Since the start of the century the economies of the developing world have expanded rapidly – faster than before and much faster than “advanced economies”. Their share of world production has increased from about one-fifth to one-third today, an unprecedented geographic shift. However, during the last couple of years developing world economies seem to have run out of steam. Their growth slowed from 4.7 percent in 2013 to 3.4 percent last year. The BRIC countries, which accounted for about 40 percent of global growth from 2010 to 2015, slowed down. Brazil and Russia’s economies actually shrank. Only India’s economy continues to grow rapidly, but India accounts for only 2.6 percent of world GDP.
In my opinion the slowdown is more than a temporary blip. China is the economic “locomotive” of the developing world. Its growth performance has been staggering for a very long time: from under 5 percent in 1973 it expanded to nearly 13 percent of total world production. What fueled this extraordinary expansion ? Before Deng Xiao Ping’s reforms, demand and production had been drastically suppressed; therefore freeing agricultural prices, embracing international trade and improving human and physical capital after 1978 had a disproportional positive impact on growth. Today, the scope for “catch-up” has been largely exhausted, and therefore spurring future growth will require meeting very different challenges (reducing public investment and massive excess capacity; growing the service economy while avoiding large-scale “frictional” unemployment; relying less on the growth of manufactured exports based on “cheap labor”, as real wages have risen).
Likewise, Brazil and Russia will need to lessen their overwhelming reliance on exports of low value-added commodities such as minerals and bulk agricultural products. This means making the non-commodity sectors of their economies internationally competitive - a colossal challenge.
There are no more “low-hanging fruit” to be picked. Therefore future growth will be much harder to achieve than was the case during past decades. Developing economies will need to be smarter producers rather than cheap producers. One of the major barriers to progress is the acute scarcity of management talent. Even China, according to the June 25 Economist’s Schumpeter essay, where there are some “extraordinarily efficient factories… has a far greater number of poor performers. Globally proven management techniques like… ‘lean manufacturing’ have been tried only in name. They must now be taken up in earnest.” Achieving sustained growth calls for enhanced skills, including management skills at all levels: macroeconomic, sectorial and within companies and other organizations.
Guy Pfeffermann is the Founder & CEO of the Global Business School Network