Post COVID-19 era: Revealing the zero-sum nature of development

By Farai Chigaru

Without exception, each one of us has only 24 hours a day. We spend each day in three different ways — productive; non-productive and counter-productive. 

An ideal mindset maximizes the productive hours, while minimizing the non-productive and counter-productive hours. 

As developed countries push the agenda to recover from the COVID-19 pandemic, global demand for labor intensive products from labor abundant developing countries may decrease — leading to an inevitable zero-sum situation, with significant contraction of  developing countries’ economies  unless they strategically react to the pandemic.

With a fast changing global economy, with globalization taking a toll, the window for developing countries to catch up (to developed countries) is fast closing. 

The emergence of Artificial Intelligence and volatile prices of commodities (as a result of global shocks) is closing the window for developing countries to catch up. 

The COVID-19 pandemic has led to countries locking down and operating as an autarky — pushing for more innovative ways to operate in self-sufficiency due to closed borders. This is disadvantageous for developing countries, whose comparative advantage is in labour intensive industries. 

The developed countries, due to the pandemic have necessitated better ways of replacing the labour. For example, to avoid transmission of the virus, robots are being used to carry-out the day-to-day activities in manufacturing companies — companies opting for Artificial Intelligence to replace human labour, being able to produce better quality labour intensive products that were once imported from developing countries.

Previously, AI was introduced as a concept in movies (‘ROBOCOP’; CARS), where robots replaced the functionalities of a human being. The concept of AI, as a result of COVID-19 pandemic, has however come closer to our doorstep in the economic sector, introducing automated robots into the production line. 

AI provides a threat to the labour market, as companies are becoming more automated due to rises in costs of production, and risk in spreading the virus. 

More working hours, better efficiency, social distance among people are some of the advantages of AI over human labour during this period. These robots can work more hours a day and are more efficient than individuals and hence produce better quality goods — as their productivity remains constant, contrary to human beings. 

For example, in the health sector, China introduced robots to carry-out testing for COVID-19 amongst people exposed to the virus — potentially reducing the need for human labor.

Consequently, the advancement of Artificial Intelligence implies that developed countries identify a reduced need for importing  labor intensive products from developing countries.

For example, to ensure food security, developed countries resort to genetically modified food (GMO) — replacing products imported from the developing countries. They can now produce the same products, with better quality and at a cheaper cost. 

Relatively lower labour costs is one of the factors that incentivizes multinational companies to establish operations in developing countries; for example, Chinese companies developing shoe leather clusters in Ethiopia to take advantage of the relatively cheaper labor cost as a result of the excess labour supply. 

The reduced global demand of the labor intensive products, therefore, has adverse effects on countries rightly investing in their labor intensive industries.

Contrary to Thomas Hobbes theory of individuals being selfish and Confucius’ belief of humans being angels, Adam Smith rather describes individuals as self-interested and hence they maximize their welfare within their potential. 

Developed countries, being self-interested, are not obliged to take developing countries along the development train. Developing countries, therefore, need to be pro-active post COVID-19 era. 

They cannot copy and paste the recovery strategies of the developed countries due to the existing different preconditions — one size does not fit all.

The fastest and most cost-effective way for the developing countries to recover from the COVID-19 pandemic would be to strategically reposition themselves as second movers in the fight against the pandemic and exploit the ‘late comer’ advantage; and therefore choose the right benchmark countries to which we can draw realistic lessons and strategies from. 

As countries are anxious for a bounce back of their economies after COVID-19, there exists a big risk of policy makers of being overly ambitious — aiming to replicate success stories of developed countries. 

This lesson is drawn from post-WWII where developing countries benchmarked against the developed countries and adopted capital intensive strategies to development — this has been the source of the lost decades of economic development in developing countries.

These adopted strategies would be heavily subsidized and would consequently become unsustainable and run high risk for corruptive practices. 

The solution to this is, therefore, for developing countries to choose the right benchmark countries, whose recovery strategies would be realistic to the countries — due to their similar initial conditions. 

The important indicators for right benchmarking are: 

*Firstly, identify countries with similar factor endowment and hence having comparative advantage in similar industries (strategies are easily transferable); 

*Secondly, the differences in levels of development (GDP), where countries ought to benchmark against better performing countries whose economic development levels are relatively closer to them — a healthy guide would be to identify countries that are 100-300% of your per capita GDP measured in Power Purchasing Parity (PPP); 

*Thirdly, to identify countries with a higher Manufacturing Value Added (MVA); 

*Fourthly, to identify countries with a higher minimum wage (implies it is relatively more expensive for companies to operate in those countries, and hence companies would be tempted to export their services to your country and hence speeding up recovery pace). 

Developing countries have two ways to develop their strategies to the road to recovery – borrowing a leaf from Aristotle, an inductive approach to seeking a better path to development would be adopted. 

This approach identifies countries with proven ability to being able to achieve stable levels of recovery from the COVID-19, with realistic strategies that can be easily imported due to high similarity in initial conditions (both labor abundant countries)

The second way is to base on a deductive approach, where through simulation, developing countries could follow countries that have set sound robust strategies — whose theoretical rigor measured by parsimony, scope, and accuracy — predict a reasonable level of progress in recovery that developing countries can replicate.

It is imperative therefore to understand the risk that COVID-19 poses on developing countries — both direct and indirect. Mitigation of this risk requires correct repositioning of developing countries and accurate benchmarking. 

The push towards AI by developed countries during this pandemic will provide a blow to developing countries with a comparative advantage in labor intensive industries, and thus further narrowing the window for these countries to catch up to development.

*The Author is Ph.D Candidate (Economics) affiliated with Peking University, China

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