Feb 1, 2019

Robots sever a path to wealth

Erica Pandey, author of @Work
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Data: United Nations Department of Economic and Social Affairs; Chart: Naema Ahmed/Axios

For decades, economists have forecast that pooling people in big cities will lead to improved productivity in developing countries and, ultimately, middle-income wealth. But the rise of automation has begun to short-circuit that path, as robots can take the place of low-cost labor.

What's happening: Poorer countries are starting to look for other routes to economic growth, but it's not yet clear that they can achieve the same economic record as has been built using traditional low-wage manufacturing.

  • Two countries stand out in their departures from the usual route: Malaysia, which is building a service-based economy, and the Philippines, which dumped factories in favor of call centers.

The big picture: Fast-growing cities in countries like India and Nigeria — some of the world's most distressed — have become home to masses of urban poor, living in abject conditions with little way out. And by 2030, the world's cities are projected to grow by 80% in size, the bulk of it in the developing world, putting even more people in the same conditions.

The backstory: During the industrial revolution, hundreds of U.S. and European cities turned themselves into prosperous manufacturing towns. After World War II, Japan used the same export-led growth strategy to rebuild itself. More recently, China did the same and lifted hundreds of millions of people out of poverty.

  • Now technology is shifting manufacturing away from humans and toward machines, and the need for massive labor pools in emerging markets to do the work is slowly disappearing.
  • This is not necessarily bad news, as long as poorer countries pivot, says Judy Baker, a senior economist at the World Bank. “The concentration of people in cities creates a ripe environment for innovation,” she tells Axios. ”If it’s not manufacturing, other things will be created.”

But, but, but: Nations slow to move away from the promise of export-led growth are seeing poverty at mass scales in their cities.

By the numbers: The world's fastest-growing cities are stretched too thin to serve their gargantuan populations. The crisis will only deepen as they grow, says Anjali Mahendra, co-author of a new report from the World Resources Institute.

  • In 60 years, Lagos, Nigeria, grew from a city of 200,000 to 22 million. But less than 10% of Lagos' population has a sewer connection, and just one-fifth has access to tap water.
  • Mexico City, which is home to 20% of the country's people and has seen its population double in the last decade, attempted to build affordable housing on the periphery of the city center to address the boom. But the homes were too far from jobs and have remained largely empty, Mahendra says.
  • In Bangalore, like many big Indian cities, amenities like paved roads and piped water drop off just 3 miles from the center of the city. The outskirts, where the population is just as dense, has seen a spike in unregulated well digging for access to drinking water, Mahendra's research found.
  • "In Kenya, the largest number of un-immunized children are in the slums of Nairobi, not the hinterlands," says Seth Berkley, CEO of Gavi, which vaccinates children.

The bottom line: "There’s still a lingering belief that the next success story will be an exporter," says Karen Harris, managing director of Bain Macro Trends. But in many of the world's poorest, biggest metro centers, "you've created a labor force without anything to apply it to."

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