There are clear signs that we are now entering a new era in which industrialization will no longer be as potent in spreading the benefits of economy-wide productivity gains. Global trends in innovation have significantly reduced the potential of manufacturing industries to absorb low-skill workers. And while globalization has accelerated the transfer of manufacturing from advanced economies to developing economies, global value chains have turned out to be at best a weak vehicle for creating good jobs, both because they are a transmission belt for skill- and capital-intensive technologies and because their business model is based on imported inputs and lack of integration with the local economy. The question is what future growth models will look like. As always, investments in human capital, infrastructure, and better institutions remain indispensable for long-term economic gains. In addition, next-generation growth policies will have to target smaller firms and mostly domestic services, and find ways to increase their productivity. By offering a range of public services – help with technology, business plans, regulations, and training for specific skills – governments will have to unlock the growth potential of the more entrepreneurial among these smaller firms.
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