Industrialization
Industrialization
EARLY THEORIES OF INDUSTRIALIZATION
EXPORT INDUSTRIALIZATION AND OTHER APPROACHES
Industrialization refers to a broad process through which industry displaces agriculture and assumes a dominant role in a society’s economy. It involves the extension of commodity production on a large scale and the emergence of wage labor as the principle mechanism for the organization of work.
Historically, this shift has often come with a number of concomitant changes, including the formation of a united territory, where the state either created a legal system to protect property rights or directed the industrialization process itself; an increase in agricultural productivity, allowing a surplus population move into industry; the diffusion of scientific knowledge and technological know-how; the creation of a workforce socialized into an ethos of time discipline; and a willingness of investors or the state to commit large funds to industry rather than to speculation, plunder, or military expenditure.
EARLY THEORIES OF INDUSTRIALIZATION
Industrialization began in Britain at the end of the eighteenth century, and it soon spread throughout Europe, North America, and Japan. However the process was profoundly uneven, particularly as countries combined elements copied from the more advanced regions with their own traditional social practices. In his classic 1969 account of the French “paradox,” Tom Kemp argued that while the Revolution of 1789 created the most favorable legal conditions for capitalist development, it also, ironically, allowed the peasantry to stay more rooted to the land and gave small-scale preindustrial forms of capitalism new opportunities for commercializing agricultural products. On a more general level, Alexander Gerschenkhron claimed that backwardness (essentially defined as a divergence from the British model) led to a “tension” that was only resolved when larger institutions such as banks intervened to mobilize scarce capital for an industrialization project. In the case of Germany, for example, the banks helped create an “organized capitalism,” through which investment was concentrated in coal mining, iron and steel-making, electrical and general engineering, and chemical plants. Earlier industries that had played a key role in Britain’s development, such as textiles, were of fringe interest because the banks strategically concentrated on new lead industries.
The pressure to industrialize, when combined with a scarcity of capital and a lack of domestic markets, also led to the intervention of another key player: the state. For Adam Smith and the neoclassical school, the only role assigned to the state was that of the famous “night watchman,” who patrolled the perimeter of the economy guaranteeing property rights and security. Subsequently, many writers have questioned this minimalist role. For Ernest Gellner, writing in the 1980s, the very social and geographical mobility that industrialization required forced the state to take measures to standardize the cultural outlook of its population through the introduction of national curricula in schools. Gerschenkhron went further, arguing that a stronger state role might be needed to break the barriers of stagnation. Merely providing the promise of rewards for entrepreneurial efforts might not be enough. Writing in a decade when China was still an impoverished rural society, he noted that “capitalist industrialization under the auspices of socialist ideologies may be, after all, less surprising a phenomenon than would appear at first sight” (Gerschenkkhron 1952, p. 25).
In what the American economist Paul Krugman has called the period of “high development theory,” in the late 1940s and 1950s, there was a consensus that a “visible hand” was necessary to propel a country towards industrialization. The Polish economist Paul Rosenstein-Rodan noted in 1943 that balanced growth and a “big push” were also required. Balanced growth was needed so that a complementarity of demand would reduce risk in investment. When investment occurred on a wide front, new producers could become each other’s customers, thus reducing the risk of not finding a market. In addition, the state had a key role to play in developing infrastructure and training a workforce. While the concept of “balanced growth” was questioned by Albert Hirschman in 1958, the consensus was that industrialization would emerge from increased savings directed by the government to industry.
DEPENDENCY THEORY
Outside the field of conventional economics, a more radical critique of Smith’s neoclassical model also developed. Starting with Raul Prebisch, who led the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) from 1948 to 1963, this critique emphasized the wider structural relationships into which poorer countries were inserted. Prebisch and the other dependency theorists claimed that the nations on the periphery were often forced to supply primary produce to metropolitan countries in return for industrial and consumer goods. Far from gaining a comparative advantage by specializing in exporting products where they had natural advantages, however, they had to produce ever more primary goods to obtain the same quantity of manufactured goods. The solution, according to Prebisch, was import substitution, through which tariffs are imposed on goods from industrialized countries so that a space can be created for domestic manufacturers to produce simple consumer goods.
Dependency theory took on a more radical direction in the hands of Paul Baran and Andre Gunder Frank. For Baran, dependency was characterized by a dual economy comprised of a large agriculture sector with extremely low productivity and a small industrial enclave that could not find a domestic market for its goods. Shifting Marx’s paradigm, Baran argued that a surplus was extracted from the peasantry and appropriated by landowners, moneylenders, merchants, and a mainly foreign capitalist class. These groupings had little interest in development and often functioned as a “comprador class,” siphoning off the surplus to foreign capital and gaining privileges as a result. The only solution was extensive state intervention to promote national development.
