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Concept
Deindustrialization
Summary
Deindustrialization 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 of heavy industry or manufacturing industry.
There are different interpretations of what deindustrialization is. Many associate American deindustrialization with the mass closing of automaker plants in the now so-called Rust Belt between 1980 and 1990. The US Federal Reserve raised interest and exchange rates beginning in 1979, and continuing until 1984, which automatically caused import prices to fall. Japan was rapidly expanding productivity during this time, and this decimated the US machine tool sector. A second wave of deindustrialization occurred between 2001 and 2009, culminating in the automaker bailout of GM and Chrysler.
Research has pointed to investment in patents rather than in new capital equipment as a contributing factor. At a more fundamental level, Cairncross and Lever offer four possible definitions of deindustrialization:
A straightforward long-term decline in the output of manufactured goods or in employment in the manufacturing sector.
A shift from manufacturing to the service sectors, so that manufacturing has a lower share of total employment. Such a shift may occur even if manufacturing employment is growing in absolute terms
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
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.
Theories that predict or explain deindustrialization have a long intellectual lineage. Rowthorn argues that Marx's theory of declining (industrial) profit may be regarded as one of the earliest.
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