Once the recession ends, anyone who thinks everything will simply go back to how it was before is foolishly naive.

It will take a long time to rebuild the world economy – and it will be a different economy from the one that existed before 2007.

For one thing, it will be in different places. Factories and businesses that remained in Europe and America out of sheer inertia have now closed. When they are reopened, or replaced, entrepreneurs will have the opportunity to consider the question of location from first principles.

Ignore the media caricature of greedy globalists setting up sweatshops in the “Third World” solely out of a desire to keep wages low. Technology has an increasing competitive advantage over old-fashioned mass production. Entrepreneurs understand that skilled labour is more important than cheap labour. Skilled labour is also increasingly mobile. As a result, the wage differential is not as pronounced as it was, and is set to decrease even more rapidly if developing countries recover better than the developed.

Entrepreneurs stuck in the “cheap labour” mindset will soon find themselves relics of the past.

The real reasons why it may be better to locate a new or rebuilt business in the Third World are also the reasons why the Third World will come back faster and stronger then the West: -

1   Skilled labour. Westerners used to comfort themselves with the line that “Their labour may be cheaper but our labour is the more skilled”. That is no longer true. Most Asian countries, and even some African countries, have primary and secondary education superior to that in many Western countries: they put British and American schools, in particular, to shame. While few Third World universities have the money for research that is available to the big names in the West, they have invested in good vocational courses. As a result, workforces in developing countries are often better educated, and therefore more skilled.

2   The “on costs”. It is not just a question of wages. In the West there are also additional costs of labour that do not go directly to the employees: payroll taxes, compulsory health and pension contributions, etc.

3   The “costs of compliance”. Few entrepreneurs object to necessary environmental protection or safety regulations, but regulation in the West goes far beyond what it is reasonable. The costs of complying with regulations are now a substantial factor.

4   The hassle factor. In addition to the direct financial costs, the inconvenience of complying with well-meant but intrusive employment laws is a major distraction from making a business work. No one goes into business to waste their time complying with rules that achieve nothing other than acting as a tax on the business, or contesting vexatious litigation from a less than useful ex-employee who feels sore about being fired. It’s not just the cost that’s demotivating, but the sheer aggro too.

5   The deficit dilemma. Western governments kept borrowing while Third World states were forced to be frugal. As a result, the former will come out of the recession burdened with huge deficits which will put them at a competitive disadvantage to the latter. In particular, businesses based in the USA and the UK will be paying higher taxes for many years to come to fund the panic measures of the last few months.

As with businesses, so with nations: the end of this recession will see the rising and falling of many.