Frank agreed that the cause of underdevelopment was the extraction of a surplus by metropolitan countries. This, however, occurred primarily through trade itself, rather than through a dualistic structure of the economy. The trading relationship with the metropolis affected all sectors of society and led to the draining away of resources. There was no original state of underdevelop-ment from which such countries had to incubate; they were underdeveloped through coming into contact with the metropolitan powers. The route to development lay, therefore, in delinking from the world economy.
Not everyone, however, shared this pessimism about the dual-sector model in underdeveloped countries. For W. Arthur Lewis, who won the Nobel Prize in Economics in 1979, the dual-sector economy meant that the modern capitalist sector could draw on a relatively unlimited supply of labor from the more traditional sectors without having to raise wages significantly. This meant that it could expand until the absorption of surplus labor was complete. Adopting a pragmatic approach to the use of public and private enterprise in the modern sector, he argued that it could give a positive feedback to the traditional sector by, for example, creating markets for its commodities.
EXPORT INDUSTRIALIZATION AND OTHER APPROACHES
The demise of dependency theory coincided with the emergence of a number of newly industrializing countries, particularly the “Asian Tigers” of South Korea, Singapore, Taiwan, and Hong Kong. By seeking a niche in the world economy and opening their economies to foreign investment, these nations appeared to overcome the obstacles to development through adopting an export industrialization program. As a result, contact with the global economy did not intensify underdevelopment, but instead allowed them to rapidly industrialize.
As the process of industrialization has spread, however, some older predictions are also being questioned. According to Simon Kuznets’s famous hypothesis, economic inequality should increase during the early stages of industrialization because an income gap will grow between those in rural and urban areas. Over time, however, this inequality should decrease as mass education opens the possibility of a more meritocratic society. Yet while this may appear to have been the case up to the 1970s, there has been a return to growing levels of inequality since then. As outlined by Robert Pollin in Contours of Descent (2003), evidence from the United States indicates that the share of wealth held by the top 10 percent of the population has grown, and that the difference between the pay of the average CEO and that of the average employee has multiplied considerably.
DEINDUSTRIALIZATION
Current debates also focus on deindustrialization. According to Robert Rowthorn and Ramana Ramaswarmy, the share of employment in industry in the twenty-three most advanced countries declined from 28 percent of the workforce in 1970 to 18 percent in 1994. The growth in services and the development of a “knowledge society” has led many to argue that the transition to a postindustrial society has already occurred. However, this ignores the fact that modern societies continue to rely heavily on mass-produced goods, and it fails to explain how most foreign direct investment (FDI) is still going to the advanced industrial economies, rather than to those with an abundance of cheap labor. The rise in employment in services may, in fact, be the result of the relatively slower growth of labor productivity in that sector when compared to manufacturing. The process of industrialization, therefore, appears to still have a long way to go.
SEE ALSO Dependency Theory; Developing Countries; Development Economics; Economic Growth; Frank, Andre Gunder; Industry; Knowledge Society; Lewis, W. Arthur; Modernization; Prebisch-Singer Hypothesis; Terms of Trade; Unequal Exchange
BIBLIOGRAPHY
Baran, Paul. 1957. The Political Economy of Growth. New York: Monthly Review Press.
Frank, Andre Gunder. 1967. Capitalism and Underdevelopment in Latin America. New York: Monthly Review Press.
Gellner, Ernest. 1983. Nations and Nationalism. Ithaca, NY: Cornell University Press.
Gerschenkron, Alexander. 1962. Economic Backwardness in Historical Perspective. Cambridge, MA: Belknap Press.
Hirschman, Albert O. 1958. The Strategy of Economic Development. New Haven, CT: Yale University Press.
Kemp, Tom. 1969. Industrialization in Nineteenth-Century Europe. London: Longmans.
Krugman, Paul. 1992. Toward a Counter-Counter-Revolution in Development Theory. In Proceedings of World Bank Annual Conference on Development Economics, 15–38. New York: Oxford University Press.
Kuznets, Simon Smith. 1965. Economic Growth and Structure. New York: Norton.
Lewis, W. Arthur. 1954. Economic Development with Unlimited Supplies of Labour. The Manchester School of Economic and Social Studies 22 (May): 139–191.
Lewis, W. Arthur. 1979. The Dual Economy Revisited. The Manchester School of Economic and Social Studies 47 (3): 211–229.
Pollin, Robert. 2003. Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity. London: Verso.
Rosenstein-Rodan, Paul. 1943. Problems of Industrialization of Eastern and Southern Europe. Economic Journal 53: 210–211.
Rowthorn, Robert, and Ramana Ramaswarmy. 1997. Deindustrialization: Causes and Implications. IMF Working Paper. Washington, DC: International Monetary Fund.
Roxborough, Ian. 1979. Theories of Underdevelopment. Atlantic Highlands, NJ: Humanities Press.
Kieran Allen