Deindustrialization

Further information: Deindustrialisation by country

Bethlehem Steel plant in Pennsylvania, USA went bankrupt in 2001, and has since been demolished to build the Sands Casino.

Deindustrialization or deindustrialisation is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It is the opposite of industrialization.

Multiple interpretations

There are multiple interpretations of what this process is. Cairncross (1982) and Lever (1991) offer four possible definitions of deindustrialization:

1. A straightforward decline in the output of manufactured goods or in employment in the manufacturing sector. This, however, can be misleading because short-run or cyclical downturns may be misinterpreted as long-run deindustrialization
2. A shift from manufacturing to the service sectors, so that manufacturing has a lower share of total output or employment. This may also be misleading, however, as such a shift may occur even if manufacturing is growing in absolute terms
3. That manufactured goods comprise a declining share of external trade, so that there is a progressive failure to achieve a sufficient surplus of exports over imports to maintain an economy in external balance
4. A continuing state of balance of trade deficit (as described in the third definition above) that accumulates to the extent that a country or region is unable to pay for necessary imports to sustain further production of goods, thus initiating a further downward spiral of economic decline

Colonization of different Asian countries by European powers between 18th-20th centuries led to fall in manufacturing and further fall in global GDP share of Asian countries mainly India, China and South-East Asia.

Explanations

Theories that predict or explain deindustrialization have a long intellectual lineage. Rowthorn (1992) argues that Marx's theory of declining (industrial) profit may be regarded as one of the earliest. This theory argues that technological innovation enables more efficient means of production, resulting in increased physical productivity, i.e., a greater output of use value per unit of capital invested. In parallel, however, technological innovations replace people with machinery, and the organic composition of capital increases. Assuming only labor can produce new additional value, this greater physical output embodies a smaller value and surplus value. The average rate of industrial profit therefore declines in the longer term.

Rowthorn and Wells (1987) distinguish between deindustrialization explanations that see it as a positive process of, for example, maturity of the economy, and those that associate deindustrialization with negative factors like bad economic performance. They suggest deindustrialization may be both an effect and a cause of poor economic performance.

Pitelis and Antonakis (2003) suggest that, to the extent that manufacturing is characterized by higher productivity, this leads, all other things being equal, to a reduction in relative cost of manufacturing products, thus a reduction in the relative share of manufacturing (provided manufacturing and services are characterized by relatively inelastic demand). Moreover, to the extent that manufacturing firms downsize through, e.g., outsourcing, contracting out, etc., this reduces manufacturing share without negatively influencing the economy. Indeed, it potentially has positive effects, provided such actions increase firm productivity and performance.

George Reisman (2002) identified inflation as a contributor to deindustrialization. In his analysis, the process of fiat money inflation distorts the economic calculations necessary to operate capital-intensive manufacturing enterprises, and makes the investments necessary for sustaining the operations of such enterprises unprofitable.

Institutional arrangements have also contributed to deindustrialization such as economic restructuring. With breakthroughs in transportation, communication and information technology, a globalized economy that encouraged foreign direct investment, capital mobility and labor migration, and new economic theory's emphasis on specialized factor endowments, manufacturing moved to lower-cost sites and in its place service sector and financial agglomerations concentrated in urban areas (Bluestone & Harrison 1982, Logan & Swanstrom 1990).

The term de-industrialization crisis has been used to describe the decline of labor-intensive industry in a number of countries and the flight of jobs away from cities. One example is labor-intensive manufacturing. After free-trade agreements were instituted with less developed nations in the 1980s and 1990s, labor-intensive manufacturers relocated production facilities to third world countries with much lower wages and lower standards. In addition, technological inventions that required less manual labor, such as industrial robots, eliminated many manufacturing jobs.

