In Kazakhstan, the loss of industries is often explained by low productivity and weak technology. But global experience tells a different story. In many cases, industries disappear not because technology is bad, but because the structure of capital and labor changes. In middle-income countries, these factors matter more than innovation itself. This is one of the main economic trends of recent decades. And it directly affects Kazakhstan.
The key fact is simple. In the global economy, industries are usually lost not because countries fail to innovate, but because capital and skilled labor move elsewhere. When this shift is ignored, manufacturing shrinks even if productivity looks stable.
In Kazakhstan’s economic debate, the word “productivity” has become a universal excuse. If an industry shrinks, it is called uncompetitive. If a factory closes, the technology is blamed. If imports rise, domestic production is said to be inefficient. This logic is convenient. It is simple. And very often wrong.
In modern economies, productivity is no longer just about technology. It reflects factor costs, labor structure, and access to capital. When these factors change, productivity changes too – even if technology stays the same.
In many middle-income countries, changes in productivity are driven mainly by capital and skilled labor, not by innovation. Technology plays a secondary role. This point is critical.
Modern industry rests on three basic factors:
• capital,
• skilled labor,
• unskilled labor.
Technology is not a separate factor. It is the result of how these three interact. When capital becomes expensive or scarce, even technologically sound industries weaken. When the share of skilled labor rises, industries can survive even if productivity falls. When unskilled labor is pushed out too fast, low-capital industries disappear first. This pattern appears again and again in global data. In most cases, changes in industrial leadership are driven not by technology, but by shifts in factor structure.
Middle-income countries face the highest risk. They can no longer compete on cheap labor. But they are not yet technology leaders. Their future depends on capital. If capital does not grow faster than in advanced economies, industries start to leave. This happens even if technology does not worsen. Even if productivity does not collapse.
This is why many middle-income countries lose manufacturing capacity despite active industrial policies. They fight for innovation, but miss the factor base.
If we remove slogans and look at structure, Kazakhstan fits this pattern closely.
Capital is concentrated in a few sectors. Mostly in raw materials. In manufacturing, capital grows slowly. Access to long-term financing is limited. The cost of capital is high. This directly affects production costs.
Skilled labor is growing. But it does not stay in industry. It moves to trade, services, and finance. This is not a problem of people. It is a problem of incentives.
Unskilled labor is shrinking. But it is not being replaced by technology. The industries that used it are losing capital support. The result is predictable. Industries are lost not because of low productivity, but because factor support disappears.
Productivity is often treated as a measure of efficiency. In reality, it is often a measure of structure. If capital costs rise faster than output, productivity falls. If wages grow faster than investment, productivity falls. If labor composition changes, productivity changes – even without new technology. That is why comparing countries by productivity alone is misleading. Especially in manufacturing. There are many cases where countries lost industrial leadership despite smaller productivity losses than their competitors. The reason was changes in capital and labor shares.
Industries rarely disappear overnight. First, capital becomes more expensive. Investment slows. Equipment renewal stops. Then imports of intermediate goods rise. Output falls. Only at the end does productivity decline appear in the data. At that point, technology is blamed. But by then, the industry has already lost its factor base. This pattern repeats across countries and sectors.
Global industry data show a clear trend.
Where:
• capital shares decline more slowly,
• skilled labor shares grow faster,
industries remain. Even with weak productivity growth. Where capital leaves quickly, industries disappear – even without technological decline. This applies to light industry, heavy industry, and processing sectors alike. Only the speed differs.
Innovation matters. But it cannot replace factor policy. Without capital, innovation cannot scale. Without stable skilled labor, innovation does not become an industry. Without proper incentives, innovation flows into services and imports. Countries that focused only on innovation often continued to lose manufacturing. The factor structure moved in the opposite direction.
The first conclusion is clear. Industry loss cannot be explained by technology alone. That is a false diagnosis. The second conclusion is harder. Policy must focus on causes, not symptoms. The cause is factor structure.
This means:
• access to capital for manufacturing,
• managing labor allocation, not only education,
• reducing capital costs where capital intensity matters.
Without this, modernization programs deliver only temporary results.
There is another important point. Industries lost due to factor shifts rarely come back on their own. Even if technology becomes cheaper. Even if demand rises. Even if the state offers support. By then, capital and labor have already adapted to other uses. This is why early correction matters more than late intervention.
Kazakhstan is losing industries not because it produces poorly. Not because technology is weak. Industries are lost because the structure of production factors changes faster than economic policy. Capital and skilled labor move to where returns are higher. Manufacturing is left without support.
This is not unique to Kazakhstan. But it requires an honest diagnosis. Without it, talk about productivity becomes an excuse, not a solution.
Alen Serik, expert of the portal EconomyKZ.org
