> China may follow a similar development history path to Japan. First the Japanese copied the west and made cheap bad quality items. Then the Japanese innovated and made very high quality items.
Same story with Italy. It started its industrial success of the '50s as a country where you could get cheap, unschooled (but not unskilled) workers that would work for 20 hours a day without any protection from the existing legal framework. (Plus a devalued currency.) Just like the eastern Europe of the '90s or China in this decade.
Now people forgot all that and like to think of "Made in Italy" as a symbol of innovation and style.
I think this is the pattern:
1. country attract foreign investors because of lower wages and little legal protection;
2. people work their ass off, without really understanding what they are doing;
3. workers get skilled in what they do, a culture of "doing X properly" springs up;
4. people realize that they are being exploited and demand more protection from their state;
5. slowly people get what they ask for, but this has a cost and so factories move somewhere else;
6. (This is the main point =>) You are left with a country filled with skilled workers and sense for the production of the good X, but it no longer makes sense to produce it there for the big market; you turn to the "luxury" market;
7. people start losing jobs because the luxury market is hard to please and it is not big enough;
8. the state gives away some of the rights acquired and starts the slow path towards becoming a state with lower wages and less legal protection.
I wonder if this vicious cycle can be broken with the advent of non-tangible products (for example services) and some kind of heavy taxation on transports (instead of VAT you would pay dist-in-km^0.12).