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August 6 - August 18, 2017
A look at twenty of the major midsize emerging nations shows that in most, the population of the largest city outnumbers that of the second city by roughly three to one.
My sense is that any midsize emerging nation where this ratio is significantly more than three to one faces a risk of Thai-style political instability driven by regional conflict, and this imbalance is a drag on growth.
Colombia is the only Andean nation that is showing signs of more balanced internal growth.
The three-to-one rule also holds in the developed world, where seven countries have a midsize population between 20 and 100 million, and in five of them the ratio between the population of the largest and the second largest cities is roughly three to one.
By virtue of their size, countries with a population of more than 100 million will have many large cities, and so the relative size of the second city does not tell me much about the country.
The broad rise of second-tier cities is particularly important for the largest countries
This part of the rule—tracking the rise of second-tier cities—therefore applies mainly to countries in the next two size categories, those with more than 100 million people and those with more than one billion people.
India has also done less to develop second cities.
India is a large and slow-moving democracy, where local opposition can block land development and the state still reserves huge swaths of urban land for itself.
India tried to create special economic zones on the China model, but these zones have restrictive rules on the use of land and labor, so they have done little to create jobs or build urban populations.
If China is a nation of boom cities, India is a land of creaking megacities, surrounded by small towns and not enough vibrant second cities.
Today the Internet is making geography irrelevant neither for manufacturing industries nor for service industries.
The result is the rise of cities with a cluster of companies and talent in a specific service niche.
The key to the success of these locations is that they create a place where people want not only to work but also to live,
To carve out a geographic sweet spot, a country needs to open its doors on three fronts: to trade with its neighbors, the wider world as well as its own provinces and second cities.
This could be a growth opportunity for countries that can turn themselves into tech, travel, and entertainment hubs, but it is a limited opportunity so far.
Two kinds of spending drive any economy—consumption and investment—and while in most economies people and governments spend more on consumption, investment is the more important driver of growth and business cycles.
The basic question for a nation’s economic prospects: Is investment rising or falling as a share of the economy?
on average these countries were investing about 25 percent of GDP during the course of the boom.
The second part of this rule aims to distinguish between good and bad investment binges.
Of the three main economic sectors—agriculture, services, and manufacturing—manufacturing has been the ticket out of poverty for most emerging countries.
Manufacturing starts to give way to services, and investment levels off and starts to shrink as a share of the economy, because services require much less investment in plants and equipment than factories do.
The share of investment that goes to manufacturing also tends to decline as a nation grows richer;
That natural decline, however, does not mean factories are not important to richer countries.
it remains a key driver of innovation.
manufacturing industries account for nearly 80 percent of private-sector research and development and 40 percent of growth in productivity, which is really the key to stable growth in the future.
In this decade investment growth has stalled in much of the emerging world, as governments and businesses ran out of ways to raise funds after the global financial crisis in 2008–9.
The trick is to stop short of overdoing it, which is why the ideal level of investment is capped at roughly 35 percent of GDP.
When the ratio of investment to GDP surpasses 30 percent, it tends to stick at that level for a long time—nine
The modern outlier is India, where investment as a share of the economy exceeded 30 percent of GDP over the course of the 2000s, but little of that money went into factories. Indian manufacturing had been stagnant for decades at around 15 percent of GDP.
India has disappointed on both counts: creating labor-friendly rules and workable land-acquisition norms.
“Make in India”
India was attempting to skip over a step in the development process, not for the first time.
A 2014 working paper from the World Bank made the case that the old growth escalator in manufacturing was already giving way to a new one in service industries, which can range from taxi rides, haircuts, and restaurant meals to medical care.4 The report argued, in this hopeful vein, that while manufacturing is in retreat as a share of the global economy and is producing fewer jobs, services are still growing, contributing more to growth in output and jobs for nations rich and poor.
not only Ethiopia but all of Africa could avoid the specter of “jobless industrialization” by creating jobs in services instead.
one basic problem with the idea of the service escalator is that in the emerging world most of the new service jobs are still in very traditional ventures,
A decade on, India’s tech sector is still providing relatively simple IT services, mainly the same back-office operations it started with, and the number of new jobs it is creating is relatively small.
People can move quickly from working in the fields to working on an assembly line, because both rely for the most part on manual labor.
The leap from the farm to the modern service sector is much tougher, since those jobs often require more advanced skills, including the ability to operate a computer.
The evolving challenge for countries such as India is that it is tougher and tougher to get into the manufacturing game or to stay in it.
With competition intensifying as the manufacturing sector shrank, rich countries began moving more quickly to block the tricks (subsidizing exports, undervaluing currencies, and reverse-engineering Western technology) that the East Asian nations used to become export powerhouses back in the 1960s and ’70s.
The other obstacle is automation.
Because modern factories employ more and more robots but fewer people, it will be more difficult for upcoming nations to move 25 percent of their labor force from farms to factories,
Worse, for emerging nations, is the fact that developed nations led by the United States are far ahead in these advanced manufacturing techniques.
The United States itself is undergoing a mini-manufacturing revival
Germany in particular has shown remarkable success expanding as a manufacturing export power,
The next form of a good investment binge, after manufacturing, is technology,
Israel is a legitimate technology export power, deriving 40 percent of its GDP from exports and half of its export income from tech and life sciences.
Today Monterrey is the quiet home to a striking array of companies that are applying high technology to the improvement of everything from lightweight aluminum auto parts to white cheese, tortilla-based prepared meals, and even cement.
these binges are healthy because even if they lead to a crash, the country involved doesn’t emerge from the hangover with an empty wallet.
