For the next 300 years, manufacturing formed the cornerstone of the world's most powerful economies. Prosperity, in most instances, was linked directly to a thriving manufacturing base that created jobs, encouraged cross-border trade and boosted government revenues.
In the years immediately after World War II, the United States dominated world manufacturing and emerged as an economic superpower that helped the European economies and Japan back to their feet. We then saw the emergence of the so-called Asian Tigers, followed by the BRIC nations - Brazil, China, India, and Russia - who successfully used their tremendous human resource pool to establish themselves as manufacturing powerhouses.
Somewhere along the line, however, manufacturing started to give way to a "service economy" in the United States and other Western countries.
As a Time magazine article in October 1960 put it: "The biggest sector of the (US) economy is no longer the production of such tangibles as appliances, cars, houses; it is the performance of services, ranging from medical checkups to European trips and cha-cha lessons. In this new economy, there are 33 million employed in performing services compared to only 27 million working at producing things. In the last quarter, consumer spending for goods dropped $2.5 billion, but spending for services continued to rise by another $2 billion."
Some might argue that an over reliance on service-based industries can, and has, led to higher unemployment and overall economic decline. The fact is that manufacturing creates jobs in a way that the service sector simply cannot. A new manufacturing facility supports an entire value chain - demand for raw materials, construction, energy, supplies and, of course, services.
To illustrate this point, World Bank data show that while manufacturing accounted for only 20 percent of foreign direct investment (FDI) in the Middle East and North Africa region from 2003 to 2011, it accounted for 55 percent of all jobs created during that period. These numbers demonstrate the tremendous impact manufacturing can have on job creation and, consequently, on economic growth.
That is not to say, however, that there is no need for a service component in a country's economy. Every robust economy needs a proportionate amount of service-related and manufacturing focus and investment. The challenge, as many countries have learned, lies in getting that equation right.
The Middle East's visionary leaders have long realized the importance of a balanced approach to sustainable growth, a fact that is reflected in concerted efforts to diversify their economies.
The Kingdom of Saudi Arabia is an excellent example of a hydrocarbon-rich country which is actively pursuing a policy of economic diversification, and is placing strong emphasis on growing its industrial base. The Kingdom, for instance, aims to have its industrial sector account for 24.9 percent of its gross domestic product (GDP) by 2024, up from 19.6 percent in 2004.
This concerted effort to encourage the growth of its manufacturing sector is already delivering results and manufacturing was the single fastest growing component of the Kingdom's private sector in the first half of this year, recording a 22.5 percent growth. A recent report from the Gulf Organization for Industrial Consulting revealed that the number of factories in the Kingdom increased by 50 percent between 2000 and 2010 and that investment in the sector has increased by 91.5 percent over the same period. All of these numbers speak volumes about the success of Saudi Arabia's economic policy.
With projected investments in capital projects expected to reach into trillions of dollars across the Middle East over the next decade, there is a clearly a concerted push toward investment of resources with an eye on the big picture. Unsurprisingly, much of the focus in the region falls into four broad categories: Transportation and infrastructure, energy, consumer goods and health and nutrition.
The strategic approach of countries, like Saudi Arabia, which have facilitated the growth of manufacturing through legislation and a policy of incentivizing growth, can serve as a powerful example for some Western economies. As some of them struggle to cope with rising unemployment and floundering GDP rates, there are valuable lessons to be learned from the Middle East on the role governments can play in encouraging a revival of the manufacturing sector.
What's more is that if you take a close look at any of the world's great challenges you will find that manufacturing is central to the solution. The world needs semiconductors and microprocessors; wind turbines and solar cells; advanced batteries and state-of-the-art medical devices.
Manufacturers make these things, and these things, in turn, will remake our future.
— Markus Wildi is president of Dow Middle East.
