Deindustrialization

Deindustrialization is the decline in industrial activity in a region, as manufacturing jobs as a share of total employment falls. Deindustrialization is caused by a number of changes in the economy. In general, deindustrialization proceeds when industrial activity is no longer profitable due to a variety of reasons, including:

  1. Automation. The number of jobs in the secondary sector (manufacturing) has been in decline because machines have taken the place of manual labor and employees have been laid off. The number of products made is still the same, but factories find it more profitable to use robots. The automotive industry, for example, now uses automated production lines with fewer workers than in the past.
  2. Competition from abroad. Many developed countries are unable to compete with the low labor costs in developing countries where goods are made at very low prices. For example, the clothing and textile industry is dominated by China, where exports tripled in the last two decades. Industries in developed countries will often outsource the production of all or part of their products to reduce costs.
  3. Environmental regulations and a shift to renewable energy sources has made some industries undesirable and the demand for the products has decreased. In the U.S., the coal mining industry is under threat as coal-fired power plants face pressure to close. When governments no longer support certain industries and raise environmental taxes, factories will close or move.
  4. Economic problems. In times of economic stress investments in upgrading and automation, or necessary imports to sustain production cannot be made. When industries do not have the money to stay competitive, they will have to stop production. A trade deficit will occur and bring the economy more out of balance and into a downward spiral.
  5. Wars and natural disasters can leave factories and neighborhoods beyond repair. More than a decade after hurricane Katrina, many factories still have not returned to New Orleans. Syria is massively deindustrialized during the ongoing conflict, due to international sanctions and displacement of people.
In Chicago, the tertiary sector (services — including the office jobs housed in the Willis Tower, background) has slowly replaced manufacturing jobs. The transition, however, has been difficult for many.

Relative deindustrialization

Deindustrialization does not always mean that a country’s economy is failing. Quite the opposite. Often, deindustrialization is an expected result of economic maturing and frequently occurs alongside rising living standards and growth in tertiary and quaternary industries. When an industrialized area becomes wealthier, the focus shifts to luxuries and services. The actual number of jobs in the manufacturing industry does not decrease, but because of an increase in tertiary and quaternary industries (services and information technology) the proportion of manufacturing jobs decreases. Deindustrialization due to social change and a developed economy is only relative; absolute numbers may be stable or even increase. Additionally, manufacturing on a global level has only increased over time; it has simply shifted from wealthier developed countries to those still developing.

In developed countries like Australia and the U.S., manufacturing as a share of the economy has declined, whereas services have expanded. Source: Reserve Bank of Australia.

Effects of deindustrialization

In the case of absolute deindustrialization, when production numbers decrease and factories close, there are obvious consequences for the local economy. When manufacturing jobs disappear, people move away. The ones that do stay and become unemployed may fall into poverty. The lack of demand for manufacturing employees and the high unemployment rate also has an effect on salaries. Well paid factories jobs have disappeared. The people who do manage to hold onto their jobs in manufacturing are often not paid a living wage. As a result, money spent on services and goods will also decrease and the whole region will be affected. Loss in tax revenue may cause infrastructure and public services to fall into disrepair.

Abandoned housing in North St. Louis city. Deindustrialization hit St. Louis and other “Rust Belt” cities hard. For much of the 20th century their economies were based primarily on manufacturing. Credit: Google Streetview.

A prominent example of deindustrialization and its effects are visible in the Rust Belt in the United States. Industrial cities such as Chicago, Detroit, Pittsburgh, St. Louis, and Cleveland were among the most prosperous cities in the country in the 1950s. Since the decline of the coal and steel industries, the cities are struggling. Chicago’s population went from 3.6 million in the 1950s to 2.7 million this year. Detroit had to file for bankruptcy in 2013. Once a booming city with 1.8 million inhabitants, the current 700,000 residents live among the abandoned buildings along unlit streets. Once people believe an area is in decline, it can snowball and investments are no longer made in the area.

On a social level, people have become frustrated and angry with local, state, and federal governments, which have not always been able to effectively address the issue. Residents are often mistrustful of large industrial companies who will choose their own profits over the welfare of their employees. They are desperate for work and live an impoverished life. The tensions in a deindustrializing region with a poor economic outlook can catalyze racism, crime, and populism in politics.

Reindustrialization

Investing in the growth of ‘green’ industries, as well as technology/bio-tech, is one strategy to maintain a robust economic base amid loses in heavy manufacturing.

There are no clear solutions to deindustrialization, because it is as much a natural process in the economy as the green revolution in agriculture and the industrial revolution were. It is the result of technological and economic development and free trade. It is easy to say that workers who have been laid off should find other work or move to other places, but it does not work that way. It will take time for cities and regions to fix their infrastructure, restructure their economy, and attract new industries.

One possibility to help revitalize cities of the Rust Belt is to develop new, green jobs. By investing in a growing industry that is also good for the environment and can employ industrial workers, green jobs could help revitalize local economies. Factory workers are needed to help build components of wind turbines, solar panels, and batteries, all without new formal education. Manufacturing jobs are still the backbone of the local economy in many parts of the world; every manufacturing job has the potential to create several supportive jobs in construction, retail, and a variety of other services. While it may not be possible to entirely halt the process of deindustrialization, it is possible for local communities to look forward and invest in the human and physical capital needed to compete in today’s modern economy.

Sources:

Hansen, Nicholas A. (2009) Shedding the Rust: Developing Green Jobs Policy in the Industrial Midwest
Kutscher, Ronald E. and Valerie Personick Deindustrialization and the shift to services
Rowthorn, Robert (1997) Deindustrialization: Its Causes and Implications
Crossman, Ashley (2017) 4 Reasons for Deindustrialization

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