa hinder us from achieving this.
Lovely put together!
The flip side of the historical record matters too. Latin America's severe deindustrialization in the 1980s and 1990s coincided with decelerated growth. Africa's premature deindustrialization caused negative growth. Even OECD countries have experienced growth slowdowns alongside deindustrialization. The post industrial economy narrative often describes what happened to countries after they got rich, not a pathway for getting there.
Wind of Change
Agriculture and food industry >> Biogenesis editing and mass production by robots 🤖
Industrial Production >> accelerated by AI and robotics system
Service and Wellness >> Multitasking and 🆙 Skills Human
This article is quite interesting! However, it’s worth noting that the World Bank and IMF’s structural adjustment programs often don’t help most developing countries become industrialized. Instead, they tend to keep these countries focused on raw material production, which can hinder economic growth.