@danielyu I really enjoyed your article. I strongly agree with your premise of the need for wages as one of the primary goals of development. If we want people to live better, happier lives, we need to provide them with opportunities for stable employment. Additionally, I think it is probably worthwhile for people to try to start a manufacturing export business in LMICs, though I’m skeptical that it will actually work. My main considerations are the need for local government industrial policy and that it might be more strategic to work with existing firms rather than starting new ones.
It seems to me that it would be very unlikely for an outsider to succeed at setting up the industrial infrastructure required for even light manufacturing like textiles to really be productive. Do you expect someone to go into a country and invest the required capital in roads, ports, energy generation, and other industrial infrastructure required to successfully export even the simplest of manufactured goods? It seems to me like working with local governments will be critical to the success of any export manufacturing venture. I think this is mostly born out in the East Asian examples you cite, where governments played a key role in creating incentives and subsidising the learning by doing process as firms are able to eventually become globally competitive. I’m unsure that any individual, or especially a venture capital firm, will burn through the time and money needed to increase the organizational capabilities necessary to be globally competitive in manufacturing, which is especially capital-intensive.
Here, I find people like Mushtaq Khan and Stefan Dercon illustrative in what they describe as the best ways to increase the likelihood of export manufacturing firms succeeding. I’ll quote Dercon
“This is not a question of just working with the private sector. Many of the crucial incumbent firms in these settings are too closely connected to the patronage system to be helpful. Alternatively, just focusing on very small firms is no doubt good for the people involved, but it is hardly going to change the elite bargain. A better approach would be to find ways of working with the kinds of domestic private sector firms that could be influential and would flourish if the economy were to shift towards self-sustaining growth. The garment industry in Bangladesh and light manufacturing in Indonesia and Vietnam have thrived on connections with government since the beginning. However, they took up the challenge to compete globally rather than persistently live off protectionism and procurement in return for clientelist payments.”
It seems to me like it would be better for outsiders with expertise in manufacturing or global exports to offer consulting services to already existing firms in LMIC with pre-established connections to local governments and help them grow and gain access to overseas markets. Here I’m also drawing from writing by people like Karthik Tadepalli, writing here https://asteriskmag.com/issues/07/want-growth-kill-small-businesses
I’m very curious what your thoughts are on this and how you see firm dynamics and industrial policy as being key to economic growth in LMIC. Thanks again!
@danielyu I really enjoyed your article. I strongly agree with your premise of the need for wages as one of the primary goals of development. If we want people to live better, happier lives, we need to provide them with opportunities for stable employment. Additionally, I think it is probably worthwhile for people to try to start a manufacturing export business in LMICs, though I’m skeptical that it will actually work. My main considerations are the need for local government industrial policy and that it might be more strategic to work with existing firms rather than starting new ones.
It seems to me that it would be very unlikely for an outsider to succeed at setting up the industrial infrastructure required for even light manufacturing like textiles to really be productive. Do you expect someone to go into a country and invest the required capital in roads, ports, energy generation, and other industrial infrastructure required to successfully export even the simplest of manufactured goods? It seems to me like working with local governments will be critical to the success of any export manufacturing venture. I think this is mostly born out in the East Asian examples you cite, where governments played a key role in creating incentives and subsidising the learning by doing process as firms are able to eventually become globally competitive. I’m unsure that any individual, or especially a venture capital firm, will burn through the time and money needed to increase the organizational capabilities necessary to be globally competitive in manufacturing, which is especially capital-intensive.
Here, I find people like Mushtaq Khan and Stefan Dercon illustrative in what they describe as the best ways to increase the likelihood of export manufacturing firms succeeding. I’ll quote Dercon
“This is not a question of just working with the private sector. Many of the crucial incumbent firms in these settings are too closely connected to the patronage system to be helpful. Alternatively, just focusing on very small firms is no doubt good for the people involved, but it is hardly going to change the elite bargain. A better approach would be to find ways of working with the kinds of domestic private sector firms that could be influential and would flourish if the economy were to shift towards self-sustaining growth. The garment industry in Bangladesh and light manufacturing in Indonesia and Vietnam have thrived on connections with government since the beginning. However, they took up the challenge to compete globally rather than persistently live off protectionism and procurement in return for clientelist payments.”
It seems to me like it would be better for outsiders with expertise in manufacturing or global exports to offer consulting services to already existing firms in LMIC with pre-established connections to local governments and help them grow and gain access to overseas markets. Here I’m also drawing from writing by people like Karthik Tadepalli, writing here https://asteriskmag.com/issues/07/want-growth-kill-small-businesses
I’m very curious what your thoughts are on this and how you see firm dynamics and industrial policy as being key to economic growth in LMIC. Thanks again!