Sunday, October 13, 2013

Premature Deindustrialization


11 October 2013
PRINCETON – Most of today’s advanced economies became what they are by traveling the well-worn path of industrialization. A progression of manufacturing industries – textiles, steel, automobiles – emerged from the ashes of the traditional craft and guild systems, transforming agrarian societies into urban ones. Peasants became factory workers, a process that underpinned not only an unprecedented rise in economic productivity, but also a wholesale revolution in social and political organization. The labor movement led to mass politics, and ultimately to political democracy.
Over time, manufacturing ceded its place to services. In Britain, the birthplace of the Industrial Revolution, manufacturing’s share of employment peaked at around 45% before World War I and then fell to just above 30%, where it hovered until the early 1970’s, when it began a precipitous decline. Manufacturing now accounts for slightly less than 10% of the workforce.
All other rich economies have gone through a similar cycle of industrialization followed by deindustrialization. In the United States, manufacturing employed less than 3% of the labor force in the early nineteenth century. After reaching 25-27% in the middle third of the twentieth century, deindustrialization set in, with manufacturing absorbing less than 10% of the labor force in recent years.
In Sweden, employment in manufacturing peaked at 33% in the mid-1960’s, before falling to the low teens. Even in Germany, often regarded as the strongest manufacturing economy in the developed world, manufacturing employment peaked around 1970, at close to 40%, and has been steadily declining ever since. As Harvard University’s Robert Lawrence has argued, deindustrialization is common and predates the recent wave of economic globalization.
Only a few developing countries, typically in East Asia, have been able to emulate this pattern. Thanks to export markets, South Korea industrialized exceptionally rapidly. With manufacturing’s share of employment rising from the low single digits in the 1950’s to a high of 28% in 1989 (it has since fallen by ten percentage points), South Korea underwent in three decades a transformation that took a century or longer in the early industrializers.
But the developing world’s pattern of industrialization has been different. Not only has the process been slow, but deindustrialization has begun to set in much sooner.
Consider Brazil and India, two emerging economies that have done comparatively well in the last decade or so. In Brazil, manufacturing’s share of employment barely budged from 1950 to 1980, rising from 12% to 15%. Since the late 1980’s, Brazil has begun to deindustrialize, a process which recent growth has done little to stop or reverse. India presents an even more striking case: Manufacturing employment there peaked at a meager 13% in 2002, and has since trended down.
It is not clear why developing countries are deindustrializing so early in their growth trajectories. One obvious culprit may be globalization and economic openness, which have made it difficult for countries like Brazil and India to compete with East Asia’s manufacturing superstars. But global competition cannot be the main story. Indeed, what is striking is that even East Asian countries are subject to early-onset deindustrialization.
Consider China. In view of its status as the world’s manufacturing powerhouse, it is surprising to discover that manufacturing’s share of employment is not only low, but seems to have been declining for some time. While Chinese statistics are problematic, it appears that manufacturing employment peaked at around 15% in the mid-1990’s, generally remaining below that level since.
China is a very large country, of course, with much of its workforce still in rural areas. But most migrant workers now find jobs in services rather than in factories. Similarly, it is extremely unlikely that the new crop of manufacturing exporters, such as Vietnam and Cambodia, will ever reach the levels of industrialization attained by the early industrializers, such as Britain and Germany.
An immediate consequence is that developing countries are turning into service economies at substantially lower levels of income. When the US, Britain, Germany, and Sweden began to deindustrialize, their per capita incomes had reached $9,000-11,000 (at 1990 prices). In developing countries, by contrast, manufacturing has begun to shrink while per capita incomes have been a fraction of that level: Brazil’s deindustrialization began at $5,000, China’s at $3,000, and India’s at $2,000.
The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence with the advanced economies. Manufacturing industries are what I have called “escalator industries”: labor productivity in manufacturing has a tendency to converge to the frontier, even in economies where policies, institutions, and geography conspire to retard progress in other sectors of the economy.
That is why rapid growth historically has always been associated with industrialization (except for a handful of small countries with large natural-resource endowments). Less room for industrialization will almost certainly mean fewer growth miracles in the future.
The social and political consequences are less fathomable, but could be equally momentous. Some of the building blocks of durable democracy have been byproducts of sustained industrialization: an organized labor movement, disciplined political parties, and political competition organized around a right-left axis.
The habits of compromise and moderation have grown out of a history of workplace struggles between labor and capital – struggles that played out largely on the manufacturing shop floor. Given premature deindustrialization, today’s developing countries will have to travel different, as yet unknown, and possibly bumpier paths to democracy and good governance.( By Dani Rodik, Princeton University)

19 comments:

Colby Stover said...

Early industrialization was the major factor behind the economic success of many wealthy nations. Countries experiencing rapid economic growth eventually peaked and then started to decline, known as deindustrialization. Current developing nations are now starting to reach their peaks, then switch to a service economy. Nations like these hope to run their economy through trade in services. But, these nations are switching to service economies at a too low level of income causing manufacturing to decline, thus deindustrialization. This "pre" deindustrialization of developing nations may not even help their economy in the future due to the lack of manufacturing.

Mary O'Shea said...

