Blog Credo

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

H.L. Mencken

Sunday, July 3, 2016

A Lot To Unpack Here

Matthew Yglesias has a piece that talks about the lack of impact that globalization is having on certain developing countries.  He focuses on Mexico.  Conventional Wisdom says that as countries like Mexico industrialize, they develop their economies.  This has been a big deal for countries like Mexico, as growing a middle class is central to their growth as democracies and stable states.  And there is evidence that the Mexican middle class is growing.

Now, perhaps it is also true that Mexico is losing industrial jobs to Mexico but still seeing economic development.  This is where I wonder if they are missing the forest for the trees:
The Mexican manufacturing sector has actually remained quite small.
"A modern fast-growing Mexico with globally competitive multinationals and cutting-edge manufacturing plants co-exists," she writes, "with a far larger group of traditional Mexican enterprises that do not contribute to growth."
The dynamic manufacturing sector, in other words, simply isn't big enough to employ many people. And it's not really growing much as a share of the Mexican economy. 
Here is where we run into the multiplying effect of economic development.  As we can measure when a factory leaves an American town for China (or Mexico), the rest of the economic activity declines with it.  Laid off factory workers means fewer diner customers.

Those traditional Mexican enterprises are getting a boost from the maquiladora down the street.

It could very well be that Mexican workers aren't seeing huge gains in productivity the way American workers are.  American manufacturing jobs are being lost to automation as much as to outsourcing, but that allows America to still manufacture a ton of stuff.  We just don't employ nearly enough people to make all that stuff.

Mexico tends to absorb jobs where there is no technological productivity growth.  If that job COULD be done better by a machine, it likely stayed in the US.

This feels like economics at its worst: digging into data to find something odd and counter-intuitive for the sake of finding something odd and counter-intuitive.

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