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Thursday, October 23, 2003

More on the Hollowing-Out Process

A quick comment on a couple of recent posts as I leave for work. Firstly the Pele/Ronaldo piece. To make explicit what is implicit. I am saying that these processes are subject to important non-linearities (due to the positive feedback component) that traditional analyses don't capture very well. I am also saying that the NASDAQ bust may be important historically for a reason that has not really been identified explicitly previously: the rise of Indian IT, and the relative decline of the US industry. This in part has been produced by the excess investment in IT in the late 90's. This process may well now have such momentum that it is to all intent and purpose irreversible. The latest news on wall street about Pharma stocks only serves to underline how far this can go. The last generation of extremely costly pharma R&D has not yielded the expected benefits. The next generation, centering round the genome, is likely to be extremely IT intensive, and therefore India is likely to be a prime beneficiary. Those of you who are familiar with the 'on the shoulders of giants' endogenous growth models will note that it is often assumed (rightly or wrongly) that the production of Mozarts and Einsteins is a stochastic process. So numbers matter, and India has the numbers. The real turning point will come when India realeases a beta1.0 version of a piece of what Maynard calls 'point-of-view-changing' software. In my book this is only a question of time.

So following on from this, briefly to Stephen's piece yesterday. My purpose in posting this piece was not to endorse every last argument to be found there. Rather I was trying to indicate that the questions he is asking seem to me to be perfectly legitimate and reasonable ones. Simply to try and duck them for fear of a 'protectionist backlash' does not seem like an intelligent strategy to me. The US has to address quite a number of problems right now, many of them the legacy of its recent past, and this question - of the hollowing out of the upper end of the labour market - is not least among them. As I said yesterday, if the dollar falls substantially, and the internal US labour market practices the structural reforms it advises for the rest of the world, I don't doubt jobs can be produced in large quantities. The question is: where on the value chain will these jobs be situated?

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