Industrialization is a major building block of success in nations. Countries such as North Korea, Sweden, East Asia, Brazil, India and even the United States all had rapid economic growth, that hit a downward spiral after it peaked, known as deindustrialization. For example, America's peak reached 25-27% in the middle third of the twentieth century. However, when deindustrialization set in, manufacturing absorbed less then 10% of the labor force. Industrialization is an important factor to have in our society. Less room for industrializations will none the less mean less economic success that will have a domino effect on the people in society that could be you or me. Industrialization helps sustain labor movements, political parties, and political competition to name but a few. It is park of the building blocks of society and is vital to help keep nations in good economic standing.

Ashleen Ulysse said...

Industralization is a key element in the advancement of a nation.Countries like the U.S., India, Brazil, and East Asia have such a quick growth in economy due to its industralization. However, the perks of industrialization don't last forever. At the peak of industralization, what is known as deindustrialization sets in and that is when the economic growth begins to decline. I do believe that the industrialization of a country is vital to maintain the society and all of its people.

Kenneth Belle said...

Industrialization is one of the reasons America is where its at today. One of the biggest reasons America won the second world war and became a major country in the world was because of the fact we were industrialized and had major advancements with technology. I believe industrialization will only end up getting better and helping the country and will remain as an economic booster for years to come.

Anthony Rocco said...

Once the Industrial revolution came around, almost every country started Industrialization. The future looked bright for these countries, but instantly the reverse factor hit, deindustrialization. Countries like the U.S, India, East Asia, Brazil, and Germany all had peak industrialization jobs around the 1960's-80's. But ever since then they have been on the decline. It is not exactly sure why the countries have started to decline, but my guess for the U.S.'s decline is that recently, the common logic is that everyone has to go to college to get a degree for a good job. In a lot of the industries today, you don't need a degree, so people mindset is why would they get a job where they don't need a degree when they worked so hard to get one? Now a days everyone wants to be doctors, lawyers, cops, etc. because they worked hard for their degrees and they pay a lot more then industrial jobs.

Kenneth Reilly said...

It seems that technology is catching up to pre-industrialized countries. when the leader countries like Europe and America began to advance in standard of living, technology increased, and the need for manufacturing declined because technology began to replace manual labor. People were then forced to become more educated and have skills for services. This leads to greater education demanded for high level jobs and in follower countries, they seem to be skipping the step of manufacturing because of the technologies that leader countries have made. It is easy for these countries to get this technology and now that they have it the demand for manual workers is less and less. This is a global thing that seems to be unavoidable and the repercussions of this may or may not be bad for the economy. Other countries won't establish policies like we have for manufacturing of goods which is a flaw in their government.

Matthew Ramos said...

The industrial revolution created a rapid increase in economic growth in many countries throughout the world. The article “Premature Deindustrialization” makes a good argument; developed countries as well as developing countries have experienced economic growth because of industrialization, but now have experienced a decrease in industrialization. It seems that the world economies have reached their limit of economic growth created by industrialization. Economists’ for-see a period of de-industrialization, and this could have a significant impact for the economic status of developed and developing countries. I think that a technological advance is the only thing that could lead to another rapid increase in industrialization. For example, if nuclear energy was to be used for powering factories, this source of energy would allow the same production of goods at a fraction of the cost, which would then make products more affordable to the general public, thus increasing demand. The industrial revolution was started because of technological advances such as the creation and use of the steam-powered engine. I believe that technology is the only answer to increasing industrialization.

Maria Biondi said...

The path of industrialization is a very important path for different countries. With industrialization for richer economies also comes deindustrialization. I learned from this article it is very difficult for countries to overcome deindustrialization but countries such as East Asia were able to get away from this trend by "economic openness and globalization." I feel that it is important for industrialization to occur for an economy especially if that economy wants to make its way to knew and better things. Industrialization is a prime factor in making the United States a better country. I believe that one of the ways industrialization can occur is for new and improved things to come out. Unlike under developed countries its harder for a country like the U.S to develop when we are already one of the most developed countries.

Nicholas Beato said...

The growth of many nations was due to the creation of industrialization. Industrialization was the building block to a better economy and growth of countries. I found it interesting t know that the labor movement during industrialization had led to mass politics and to ultimately create the political democracy. I had also found that other countries other then the U.S. have been facing similar manufacturing troubles with the cycle of industrialization followed by deindustrialization. Deindustrialization is hitting countries that not as developed as others. In saying that I do agree with Robert Lawerence's opinion that deindustrialization is starting to become common due to globalization. Globalization is making it hard for less developed countries to compete with the powerhouse of manufacturing.

Alexa Piccoli said...

The trend in today’s society is the deindustrialization of economies. After their rapid growth more of the emerging economies are declining just as fast. For develpoping countries this is a problem because they have significantly lower levels of iincome. Manafcutring industries accounted for much economic growth arenot steadlity declining and the effects could be bad. Industralization has been a major part of economies all over the world throughout history and now that is it a time of deindustrialization we have to ask ourselves whats next.

Anonymous said...

