One way to think about services vs manufacturing: suppose you’re very poor and you suddenly earn more money. How do you spend this limited new resource? Certainly you spend some of it on stuff: furniture, a better phone, electricity. If a country lacks manufacturing or exports, the money you spend on stuff leaves the country with no balancing inflow. And when you buy services, the person from whom you bought the services also buys stuff. So if people get richer at scale, the country as a whole tends to bleed that money back out. You can export services somewhat (customer service, or software development if your country has enough education) but you’ll be competing with the likes of India and GPT4/AIs.
If you can manufacture stuff locally, more money stays in-country, and if the manufacturing sector grows large enough, it can become efficient, which allows exports. And my intuition says that limited, targeted protectionism (tariffs) would be beneficial, or even required, to nurture whatever local industries are developing.
There must always be a balancing flow. Your country has to be doing something to get the foreign currency required for that import. This could be exporting more of something else, or it could be attracting more foreign investment (or more aid), but there must be a balance. Your mercantilist intuition is a common one but it is mistaken.
Ugh, yes of course if you got richer you got the money from somewhere. If you thought I thought otherwise, you were mistaken. (Of course it could’ve just been printed by the government, but that will cause inflation if not balanced by some kind of in-country value creation or spending reduction.) (Edit: also, Google tells me “Mercantilism was based on the principle that the world’s wealth was static” and I do not have any such “mercantilist intuition”.)
One way to think about services vs manufacturing: suppose you’re very poor and you suddenly earn more money. How do you spend this limited new resource? Certainly you spend some of it on stuff: furniture, a better phone, electricity. If a country lacks manufacturing or exports, the money you spend on stuff leaves the country with no balancing inflow. And when you buy services, the person from whom you bought the services also buys stuff. So if people get richer at scale, the country as a whole tends to bleed that money back out. You can export services somewhat (customer service, or software development if your country has enough education) but you’ll be competing with the likes of India and GPT4/AIs.
If you can manufacture stuff locally, more money stays in-country, and if the manufacturing sector grows large enough, it can become efficient, which allows exports. And my intuition says that limited, targeted protectionism (tariffs) would be beneficial, or even required, to nurture whatever local industries are developing.
There must always be a balancing flow. Your country has to be doing something to get the foreign currency required for that import. This could be exporting more of something else, or it could be attracting more foreign investment (or more aid), but there must be a balance. Your mercantilist intuition is a common one but it is mistaken.
Ugh, yes of course if you got richer you got the money from somewhere. If you thought I thought otherwise, you were mistaken. (Of course it could’ve just been printed by the government, but that will cause inflation if not balanced by some kind of in-country value creation or spending reduction.) (Edit: also, Google tells me “Mercantilism was based on the principle that the world’s wealth was static” and I do not have any such “mercantilist intuition”.)