See also

• Jobless recovery
• Reindustrialization
• Post-industrial society
• Urban decay
• Industrial revolution
• The End of Work
• Rust Belt
• Dutch disease

Further reading

• Afonso, A (2005) "When the Export of Social Problems is no Longer Possible: Immigration Policies and Unemployment in Switzerland," Social Policy and Administration, Vol. 39, No. 6, Pp. 653–668
• Baumol, W J (1967) ‘Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis’ The American Economic Review, Vol. 57, No. 3
• Boulhol, H (2004) ‘What is the impact of international trade on deindustrialisation in OECD countries?’ Flash No.2004-206 Paris, CDC IXIS Capital Markets http://en.wikipedia.org/w/index.php?title=Deindustrialization&action=edit&section=21
• Brady, David, Jason Beckfield, and Wei Zhao. 2007. “The Consequences of Economic Globalization for Affluent Democracies.” Annual Review of Sociology 33: 313-34.
• Bluestone, B. and Harrison, B. The Deindustrialization of America: Plant Closings, Community Abandonment and the Dismantling of Basic Industry. New York: Basic Books, 1982.
• Cairncross, A (1982) 'What is deindustrialisation?' Pp. 5–17 in: Blackaby, F (Ed.) Deindustrialisation, London: Pergamon
• Cowie, J.,Heathcott, J. and Bluestone, B. Beyond the Ruins: The Meanings of Deindustrialization Cornell University Press, 2003.
• Central Intelligence Agency. 2008. The CIA World Factbook
• Feinstein, Charles. 1999. “Structural Change in the Developed Countries During the Twentieth Century.” Oxford Review of Economic Policy 15: 35-55.
• Fuchs, V R (1968) The Service Economy New York, National Bureau of Economic Research
• Lever, W F (1991) ‘Deindustrialisation and the Reality of the Post-industrial City’ Urban Studies, Vol. 28, No. 6, Pp. 983-999
• Goldsmith, M and Larsen, H (2004) "Local Political Leadership: Nordic Style." International Journal of Urban and Regional Research Vol. 28.1, Pp. 121–133.
• Koistinen, David. Confronting Decline: The Political Economy of Deindustrialization in Twentieth-Century New England. (University Press of Florida, 2013)
  • • Koistinen, David. "Business and Regional Economic Decline: The Political Economy of Deindustrialization in Twentieth-Century New England" Business and economic history online (2014) #12
• Krugman, Paul. "Domestic Distortions and the Deindustrialization Hypothesis." NBER Working Paper 5473, NBER & Stanford University, March 1996.
• Kucera, D. and Milberg, W (2003) "Deindustrialization and Changes in Manufacturing Trade: Factor Content Calculations for 1978-1995." Review of World Economics 2003, Vol.139(4).
• Lee, Cheol-Sung. 2005. “International Migration, Deindustrialization and Union Decline in 16 Affluent OECD Countries, 1962-1997.” Social Forces 84: 71-88.
• Logan, John R. and Swanstrom, Todd. Beyond City Limits: Urban Policy and Economic Restructuring in Comparative Perspective, Temple University Press, 1990.
• Matsumoto, Gentaro. 1996. “Deindustrialization in the UK: A Comparative Analysis with Japan.” International Review of Applied Economics 10:273-87.
• Matthews, R C O, Feinstein, C H and Odling-Smee, J C (1982) British Economic Growth Oxford University Press
• OECD Stat Extracts (2008)
• Pitelis, C and Antonakis, N (2003) ‘Manufacturing and competitiveness: the case of Greece’ Journal of Economic Studies, Vol. 30, No. 5, Pp. 535–547
• Reisman, G (2002) Profit Inflation by the US Government
• Rodger Doyle, Deindustrialization: Why manufacturing continues to decline, Scientific American magazine - May, 2002
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• Sachs, J D and Shatz, H J (1995) ‘Trade and Jobs in US Manufacturing’ Brookings Papers on Economic Activity No. 1
• Vicino, Thomas, J. Transforming Race and Class in Suburbia: Decline in Metropolitan Baltimore. New York: Palgrave Macmillan, 2008.

Historiography

• High, Stephen. "The Wounds of Class”: A Historiographical Reflection on the Study of Deindustrialization, 1973–2013," History Compass (2013) 11#11 pp 994–1007; on US and UK; DOI: 10.1111/hic3.12099

External links

• "The Qualitative Shift in European Integration: Towards Permanent Wage Pressures and a ‘Latin-Americanization’ of Europe?", Erik S. Reinert
• De-industrialisation in Sub-Saharan Africa: Myth or Crisis?