Lucy Di Froscia said...
This is a great topic because it shows how important industrialization is for a country in terms of developing. Even though, industrialization kind of take too much space, it has its advantages and disadvantages. Since Industrialization started people have more organization of labor, new work disciplines, skills specialization, transportation system, manufacturing technologies etc. This was important for urban life, social class, Family life, standards of living and society as a whole. I believe some disadvantages of industrialization are environmental and social issues. Environmentally because industrialization do both, pollutes the environment and depletes its resources. And socially because industrialization changes a country in many ways. Typically, there comes to be less security for workers, and less continuity with the past. People move to cities, breaking family ties. The term deindustrialization has been used to describe the decline of labor intensive industry in a number of countries and the flight of jobs away from several cities. This article specifically talk about how deindustrialization has affected many countries already but as the Harvard University’s Robert Lawrence says, deindustrialization is common and predates the recent wave of economic globalization. At the same time, if there is less room for industrialization this will almost certainly mean fewer growth visions and innovation in the future. Therefore, industrialization is necessary for the growth and well been of a country as a whole. But at the same time there should be a way for the environment and social life issues that comes with industrialization, not to keep deteriorating.

Joanna Pizzurro said...

The industrial revolution marked one of the biggest changes in not only The United States, but countries all around the world. This is an interesting topic because it shows how much of an impact industrialization has made. During the 60's-80's, The Unites States was growing as a whole. Since it was a newly found area, it needed new buildings and products to maintain a strong economy. Although the industrial revolution had many advantages, it also created disadvantages too. The factories created a numerous amount of jobs for people who needed to support their families. But it was also horrible hours, bad conditions, and created environmental issues. I feel as though when the time generation changes, so does the ability to build up a new civilization. Like i stated before, the industrial revolution was the building of a new wave of civilization. Years from now there will be new ways of living, which is going to cause the change in our surroundings. This spark is going to cause more jobs for people in order to update the world around us.

Dominic Gomez said...

Whether a country begins industrializing in the 18th or 21st century, they will go through the same basic process; rapid growth followed by deindustrialization. An economy can only grow for a limited amount of time; it will always reach a point where it cannot innovate as quickly anymore. Countries that are industrializing today have two disadvantanges to countries that were industrializing two hundred years ago. first, because the technology is already in existence, countries that begin industrializing now go through the process much quicker, and, therefore, begin deindustrializing earlier. secondly, as the article stated, when the developing countries begin industrialization their per captia incomes are substantially lower than they were for the developed countries when they begun deindustrialization.

Christina Sassone said...

In our economy over many years we have experienced a boom and bust system. This system demonstrates how the economy will reach its peak and then spiral downward. This idea of industrialization follows the same concept. When industrialization reaches its peak it begins to decline and enter the stage of deindustrialization. Industrialization has made a huge impact on our world economically. The most industrialized nations seem to have the most power such as the USA and China. Industrialization can have a very positive effect because it creates new jobs, but when it goes into the deindustrialization phase the unemployment rate goes up.

Anthony Caronia said...

It's interesting to see the statistics that outline employment pertaining to deindustrialization in the United States, especially considering how industrial oriented we are as a nation. However, it makes sense because much of our means of production are accomplished by machines rather than labor. Additionally, it's understandable that such nations' decline in manufacturing-related employment is a result of a shift towards service oriented work, although the change occurred more rapidly than it did in the United States. Even though this could potentially decelerate the establishing of democracy, 200,000 jobs a year are lost in the United States alone to outsourced manufacturing jobs.

Tiffany Pabon said...

Industrialization has been what enables countries to advance economically in the future. Industrialization allows many countries to experience economic growth at a faster pace. Many if the developed countries like the US, England, and Germany have reached their peak in industrialization years ago and ever since have declined industrialization. They are now all deindustrialized. Now developing countries are about to or either have begun to deindustrialize. After many countries deindustrialized they follow suit as the countries before them and they become service economies.

Bakhoya Mangoli said...

Industrialization was a major factor to show weather or not you nation has advanced and could stand up with and against the other power countries. Industrialization took place of physical labor and made the work force much easier and safer but with that it also took away many jobs that people depended on for daily living. Thats where deindustrialization steps in where its a process of social and economic change caused by the removal of industrial capacity or activity in a country. To ensure economic stability with the workforce, more people need back their jobs that the machines took.

Matt Corrie said...

This article is very interesting because it discusses how industrialization is what helps develop and advances a countries economy. Economic growth is also closely connected to industrialization and it helps it grow at a faster rate. The industrial revolution is what helped develop the united states economy. The idea behind our economy is that we have a boom or bust system. In this type of system it states how your economy will reach a peak and then spiral down from there. Industrialization happened for the united states before most countries and now that everyone is catching up to the united states we are starting to deindustrialize which brings up the interesting question of what come next?

Rich Gordon said...

Industrialization is a very important factor of economic growth and stability. The Industrial Revolution in the U.S is what turned us into an economic powerhouse throughout the 20th century. Even though our country has been deindustrializing, we still produce product to further progress our countries growth. China is considered the industrial powerhouse. This is actually not a good thing. The United States buys most of the products that are produced in China for our country. A great way to fuel our economy and stimulate massive growth is to start manufacturing and producing with in the borders.